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)it;

MISC.
B
(MISC. 140 d.1-1814-7-60)

Friday
April

1924

Thorpe Lodge
Campden Hill, W. S.

Dear P.J.

My trip over was quiet, uneventful, and much of it
Cs spent in my bunk resting.

I did manage before leaving to

pick up a slight sore throat and as the weather here has been
usually raw with a cold East wind, I have been conservative.

Stopped in the house and most of the time in bed until time to
Shall probably not go to the bank until

ss for dinner.
day.

So far,

I gather the following picture from the press

and from Norman.
Politics.

pill)
well

The Labor Government was doing surprisingly

until the "housing of unemployed" question was forced and

a bill proposed suspending the right of eviction and putting the
loss on the landlord unless his fire happened to be as bad as
the tenant's.

This united the Liberal and Conservative parties

and would have turned the Government out on a vote, had they not
allowed the bill to be "talked out" under one of the ridiculous
old parliamentary rules which both avoids a vote and a back down.
But they are all being laughed at, which is ominous.
Business.

There is undoubtedly a gradual improvement.

Hard to say how much, but sufficient to reduce the registered
unemployment to slightly over one million, about two thirds of
the recent high figure.




But the advent of a Labor Government

MISC.1ft6B
(MISC. 14013 1-1BM-7.70)

2

has made the unions greedy and notwithstanding unemployment,
strikes are in prospect, or imminent in many quarters.

It will

either prove most awkward for the new Government or (as most
surmise) they will allow demands not justified by conditions
and cause what Norman fears will be a "spending inflation."
The "Commission".

I am growing fearful of a report

which one or the other party cannot or will not accept.

Germany may be asked to do more than can be done without a
renewal of all the disorders of the past few years.

They 'phoned

from Paris asking me to go over for a chin, but I said
thing doing"--for reasons good enough!
Gold.

A heavy subject.

Norman agrees with me that

the Services are about dried as outside new production.

pip

But the

outh African mines, reports from which have just appeared, show

good profits last year, and some high records, with production
increasing and wages all down again.

The Bank has about 60 million

erling in escrow for the rest of the world, mostly advance
___-- -

reserves of one sort or another, which we are not likely to get.
reserves

Nothing yet changes my view that outside new production, of
which 2/3 is free to come to us, only a French breakdown or
British debt payments can greatly increase my estimates of say
2/3 of world production.
The Bank.

Since my last visit to Londson, curious as

it may be, the old Lady has been gradually forced into an investment policy almost identical with ours.
shorter, and yet surprisingly large.




Their "swing" is

Now, at times 30 and even

MISCAlleB
(MISC. 1400 1-18M-7-.59)

3

#!-

40 millions sterling, the centralized market enables them to
anticipate the Treasury turnover, while we follow it--on quarter
days.

I'm turning over in my mind some scheme for improving

our own technique.
Rates.

Norman faces the cry of the inflationist, and

anti-deflationist with astonishing equanimity.

British courage

..*-would we had more) and tradition are his great assets.

He now

considers that a-11 advance to 5% will be forced upon him by-(a)

The need for improving the exchange.

(b)

The possible "spending inflation" mentioned

(c)

The excessive foreign loans now taken eagerly by

ve, and

the market with rates so low.

[ID

e has some fear that if we lower our rate, say to four, it will

cause complaint that he is playing our hand too generously.

My

.yr

belief is that when alltiemployment gets below say one million, he
'

1 go to 5% but will still be influenced by continental con-

ditions following the Dawes report.
ditions

It all strengthens my feeling,

however, that indications of slackening business at home will
(or may) justify our reducing to 4%.

Let us ignore politics and

act upon our convictions, but first get our investment account
up to a level where it will be effective when we see the need
for a check.

Schachts bank.

No definite credit of ten millions

or any other sum has been arranged in London.




For us to take

MISC.i*ee
0419C 140 El 1-101.1-75 Ol

4

bills as base described involves one considerable departure
from our present practice in that the acceptor will be neither
all American concern nor a foreign one domiciled in America.
That does not disturb me greatly, but it would be distinctly
bad to have the impression get about that we were a party to
transaction or had taken the first step in getting
behind
behind any plan for currency or monetary or credit reorganization
'n Germany or anywhere else in Europe.

That first step, when

taken, must follow real construction progress over here, which
Some German of more

not yet in evidence with a telescope.

bition than honesty could well picture an American "eligible"
credit as a real participation in a transaction by the F.R.

ystem, and that should not be allowed to happen.

If you do

plip
decide to make such bills eligible, see that it is understood
that we would not take them were our own wishes to be disregarded.
The franc.

My friends in Paris fear that the sharp

advance will be harmful--So do I!

It will lessen the submissive

attitude of the politician, reduce their expe\rts, and make a

balanced budget exceedingly difficult.

My friends on the corner

were not unaware of this possibility as I suggested to them the

need for some control of the "dealing", after credits were
opened, so as to avoid a policy of "

" toward

the States.

This is all I shall attempt now.
and expected at the Bank today or tomorrow.



Hard
My own plan

is to

MISC. leB
(MISC. 140 0 1-15M-750)

5

follow up a lot of matters in which we are interested, tuck them
away in my cranium, and take them home.

It is not likely that

I shall go to Paris at all, much as I would enjoy a visit with
old pals and dinner at "Voisuvis".
with much discretion.

Edit it for consumption with the elect

-s'Xd near elect!

With best to all,

(:(1/

0
P




This letter must be handled

B.S.

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MISC.

)B

(MISC. 140 0.1-18M-7-591

London
April 11, 1924

am.

Dear P. J.

The Southampton dock and shipyard strike caused the
Majestic and Mauretania sailings both to be changed, leaving no
boat until the Franconia (19th) and Olympic (23rd), which arrive
only a day apart.

I'm awaiting word as to which boat Basil Miles

will take, and shall wire you in a day or two what to expect.
gat -J-14-1

Owen Ettntre'll arrives here today, with Kinderslie, and
___,...4.7e shall

have an interesting talk.

I had an interesting visit also with Niemeyer and
wtrey, of the Treasury.

They were most complimentary re-

,ding the F.R. Board's annual report as were Kid* of the
,,

"Morning

pip

C--

_))at"

and Mill of the "Times".

They seem to think that it

finally tells them something.

As to monetary matters, one finds at the extreme "left"

Keynes, Adams, etal., in the middle Hawtrey, Cannan, and others
rather better standing in the city than the former--and the

o

extreme "right" led by our Stewart Addis who thinks English prices
must come down further if they are to regain their trade.

All

k

but Norman seem to have adopted the "purchasing power parity"
doctrine--and think that a 12% increase in our price level will
cause a 12% increase in the Xto par with us), whereupon we could
\

lose gold to much of the world and our troubles (and theirs) would
be over.

But there are other factors, which I find Norman

appreciates better than most--and first of all is the "report ".

However, the problem remains that our prices must advance or
thus decline before Sterling can recover and retain par with the




MISC.

B

2

(MISC. 1408.1-1BM-7-59)

dollar.
41

Probably the middle ground will be found in time,

whereupon the bank rate and general interest rates here must be
advanced and held above ours to prevent foreign loans hitting
Sterling too hard.

Meantime our policy at home should be to take advantage of the hesitation of business and tendency to lower prices,
to build up that investment account.

Only by that will we avoid

complete loss of influence in the market.

If the Treasury objects,

representations must be made to Mr. MilleZthat will convince him.

I explained something of the recently deceased "reserve"

...--....//

lan of Dr. Miller, to Norman, and he at once threw up his hands
arking, "That would mean disaster to you and me!"
Very confidentially, I have a strong conviction, after

an all afternoon discussion with Norman,

ea.t.414m-and Addis

the real ones here) that if the Dawes report is accepted, we
can find a way to deal with the London--New York exchange that
will finally do the job.

But it is all in future and depends

on that big "if".

Norman has been much harassed, I have been a bit seedy- -

so we have taken things easy and not gone out for dinner once
even--always have breakfast in bed--and one or twice dinner as
well.

What with Norman's "Amy" (housekeeper) and Mr. Ernest,

one would think we were two fragile infants.

We may be asked about a small advance or two on gold.
I have no praticulars but if it develops will cable you.

It

would be for one of the continetal banks of issue.
Later.

Have had a most illuminating visit with Young

and Kindersley--but it is too late to write any account of it.
I shall try to do so tomorrow.




Young tells me he may take the

B
MISC.
(MISC. 140 13.1-18M-7,59)

3

Levithan on the 22nd, and I may do the same.
My best to one and all at the bank.
As ever,
B.S.
-- ---...\

Excuse the paper--It is "easy" writing.

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pp




or

CONFIDENTIAL

Paris, 7 rue Monsieur, April 23, 1924,
to April 28, 1924.
Dear P. J.
In default of a more prompt verbal report, - delayed by my illness,
here are some of my impressions gathered in London and Paris.

-

They are high spots,

only, and the most important object of my trip whici has been accomplished, I can
only cover by discussion on my return.
The countryside, in South England, looks as before the ';,ar.

There is much

buildirg in evidence, all the farms, fences, roads and buildings look in first
class condition.

The same appearance impresses one in London;

traffic, much ne

building and renovating, streets in good order, and a general

appearance of activity.

enormous street

I saw nothing of the manufacturing districts in the north,

but the impression is general in the city that output, sales and trade are slowly
but soundly improving.
leading.

The figure of unemployment (registered) is regarded as mis-

;thile 1,100,000 are on the lists for doles, the enormous increase in woman

labor end the addition of the small income class no

forced into employment, might

account for the entire unemployment without reducing prewar effective labor totals.
"any mechanics, carpenters end masons are seeking to move to the United States, attracted by the high wages.

The neu labor government are facing a constantly increasing number of outlaw strikes or attempts to organize them without, union support, - the younger men

expecting sympathetic assistance from a labor government.
obtaining some wage increases and then return to work.

They usually succeed in

The vote on another coal

strike was too close to justify a walk out, and the wage question now goes to a
commission for irvestig5tion and adjustment.

The Labor Government has kept in the saddle by grace or support from a
large section of the Liberal Party, which has recently become an uncertain factor


http://fraser.stlouisfed.org/
Federal Reservebecause Louisdissent
Bank of St. of

within Liberal. ranks.

The new budget, to be introduced in a day

-2-

or two, may be their downfall, although the tradition is for a Government never to
risk defeat on budget proposals.

The annual report of the Federal Reserve board is very favorably commented
upon in London by both bankers and students.
Just, now England's problems are mainly three - outside of politics,
(1)

The high labor costs which restrict their markets, and their possible further

increase by strikes, etc.,
depreciation,

(3)

(2)

The exchange, both its fluctuation and its recent

The burden of taxes upon fill industry and private incomes.

The Bank of England has regained its position in the money market, long
ineffective due to war and post -war finance, by the development of a policy closely

resembling our OAM, but moreeffective because of the greater concentration and
better organization of the market at the one center, than is ours.

The bank's

policy will be governed by consideration of
(a)

The exchanges,

(b)

The extent to which they are over-burdened by foreign borrowings

(c)

The extent of unemployment,

(d)

The relation of their price level to ours - and our willingness to

in London,

act in concert with them.
(e)

Of this more anon.

The position of the currency note account ,hich promises to threaten

their reserve if the present Treasury minute (requiring bank note cover for issues
in excess of the previous year's maximum) is continued.

Most people fail to realize

that this plan operates upon the bank's reserves (in a domestic sense) exactly as
gold exports do.

On the whole, I was impressed as to the outlook in England having steadily
improved, but still more by the extent of their dependence upon us for a constructive
plan looking to monetary recovery and stability in England and Europe.



Cf this,

-3-

411

more later!

In France I have had little opportunity for observation;
with some Tell posted peorle.

Paris looks as before the war.

but have talked

There is not as much

building as in London, but I hear that business has been good, there is no unemploy-

ment, unless the army is considered as its equivalent, and the only obvious difference from pre-war days that I have noticed is the bad condition of all roads.

Un-

doubtedly Government economy is being forced upon them here by the disappointment

it

reparation recoveries from Germany.

The collapse and spectacular recovery of the franc has hurt their exporters
somewhat and fears are expressed that they present very favorable foreign trade showing cannot continue.
year.

On the other side is the enormous American travel here this

It will probably exceed all records.

The serious side to the increased value

of the franc is the fact that the budget calls for some thirty billions of taxes,
which might be no burden at 4

or even 5

a franc, but at over qe may be hard to col-

lect!

The only word I hear on the elections is that the country will support
Poincare and he is the only issue.

It is, by the way, generally understood that the loans to support the franc
have all been repaid in both New York and London and the bank of France is supposed
to have accumulated very large balances in London and some dollars - possibly considerable.

On the whole I should say that the business situation here - thanks largely

to travellers and luxury business - is good, and the great problem is that arising
from the sine of bad war and post-war finance;

namely, the topheavy debts.
Solution

of reparations will gradually put France back, but only if they have courage to
impose and collect adequate taxes so as to make debt refunding an early possibility.
The saving virtues of France are industry and thrift by all classes.




4

-4-

I hear much discussion of Germany, but not much real infbrmatior reaches
me.

They are certainlyin a sense whipped in the Ruhr, 5nd note

chance to catch their treath and try something new.

seem to welcome a

Curiously enough the leaders of

two most important sections of public opinion pass off the stage at the crisis,

Stinnes, leading industrialist, and Helfferich, leading imperialist, - both strong
and probably dangerous men in the present situation if in opposition to the Government.

Young can tell you the story of Germany better than anyone and I hope you

get him to do so.

The most momentous question before the world is nod the "Dawes" (Sic)
plan.Inadequate information both in New York and London gave me a rather strong
prejudice against the plan until I had read and studied the report and then discussed
it with Young and Logan.

It is a most ingenious and in some ways masterful hand-

ling of a situation which has always appeared to be "an irresistable force meeting
an immovable object."

It proposes impossible things and sets up alternatives to

employ when the impossibility has been demonstrated.

I like it, that is, in its

broad foundation, save in twy major respects and possibly three.

One is its failure

to adeuately protect the new currency - another is its failure to consider the
whole price problem inGermany, and the third ie what may prove the salvation or the
wrecking of the plan - i. e., the concentration in one body and lar-ely in one man,
of the management of "payments."

A man or superman of just the right qualifications

might make the plan a stunning success or er:ually a stupendous failure if he were
not the right man.

The plan does afford opportunity, at last, for France and

Englend to join hands and for Germany to make a sincere effort, in the direction of
good will and tranquility for a few years.

The scheme has, to my mind, certain very ingenious points and some doubtful ones, which it may interest you to discuss with Young.
let.

The amount Germany is to pay is a fixed sum to cover everything.

So military and all other costs come out of the budgets of the creditor nations



-5-

and not Germany.

It will make the "sanctions" more costly and so less popular in

France and Eelgium:
2nd.

It leaves the United States claims against Germany a bit uncertain

as to status and I hope will force our State Department to take a definite position
as to sharing in the German payments.
3rd.

The interval during which the plan is being organized, could not

well he financed - and the pressure upon Germany is growing to be so severe that

acceptance of the plan in toto is inescapable.
4th.

Otherwise another breakdown.

While the total reparations is not fixed, (and that point is much

criticised) the creditors can fix it by a simple decision to stop the annuity -

after a certain number of years - and the plan having avoided any change in the
total (for the moment) escapes the need for action on that point by both the Repara-

tion Commission and the interested governments, which might cause endless haggling.
5th.

The annual payments are between three and four times what Great

Britain now pays us, and are undoubtedly more than Germany can make, - at least 4or
a great many years.

It may on that account mislead the Frenci public into a false

sense of prosperity and another disillusionment.
6th.

The first two years are so safeguarded, that once the plan is

launced successftilly, there is a fine chance that the present tense public opinion will cool off before any crisis arises in the execution of the obligations
Germany assumes.
7th.

The bank scheme is open to some criticism, and yet almost every

point can be met if it has honest and capable management, - just as with our Federal Reserve System.
fer, and

I do not like the huge accumulation of funds pending trans_

fear that it means an inflation which will be very hard to control. The

bank may have a tendency to suck the country dry of liquid funds from time to
time, end then again to flood it.




0

-6-

One of the most excellent features of the plan is the debenture

lly the industrial.

It creates a class of non-political paymasters

to work out their own financial freedo41.

If properly set up by the bankers, the loan looks to me to be good

htest doubt, if any security is worth anything.

I shall not attempt

e security can be made unquestioned, as Young will explain.

Our bankers should assume the attitude, in general, of desiring to

ovided the plan is accepted, in toto, in good faith, and with satis-

e of good will justifying the hope or belief that all will try and

s, including Germany.

Nothing could be more harmAl than to have our leading bankers,
say publicly that we cannot make the loan until our war debt ques-

d, - or than to have a member of Lawes own organization, like Col.

criticise the plan on his return, as reported here.

ove are just a few rambling comments - a book could be written on

ogress toward acceptance of the plan is slow, - but the outlook

ion next week has improved in the last 24 hours.

hich means Poincare.

It all depends

I am rather more hopeful than at any time.

y's future, if the plan works, will be an interesting eubject of

ld surmise that her industrial plant, and organization are ready

vity.

Her leading men and business organizations undoubtedly have

oreign funds awaiting favorable indications for "repatriation."

omplish is probably much greater than usually understood, but it

eated were the price readjustments, including wages, to work out

adverse to her export position (which means competitive position

ns) or her bank to fail in stabilizing the currenPy

ulations, bad management, or otherwise.




because of

The gradual return of

-7-

foreign balances will be an insurance for a time, but when that is ended
- they

0

will reed to exercise great skill and courage to avoid inflation, and the Reparation Agent will be the one largely to decide.

He is "King" of the plan!

Now from the above you may gather that I am always considering our old
bugbear, "gold" and the gold standard - and how these new developments fit into
our picture.

This can only be written out, in the crudest sketch.

It is too com-

plicated for pencil and paper.
First, of course, all depends upon the fate of the Dawes' plan.

If it is

successfully launched I would look for two years or so during which Germany would
balance her budget and stabilize her currency, - it is not impossible that she

mi4lt take a little of our gold.

That would leave the pound and franc afloat.The

British would view (and do) the former with consternation.
complaisant.

The French will be more

So what is the problem as to dollars and pounds?

It seems to me to

have become simplified in so far as the urgency will grow in London to get back to
Orthodox ways as soon as possible;

and that feeling has gained a new impulse because

of the Dawes plan.
Without. elaboration, our interest lies in the earliest possible return

to the gold standard, by all the nations, especially Great Britain, so that we may
escape these arbitrary controls on which we no,N rely.

t4-igland's interest is to re-

turn to gold payment, for the ultimate benefit of her trade, and to facilitate paying her debt to us.

We should have little difficulty in arranging matters where

our interests are so mutually to be served by coTmon action to one end.
is to to be done?

But how

On the whole, I believe we must see London rates higher than

ours - our "prices" at least a bit higher, and Great Britain's

bit lower - and

at the proper moment, a. credit operation, secret at first, and only becoming public
when

is fairly close to par.

the job can be attempted.

My belief is growing that it will not be long before

I'll give you more details on my return, and as Prosper

said, "We'll see what we'll see."



-8-

If within ten years of our creation, the Federal Reserve System can

40

have accomplished the restoration of the gold standard, our first decade will have
justified itself.




Personal news on a separate sheet.
Yours,

(Signed)

B. S.







-3-

to shareyears which are toAgreement if "almost e
under Arnr Cost be expended ratified i

Paragraph (a) page 31 apparently cartem
gold marks.

Not yet clear whether any s

tion other than in Kind. Payments app

reparation (See footnote Article 2 of Agr

that forfeit payments for restitution are
TilIaD.

Further question as to bear

Army Cost Agreernent on repartit ion propo

decide whether it desires to claim share

used for covering deliveries in kind., B

possibly current Army costs or other paym

FOU1151. With respect to claims one

separate array rnent with Germany. 'Jill

sibility that this policy might yield be
the A lies, it would involve great risk

feeling and endanger prospects of genera
of confidence in a settlement. .Notwith

Department will find. any tine mo /19 favo

American claims in Tiew of .references co

further in view of service rendered. by -.
renewed American interest in reparation

claimed in proposed (.3erman. payments, Un

with Germany that the la'.ter pay the Uni

ning perhaps in third or fourth year of
begin receiving some reparation other th

States to continue until to tal claim dis charged. One advantage of flat global
annual meet instead o f -alder the plan in fullpayments is that should. Germany mt our
sum payments rercentage of annual nevertheless might continue paying

annual fixed sun on the ground that it was a liquidated amount under separate tr

rather than an integral part of scheme devised. prirraril,y under Treaty of Versai

It would be less objectionable to the Allies were the United States to grant tha

these payments would. nark rani passu with payment to them for all purposes othe

than army costs aril expenses of control.

The risk of an absolute limitation in

that sense is of course that the United States might find difficulty in getting
paid in full should the allied reraration policy continue to be such as to
prevent 'substantial payments( Germany cies-gooks
FLOM:.

cables.

The United. States might agree to credit on clam= the value of

In case this offers accounting difficulties the United States could

credit this sum on capital amount of allay costs.
Sr.LT.H.

Do not know what can be said as to disposition alien property,

matte

but presume Dcecutive rreanot commit the United. States to any

GT' 44

prii414iittely

,

Tne

AP C.49-t4,4,*'^-"Ot 4,

havever, might

14.,

.

Aeredicon iApeclaim the

value of any property of the German Government or States, also OF crecli

le valu

of arkv private property of German nationals that it may actually liquida e, ,f..a.r.b..
-ered-its--ber-be---e-Q1-4-4-rett-ted--frere--trie-tat.e.1-.01.5.4fri,

Unless possible political objec-

tions at hone should be too serious an obstacle and if there is arry possibility
of utilizing this property in ar way, consideration might be given to the
President reconrending to Congress use of this property under wither of the

following alternative plans:




(a)

',7aivin.g for the present questions of Possible technical legal







-5- to facilitate such compensation, it might be less objecti




-6-







marks yearly beginning perhaps in thi i3. or fourth year when other ipvernmer_ts




likely ever to be less than at this tine, when it nay be possible to negotiate




-4-

this property before seeking direct payment

40

bonds might not be readily marketable beca
their status.

If this suggestion at all p

compensation by 4ermany to owners should be
trial debentures under Experts' plan.
Yifth.

Since claims question has arisen,

unratified, particularly because as Depart

Wadsworth neg-)tintions Allies indicated ob

payment army costs under Agreement and at
direct from Germany.

Allied view not off

confidential information recently obtained

either should utilize alien property or be
twenty or thirty years.

Under the circums

only German calim and not army costs, some
Army Cost .greement unratified.

Theref.)

might well reaffirm that the United States
that Agreement.

It would. be particu-arly

be made integral part of any new agTeement
effective at the same time.

A possible o

claims matter be introduced both claims an

.by the Allies and hence might appear large
resistance.

Question presented whether the Un

silare under Army Cost Agreement if ratifie

years .%;iiicia are to be expended "almost exc

-S-

OParagraph (a) page 31 apparently contemplates possible trqnsfer abroad
200,000,000 gold marks.

Icredited

Not yet clear whether any such payments would be

as repar,,tion other than in Kind.

Payments applied to clearing

houses are obviously not reparation (See footnote Article 2 of Agreem,:nt).
orfeit payments for restitution are not

bearing of principle embodied Article 3

n proposed German loan.

The United States

claL:i share in this loan, which otherwise

ies in kind, British lieparation Recover;, Act,

r other payments.

t agree to credit on claims the value of cables.

ffic,lties the United States could credit this

ts.
foregoing points Allies likely to raise

aims of value of German ships tacen ov,r by

estion raised in Army Cost Conference.

I

ns as to response to be made on this point in
On Army costs our claim was against Allies

they had already received our army costs.

As

h are against Ger;;.any direct, Allies will

n property seized by us and pervanently retain-

against capital amount.

Also in case we agree

will be necessary to explain why we credit one

presented whether the Executive is competent

an claim.

Have noted your statement that the

er certain cate-ories on which the Allies have







-6insisted.

AP

In this connection may mention purely f

information and not for use in any discussions that
Dele 'ations here has calculated that Germany's debt

132 billions were claims for pensions and sep:zation

Department will note that under Ilxperts' plan capita

may be less than 53 billion.

I.:Aftiithstanding the

did not insist on certain categories it may be antic

disposed to admit United States claim at all, will f

on an equal footing with the 132 billions for such s

necessary, holding the view that if the United State
was entirely its own responsibility.

ILPTITEr.

Desire to enphasize urgency of a prompt decision.

,cite possible

that unknown to the United States present and future conferences between govern-

ments nay frame up division of all the furrls Prior to meeting of finance
ministers' conference which would be only to confirm informal unclerstandinPs.
Such agreements among the governments when once reached are almost impossible

to upset.

In view of specific language of PAperts' report covering American

claim, quite possible that Allied Governments will act concertedly in preparing
measures to exclude tie United States, in which they have a common interest.

The efore believe it very important that

arican position be formulated at owe.

Of course there might be danger in introducing questions of repartition at
this stage, but the United States might at least inform the p;Dvenaments that it

expects to negotiate with them an agreement as to participation on a fair basis
4:444;Itat the same time theAview that this
in the payments in question,
4.44.C(t
question -ire-rlti.a49-1T-4e- be raised only after agreement has been reached.

between the Allies and Gemany on the basis of the Experts' report,

4- ivai

ete,44,e,

ht,att_

er-

Anticipate very strong opposition to Americbn claim on the

ground that the United States did not ratify the Treaty, that the United States
has not liquidated Germ= property, and that tie United 'States assures no
responsibility far enforcing payments under the Treaty while claiming its
advantages.

In case United States mates claim, believe therefore it should

be presented on broadest grounds of equity, avoiding discussion of technical
questions.




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S
IRE QUESTION OF DEBTS DUE TO THE UNITED STATES
WITH PARTICULAR REFERENCE TO EXPERTS' REPOR2S

The Experts' Reports contain certain principles Which have oeen
or may ue alleged to uear upon the settlement of inter-governmental debts.

I.

The limitation of payments to capacity, in the estimation of
which considu,ration is given to:
(a)
(b)

Balancing of budgets, and

(o)

II.

ComAensurate burden of taxation

Possiuility of Inter-National transfer of funds

Payments ought only to be made out of budgetary surplus, if
IinAncial and monetary stability is to be maintained.

III.

Exchange should be stabilized and maintained stable as a condition
of payment.

IV.

Reductions, in effect, of the capital amount of the debt, in

apdication of the principle of capacity.
V.

A moratorium to uermit of reconstruction; a foreLn loan to
facilitate reconstruction.

VI.

An index of prosperity, and orovision for modifying annual oayaents
if the gold prices change.

VII.

Gradual increasing scale of payments.

ADVANTAGES AID DISADVALTAGES OF A. PRO1PT SET' 'LE:LENT

70Th
I.

ADV,1NTAGES
(a)

Revenue from debts would permit lighter taxation.

(b)

Settle ent would remove friction end source of possible

- 2 -

(c)

If the United States waits, the British may settle debts owing
to them on a reduced basis, or they may wipe them out for a
quid pro quo.

In that event, it would be easier for the debtors

to pay the United States, whereas if an American debt settlement
is first made the debtors would feel bound to treat the British
dent on a line basis,

out :aight feel that the ourden would be

so great that they would be reluctant to rare any settlement with
the United :states.

II.

EUROPE
Advantages:
(a)

Would remove an uncertain element in their finance and
currency situation.

(b)

Would avoid the accumuiation of compound interest and
higher rates than those eventually payable.

(c)

Would help their credit by an evidence of economic
strength.

Disadvantages:
(a)

Would impose immediate burden.

(b)

Passage of time increases the chances of either cancellation
or settlement favorable to the deotors.
wry
compound interest accumulates, the gene

Even though
growth of the

debt goes to support the thesis that these governlents

cannot pay

vet
411.

THE DAWES PLAN AND AMERICAN CLAIMS AGAINST GERMANY.

Our claims fall into two classes:
Claim A:

Claim B:

II.

Army Costs.

Awards of Mixed Claims Tribunal for damages to person
and property.

Assuming that the Dawes Plan is to he rut into execution, the United States
has three alternatives with respect to collecting these claims:
(1)

(2)

To hold aloof, to insist on the ratification of the Wadsworth
Army Cost Agreement (See footnote), and to endeavor to collect
Claim B directly from Germany.

(3)

III.

To participate in the Flan, taking a fixed percentage, or
an annual lump sum, to be applied to both claims, or at all
events to Claim B.

To waive the claims.

The third alternative being unthinkable, the choice lies between participation and abstention.

IV.

Participation seems to be preferable, if not imperative, for the following
reasons:
(a)

The Plan appropriates Germany's maximum capacity of payment both her budgetary capacity and her transferrable capacity.

(b)

If the United States attempts collection outside the Plan,
either the collection or the Plan fails. The whole theory

By the Army Cost Agreement, Claim A may be paid by the Allies, if
Footnote:
ratified by France; but we would then indirectly enjoy the benefits of the Plan
because the Allies pay us only out of what cash they receive under the Flan.
Since the Army Cost Agreement is not yet ratified, the Allies, for all practical
purposes, will take this financial factor into account in dealing with us whether
we participate in the Dawes Plan or not. If we go in, they will either urge
that the Cost Agreement be discarded and everything taken from the sum allocated
to us, or they will use the Agreement as an argument for keeping our percentage
If we hold aloof, they may condition ratification upon our agreeing not to
low.
collect other sums from Germany for a long period of years, or they may decline
to ratify at all.

- 2 -

of the Transfer Committee's control becomes illusory when
large transfers are demanded outside the scheme.
If the
Plan fails through American action, aside from the
of the Allies, we shall have another European financial
debacle and an internal German collapse.
(c)

The United States has a moral obligation as well as an
economic interest in seeing the Plan succeed. However unofficial, to a degree we sponsored the idea, our -litizens
played a large part in formulating it, and we should foster,
not wreck it.

(d)

The present is a golden opportunity to fund, as it were, our
claims against Germany in sympathetic cooperation with the
Allies instead of in competition with them. Hitherto they
have maintained that under Article 248 of the Treaty of Versailles their claims have an absolute rriority and ours only
a second lien. Now the conditions 're such that they would
probably agree that our claims be adjusted on a parity with
their own, because (1)

(2)

There is need for a substantial loan from America to
initiate the Plan.

(3)

There is a direct advantage to the Allies in our participation because of the moral effect such participation
would have in influencing Germany to observe her obligations under the Plan.

(4)

V.

There is a friendly appreciative atmosphere due to our
informal stimulation of the convoking of the Experts
and President Coolidge's public aprroval of the Flan.

There is an express statement in Section XI, Part I of
the Experts' Report t the effect that the all-inclusive
payments contemplated comprise all amounts for which
Germany may be liable to the Allied and Associated
Powers for all costs arising out of the war. The United
States was an Associated Power.

If we ore to participate, certain problems arise which must be solved
speedily because an Inter Allied conference seems imminent.

The

principal problems are:
First.

The exact amount of our army cost claim must be fixed
and stated; and the approximate amount of our damage
claim must be estimated.

- 3 -

Second.

Whether the army cost claim is to be satisfied in priority
to, or on an equality with, the damage claim must be
decided.

Third.

Whether the United States will accept only a portion of
cash annuities accruing under the Plan, or whether it will
also take a block of the railway bonds and industrial debentures must be determined.

Fourth.

Whether the following properties are to be credited on
either or both of the claims must be considered:
(a)

The value of German ships exprorriated during the
war.

(b)

(c)

VI.

The value of the cables to be allocated to the
United States under !,nnex VII, Part VIII of the
Treaty of Versailles.
The value of enemy property sequestrated in the
United States (see footnote).

As to the enemy property, it appears that its disposition is c)ntingent
upon the action of Congress.

A practical and fair method would appear

to be for the Executive to recorm end the liquidation of the property and

its application to the claims upon the proviso that the individual German
owners should be reimbursed by Germany out of the mark funds deposited in
the Rank of Germany pursuant to the Experts' Plan.

This procedure would

have the advantage of not taking any private property without compensation,

and the further advantage of eliminating the problem of exchanging marks
to the extent that private owners were residents of Germany or were willing
to accept part payment.

The Allies are averse to our releasing German

Footnote: As to the foregoing three categories of property, the question of
their credit, if any, must be settled whether we participate in the Plan or
attempt to make collections directly from Germany.

- 4 -

property (-elereas they liquidated it) and then claiming direct payment

Tim D.,,11213

CLAIIIS AGAINST G.-Mita:Y.

0
of the Transfer Committee's control becones illusory when
large transfers are demanded outside the scheme. If the
Plan fails through American action, aside from the ill-will
of the Allies/we shall Irive another L'uropean financial
debacle and an internal Gennan collapse.
(c)

The United States has a moral obligation as well as an
economic interest in seeing the Plan succeed. However unofficial, to a degree we sponsored the idea, our citizens
played a large part in foimulatirig it, ael we should foster,
not wreck it.

(d)

The present is a golden opportunity to fund, as it were, our
claims agai ns t Germany in sympathetic co ore ration with the

Allies instead of in competition with them. Hitherto they
have maintaiied that under Article 248 of the Treaty of Versailles their claims have an absolute priority aryl ours only
a second lien. rim the conditions are such that they liould
probably agree that our claims be adjusted on a parity with
their own, because (1)

rile re is a friendly appreciative atmo sphe re due to our
informal stimulation of the convoking of the Dtperts
and President Coolidge's public approval of the Plan.

(2)

There is need for a substantial loan from Are rice to

(3)

There is a direct advantage to the Allies in our participation because of the moral effect such participation

initiate the Plan.

could have in influencing Germany to observe her obligations under the Plan.
(4 )

There is an express statement in Section XI, Part I of
the 2cperts' Report to the effect that the all-inclusive

payments contemplated comprise all amounts for which
Germany may be liable to the Allied and Associated

Powers for all costs arising out of the war.
States was an As

V.

The United

Power.

If we are to participate, certain problems arise which must be solved
speedily because an IeterAllied conference seems imminent.

The

principal problems are:

First.

The exact amount of our army cost claim must be fixed
and stated; aryl tie auproxin.te amount of our damage
claim must be estimated.

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