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TEROFFICE OUTE SLIP A. M. ApRKS FROM DATE OFFICE SERVICE MESSENGER SECTION q- 924 DEPARTMENT DIVISION SECTION -n- Ivy DEPARTMENT DIVISION SECTION N. B. USE THIS FORM INSTEAD OF OFFICE ENVELOPE WHEN POSSIBLE, TO INSUREPROMPT AND ACCURATE !DELIVERY ALL COMMUNICATIONS SHOULD BE DISTINCTLY LABELED momtk. FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To DATE Jan. 9, 1924. 1 92_ (Copy to Mr. Snyder) Ir. Jay SUBJECT: Governor Strong FROM_ VFFY CONFID r NT IAL I have just been asked by d member of a committee of manegement of very important organization in this country whether I would prepare a sugges- tion for a plank to gr lAo the Republican platform for this year's Presidential election, which would et4te the attitude of the Republican Party towards the ederal Reserve System. All that need be said is a brief word of commendation of the System and something about keeping politics out of it. Now as to the commendation, it seems to me that the beefs of it would be the facts in regard to gold imports, the volume of credit, and prices, - in other words, notwithstanding the continuous flood of gold, credit has continued ample but stable, and the fluctuation of prices i6 gradually being minimized. It should be very brief indeed and nothing like a popular appeal, but a bare cold statement of facts which would express the fact that the industry and the commerce and the agriculture of the country depends upon the protective end stabilizing functions of the System. Ae to politics in the System, I would like to see the Republican Party pledge itself to discourage any attempt at political management, or influence over the Federal Reserve Board or any of the control, Federal Reserve Banks or their branches, and state it in an uncompromising way. How would you like to take a shot at those two lines? BS. MM preparing something along MISC. 3.t 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE. CORRESPONDENCE To Mr. Snyder F. DATE Jan. 50, 1924. 192 SUBJECT: Governor Strong Every now and then some one suggests to me that with one-half of the world's monetary gold in our hands, and more of it coming all the time, the day may arrive when the nations of the world will adopt some other standard than gold and we will be left with a handsome collection of dead sea fruit. I have never regarded that as a menace to our position for a variety of reasons, which are hardly worth enumerating; but I have spent a good deal of time wondering what sort of a development can be expected in the future as a result of this situation, and I am gradually coming to a conclusion which it might be well worth while figuring on. Personally believing as I do that the tradition of gold is too deep- rooted in the human mind to be uprooted by acts of governments, it now looks to me as though we must expect this gold to be used as the basis for world finance. banking and In other words, there will be a gradual but constant drift to this country of banking transactions upon a gold standard ready always to pay gold. standard country. basis just because we stand Investments will he made, preferably in the gold Loans will be placed in the gold standard country. In course of time a greater proportion of commercial credits will be opened with us. The country will occupy the position of the world's reserve banker, and this situation will continue indefinitely. Even though effort currencies to stability, it will likely be predicated upon some application of the gold exchange standard, and there will be gradually erected in this country a structure of credit of foreign origin far beyond anything which we have previously anticipated. Expressing it differently: instead of being able to return this gold to the countries from which it came so that they may have a domestic gold MIS,. 3.1 6031-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To DATE Mr. Snyder Jan. W, 1924. 192_ SUBJECT: Governor Strong FP 2 standard, we will hold it as a reserve for a world gold exchange-standard, we being the custodian and reserve agent. I hear stories from many quarters of the extent to which foreign capital is being invested in this dliffit47,11140'' -t; I have described. country. It is simply another manifestation of the It contains possibility of peril in two respects: (1) that inflation will be forced upon us by our being forced into the position of banking for the rest of the world; and (2) that once our gold reserve is pretty well engaged in that respect, when the gold movement does start it will be a little more troublesome to finance. How does this all strike you? BS.MM MIS, 3.1 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To Jan. an. Mr. Snyder SUBJECT: Fr Governor Strong 2 standard, we will hold it as a reserve for a world gold exchange-standard, we being the custodian and reserve agent. I hear stories from many quarters of the extent to which foreign capital is being invested in this country. dtiffiet h971.010" I have described. It is simply another manifestation of the It contains possibility of peril in two respects: (1) that inflation will be forced upon us by our being forced into the position of banking for the rest of the world; and (2) that once our gold reserve is pretty well engaged in that respect, when the gold movement does start it will be a little more troublesome to finance. How does this all strike you? BS.MM FEDERAL RESERVE BANK OF NEW YORK W8C.4,30M0-21 OFFICE CORRESPONDENCE Mr. Snyder DATE Jan. 31, 1924. SUBJECT Governor Strong FROM Referrirg to your memorandum attached about the Bok plan, I am really giving, it a good deal of thought and can't say that I am wholly for the plan, and my general reluctance to write atout things of this sort, leads me to refrain from voting. BS att. How do you feel about it? 192_ FEDERAL RESERVE BANK MISC. 4.1-30M 10-21 OF NEW YORK OFFICE CORRESPONDENCEDATE Mr. Snyder Feb. 2, 1924. 192 SUBJECT Governor Strong After further consideration I havd decided to vote in favor of the 3ok plan. My objection to it is that the movement for the adoption of some such plan should follow the adoption of a formula for dealing with the debts, and I will wager a ginger cookie or a little red apple that experience hereafter will disclose that my fears about any plan proving abortive without the debt question out of the way, are well grounded. BS.MM att. - mm,.16m-an C;V:1'...Y4)1/*\ FEDERAL RESERVE BANK OF NEW YORK )FFICE CORRESPONDENCE To Mr. Snyder FR( DATE Feb. 4, 1924. _192_ SUBJECT: Governor Strong, Keynes' managed currency is hardly distinguishable from a gold exchange currency. He must realize this, and I have no fault to find with his proposal of a managed currency, but a great deal of complaint for his defective and rather selfish reasoning when he talks about our demonetizing gold and locking it up in Washington. He must think we are indeed very stupid people. If we are going to permit this gold, which does its initial damage the minute it arrives here, to do further damage by permitting it to become the basis of a great inflation, he (05.-Ateciepeet% ci and others of his stripe are unconsciously looking to this country to indulge in a great inflation for their benefit. We are not going to do it if it can be helped and if they would be sensible enough to get their own houses in order and manage their own damn currency in a sensible, civilized fashion, they would shortly be able to come over here and get the gold they need to present a respectable monetary face to the world. I am thoroughly tired and impatient of the ravings of these inflationists who want us to play the part of cat's paw and pull their chestnuts out of the fire when they haven't the courage to do it themselves. MISC. 3.1 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK ,...iFFICE CORRESPONDENCE To Mr. Snyder DATE Feb. 4, 1924 1 92 SUBJECT: Governor Strong FROm Your memorandum attached refers as mine did to the possible development of the gold exchange standard. It has already developed automatically and in due course will be developed formally and more explicitly as the situation evolves, but in the meantime the thing for us to consider is what the effect will be upon our own credit structure. I think it is safe to say that it will involve the opening of credits in this country through loans, bond issues, and other credit OGLAyi, operations of that character, which will be held here at the command of foreign A government;land foreign banks of issue, and naturally will form the basis of some expansion of our loan and deposit accounts. Just how it will be worked out in detail is difficult, in fact impossible to forecast. I am not looking so much to the development of commercial credits similar to those which London has traditionally granted to the world, as I am to these more strictly financial and monetary credits, and unless I am mistaken, if arrangements are patched up between Germany and France as the result of the work of the Dawes committee, we will gradually see this development get into full swing. BS.MM att. AISC, 3.1 601,1-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE L' To 192_ DATE Mr. Snyder Governor Strong FRi I partly concur in the last paregraph but not wholly. A big etock exchange movement could not possibly be brought about these days by a few manipulators. I do think, however, that can be sustained for some period of time conditions a big price movement greater or less according to by general sentiment, which may not be based upon actual conditions but upon conditions which are assumed to be the case and are nevertheless not always accurate. It will take more time for discussion than I can give it just now, but we can talk it over when I get back from Washington. BS.11MT att. FEDERAL RESERVE BANK MISC. 4.1, 0M-3.23 OF NEW YORK OFFICE CORRESPONDENCE DATE_ Feb. 28, 1924 Mr.. Snyder 1 SUBJECT. Governor Strong Currency and Prices in France FROM The 100 per cent. quantity theory falls down in reconciling the following facts about French currency with some theories about currency and Nettie*? credit: No considerable increase in G.e.pman currency. A depreciation in its exchange value b A price level aroun 50 about 130 points below the 1920 ALAMO level, which heoretically should be somewhere around 800 or 900. BUM =Um= att. )1.0 3o 1 14Z,1-14 7,0 /9/1) FEDERAL RESERVE BANK ..11M3.23 OF NEW YORK Jan. 7, 1924. -,FICE CORRESPONDENCE TO Mr. Snyder DATE__ 192_ SUBJECT: Governor Strong FROM One of my farmer friends in Iowa has written me the attached letter, and 1 would like, if possible, to get some literature on taxation to send him. It seem7 to me it should be some rather elementary discussion of tax exempt securities and of the respective advantages and disadvantages of direct and indirect taxes. BS.MM Att. 60.4-22 FEDERAL RESERVE BANK OF NEW YORK, OFFICE CORRESPONDENCE To Mr. Snyder ATE Feb. 28, 1924. 192 SUBJECT: Governor Strong FRONf It seems to me you were giving an mmemill interpretation of the article in the Times, which I read. Of course, to state that the war cost Germany nothing is an absurdity, but on the other hand I understand the situation in Germany now to be somewhat as follows, and here is where co much misunderstanding of the situation arises. The Government of Germany has repaid its funded debt held by the public through the instrumentality of the Reichsbank, where it borrowed money and secured by issues of currencies, and paid for its public obligationseimply transferring the debt from one class of citizens to another. The public which formerly owned interest bearing bonds, now owns worthless paper money. German States and private individuals and corporations took advantage of the flood of paper money so as to repay what they owed in a depreciated currency, with the effect that the entire public and private debt of Germany, - that of the State ()king to its citizens and that of debtor classes owing to creditor classes - has all been paid off and is now represented by depreciated currency, back of which is a Government debt owing to the Reichsbank. As the paper has become absolutely worthless and will be repudiated as obligations of the State, it simply means that the State has furnished the instrumentality or machinery for a gigantic swindle upon creditor classes. But the debt has not been extinguished in any way, shape or manner.- It has been vastly increased as a matter of bookkeeping. The implication of the Times' article impressed me as simply a clumsy way of stating that all debts having been metamorphosed, the last step in this swindle will be accomplished when the German Government repudiates the currency, which it certainly will do by one or another method. The debt which Germany has not extinguished, however, is the debt to foreign governments and citizens growing out of the war - presumably aggregating 4-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To Mr. Snyder Feb. 28, 1924. 192 SUBJECT -2- 'Governor Strong FROM DATE it-00411 $33 billions --under the terms of the London agreement. German Government wipes out domestic At one stroke the indebtedness of -all classes an=itute for it the Treaty debts, the result being the accomplishment of a swindle at home and the recognition of just debts abroad. On the whole, if Germany really pays France and her other creditors, I don't know but what this form of taxation of the German people is just as good as any other, considering the nation as a whole, - but what get5 my goat is the fact that the operation has permitted a small class of German industrialists to accumulate vast properties without paying any considerable consideration for them, and not only have creditor classes been wiped out, but actual owners of property have had their investmaltSin it filched from them not for the benefit of Germany's just creditors, but for the benefit of s gang who have been industrially engaged in conducting for their privste benefit one of the most gigantic about it. att. swindles of the ages. That is the way I feel MISC.. 3.1 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To Mr. Snyder DATE Mar. 5, 1924. 192_ SUBJECT: Governor Strong FROM I have just read your memorandum on the fall of the franc. The cost of living curve seems to extend only to about June of 1923, whereas the purchasing power of the currency and the exchange curves extend down to the very end of I think if you had up-to-date figures on the cost of living in France 1923. you would find the curve to be something close to what I have indicated on your There has been a very sharp increase, as I understand it, within the chart. last few months. If this is true, I am not sure just how you justify the statement that there can be no sustained rise in the general level of prices and wages without a corresponding expansion of currency and credit, because that seems to be exactly what has happened in Francethat they have experienced a constant decline in the purchasing power of their currency and in the existing value of the currency from the middle of 1222 - that is, for 20 months now that they appear to have had an increase in living costs from the low point which extends from the latter quarter of 1922 to the present date, which would Does not your chart refute your statement be a period of about 15 months. completely unless the word "Sustaiff means that you are considering five or ten year periods rather than periods of a year or thereabouts? It can all be explained very readily if one takes into account the enormous hoarding of cuirency by the French peasants which always means that potentially theeffeo of eircula ion in France can he enormously increased without the Bank of France A That is probably just what has increasing the outstanding notes at all. " happened - that this currency is coming out of hoardings and going into foreign lnv'etalents in one form or another, and it is becoming more dynamic than it was. , r4rrk tUkt 44G4t-A itt4 circulation.1/// ' ittko 1"4. t V A I-44/1. t Am et-ct-Ax CA-r--. eAr because it is again getting into 1 0-"trwv LA_ BS.MM Ze. http://fraser.stlouisfed.org/ att.of St. Louis Federal Reserve Bank , , -)1"" `'") W., 3.1 60M-4_22 4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To Mr. Snyder DATE Mar. L, 124 1 92_ SUBJECT: Governor Strong FROM Is not the suggestion which I made in regard to the depreciation of the franc pretty well confirmed by the chart attached to your memorandum? socalled Of course, the gold price level and world prices are still subject to better definition and understanding than is now thq4ase, but I have a feeling that all commodities which are largely imported and exported adjust to world prices, that is to say, in a measure to a gold basis, very promptly, as the international values of currency fluctuate that other adjustments take place much more slowly, but that neveltheless any very sharp advance or decline in exchange does result in price readjustments tokkua. world levels, subject to all the influences of increasing or decreasing domestic cost of production. Again we come to the interesting problem of which is cause and which is effect. BS.W1V1 att. 110 FEDERAL RESERVE BANK MISC. 4.1-100M-5-23 OF NEW YORK OFFICE CORRESPONDENCE To Mr. Snyder, SUBJECT Governor Strong FROM Attached is Secretary Hughes' acknowledgment of the data regarding Japan, which I recently sent him, and which you will gather proved to be of real interest. Please return the letter. I would like very much to have you and the others in the department keep in mind that any important information respecting the Japanese situation should come to me, as I like to keep Secretary Hughes posted, and have undertaken to do so from time to time. BS.MM att. msc.4.1,mws-a FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To ATSnyder DATE March 8, 1924. SUBJECT- Govern or Strong FROM__ The attached articles in the The Nation end The Athenaeum are certainly most interesting. BS .MM att. I with our folks could write oB intelligently. -1,001,4.3.23 FEDERAL RESERVE BANK OF NEW YORK i FFICE CORRESPONDENCE Mr. Snyder DATE_ Mar-4, 1924. SUBJECT 192 Socalled "Orderly Marketing" Governor Strong =ROM This is a good article and should get wide circulation. There is just one possibility of a flaw in the reasoning and that is associating primary market receipts with prices. It would come nearer to a true exhibition of the relation if one could get at the rate of shipment from the farms as distinguished from the rate of receipt, and would be still more accurate if one could get at the rate of sale by the farmers and its relation to price in the primary markets. BS.NIM att. FEDERAL RESERVE BANK OF NEW YORK ?FFICE CORRESPONDENCE To Mr. Snyder DAT Mar-44 1924. SUBJECT Governor Strong FROM As Mr. Tucker seems satisfied with the resulte to date, why stir the matter up any further. If, on tbe other hand, we have offered to make further inquiry, I suppose we mutt do so. BS.MP att. FEDERAL RESERVE BANK WIM.4.1,001.4.3.23 OF NEW YORK f-.,OFFICE CORRESPONDENCE To Mr. Snyder DATE__ Mar_e_44 4. SUBJECT . Governor Strong FROM My answer to your last memo on French exchange is that nobody has any way of estimating what is the effective and what is the hoarded circulation in France, and my guess is that the hoarded circulation is an immense sum - far beyond what anybody has ever realized. BS .MM att. _192_ IS, 3.1 60 M-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To Mr. Snyder FR2thi_ DATE March 5, 1924 192 SUBJECT: Governor Strong I am not sure whether it will yet be worth while to take the trouble to prepare figures to show what could be accomplished by revision of the classification of the reserve and central reserve cities. Probably a great would deal could be accomplished, although it5eed to be done in a most judicious way with the mind of the public prepared in advance so as to meet the storm of protest from banks located in the affected cities. You and some of your men might be considering the matter and if you think it is worth while to get up figures, do so not with the painstaking accuracy of the statistician but with the general methods of an architect preparing a sketch, so that we could get a rough idea before putting in a lot of work on accurate figures. Of course, the way to do it would be to see how much reserves would have to be increased progressively through the creation of more central reserve cities which would increase the required reserve of member banks in those cities from 10 to 13 per cent., and by increasing the number of reserve cities which would increase their required reserves from 7 to 10 per cent. Obviously the cities to be classified as central reserve cities would be Boston, Philadelphia, Cleveland, Kansas City, St. Louis and San Francisco. The classi- fication of such cities as Richmond, Atlanta, Minneapolis and Dallas as central reserve cities would appear to be rather fantastic. Bear in mind in this connection that the change could be made very gradually indeed and still have the required effect. It could be illustrated, for example, by the case of Boston with the following hypothetical figures: If the Boston member banks are now required to carry $100,000,000 of reserve deposits with the Boston bank, the increase would presumably require them to carry $150,000,000, and increase the discounts which the Boston banks MISC. 3.1 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK March 5, 1924 OFFICE CORRESPONDENCE Tr DATE Mr. Snyder SUBJECT: Governor Strong FROM 2 would have to make at the Reserve Bank by just that sum. This would restore the discount account through the Reserve System which would make the discount rate so much more effective and would obviate the need for pursuing an investment policy which may ultimately have the effect of actually increasing the volume of credit. Borrowings by member banks to make good reserves which become deficient by the increase in reserve requirements would not have the effect of increasing the volume of credit. On the contrary it would tend to reduce the volume of credit because they would try and call loans without borrowing. To carry out and let paper run off so as to accumulate the required reserve any such program might, of course, necessitate at least a temporary reduction in our discount rates during the period of readjustment. I don't want you and Burgess to think that we are entirely without imagination and resources in dealing with these matters because there are other things that still may be done without asking legislation and some of them would be indeed most effective. .BS.MM 1 92_ MISC. 3. I-75M-9-Z3 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE Mr. Snyder March 8, 1924. 192_ SUBJECT Governor FR- DATE Strong I think you must be careful in jumping at conclusions about the French The French Government borrows for its needs in excess of revenues situation. on Treasury bills which are payable in three, six, nine and twelve months time. These are sold all over France, and when they approach maturity - say days - they are largely purchased by the large commercial banks. within 90 The Bank of France either by law or as a matter of policy stands ready to discount bills secured by treasury bills when they are within 90 days of maturity for any customer of the bank and practically without limit. should decline to do so, the whole French fiscal system would collapse. Now if you will look at the last stetement of the Bank of France, you will observe that there was no increase in Government borrowings, but there was an increase of about one billion francs in circulation, and in the last two weeks an increase of something like twelve or thirteen in advances and discounts. with the collapse in exchange. This coincident The inference is simple and will explain what has transpired: Holders of French treasury bills are getting uneasy. those which are within 90 days of maturity to the Bank of France or borrowing on them as the case may be, taking currency and using the currency to buy things. The things they buy may be commodities, real estate, household furniture, or any old thing--but undoubtedly a considerable part of what they buy has been foreign currencies. The decline in the franc exhibits that clearly, and you will note that sterling has been pretty steady during this period, which would indicate FEDERAL RESERVE BANK MISC. 3. 1-75M-9 23 OF NEW YORK OFFICE CORRESPONDENCE DATE Mr. Snyder Marhh 8, 1924. 192 SUBJECT Governor Strong FROM 2 that they are buying both sterling and dollars. in France (who are just now in this country; hut who have been recently in France) that living costs are really going up at a tremendous rate. that but a very few months ago--or the end of last One lady told me year and early this year--it cost her 8,000 francs per month to run her menage, and today it costs her 12,000 frans per month. I personally very badly. BS .MM att. don't think the dam has bustedbut think it is leaking FEDERAL RESERVE BANK OF NEW YORK or To E CORRESPONDENCE Mr. Snyder DATE__march7_Ep5_4924. SUBJECT Governor Strong FROM In a general way I am opposed to any program for publicity or anything of that sort in connection with the opening of our new building. I think the best plan is for ue to go in and say nothing about it or as little as possible. When we are in the building and everything is operating satisfactorily, think we can invite bankers in groups simply to inspect the building. reasons for this I will explain later. BS.VM att. I The 192__ MISC. 3. 1-71M. 9-23 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE Mr. Snyder March 8, 1924. DATE _192- SUBJECT Governor Strong FROM_ About the A. B. A. meeting in Chicago. I am ver opinion that the exhibit in Chicago is the job of the Federal Chicago, and that we should not but in in any way, shape Reserve or manner. Bank of If the Federal heserve Bank of Chicago asks us for suggestions, let us make suggestions, but do no more than that. We simply cannot afford to continue to create the impression that the Federal Reserve Bank of New York is the whole System. It is resented in Chicago now and this would simply add to the resentment if we dealt with the Bankers Association in connection with an exhibit given in their home city. BS .MM att. FEDERAL RESERVE BANK msc.11-75M-9-23 OF NEW YORK OFFICE CORRESPONDENCE DATE March 8, 1924. SUBJECT: Mr. Snyder Governor Strong FRGIY1 With this I am handing you e copy of the socalled McNaryHaugen bill, together with some documents left with me by Mr. John R. Mitchell bearing on it. I aave promised Mr. Mitchell that if an analysis of the plan justifies my doing so I would write to President Coolidge about it. T ET1 going to ask you and Mr. Burgess to make a study of it from the economic point of view and let me have your conclusions in a memorandum in such form that I can send it with my letter in case I write the President. The farmers are facing a real calamity and need help just as much as the Russians did two years agoand they are Americans and not Bolshevists. I have no illusions in regard to special aid by the Government, Wall Street bankers etc., etc. are just as ready to take Government anybody else when they get into trouble. As to privilege and oleos legislation generally, we have a good deal of it on the books nowthe tariff is the outstanding example, and we may have a bonus bill that will outshine everything of that character. I would be glad to have something from you as soon as convenient,together with these papers which I will reed in connection with your memorandum. BS.MM att. ww.3.1-7561-s,n FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE DATEMaroh IZ, 1924. Mr. Snyder SUBJECT: Governor Strong FROM- Referring to your memorandum attached, I think the less oJe monkey with the reserves of the Reserve Banks either by amendment to the law or change in our accounting the better off we will be. alter the facts. Changes in our reserve do not We should have the courage and capacity to control the amount of money we loan one way or another and if we fail in that regard no change in reserve provisions will amount to anything. of the commercial banks and trust companies. The weak point i They are constantly being en- larged by gold accessions and until the gold flood stops we are almost helpless to offset its inflationary effect. Those measures which we have taken to date seem to have been effective in part, but how long we can continue successful remains to be seen. BSA att. FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE Mr. Snyder .s? 192_ DATE_ March 13, 1924. SUBJECT. Governor Strong FROM In regard to our surplus gold dealt with in the attached memorandum, the treatment of currency in circulation other than Federal reserve notes may. prove to be one of the most fruitful sources of relief, but I rather incline to agree with the views expressed last night that the redemption of National bank notes is a more effective method of accomplishing this than any other. I would rather see the greenbacks retired, but it is a dangerous subject to attack. There are some $148 millions of Government bonds maturing next year, and the refunding of these into a new bond without any circulation privilege would automatically require banks which had this issue of bonds pledged as collateral for bank notes to deposit lawful money in order to retire the bank notes. Deposit of the lawful money would by so much impair their reserves and to that extent require them to borrow from us and in that way give us a further hold on the situation. That is the simplest thing to do and it is a procedure in connection with which the Reserve System's operation would be so indirect as not to involve us in any discussion about contracting the currency. But even that involves dangers. It is in my mind to get up a little program on this matter as soon as we can get around to it, possibly for discussion in Washington next May. BS.MM att. WX.11-75.1.13 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE DAT In__ March 18, 1924 SUBJECT lMr. Snyder Governor Strong FROM With this I am handing you a document which apparently came from Dr. Foster preliminary to its publication in the April Harvard Business Review. I have only had time to read it through hastily and will be unable to write Foster about it, but possibly you will care to do so. The particular impressions left in my mind are that he sticks to the idea that an index number can be a sole guide of policy for the Federal Reserve System, that it is possible for the men who run the Federal Reserve System to manage the whole rrice problem, and that as it is possible for them to do it they should undertake to do it avowedly and publicly announce it. Now I am satisfied that it is along this path that most serious trouble will develop for us. takes no account of other influences upon prices than credit. Foster's thesis It takes no account of the stupidity and selfishness of various classes of people in thinking that the only prices that count are those in which they are interested. It takes no account of the unending warfare between the producing and consuming classes the former for advancing prices and the latter for falling prices. And possibly most serious of all, it assumes that it is possible for the management of the Federld Reserve System at all times and under all conditions to be divinely wise, magnificently courageous, and inhumanly intelligent. He assigns to a small body of men a responsibility which has never been assumed by any body of men in economic history, and where its assumption has been attempted it has always failed, - that is to say, the responsibility to so manage economic affairs that they can control prices. I am against it and against his thesis root and branch. We must do what we can to prevent credit developments getting out of hand and causing run-away MISC. 3. I-7SM. 9-23 FEDERAL RESERVE BANK OF NEW YORK FFICE CORRESPONDENCE To DATE Mr. Snyder 1924 192_ SUBJECT: Governor Strong FROM March 1 2 prices and exhaust our ingenuity to find ways and means of meeting the present menace due to gold imports. But to calmly assume responsibility for prices just as though we made prices or controlled the price level we must never do. I am satisfied that a good many of the men at our dinner the other night are wholly in accord with my views about that. BS.MV att. MISC. 3. I-7M-9-23 FEDERAL RESERVE BANK OF NEW YORK "FFICE CORRESPONDENCE To Mr_Snyder DAT Maroh 19, 1924. SUBJECT. 192 Governor Strong FROM Cheney's charts are not surprising, it seems to me, in view of what we know- about the movement of wages. Clearly these figures disclose that wages rushed up with the general advance in the price level to the peak of 1920 when fattu prices fell away from wages, the reduction being but a small fraction of the reduction in in the general price level. What is a little surprising, however, is that the little boom that we had in 1923 had the effect industry at least in the silk of moving wages back to a level higher than the peak of 1920, while the wholesale price level for silk is but little above the low point and even the price of raw silk and of finished silk is not very much above the average level of 1921 1922. is coming to him. BS.MM att. Certainly for once the wage earner has gotten all that FEDERAL RESERVE BANK OF NEW YORK 'ICE CORRESPONDENCE Tt Mraayder. DATE March 20, 1924. SUBJECT Governor Strong FROM Thank you for the attached. I want to see such figures as are in shape by tomorrow noon showing the actual trend of business. BS. MM att. 192_ MiX.A.1,0014-9-23 FEDERAL RESERVE BANK OF NEW YORK FFICE CORRESPONDENCE Mr. Snyder DATE March 21, 1A24_ SUBJECT Governor Strong FROM I have decided not to write the President in regard to the McNary-Haugen bill, partly because if he displays an interest in the correspondence I will not be here to follow it up for a while. So I voided the letter you were good enough to prepare and I am writing Mr. Mitchell as per attached copy. BS.MM att. 192_ March 21, 1924. My dear John: I have been through the McNary-Haugen bill, read some of the comment upon it, and have had some studies made in the bank. Notwithstanding the earnest desire which we all feel in this bank to eee some reelly constructive and helpful measures undertaken for the Northwestern wheat farmer, I cannot believe that the MoNary-Haugen bill will accomplish the purpose which we all desire, and I fear that in many of years, it will The difficulty with wheat is a price difficulty. We produce which must be marketed abroad, not wheat, competition with wheat but in competition with the various cereals produced in various parts of the world by methods of with which the American farmer cannot compete in the East after a lapse leave the wheat farmer in a worse situation than he is today. 200 million bushels of necesseri/jr in particulars, cost. that is true of a are too low, and I think farming and a type of labor Standards of living in very large part of Europe as well. This leaves the American farmer in the position of having a 100 per cent. unprofitable wheat crop because 25 per cent. sold in the world's competitive market; of his crop, or thereabouts, must be whereas everything that he buys is pur- chased in a market where price levels are unquestionably affected by a fairly high protective tariff. In conclusion that it is a poor the face of this situation I cannot escape the business venture, and in every way a bad project 2 March 21, 1924. Mr. John R. Mitohell to encourage the continuance and even the further development of a surplus produc- tion shich will be a menace to farm stability so long as the world cannot absorb it at prices which justify its production. Very little consideration seems to have been given to one aspect of this legislation which I believe is fatal irrespective of any other aspect. If the United States Government enters upon a vast program of dumping surplus wheat on the rest of the world and finances such a project, it is bound to bring reprisals in some form or another. The advantage gained for the American farmer may be offset by advantages sought by other countries for their own farmers, and that sort of warfare can continue indefinitely until something breaks. With some reservation, I think my own suggestion would be that legislation be undertaken - or that a plan be adopted without legislation - by which some such organization as the Federation of Farm Bureaus, (which today covers subetan- tially every agricultural county in the country) will actually make a survey of wheat acreage and exercise a control over the amount of wheat planted during the next few years. Something of that sort is now done in India by the Indian Government itself in order to deal with famine conditions which arise periodically. They conduct an absolute census of acreage and planting and production, which I believe is of a highly scienttfic character, and an Investigation of it might throw some light upon the possibilities of doing the same thing in this country. Undoubtedly, information about it could be obtained from the Indian Office in London. If a restriction is placed upon the acreage planted, it is probable that a smaller crop fetching higher domestic prices will afford profits to most American wheat growers, where a larger crop say with 200 million bushels surplus will not only produce no profit but in all probability a definite loss. Notwithstanding this, a reduction in wheat acreage would probably necessitate aid to many farmers 3 Mr. John P. Mitchell March 21, 104. in purchasing stock of one kind or another or teting the necessary measures to introduce some diversification adaptable to the soil end climete where they are To cover this I should suppose a program along the general lines of the Noated. Norbeck bill might well be made to serve the purpose. Holding these views I think you will agree with me I could not well write to the President any sort of endorsement of the McNaryHaugen bill. I would prefer that you end Mr. *Peek consider this expression of my own views as confidential. re are so far from the scene of these difficulties that auoh comment et I might make might well be a cause of criticism and feeling which I would be the 'tot one to arouse. I em simply giving you the beet views that I can without having made any losel investigation on the ground. Thank you very much for giving me the opportunity to study the el.-Ater a bit. Yours sincerely, Mr. John E. Mitchell, Capital National sank, St. Paul, Minn. BS.MM 1,m4-9-23 FEDERAL RESERVE BANK OF NEW YORK '1)FFICE CORRESPONDENCE To Mr. Snyder DATE May 16, 1924 SUBJECT Governor Strong FROM The attached note from Mr. Basil Miles explains itself. I think you know Mr. Long personally and rather respect his ability and enjoy his articles . Who do you think might be induced to take him on? suggest the New York Times? BS.MM att. Or what suggestion have you? Would you I 92_ MISC. 3. I-75M-9 23 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To DATE May 19, 1924. tt Mr. Snyder SUBJECT Governor Strong FROM. Referring to the attached memorandum, I have about come to the conclusion that there is no virtue in credit operations for aid of the wheat growers. There has been a very large curtailment of exports, I hear, the price is still most unsatisfactory, and I can't help believing that the answer is - reduced production. This might or might not be capable of accomplishment through some scientific plan - say to be conducted by the Farm Bureau Federation. As to buying bills abroad, there are many very serious objections, as I indicated in a memorandum to Mr. Jay. Let me illustrate just a few of them. If we buy bills payable in foreign currencies we take all the risk of exchange loss, and on any amount that would be of any aid whatever in an international credit sense possibilities of loss are really enormous. Suppose we had purchased 25,000,000 sterling the rate was 4.70. of bills when At the present time we would stand to lose 35 cents per pound, or say, $8,00e000. On the other hand, the guaranty against loss on the other side would present equal difficulties to the guarantors, and I do not see how such a credit plan could be worked out except by the intervention of governments and I don't see much likelihood of either the British or American Governments going into a big exchange gamble either independently or joint account. There are notoommercial bills enough abroad that we could buy to enable us to conduct a very large operation, and that is one of the difficulties that we are going to encounter in the future in any attempt to deal with the exchange situation by the use of Federal Reserve funds. 192_ MISC. 3.1 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK WFICE CORRESPONDENCE To. Mr.Snyder DATE May_12, 1PP.4 192_ SUBJECT: Governor Strong FROM Buying sterling bills or any foreignbills in the expectation that those purchases will be reflected in additional-purchases of wheat or financing of wheat strikes me as being somewhat similar to throwing a handful of chopped meat into the Gulf Stream which as you know i densely populated with the most voracious fish in the world - the big fish would get the meat and the poor little wheat growers would not get a smell of it. If we attempted any such program for the avowed purpose of assist- ing the wheat grower, the unfortunate result would be that we would not really assist him any and then they would just curse us some more. Isn't it a fact that ycur own doctrine the correct one? repeatedly expressed to me, is i. e. that we are growing an amount of wheat in excess of our domestic requirements and the surplus must be sold abroad where wheat can be grown cheaper at a profit than here, and in the meantime our farmer pays high prices for everything that he consumes and uses on his farm. In a broad economic sense I have always been opposed to schemes for restricting or curtailing production. It seems uneconomic, but under present conditions is justified as to wheat, and that is the thing that our wheat grower should do with or without government aid. BS.MM . WK.11-7.1-9-23 FEDERAL RESERVE BANK OF NEW YORK FFICE CORRESPONDENCE To Mr. Snyder DATE SUBJECT May 26, 1924. 192__ c). Governor Strong FROM Will you kindly send me as promptly as possible a statement showing the amount of monetary gold in this country on January 1, 1914. As I recall the figure was about one billion 800 or 900 millions. T annual increase in our gold each calendar year, including the amount received this :1 year down to the latest date. I would also like to have charts, if you can show them, giving the 3 fluctuations in the rates of exchange of sterling, francs, lira, Dutch guilders, the Scandinavian currencies, and the Swiss franc, from, say, July 1, 1914 down Then I would like to have a separate chart showing the fluctuations to date. 47/ of these same currencies for a period of only a few years which might be described as the normal fluctuation immediately prior to the war. I want to bring out the contrast of exchange fluctuations under the operation of the gold standard with the fluctuations in exchange since gold payment was suspended so as to show graphically the disabilities under which international trade labors with these extreme exchange fluctuations. I also want to have the mathematical formula which Keynes expressed in one of his articles in the Manchester Guardian, or in one of his books, illustrating his theory of the purchasing pater parity of currency, and if alongside of that 62,you can give a literal illustration in the case of sterling with a relative general price level of any two countries to bring out the argument I want to 7 ,make in regard to the disparity in price levels between any two countries having the power to return to gold payment and that price levels require some moderate readjustment before gold payment can safely be undertaken by anyone. MISC. 3. I-75M-9-23 FEDERAL RESERVE BANK OF NEW YORK May 26, 1924 FFICE CORRESPONDENCE To va--Snyder DATE SUBJECT: Governor Strong FROM 2 I hate to have to send a call in such a great hurry but the fact is I should have these for incorporation in a letter-, the final draft of which must be ready tomorrow evening for final copying Wednesday morning, to take to Washington Wednesday afternoon. this whether this can be done. BS.MM Can you send word to Mr. Beyer on receipt of The charts should be in three copies. 1 92__ WSTA.1,001-9-23 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE Mr. Snyder DATE_ May 27, 1924 let SUBJECT* Governor Strong FROM I wrote Professor Bullock immediately in reply to his letter, denying that the meeting at my apartment was called for the purpose of delivering a spanking to anybody, and pointed out that the subject of price control never would have arisen had not Warburg mentioned it when we were about ready to go home. 13S RITIVT 192_ ww..4.1,mws-n FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE DATE May 28, 1924. Mr. Snyder SUBJECT: Governor Strong FROM Referring to your memorandum on British and American I am not satisfied with your levels in the two prices) reply on countries (I am this subject. not speaking of must be substantially 11 per cent. Certainly the gold prices but of apart on such articles etc., because they follow the exchange rate so closely. levels be cent. in BS.MM att. price levels, price currency as cotton, How can our price identical in the two countries when there is a discount of 11 the English currency? per In FEDERAL RESERVE BANK OF NEW YORK FFI E CORRESPONDENCE Mr. Sn d DATE______Juna_g_v_1924 SUBJECT: Governor Strong FROM Here is a translation of an interesting article handed to Dr. Miller by the Belgium Ambassador. att., which was _192 THE DOLLAR AND THE POUND. (From the Echo de la Bourse, Paris, May 30, 1924) Ever been going on since the war, as the initiated know, a sort of silent warfare has between the two leading monetary types, the dollar and the pound. Recent events have made this struggle apparent to the eyes of the general public. This is a serious question which should be elucidated as muoh as possible, for through the incidence of its of Europe and under repercussions it may seriously affect the restoration the payment of the what aspects this question reparations. presents itself People when concerned nowadays ask 'Tow is the pound?", and it add "and the dollar?". Let us atterrt, therefore, at the present moment. about the level of foreign exchanges is only in to indicate the second place and generally not alwgys that they This introductory remark is made to bring out the point that the pound enjoys a standing which, in practice, if not in the minds of thinking people, overshadows that of the dollar, whereas logically the dollar should attliat attention first, since it is the true standard in money matters, whereas the pound convertible only in theory, is not truly gold money. The special interest which attaches to the pound dollar arises from the faot that England of the broker and banker of :the world, ive financial supremacy necessary for United States that, by possessor of gold. and causes continues to enjoy umbrage to the the traditional Donation although it has lost since the war the effectthe exerolee of this function. reason of well known circumstances, ha- become Naturally it is her ambition to It is the the great draw from this situation all possible profit, which, however, in her opinion Great Fritain pockets at present without rendering equivalent service. Europe, generally speaking, continues settling her international accounts. this habit should be ceanged. The to calculate in terms of pounds when In the opinion of our trans-Atlantic friends dollar should take its "authentic" place in business and remove from the first place the usurping pound. This argument, it -2is evieent, is not an academic controversy but a "business" proposition. Last week, as noted in our "Notes and Nefleotions" the Advisory Council to th, Federal Reserve Board, the great institution which centralizes the American banks of issue, issued a pronoanoement of which, upon leadingpertionss careful reading, we give the following °Unless America finds ways and means to permit her excessive banking strength to benefit other countries, partioularly those striving to bring their house in order, the dollar cannot maintain its position as a world standard of exchange, and foreign countries - and even American bahking and commerce - will, once more, in a Larger degree beoone dependent upon and tributary to the pound sterling. The douncil, therefore, recommends to the Federal Reserve Board to cooperate in every possible manner in the exeoution of been established to facilitate all the Dawes plan, and when the new German bank shall have the Federal Reserve Board rediscounts should take all necessary steps in order in America of properly protected gold bills." The announcement adds that the Dawes plan provides for a gold basis for notes issued by the future eerman bank, but leaves the door open for the the ddoption of sterling as a basis. "But", continues the Counoil, "it is obvious that, if the new German bank is placed on a sterling basis, the world must prepare itself to rennin on a JR046-ii. basis of exchange instability for a prolonged while the adoption of the the end of which cannot be foreseen, dollar basis would accelerate the return Because of its importance the counoil deems it world wide stability. point gold, that is period, out this alternative with all possible emphatis. but one that touches the future of all the world. It is not an its duty to to American problem If there is any reason to assure that success of the Dawes plan may be the means of putting an end to Europe's sufferings and decline, it is a unique opportunity and duty for the United States to lend a helpful hand to the ea+ utrost of its ability. -3In recommending to the Federal Reserve Board the rediscount of Gernan bills "- Oaancil concludes as follows: "Measures of this character not only tend to bring our gold hoard int* active and healthy use, but by encouraging other countries to trade in terms of dollars they facilitate the direct sale in dollars of our own products, instead of making foreign countries and ourselves dependent in this respect upon Great Britain's acting as broker and banker, as naturally she would, where the pound sterling would govern as an exclusive basis of dommeree and trade." By reading a little between the lines and bearing in mind what we said in the opening one can grasp the true meaning of the annoaneement. translate it, so that our readers alight flowever, let us better understand the matter, into less diplomatic language: "Our tanking power, the Americans think, is actually the forenost in the world. This is not without its inconvenience, mainly because all countries with depreciated currencies are in a position to and commercial competition. bring into play against us very annoying industrial It is therefore only fair that we should seek to avail ourselves of the advantages, of a position points of view. These advantages, which is detrimental to us from other for the most part, are seized by Great Britain, who has contrived to maintain the prestige whidh it enjoyed before the war and to It becomes therefore our task to which essentially she is no longer entitled. prove to the world that there is no good reason why it should remain attached to the pound, and that its syryathies ought henceforth to be turned to the dollar." How is suob a result to be attained? The answer is very simple. It behooves Americans to make use of their "exoessive banking strength,' to benefit eoeereees7 countries which are on the up-grade road.W And a country -4- helped by the doller will evidently not fail to accord to the dollar its !east distinguished consideretion; for to generously oblige people is elweys en excellent meems of entering into business reletions with them. (Sew cen we, for example, not help feeling reel sympethy for the dollar ever since it hes rushed to the essistzence of the frenc agsinst the beer speculators.) In connection with the execution of the Dawes pleat and the creation of e new Germtn bank of issue the lesericene evidently think that now, if ever, the time hes come, to undertake on e sort of "philunthropic business" basis the intervention which It to give to the doller its ultimete and il-redeeming consecration. 4s000rdingly they announce that they are reedy to Mice a great finencial effort towerd solving the question of reperations,--of which the creetion of a German benk of issue is prtprovided bewever (this is, of course, merely implied end not stetee explicitly) Want the dollar and not the pound sterling ekell eerve es the besis of ell calculetions, transactions, and transferg, -which the underteking my require. "If you .ish us to put an end to the sufferings end decline af Crope", our trans-atlantic friends sty, "take us your batkees", end this edvice seems eltogether justified. There is only this little difficulty, nemely the Mewss report foresees thet al the time of the inception of .the Germen Ilene of issue the situetion will temporari- ly not allow of the epplicetion of the rule of convertibility". If therefore euggests that "a currency shell be created which shell be kept steble in relation to gold and, es soon es conditions permit, be pieced on t convertible bests, if at the time of the inception of the bani,, the eituation nuy be temporarily unpropitious for the applicetion of this rule." This means, that in piece of the done: it my become neceseery for Germeny end her sponsors to substitute at the beginning thee pound sterling. i.nd such ection, if we are to judge by the announcement of the Federel Advisory Council, mey give umbrage to aerica. It will be seen at once, where this leads us to. At present we have not yet pe-led beyond the stage of preparing for the loan of 800 million marts, provided for by tae experts. of it. This loan is possible only if the Amerioane take a large portion This loan will have to be used to finance the reparations in kind and also establish the new German bank of issue. to If, in accord with the bank's by-laws, the pound is preferred to the dollar, - that is to say, let us repeat it, if we, in Europe, continue to regard England as the sole banker of the world, - will not the United States show sorile coolness towards the financial operations necessary for the liquidation of the reparation? This is very important question. are not exaggerated. In our opirion the alai:Ts of the dollar On the contrary they seem to us quite legitimutei a person that renders service is entitled to some benefit; United $tates presort for its help "to the utmost of its promise:0 in business the claims whiob the ability" - (what a beautiful contain nothing "usurious", to 4a use an up-to-date expression. These claims however trespass upon the traditioeal profits which Great Britain has come to regard as rightfully hers and to cut them off may prove quite a delicate operation for those wno may be called upon to do it.-Let u$ therefore follow with care the further manifestations of rivelry between the dollar and the pound. This rivalry may cause us some worry, but it may also prove of service to us, if we onlynplay the game right". 4,11 ww.cl-loord-9-23 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE Mr. Snyder FROM DATE June 26, 1924. SUBJECT Benj. Strong Please make an appointment through Mr. Beyer. have a chat with you. I would be glad to The basis of any reply that I would make verbally to inquiries such as Mr. Webber's is always the same -- The Federal Reserve System does not make prices; neither does anyone else: 192_ FEDERAL RESERVE BANK OF NEW YORK 3FFICE CORRESPONDENCE T. Mr. Snyder FROM DATE July 1, 1924 SUBJECT. Governor Strong My other memorandum in regard to your department really replies to the one you sent me on the subject of new investigations. BS.KM att. 192 MISC. 3. 1-75M-9-23 FEDERAL RESERVE BANK OF NEW YORK FFICE CORRESPONDENCE Mr. Snyder To DATiulY 4, 1924 192_ SUBJECT: Governor Strong FROM Replying to your memorandum about the expenses of your department, I am not sure, of course, what Mr. Jay has said to you about it, and besides that I have never felt that it was a direct responsibility of mine to keep an eye on them. On the other hand, I think you already know just about what was stated to me in Washington, which however you will easily appreciate is confidential. I think the impression is that we have the best department of research that has so far been established. More important than that, the view was expressed to me that it was used more by the offiaers not only as an aid to the discussion and solution of the various bank problems, but as a practical working department of the bank. There is an impression, however, that our studies are too much directed along the line of price movements and not enough on banking and finance. Possibly your own point of view has been to look further into the future with regard to the longer cycles and not to consider enough the day to day or month to month problems of actual is that a more elaborate study of management. My own belief 4\ the New York money market and of the inter-district molement of funds would prove to be of great benefit to the management of the bank, and possibly some economy can be introduced which will permit us to develop this work without any added expense by somewhat reducing the work along the lines of price investigations and business reports. I think if the department addressed its attention first to a study of economy in operating expenses, which is imposed upon us by the condition of our earnings, and then towards special studies of money market and credit movements, it would meet all of the objections or questions which have been raised about the department. I can assure you that there is nothing personal whatever suggested by the statements made to me. great respect I believe that your associates in Washington have for your work and that criticism was intended to be heliful and MX. 11-75M-9-23 FEDERAL RESERVE HANK OF NEW YORK ._-'10gPICE CORRESPONDENCE Mr. Snyder To FROM__ DATE July 2, 1924. 192_ SUBJECT. Governor Strong Replying to your memorandum on sterling and P. P. P. As you know, I have been a skeptic as to some features of this theory ever since Professor Cassel enunciated it. Now let me express in my amateurish way just the way this problem appears to me. Changes in the general price level are too remote and indirect in expecting effect upon the exchange to justifyAthat the course of exchange will coincide with the course of relative general price levels. On the other hand,there are commodities whose prices probably correspond in any two countries with the exchange rate. Let me illustrate: Suppose you took a list of 10.or 20 commodities which conform to the following specifications: actively That they were /traded in between the two countries England and the United States. That there are organized markets where quotations are actually made and where, if possible, the goods are closely graded in quality. That the volume of trade in those commodities between the two countries is sufficient to justify the belief that the price reaction caused by exchange rates is immediate. Now the goods which I have in mind which conform to these specifications are such as cotton, wheat, copper, some meats like lard, bacon, etc., zinc and lead, rubber, pig iron, coal, possibly some standard grades of fabrics like cotton (64 squares), lumber, sugar, etc., etc. By taking these prices, workirg out a weighted index based upon the volume of the trade in them, and comparing the course of these prices in the two countries with the course of the exchange, it strikes me that one would core as close to getting an exposition of the purchasing power parity as is possible. On the other hand, there is this difficulty Yr- PAISC.11-75W1-23 FEDERAL RESERVE BANK OF NEW YORK _.FFICE CORRESPONDENCE DATE To',11Ar. Snyder July g, 1924.192 SUBJECT: Governor Strong FROM 2 that those are goods which have a world market and consequently may fluctuate in prices over a fairly erratic course compared to strictly domestic prices of domestic goods which are not internationally dealt in, which prices as we all realize are more subject to the influence of credit conditions, inflation and deflation, interest rates, etc., than are those goods internationally dealt in. Were I undertaking an examination of this subject, I would start from the elementary beginning, such as I have outlined above, and see where it lands us. Let me have your own views before putting in too much work on this. BS.IN att. FEDERAL RESERVE BANK OF NEW YORK DA OFFICE CORRESPONDENCE To Mr. Snyder July 11, 1924 SUBJECT Governor Strong FROM Thank you for your memorandum in regard to the cost of our indexes of trade, production, etc. Of course, the statement which Dr. Stewart made to me was no more than a guess, but I am glad that you have straightened him out as to the costs. They tell me that the new line of work is under way and I would like, at your convenience, to have a little talk with you about it - possibly parly next week if we can arrange a convenient time. att. 192_ 411, FEDERAL RESERVE BANK , OF NEW YORK OFFICE CORRESPONDENCE Mr. Snyder DATE__Ju1y_1kv-1924,_ SUBJECT. Governor Strong FROM I have read Dr. Schacht's remarks attached, and of course he leaves the impression that he is a pretty sound man to have in charge of the Reichsbank. BS .MM att. 192_ 111sc.4.1,mw9-23 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE Tn Mr. Snyder TT` DATE,Tu1y_14,_1924 SUBJECT: British Prices Benj. Strong FROM The chart is very interesting. I am not sure that I agree with you about the better balance of the price levels. To my mind, one of the very few benefits which we have realized from the war has been a general improvement in the wage level and standard of living by various classes of working men. It looks as though Great Britain was not able to maintain its business activity except under conditions which mean fairly low wages for their working population. 133.MSB 192_ ;.; FEDERAL RESERVE BANK msc.4.1-mows-n OF NEW YORK OFFICE CORRESPONDENCE ,To Mr. Snyder DATE July 14, 1924. 192 SUBJECT CS FROM Benj. Strom I think we have all expected that there would be a certain number of Just what charts, how they should be hung, charts hung in the new building. and where, cannot be determined without an examination of the roams of the building where you propose to have them. I wish you would arrange a time with Mr. Beyer when we can go over This isn't a question that to the building and look at a definite proposal. I can have an opinion about without being on the ground. BS.MSB -- FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To Mr. Snyder DATE___July_14, 1924- 192_ SUBJECT: Benj. Strong FR, I have looked over the charts accompanying your memorandum of July 3, but there are too many of them for me to get a conclusion without more time to study them than I will have for a week or two. But I presume that you sent them to me as evidence of the fact that a lot of work has been done along the line of our discussion. The difficulty is to put this information in such shape that it is of real practical value. That is what I need personally more than anything else just now. Let me make the following suggestion as a lead: In 1922 the System made large purchases of Government securities. AI the same time we were receiving gold from abroad. Then, at t early in 1925, we made large sales of securities. purchases, and have now accumulated $400,000,000. Du What effect have these operations time, gold has been coming into the country. that is to say, had upon the country's credit position, considered statistically; What effect may it have had upon interest on the volume of loans, deposits, etc? rates, and what effect does it have upon individual districts, - New York being Istarted important, probably? the most 1 Your memorandum of July 1 bears upon this, and I noticed by the Times on Saturday morning that the National City Bank has a theory to account for the Is it a fact that gold large accounts on deposit in the New 7ork City banks. imports, and possibly our purchases as well, have the effect of inflating bank deposits in New York at once, and that the expansion of loans and deposits does not spread to the rest of the 'country for some time? All of these things we should understand better in order to shape For instance, we might determine to make a larger proportion of our policy. our purchases in other districts than in New York, or a larger proportion of our sales in other districts than in New York. This is a very complicated problem, I know, but one which we should study, and get all the information that is possible to get. BS. MSB FEDERAL RESERVE BANK MISC. 4. 1-100M-9-23 OF NEW YORK FFICE CORRESPONDENCE ,-, To Mr. Snyder DATE July 25, 1924 SUBJECT. Governor Strong FROM Will you ask Mr. Bendelari if there is any evidence in the literature that those in the employ that he looked over of a fear on the part of,Congress in political matters of the Federal Government would have too great an influence and therefore should be excluded from voting at-the capitol. att. 1 92_ FEDERAL RESERVE BANK MISC. 3. S-75M-9-23 OF NEW YORK \FFICE CORRESPONDENCE Mt. Snyder To DATE July 25, 1924 192_ SUBJECT Governor Strong There is no point in guessing about the increase in deposits as there is a way to get at it if the reports are in sufficient detail, and that is to find out what the corresponding assets are so as to account for the increase in liabilities. I would assume that they are principally made up of the following items: Increased loans Increased investments 5. Increased reserves either in vault or on deposit with reserve agents or with the Federal reserve bank. It makes no difference whether it is one bank or 700 banks. I will undertake to say that every dollar of increase in liabilities can be accounted for by an examination of the various items of assets, and I suggest that that be done if we are to get a satisfactory explanation. It will probably be found that a large amount of the increase on the asset side is shown either in reserves or in "due from banks", in other words, that they are made up of balances carried by interior banks with banks in reserve and central reserve cities, and banks in reserve cities with those in the central reserve cities, while not counting as reserve would appear as an item due from banks. B.S.MM att. MISC. 4. I-mm-9-23 FEDERAL RESERVE BANK OF NEW YORK 3FFICE CORRESPONDENCE Mr. Snyder To DATEAug. SUBJECT 1, 1924 Member Bsak Deposits Governor Strong F tri It is interesting, as you say, so is more important, however. The question of why it should be May it not be because of the concentration of payments at this center in carrying out our investment policy and due to the fact, also, that gold imports are all made to New York and consequently the credit arises with New York institutions in the first instance.? BS.MM att. _192_ FEDERAL RESERVE BANK WSCA.1-100W9-23 OF NEW YORK 1FFICE CORRESPONDENCE Fo Mr. Snyder Aug. 6, 1924 SUBJECT. Governor Strong FROM DATE Brokers' Loans The figures which you have just sent me and which .I am returning, impress me as being based upon a plan of calculation which should give us as nearly an accurate estimate of the loan account as by any method that we could adopt. I hope you feel as I do that this is one of the really important must influence our policy from time to time and that, therefore, we ought to use as accurate a method of estimating as can be devised. figures which I am sorry to have caused you so much bother. BS.MM att. 192_ MISC. 3. I-75M-9-23 FEDERAL RESERVE BANK OF NEW YORK \TFICE CORRESPONDENCE To DATE _____1118,7_._.111-11124,1,192____ Mr. Snyder Price Levels SUBJECT Governor Strong FRO . As an intellectual speculation in regard to the future, I should say that the best bet would be that in the long run we cannot expect tomaintainstable general prices in the face of continued gold imports even though our policy may, by good fortune, be capable of considerabledevelopment beyond what has so far been possible. In a way it was fortunate that we were able to acquire securities at a time when the general price level was declining. Were it advancing with speculative tendencies abroad, we would soon enough discover the embarrassment of our position. The question now is: What may effect a change of sentiment of such character that people will be in a mood to buy rather than to sell things, to contract ahead rather than from hand to mouth, etc.? of the whole question of prices just now. That is really the nub Around a year ago, I thought that time was coming because I felt that Mellon's tax plan had been received with sufficient enthusiasm to insure its passage, that the bonus bill was killed, and that the European situation was going to have a housecleaning. Mellon's bill failed, the bonus was passed, and the European clean-up was considerably delayed. Now, however, we have a good prospect for a settelement abroad, the bonus bill has been forgotten for the moment, there has been some tax reduction of moment to the country, the crop situation has developed an astonishingly improved outlook for a large section of the farming community, and it may well be that the turn of sentiment will take place after the country gets reassurance as to the outcome of the elections. Of course, that is the one specisl doubtful factor just now. I do not regard the figures as to reserves, bank deposits, money rates, etc., as being so important just now as a guide to the future as I do the develop- ment of sentiment from time to time and its bearing upon the willingness of WkAJ-75ws-n FEDERAL RESERVE BANK OF NEW YORK Aug. 11, 1924 .1AFFICE CORRESPONDENCE To DATE Mr. Snyder SUBJECT. Governor Strong FROil business men to make commitments. ating, and to me are 192_ Price Levels 2 But the index figures are exceedingly illumin- convincing that even allowing for errors in judgment which are unescapable, the policy of the Federal Reserve System has been sound and I would not be ashamed to defend it against critics. BS.MM att. . MISC. 4. 1-10M-9-43 FEDERAL RESERVE BANK OF NEW YORK )FFICE CORRESPONDENCE Mr. Snyder DATE T-'-'ug. 12, 1924 192_ SUBJECT Governor Strong FROM Ahere is that memorandum you were going to send me about the ventilation and temperature in the new building? it up right away, in case we have some more hot days. BS.IVLIVI I want to take ' MISC. 3. I-ISM-9-23 FEDEAL RESERVE BANK OF NEW YORK 4"--IFFICE CORRESP 111 DENCE To Mr. Snyder DATE SUBJECT- Aug. 18, 1924. 192_ Excess Reserves ernor Strong Fi, Does your memorandum of August 15 in regard to excess reserves indicate that you have some doubts in your own mind as to our policy? what has brought about the change of view? If so, $86 million is about 4 per cent. of the required reserve, and as the reserve would average,say,around 10 per cent. of all deposits, the excess is 4/10 of 1 per cent, of the deposit liability, and in percentage is not very much. I have myself in former years, when bank deposits in New York City were but a fraction of what they are now, seen excess reserves of the New York Clearing House banks alone in excess of $86 million. in the vws, My recollection is that Syceceo difirdwo 90's the excess reserve at one time was in .3 1QmgjETs., and after the panic of 1907, as I recall, the excess reserve of the New York Clearing House banks at one time exceeded $80 million. But after all it is the last few bales of cotton that make of the whole crop, and I suppose the same applies to credit. BS.MM att. the price MISC. 4. 1-100M-9-23 FEO,RAL OF NEW YORK OFFICE CORRESPONDENCE To DATE Aug. 18, 1924 192_ Mr. Snyder SUBJECT ' FROM Govemor Strong I think we should have a his apprehensions. him for some day BS.M0 att. talk If you would care this week, I would be with Mr. Roberts and endeavor to allay to make an appointment for glad to go along. lunch with FEDERAL RESERVE BANK MISCA.1-1001-9,3 OF NEW YORK OFFICE CORRESPONDENCE Mr. Snyder DAYE Aug. 18, 1924 SUBJECT To Governor Strong FROM Dr. Burgess has been good enough to prepare for me an analysis of the article in the Chase Bank Bulletin which criticized the policy of this bank, and conceraing which you had some conversation with Mr. Roberts. I wish you would read his memorandum attached and return it to me discussion with as it is along some such line as this that I propose to have a Mr. Roberts. BS. MM att. 192 71M1111011MAIN.., AU.A4 CONSIDERATIONS OF BANK POLICY In some quarters there has been a disposition to question the wisdom of the latest reduction in the discount rate to a 3 per cent basis. This appears maialy to be upon the grounds that this latest reduction especially has tended to promote extremely low rates of interest, at least in the New York market, and that this is dangerous and unwise. This appears to arise through a misunderstanding of the functions of the rediscount rate. Following the worldwide collapse of prices and of trade in 1920 there were many predictions of severe and difficult times. This has proved to be true for most other countries, but in the United States there came, towards the end of 1921, a marked recovery which has not been since seriously interrupted. We now possess reliable measures of the volume of trade and business r conditions, and from these we know definitely just what the position of trade has been. Our new indexes show that trade was back to normal by March of 1922, and has since been belot normal only one or two months. words, this country, almost., alone of any important country, has enjoyed an unusual degree of prosperity for two years and a half. And in marked con- trast to the war and post-war periods, we have had also a fairly stable price level When in March of 1923, and again in February of this year, the business averages rose rather sharply and then suffered a subsequent decline, there were again multiplied predictions that we were entering upon a serious slump. Especially this year the building boom and motor car production had been going at a high pace, and a considerable reaction would have been not unnatural. 2 But in June, or July, the decline which, in iron and steel and the cotton trade, and some others, haa become quite serious, appears to have been arrested and since then business has been generally on the up grade. Now, in the present year, this bank's rediscount rate was reduced first on May 1, again on June 12, and finally on August 8. Throughout this period interest rates tended to decline up to August, but not since the last reduction of the rediscount rate, notwithstanding that during this period the Reserve Banks' investment holdings have been moderately increased. The rediscount rate being essentially in the nature of a regulator or governor of the business machine, what, under these conditions, was the clearly indicated policy? If, as so many believed in the spring, the re- cession in business was to be serious, obviously the discount policy should have been directed towards mitigating this as much as possible. If, on the other hand, as many believed, the opposite danger existed and the steady in- flow of gold must inevitably result in another heavy expansion of prices and a consequent boom (such as inevitably attends a rise in prices) it was desirable that the Reserve Banks should be in the best possible position to mitigate A low bank rate and a considerable investment holding was clearly the this. vantage ground. The business of the rediscount rate is not to stabilize interest rates or maintain high interest rates. In stable interest rates there appears to be no economic advantage whatever; quite the contrary. Their chief social function essentially involves the Widest movement. As the long experience of England has shown, the interest rate is the surest and safest regulator of trade that we possess. can Unless this rate move freely and widely this regulating function is lost. Tendencies to overexpansion will not be restrained by a 5 per cent bank rate or undue apprehension relieved by a 3 4 per cent rate. If the rate can move freely between, let us say, 3 and 7 per cent, this influence is correspondingly augmented. can swing between 2 and 10 per cent, the influence If the rate clearly still stronger. The Bank of England, the oldest anvost ably conducted of all central banks, has never hesitated at these latter ranges. 1909 the dank of England rate was at 2i per cent. In 1908 and In 1914, at the opening of the War, it was swiftly raised to 10 per cent. There are fe.a economists who do not believe that if the rediscount rate in this country could have been raised to 7 per cent, or possibly 8 per cent in 1919, a large part of the subsequent boom and collapse might have been avoided. In the same way a declining discount rate should be the accompaniment of declining trade, unless, indeed, we regard the stability of interest earnings as of greater moment than the stability and prosperity of the nation. There are many who feel that the tremendous and redundant inflow of gold into this country, amounting now, since August of 1920, to over 1600 millions, is fraught with great peril to our economic stability, and especially to our credit position and price levels. This may well be. But the frequently predicted heavy rise in prices has not yet appeared, nor is there as yet any beginning. This Bank's index of twenty basic commodities, which has shown itself such an excellent forecaster of the larger and more slowly moving indexes, fell last week to 141.3, the lowest point in two years. It is true that the last six months have seen a quite remarkable a/A expansion in bank deposits, and that the total net deposits of ViftAlmber Banks of the Federal Reserve System are now more than 3i billions above the highest point of 1920. And such a rapid expansion is usually the precursor of a corresponding increase of business activity and of rising prices. 4 But the remarkable fact about this increase in deposits is that about three-fourths of has been in the form of time deposits it and the larger part of this has gone into bank investments rather than into an expansion of bank loans. And experience has shown that there is a quite notable if not radical difference in the effect of such an expansion, as compared with a rapid increase in bank loans to customers, and, as is usually the' case, a corresponding increase in demand deposits. The business of the country is largely carried on by means of demand deposits, and it is the relation of these demand deposits to the volume of business, the ratio between thes2and the volume of trade, which chiefly determines the general level of prices. The increase in demand deposits in this country in the last two or three years has just about balanced the increase in the volume of trade, and we have had, therefore, a fairly stable general price level, as this Bank's new index of this general price level has so clearly shown. There have been considerable fluctuations in the averages of commodity prices at wholesale, both up and down, but in such times of perturbation as the last ten years this is a distinctly different thing from the movement of the general level of all prices, including therein wages, rents, retail prices and other elements which make up the total of payments for goods and services. But if our redundant gold really threatens an overexpansion of bank credit, clearly it is the business of the Reserve Banks to be in the best possible position to meet this. And against any long and slow expansion, as in the twenty years preceding the War, experience clearly shows that neither the bank rate nor the interest rate is any effective counteragent whatever. On the other hand, if a recession in trade and a decline in bank 5 11,14 bor wingw presents an excellent opportunity to the Reserve Banks for ac- A qui 'lag a sufficient holding of investments, this can become a very potent factor in checking expansion in a time of need. Member Ban' If the larger part of the reserves of the country, say a billion and a half, was invested in Government securities, this would provide a fund that would go far to counteract the effect of even a billion and a half of redundant gold. Whether this would promote cheap money or speculation in stocks and bonds seems of little consequence. Stock speculations are but a bubble on the broad stream of trade and can never seriously affect trade conditions, as we now have abundant evidence. 1Nor do very low interest rates in the Diew York market necessarily foster credit expansion. After both the panic of 173 and of 193 we had a prolonged period of cheap money, but the credit expansion was long delayed. But there is yet another phase of the question. The United States have a vital interest in the revival and the stability of world trade. We have equally a selfish interest in getting rid of this billion and a half of redundant gold as 'as possible. of the world has a genuine need for it. We have no need of it; but the rest For every cent of it we have paid the exact equivalent in goods and services. A billion and a half of lars is a good deal of money to throw away. If we could help a general dol- return of the nations to the gold standard we should gain both ways. Experience as well as theory has shown that, in a broad way, the rates of foreign exchange under such conditions as now prevail correspond broadly to the relative positions of the price levels of the different countries. If our price level declines this tends to raise the purchasing value of gold and to lower the value of paper currency; in other words, to make the return to a gold standard very difficult. It is highly to our 6 interest either to keep our price levels steady, or even that they might somewhat advance. And quite apart from all this, low interest rates here promote foreign borrowings and set the tide of foreign payments in the opposite direction to what it has been, which in turn would greatly assist England and other nations in getting back to a gold basis. And beyond all these considerations there are others of a more general nature, of social and political significance. There is no question that the high discount rate of 1920 was generally connected in the minds of the farming population and many others with the violent fall in farm prices, greatly stimulating the prejudice against any form of central banking system in this country. Identically this kind of feeling made an end both of the First and Second Banks of the United States. If this prejudice were strong enough it might be sufficient to wipe out all the great gains in banking reform since 1913. Clearly it ought to be said that if the Federal Reserve Banks can make a high rate of discount they ought equally to be able to make very low rates. .4. 4$1,1441 There is yet another consideration, and that is that owommuipsii4ww. the rediscount rate is largely determined by the prevailing interest rates C0.444 and not the determinant of them. Ait is open to question whether prevailing money rates would be greatly different at the present molgent if there were no Federal Reserve Banks at all. Ne have had extremely low interest rates in New York in many periods before these banks were created. WSC.3.14W-9-23 FEDERAL RESERVE BANK OF NEW YORK --4FFICE CORRESPONDENCE To Mr. Snyder DATE Aug. 18, 1924 SUBJECT: Governor Strong FROM II see no objection whatever to your giving the lecture course on "The Business Cycle" in the Department of Economics of Columbia University next summer. Of course, the only objection which could be raised would be that the discussion might in some way involve a disclosure of the affairs of the bank, but your own good sense in that respect is sufficient for me, and if there is any doubtful refer it to att. your mind on that score, I am sure you will me. I think BS.MM point in it is a good plan to keep these contacts alive. 192_ MISC. 3. 1-75M-9-23 FEDERAL RESERVE BANK OF NEW YORK Or'FICE CORRESPONDENCE To DATE Mr. Snyder SUBJECT Aug. 18, 1924 Street Loans Governor Strong FROM The explanation of the ch,inge in proportion between loans for account of correspondent banks and loans for the account of New York reporting banks is a fairly simple one. The New York banks are forced to take these loans over when the call money rate gets so low that there is no profit in lending the money over what is received on ,a_.-deposit balance. It saves the out of town correspondent a lot of bookKeeping and bother in figuring interest just to call the loan and let the balance remain in its account. I have no doubt a lot of that has taken place. at t. 192_ 11.11 om,2.oA,,4 IMMINMMMMIIMMIMPIJPINIP MOW INTEROFFICE FEDERAL RESERVE BANK OF NEW YORK ROUTE SLIP TIME P. M, OFFICE SERVICE MESSENGER SECTION DA1E Mr. Snyder DEPARTMENT DI v IS ION SECTION Please note,.... __o.C._and send any REMARKS suggestions, to be ready for Mr. Jay on his return. FROM W. R. Burgess DEPARTMENT DIVISION SECTION N. B. Digitized forUSE THIS FORM INSTEAD OF OFFICE ENVELOPE WHEN POSSIBLE, FRASER TO INSURE PROMPT ABS ACCURATE DELIVERY ALL COMMUNICATIONS SHOULD BE DISTINCTLY LABELED COPT FEDERAL RESERVE BANK OF NEW YORK 4111. OFFICE CORRESPONDENCE Messrs. Jay, Case, Kenzel and Sailer To DATE SUBJECT August 21. _1924. Governors Conference Benj. Strong FROM The Federal fieserve Board has called the fall meeting of the Governors and Federal heeerve Agents for Monday, November 10, 1a4. conference may be a profitable one., it is necessary to 11 In order that the ve the rojrnms prepared and submitted to the various Geverncre well in advance at th-t date, in order that they may have time to consider and prepare any necessary date in connection with the questions to be :resented to the conference. Rill you please, therefore, give to the various deoartments within your jurisdiction an opportunity to sugLeet to you any topice which they may wish to have presented for consideration, and :ubmit any topics of eubstnntial importance to Mr. Earrison, who till undertake; the preparation of the programs, not later than October 15, 1924. Please observe the usual custom of aubmitting each topic seeeratelv and in duelicnts, stating enetner it is intended for consideration at the separate Governors sessions or the joint eessiens, slel giving a short title for use on the progrum, followed by 4 concrete recommendation if actien is reeuested, and by a brief explanation of the point mined if duscuesion only is deaired. FEDERAL RESERVE BANK WW.4.1,00W9-23 OF NEW YORK OFFICE CORRESPONDENCE Mr. Snyder DATESept-9, 1924_ 192_ SUBJECT Governor Strong FROM Owing to Mr. Roberts' illness, I and probably will not do FO have before leaving for been unable to see him, the West. With this I am returning Dr. Burgess' might be a good plan for you and Burgess and without emphasizing it too much, memorandum at some to have a and think it convenient opportunity, talk with Mr. Roberts and confidentially clear up his mind of any doubts which he may have along similar lines. PS.W. att. MISC. 3.1 60 M-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE . Snipler DATE 9e _ /-t 10 '924 _I . 192__ SUBJECT: Governor Strong FROM The addition to your memorandum in the par clearance suit seems to me quite well worth while for Mr. Baker to consider, Of course, we don't want to direct him too much in the character of his defense of this litigation, and there is a very nice question which will cause some difficulty as to whether any evidence of this character upon which an argument can be based has a proper 21ace in the trial of the case iwhich of course is confined to the allegations in the bill. I think you and Dr. Burgess had better discuss this with Mr. Baker when he comes to New York on the 20th or thereabouts. As to the charts. I shall be in Colorado then. It seems to me a pyramid is graphic and will explain to an uneducated person just what transpires, but it will only be complete by the figures of the showing theAbanks through which these credits pass and accumulate, putting in the letual figures for purpose of illustration and then adding a little description of the process of lending and of the way the deposit is transferred fror one bank to another and thereby the reserves transferred in a decreasing quantity until the theoretical limit of expansion is reached, which of course is a logarithm with no end to the calculation. I like the larger chart in pyramid form better than the smaller one, although I see no reason why we should not prepare a variety of them and give Mr. Baker his choice. This is a situation that iE worth all thr work that we can put into it. B.S.MM att. MISC. 3.1 e0M-4-22 'FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To. 1r.Snyder DATE Sept. 15, 1924 SUBJECT: Governor Strong FROM There is no reason for you to be in the dumps about the index or anything else. Don't forget that the educational value gained from a study of past experience must be supplemented by some sort of judgment in its practical application, and the reason why I want the figures along the line of our recent discussiOn as to credit, is because the first is not complete without To tell you the truth, I think your index will prove to be the the second. most valuable one that we can have for such use as indices serve,tar.better. than an index of wholesale ,rices or a selected list of sensitive articles or living which -show costs or any other index fails in comprehensiveness, wh4ch-=-71just one small - A item in a big picture; and I have always felt that your index is the most comprehensive. If it is at all open to criticism, from my point of view it to would be on two grounds: (1) index, and (21 I is7 criticism which applies to every weighted t ia, as to the judgment with wtich the weighting is done, and is as to whether the calculation of a trend, in order to find a true normal, is definitely sound.. I don't know enough about it to be able to criticize intelligently, but it seems to me there may be a weak spot there. I should be glad to learn of any new suggestions you and Burgess may have about banking figures, because I do attach corwiderable importance to work along those lines. BF.' AN att. 192_ mix.3.1-75w9M FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE Snyder FROM DATE_ November-3r 1g24_192___ SUBJECT Benj. Strong. I have read the attached memorandum and draft letter to Mr. Knox, and this i.e my reaction: A personal letter to Mr. Knox serves no broad purpose unless he is permitted to circulate it, or to publish it. As this is a Federal Reserve System matter, as distinguished from our own bank, I am unwilling to make a statement for the System on so important a matter at least without some understanding with our Washington associates. 5. This matter is on the program of the Governors Conference for discussion, and my own recommendation is going to be that a statement of our policy be prepared at the earliest possible date and printed in the Bulletin, and that either the statement in full, or an epitome of it, be put on the back page of each of the twelve monthly reviews. If possible, I would like also to see such a statement appear in the journal of the American Bankers Association. Incidentially, I was delighted to have Colonel Ayres tell me on Friday that while some of his colleagues in Cleveland would not agree with him, he was, personally, very glad that we had accumulated such a large investment account, as he believed it was about the only means available to us during the past year to protect the country against an inflation. can help US immensely. talk, and a frank one. Such fellows as he And so can your friend Chandler, with whom I had a long Likewise, George Roberts, whom I hope to see in a few days. Does not this same statement apply with equal force to the article which accompanies your letter of September 26, which I assume was written to go Colorado to and held up on account of my desire to have no mail out there? W.A.1-1N1.9,3 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To FROM Snyder DATE November 17la4_192___ SUBJECT: Governor Strong What, if anything, are we able to do in order to get a good line on the amount of "forward" contracting. contracts have a very This ia the period when inventories in forward important bearing upon our policy. I doubt if it can be approached statistically, but if discreet inquiries can be made by our investigators so that this matter can be constantly watched, I think it could be of value and I would like to know the results. BS.LS (Copy to Dr. Burgess) FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE Mr. Snyder DATE-Aovember 18, 1924. SUBJECT: FROm_Gav_ernar_Strong_ I have been invited to address the Army War College on January 22, 1925. I wrote General Ely that my throat did not permit my doing so, but offered to suggest some substitute if he desired me to do so. His reply is attached. Do you feel that it is worth while for you to undertake this? Att. _192_ M.A.1-10.1.23 FEDERAL RESERVE SANK OF NEW YORK ' OFFICE CORRESPONDENCE Mr. Snyder -ROM DATE_ SUBJECT: November 22, 1924.192_ Forward Contracting. Governor Strong I did not have in mind a statistical treatment of forv,ard contracting, but simply such private, unofficial inquiry which would disclose whether the tendency was developing and whether it was con- siderable or slight, dangerous or harmless, etc. BS.LS .MC.3.1-794-9-23 FEDERAL RESERVE BANK OF NEW YORK C.'PTCE CORRESPONDENCE To_ Messrs. Snyder and Burgess FROM DATE_ November 29 1924.192 SUBJECT Benj. Strong. Referring to our talk of a program in connection with recent criticism of the policy of the Federal Reserve System, please note the careless analysis on page 2527 of The Chronicle (Nov. 22, 1924) in the middle of the right hand column, where it says: "since when trade again improves the securities can be sold and the funds released placed at the command of trade" etc. This merely exhibits the loose jointed way in which this matter has been discussed in the press. As to the criticismsthemselves, I think they fall within three categories: Unremunerated services. An analysis of this will show that they are all services of the charc-cter required in order to give effect to the principles of the Act, and the answer, if one is made, must be an attempt to justify performing necessary services without charge. And that, I fear, is one of the weak joints in our armor. That investments are made in order to produce earnings which are needed to meet the heavy cost of these unremunerated services. While the Governors of the Federal Reserve Banks have for the past year or two been definitely on record collectively as opposed to investments just for earning purposes, there is, nevertheless, a feeling in the minds of some of the Reserve Banks that they must earn most if not all, the expenses and the dividend, and here again is a weak We in New York know that the whole joint in our armor. purpose of the operations of the Open Market Committee is credit control and not earnings at all, but an exact and fair picture of the attitude of some of the Reserve Banks would probably be that they have Agreed to a policy as to credit which is agreeable to them because it does produce earnings And the real test as a sort of by-product of the policy. of their attitude will come when the time arrives to sell As this time is approaching, we will soon these securities. know more. 5. The General Subject of Policy. Here we come to a System matter of such moment A-9-23 FEDERAL RESERVE BANK OF NEW YORK --)FISkE 0_ CORRESPONDENCE DATE_ WIssra Snyder and Burgess November 297-4424_192_ SUBJECT: -2- Benj. Strong ROM or writings lest we invade the field of the Federal Reserve Board and lay ourselves open to the criticism that we are not "playing the game." From the above you will observe that further reflection leads me to hesitate a bit about going into this matter ourselves and in our own name. On the eleventh of December a big banquet is being given to Mr. Owen Young. I hear that the applications for seats will result in filling the Waldorf-Astoria banquet room to the roof. I wish you would ask Mr. Jay how he feels about preparing a very brief, conservative statement to use in connection with his address at that banquet, which would deal with Federal Reserve policies somewhat from the European standpoint and along the line of our recent discussions with Anderson et al. This is just a thought based upon my belief that almost anything that Owen Young says just now will be regarded as gospel and coming from the world's greatest financial strategist. BS.MSB 3. I-75M4-23 FEDERAL RESERVE BANK OF NEW YORK JFFICE CORRESPONDENCE ro___ Tr. Snyder DATE December, 1924 192__ SUBJECT: Benj. Strong FROM I know Mr. Boles very well. He is sympathetic and a good friend. We must bear in mind that a meeting of newspaper men bears some resemblance to the strength of a chain, - which is no stronger than its weakest link. A meeting of the character you suggest is limited in freedom of discussion by the limitation imposed by the degree of trustworthiness or untrustworthiness of the least trustworthy person present. I had a talk with Mr. Noyes about it yesterday, while Dr. Stewart was in the bank, and they both agreed with inc on this point. My suggestion is, therefore, that we pick out a very small group of the very best men and most reliable of the newspaper men. My suggestion at the moment would be Boles, Noyes, Woodlock, Schneider, and, of course, we might add Roberts, Chandler and Anderson. Willis and Seibert at such a meeting, and I am not well enough acquainted with the others whom you name to take the responsibility of making any suggestion. Dr. Stewart would attend such a meeting. If you and Mr. Jay agree that it would be worth while, I will be glad to have these men dine with inc some night, and would submit to your judgment and his the question of whether anyone else should be present. We must not mix the white sheep and the black sheep; we have a mixed party of newspaper men and business men. If we are going to have a party of business men such as you suggest, they should all be of that type, for the discussion would be of a wholly different character, and, in my opinion, would be subject to limitations which would not apply with the members ne . 3. 1-75M-9-L1 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To - 4r.- -Snyder SUBJECT: Benj. Strong FROM DATE_Decesiber .5_,_1924_ 1 92_ -2- of the press. Won't you go over this with Mr. Jay and get his reaction? BS.MSB FEDERAL RESERVE BANK OF NEW YORK iFFICE CORRESPONDENCE To ur. Snyder DATE December-5, 104 192_ SUBJECT: Benj. Strong FROM I cannot answer the two problems you suggest, except that it may be that during the peaks of industrial activity caused by the war, very large sums of surplus earnings were plowed in in all the industrial companies,: which benefitted by the war activity. This certainly was true in various branches of the steel industry, and possibly others. It was notably not the case both with the real] roads and with the public service corporations, which were subject to the very high costs of operation and control of rates. They suffered while industries benefitted. outstanding example. BS. MSB The steel corporation is the ,M-9-23 FEDERAL RESERVE BANK OF NEW YORK ,-)FICE CORRESPONDENCE 0 ROM Snyder DATE_ December_4,_1924-192___ SUBJECT Governor Strong here is a note from Miles. Can you ascertain from our files what the Allied and Colonial debt is to Great Britain? As to the second question, do you not feel that the maintenance of the arbitrary ratio between the Reichsmark and the Rentenmark was due to the following causes: The steps which were taken to prevent the export of the Rentenmark and its use abroad in settling foreign payments to Germany; To the very high discount rate of the Reichsbank; To the element of convenience, and To the general shorta6e of all forms of currency for making money payments. Are there not other points? At t. BS.LS FEDERAL RESERVE BANK MISC. 4. 1-2.004- -LI OF NEW YORK OFFICE CORRESPONDENCE Tc Mr. Snyder FROM DATE December 84 1924 SUBJECT: Benj..-__Strong Before I write Miles, are you able to advise me of anything that is known in regard to what, if any, payments are being made by the dominions and colonies on the loans made them by England, or of any payments being made on the loans of the allies? 19; 1-100M-9,3 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To Mr. Snyder FROM DATE December 22 E '70 Governor Strong SUBJECT . The remarks in regard to theAmerican'llgitic J. qually to the article in the Annalist. I might suggest that Noyes might be able to help_ ou with the Annalist, if it is worth paying any attention to at all. Att. 192_ 10010, FEDERAL RESERVE BANK n1104, OF NEW YORK liFICE CORRESPONDENCE ro ROM 111 Governor _Strong__ DATE January 4, 192 4 SUBJECT : Mr. Snyder "A Tract on Monetary Reform," by J. M. Keynes, will be published here by Harcourt, Brace b Company, on January 17, end we have sent them an order for twelve copies as soon as issued. n.11c oo FUNERAL RESERVE BANK _3 OF NEW YORK arFFICE CORRESPONDENCE To Governor Strong FRO DATE January 4, 1 92 Mr. Snyder SUBJECT Just as recalling a little incident of 1921, you may be interested in a little paragraph on page 4 of the enclosed, and the matter to which it refers. 4 MISC.3 I STAT.9/00-10,1 FEDERAL RESERVE BANK OF NEW YORK IIDFFICE CORRESPONDENCE To FR GalLernor Strong. DATE SUBJECT: January 8, 192 4 Bok Plan Mr. Snyder I am much interested to know that you purpose to vote on the Bok plan, for, like yourself, I had the same impulse to break a fairly steady procedure in that regard and do the same. I don't know how you feel about it, but it seems to me that our Senate today was never more misrepresentative of With sixtyAmerican interests or enlightened nublic sentiment. four of its ninety-six members drawn from the sparsely settled West and South, containing but two-fifths of the population, it is now unrepresentative in fact. It is simply gr a few thousand populations amid the sage brush of Nevada, Arizona, Yew Mexico, Idaho, and the like should be able to out-vote ten or twenty times the population of New York, Pennsylvania, Ohio, etc. It seamed to me that the egregious Bok had really hit upon a plan to give voice to the better sentiment of the country and to bring some real pressure to bear upon a dismally donee body of back numbers. Would there be any objection to at least pass the word around to all the Bank that this is a matter of sufficient interest that everybody ought to say their yea or nay about? FEDERAL RESER OF NEW YORK "FICE CORRESPONDENCE 0 Awornor strong DATE SUBJECT January 8, Bank Deposits and Prices Snyder FROM I should like especially to have your consideration of the chart of gold stocks, deposits, and the general price level in this morning's Business Summary. It seems to me of rather curious interest. If we had taken the average of commodity prices at wholesale the spread here shown would, of course, have been still wider. Does it not give the impression that this spread cannot long continue? And I take it that there is no probability of a great decline in bank deposits. ir,.' 14111C 3 I STAT.3000-10-11 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To i vernor_Strong DATE SUBJECT: i92 January 11, 4 F. R. S. Pamphlet Mr. Snyder The pamphlet, "Of Service to Banks and Business," is very attractive, very interesting, and very effective. All the more reason why, since it deserves and probably will have very wide circulation, it should not contain erroneous statements or inaccurate information, as is the case on page 7. The :larvard "Index of Business," here used, is not, as I think we now know, conclusively, a correct report of the course of business or trade. It is essentially an index of prices merely. Vie have found such strong confirmation of our composite index of the Volume of Trade that we may now say confidently that the volume of business and trade in the 1910-'20 boom reached :As peak, not as here represented, in the middle of 1920, but a full year earlier. The Harvard index wan so clearly erroneous and so far from the reality, that it had to be radically revised last summer. As it is, furthermore, based, as T believe, upon an erroneous idea, I do not think that it ought to be used in this book. 045---kaut )063A,F_ ckaluce t'aftx. &Li' a491.,J ca tikie lug Attr;_ (/ truk2rt/It 1> tsoyuc_ 4(rntA_ factrie 614-Ak ItteAk ,SC 1 1 y.v 3 FEDERAL RESERVE BANK . OF NEW YORK OWECE CORRESPONDENCE Governor Strong FROM DATE: SuBJE-c7 January 11, Letter to Logan. Mr. Snyder An admirable exposition, and most important I think is the note which you stress on page 14, that the morale of Germany must be restored. But, outside of reparations payments, I see practically only one reason why Germany should have adverse trade balances for more than a brief period, and that is simply that her scale of prices was above the levels of her competitors. Next: It seems to me th,t the idea that Germany cannot mobilize (1) the 5 or 6 per cent, of her income that would be required as taxes, to sustain the government on a moderate scale of expenditure, is absurd. I believe that the German capitalists and banks have (2) ample funds to provide the government with a temporary loan, sufficient to tide it over until the taxes come in. Therefore, I do not believe that they need any foreign (3) loan, or any further inflation, or to do anything but to get back to sane economics and sane finance. All the rest of it seems to me pure subterfuge and evasion. And I believe that if you were to spend five weeks of travel and investigation in Germany you would share fully in this view. Is not the real trouble that the Germans themselves have no faith in the honesty of their own government? Why should we have any more? 1924. 811.0 3 FEDERAL RESERVE BANK OF NEW YORK 1.1131 31.33 R OFFICE CORRESPONDENCE To_ Governor Strong F DATE January 12, Mr. Snyder m SUBJECT Federal Reserve Pamphlet. About that Philadelphia pamphlet: As I understand it, some 20,000 or 30,000 of these pamphlets have been printed and are to be distributed. and the cost of distribution will not be lees, with labor and all, than 4 cents more, - say 15 cents each. If there are 30,000, this is an expenditure of $4,500 enou41 to make it worth while not to include half-baked and misleading stati sties . On page 22 is another chart which gives the impression that retail trade in 1923 was below and wholesale trade far below 1920. I don't think the Federal Reserve System ought to father such things as this . clitt(Li 90 A4Ar ocid det-xx Of, r- 1924 4,44' 44,447 40044-10 24 FEDERAL RESERVE BANK OF NEW YORK SPFFICE CORRESPONDENCE lay _ To Ff. Ur. _.(Copy for Gov. Strong) DATE January 1924 SUBJECT :Ittydsr You will note by the enclosed that still another service stci in thi :laming, with rn index prnctir_ally the same as we hove had in this Bank now for the last two or three yrs. I oepecially call your attention to its reference to the index published by the Ti'ederal 14sserve Board, and likewise its use of the word ti "normal." "Iractically spoakin,;, T know of no competent statisticsl service in this country now which does not make use of the concept,ok thin wore in some form practically the same na our olsn. This includes, among others, the harvard l'ureau of Business ae- search, the hmerican T. 6 T. Statistical Department, end the Standard '.wily Trade .service (whose economic vdviser now is Prof. B. J. Davenport, of 3onnell University. It is protty discouraging to have this sort of thing happen year after year to it han ever since I came here. ,n index of the Volume of Trade. And I suppoee the next will IFAIM . 3 I STAT.900-10-21 FEDERAL RESERVE BANK OF NEW YORK IIIFICE CORRESPONDENCE To FR* _chiernor strong DATF January 29, 192 4 SUBJECT Mr. Snyder George Harrison has shown me the kind of an index digest pre- pared by tr. Hamlin, of the Board, as to the differences between the Aldrich flonatary no-omission Bill and the Federal Reserve Act as passed. As it stands it does not seen of much use. But it occurs to me that an analysis by mxallel paragraphs might be of service to some future historian of the System, the which I might be myself mono day. Do you know if anything of this sort was ever *repared, and if not do you happen to have any extra copies of the original Aldrich Commission Bill and of the Tederal Reserve Act as originally passed* Pos- sibly, also, o' the original draft of the bill by the Glass Committee, as submitted to lovngress? It happens that Miss Davidson would be free for a few days to do a job of this kind, if we vented to. 3118C 3 I STAT.3600-10-31 FEDERAL RESERVE BANK OF NEW YORK 410DFFICE CORRESPONDENCE To _Governor Strong_ FRS DATE February 1, 19 24 _lir. Snyder (1) SUBJECT The Bok Plan Isn't some kind of a court better than any kind of vigilance committee and lynch-law sort of mob rule, and isn't the appeal to war always more or less of that emotional type? In other words, isn't any kind of a scheme that will make the countries sit around a table, no matter how senseless the babble they indulge in, better than trusting to the conferences of a lot of cookie pushers in white spats that we call diplomats? (2) Won't the League of Nations tend to set up some kind of a centre of interest that would be antagonistic to the militaristic political centres; and, therefore, (3) Isn't it better to vote for the Bok plan and get our folk interested a little than to go with the jingos, the know-nothings, and the blatherskites? That is my feeling. IAISIC 9 I STAT.9000.10.31 FEDERAL RESERVE BANK OF NEW YORK °OFFICE CORRESPONDENCE To Anvernar Strong FR DATE SUBJECT. February 2, Outlook_fOr the Gold Standard _Jar. Snyder (1) I share your view that, as yet at least, there is no serious menace of a general abandonment of the gold standard by all the other nations of the world, leaving us to hold a bagful of four or five billions. And I have the same view that you do, that more or less we are kind of utilizing this gold as a sort of international fund and that, while the external appearance is a great difference from pre-war conditions, the reality of everyday business and banking practice is pretty much the same. (2) I also believe that the gold tradition, as you call it, is very deep-rooted in the human mind, and that in the present state of public intelligence there is very little likelihood of a general abandonment of the But do you not feel that there has been a good deal of real gold standard. progress in the last six or eight years away from a slavish adherence to the theory of absolute gold control of the price level? C0/4" Over long periods, of course, the cost of gold production will le" average out, so as to control the trend of production, so that, up to the world war, the average of prices has not greatly varied from the average of the preceding century, although I am not too sure about this. But within the century there were very wide variations and I feel as though Wesley Mitchell put it very well when he said that it was not creditable to our intelligence that we should have been able to devise no better method. But (3) /I have a feeling that the "return" will not be to an absolute gold standard, but rather for most nations, at least at first, the establishment of the gold exchange standard, i.e., simply the use of gold for settlemerit of international balances; in a word, that we shall no longer have a gold currency in the several countries. Pretty certainly France will not devaluate, at anywhere near a feasible figure, and of course a return to the old franc par would be fantastic, with its present load of debt; so France can have no stable exchanges except on a gold exchange standard. And is it not likely that the same thing is true of Germany, and perhaps, also, for the present, in England? You have noticed that little Finland states, like Czechoslovakia, Austria, etc., in and if things get straightened out in Germany, should imagine that almost all the paper money over to this basis. is joining the rest of the establishing just this scheme, and they do the same, then I regimes would be changed MISC S I STAT.3130-10-41 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To FRS DATt- SUBJECT Governor_Strong February 2, Outlook for the Gold Standard 2 _lbr,w_Sayder (4) But as to the effect of all this on this country, I am more There has been probably a quite heavy reinvestment of European dubious. But I am wondering funds in this country in the last two or three years. if a large part of it did not come from much the same type of people who were accustomed to investing here, and had large investments here before the War. I don't see much evidence of progress towards making New York the Mr. Jay makes the point, and I think it is a international money centre. good one, that England is habituated to the idea of large capital exports, We can still use pretty nearly all the available funds and we are not. we have in this country. It is very clear that even such a colossal investment as three and a half billions in a few years could not give us a successful merchant marine. They are rarely successful as a Those things have to grow, of course. measure of force majeure. Now, I imagine a large part of sterling bills and loans for international trade arise pretty directly from the sources of the trade, and, with our exports rather dwindling than enlarging, I do not see much likelihood that we are going to supplant London. (5) But I do think that England has fact of her wildly wobbling sterling rate, and like Sir Charles, are beginning to weaken. I who spent several months over there last fall, interesting conversations. been feeling of late the efthat even cast iron die-hards, talked to Ohandler about this, and he tells me of some very Probably the Keynes group are as extreme in the one direction as the uncompromising back-to-par-ites in the other, and that the compromise will be on something like a gold exchange basis, as I have suggested. Does this sound reasonable to you? OMS 2 30M C 23 FEDERAL RESERVE BANK Or %NEW YORK TO ARKS M 111 OFFICE SERV.CE. MESSENGER SECTION INTEROFFICE ROUTE SLIP DATE A M. TIME P. M. DEPARTMENT DIVISION [ SECTION / - DEPARTMENT DIVISION SECTION NSTEAD OF OFFICE ENVELOPE WHEN POSSIBLE. D ACCURATE DELIVERY ALL COMMUNICATIONS SHOULD BE DISTINCTLY LABELED DOW, JONES & CO. NEWS BULLETINS TUE WALL STREET JOURNAL ELECTRIC PAGE NEWS TICKER Telephone One Broad 44 BROAD ST., NEW YORK Saturday, February 2, 1924 No. 21 THE NEW FINANCIAL POLICY OF ENGLAND BY HERBERT N. CARSON written for THE WALL STREET JOURNAL The first two weeks of the new year began in England with a renewal of the discussion on the gold standard; and it seems now evident that a definite policy will soon be adopted. The policy suggested by the Cunliffe Committee was abandoned during 1923, because of the industrial depression. Lord Cunliffe's advice was to deflate and return as quickly as possible to the gold standard. This opinion is still held by many bankers. It is still being defended by Harold Cox and Lord Inchcape and Sir Charles Addis. But it has ceased to be the opinion of the merchants and manufacturers of Great Britain. The prevalent opinion is now in ,favor of a stabilization of prices, by means of a managed currency, based partly on gold and partly on the Board of Trade's Index Number of wholesale prices. No one knows clearly how this can be done, except a few theorist, who have complete and elaborate schemes all worked out. But the drift of English opinion is undeniably in this direction. The central idea of the new policy is that for every rise of 10 points in the cost of living, the bank rate should be raised a half of 1%; and for every fall of 10 points, the bank rate should be lowered a half of 1%. EXPANSION AND CONTRACTION OF CREDIT In this way, the expansion and contraction of credit would depend, not on gold reserves, but on the prices of the principal commodities. The aim is tesecure a direct relation between prices and the supply of credit. This plan does not involve the debasing of the currency. It does not mean the free use of the printing pre:s to create an artificial prosperity. It means a regulated currency, but regulated by other commodities as well as gold. It is now an open secret that the government had adopted this policy and was about to put it in action, when a cabinet minister let the cat out of the bag. Sir Montague Barlow, the Minister of Labor, who was defeated in the recent election, declared in a public speech that the government was about to try a little inflation. This announcement at once caused a roar of protest from the daily press. The Daily Mail used the word "inflation" as a club and hammered the government until a Continued DOW, JONES & CO. THE WALL STREET JOURNAL NEWS BULLETINS http://fraser.stlouisfed.org/ Federal Reserve Bank ofELECTRIC PARE NERDS TICKER St. Louis -DOW, JONES & CO. THE WALL STREET JOURNAL NEWS BULLETINS ELECTRIC PAGE NEWS TICKER 4 BROAD ST., NEW YORK Telephone One Bro.I Saturday, February 2, 1924 No. 23 Continued tion of British Industries, have changed English opinion with regard to the gold standard. Also, the swing away from gold has been accelerated' by the slump in sterling. The English people had hoped that the funding of the American debt would lift sterling up to par. The reverse has happened. It has dropped from $4.68 to $4.30. It is now thought that Baldwin made a great mistake in promising to pay in dollars; and this decline in sterling has quite changed English public opinion about the importance of keeping pace with the dollar, England expected sterling to rise to par alid gold to flow back to London. Neither of these expectations has been realized. The English pound has depreciated 8% and the flow of gold to America in 1923 was greater than in 1922. In a word the new English monetary policy will ba based on profit rather than on pride. It will ahn, first and foremost at a stabilization of internal prices and a stimulation of trade. NORTH DAKOTA LIGNITE NEAPOLIS-Production of lignite coal in the kota mines, in 1923, reached the highest figures story of the mining industry in the state, ac- o J. P. Mellon, state mine inspector. Production 5,605 tons, compared with 1,057,823 in 1922; n 1921, and 502,028 in 1922. The value of the mining is placed at $3,742,413. There were 259 al mines producing in the state. Although the production over 1922 was 73.6%, it is estimated 00 tons were mined and not reported. THE DRAIN OF TAXATION of every $8 of our national income, $1 goes federal, state and local. boy whose living expenses are $8 a week pays s, in the form of prices made higher by taxation. man who pays out $24 a week is paying $3 of man expending $48 pays $6, and so on. And his,,- even if he does not own one dollar's worth e property. ays it in cost of living and he cannot pass the to anybody else. OMPARATIVE INCOME TAX TABLES Leach & Co. have published and are distributof comparative income tax tables. One table is e to any revenue law which may be passed. O seri be of regulat of producin every one wit do prices is an be desired. ym e ime t t ere was a very considerable expansion in the Mr. Keynes. however, does not volume of credit as measured by propose to adopt the system Advocated by Professor Fisher of varying the amount of gold contents ol the dollar. He proposes to separate the Dote issue altogether front gold. and to allow currency ix) be bank deposits, and vet trade de- pression cont,inu,A and the prices of commodities fall steadily These considerations surely seem to indicate that many other influ created freely in accordance (aces besides the volume of money the expansion of credit which may and the price that is paid for the be required in order to keep pike., use of it have to be cow,idered bestable. fore we can attt-rnpt to Oiabilite PROBLEMS OF SYSTEM. prices in a "scientific" manner. But, with all respect to the high And seeing that the gold standeconomic authorities which nave ard that we used to work under beproposed to regulate currency anu fore the Far was extremely suecredit in order to keep prices sta- fessful in providing practical stable, it may be suggested that, as a bility in prices and almost complete matter of practical politics, the sys- stability in rates of exchange there tem is by no means as simple as it is surely much to be said for the appears to be when they put it view that the United States is right forward with the persuasive les- in endeavorivolo maintain this soning with which Professor Cassel, system in sot. Mr. Ilawtrey and, above all, Mr. ience which it atKeynes himself. are so we -In that. Env' ui ed. inconvonent v r CH S 'SCIENTIFIC CURRENCY At, Reforms Proposed by Different Economists Present Many ftet (Now that the United States, as the world's foremost holder of gold, more than one-half of the to the use of the metal are of spehas world's supply. questions relating cial concern to Americans. J. M. critic of the Versailles Keynes. Peace Treaty and subsequent arrangements to collect German reparation& in a new book., entitled "A Tzar" 011 Monetary Reform," er, 1922, was accompanied during the last eighteen months of its course by a fall in bank rale of seven per cent, to three per cent. Bank deposits in the United King- recommends that America and Eng- dom, which may be roughly taken land, abandon the gold standard. as a measure of the extent of fearing that the present system will credit, were just under £2,000,000,- give the United States too large a 000 at the end of 1918 and continportion of the economic ued to expand until the end of world's power. Mr. Keynes's scheme is 1921. when they were over £2,500,criticised in the following article 000,000, thus Ignoring the bidding by Hartley Withers, special London financial correspondent of the New of bank rate to contract when it .-Financial went up. York Evening Jou Contraction only happened in Editor.) 1922, when they came down to £2,360,000, and this was the .yeal durLONDON. ing bank rate came down In a former letter, a brief sketch from which per cent to three per five was given of the proposals by which cent, showing that a very ccosidJ. M. Keynes, in his recently pub- erable fall in the value of money lished "A Tract on Monetary Reform." desires to revolutionize the monetary system of the United States and of England. through the practical demonetization of gold and the erection of a "scientific currency system, under which the may be accompanied, not by the expansion ce credit, which the ad- vocates of scientific stablization would expect from it, but by a considerable contraction. And if it be urged that the recent is quite abnormal and is volume of currency and credit shall period the influence of after-war be deliberately regulated with a under conditions which are never likely view to secure stability of prices. we may answer As f need hardly tell you, this is to be repeated, another example. have yet a subject of which much has been that we the period from 1890 to heard lately, especially in your During country. Professor Irving Fisher, 1895 the Bank of England discount ale University, might be de- late came down from five per cent per cent and stayed there e the pioneer of a system to twoabnormally long period. g currency with a view for an stability in prices, and DEPRESSION CONTINUED agree that stability Iffrideing and trac that has to be done to chec -Ise in prices and stop the boom a to put up the price that is charged for money, that is to say, to raise ihe official rate of discount. Further measures may have to be taken. such as the sale of securi- ties by the Central Bank. in order to increase the rapidity with which the system works. But it may be objected in the first place that sales of securities by the Central Bank may very easily upset the nerves of the Stock Exchange and make it quite impossible to sell, and further that a mere rise in the price that is paid for accommodation to producers and traders cannot be relied upon to check them if they forsee a rise in prices which will certainly bring them profit. DANGER OF PANIC. If the price of money is put ub high enough and fast enough, it wbuld certainly work ultu.,atery, but it may very easily produce a panic incidentally. Still, it has to be admitted that as a check on rising prices and a too exuberant trade boom, raising the rate of discount, will at a point, be an efficient weapon, but even so we have to admit the danger that when once it is recognized that the volume of credit and consequent activity of trade are things that can be regulated by Govern-1 meat there is a danger that very strong political pressure may be brought to bear in times of trade optimism against any Government which thought it nece.:, ary in the interests, of sound finance to check the movement. On the other side of the proposi- tion-the idea that in times of de- pression it is possible to raise prices and stimulate trade by lowering the price of money-we have definite historical examples which show that this system cannot be relied upon to work, at least for a very long time. This is more especially the case in England which, owing to its dependence for prosperity on its foreign trade, is especially liable to acute trade depression, owing to causes which are outside its borders, and are altogether beyond its control. FAILURE OF PLAN. It was shown in the experience of 1920 and 1921 that the lowering of the price of money altogether tailed to raise prices of goods or to expand credit, or to stimulate trade. The fall in prices, which http://fraser.stlouisfed.org/ terminated in EnglandSt. Louis in BoptemFederal Reserve Bank of MISC. 3.1-200.1 -0,20 FEDERAL RESERVE SANK OF NEW YORK "ok IkFFICE CORRESPONDENCE T *WA. OAT L SUBJECT. FIZOM Q__P-K, (-2:4-11 b cr,- I 2 2. FEDERAL RESERVE SANK OF NEW YORK 1.4IC 4 1-100M1-3-21 CE CORRESPONDENCE Governor Strong DATE February 5, SUBJECT : Mr. Snyder May I ask if you quite fully concur in the last paragraph of this I confess I never thoult of it before in quite such concrete page 3! terms, i.e., that any sustained movement in the stock market now involves a change in value of the total of securities listed amounting to billions of dollars. on Of course the percentage of change is not enormous, but I nevertheless feel extremely dubious about the idea that mere changes of sentiment, and still more in mere market manipulation, can really affect values to such a tremendous extent as is involved in the actual totals. 4 ko. ConfiL.ential February 4, 1924 Ti E INDICATIONS OF THE STOCK MARKET One of the surprises in the mvilation of our new index of the Volun:e of Trade was that in two instances out of three in the last five years this index distinctly preceded the major movement of the stock markets. In 1919 the high )oint of our index of trade was reached in July, three months before the peak of prices in industrialJstocks. Similarly, in 1921, the low point for the trade index was in J7.nuary, six months ahead of the low point of the stock market. In 1923 the index and the stock market reached their high points in the same month. This decisive evidence completely upsetsthe theory that the stock market is necessarily a business forecaster. What apparently it does forecast is production of the producer type of goods, the metals, macninery, etc., which in the past have been mistaken as accurate indexes of business activity. Nevertheless, the stock market, taken broadly, is unquestionably an extremely good index of business confidence; but only recently have we had a really reliable, comprehensive index of stock movements. Such an index has recently been compiled by the Standard Statistics Company, comprising a total of 202 industrials and 31 rails, weighted according to the number of shares outstanding of each stock, and converted into index numbers so that all the groups are instantly comparable, one with tne other, or with the total. It is, in a word, tne first scientific index of stock prices which has been compiled. At the present time the combined index of the 233 industrials and rails stands about five points below the high point of last March and about seven points below the peak of 1919. from 01.3 to 103.8. The recovery from the low of last July to last week was But much more interesting are the different groups. - 2Of the twenty-seven groups into which the 202 industrial stocks are divided, six groups are now above the previous high point of the last four years: f".. chain stores, electrical equipment companies, food products, mail order houses, telegraph and cable companies, and a group of 18 miscellaneous industrials. More striking still is the fact that eight of these different groups are now at their record high, i.e., above 1919. These include chain stores, electrical equipment, food products, railroad equipment, telegraph and cable companies, traction, gas and power companies, and the 18 miscellaneous industrials. In spite of the high average of the industrials a number of groups are still far below the :high of last year. These include auto accessories, chemical companies, copper companies, leather and shoe companies, paper companies, textiles, and tires and rubber. These range from 16 to 30 points below last year's peak. In other words, the list reveals how diversely different interests prosper under changing conditions, and how much of internal movement may be concealed beneath any system of averages. As to rails it may be noted that after a rise from the low point of 1921, of 71, to a high point in 1922 of 102, they fell off last year to 86 and are now only about 6 points above the low point of the last year. The present upward movement in stocks has now outlasted a full three months It seems scarcely possible to imagine a movement so broad and sustained unless the underlying fundamental conditions were sound. If the conclusion cited true, that the stock market is never far away from actual business conditions, and even tends rather to lag behind than to forecast, then we should expect to find fairly general improvement in the different lines of business. And this seems to be the case. One of the most disturbing elements of last year was the heavy overproduction of oil. But this situation has been reversed and the present prospect f'r this year's production is below rather than above the probable consumption. result has been a sharp rise in oil prices and a greatly changed tone in the industry. The 111 e- - 3The same is true in the steel and iron trade. Recent reports indicate a very general improvement in buying and prospects for an extremely good year. As to railway traffic, if one had read only the newspaper headlines one would readily have believed that railway traffic last year was at a very high level. As a matter of fact it was not much above the expected normal rate of growth, and with present prospects might be much exceeded this year. The car loadings for January showed traffic well sustained. The electrical companies report heavy forward orders and the immense takings of copper in this country in the last year show at present no signs of diminution. Likewise the sugar companies have felt the effect of stiffening prices. As to the general price tendency, otir index of 20 great basic commodities has shown now four consecutive weeks of advance, and this week rises 2 per cent. This is in line with current business conditions. Measured in dollars, the rise in stock values in only the 233 stock issues listed in the Standard Company's index, from the low point of last July 3, amounts to about a billion and a half. The present market value of these issues is only 700 million dollars below the high point of 14 billions reached on the 21st of last March. The rise from the low point in August of 1921 amounts to over 4 billion It is these prodigious totals which give to the business man a real interest in stock market movements , and indicate how futile is the idea that such 1 movements could be brought about by a few market manipulators, or in the face of adverse business conditions. Even if we give up the idea that the stock market is any wonderful "forecaster" of business, it still remains that it is a most excellent and sensitive barometer of business, and, involving as it does such vast sums and representing such extraordinarily diverse interests, seems far beyond any kind of arbitrary control, however concentrated and powerful. MISC FEDERAL RESERVE BANK I- 1001.1 S23 OF NEW YORK OFFICE CORRESPONDENCE Governor Strong To DATE February 7, I94 summor-__!The Stock Market and Business ,0144 FROM Mr. Snyder Just as supplementing what I wrote last week on the idea that the stock market is really a very close reflection of actual business conditions, I was last night mulling over the Standard Statistics average] for 202 industrials, and was quite astonished to find that, just taking the deviations of the averages from the five-year average, you get a line that runs amazingly close to our index of the Volume of Trade--the composite of 56 series--so closely, indeed, that a three-months moving average of the two sets of indexes would be almost identical in their trends, the only difference being that the ups and downs of the stock market in percentages are about twice those of our line of the Volume of Trade. Don't you think this is a quite extraordinary result, and could not possibly be the result of chance? I think I shall giv week's Business Summary. 'LAI Aid CGOAA/14.4-1.-0-1 FEDERAL RESERVE BANK I 10014-3.23 141111C OF NEW YORK FFICE CORRESPONDENCE ROM (bvernor Strong J* DATE February 7, 1'_,24 SUBJECT L'.r. Snyder If you are to be in Vashington next week, it occurs to me that possibly you might feel like going over to the War Collega and giving them th,s.i talk on H jar Inaance," as originally planned. orefer to have you and They would infinitely should be very glad to sidestep it. The talk is scheduled for Friday morning, February 15 at ten o'clock. If you should find yourself in thy, wood, sill you kindly let me know in season? FEDERAL RESERVE BANK OF NEW YORK !OFFICE CORRESPONDENCE o Governor Strong and Mr. Jay ROM, DATE February 21, So-called "Orderly Marketing" Mr. Snyder SUBJECT Hors is, it seems to me, an extremely valuable paper from Prof. Boyle, of the Agricultural College of Cornell University. His conclusions agree with a careful investigation made by J. E. Pope, formerly of the Census Department at Washington, snowing that we have now probably as orderly marketing in grains and farm products as it would be possible to obtain, and, secondly, that on the average the farmer would gain nothing by carrying his produce for any longer period, and therefore that the notion that the farmer loses by being "compelled" to "throve his products on the market is just a pure delusion. But I suppose our friends at Washington will continue to persevere in their efforts for orderly markets just the same. 192 4 PA IOC A IOW.' 3 FEDERAL RESERVE BANK 3 OF NEW YORK FFICE CORRESPONDENCE To Governor Strong FROM DATE February 21, Mr anyder SUBJECT You will enjoy Keynes' latest on the gold situation, and his malicious shots at the Euptian and (laldean bank directors. Certainly the man can write. You will also be amused at the Nation's description of the new "Labor" Cabinet, as mostly made up of old, rich and ageing men. 192 4 AIISC 3 I ST AT 3000.10-SI FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To Governor strong Fpno DATE February 21, c. Mr._ Snyder SUBJECT Currency and Prices in France It seems to me that there is a great deal of internal evidence to support your belief that large amounts of paper money in France have been hoarded and that much of this has bean coming into circulation with the usual effect. Before the War the total of gold and paper circulation in France, outside the Bank of France, was estimated at about 12+ billions--6 billions of paper and about 6+ billions of gold and silver. But a considerable amount of this could scarcely have been in circulation, for the paper issue has not been above about 39 billions, or a little over three times the estimated circulation of 1914. But the general level of prices in France, the cost of living, wages, etc., rose four times over the pre-war base, and commodity prices at wholesale over five times, taking annual averages and not the peaks. Then came, of course, a drastic fall in all prices, which, however, was not nearly so heavy as in England or this country. Almost all prices are now still below the 1920 levels, some of them very markedly. For example, the index of commodities at wholesale rose to near G00 in 1920, and is now, as closely as we can figure it, around 470, You will remember that 1922 saw a very sharp rise in the franc, to above 9 cents. This, with the rapid appreciation in its internal buying power, might readily have greatly increased the hoardings and paved the way, when these hoardings came out, for another sharp rise in prices, and the steady fall in the franc, without any great variation in the nominal amount of notes in circulation. The total Bank of France issue, however, as you have noted, has And the discounts of the Bank of now risen above the average for 1920. France to private customers has gone up a full 50 per cent over the averages for the last year or more. 4 .1111, 3 FEDERAL RESERVE BANK 2. OF NEW YORK .'OFFICE CORRESPONDENCE To FROM. verrao r Strong DATE SUBJECT: Electric February 26, 1924 Power Production Mr. Snyder You will note that Wr. Dwight continues in his belief that electric power production is a good "barometer" of business, although we feel here that we have pretty definite evidence that it is not. The most interesting thini, about the article, it seemed to me, was the much greater growth in the last four years of electric production from fuel power than by water power, in spite of the high cost of fuel prevailing through most of this period. 61* (avi ali itta. 0-s It4-712. MISC 3 I ST33.3600-10-1, FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE SUBJECT Governor Strong f,7.0KA but DATE February 26, 1924 The Dawes Committee Mr ,k___Sny_d_er I are wondering if you gave much attention to the report in yesterday's Times, giving a resume of the supposed basis of the expert report on German reparations. I was particularly struck by the in- sistent reiteration of the idea that Cermany is now free from debt, that "the War cost it nothing," and that the German railroads are free from debt, etc., etc. This may be good politics, but is it rot pretty bad economics! The evidence goes to show that, paradoxical as it sounds, the greator the public debts of a nation, as a rule, the greater its effective wealth, i.e., the wide distribution of a large body of securities SOWS to be the most effective means,under existing economic conditions, of mobilizing the savings of a nation. And of course so long as the nation owes the money to itself, this -is a "burden" only to the politicians and finance ministers who must devise a taxing system. The only real burden is the cost of collection and distribution, which never amounts to more than a very small percentage. Is it hopeless to expect that this question will ever be settled on a "rational" basis! 141111C. 110011131.21 FEDERAL RESERVE BANK OF NEW YORK FFICE CORRESPONDENCE to Governor Strong FROM Mr. February 28, 19211_ SUBJECT- Snyder) DATE. When he went away, Mr. Young asked me if I would give him impressions of the reaction in this country to the work of the Commi The attached is largely the result of my talk with Prof. Mitchell ye day, and I should be extremely interested to kpow how far you could with it. (N" Of 0/Phil Gfr TI3 .111111,_ FEDERAL RESERVE BANK BOOM 3 _3 OF NEW YORK OFFICE CORRESPONDENCE To ROM. Governor Strong DATE February 29, SUBJECT 1.1r. Snyder Mr. Jay has the February Que.rterly 3ournai of Economics which you ask for. If there was anything in the letter to kr. Young which you thought had better be modified, I ±ouid be very glad to know it. One reason I wrote just qs I did was that, quite confidentially, I know that Mr. Young arranged to get in touch with the wri-.er of the 'Ames article before he left h ire. FEDERAL RESERVE BANK 1.11414. I 1,20.0 1 21 FICE OF NEW YORK CORRESPONDENCE To Governor Strong 41,4 FROM DATE February 29, 1924 SUBJECT Ir. Snyder We live in a changing world: Here is your friend, James R. Howard, of the Farm Bureau Federation, joining with Nat Murray, who was one of the best men the Agricultural Department ever had, and two other bright young chaps, in the making of an "Agricultural Business Service," at 0100 per year. Of course it is not so much for farmers as for the eeople who sell to farmers and make goods for them, but it is mighty interesting how things ere being sifted and dissected, For example, hero is an estimate that the cash in come of the farmers of Texas this year will exceed those of Iowa, which usually runs first, and that they will receive for their cotton in Texas an amount nearly equal to the entire receipts by the wheat farmers for their wheat, over the whole country. Apparently the business and economic education of the nation is proceeding at a very rapid rate. II 0 WARD- NI OORHOUSE INC. AGRICULTURAL BUSINESS SERVICE 58 EAST WASHINGTON STREET TELEPHONE CENTRAL 6970 CHICAGO February 27, 1924. kr. Carl Snyder, Director of Statistical L)epartment, Federal tteserve bank of iiew York, New lurk, Lear A.T. Smyuer: have this morning a request from your librarian for our bulletin concerning farmers' sales income from 1909 to 1924, which has been forwarded. I am wondering if you would not like to receive our regular service. 1 am enclosing some of the reports to give you an idea of Ahat we are doing. I Shall be very glad if you decide that you will want to receive these regularly. Very truly yours, liwk/HJ VICt 1 1 T h e Howard-Moorhouse Agricultural Business Service includes frequent printed reports, consultation, and special attention to specific inquiries. Some of the subjects covered are: Cash Receipts of Farmers Estimated in Advance Estimates made at the beginning of each agricultural year for the en- suing twelve months Farm and Rural Purchasing Power For the whole United States By sections, such as the corn belt By states Answer this kind of question: Will farmers in Iowa take HOWARD-MOORIIOUSE Agricultural Business Service analyzes the outlook for expansion of the industry Prices and Markets (with charts) A graphic comparison of price trends this year and last Analysis of market conditions and outlook in grain, livestock and other markets Includes survey of world supply and demand situation Seasonal Distribution of Farm Income Specifies percentage of income received each month Gives advance notice of the times when cash will be flowing into particular sections Many other subjects, such asFarm taxes Loans and Interest Costs of Production A Consultation- In order that we may meet your intimate needs we ask you to submit to us special inquiries concerning Agricultural Business Service Established to: ers in the particular industry and business. by the Howard-Moorhouse in more money this coming year than last? Purchasing Power of Farm Industries Such as the dairy industry Appraises financial situation of farm- agriculture as it few brief facts about the men responsible for the reports issued relates to your Interpret agriculture to industry Appraise the financial condition of the farmers Correlate agricultural information from all authoritative sources Secure original facts through field contacts Give advance estimates of farmers' cash income Serve in a national and international way as agricultural business specialists. H o ward- M oo rh o u se Inc. Agricultural Business Service CHICAGO IHI 1 I 1111111111111111111111111111111111111111111111111111111:11111111111111111111111111111111111111111111 The men who comprise the Executive Staff of Howard-Moorhouse Agricultural BuPss Service are: James R. Howard, 1 President; Nat C. Murray, Lloyd M. Graves, Secretary, as statistician of the American Farm Bureau Federa- tion, initiated two notable pieces of work which had never before been attempted. One, the appraisal of the financial effects of the tariff upon agriculture. The other, an estimate of farmers' sales and cash receipts. This latter study gives the truest picture yet drawn of the agricultural financial situation. Vice-Presi- dent; H. W. Moorhouse, Executive Vice President; Lloyd M. Graves, Secretary. NAT C. MURRAY Nat C. Murray, Vice-President, through years of experience as Chief Statistician of the United States Department of Agri- culture, has come to know intimately every phase of American agriculture. Previously he had been on the staff of the Cincinnati Price Current. He is now serving as statistician for Clement, Curtis and Company of Chicago. 1 JAMES R. HOWARD H. W. MOORHOUSE The President of Howard-Moorhouse, Inc., is James R. Howard, the first president of the American Farm Bureau Federation, whose outstanding achievement has been to interpret agriculture to industry and give new emphasis to the interrelation of the two. Mr. Howard super- H. W. Moorhouse, who is Executive Vice-President has a background of ten years of farming and business experience, and ten years of educational and economic research work as Dean of the School of Commerce of Oklahoma State College; vises the operation of his Iowa farms. His farm balance sheets have shown a profit through the recent depression years. LLOYD M. GRAVES Lecturer in Economics, Northwestern University; and Director of Economic Research of the American Farm Bureau Federation. 1 o m in The Howard-Moorhouse Agricultural Business Service includes frequent printed reports, consultation, and special attention to specific inquiries. Some of the subjects covered are: Cash Receipts of Farmers Estimated in Advance Estimates made at the beginning of each agricultural year for the en- suing twelve months Farm and Rural Purchasing Power For the whole United States By sections, such as the corn belt By states Answer this kind of question: Will farmers in HOWARD-MO ORHOUSE Inc. Agricultural Business Service Iowa take in more money this coming year than last? Purchasing Power of Farm Industries Such as the dairy industry Appraises financial situation of farm- Established to: ers in the particular industry and analyzes the outlook for expansion of the industry Prices and Markets (with charts) A graphic comparison of price trends this year and last Analysis of market conditions and outlook in grain, livestock and other markets. Includes survey of world supply and demand situation Seasonal Distribution of Farm Income Interpret agriculture to industry Appraise the financial condition of the farmers Correlate agricultural information from all authoritative sources Secure original facts through field contacts Specifies percentage of income received each month Gives advance notice of the times when cash will be flowing into particular sections Many other subjects, such asFarm taxes Loans and Interest Costs of Production Give advance estimates of farmers' cash income Serve in a national and international way as agricultural business specialists. Consultation- In order that we may meet your intimate needs we ask you to submit to us special inquiries concerning agriculture as it relates to your business. . 4111111111111111111111111111111111111111111M11 !111IillNIIIIIIIIIIIIIIIIIIII111111IIII11111111111111111111111111111111111111111111111 1 And if it so happens that an increase in whole. Their figures include indirect the charges ,coincides with decreasing taxes-customs duties and excises. We sales, the farmer is caught and pinched as are here considering only direct taxes. The burden of the latter, including both between the two jaws of a vise. During the past three years farming state and federal levies, do not seem more has labored under a fixed charge twice as oppressive to the farmer than to the rest burdensome as in prewar days. These of the community. But in the case of state and local taxes on property the charges averaged about 10 per cent of the gross sales from 1909 to 1913. After our entry into the war the ratio declined; but in 1920 it rose to 16 per cent, increased to farmer evidently suffers some discrimination. In 1922 he paid out over nine per cent of his total cash income for state and 25 per cent in 1921 and now stands at local taxation, whereas other classes surrendered less than six per cent of their close to twenty. income. Rising Charges Is Falling Income Farm mortgage loans in 1923 amounted The severity of the depression of 1921 to nine billion dollars-the equivalent of was greatly increased by the fact that one year's gross sales. The interest fixed charges continued to rise for two charge we estimate at 675 million dollars, years after income started its precipitate or seven per cent of sales. These figures decline. The 14 billion dollars taken in are two to three times as high as pre-war by the farmer in 1919 had by 1921 been levels. The great increase in mortgage cut almost precisely in half ; but taxes and indebtedness came in 1919 as a result of interest continued to increase, rising from land speculation after the armistice. The 1400 million dollars to over 1800 million. total amount on January 1, 1920, has been Since that date taxes have remained prac- estimated at eight billion dollars which tically stationary, but interest payments was more than twice the amount of ten have fallen off and the total charges ap- years previous. Since 1920 there has been pear to have become fairly well stabilized a further increase of one billion dollars at around one and three quarters billion due to the funding of current obligations dollars. As cash income is again on an incurred during and just previous to the upward trend, the burden of taxes and in- depression. terest is beginning to lessen. Use Fourteen Per Cent of Bank Credit Farmers pay about 900 million dollars Interest on bank loans is a less imporin direct taxes. Ninety per cent of this is tant item than taxes or mortgage interest. represented by property taxes for local Farmers require relatively less working and state purposes. The farmers pay 17 capital than manufacturing concerns. At per cent of the total direct taxes collected the end of 1920 farmers' personal and colin the United States. They pay 22 per lateral indebtedness amounted to 3,870 cent of the state and local levies. Their million dollars out of a total of 27,670 income is estimated by the National Bu- million short time loans outstanding. Figreau of Economic Research at 18 per cent ures for 1918 indicate a somewhat lower of the total national income-which is ratio. Apparently the farmers utilize 12 probably somewhat too low, since the to 14 per cent of the bank credit of the farmer pays no house rent and much of country in producing at least 18 per cent his income is represented by food grown of the country's wealth. Nevertheless, on the farm and figured in at farm prices bank interest is not of inconsiderable iminstead of the retail prices, which other port. The annual charges for the last two classes have to pay. Taxes Take Nine Per Cent of Income Studies by the National Industrial Con- years we estimate around 200 million dollars. In 1921 it was over 300 million. It agriculture than on the country as may be expected. Taxes, at least the gen- has varied in recent years between two and four per cent of the gross sales. ference Board reveal that the total burLooking into the future it appears that den of taxation bears more heavily on no material reduction in fixed charges a 2 S Estimated Charges for Interest and Taxes Paid by Farmers, 1909-1923 In Millions of Dollars 1915 1916 $101 $10978 $116 $ $131 240 250 265 270 313 334 351 369 381 401 240 260 285 350 400 450 543 573 619 719 781 851 1917 1918 1919 1921 1922 1909 Bank Interest Mortgage Interest Total Interest Direct Taxes Total Fixed Charges Bank Interest Mortgage Interest Total Interest Direct Taxes Total Fixed Charges 1910 $ 75 $ 78 220 225 235 295 303 225 520 1911 1914 1912 $298 $190 $225 $170 675 290 350 550 618 656 440 540 775 916 881 500 550 621 750 861 900 940 1090 1396 1666 1742 1745 4 1834 315 666 1920 $225 $150 1913 $318 more than twice the cornbelt's 125 million. But it is very unevenly distributed. Texas, the Carolinas, and Louisiana show increases of from Florida the citrus fruit crops have suffered a slump this year. In the other two states poor cotton crops are responsible for the decline. Arkansas shows a decrease of 15 per cent in gross sales. The cotton crop was poor yielding only 97 pounds per acre whereas the five year average is 169 pounds. In northwestern Arkansas no cotton is grown, fruits and vegetables being the leading products. This year's apple ten to sixty per cent ; whereas in Florida, Alabama, Mississippi, Tennessee and Arkansas there have been declines ranging from seven to sixteen per cent ; with but little change in Oklahoma and Georgia. Yield of Cotton Rules. The yield per acre of cotton rules the situation crop is larger and the price somewhat higher than last year, but the gain is practically offset throughout the south this year. An increase of by the smaller peach crop. Louisiana, in contrast to the states just named, will receive this year increased cash returns from over four million acres, representing 13 per cent, brought a total increase in production of but 250,000 bales, or two and one half per cent. The yield per acre declined from 142 pounds to 129 pounds. Yields were very low in Alabama, Tennessee, Mississippi, Arkansas, Oklahoma, and southern Georgia. In Texas and North Carolina, on the contrary, they were good. To get an accurate picture of conditions in the cotton belt it is necessary to consider each state separately. In North Carolina cotton and tobac- both cotton and sugar, while the rice crop is worth practically the same as last year. The increment in cash returns from all sources will be approximately 10 per cent over 1922-3. Forty Per Cent Gain in Texas. Texas is by far the greatest cotton producing state. Over four million bales were produced this year on fourteen million acres, an increase of one million bales over 1922. The crop will sell for 675 million dollars and represents nearly four-fifths of the 850 million dollar cash farm income of the state. All of Texas, except the co dominate the situation. Cereals and other field crops, as throughout the south generally, are not important cash products. Livestock and their produce bring in scarcely more than 10 per cent of the farmers' income. Cash receipts from both cotton and tobacco will exceed those of last year and, as a consequence, North Carolina farmers will have 15 to 20 per cent more money. The cotton crop is worth 160 million extreme western and Panhandle portions, is dominated by cotton. Considerable amounts of wheat, corn and oats are raised, but these products are of minor significance except in the Panhandle where wheat is the leading crop. The dollars ; tobacco 80 million. South Carolina registers much greater increase, western portion of Texas is range country and cattle bulk large. Sheep are also of some importance. But all livestock and animal products are responsible for but 15 per cent in the aggregate cash receipts. Due to the extraordinary cotton crop, barely exceeded twice in the last ten years, the farm income in Texas is over 40 per cent in excess of last year. due not so much to a good crop this year, as to an unusually poor one last year. Cotton will bring in 130 million dollars against 65 million in 1922-3. Tobacco, which is of some importance in South Carolina, on account of a larger acreage is worth 18 million dollars as compared to 12.5 million last year. In Georgia, on the whole, there is little change Oklahoma is a state of varied agricultural con- in the farmer's purchasing power. As a result of the poor cotton yield in the southern part of the state there will be less income than last year in that section. The cotton crop will sell for ditions. In the southern two thirds of the state cotton is the major crop. But the wheat belt cuts across the western half of the cotton section and extends across the northwestern portion of the state ; and the northeastern end of the commonwealth borders on the corn belt. Corn and grain sorghums, wheat, oats, livestock, dairy and poultry products figure in the agriculture of the central and northern regions. Taking the state as a whole, two thirds of the cash income is derived about 100 million dollars. Less Cash in Five States. Florida, Alabama, Mississippi and Tennessee will show losses in cash income, ranging from 10 to 15 per cent. Tennessee is the fourth largest tobacco state and has also considerable livestock interests, animals and animal products combined yielding nearly half the total cash income. In from crops and one third from livestock and their products. Cotton accounts for forty percent. 2 Percentage Distribution of Farmers' Sales Receipts, 1923-24 N. C. S. C. Ga. AVa. Miss. 69 Fla. 74 Cotton 50 73 61 Other Crops 39 21 23 80 15 12 Livestock and Animal Products 11 6 16 18 16 14 100 100 100 100 100 100 Tenn. La. Ark. Tex. Total Okla. Total Cotton 22 45 65 78 43 61 Other Crops 33 41 16 7 25 21 Livestock and Animal Products 45 14 19 15 32 18 100 100 100 100 100 100 Total 4 W9C.31STAY3800-10-11 FEDERAL RESERVE BANK OF NEW YORK fibFFICE CORRESPONDENCE To Governor Strong FROM DATE SUBJECT February 29 t 1924 French Exchange Ur. _Snyder In 1923 French imports wore lees than 30 billion francs, or, say, under 2 billion dollars. I don't imagine their percent of imports to total product is very much greater than ourc--cnrely much under 10 per cent. I don't just see, therefore, how exchange rates can very seriously affect the general level of all prices, rages, etc., in France, any more than they would in this country; do you (commodity prices at wholesale to some extent, doubtless)? Present exchange rates make imports very dear to the French and their products very cheap to foreigners. Witness the reports of a great inrush of German buying of French goods. Personally I don't believe that any sustained rise in the general price level of a country can take place unless it prints money or bank credit. Therefore, I believe that the French franc must be highly depre- ciated from its actual purchasing value, unless they have some subterfugeneous means of augmenting their currency or bank credit which is not evident in the bank of France statements or those of the big banks. Does this seem to you erroneous! I attach herewith a chart showing the downward progress of the franc. t 10 EXEHANGEi PURCHASING POWER, AND COST OF LIVING. nying diagrams compare,. the depreciation of French exdepreciation in the purchasing power of the'franc, and f living in France and in the United States. ; EXCHANGE ING POWER RENCY 8 19gr 3 / -,/ COST OF LIVING FR AYCE COST OF LIV LNITED STA 1919 1920 t 1921 1922 1923. M 10,31 1.6TAT.91100-10-11 FEDERAL RESERVE BANK OF NEW YORK fVFFICE CORRESPONDENCE To Fti DATE SUBJECT Go_v_ernor Strong March 5, 1924 The Gold Question mr.--SuArder The Reserve Banks or Board have no authority in the law to imA441 P4A. pound an excess of gold; and virtuall whAen used Jodie discount rate cuni. and investment account to the limit, ' wimr played i4a legal line. !!.r. John E. Rovensky makes the proposal that the Banks and the Board shall be emnowered to do two things: (1) That they may at their discretion raise the required ratio of gold against notes, to 100 ner cent or more if (2) need be. That if this does not impound sufficient gold they may then raise the required reserves of Member Banks against their deposits. Both of these actions only after a majority recommendation by the Advisory Council (representing the Reserve Banks) and a two-thirds vote of the Federal Reserve Boardf. In your judgment would these two proposals be feasible, and would the second not nossibly lead to large withdrawals from the System' I'd appreciate your opinion. t4afArAzt it/0 c,u,.4.-c_cfa Cy 6.1111C 3 ETC71V4 I ST A?. 3400-10-11 FgriRialfi FFICE To FRcit BANK 4y, CORRESPONDE DATE __ChyernarSitnng_ BJECT March 7, _1924 French Note Circulation Mr. Snyder WAR Z4 With the billion end a half jump in the Bank of France note circulation in the last two weeks, this brings the net expansion from the extreme low point reached in the spring of lc;!72, up to 5 billions, or about 14 per cent. At that time the franc touched close to 9 cents, This expansion, with perhaps an equal amount brought out of hoarding and put into circulation, would about account for the increase in prices and the cost of living. But this would not account for the steady pressure on the exchange market throughout the entire period. At today's low the franc is rated at approximately one-half what it was when the French entered the Ruhr. Now, in spite of ell their violent protestatione, they have expanded rapidly and just at a time to arouse the most extreme apprehension. Is it not another instance of the monumental ineptitude which seans characteristic of almost every kind of governmental action, everywhere in the world? MIC a 100,1613 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESP-ONDENCE SUBJECT To DATE March 3, 1924 192 Fall in French Exchange Governor Strong FROM Mrs_ Snyder Your observation cn the memorandum in thi s week's Summary is quite just; it was clumsy not to have included any reference to the effact of hoarding and delioarding, which is, of cours e, exactly equivalent to In a previous memo. I fully concurred currency curtailment or expansion. in your view as to this. long Buthas not the effect of this dehoarding a pretty clear limit, so as the total amount remains unchanged? And if so, must we not then consider that at the 1920 level of , cents the franc was greatly overvalued, and still more in 1922, or is now much undervalued? say, 7 Of course the whole question is confused by the fact that we don't know the total amount of gold, silver and paper in circulation in France before the War. The nominal amount always seamed very high. IBC 4 FEDERAL RESERVE BANK 1.1001,223 OF NEW YORK "IF FICE CORRESPONDENCE Toik Governor Strong_ FROM. DATE r.ar eh 4, Ir. Snyder SUBJECT: You may like to see the numbers containing the discussion of Keynes, Strakosch and others, on the gold prospect. I have given a little resume of this in the I'usiness Summary this week. 192 4 MUM 1IOOM -. -2S FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To Governor Strong FROM DATE March 4, 1.r. Snyder SUBJECT : Masson Speech 7ertainly very clever and very interesting, as reflecting the Trench mind. As if there was no difference between an indemnity of about a billion dollars and the trifle of a prcpcsed levy of around 40 billions: Is it not very illuminative of the lengths that the human mind will stretch? It is interesting to note that the speech was so well thought of that it is reproduced in Trench in the weekly Figaro, which, as you know, is intended for American propaganda. PAM, a 1. IOU e.a,u FEDERAL RESERVE BANK OF NEW YORK FFICE CORIRESLPONDENCE _Go vernorlAtong_ To 11P" DATE March 4, SUBJECT Mr. Snyder FROM (Fcuile) In the last weekly Figaro, for American consumption, the leading A editorial on M. Poincare's "great effort before the Chamber of Deputies," on the reparations situation, new taxes, etc., closes with the attached 'perfect gem.' If this is the real sentiment of France---: .....a 0-9/1.41.4. ama. f-* 1924 MIS, 3 I STAT 600 , 10-21 BANK UFi CORRESPONDrCE To FR _Go_yernor_Strong "\\J, -3-, 0RK DATE e usJEc-r- March_?,_ k. B.A. Meeting at Chicago Mr. Snyder JAI The next meeting of the American Pankers' Association will be held in Chicago, and they have asked us for any suggestions we could make in the way of exhibits, etc. I think we ought to go out of our way to give than any help we can, for they are a bungling lot. if Put, more than this, I am wonderinz it is not a fine opportunity to drive home the detachment of the farm industries of the Northwest from Federal Reserve policies. I thought, for example, of some big charts or pictures which would vividly depict the utterly opposite courses of corn, cotton, end L cvi dairy productsAfrom those of wheat and the smaller grains, throughout the period of so-called "deflation." There will probably be thousands of country bankers at the convention, and this would be a good chance to educate them. a talk with you about this? Could we have 1924 III mom 3 I STAT.30 o.ib-e, -.. FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To GeYerner Strong FRO, Mr. Snyder DATE Larch _102_ __ _____ 192 4 SUBJECT: The McNary- Haugen Farm Exports Bill MAR 131924 In considering such a measure as the MINary-Haugen bill it sews to me that due attention should be given to the following facts: According to the recent census of farm population, of the (1) 31,600,000 people recorded as residing on farms, nearly an even half (and if we include Oklahoma a little more) reside in the states of the Old South. Taken as a whole, the farmers in these States, through the high prices for cotton. tobacco and similar Products, have been generally prosperous. For example, the cotton raised in the State of Texas this year was elual in December value to nearly the whole wheat crop of the United States. (2) Dairy products have generally commanded good prices, so that most of the farmers in the states of large dairy production, all the way from New York to Iowa, have been generally prosperous. The same is true of most of the fruit-raising states, save in special cases when an over-large product has been withheld from the market to force higher prices, and, as usual, the attempt has collapsed. (3) Our largest single crop, corn, has commanded in the last year rather high prices, and while the prices for hogs have been much lower, taken as a whole the corn-belt farmers have not suffered from the prices received for their products. All these taken together include more than four-fifths of the total farm population. (4) The latest Bulletin of the Department of Agriculture shows that the weighted average of the retail price of thirty-two different farm products was almost exactly the same per cent above the pre-war level as the Bureau of Labor index of all commodities at wholesale, a shade over 50 per cent. The oft-repeated assertion that "the farmers are facing a real calamity and need help," seems on the available evidence, therefore, absurdly untrue for at least four-fifths or more of the farm population. (5) Practically the only type of farmers suffering seriously from the pricee of their products are the raisers of small grains, and of these the chief are the raisers of wheat; and the facts regarding these are as follows: Approximately two-thirds of our wheat is raised in the winter wheat area, or in precisely that area in which diversification of crops is the easiest and most generally practised. (a) IISC 3 I .TAY. 3000-10.,, FEDERAL RESERVE BANK OF NEW YORK INDFFICE CORRESPONDENCE To FRA DATE SUBJECT:_Th 8_11 _Gni/Amor Strong_ Mr. Snyder Maren_144 _ -- -_1924 rpaaug an Farm Exports _ _ Bill 2 (b) We have now had depressed fall or winter prices, which largely determine the winter wheat planting, for four In the face of this the acreage Boer, to consecutive seasons. winter wheat has only been moderrtely reduced from the heavy expansion encouraged by war prices, and is still above the average pre-war acreage. (c) If a clothing manufacturer or a plow factory continued to turn out an immensely larger product than could be sold at a profit, would this he generelly regarded as a proper ground for the Government to buy up the entire product of clothing or of plows! Practically the only area in which the farmers ere facing (6) a real calamity is in the spring wheat area, and this has been brought about by an unusual combination of factors. These are, a succession of seasons of scant rainfall and low yield, which, coupled with the prevailing low prices fcr wheat, has been disastrous. All this has been paralleled by a very heavy expansion of the spring wheat acreage in Canada, and, especially in this last year, extraordinarily hien yields per acre. (7) It is the opinion of early careful judges that a considerable part of our spring wheat area lies in a semi-arid ruin belt, which never ought to have been planted to wheat at all. Prompted by the enormous prices reached in the War, end by a fair run of rainfall, these areas were occupied and cultivated. But it was a hiehly hazardous risk, and the adventurers in this field have paid the penalty. verted to But it is siderable products, for wheat It is obvious that this is not an area which can quickly be conether products. Part of it, clearly, is only fair grazing land. the belief of experts like Yr. P. T. Snow, of Chicago, that conareas of this type could be converted to cattle raising and dairy if sufficient capital was supplied. is not the remedy here. Obviously (8) Taken as a whole, the farm population of the whole spring wheat area does not exceed 10 per cent of the total farm population of the country; and the proportion of those den_ endent wholly upon spring wheat raising is very much smeller than this. I believe, ther be fair to say that the whole proportion of farmers "facing a real calamity" 34,SC 3 ,T ,eok; 10 P FEDERAL RESERVE BANK OF NEW YORK 4ribFFICE CORRESPONDENCE To FRS Governor Strorg Ur. Snyder DATE SUBJECT March 10, 192 4 The Mc.Nary-A-Iaugen Earm Exports. Bill is very much less than 10 per cent of the total; and for this 10 per cent, or less, the remedy clearly seems to be aid and the supply of capital towards the diversification of industry, and not encouragement and governmental aid blindly to persist in raising crops which they cannot sell at a profit. (9) The writer was one of those called in the conferences of the Department of Agriculture last summer and fall, to discuss the farm outlook. Ir one of these conferences I sat as a member of the Wheat Committee. The views here expressed are partly those of others, of much more expert knowledge of the situation than that possessed by the writer, and are, I believe, generally the views of agronomists who have patiently and carefully considered the situation. Born and brought up in one of the richest farm sections of the Middle West, it seems to me that almost my earliest recollections were some form of "demand for relief" by the farmers of some section And it never ceases. or other. I am also attaching herewith the opinion of Mr. George E. Roberts, former Director of the Mint, who is not only an economist of high standing but e large owner of Iowa farm land, born and brought up in that section, and probably as intimately acquainted with all the facts as to farm economics and the present situation as any man in the United States. (10) The cotton planters of the South are receiving this year approximately twice the relative pre-war price for their product. This is for cur chief agricultural money crop. Does anybody suggest that part of this enormous excess income be taken from the cotton planters and given to the wheat planters? And if not from the cotton planters, is there any more reason wh:, it should be taken from the dairy farmers, rr from factory workers, or from bank clerks and the rest of the population? (11) Without any one of these objections, it would still seem to me that the McNary-Haugen Bill was & vicious and impractical measure for the reasons stated by Mr. Roberts in his review. Is it not perfectly clear that the measure would defeat its own object, even if it were carried out? Obviously the consumpterve capacity of the wheat-consuming nations is, to a certain extent, limited. If now we attempt to sell abroad more of our wheat surplus than we are now able to sell, the effect of tnis would be to still further depress the Liverpool or foreign price of wheat. This, in turn, would mean ruin to the wheat farmers of Canada, Australia, the Argentine, and other countries. Surely there could be no such undertaking by this country that would not provoke similar action and a retaliation by other countries. (12) In brief, it seems to the writer that this Bill is just another of those fatuous and fantastic efforts to defeat the workings of FEDERAL RESERVE BANK OF miliC 3 I S1AT.31113Q-10.11 NEW YORK 4314,. pFFICE CORRESPONDENCE To_ Governor Strong FR14/ __ DATE Mr. Snyder SUBJECT March 10, The McNary- Haugen Farm Exports Bill 4 economic law, of which we have had hundreds if not thousands of examples through hundreds if not thousands of years. It is a bonus bill of the worst type, and of the most utterly futile. (13) Finally, would it gain any votes, on balance, for the political party which sponsored it! Over one-half the population of the Under country now resides in towns or cities of over 2500 population. 30 per cent of the population now resides on farms, and not all of these are actual farmers. The average or normal value of the wheat crop is not much over 7 or 8 per cent of the total value of all farm products, and I do not believe that to exceed 10 per cent of the population is vitally interested in wheat raising. The present prices of wheat in Chicago now approximate those of Liverpool, although the cost of freightage between the two points is around In other words, wheat prices in this country are much above the 26 cents. world level, and, for the 650 million bushels of wheat which the people of This this country consume, they must pay a correspondingly hiller price. surcharge must be paid by other workers and consumers, who outnumber the wheat raisers by I should say at least ten to one. There are sane and rational methods of relieving the wheat farmers But the Maary-Naugen Bill seems of the country of their present distress. to me to be as far from this category as anything well could be. 4 311111C 3 1 STA7.3000-10-11 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To_ FRC __Cro_veraor__Strong DATE March 12, SUBJECT 4 Impounding Our Surplus Gold lir. _Snyder Federal reserve note circulation has now fallen to about two billion dollars, while the gold certificates in circulation have risen to nearly 600 millions. Meanwhile, we nominally have outstanding some 721 millions of National bank notes, about 294 millions of the old "greenbacks," and 357 millions of silver certificates, or a total of 1372 millions. Against these and some other accounts the Treasury now holds a total of about 343 millions of gold. Now if Congress were to retire all of the National bank circulation, the old greenbacks and the silver certificates, and substitute for these gold certificates, this would, after using the Treasury gold, reduce available gold holdings by about a billion dollars; and if to this were added the Federal reserve notes, the total reduction would be about 3 billions. Deducting the gold held against gold certificates and the semimythical amount of "gold in circulation outside of the Treasury and the Federal Reserve Banks," this would nominally leave little or no gold in the Federal Reserve Banks. But of course gold certificates could be used for Member Bank reserves just as well, and it is in no wise clear that anything like the full amount of Federal reserve notes, National bank notes, greenbacks and silver certificates could be recovered. Aside from the considerable amount which has gone abroad, maybe 200 millions or more, there is always the inestimable amount that has been lost, burned or stored away in stockings or other family hoards. In brief, it seems to me that it would be perfectly possible to do away with most of our nominal gold surplus and very simply, so that we should no longer have any such high and growing ratio of gold to liabilities as we have now. Why would not this be much simpler, and safer, than to resort to what would look like strong arm methods on the part of the Federal Reserve Banks, that might very seriously endanger the future of the System! rY n M1SC 3 1 3TP:1.3600-10-II RVE BANK OR4ONIV YORK FEDERAL...4R OFFICE CORRESPOND NCE Tc.,116 _Go_v_ern,or Strong FR* DATE_ March RaiBinglicober 12, _Mk. Snyder SUBJECT- Bank Reserves ?AAR 131924 I am attaching some correspondence I have had with !:!r. Roveneky and Mr. Catchings regarding the proposal to empower the Federal Reserve Board arbitrarily to raise the reserve requirements for Reserve Banks (and also the required reserve against Federal reserve notes). I am wondering if the same objections would not apply with equal strength to any roundabout way of achieving the same end, such as reclassifying the reserve cities, etc. Of course if it could all be done now, when there is no great pressure for expansion; and if it could be done with the avowed object of impounding our surplus gold, then perchance it might be successful. But what would happen if the big swing up in trade in February should persist and we should again find ourselves, so to speak, in the midst of a "healthy" (1) little boom, with rising prices and pressure on the banks for loan expansion? Is it not likely that no action would be taken by the Board until a serious menace was apparent, and inflation was actually well under way? And my question is, How would the 10,000 banks of the System, outside of New York City, take it if they saw the other 20,000 banks not in the System free to expand while they were being sharply curbed? Would they stand for it? I wonder if there is not a safer alternative that might be submitted to Congress by the Board. I attach a suggestion. 4 a FEDERAL *E4ERVE BANK OF NEW YORK ibFFICE CORRESPONDENFE To March 14, 1,i 4 sueiEcT:Flutrtion in Wheat Acreage Governor Strong? FROM DATE Mr. Snyder MAR 15 When I wrote the memorandum on the McNary-Haugen Bill I did not have at hand the figures as to the increase in wheat acreage. According to the attached statement by Secretary Wallace, the wheat acreage for 1923 was still 24 per cent above the pre-war average. Practically all of this was winter wheat acreage. The spring wheat acreage has lost all of its wartime gain and was this year below the pre-war average. This means that this huge expansion was precisely in the area where it would have been most feasible to change over to corn or some other crop. Does it not seam the last gasp of folly that the Government should deliberately undertake to preserve this absurd situation by a huge bonus to keen up a fictitious price for wheat? i,TAT,16,,10-21 FEDERAL RESERVE BANK OF NEW YORK IllbFFICE CORRESPONDENCE To Governor Strong FROM DATr March 18, 4 Mr. Snyder SUBJECT The Catchings-Foster Paper 1111 kith your permission I should very much like to forward your note on the Catchings-Foster paper for the Harvard Business Review. But I cannot help thinking that at least in one instance you hardly do justice to the spirit of the paper. of a proper guide for the determination of Federal reserve policies. This is )c) far from wishing to entrust the questiom of proper policy to the judgment of any board or set of men, however wise, their proposal is, as I understand it, directly the reverse. This is that policies being left to their judgment, wise or otherwise, these policies shall, in the absence of any strongly deterrent factor, be determined strictly with reference to an index number standard, and with a view to maintaining a fair degree of stability in the purchasing power of the dollar. And I cannot help thinking that Dr. Foster, or whoever it was the other evening, was right in suggesting that, in the light of our present exchange, another such huge wave of pure credit inflation, such as occurred from about the middle of 1919 to the latter part of 1920, would bring far greater odium upon the Federal Reserve System, and occasion far greater disappointment, than any kind of an attempt to maintain some sort of credit, business and price stability. And I have gained the impression that this is equally your own view. Personally I don't feel able to see how the '-'ederal Reserve Banks, or Board, or, if you prefer, the whole banking organization of the country, can, in the absence of the natural coercive effect of the gold standard in full operation, escape the responsibility of so managing their credit expansion as to avoid serious inflation; do your And what other test of proper credit control and of inflation is there save in a reference to some form of index number of prices. Of course if you will say that experience has shown that credit expansion limited to about 4 per cent per annum will meet the adequate demands of trade and maintain a high degree of stability, and that the Federal Reserve System shall therefore fix its policies with reference to this experience, you would have then an empirical and possibly safe guide to policy. But it would be one wholly unfamiliar to the public and probably sharply contested by every Anderson in the country. I cannot get away from the feeling that in and since the -,,ar there has been a tremendous popular education in the question of the relation of money and prices, and the need of stability and restraint in the manufacture of credit. Doubtless you will agree to this. And, so believing, and in the face of utter chaos that most otherwise obtain in the absence of the old restraints, under the gold standard, how can we escape the responsibility of effecting some kind of a Rule of Reason; do your FEDERAL RESERVE BANK OF NEW YORK libFFICE CORRESPONDENCE To DATE Governor Strong Mr. Snyder SUBJECT '.arch 18. The Catchings-Foster Paper 2 It seems to me good policy to maintain friendly relations with such intelligent opinion upon this subject as may exist-Prof. Mitchell was in yesterday and I should like to tell you of his reaction to the dinner the other nitatit. FEDERAL RESERVE BANK MISC 1.100k11123 OF NEW YORK SFFICE CORRESPONDENCE To Governor Strong DATE March 19 , 192 SUBJECT: Mr. Snyder Please let me know if this letter is of sufficient detail, in view of the memoranda to be attached. I notice that your friend Sydney Anderson comes out this morning equally strongly against the McNary Fill. See attached. 4 UO v LetrItih ti op FtDERIM7 OF1. COS/ 3. ... OFFICE CORRESPON TI Governor. FROM Mr. Snyder N ESERyE BANK YORK DATE_ March. J.16 71! _ - s+ac-r: Wages and _Prices_ -Strong MAR 18 1924 You will be interested in this comparison of the average weekly earnings of the employees of the big silk firm of Cheney Brothers, and You will see that their index, even last October, was wholesale prices. running around 260, which compares with average weekly earnings of factory operatives in New York State of around 220. And yet the striking thing is that the textile people generally are complaining of the hill cost of materials and of the difficulty of I wonder if this mo'ring their goods freely at the corr-euporlding prices. does not go some way towards explaining the present rather stagnant tendency in the textile trades! RS :;) A7 ,,,10 FEDERAL RESE)14 BANK OF NEW YORK FFICE CORRESPONDENCE), DATE March 19, 192.4 BJECT: , wing bit about the Southern California boom, there, is of interest. the long boom of which the London Economist to the attractions of the climate and to a has struck the people out here. I never tion as is now going on, and I am looking one of these days, and when it comes there rupt souls floating around here than was ever lies especially to the speculation in real estate. ditions without end, and it doesn't seem to w many or how far out they go or what are newcomers jump for them. say that there are 310,000 autos on the every day in the year, and from what I get judge that a large portion of them are still fact does not seam to lessen the sales, as eems to be about as automobile mad as in ,PC,1021 %AP FEDERAL RESERVE BANK OF NEW YORK FFICE CORRESPONDENCc To___ Governor Strong FROM DATE March 19p 192 4 Mr. Snyder SueJECT:____TaelIpswing in February 2i MAR di& They have just given me the computed index of building permits for the month of February. Taking into consideration the short month and the usual seasonal tendencies, the index rises this month to 200, or even higher than the peak month of March of last year, and the record so far as the index extends. This heavy increase compares with other marked increases in the indexes of bank clearings, car loadings, iron and steel production, automobile production, and several others'=-all exactly contrary to the firm expectation of the great majority that this year could not possibly be as good a year as last year. And yet I hear everywhere of business men complaining, and expressing grave forebodings-always, I believe, having in mind the fanciful profits that they would like to make, and without much regard to the industrial and social service they perform. It makes you wonder if one can ever trust anything that any business man will say about his own industry or business in general. I heard of one case of a pig iron manufacturer insisting that the situation there was very dark, because they were selling below the cost of production. This in the face of the fact that pig iron production in the last three months has increased by more than one-quarter. 1^1(A)( (4Am/iv_ LrA1) _Yf aLe,t4, it:714-"± e Cf a-y rte. IAN 061"t a'"r744/6 1491/KAI r'r 7L- 10014 1111111C I FEDERAL RESERVE BANK 1 OF NEW YORK 1PF FICE To CORRESPONDENCE Governor Strong DATE SUBJECT March 20, Pro f. Young' s letter Mr. Snyder I am puzzled by Prof. Young's letter and I believe his fellow members on the Committee would be also. Prof . Young accepted membership On the Committee a good while ago, with full and definite knowledge of its purpose, its general ideas, and its personnel. Ho now seems to take a position opposed to any kind of measure towards stabilization; and even of doubt of its desirability. And I am staggered at his suggestion that in the face of production, construction, distribution and trade proceeding now close to if not above a record point, that a ten or fifteen point inflation from the present price levels would be beneficial. From what little contact I have had I get the impreseion of a man of unstable and nebulous opinions, but strong in opposition; and swept by emotional waves in one direction and another; not a man to "go tiger hunting with." 4 MISC A. I GT., aeo,,, FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To_ flavor/10 r :itrong FROM 'r. a DATE SUBJECT- ilardr 1924 Trend e-f Duetweee inyder Attached are the latent figures ,sbtainable for the more important of the 58 ortrticular indexes of production, distribution and trade now maintained by this department; figures for the last four lonths as armoured with the high point of last year. In the 600 `:sporting I anks, almost no change since the firEt, little change from the high !ALK CREDIT. of the year in lonnn or deposits, and very point o' lust year reached last ':ay. 11 ':ational I anks , date of last cull, loans and derosits a little hiller than t-,e hi r)1 December 31, shay point of Jecember 2i, 1922, but in perceistagen the difforecee is very slight. In a word, remarkably little expansion. 3treet loans, latest date, compiled Larch 12, still rising millions above the low point of last r'ctober. and about 200 about 260 millions below, the peak reached last lay. Trend of our index of 20 great basic commodities still slightly upward from the low point of last July, but a very little change in the last six or eight months; fluctuating around 150. L'ireau of Labor index about the sane. ,PRICES, A new weighted index of 32 different Fano comsoodities recently prepared by the AfTicultural Aeoartment shows an average of farm prices at just about the same level in "ebruary an the F.ureau of Labor index *or all coropditins. our new index of the general average of all prices, including eo-viodities, wages, rents, etc., now about 180 and tending steadily upwards f a the low point reariaed in 1921. -oat of the wage indexes still orate:tidally at the peak of the WAGES. lard three years and ranging around 220. .1tandard Daily Trade weig,ted index of 202 industrial stocks slifOrtly below the hi41 point readied in !'ebruary, which in turn was about 5 notate below the hilt point of 114.1 readied in "arch. STOCK UAW T. Almost all of our business prophet's have been repenting for more than a year that the building boom, or the automobile boom, or the railroad buying, eta., etc., could riot gr, on. lut they have. PA05PZG73. e havu easy money and a steady inflow of gold. total recei ts to date t is your about 100 million dollars, or at a higher rate than last year. '%he scandals of the Grant i.dministration were more serious than TAT ,C0-10-21 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To_ - FROM DATE SUBJECT governor Stftess 3nydor tairtth Trend of Business 2 411k at the present Unto, ,tnd not nearly so unsettling to busii.ess as the waves of greenbackism, populiam and the prolonged agricultural depression of the nineties. Low the prIrt of the farm population affected is very small, not to exceed 10 nor cent of the population of the country, and the only part of this Population very seriously hit are the boortstors who bought land and rsortgaged it to the hilt in the post-war boom. don't pee !""l'oundli for apprehension, and still there is more danger of undue expansion than of a slump. believe that I would like to recall that just before I went away last Aurust 4 I wrote you expressing sty belief that July would prove the low moutis in the reaction, and en it has proved thus far, alike for voltam of business, coarvdity Pricey and stook prices, (Ind I an inclined to think it will so retain for none tine to emne. 1924 FEDERAL RESERVE BANK MiSC. 3. 1-7)M-9-:1 OF NEW YORK IPF'FICE CORRESPONDENCE To FRONAIK Governor Strong DATE May 16, 1 92_4_ SUBJECT: Mr. Snyder Mr. William Butterworth, President of the Deere Company in Moline, Illinois, was in today and very deeply concerned about this McNary-Haugen Bill, which he regards as a vicious and impractical Their Association of Agricultural Implement Makers has measure. unanimously gone on record as opposed to the Bill, in spite of George Peake's advocacy of it. But it appears that in Washington the Congressmen and Senators are afraid to vote against the Bill because they have no adequate substitute proposal and are under heavy pressure to "do something." As you perhaps recall, it seemed to me that one practical measure would be foarthe Reserve Banks to exercise their legal powers to buy bills in foreign markets, which would, of course, be tantamount to a Such a procedure would probably not be welcome unless the foreign loan. way was very carefully prepared for it, and Mr. Butterworth's suggestion was that the Proposal might originate from the Farm Bloc or the Farm Federation themselves, as perhaps an alternative measure to the McNaryHe would especially like to present some sort of proposal Haugen Bill. to Senator McKinley, of Illinois, who is much opposed to the Bill but in the embarrassing position of having little to offer as an alternative. Can you see anything embarrassing in any way if such a proposal were to come from the farming influences and without any assiotance whatPersonally it seems to me that it could be ever from the Reserve Banks* made an extremely popular idea, it would require no legislation whatever, but might need to go no farther than the introduction of a brief resolution by Senator McKinlay or Senator Capper, or someone, proposing or urging or commending such a course. This is suggested wholly and solely by Mr. Butterworth's appeal to me for any suggestion that he could make to his friends in Washington to stem the tide that seems setting in towards the support of this fahtastic measure. I,16C I FEDERAL RESERVE BANK I0,,,1 OF NEW YORK OFFICE CORRESPONDENCE To Governor Strong FRO DATE SUBJECT: _ May 19, 192 4 ' 1 etter Mr. Snyder Two years ago Hartley Withers gave me a letter to Mr. Robert Crozier Long, in Berlin, and I had a very pleasant visit with him and formed a very fine impression of the man. I think he has a quite unusual rriAge of 1.r, formation an(' I sholl be very glad to see what I can do with ome of the papers in the line that you suggest. MISS. I-75,49-?3 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE Olvernst_Streng DATE SUBJECT. May 21, 1924 _ Purchasee_ol Foreign Bills Mr. Snyder It is perfectly true, as you say, that there has been a (1) heavy curtailment of our wheat and grain exports, but there has also been a steady decline in our other exports so that, as a whole, our exports now are, as we estimate them, well below the line of normal growth. This is almost wholly due to the reduced purchases of Europe, since our exports to other countries have grown steadily. (2) If purchases of foreign bills were protected by forward purchases of exchange, dollar for dollar and date for date, would there to any possibility of any loss except from the cost of the forward According to one of the best experts in that is to say, the insurance? this field there would be no difficulty whatever in making these purchases of forward exchange up to perhaps as large amounts as we should ever think This wes the whole point of of dealing in, at least at the present time. my memorandum to Mr. Jay; but perhaps there are other difficulties of which I am unaware. If the amount of commercial bills available abroad was not (3) very large would not this suggest that even moderate purchases would be of For yNmpl!i2onglidlro,10 imconsiderable help and advantage to them: portance was attributed to the mere flotation of a five-million-dollar credit through Mr. Warburg's bank and the twenty-one associated with him. Moreover, would it be necessary to restrict purchases to the London market? Sweden is practically back on the gold basis, and there is little reason why Switzerland, Holland and several other countries should not also resume. I can't help thinking that cheap credits extended to some of these countries adjacent to Germany, Poland, etc., could be used by these solvent countries as a direct aid to the others in a very advantageous way and perhaps with much more ease and advantage than would be possible from direct dealings by us. (4) I don't feel quite so sure that foreign credits would not help very considerably, even if the influence was indirect. For example, would it make any material difference whether the stimulus was indirect, e.g., whether, for example, Europe could buy more wheat of the Argentine or Canada or elsewhere? So far as the international price is concerned, would not this be exactly the equivalent to us of the actual buying of our wheat here? As you know, our gold imports this year are threatening to surpass all but war records. For the four months of the present year we received net imports of gold of 157 millions, as against 45 millions for the corresponding four months of last year. Except, of course, payments on (5) FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE DATE May 21, SUBJECT ,__Purchases of Foreign Bills FrAJN. Mr. Snyder 2 the British debt and on other indebtedness, we are paying for this gold in And of course our foreign customers, and especially those of goods. Europe, are necessarily restricted in their purchases by a corresponding Would not a wise policy seek to break up this vicious circle, amount. since of course all this incoming gold is utterly of no use to us? We have, it is true, as you say, some overproduction of (6) wheat, and this must naturally be corrected. But this is not the root of the difficulty of the farmers of this country, for their difficulty is that of the farmers of the whole world, via., reduced buying power on the part of the industrial population of Europe. I think you agree that the McNary-Haugen Bill is a foolish and useless measure, but it is evidently going to pass unless something is offered in its stead. Now, does it not seem to you that it would be wiser to propose something that, so far as it went, could scarcely be otherwise than helpful and could apparently do little harm! Thanks in part to the tactless methods of some of the interior bankers, the Federal Reserve System has incurred bitter criticism from the farmers, and the situation does not, as all of us had hoped, improve. On the contrary, in the recent weakening of commodity prices, food prices have been foremost. It is not merely the wheat grower, but the hog raiser and many others, who are securing less for their product than before the War. Does it not seem to you that if we could do something, however slight, that it would be in every way advantageous? I attach a memorandum from Prof. George F. Warren, of Cornell University, that you may be interested in looking over. 1924 ' T oWtsi.. - n-rwist- THE MAJOR CAUSE OF THE AGRICULTURAL DEPRESSION A number of minor causes contributed to the agricultural 111 panic, but the major cause was the financial policy. I have found no historical records where the effects of inflation and deflation were not similar to the present experience. The pre- sent depression is the worst ever experienced in America, but no greater than would be expected following such rapid deflation. I am not here mentioning the various good results of the as meaning This is not to be interpreteu/that I do not financial policy. reconize them. I think that the Federal Reserve System has a chance to develop into a much better thing than is generally reThe very fact of its power for good makes any Listake alized. far-reaching. Mistake No. 1. Up to 1218, we could have had less infla- tion without hindering the progress of the 7:ar. Mistake No. 2. After the armistice, a moderate deflation could have been browTht about without serious consequences. was expected and was lar.D;ely discounted. this policy, we continued to inflate. It Instead of followirg This secondary inflation was accompanied by the rise in land values, rise in prices of machinery and tools, and by the spread of the belief that deflation was never going to come. This toether with the return of oum: men to farms led to an enormous increase in the number of This secondary inflatio / laid the )urchases by young men who went heavily in debt. foundation for the agricultural panic. -2:istake No. 3. Having gone wild on inflation, the pol- icy of deflation was equally frantic. When things were going not to to rapidly it was +11. rate would immediately be creases came at too late rapid and too drastic. when the momentum is grea gradually. They may see but a steady pressure brin Mistake No. 4. A pressure should have been a part of the last violenc been done by loerin,; the of ^.overnment securities. Mistake No. 5. I ing made to-day by assumi such drastic deflation sho stabilize. The financial building boom. There wou any event, but had wholesa more of the income would h ing boom would have been l cities would have been les needed in cities. This h that will not involve very pity persons are as blissf as farmers were in 1920 -3- Prices of food as sold by farmers showed a slight tendency toward improvement last year when the wholesale price level began They are now set back to the bottom again. The index food of prices paid to farmers for 5.11/products for April is 118. In INILto rise. only two months of the panic Period has it been lower. To attempt to i.et labor, taxes, and other charges which are at the 200 level to come into adjustment with wholesale prices at a level of 150, and pries of food as sold by farmers at 118 is expecting too much. IThis could only be brought about by violent periods of unemployment and a violent smash in city real estate -orices. The disruptive forces set in motion by an attempt to hold wholesale prices at the present level are likely to result in Mistake No.6, that is, another period of inflation. Nothing will so surely bring inflation as a persistent attempt to deflate too rapidly. We have gone too far in bringing about mal-adjustment to have any hope of an easy way out. I believe, however, that the soundest thing to do at any sta7e of the pro-tress is to stabilize the situation as quickly as possible and for this purpose the following steps are necessary. 1. Find to what price level conditions are now most nearly adjusted. This cannot be done by arguing - it must be done by extensive statistical studies. It should not be done for banks, or for cities, or for labor, or for farmers. All of these and other interests should be considered. I believe that this is as little understood by bankers as by farmers. Bankers deal with thinzs that have a very short turnover. 110 Farmers deal with thin7s that have an exceedingly long turnover, about once in eiht years. Each of them tends to think his philosophy is sound and that the other's philosophy is unsound. To properly answer the question, consideration should be given to the present wage level; nay of school teachers, and other public service; public and private debts; prices of commodities; prices of city homes; prices of farms; etc. The ideal result is the one that gives the smallest alc.ebraic sum of injustice and economic confusion. 2. Determine the best means of adjusting. to the nrice level determined in No. 1, and the best means of holding things at that level. Thile you were lecturing, I noticed your sugstion that I was interested in the Mc Nary-Haugen Bill. case. This is not the I made no reply because there were too many other things to discuss. That bill is merely an attempt to tide matters over far a short time. My interests are in nermanent policies. ho:ever, led to the following conclusion I am, concerning this bill, that if all of the efforts now being expended by city agencies for the defeat of this bill ,end the additional efforts exerted in the attempt to prove that there is nothing the matter with ariculture were expended in attempting to find solutions, we mi7ht make some proress. 7e are followin the policy of high tariff which favaws city industries; the policy of imnizration restriction which favors city labor; the policy of control of the gold supply which holds prices down. re have -revented the free movement of goods; pre- vented the free movement of labor; and are following. a very diferent policy with our gold supply than the policy that would 110 be followed if the Federal Reserve Banks were operated for profit. In each case we are controlling either the supply or the demand. However, the farmer is told that the only way out for him is to let the law of supply and demand work without restriction, and that there is no solution except time, and that he is unsound if he asks for any solution. Personally I am in favor of the three restrictive policies mentioned in this paragraph. The world is in such a turmoil that I do not believe a laissez - faire policy should be adopted by this nation. to be followed the entire nation should he considered. If I be- lieve that the wise handling of our financial policy can furnish the basis for solving the agricultural problems but if handled unwisely we will be in danger of legislation that is really radical. MIS ..1 -100M-9-23 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To Gavernor_Strong Fpnm Mr Snyder DATE SUBJECT: Pro t Bullock's_ Letter _ Prof. BulloolOa letter is very interesting. suggests that hie meter limps a little. did their index last year. May 23, Dr. Burgess So also, as you will recall, 192i MIST, 3 I-75M -9-23 FEDERAL RESERVE DANK OF NEW YORK OFFICE CORRESPONDENCE GoyernorStrong DATE SUBJECT May 26, German Bank Director 1111111.- FROM Mr. Snyder As to the American member on the Council of the new German bank: I should think that by far the ablest and most experienced man that could be named would be Mr. George E. Roberts. He has both banking experience and high standing as an economist, and the clearest understanding of the problems that would face the new German bank. induced to consider it, his seems to me the foremost name. If not, how about Dr. Miller? He is of German origin and his experience with the Board should be highly valuable in such a position. If neither of these, Mr. Rovensky would be a very able, energetic and reliable man, but I doubt very much if he could be induced to leave his present position. Another name that comes to mind is Mr. F. A. Delano, formerly of the Federal Reserve Board. And there is Mr. J. S. Alexander, who might possibly consider it. Is there any serious objection to an academic man? It would be hard to find an abler or more experienced man for such a position that Prof. Kemmerer or Wesley C. Mitchell. sw MISC.3.1-7W-9-23 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE Governor_Strong FROM DATE__JAWAN54___ 192 Foreign Finameialkdvisers Mr. Snyder As to the Austrian and Hungarian positions: Undoubtedly the ablest and most experienced American in this field His standing is, of course, of the highest, and he has is Prof. Kemmerer. In all his dealings had a range of experience that no one else has had. ho has shown himself not merely a very able organizer but an adroit and suave negotiator, and, I think, universally popular. of first rate ability it seams to me it would be a great pity to pass such a person by, as is usually the case when it comes to any kind of Government appointment. Dr. Chandler was on the American Commission in Mexico with Prof. Kemmerer, has spent a great deal of time in recent years in studying European conditions, has a wide acquaintance over there with economists and bankers, is sound and clear-sighted in his views and has now had four years of commercial contacts; he earned his way throut: college and has had an allIt would he hard to find anyone better qualified. around experience. Dr, Stewart has had a more academic career so far, but he comes from the West; he has a cool head and many of the qualifications that, it seems to me, are absolutely necessary for such a post, if it is not to be a failure, Dr. Foster has been a successful college president, after a long experience in Bowdoin and Harvard, is an administrator and a negotiator, and equally has the right qualifications of clear financial understanding. Another very able man is Prof. J. H. Rogers, formerly of Cornell, now of the University of Missouri. He was trained abroad, has a wide acquaintance with European economists, bankers and others, has the advantage of a first-hand knova edge of conditions and a mind of crystal clarity, With his highly reserved personality he has not made the impress that his real ability and the unusual incisiveness of his mental processes should command. Compared with some of the bags of wind from whom you have had correspondence, he is a piece of cold-chilled steel, He is well worth considering. John Williams is a very capable and competent person, but his views upon the effect of paper money issues is essentially that of all the defenders of the German and other inflationary policies, and it seems to me that it would be very unfortunate to put anyone in such a place as that who had any tendency to wobble upon this point, because the pressure that will be brought to bear by the inflationiete will be very heavy in every way. I have mentioned only academic names so far, for the reason that it is rather hard to find bankers or business men who have given these questions serious attention, and whose instincts and impulses are usually in the direction Whe WSC.3.14514-9-23 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE DATE_ Governor Strong FROM Mr. Snyder May 26, 192 4 SUBJECT:_ Foreign Financial Advisers 2 of the easy road, which, it seems to me, is precisely not the road that these two countries can follow now. Two very able men in the Bank of Commerce are Mr. Rovensky and Mr. Broderick, either of whom has hilt qualifications. Mr. Broderick has specialized in the foreign exchange field, and Mr. Rovensky, as you know, is a quite unusual type of banker. But would it not be wiser to consider these two for the other position? 11 I ST AT.3.00-10,1 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE _Governor Strong FROM DATE SUBJECT May 26, 1924 Exchange charts, etc. Hr. Snyder p Your call for charts comes in the midst of closing up for the Monthly Review and the Business Summary, and some extra charts for Mr. Jay. May I ask how far the enclosed will answer your purpose and just what is most essential to add: 1. Gold statement is attached herewith. 2. I attach chart of exchange rates for five countries, from 1914 to date, and charts for all the other principal countries into 1921. Q. Shall we try to bring all these latter up to date? 3. Fluctuations of exchange under the gold standard before the War were, of course, within the "gold points," i.e., in variations of under 1 per cent, which is not representable on charts giving post-war fluctuations, i.e., it would be just a straight line. This could be just indicated on the "par" line as "pre-war average fluctuations." See charts in hook enclosed. 4. The mathematical formula used by Mr. Keynes for purchasing power parities is on page 106 ff. of his "Monetary Reform," which I believe you have. This is, of course, taken directly from nessel and credit is due to the latter and not to Mr. Keynes. 5. It is extremely difficult to show conclusively this p. p. p. relation by means of any existing indexes, so far as ws have found, as is evident from the attached chart showing this for England, France and Italy. You will note that in the case of England the price index ratios for more than a year were above par, but the exchange did not follow, i.e., there sewed to be other forces at work, which I call bill pressure, for lack of a better word. I attach charts for six countries carried only into 1922. Will you please look at these and see if any will serve your purpose? 6. We can have the three photostats of any of these ready Vi'ednecciay morning, if you will advise us tomorrow morning. mmilSCAA-100W-g-n FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To t FROM _ Governor Strong DATE SUBJECT: __Kay_27*__ Conditions in Iowa Mr, Snyder I an sure you will be interested in a rather remarkable letter which Mr. George E. Roberts has received from a friend of his in Iowa. I imagine it paints the picture rather black, but it is none the less an interestin' view. 192AL mi3C.4.1-1004-9-23. OF NEW YORK a FEDERAL RESERVE BANK OFFICE CORRESPONDENCE Governor FROM Strong SUBJECT: Mr. Snyder This seems to me as intelligent a cr as I have seen. ,gio-nAL 3 FEDERAL RESERVE BANK OF NEW YORK flpFFICE CORRESPONDENCE To a/VerZIOr Strong F RA DATE__may 264_ 1924 Mr. Snyder SUBJECT Rats Programme With reference to the programme you outlined the other morning it seems to me that present tendencies should be pretty carefully considered. The dark wave of pessimism, you remember, rolled in in the (1) March saw some recession in business from the unearly part of March. seasonably high point reached in February, and our index of the Volume of Trade came down from 111 to 104e The average for the quarter was 107. In spite of all the continued gloomy talk and gloomy predictions, the recession apparently did not continue in April, save in a few notable Our index for April will be about lines like, especially, steel and iron. 103. (2) The stock market, which is supposed to anticipate business movements, but which seems generally to run pretty well with them, equally The averages, just like our Volume show no evidence of an impending slump. of Trade index, came off somewhat from the sharp little run up in February, but the decline amounted to only about 7 points for the industrials and Both rails and stocks are still well practically nothing for the rails. above the low point reached last July. (3) The same way with brokers' loans. very slight decline from the high point reached in March and are now about half way between the record point of April of last year and the low point of last November. (4) The same way with commodity prices. As you have doubtless noticed, there has been some decline from the high point in February, but our average of 20 basic is still well above the low point of last July (see Business Summary), (5) The same way with the banking situation. The statement for National Banks for March 30 ohowed loans and discounts at a peak since 1921. Demand deposits ran off a little from the figure of December 30, and so did total deposits, very slightly; but both are now practically at a record point, and higher then at any time in 1920. In the Reporting Member Banks total loans are at a peak since 1921, and demand deposits last week made a new high for the year. evident in the banking field are in the Federal Reserve Banks, not in the commercial banks. They .0E3ISTAY.361.- FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To GO ran= _Strang FRO Mr. Snyder_ DATE __MaY_Zag_ SUBJECT 192 4 Rate Pro gnome 2 (6) In the general business situation we have, of course, a continuance of the building boom, and that in the minds of some spells surefire disaster. But we had a large deficit to make up, running back five years, and mith the enormously high wages being paid and full employment I see no reason for anything more than a steady easing off as the demand abates. We have had some slump in steel and iron, but even at that, if you have noted our index of Production, you will see that both March and April for pig iron were above the computed normal and the average in steel for the two months the same. There has been a sharp cut in automobile production, but this was largely part of the programme to stock up heavily in the winter. For the first three months of the year General Motors sales were less than 3 per cent below a year ago, which does not indicate any very serious depression there, in spite of all the wild and foolish talk. Bank clearings outside of New York City, an excellent index, was, estimated, about 3 per cent above normal for April, and that meant about 6 per cent for the first four months of the year. as (have ALI. We have had a boom in some lines but a quite notable depression in others, as in textiles, leather goods, hides, etc., to say nothing of the very serious and persistent depression among the grain farmers and livestock raisers. This, I regret to say, shows no improvement, and this will have its political effect. (7) To sum up then, we have had some little decline from February, just as we had a little run off from the high peak of business in March of last year, but this year as last year business was at high tide and running steadily above normal and not below. This is a definite and incontestable fact, end yet you would imagine, from listening to nine-tenths of the business men, that business was poor. They seem utterly unable to discriminate in their minds between profits and volume of business and productions Our index of the General Price Level stood in April at 180, a decline of 4 points or about 2 per cent from the high point reached last October. This compares with a low point of 166 reached in 1922. This is a weighted average of all kinds of prices, tages, rents, etc. It represents the only accurate measure we have of the purchasing power of gold; and now stands at only about 15 per cent below the average for 1920, and is at practically the same level as when the Armistice was declared. (8) FEDERAL RESERVE BANK OF NEW YORK EFFICE CORRESPONDENCE DATE___may_22,_ To Governor Strong SUBJECT FRAIL Mr, Snyder 192 4 Levels As to the present position of price levels in Great Britain and the United States: It seems to me extremely difficult to make a very accurate and trustworthy comparison. There is no index of the general price level for Great Britain similar to the one we have compiled for this country. But we find that the index for the average cost of living comes very close to this general average, as a rule, and, taken on a pre-war base, this index for the two countries is apparently somewhere near the For this country the computation made by the Industrial Conference same. But there is no wide Board differs a little from the Government averages. disparity. The Federal Reserve Board tries to compute relative prices on a gold basis, and you will see that, dividing the price indexes by the current rates of exchange, the two levels are now very close together (F. R. B. Bulletin, May, p. 433) . On the next page you will see, also, that the F. R. B. indexes of export prices are likewise not very far from our own, that is, between I do not know how good theca 80 and 90 per cent above the pre-war level. indexes are, and hawk j ust started a little inquiry into this question. Ae to wages, Prof. Bowley computes a composite index at about 75 per cent above pre-war levels, but this is rather heavily weighted by ship builders and agricultural laborers, end if our weighted index was made up on the same basis I doubt if it would to very much higher. In a word, the available evidence seems to be that, relatively, the general run of prices--commodity prices, wages, cost of living, etc.- have risen about the same in percentages in England as in the United States. Now, you may say that if British exchange is depreciated by, say, 11 per cent, then, speaking very roughly, measured in gold pumusgmtmengsmtmstoplathe prevailing level of prices in England was 11 per cent below that of the United States, relative to the pre-war relations. But a good part of this difference, it would seem, is dueto what I call bill pressure, the pressure of payments, and therefore you might say that, at the present time, British exchange on the United States is artificially depressed, and does not represent any true difference between price levels. I am having our Library files searched for anything illuminating on this question, tut personally I have not seen anything with very much sense to it on this subject; so I have ventured to give you the available facts as far as I can. Briti FEDERAL RESERVE BANK OF NEW YORK 110FFICE CORRESPONDENCE o Governor Strong DAI SUBJECT: May 28, English and American Prices. FRom Mr. Snyder If you think that my presentation of the subject was incorrect, pleaee note a very careful article upon the question in the attached number of the Economist, evidently written by Mr.40eightoli-or some exL pert upon these matters. You will see that this writer has the same difficulty in ta4gzutzulg price index ratios and the actual exchange rates that anyThere are one will find who examines into the question carefully. For example, as you probably know, wheat is all sorts of anomalies. today selling in Liverpool at about the same price as in New Yort, lespite a normal spread of bout 26 cents on freight rates. FEDERAL RESERVE BANK OF NEW YORK ICE CORRESPONDENCE T DATE June 2, 192L SUBJECT: Buying of Labor Saving Machinery cb varnor_Strong_ Alr,Snyder, Attached is an extremely interesting note on conditions in the machine-tool industry. It contrasts rather sharply with Mr. Woolley's idea that there has been an unusual amount of new labor-saving machinery introduced in the last ter. years. But without the latter it seams very difficult to explain the apparent increase in factory production per man which seems suggested by the comparison of factory production and the amount of factory employment. Another instance of how difficult it is to make en accurate gen eralization t anywhere. OF FEDERAL RESERVE BANK NEW YORK OFFICE CORRESPONDENCE Tn 4g. FROM Governor Strong DATE. SUBJECT:_ June 5, Mr. Robert Crozier Long Mr. Snyder T. have been a'ols to make littls headwey in finding anything for Ur. Robert Crozier Long. He writes, or did write, for the Journal. of Commerce, and for e time mu Berlin correspondent of the Standard Statistics ronmany; also fora time for the lilvtning Post. . r. letanz Schneider, of the Evening Post, le considering the matter, and also the 7 ributie. 4 MISC. 4.1-100M-9-13 FEDERAL RESERVE BANK OF NEW YORK OFFICE To N, yr. CORRESPONDENCE Governor Strong FROM DATE SUBJECT: Economist of June 16, Jiang, 7, 1924 . Snyder This seems to me an extremely interesting sidelight on German industrial conditions in and since the War. A-014 <f)- itolv AuGrl 325 tovi (A Sofa\ )(/)A-c-,- MISC. 41-10014-9-Z3 FEDERAL RESERVE BANK OF NEW YORK )FFICE CORRESPONDENCE DATE 16, -rte* Governor Strong SUBJECT: FROM Mr. Snyder _ 1924_ of the Japanese-American Ltitter to :,rinuvrsary Dumber lhould you like to add to the 3 etter, after the first full paragraph on page 2, the following, which I have just turned up this morning: "An interesting sidelight upon this quite astonishing development is that Japan is now third among the nations of the earth in the amount of electricity consumed, erceading in this regard even such large countries as Great Britain and France, and surpassed only by the United :states and L)ermany." MISC. 4.1- 100M -9 -?3 FEDERAL RESERVE BANK OF NEW YORK O3FFICE CORRESPONDENCE To FROM __ Govern za_strotig DATE The 23. SUBJECT: Mr.-Savior_ I have had a number of letters and questions very similar to the attached, not about this Whaley-Eaten atuff, but the supposed new policy. T'd rather like to have a word with you as to just what should be the tenor of a reply. 192i I 'POO 10-21 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE 0o_ FROM _Goy ornor Strong DATE SUBJECT 192 4 Jure Remarks on "Monetary Reform" Mr. Snyder You will be entertained by the observations 0 Prof. Cannan-he is always amusing--and Sir Charles, who can never say die. Also, by the naive beliefs expressed by Mr. Keynes, and still (/, z more notably by Yr. Hawtrey here and in his revis -f Keynes' bock ,Athe.t there is on this side of the water an august body with a clear and definite program, boldly carried out, and in full control of credit expansion, price levels, and other fortunes of the nation. 4.1-1001-9-23 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE Try Mr. Jay FROM DATE SUBJECT: Auks_261 _192_4 Mr. Snyder Index Agures of Volume of Trade We have a steadily increasing number of requests similar to this, and it is becoming a real burden to reply to them all. e publish in the Monthly Review regularly some fifty odd different indexes, computed in terms of normal, a considerable part of these now for a number of years. it you think there would be any serious objection if without further ado or even specific mention of it, we simply added to our fifty odd indexes the composite number for the Volume of Trader Only the scant few who are interested in such matters would ever notice it, or even know what it meant, and it would save us a great deal of trouble. MISC. .1-toom-9-n FEDERAL RESERVE BANK OF NEW YORK )FFICE To FROM CORRESPONDENCE _GOY er 310 r a_trong_ DATE__ SUBJECT: June 26, 192_4 British and American parities __ir, Snyder IC 0-Lai( -i(7"6- Since none of the ratios of indis.xes of prices between this country and Great Britain yield a continuously oems-taitt comparison with the actual course of sterling exchange, and as you did not feel very well satisfied with the results so far obtained, we have undertaken the construction of a new index of the General Price Level of Great Britain on exactly the same lines as our new index for the United States--that is, a weighted composite of all kinds of prices, including commodities, wages, rents, and the elements of the cost of living, or, if you prefer, the average of all kinds of payments. This is in the hope that comparison of this with our United States index may yield more satisfactory results. misc. .1.1-loosi-9-23 FEDERAL RESERVE BANK OF NEW YORK 41bFFICE CORRESPONDENCE To* Governor Strong FROM DATE June 27.. Mr. Snyder SUBJECT: Prediction of Business Recovery At our business Luncheon today Colonel Ayres predicted very definitely that the :,lump woulu la et until late in the year, and, as he put it, that the turn might come about Election 1)ay, with a very slow recovery and business not buck to normal krguing from past performance, before the middle of next is would ruggest z year. ,oli ti cal overturn, that is, in most cases where the election takes place in a severs Blume, with falling prices, the Administration ehe_nges. __192_4 But personally I doubt very much tY0 emmtinuance of the slump. FEDERAL RESERVE BANK OF NEW YORK iFFICE CORRESPONDENCE To FROM _Go error Strong r. /MO 274 DATE SUBJECT 192 Pieter:win the Librim Snyder r V/hen we laid plans for the new Library of the Bank, we thought it might be a real embellishment if We could obtain some interesting pictures of bankers, economists and others. So three years ago, when I was in London, I raided the second-hard shops and bought quite a collection, and at astonishingly swall expense, of old prints, caricatures, etc., of former Governors of the Bank of Phgland, of Adam Smith, Ricardo, and the like, adding to a collection I had previously made myself. ,'any of these cost only a sixpence or a shilling, possibly, but I think are well worth framing. But I maw find that there is an order against any wall decorations. Do you wish this to hold against pictures in the Library? e had thought, also, to out up quite a collection of our chart pictures, and the like, so that it might be rather a show place for visitors when they came. The expense of this would, of course, be extremely slight. 4 I STAT.3600-10-*1 EFFICR FEDERAL RESERVE BANK OF NEW YORK PNDz.... ENCE rzr-- DATE ""-- 192 TF:# -e.,ef-14--tri-11-(21z 4,(Y Zi4-11( tv7/ h4. v2.1 Ar-tA 1444 Z-71 ff,1-1 /1/T4461 a/ K144: - ,26-ei-1/A 12V "t2.e. Lt_if- a/ Ai 5 A 0 ? 2 ,9 ct/ au/ 401=4- OMS-2 150M-9-20 FEDERAL RESERVE SIAMK OF NEW YORK ti TIME INTERSFFICE ROUTE `I TV A. N. P. N. OFFICE SERVICE MESSENGER SECTION DATE DEPARTMENT SECTION REWRK FROM 1,/ DEPARTMENT DIVISION SECTION N. B. USE THIS FORM INSTEAD OP OFFICE ENVELOPE WHEN POSSIBLE, TO INSUREPROMPTANO http://fraser.stlouisfed.org/ ACCURATE DELIVERYALL COMMUNICATIONS SHOULD BE DISTINCTLY LABELED Federal Reserve Bank of St. Louis MISC. FEDERAL RESERVE BANK .I.-1001-94.3 OF NEW YORK SFFICE CORRESPONDENCE T041 Governor Strong FROM DATE SUBJECT _Lune 30, 1921 New Investigations Mr, Snyder When Dr. Stewart was over here last time, in May, he renewed his urgings that we undertake more detailed studiee of the New York money market, the movanent of funds, etc., but had no definite proposals at the time. I wrote about this after his visit, also the attached. No answer from either letter. MIK A. -100?4-9 FEDERAL RESERVE BANK OF NEW YORK 4IbFFICE CORRESPONDENCE To4 Governor Strong FROM DATE June 30, _19 4 Mr. Snyder a "bawl." SUBJECT: Memo. from Hoover It is very reassuring that you think this sort of -stuff is just That is just what it seems to me. There is undoubtedly a rather sharp recession in a number of lines of industry, just about like there wra last year. Our bank clearings for June, with four days estimated, indicate something like 4 per cent below the normal rate of growth. But I have an impression that this will not last long and that July or August till ahoy n marked improvement. As for Europe, it seems to me that it is plugging along in the face of great difficulties, slowly improving. MISC. J-1001-9-21 FEDERAL RESERVE BANK OF NEW YORK -14FFICE CORRESPONDENCE Toi FROM Governor Strong DATE SUBJECT: 192A June 30, British Prices _Mr. Snyder You sill be interested, I think, in this plotting of the prices, wages, and the cost of living in Crest t4ritain According to these figures there has been a wholesale deflation of wages as well as of prices over there, ro teat on a 1913 ease their wholesale price and wage levels are pretty close together. welch might vs interpreted to mean that actually tnere is a better balance or price levels in uree.t. Pritain at the present time than in tee united States. The red line is the computed general price level or average of made up in exactly the same way as the same index for kinds of payments, country. all this course OT MISC 3 I STA7.3800-10-21 FEDERAL RESERVE BANK OF NEW YORK iFFFICE CORRESPONDENCE To Governor Strong FROM DATE __1_141218_30. 192 Mr. Snyder SUBJECT: Sterling and P. The attempt to work out a theoretical value for sterling, from a In the past three comparison of price indexes, has not been a success. years we have tried out several combinations, and one of than worked Then came the divergence which I beautifully for a good long stretch. pointed out some weeks ago. Here are two new ones: The chain line is the comparison between our Bureau of Labor index and the new Board of Trade index for Great Britain. These are quite distinctly the two best indexes of commodity prices at wholesale in their respective countries. You will note that, from the end of 1919 to the middle of 1922, this line crosses and recrosses the sterling exchange line repeatedly. Then, like all the rest, they took a wide swing apart, and only made a near approach again last summer. The solid line is a comparison of two indexes of the average purchasing power of the two currencies. That for the United States we had worked out for quite another purpose, and, having done this and determined the needful constituents, we found that it was a very easy job to make a similar computation for Great Britain. Prof. Bow ley had made a carefully weighted composite index of wages in Great Britain, and the other indexes for wholesale prices, cost of living, and rents were at hand. You will note that this comparison shows wider divergencies from the actual course of sterling than the ratio between prices at wholesale. I may add that I know of half a dozen other attempts in this country, and two or three abroad, to solve this problem, all with equally little success. 4 0 10 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To Govarner_Strang DATE SUBJECT June 30, Expenses of this Department 4111+ FROM Mr. Snyder__ I have been very much disturbed by the statement reported by Mr. Jay, as made to you in Washington, that our Index of Trade had cost Dr. Burgess something like t75,000 (if this was correctly the statement). has gone over the records and estimates the actual cost at around t15,000 at Personally I think this figure is much too high. the outside. Our Index of Trade was the outgrowth of some incidental work on a monthly Index of Production, undertaken at a time when nothing of this sort When Dr. Stewart became Director of the Research Division he at existed. once began the preparation of such an index, utilizing, as I understand it, some of our material. The actual composite Index of Trade has not taken the full time of more than three or four people, and has been done incidentally to other work in the Department. T believe it will come to be recognized and accepted as the first really reliable and accurate measure of trade, and therefore of the real credit needs of the country that has ever been compiled, end may prove in time of need worth many, many times its cost. If, for example, we had had such an index as this in the summer of 1919, with five years or more of experience behind it, as we now have, it mi jnt not have teen so difficult to prove that the great rise cf prices which then began was pure inflation and not the result of business expansion. May I add this: Both in number of employees and in its total expense this Department represents less than 1.9 per cent of the total expense of the bank. Mr. Morgan's computation was that the Research Department, entire, takes about one-sixth of this, or .3 of 1 per cent. In other words, if the entire division was abolished it would mean that, in the total number of employees or the total expense of the Bank, something more than 99.7 per cent would still remain. The continued criticism of our expenditure from Washington is discouraging and can, I believe, have but a single object. 4 SIBC. 4.1-1001-9-13 FEDERAL RESERVE BANK OF NEW YORK "IDOFFICE CORRESPONDENCE Governor Strong FROM DATE SUBJECT: July 1, macron.. in New York Deposita Mr. Snyder In trying to get at the sources of the extraordinary increase in deposits in New York banks in the last four or five weeks, I thought it would be of interest to sample several of the interior districts. As you will see by the attached, in the last three months Chicago gained a little, and the Atlanta, Minneapolis and Kansas City districts lost a little. / In the same period the total of outside bank balances and outside bank loans to this market has varied little. In other words, the gain here does not seem to have been at the expense of the rest of the country. 1924. MISC ,77 1.00-10,1 FEDERAL RESERVE BANK OF NEW YORK iFFICE CORRESPONDENCE To Governor Strong July 1, DATE SUBJECT: 4 John R. Commons ANIL FROM Mrs __Snyder. I am glad you will have a little talk with Prof. Commons. as Wesley Mitchell said, a very unusual and remarkable person. He is, he has probably had a wider practical experience with legislators and the framing of legislation and working with committees, etc., than almost any other And his despartm Ant of ocercmics American. v is cz sil^ ver,-:ity has sixty-two prof essors and instructors and some four thousand students enrolled annually. He knows the West, and his point, in a nutshell, is this: The mass of the people in the test believe that the :ederal iteeerve Board and Bank were at least the chief active agents in the deflation which cost them so dearly. this belief. That it is hopeless to try to dissipate or eradicate Only one way he thinks to meet the issue. it squarely to than; "Do you want another period of inflation, or do you want stability?" FEDERAL RESERVE BANK 1,115CAJ-100h1-9-23 OF NEW YORK S)FFICE CORRESPONDENCE Governor FROM Strong DATE SUBJECT: July 2, Caleulating P P P' Mr. Snyder I quite concur in your exposition of the problen. But the further difficulty is that just those goods which are actively traded in between two countries will have in general, and barring obvious exceptions, practically the same gold price, i.e., the price in one country will correspond almost exactly to the exchange rate, e.g., the price of cotton in Liverpool. It aeons to me the geners.l theory,that the average and long-time exchange rate between two countries must be a ratio between the average But I internal purchasing power of their rempectivo countries, is sound. doubt very much if we can get much further than we Lave already in demonstrating it by index numbors. But, so far as it goes, it some to me that the evidence is that sterling, for a year or more, has been uaduli depressed, s.nd really feels the effects of the -iery heavy gold payments. 19A._ 4.1-1001,4-9-23 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To Governor Strong FROM DATE 147 34- 19 4 Mr. Snyder SUBJECT: Out-cf-town Balances Before 1919 The beet barometric figure for out-of-tern balances back of 1919 we have is the due-to-other-banks account in the National Bank calls. Those for New York City shown herewith. You will note that, after the heavy jump in 1915, there has been a pretty steady secular decline, and the variations from this do not seem of great significance. rwict ,TAT ,P00-10-2i FEDERAL RESERVE BANK OF NEW YORK EFFICE CORRESPONDENCE To Ctovernor _Strong FR.. Mr. DATE July, -_- 192 4 SUBJECT Snyder In the last four years we have made scores of large wall charts for addressee by Mr. Jay and others, and some of these are very striking and interesting. They represent a quite rane.rkable range,(s.nd I think would disabuse your mind of the idea that we have devoted any special attention to price movements, etc., although such charts have been among those most often called for by the officers? One of my thoughts about the new library was that we might make a big display of these, on the walls, perhaps twenty or thirty of them, that could be brought up to date from time to time, when pressure els cir.ened a little, although it seldom does. I believe that these would give visitors a fine idea of the range of inquiry and information at the disposal of the officers and directors of the bank, and especially might be very impressive to any whilom critics of expenditure in this department. Would this meet with your approval? Displa uni,, ..,TAT 3000 10.21 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To F RIP _CoTeniar_Strong _UT Snyder_ DATE SUBJECT July 34_ 1924 Interdietriot llovatent_of_Ands_4_ etc. The material for a detailed study of the New York money market and the movement of funds to and from the outside is rather scant, and not much Most all of this material has, of course, been of it extends back of 1919. The charted continuously from the time this department was organised. attached chart brings out the most salient features. The first thing you will note is how steady have been the demand deposits, and to a considerable extent also the total of loans and rediscounts, From a of New York City banks within the last five very tumultuous years. straight average for the whole period the demand deposits have varied scarcely more than 10 per cent. This is the more remarkable in view of the fact that the investment account has varied quite widely, both down and up. The variations in out-of-town bank balances have, es you will see, likewise varied but little, ranging around a hundred millions above or below In other words, a kind of gold exchange fund kept at a fairly the average. constant level. Out-of-town street loans, like local bank street loans, vary more widely, but swing largely with the demands of the Stock Exchange and not, apFor example, through 1920, while the inparently, with the interest rate. terest rate was rising to the highest points known in the last fifty years, street loans were steadily falling. Out-of-town street loans fell lees rapidly than local street loans, sc that the stringency which developed could hardly be regarded as the withdrawal of outside funds. Perhaps the most striking fact of all is that the interest rates in New York should have varied so enormously within this period, while the actual amount of demand deposits varied so little. And unless we imagine that large amounts of unreported outside funds flow in and out of the New York market, then must we conclude that the remarkable rise and fall of interest rates was due to the varying pressure of demand, against a nearl inelastic supply!_ And, theoretically, the supply was highly elastic. I should be very much indebted for any suggestions for further inquiries As to our studies of price movements and the like, I can assure you that these have formed but a slender part of the total of our work. 02' FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE Governor Strong FRC,M _Mr, auger DATE SUBJECT July 10 192 4 Coot of our Indexes, etc. - Dr. Burgess and I went over to Washington Tuesday, at Mr. Jay's suggestion, and I had a chance to have a very agreeable talk with Stewart about the remark he made to you about the cost of our indexes of Trade, Production, etc. He says that his estimate was "from $50,000 to $75,000," but I found that this was almost purely a guess from the cost of some work in his own department. I tried to show him that we had never had more than three or four people engaged upon this work, and these not continuously, and that I doubted if the actual cost at the outside could have been over $12,000 or $15,000, or much less than one-third of his lower estimate. I explained to him that a good deal of the computation had been done in the Tabulation Division when they happened to have slack time, so that this part of the work really cost nothing. I would also like to point out that this would include the cost, not of one index of Trade, but of three separate and distinct indexes independently calculated and yielding practically the same results. I doubt if all this work has ever run to as much as 10 per cent of the annual expenditures of this department, and, as I pointed out to you, the total of our expenditures now represent about 1.4 per cent of the total expenditures of this Bank. STA, 3100 -10-ti FEDERAL RESERVE BANK OF NEW YORK 'OFFICE CORRESPONDENCE To Governor Streft DATE SUBJECT hay 11, 19`' the Rapid Facpansion of Deposits Felt___Nra inydnr Perhaps the very rapid expansion of Reporting limber Bank deposits in the last four months may be very easily explained, and if so it is ex- tremely interesting. The situation is this: The low point for the year in these bank& deposits was about the first week of :.!arch. Since then demand deposits have expanded, to July 2, by about e20 millions, and time deposits by about 220 millions, which with Government deposits practically unchanged yielded an increase of deposits in these banks of around 10/0 millions. In the sane period total loans and discounts increased by 216 millions, total investments by about 554, or a total of loans and investments of about 670 millions. In the same period reserve balances with the Federal Reserve Banks increased by 110 millions, and as the cash in banks changed but little this meant a total expansion of around 780 millions. This leaves about 260 millions to account for. In this period net imports of gold amounted to about 140 millions, and we also know that from the end of February to the end of -lay deposits in !Jember Banks in the smaller towns, under 5,000 population, declined by about 100 millions. As the Member Banks represent nearly three-fourths of the total resources of the country, we may inagine therefore that the total gain to the weekly Reporting Banks from the smaller banks of the whole country might possibly have been on the order of, say, another 140 million dollars. We also know definitely that some of the larger banks in hew York City have very substantially increased their foreign deposits since the first of the year, one of them by 50 per cent. This conceivably might easily total 100 millions or more. These three sources would suffice to explain the balance of 260 millions indicated above, even after a reduction of about 72 million dollars in the total earning assets of the Federal Reserve Bank in the same period. But this of course does not explain the source of the funds nor the increase in loans and investments. As these could not have been derived from the smaller banks of the country by withdrawals, nor, in any probability, from increased foreign balances, we are left to the supposition that they were built up by the banks themselves on the strength of their excess reserves at the Federal Reserve. 4 .4 I sC db, I S7 AT 9600.10- 21 c` FEDERAL RESERVE BANK OF NEW YORK 1111PFFICE CORRESPONDENCE To Governor Strong FROM Mr. Snyder DATE SUBJECT: _The_ Rapid July 2.16 Zxpansion 192 of Deposits 2 If there were no demand for new currency, end in this period there was little change, and this excess amounted to as much as 100 million dollars, over the amount required in March, this amount with the Weekly Reporting Banks would expand their loans or investments by, roughly, about 900 millions, or considerably more than the actual expansion. how, in the old days the banks were largely left to the whim of customers, as to whether they could expand their loans quickly or not. Now, we hove had in this Heavy purchases of investments were not the rule. period relatively small increases of loans, and those chiefly with stocks and bonds as collateral, and a very heavy increase in investments. In other words, the expansion now is largely under the arbitrary control of the banks themselves, and practically without recourse to the The other thing of interest is that in this same Federal Reserve Banks. period the amounts reported from these banks as "all other loans," i.e., the Business generally was underso-called commercial loans, declined slightly. In other words, this heavy going a slight recession and not an expansion. expansion of bank deposits took place without any increased demand for commercial loans whatever, and in the face of a general tendency to curtail It is not the less interesting that this was a poscredit commitments. sibility which has for some time been foreseen. I am wondering if this is not part of the explanation of the considerable degree of stability in business which we have had in the last two and a half years. The steady inflow of gpld, in cooperation with the possibilities of elastic expansion under the Federal Reserve System, had brought it about that the credit movement may be at times temporarily against the general business movement, which in the case of the decline of the latter means a kind of' automatic resistance, leading to a rather ready reversal of the business trend. If this is the fact it would give additional support to the idea entertained by many that such a reversal might now soon appear again. I ...TAT Of r 10 2' FEDERAL RESERVE BANK OF NEW YORK ODFFICE CORRESPONDENCE (bvernor Strong DATE SUBJECT July 15, 192 4 The Increase in Deposits Snyder Part of your suggestions as to a possible inquiry had been covered in the memo. I showed you yesterday, copy of which, with corrected chart, is attached herewith. A less successful attempt to show the same thing is also attached (they did not keep to the same scale). I see no further light on the rapid increase in deposits in the first half of this year, save possibly in the unusually heavy gold imports. These gold imports for the six months reached a net of 222 millions, or very close to double the amount for the same period in either of the two preceding years. Closely corresponding to this has been the increase in the Member Bank deposits in the Federal Reserve Banks, which have gone up from the February average, low for the year, of about 1900 millions, to an average in the last four weeks of 2047 millions. This is the most rapid increase in Member Bank reserves that we have had in a long while. In the absence of any increased demand for hand to hand currency, and apparently this demand has fallen off slightly instead, this increase would suffice for an average expansion of deposits for the System of around a billion and a half instead of the billion that has taken place. Would this, and the further fact that the increase in deposits has run so far ahead of the increase in loans and investments (by about 350 millions), suggest that there is still a considerable slack to be taken up--i,e. , room for still further expansion without rediscounting? I have to go on Thursday up to Cornell University, but I hope next week we will have some further analyses for you. 4-6-49 7b tkeit. 64?.vt Cantw ltL eat.GD- cittiomte) xo-h >7\i/m6-v) 6tekito CL 17 "4` aciaticz 60-7 FEDERAL RESERVE BANK OF NEW YORK &FFICE CORRESPONDENCE ilrfAbyder DATE July 15, 1924 192_ SUBJECT: :Ilk M. E. Rose Gold Certificates in Circulation (outside Treasury and Federal Reserve System) Jan. 1, 1922 173,701,274 (Federal Reserve Bulletin)S?3 4.s19, Jan. 1, 1923 302,743,899 (Circulation Statement ) Jan. 1, 1924 582,029,209 ) June 1, 1924 779,159,139 te It ) 98- 8, S-57 3, 73 t 4,02-10..teroy61 4 ..01/;'MNT OF REMSCOtJNTS AND INVTSTMEN TS IN THE FEDERAL RESERVE BANKS In the chart below is given the month to month changes in the amount of rediscounts in the Federal R ;serve ranks, compared with the in- crease or decrease of investments. In a broad sort of way there has been since 1922 a quite remarkable correspondence between the decrease in the one and the increase lirthe other, The figures are given in three-months averages. +180 3 0 NTHS AVERAGE +160 4 INCREASE IN I NVE ST,NTS DECREASE IN DISCOUNTS - +140 +120 .- +100 11 + e0 DISCOUNTS t +60 + 40 i I +20 AVERAGE II CliANGESR011--- lb' PRE CEDING MONTH 0 IE NTS - 20 v - 40 r jr 60 (CORRECTED) -80 I I t 1923 -100 I i 1924 I Investments, millions of dollars. Discounto, nillions of dollars 100 500 - 400 200 - 300 Con f idential July 14, 1924 2 Since this low point of July of a year ago the investment account has been increased by 356 millions, while discounts and advances have declined by 619 millions. Here the decline in discounts was in excess, and as a result the total of earning assets fell accordingly to a point 200 millions below the lowest point reached in the extreme depression of 1921 - '22. But from the extreme low point of the investment account in last November, to date, the increase in securities has very nearly balanced the decline in rediscounts. `7ith some slight divergencies, therefore, it may be said that the expansion of security holdings has been balanced by a corresponding decline in rediscounts and vice versa. Had the correspondence boon exact, apparently the total earning assets would have beenheld at close to the average figure of the two preceding years; while at the present time this total is about 300 millions below this average. Ordinarily arid without the enormous accession of gold which we have had in the last three years and more, credit movements in the Member Banks of the System would necessarily follow rather closely the position of credit in the Federal tieserve Banks. 17ith the incoming gold, however, this correspaidence has been notably interrupted. In 1922 there was a heavy expansion of bank credit in the country over the low point of the preceding year, without a corresponding increase in the expansion of credit by the Reserve Banks. The same thing has been taking place in the present year, as was pointed out in these pages last week. The rapid rise in deposits ard, to a less extent, in loans and in- vestments, has been in the face of the fall noted in total earning assets of the Federal Reserve Banks. Last week saw another marked increase, bringing the total increase 3 A of deposits in the weekly reporting banks up from the low point of March 5 by 1,049 millions, In the same period loans and investments increased only 672 millions. In the New York district alone the increase in deposits in the same period was 655 millions, and in loans and investments 524 millions. In this period there was a net gain to this district through interdistrict transfers of 137 millions, so that the increase in deposits was about balanced by the other increases. But this was not true for the whole country. Here we must look more to the other item of gold imports and the building up of reserve balances through this mesas. Since March the net of gold imports has been 145 millions, and the increase in reserve balances, taking the average for the latest two weeks reported, was very nearly the same. In the absence of an active demand for loans this excess of reserves has led to a considerable expansion of Member Bank investments, but this has not as yet been sufficient to account for the still larger increase in deposits. Perhaps when we have more complete returns it will be found that there has been some drain from the smaller colzrtry banks to the city banks, and at the same time some accession in foreign balances, which would be sufficient to account for the differences disclosed. MISC. 1.1. 411111. FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To kRom DATE SUBJECT: 192 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE TS Governor Strong 4.1-WOM-9-23 FROM 192_4 SUBJECT: lir. Snyder About my "temple": The kind of work I have to do here is distinctly promoted by reasonable quiet and freedom from interruption. There is a good deal of distraction o7 your attention ii people con3teL_ tly co:nini; up to the door d looking in, and we have, first and last, u good many visitors. It would help a good deal if the room were enclosed as was originally intended, for you Can hoar all the telophones,Euiu people talking V.y F x 12 coop up on the 25th floor of the clear across tho Equitable was a good deal more comfortable plr.co to ticri dif 'erence. add in the fact of no rrivecy frr.m :!_nterruption me.kes a real I'd like very much to talk to you about it. MIS!. - -17 480, 10 2, FEDERAL RESERVE BANK OF NEW YORK eFFICE CORRESPONDENCE To Governor Strong FP DATE July 17, 19"c 4 Mr. Snyder SUBJECT Studies of the Money Market Just so you will not think us stupid or asleep, I wish I might draw your attention to the real difficulties in getting at the determinants of the market mov3r.ente. It is so easy to build theories. but these are the facts: As i pointed out tc you in my memorandum of July 3, net deposits in New York City banks have varied from a straight average by scarcely more than 10 por cent extreme. Mere has beau, no secular increase in at five and a half yao.rs. For the whole .4a"..;an dapoe:..ta are now pi.o..4.s.bly 4 billions higher than the average of 1920. They were 3 billions higher on March 31, and probably a billion more than that now. the:;e five year:, dad a half there the V0.1111218 of production, has been smut} ino like the normal rate of ::ow, 1:nott defir.:I.tely that grcwth it distributim, end trade. an expansion of betwean 15 and 2U per cent. This vculd ries.sn, for the five years since 1919, FEDERAL RESERVE BANK 110 c.4.1-Insi-9-23 OF NEW YORK OFFICE CORRESPONDENCE Governor Strong FROM DATE SUBJECT: Isly_18. Robert Crozier Long Mr. Snyder As I advised you, I wrote several letters and had a talk with There Ur. Franz Schneider, of The 1hvening Post, but with little result. does riot seem to be a great deal of call for financial news from Germany I am very sorry not to be able to here, such as Mr. Long could supply. do more, for I liked him very much. 1924_ FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE Governor Strong FROM DATE_ SUBJECT: JulY 192i 22a Now York Money Market Mr. Snyder If we wish to get a really accurate picture of the flow of funds in and out of the New York banks, it would be of much interest to know the amounts or percentages that are loaned by these banks to distinctly out-oftown customers, not to other banks nor on cornnercial paper. Would this be of sufficient interest to send a letter along the lines of the attached to six of the larger banks to see if we could get estimate of these proportions? tb. N itioq tett )1Lt. etkrv\2N Afr 0 'C. /.t- 100M -9 -23 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To it FROM Governor Strong DATE__ SUBJECT: x1924 -_192_ Brokers' Loans Mr. Snyder I have been looking into our records and find that the difference between the street loans as reported by the daily Tienorting Klanke and the brokers' loans, long as they were reported to us, did vary a little in amount, thou: r.ot no much in percentage; and the actual total now is probably a little hipper, by possibly 50 millions, than the estimate `:sr. Cooper has given you. I have eu3geste0 to him that hereafter he make an allowance for this variation in such fashion as to give you a little closer figure. FEDERAL RESERVE BANK MISC. 1.1- IOOM -9 -23 OF NEW YORK Or/OFFICE CORRESPONDENCE To a FROM__ Governor Strom DATE. SUBJECT: Za-dr_24A__11024 Voting in the Distriet of Ir. Snyder The anger to your inquiry auout the withholding of the ballot in the District of Columbia took quite a little looking up at the Fublic Library to get it straight. As you will see, it was rather a long story. 192_ 41151C 3 1 STAT.3000-10-11 FEDERAL RESERVE BANK OF NEW YORK iFFICE CORRESPONDENCE To Snyder _ FRO Bendelari DATE SUBJECT 192 July 24, 1924 Suffrage in the District Of Columbia In the loag dispute over Whether the United States should have a particular district for their capitol, and where that district should be, the chief fear on all sides was that the Government might be influenced by the adjoining State or States. Therefore, t was made to read, Art. I, Sect. 8, Clause 17: "The Congress shall have power to exercise exclusive legislation in all cases whatsoever over such Later there was much discussion as to how far "exclisive" district." went; whether it included the inhabitants of this district, too, as President Taft held. In practice the inhabitants did not vote in kational matters, as no place was provided for then, but did vote in municipal matters from the beginning to 1874. Several attempts have been made to amend the Constitution so that they could vote for Presidert, etc. After the Civil War citizenship in the District vas given to all who had lived in it one year, and in 1871 tha District was made into a Territory with a Governor. At the same time a Board of Managers, of whom "Boom" Alexander T. Shepherd was one, began to expand Washington recklessly, with the result that in three years the city was bankrupt, and Congress appointed an investigating committee. The report of the Committee was drastic in its effects. By the act of June 11, 1878, the territorial force of government was done away with and three Commissioners took its place, while the it of suffrage was taken away from the inhabitants, not only in national but in muhicipal affairs likewise. And that is the condition of matters now. The material in the Public Library that deals with the suffrage is very widely scattered. The books that have been consulted are: G. ta Hodgkin, "Political Scieuce Quarterly," Vol. 25, p. 257. F. Dodd, "The Government of the District of Columbia" W. Tindall, "The Origin and Government at the District of Columbia" V.. 02 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE Governor Strong DATE July 25, 192 4 SUBJECT. Snyder You will note by this morning's statements that the very unusual excess of Member Bank reserves appearing last week ie cut down by only 10 millions this week, i.e., as closely as it can be estimated by the returns from the weekly Reporting Banks, this amount is around a hundred millions above the required reserve. Following this big jump last week comes a corresponding jump in both the demand and time deposits of the weekly Reporting Banks, amounting to 184 millions for the two. This brings demand deposits in these banks up by 998 millions over a year ago this date, and time deposits up 500 millions, or a billion and a half for the two, with little change in Government deposits. This big increase in deposits is not supported by any corresponding increase in loans and investments. This increase for the week of July 16 amounted to only 67 millions, or much less than half the increase in deposits. As compared with a year ago loans and investments in thejk.T,3.2)' are up only 783 millions, or, again, less than half the increase in ditevw,, posits. kfff' Total earning assets in the Federal Reserve Banks, despite the purchases for investment account, were off by 276 millions and have been continuously dropping for some months; yet this astonishing gain in Member Bank deposits continues. At the present time this would mean a total of over a billion dollars to be accounted for whose origin must be sought outside of the Federal Reserve System, since we have no indications as yet that there has been any heavy drain from the smaller banks to the larger banks; i.e., we must account for an increase of 783 millions of deposits and a decrease of 276 millions in F. R. B. earning assets, or a total of 1060 millions. The larger part of the deposit gain in the W. P. B. for July 16 was outside of New York City. ries 4144 MIX. 4. 1-101M-9-23 FEDERAL RESERVE BANK OF NEW YORK A; fibFFICE CORRESPONDENCE T FROM \4(bvernor Strong DATE_ SUBJECT: Jlllya5}- French Debt Mr. Snyder You may like to see the latest figures on the French debt situation and some comments thereon. It does not seen as if the situation had materially improved since last spring, and that a failure of the London Conference might easily precipitate another slump. )r °l09 192A_ 1,0-20 FEDERAL RESERVE BANK OF NEW YORK FILE CORRESPONDENCE 410 Mr. Snyder DATD SUBJECT July 25m 1924 French financial conditions * F. Rose There does not appear to be much data to add to that contained in the Economist relative to financial conditions in France. Miss Frankenstein reports that the French magazines contain nothing on the subject. The Statist (July 5, p. 15) and the Stock Exchange Gazette (July 3, p. 1311 and July 10, p. 1348), contain articles very similar to that in the Economist. More emphasis is laid upon the unwillingness of the public to con- tinue to subscribe to bonds. The three milliard franc issue offered by the Ctbdit National in January brought in less than half that amount, this being the first time that Credit National offerings had failed. The Departments of the Nord, Aisne and Somme desire to float reconstruction loans, but have been unable to find any French banker willing to attempt to offer the issues. M. Clementel, Minister of Finance, declares that the disaffection of the Yrt.nch public for securities with a fixed yield is due to lack of confidence in the franc . Ha proposes, since the Treasury has no cash and no means of borrowing from the public, to pay war claims in ten-year bonds and thirty-year annuities, leaving the recipients to obtain cash, if they can, by rediscounting at a considerable loss. The public, however, continues to subscribe heavily to National De- fense Notes, which are no longer subject to taxes of any kind. Th3 Stock Exchai points out that in order to avoid exceeding the limit of advances whiel the Bank of France may make to the Government, (23,200,000,000 francs for 1924), the Government has borrowed one milliard from other banks, making a total indebtedness to banks of 24 milliards. OFFIC MESSEN OMS-2 150 M-9-20 FEDERAL RES1,..-- BAN'S OF NEW YORK INTEROFFICE kgUTE SLIP A. M. P. M. TIME REIVRKS FROM N. B. USE THIS FORM INSTEAD OF OFFICE ENVELOPE WHEN PO TO INSUREPROMPT AND ACCURATE DELIVERY ALL COMMUNICATIONS SHOULD BE DISTIN V FEDERAL RESERVE BANK OF NEW YORK MKAA-100.1-9-23 FEDERAL RESERVE BANK OF NEW YORK °OFFICE CORRESPONDENCE Governor Strong FROM DATE SUBJECT: J1404_284AL924 L192__ July Atlantic iMr. Snyder ect C\.; If your eye has not already caught it, I am sure you would be much interested in a very thoughtful and well written article in the current (July) Atlantic, by Arthur D. Little, the well -known engineer. Stimulating. One thing it set me thinking about was how far, alongside o' the remarkable progress in physical lines in this country, we had made similar progreus towards a rational or scientific banking policy. You know one man in thirty or forty thousand isn't very many. ,d *11 tti_to --th cft, MI3C. 1A-1004-9-23 FEDERAL RESERVE BANK OF NEW YORK °OFFICE CORRESPONDENCE Governor Strong T FROM _ DATE July 28, 1924_ SUBJECT: Books from 192 Governor Norman Mr. Snyder The Library is greatly indebted for the gift of the two books It was my impression that the sketch of the from Governor Norman. "Intended Bank" was by Patterson himself, and asked Mr. Bendelari to look it up, and his finding is as follows: "T. A. Stephens, in 'A Contribution to the Bibliography of the Bank of Fzgland,' 1897, says of 'A Brief Account of the Intended Bank of England,' 1694: 'Most probably by William Patterson, to whom it is attributed by Banister in his edition of Patterson's works, published in 1854.' "Michael Godfroy, in 1695, published 'A Short Account of the Bank of .1.1gland,' which is praised by Stephens, who gives more than a page full of q'uotations from it. "No attar:pt is made to give the authorship of the other pamphlet, 'Some Useful Reflections upon a Pamphlet called "A Brief Account of the Intended Bank of igland."" MISC. 4.I-100M-9-23 FEDERAL RESERVE BANK OF NEW YORK tOFFICE CORRESPONDENCE TAP Governor Strong FROM DATE :uly 30, 19. Mr. Snyder SUBJECT: Books for Economic Reading r. Roberts :-.as already sent you a quite admirable list of suitable books for a small economic library; and I am strongly of the belief that a few of the ablest works, deeply studied, are worth infinitely more than a smattering; of all the babble and chatter which make up about 90 per cent of economic writing. About the only book I would add to the hat would be one of my old standbys, Simon Newcomb's "Principles of Political Eccnowy," which has always seemed to me the ablest American book on Economics yet written. I should prefer Prof. Fisher's "Purchasing Power of Loney" to his work on "The Stabilization of the Dollar," which is merely a popularization. I should add onP e f Keynes' books, say his tract on 'onetary Reform," if only for the crispness and lucidity of his style. he is the lineal heir if J. S. Mill in that regard. 4 MISC. FEDERAL RESERVE BANK loom-9-n OF NEW YORK °OFFICE CORRESPONDENCE To -31( FROM _Gov erzar__Strong DATE SUBJECT: July 31, 1924 Estimation of Brokers' Loans Mr. Snyder What I said about the current estimates of the total amount of brokers' loans outstanding may be illustrated from a definite analogy. In the four and a half years from the middle of 1919 to the beginning of this year, total street loans reported by the daily Reporting Banks, and the "loans on stocks and bonds," reported by the weekly Reporting Ranks of New York City, showed a fairly consistent relationship, as is disclosed by the red line on the attached chart. But you will see that this relationship was broken in the present year, so that an attempt to estimate street loans from the reports of the weekly Reporting Banks at the present time would be out ty several hundred millions. Zi-ei6.."(110 Mr. Cooper has worked out new estimates,,by a method of average dif ferences, which, with the limitations indicated above, is probably as reliable an estimate as can be made from the available data. 192. MI SC. .1x114-9-n FEDERAL RESERVE BANK OF NEW YORK ,OFFICE CORRESPONDENCE To DATE July 311 1924 Governor Strong SUBJECT: Heavy Enrollmont in Banking Mr. Snyde Classes :Joky FROM A little item of interest. I had a call yesterday from Prof. Wright, professor of Banking in the University of Illinois, at Urbana. He tells me that the total resident enrollment for the year (no mail order students included, as in the rolumbie figures), was over 12,000, which probably makes them the third largest in the country. Of these over 2500 were in the School of Commerce, e large part of whcm are graduate students. And of these over 1,C00 were enrolled in the classes in Banking. Economics. Of these latter, all of them had to have previous courses in All of which seems evidence of a changing world. 199 NIIC 3 fl STAT.3000-111-21 FEDERAL RESERVE BANK OF NEW YORK .FFICE CORRESPONDENCE To Governor Strong_ FR(740 DATE _August-Ls_ Mr, Snyder SUBJECT ii_mVor Bank Depositor As you have doubtless noted, Member Bank reserves deposits this het week covered the alight loss of last week, which puts them back to the hi gh point of two weeks ago. This seems to indicate that the estimated excess of around a hundred millions of Member Bank deposits is not just a freak jump, but something to be reckoned with. The remarkable thing is that, of the total gain of something over two hundred millions since a year ago (213 millions for July 30), practically all of it has come from the weekly Reporting Banks and apparently none from the other banks of the System. Further than this, on the average about three-quarters, or around 150 millions, has come from the New York City banks, leaving only something like 50 or 0 millions for all the rest of the System. In the same way, taken from a year agc,ebout three-fourths of the increase cf loans in the weekly Reporting Banks has come from New York City, and likewise of the total loans and investments; while of the billion and a half increase in demand and time deposits less than half has come from New York City. Which is interesting. 1924 FEDERAL RESERVE BANK OF NEW YORK 1.11WAJ-1001-9-23 DATE FFICE CORRESPONDENCE SUBJECT: August 4, Banks Gains by Clearing House Governor Strong FROM__ Mr. Snyder gained 216 clearing house banks have In the last four weeks, their loans by 323 millions. demand deposits, and expanded millions in continue very high. Excess reserves 46.0 °?IlleAk:" 4440L f"t7k.2 1921 miC 3 I 570.7 3000.10-21 FEDERAL RESERVE BANK OF NEW YORK oliFFICE CORRESPONDENCE DATE Governor Strong 111 FRom SUBJECT: August 6, 1924 Movement__of Business Mr. Snyder As to your Question: The stock market made a new high for industrials this wek, and I have thirteen consecutive weeks of this is a rather long stretch. wondered if this was not going considerably stronger than the recovery of business, so far, would justify, and if a considerable reaction might not soon be due. I should not expect to see the stock market culminate before a strong upturn in business, and irobably towards the peak of that upturn, If this was the case, which letter might net come before no,t spring. But, the 'resent policy might readily and safely realize the ends sought. as I said the other day, I should think it might net be amiss to suspend further purchases for a while, and see what haypens. As to your suggestion as to the causes of the heavy increase in Member Dank reserves, I should be quite in agreement, as you will see from the maJled paragraph on page 2 of the attached. ' ; 1 192 Confidential August 4, 1924 4 THE PIVOT OF THE RECENT EXPANSION The remarkable fact about the notable expansion of bank credit since early in Marco is that by far the larger part of it has centered in New York City, and, up to the latest dates available for the whole System, had not, apparently, been shared by the rest of the country. The latest date for wnich we have full returns as to deposits in the 9,785 banks of the whole System is June 25. This showed that while the banks of the New York district had at this time gained 576 millions in demand deposits since March, the remaining banks of the System outside this district had lost slightly. Demand and time deposits in the New York district had to- getner gained 639 millions, while the whole System had gained but little more. As in this same period the 750 weekly Reporting Banks had gained in total deposits nearly as much as tne whole System, tnis meant that the smaller banks of the System had hardly gained at all. Since June 25 the gain in the weekly Reporting Banks outside of New York City has been greater than in those of New York City. large centers. But the most of-this has been in Chicago and other Apparently the "wave" is expanding outwards in about the usual fasnion. The focus, however, is still New York City, as is evident from the reports of toe Clearing House banks, which have gained 216 millions in deposits in the last four weeks, and expanded their loans and investments by 323 mil/ions. Parallel to the tendencies indicated, it is noteworthy that since March the total earning assets of tnis Federal Reserve Bank nave gained slightly, while those of the other Federal Reserve Banks have declined by about a hundred millions. Zne source of this change lies, of course, in the increased investlents, since the discounts and advances of this Bank nave now fallen litto an almost negligible amount, while those of the System are still around 300 millions. Undoubtedly the heavy increase in investments nas likewise contributed to focus activity in New York City, since the larger part of such purchases is necessarily made bore and the deposits so created appear first in the New York City banks. That the expansion of tne total deposits in tne commercial banks, however, shown in the last year, and especially in the last five months, is a real gain, and largely from external sources, is evident from the fact that in this period the total amount of credit extended by the Federal Reserve Banks has steadily declined. This notable expansion in deposits is reflected in the generally buoyant condition, alike of stock, bond, and commodity markets. In the New York stock market the average of industrials last week made a new high for the twelfth consecutive week, while bonds and railway snares maintained the strength tney have shown. It is in line with these developments that bank clearings in New York City in the past two montns nave been well above the estimated normal, while for the country at large, outside of New York City, they have been very slightly below. The revised figure for outside clearings, or debits, which is as a rule an excellent forecast of the composite index of the Volume of Trade for the same months, is 93.9 for July, as against 98.6 for June. The revised figure for the total Volume of Trade for June is 95, or somewhat below the indication fromcutside bank clearings. The course of these indexes is depicted on a preceding page. Vlitn rising commodity prices and expanding bank deposits it is quite possible that in the recent recession the low point in the trade oftne country Digitized forwill be found FRASER great deal of - 3 to have been reached in June, althougn July will not snow a improvement, 4111r 1-1001-9-23 FEDERAL RESERVE BANK OF NEW YORK O ICE CORRESPONDENCE Governor Strong To FROM DATE_ _A4g, 61, 1924_192_ SUBJECT: Robert Crozier Long Mr. Snyder MUJ Although I never had any answer to my letter to the Editor of the Annilist, regarding Mr. Robert Crozier Long, they seem to have taken him on as their correspondent; and, as you know, he sends a regular letter on such subjects to the Times. FEDERAL RESERVE BANK r.,.:-.4.1-toord-9-n 4ir OF NEW YORK OarICE CORqSPONDENCE Governor Stroh To FROM - Mr. Snyder DATE_ Aug. 7, 1924 SUBJECT Review of Keynes' Book fn Wesley Mitchell has often remarked on the admirable book reviews which the English write, as contrasted 'ith those we do over here. In the attached Journal is a review of Keynes' book, by Sir Josiah Stamp, which is an example, and, as it seems to me, a gem of shrewd observation and good sense as well. You will be interested in what he says of the Federal Reserve. r f L.) 192_ FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To era Governor Strong y DATE SUBJECT- August 8, 1924. 192 Excess- ieserveB Mr. Snyder I have had lass Hicks draw off the total of excess reserves for all Member Banks of the System, available only by calls; and put this with a rough computation of the probable excess reserves at the present time, as nearly as we can compute them from the returns of the weekly Reporting Banks. /f'hi It is interesting to note that the heaviest reserves shown, at the end of 1921 and following, were just preceding and during the big expansion of 1922. Contrasted with this are the low averages for the last year or more, the average excess for the last four reported calls being 23 millions for the System. The returns from the weekly Reporting Banks for July 30 show an increase in the reserves of these banks of 22 millions, while the increase of the reserves for the whole System for that week were reported as only 12 millions. As compared with a year teresting to observe that the weekly Reporting Banks' reserves were up 195 millions, while the whole System for the same week was up only 2v7 millions. In other words, practically the whole of the excess is in the larger city banks. Loans and investments, you have observed, in the weekly Reporting Banks jumped about 93 millions, and demand deposits by 97 millions. As compared with a year ago this brings the net increase in demand, time and Government deposits up to 1622 millions. WIC 3 1 3333.3000-10- St FEDERAL RESERVE BANK OF NEW YORK apFFICE CORRESPONDENCE To Governor Strong DATE SUBJECT August 8, 1924 192 Price Levels -Snyder__ Since about the end of 1922 our new index of the General Price Level, a composite of wholesale prices, retail prices, wages, rents, etc., has been fluctuating narrowly around 166, taking 1913 as a base of 10C. The range has been from 177 to 184, with the latest month 179. In the same period the Bureau of Labor index of wholesale prices Its centre of fluctuations has shown something of the same stability. has been about 152, with a range in the last two years of from 147 to 159. The latest figure is 145. From the end of 1922 our composite index of Wages, which includes factory labor, unskilled labor, clerks and teachers, has ranged between The latest figure is 212. 197 and 214, with an average around about 208. It The index of food prices at the farm in June was around 12C. is very interesting how completely this is a reversal of the relations of Then the index stood: the earlier part of 1919, just before the big boom. Composite of Wages wholesale Prices Fcod Prices at the Farm 174 203 221 General Average 181 In other wcrde, the general level is now just the same as five years ago this time, but the relationship then subsisting in the different types of prices has been inverted. Now consider that the 1919 indexes measured the change from only six years precedieg, i.e. in 1913, when all the groups were taken at a common level of 100. In the last six months we have had an increase in the Now. If this should continue total of demand deposits by around 7 ler cent. much further it would probably mean some rise in the general price level; and I have been wondering about the effect, on the several groups. (1) Farm prices, having been so violently depressed for new four years and more, would it not seem likely that they would rebound the most? (2) If farm prices rise sharply, so too probably would commodity prices at wholesale. (3) This would carry some increase in the average cost of living and rudely interruit the heyday which the urban and factory worker has enjoyed within the last two years or so. (4) Would not this bring an urgent demand for an increase of wages, and, if business should also sharply revive and trade prospects we e good, is it not pro able that these demands would be granted? SI! SC. 4. I-200Y-I-14 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE Governor Strong FROM DATE SUBJECT' August __1`3.4 19at Ft, edi BC ount Rate Chan/zee Mr. Snyder _ It occurred to me that a complete record of our rate changes by dates would be of interest, and I have suggested that this be used in the next number of the Monthly Review. Do you approve? 1415E 4. 1-200M-1-24 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE DATE Agplet_154_1924 192_ ) SueJEC Governor Strong egkom_ Mr. Snyder You may have seen this In the New he and well written article, I imagine fibm Dav of the articles on Banking and Finance in the WISC. 1. I-ZOOM-1-14 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE Governor Strong 44Nom DATE__ August 151924.192 SUBJECT: Bank Policy Mr. Snyder I rode in cn the train this morning with Mr. George E. Roberts, and talked to him about an abstract of the Chase Bulletin article on present policies, and was interested to find that his o fhnd reaction was that the 1. ideas in the Bulletin were right, that is to sa 7 armrehensive that all this / i cheap money might raise hob and that the situation had been a good deal accentuated by the heavy purchases. He was just back from Chicago, and I wondered how far all this reflected a rather widespread feeling among bankers. I talked to him a little bit about the various problems involved, and he readily agreed that it was very complicated and difficult. For that very reason it seems to me that any kind of attempt to offer explanations might do morn harm than good, save perchance in conversation with a few men of large understanding, like Mr. Roberts. I had thought a little of a private memorandum that might be on tap, just setting forth the real difficulties of the situation, that would be available for private use with any critics. This need not enter definitely into actual policy, but merely make clear the problems that such a policy must consider. iihat do you think? M'SC FEDERAL RESERVE BANK 4.I- ZOOM -I -24 OF NEW YORK OFFICE CORRESPONDENCE sir FROM Governor Strong DATE Angunt_154_19A4L.197 SUBJECT: Mr. Snyder This invitation to give a course on "The Business Cycle" rather interests me: first, because the students in this course are largely teachers of Economics drawn from all parts of the country; second, because I rather like to keep in touch a little with the academic world; and thirdly because doing this sort of thing rather stands you up to give definite shape to your ideas, and sometimes to revise them. mould there be any ohjection? M' SC. 4. I -ZOOM .1-24 FEDERAL RESERVE BANK OF NEW YORK .11111 OFFICE srxto FROM_ CORRESPONDENCE Governor Strong DATE_Allg US t_1.5 SUBJECT: 1924 ,___ 192_ Street Loans Mr. Snyder It is very interesting to note the very rapid rise in the street loans of the New York Reporting Banks, in the face of a decline in these same loans placed here for correspondents. The street loans of the New York banks are now far higher than at any time in the last five years, while the out-of-town street loans are considerably lower than the record. The total loans outstanding, as you have observed, are now very close to the peak, reached in 126. This was the record. MISC. 4. 1- ZOOM -1 -Z4 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE T, Governor Strong DATE_ SUBJECT: _Auguet, 16,_ Excess Reserves - FROM Mr. Snyder Miss Hicks' computation of excess reserves for August 6 shows no change from the last four weeks, which means that the high excess which began to show in the week of July 16 is something definitely to be reckoned with. As you know, this compares with about 2U millions on March 71, and 15 millions en December 31. You have doubtless noted that iractically all of the large increase in "all other" or commercial leans in the Reporting Member Banks came from New York City, as did the major fart of the expansion in deposits. Last week's increase in deposits brought the increase in total net, that is, demand, time and Government delosits, up to about 1825 millions over one year ago. MI., I 4-14) ./1 FEDERAL RESERVE BANK 1 OF NEW YORK OFFICE CORRESPONDENCE Togo FROM Governor Strung DATE_ August 20, SUBJECT: Air. Snyder Is not this an interesting map in the circular which you sent over another vivid instance of how much diversity may be buried under a phrase or under an average, as, for example, in the talk about "agriculture" and the farming depression. The hen is today of more economic imrortance th"n all our wheat farms, we hear of depression there: but how little W.X.3.1M14-9.-M FEDERAL RESERVE BANK OF NEW YORK 1110FFICE CORRESPONDENCE Governor Strong FROM DATT SUBJECT, August 20, _4. Dr. Burgess' Memorandum. Mt. Snyder I have talked over at length with Dr. Burgess his memorandum The most of it I agree with. (7 on the Chase bulletin article. It seems to me that the main thing to be met is the proposal thatWiplAct4knii. lays down on page 21 and 22, that the present Federal Reserve policy is all wrong, and secoipdly that the main business of the Federal Reserve Banks is to 84'4 money rates and money markets. It seems mr4 a44, to me that these ought to be the wide variables and must be ta-tliwe4 to have anything like stalee credit and business conditions. 41 The Anderson ieea is essentia y the banker's idea of keeping rates up so that the banks will earn plenty of money. That is the strength of his position and probably the reason why the Chase Bank was willing to publish his criticism. It seems to me that this is an issue which has got to be squarely met and it along the lines of broad policy, of public interest against bankers' interest. I think that Mr. Roberts and all economists would strongly support this position, and that it would be much more effective than attempting to controvert Anderson's typical exaggerationSand overstatements. / WKA.175M-9-23 FEDERAL'RESERVE BANK OF NEW YORK *FFICE T aita CORRESPONDENCE Governor Strong DATE August 20, Excess Reserves. SUBJECT: ter' FROM Mr. Snyder My memorandum of August 15, on the prevailing excess of reserves was simply to draw your attention thereto and indicated no change of mind whatever. I do think, however, that there is a great difference between heavy excess reserves at the present time, when the tide of business has been very strong, and at about the estimated normal, and the recession even from the winter's high points very slight, save in a few lines, and the situations which used to develop after one of our drastic: panics; arft.--rt-fkreac..*mo--411..a.--3Fesy akftenimi., and that it might be misleading to think of it, as the Harvard Service and some others have merely the usual piling up of funds in the central PO&O-TX441-. W-izt,Irtf-brol,djf94(7 MINK uch a view springs from the old obsession a As a matter of fact, iron is 8 good barometer of business. clearings index for outside New York is about normal for July w 'ch clearly indicates not been below 98 in recent months; have had no serious depreeLat4aFp. I ?1441 %-2, c"-t-e 0, c that our and has that we 4. MISC. 3 FEDERAL RESERVE BANK 175 M-9-23 OF NEW YORK *OFFICE CORRESPONDENCE To Governor Strong DATE SUBJECT August 21, Mr. Breck's Monograph. ilk FROM Mr. Snyder I should like very much to draw your attention to a really fine monograph prepared by Henry O. Breck of the San Francisco Reserve Bank, recounting his investigation and compilation of a new Index of General Business in the 12th Federal Reserve District. The quitH extraordinary part of it is revealed in the two charts VI and VII, following page 7, comparing his results for that district with our Index of the Volume of Trade snd with Bank Debits Outside New York City. As it follows very closely the ideas and methodP, wee have pursued here, I am naturally very much pleased to see this sort of thing done, particularly in view of the strenuous opposition of our friends in Washington. 101 aiA_ 18-Li? FEDERAL RESERVE BANK 4 OF NEW YORK OFFICE CORRESPONDENCE Governor Strong To 14/ FROM DATE_ SUBJECT August 22, A Forecast of the Bond Market. Mr. Snyder am interested in the attached because it coincides with a very good indicator which we have developed, six years of life. which has worked very well in This points to an upturn in money rates within perhaps a month or two. the prophecy of its 4. Il10, FEDERAL RESERVE BANK NI'llSC 1 OF NEW YORK FFICE CORRESPONDENCE To FROM Governor Strong DATE SUBJECT:_ August 22, Excess Reserves. Ar. Snyder For the fifth week, the estimated excess of reserves, as nearly as we can compute it, was on August 13 about 80 millions. Jou have doubtless noticed a further heavy increase both in demand and time deposits, bringing the total for the two, as comear-d with a year ago, up nearly 2 billion dollars. It is interestino. to note that the week's increase in the reserve balances was all from New York City, but the ex,,ansion of demand deposits in the member banks was very widely distributed. 192_4. FEDERAL RESERVE BANK OF NEW YORK IIVFICE CORRESPONDENCE To Governor Strong FROM DATE Sept. 5, 1924 Mr. Snyder SUBJECT Excess_ Reserve Deposits The weekly Reporting Banks this morning disclosed a sharp increase of nearly 20 millions in Member Bank reserve deposits, as contrasting with a decrease of nearly 13 millions the previee.. On the System as of June. 1.. .5J, data received this morning, Misrli basis or tilt, , estimates that the excess of reserves for August 27, the latest available date, in the weekly Reporting Banks, was around 50 to 55 mill Ions, supposing, as is apparently the case, that practically all of this increase in reserve is contributed by the 750 Reporting Banks and that something like half of it is supplied by the New York City tanks. For this same date, August 27, the gain in demand deposits in the weekly Reporting Banks over the previous week was nil, so that unless there was an unusual expansion this last week the excess of Member Bank reserves for the whole System might be somewhere around 75 millions. This would rake about six or eight weeks now that the excess has remained at around this high figure. ( / ii hith the data for the whole System received today it will now be possible to make a detailed study of conditions up to June 30. But my impression is that it will continue to show that the expansion of about a billion and a half in demand deposits and half a billion or more in time deposits, shown by the weekly Reporting Banks, over a year ago, represents nearly all cf the expansion for the whole System; in other words, that the smaller city banks and country banks have contributed to this very little. t;ei sriearry_ C4. 192 W4C-11fW. FEDERAL RESERVE BANK OF NEW YORK AFFICE CORRESPONDENCE Scpt. et 1,24 DATE Governor Strong 192 The Prayers of the Bill SUBJECT: 111 Mr. Snyder FROM It is plain that in the Bill of Complaint are two separate issu s which have but little direct connection:1 es\ The demand of the first pray-r, stet d in more direct t rims, (1) is that the Reserve Bank of Atlanta, and therefore all R. s 'rye Banks, shall at one - give credit for all uncollected checks and drafts drawn against any other Member Bank in that F. drral Reserve District. It is tru- that thFederal Reserve Act contains no explicit mandat- or prohibition as to this question. But in view of the debat s 1 ading to th' final amendm nts on this qu stion there does not 9,-m to b any question as to the meaning and intent of the,Act, as is w-11 set forth in the opinion of Led, Couns 1, in the letter to Governor W. F. G. Harding, of the Boston Resery bank, cited as exhibit herewith. The plaintiffs in this case seek to revive an old issue that was fully discussed in th conferences and debates that led to the amendments of June 21, 101. It relates to what, in technical banking parlance, is known as the "float;" and obviously involves the whol, question of sound banking theory and practice. Bank reserves must be in lawful money which can legally b- paid to, and must be accepted by, every d positor in every bank. It is perfectly clear that no bank could force its d positors to accent repayment of their d posits in, for example, the banks' on bills or promis s to pay; still less in th promises of othr r banks or other individuals to pay, or in checks or drafts of unknown vale. A reserve must be a real reserve and uncollected checks and drafts cannot, "manifttstly," as the Federal Reserve Board lays down in its fegulatione, be considered real or lawful reserves. The whole object and th.ory of reserves is that a bank shall always have on hand suricient funds with which to pay the ordinary demands of its depositors without question. Th amount of such r-serve s which will be required is not a matter of theory but simrly of long y-ars of banking experience, alike in this and other countri-s. In other countries this experience has established a rul or custom that has all the sanctity and force of an actual statute. It was this same experience which, in this country, led to the establishment of the so-called "legal" reserves which se- today and have been for more or 1 es of a century the established banking practic, of this country. To insure this ability to pay at all times and upon all occasions, not merely the ordinary demands but even the most extra-ordinary d mends of the d.,positors, the Federal Reserve Act made elaborate provisions for means by which the Member Banks of the System should always, within the limits of the total re-8 'ryes hrld by the System, be able to replenish their depleted reserves by discounting eligible pap-,r at the several Reserve Banks. .111111.' MI5C.3.1-90 1-20 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE TO DATE Governor StAsag SUBJECT Sopt. 8, 1924 The Prayers of the Bill AIL FROM Mr. Snyder 2 Th, Ant further provided. that in extromis, as where such extraordinary d-mends should be general, as in a period of panic, the Fedral Reserve Board might suspend the minimum nquirelments of the Reserve Banks themselves, in order that accommodations of dis6ress-d Member Banks might not be dcni -d. Furth rmore, by the establiehmAlt of the F-deral E-serve System the minimum lawful reserves for th.- differ-nt clasaa of banks therein -stablished w-ro radically lowered from what had ben th- legal requireIt was part and parcel of the ments and r th- old National Bank system. theory u;.on which this radical roduction was accomplished that the reserves r al reserv-s and not in part fictitious thus set up should be actually th reserves, se would he tho cav if uncollected checks and drafts w.re allowed to b- counted as a part of th- latter. Und.r the old banking syst m it had '--en th practice to allow th country National Banks to count this "float," or uncollected chcks and drafts, as a part of th it lawful rraerves, owing to tho much greater av rag tim- r-quired for collection of country bank business than of city bank But under the Federal heservP Act the 1%lgal r-s-ry .8 of the business. country banks were reduced from 15 per cent of their lawful d omits to If, a s might easily be the case, the outstanding uncollected 7 per cent. checks and drafts comprised a consid-rable part of this minimum r-quirement of 7 per cent, the actual reserv-s of lawful money carried by these banks would be reduc d far b- -low the limits of safety. It is true that the plaintiff in this issue mak a demands that only such checks and drafts drawn against other Member Banks in the samBut why F-deral R-serv District shall b- so counted as lawful rese7v. If it is good banking theory or practice that this such a discrimination? confined to uncollected "float" should be so count d, why should this b Th- limits of the sivIral checks drawn on banks in a certain district? Federal 'It:servo Districts are pur ly arbitrary, -stablish-d by a committee, and may be changed or abolished at th- discrAion of the F-derilEesry Any or all of the tw-lve Reserv: Lanka may be closed by orthl. of Board. th- Federal Eeserve Board, or on may be consolidated with that of som oth r district. This is states in twain. district lin a divid case in the particular district tp which the complaining siecifically th In th- districting of Ulf: Federal ;eserve System th- State bank b- longs. The upper part of it of Mississippi is divided almost ,cactly in half. b.ongs to tho eighth, or St. Louis, district, the lower half is jointed with But the the lower half of Louisiana to th sixth, or Atlanta district. district, other part of Louisiana, for oxamr1-4 is joinNi, not to th but to the -leventh, or Dallas, district. Snm of th 141190.3.,90164-1-20 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE TO FROM DATE- Governor Strong Mr. Snyder SUBJECT:_ Sept. 6, 1924 The Prayers of the Bill 3 It is perfectly pat-mt that, for th Pascagoula National tank, the uncollected checks and drafts from the loirr part of :iississippi cannot b- counted a more valid, lawful r-serve than, for uxampl-, checks or drafts drawn against the banks of, let us say,New York, Chicago or San Francisco. It would b- grotesqu( to offer such a cont,ntion and it would be difficult in daily practice ro mak' such a segregation. If "float" is legal reserve anywhr-, that part of it th"rived from arbitrarily established district is just as valid as that from another, and th re is no provision in the law which would confine, the amount of the "float" to be counted as reserve to that arising within the particular district in which a given bank is locat d. on In plain t rims, th- proposal is simply that the Fed ?ral Reserve Banks shall, in effect, buy all uncollected checks and drafts in transit, by giving credit for the same on th'ir books. The whole of the current "float" is estimated at something like 50U or 600 millions. If this enormous sum w-r- included as a part of the Member Bank res-rves, the effect at any than unh-althy, and at the present time might even b disastrous. Ae hay 1.arned from severe and in Isom cas e hitter experience, in and since the late Aar, the results which may flow from currency and credit"inflation," -ven though it may b. based, as it th-n was, upon the otherwise sound foundations of ample gold r fr\rv-)s. hat we term inflation is nothing more than an undue expansion of bank credit and its attendant increase of currency beyond the actual needs and requirements of legitimate business. lo ca rry on the vast trade of the country there ar, under existing conditions, certain fairly definite\ requirements of credit, the vastly larger part of which is supplied by the 0,000 banks of the nation. And between the two there is a certain d-finite: balance which is express d in the general average of prices. For example, in the late volume of bank credit was in th, space of °our or five years approximately doubled. In this same period the increase in the total amount of goods The bought and sold and offer d in exchange increas d relatively little. result was that the general level of prices also approximately doubled. Now this vast expansion of bank credit under our existing cyst -gym was possible only from the inflow of something like a billion dollars of gold, since no other means then existed for any considerable increase of th- lawful money of reserve of th- country. This gold found its way by deposit into the banks, and in the case of the Member Banks of the System was promptly redeposited in the Federal Reserve Banks, and there became the basis for a corresponding increase of MISC.3.1.00M-1-20 FEDERAL RESERVE BANK OF NEW YORK ROM FICE CORRESPONDENCE DATE governor Strong Mr. Snyder SUBJECT. Sept. 6, 1924 The Prayers of the Bill 4 It was these bank loans which augmented the deposits of thbank loans. country, which constitute for us the main sources of circulating credit. Th- possible expansion under the existing requirements of reserves and the ordinary accompanying need for hand to hand currency is on the order of That is to say, every dollar of gold something like 10 or 11 to 1. d-posited in the Federal Reserve Banks bacon's the basis for the creation The process is, of som thing like ten or eleven dollars of fresh credit. roughly, as follows: If, for example, in a Mimber Bank of the Byst,m a d-rosit of a million dollars of gold is mad , it may, taking the average of the reserve requirements, immediately loan out nine-tenths of this deposit, keeping This loan promptly becomes back only an average reserve of 10 per cent. This new deposit a deposit either in the loaning bank or in some other. basis for fresh loans, to the amount of nine-tenthe in turn becomes the of the amount, one-tenth again being held back as the required reserve. A nd this process may be repeated until practically the full expansion of 1- to 1 is exhausted. Under th' provisions o f the F d-ral Reserve Act it is at least literally possibl- to carry this expansion almost three tines further, owing to the fact that in th'ir turn the Federal heservo Banks are required to keep on hand against Member Bank deposits only -5 per cent in gold. ThReserve Banks may in their turn make- loans to the Memter Banks, which, by becoping Member Bank deosits, afford the basis for a corr sponding further credit expansion; so that in theory, at least, every gold dollar might, if there were no limiting factors, become the basis of thirty times bank credit. As a matter of fact, th' business of th- country is carried on And long both by means of checks and of actual hand to hand currency. experience has shown that between these two there is a fairly fixed and For many years this ratio between th total amount definite relationship. of demand deposits in the banks of the country and the total amount of actual money or currency in circulation among the people, outsid th Treasury and the barks, is around 5 to 1. It follows, therefore, that in the long run an expansion of, say, five millions of bank deposits will ntail eventually the demand for an additional million dollars of actual currency; and as this new currency can supplied either by importation or from the banks themselv s, a only t) c.2rtain part of every fresh addition to th- lawful reserves must b7 8 t a: art in this hand to hand circulation. for http://fraser.stlouisfed.org/ us Federal Reserve Bank of St. Louis MI9C.3.1901.11-20 I FEDERAL RESERVE BANK OF NEW YORK Pik 8. 1924 DATE- Urt /OFFICE CORRESPONDENCE TO FROM Governor Strong Er. Snyder SUBJECT The P_rayers_of_tko Bill 5 In one of the ablest sp,!=ches in the debate upon the Federal reserve Act, when its passage was pending, made by Senator Elihu hoot, of New York, he advanced the objection against certain provisions of the measure, that they were essentially inflationary and would result in the creation of unutilized reserves of between a hundred and two hundred milImagine, lions; and these objections were generally held as of weight. then, what would have been the force of the objection if the amount of release or addition to reserves had been on the order of this. possibl. 5,,c) or 6,,C millions. It° total required reserves at the present time for the M.ter And on this banks of the Federal heserve System are under Mr millions. Th- arbitrary is positmd a total of bank credit close to 20 billions. millions to the reserves would, therefore, have the effect addition of of an immf.diatc possible expansion of not less than five billions of dollars. Already our Reserve System is staggaring under a heavy load of r-dundant gold and only th'- good s:ns' ans caution of tho bankers and business men of th nation has prev,?.nt.rd a h,avy inflation of bank credit To add 5(.4J millions or more of available reserves from this source alone. to the existing burden might easily be to court a disaster greater than In other words, anything this country has known in the last half century. th- social and economic consequences that would be involved in the inclusion of the current "float," as lawful bank reserves, would he as reIt iugnant a s these proposals are to sound banking th-ory and ;ractice. would not alone dangerously weaken the position and the actual solvency of the banks of the country, but invite all the long train of evils invarriably attendant upon an undue and rapid -xiansion of the purchasing medium, out of all proportion to the existing supply of goods. This country has had many long and strenuous battles over the question of a sound currency, and has attained to its present unrivaled position among the nations only at the cost of many arduous struggles. Ina smuch as the actual business of the country is largely carried on 1-y means of bank credit, it follows inexorably that sound banking practice and sound banking conditions are as vital to the nation's business and -conomic life as a sound currency. That such a Froi)osal as this, standing as it do s on all fours with th- wildest proposals of cheap money inflationists, should yet come from a National Bank and from an association of bank=rs, is evidence of how needful is the vigilance necessary to maintain our banking institutions upon a sound base. There is yet another phase of the question which illustrates involved in this suit. They r..ppertain how farreaching ar T. the question MISC.3.1.DOM-1-20 A FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE TO DATE. Governor Strong Mr. Snyder SUBJECT The September 9, 1924 rayers at the B111 6 FROM not alone to the economic an social equilibrium of this country but, by a peculiar train of circumstances, to Eome extent involve international The abandonrelation. ana the economic balance of international trade. ment of the gold standard by the chief nations in the world kir, still continued with but a single exoeption,hae led in the last four years to The result is that we an u:precedented flow of gold to this country. now have something approaching one-half of the monetary gole of the world. In a sense this i, an investment, a matter of over four billion We have no need of this colossal hoard of gold. It is at the present time a deep embarrassment, an matter of grave concern that it may not, in following the ordinary course of events, create another vast expansion wh ch in turn must inevitably bring with it another enormous rise of pric s, another orgy of boom and wild speculation, and, as always, the coneequent crisis and collapse. And with all this must come all the deep social diFtur-ance that inevitably attends a great rise of prices, all the iisturbanees over wages, the outcry at the high cost of living, the futile warfare upon the "profiteers" and the speculators, and then the deep resentment of those who do not well foresee what has happened tnd make commitments and partially paid f r investments at the top of the boom. dollars. hut, far beyond all this, the United States is in some sense the custodian of this excess gold and, to an especial degree, deeply intereetee in the suceeenful working of the gold stenderd. And as matters stand the purchasing power of go1J, or the buying vane of a cold dollar, is largely dependant upon the amount of cree(it baser upon this gold in the United States. If the billion or more of excess gold were allowed to become the base of another 10 billions of bank credit in this country it would bring about another price upheaval here and the purchasing power of gold would suffer another violent decline. If we were now to add to all this the burden of another half billion of "float," arbitrarily to De counted as fictitious reserves, it would be difficult to foresee the consequences. It is to be hoped that the working out of the new European agreements will bring a return there to economic st9bility and that the continued drain of gold to the United States will cease. Otherwise, Europe would lose practically all its gold to the United States and would have little further interest in a return to the gold standard. Present plans for economic rehabilitation in hurope may well lea' to a considerable return of gold to Europe. In ny event, it is the hope that the Federal Reserve System may be able to cope with the M19C.3.1-00M-I-2o - Pata. 4- FEDERAL RESERVE BANK OF NEW YORK )11)FFICE CORRESPONDENCE TO Governor Strang FROM Yr. :-.1!lyder DATE September 9, 1'124 SUBJECT: 7 existing situation, and the present Jan er of another wave of heavy inflation be avoided. It seems practically certain tbA, this inflationary expansion could not be avoided if the prayers of the petitioners were granted and the coArts were to force half a billion or more of uneollected checks and drafts to be counted a part of the la;a1 reserve of the Memter 'anks of the :Iyatee. It seems doubtful if any court e}uld make effective such an order, involving such serious economic and soAal consequences. And if to all this be aade(i the fact th..t the intent of Congress in the final amenclments seems unmistakable and plain, there Ivuld be no let,;a1 grounds in equity or in the economic welt _re of the country for such a decision. MIIC.3.1.001A-1-20 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE TO FJOIll Govc.rnor Strong DATE- SUBJECT _Reft.-811.9124- Pascagoula-Suit Mr. Snyder As to th© question of "float": It do-s not s--m to m- that on th- pur-ly technical Bid gr-at deal can t- a added to the very clear and r-ally quit- convincing presentation mad- in th,- letter of Mr. We=d to Governor Harding. On thD economic and giv-ral Bid' I 'nclos a bri=f outlin- which can, of course, b= expand -d by citations and specific discussion as far as may b- desired. On the par claranc- question 1 afire with Dr. burg 'se that not a gr-at d al can b- added to th- material that has alr-ady been brought out in th- various suits, and on th© question of Fublic utility and d sirability that this has h' n pr-tty well at forth in lir. Jay's m-morandum. S v-ral schemes for graphic rprosentation of the process of cr-dit pyramiding ar submitted herewith. 11 FEDERAL RESERVE BANK Si!SCA.14WWI-U OF NEW YORK OFFICE CORRESPONDENCE To* Governor Strong FROM DATE___Sept._94_1924, Mr. Snyder SUBJECT: Par Clearance Suit Burgess spoke of Mr.Baker's desire to give the case the broadest possible base, and I have added the paragraphs which begin at the bottom of page 5. Perhaps some others would suggest themselves to you. Do you approve of this chart in its present form? I append a second from Mr. Roberts. 1921 M1SC 4. 1-2001-1-21 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE Governor Strong ROM DATE SUBJECT: Henry Sept. 11,_194_ Ford_ Hospital Mr. Snyder Will you slip this memo., with the magazine containin the article to wale: it refero, into your bag for possible perusal on your journey? It ie an idea which has interested me very deeply and I believe is one of the coming things, and well worth considering for the Dank. 19 L OF NEW YORK FEDERAL RESERVE BANK OFFICE CORRESPONDENCE Governor Strong FROM SUBJE Mr. Snyder I do not know, Sir, how to answe to remind the philosopher and the sage tha is no end. FEDERAL RESERVE BANK MISC. 4.1. OF NEW YORK OFFICE CORRESPONDENCE 192_ DATE Sept. 12, 1924 SUBJECT Governor Strong Call Rates and Gold Movement Mr. Snyder The correlation between the call money rate and the change in the rediscounts of this Bank, and the gain or lose of gold by this Bank, is very notable, just as you suggest, though, as you will see at the end, there are periods when the connection seems to be lost. But there appears to be little or no lag in these relationships, and therefore they do not offer very much opportunity for prediction. And that, of course, w)uld be the really valuable thing. M!SC FEDERAL RESERVE BANK 4. 1- ZOOM -1 -24 OF NEW YORK 411 OFFICE CORRESPONDENCE TAR Governor Strong DATE Sept. -ceih-fieViii- Price Indexes - SUBJECT: 4. /47423; 192 °-'l t Rors., Mr. Snyder . fa, Z-$ Well, if one piece of work we did here will help the railroads to din some sense into that idiot.,c Railway Valuation Board, maybe it will have been worth the doing. Actually there are a number of economists who seem to think that this particular index which we made was something very original and new, and a real contribution to economic science. But I don't suppose that counts for very much. But I wish I could show you by figures what a very small part of the work we have done here has had to do with price various demands we have made many charts of the price indexes, although upon indexes of other people. OMB -2 -30M -1.24 FEDERAL REFFRVE OF NEW YORK 4INIVEROFFICE -,ROUTE SLIP S OFFICE SERVICE MESSENGER SECTION DATE DEPARTMENT DIVISION ION MARKS FR ['EPA TMENT DIVISION SECTION N. . USE THI FORM INSTEAD OF OFFICE ENVELO TO INSURE Digitized forPROMPT AND ACCU ,ATE CZLIVERY ALL COMMIINIC FRASER SIBLE. ONSSHOULD BE DISTINCTLY LABELED MI9C.3.1.001.11-1-20 FEDERAL RESERVE BANK OF NEW YORK 4kFFICE CORRESPONDENCE TO Mr. Harrison DATE SUBJECT Sept. 16, 1924 Governors' Meeting 13E43 E IV FROM Mr. Snyder SEP 18 1924 cl L., 14 I laid on your desk a pamphlet from the Federal Reserve Bank of San Francisco, describing what seems to me a fine piece of work. It is an index of the variation in tracie for the twelfth Federal District, and as it follows closely the lines of some work we have been doing here I naturally feel that it is a valuable contribution and one that will come to be highly regarded by the business men of that district as they become familiar with it. This work was done in the department of Mr. Henry Breck, but if he was not to be on for the November meeting it occurred to me that probably Mr. Perrin would, and that he might well be asked to give an account of the work and acquaint the officers of the other Federal Districts of the possibilities in this direction. It would be very hard to prepare just such an index as that for this Federal District, for the reason that, New York being the financial centre of the country, an index of clearings would scarcely be a reliable index of business conditions throughout the district. It would be essentially just New York City. But I see no reason why each of the other eleven districts should not work up a similar index which would be a really accurate and reliable measure of business conditions in each of them. And these indexes could be compared then, one with another, and finally with the general index which we have developed for the whole country. As there is some disposition on the part of our friends at Washington to discourage this sort of thing in the several banks, I think it would be well worth while to have the question brought up in this form. I also left with you proofs of an article which appears in the next number of the "Harvard Business Review," describing our new Fifty Years Clearings Index of Business, based upon the results which we obtained from our composite index of the Volume of Trade. In the next number of the "Harvard Review of Economic Statistics" I shall also describe a parallel investigation, developing a second index of Business Conditions through half a century from variations in the velocity of bank deposits, in the same way that we have worked these up for the last six years, and compared with our index of the Volume of Trade. These two indexes in general support each other in a quite remarkable way, and we have other confirmatory material in the shape of indexes of pig iron production through fifty years, and likewise of the stock market; so that I think we may accept our results as the best measures of trade that have ever been possible over so long a period. MISC.3.1.00m-E2o FEDERAL RESERVE BANK OF NEW YORK DATE 4111)FFICE CORRESPONDENCE Mr. Harrison TO 1, FR OM Mr. Snyder SUBJECT. Sept. 16, 1924 Governors' Meeting 2 I do not know how much interest there really was in the presentation of our index of the Volume of Trade at the November meeting last year, but these are things that sink in slowly and it occurred to me that it might well be worth while to give another presentation of our new indexes and show how they fit in with and are derived from those that I presented last year. Outside of the Federal Reserve Banks this work has aroused great interest and won the recognition of the most careful investigators in this It seems to me it is a mistake that it should be so little known to field. our own people, because in time, as confidence slowly grows, my feeling is that it will prove of great value to the System, and those who conduct its affairs. F,FTEEN NASSAU STREET FEDERAL RESERVE BANK MISC. 4. 1-200111-1-Z4 ir OF NEW YORK OFFICE CORRESPONDENCE Governor Strong DATE Oat,. 24, 1924 SUBJECT > FROM Mr. Snyrier I don't know if you have yet seen the full text of the Resolutions passed at the recent meeting of the American i3ankers Attached Association, relating to the Federal Reserve System. herewith. It seems to me that the misconceptions PApd mal-intent exhibited in the last paragraph should not go unnoticed, and at Mr. Case's suggestion I have drafted a letter which is probably far from what is wanted, but might serve as a basis of discussion. Attached herewith. 192 M!SC. 1. I-200111-1-U FEDERAL RESERVE BANK OF NEW YORK °OFFICE ro FROM CORRESPONDENCE DATE Governor Strong SUBJECT Mr. Snyder Oct. 27, 1924 19 Condition. Report on European Currency You may have further information as to just what this Commission is about end what it is at, and therefore wbbt kind of a letter they would like to hey's. If not, possibly I can find out further about it. 111 FEDERAL RESERVE BANK PC5C.41.11400W1-ti OF NEW YORK OFFICE CORRESPONDENCE DATE Governor Strong FROM SuBJEcT- Mr. Snyder Octob Robert Morris Convention at Et. Louis Attached herewith is an invitation from the Robert -orris Convention, St. Louis. I am not averse, but our Mr. J. L. Morris, who is active in this organization, has raised the question as to expenses, whether You Bank here would regard it as of sufficient interest to do this. could judge much better than I can as to whether this seems worth while. 192_ M!5C. I. FEDERAL RESERVE BANK I -2IXIM - I -Z4 OF NEW YORK 111 wilittir)FF ICE: CORRESPONDENCE DATE Governor Strong FROM SUBJECT: Mr. Snyder Oct. 271 1924 Reserve Systas A. B. A. Resolutions on I met Mr. Sisson, who is Chairman of the A. B. A. Committee on Resolutions, at dinner tla other night, and the matter of the resolutions naturally cnme up. He says that that last paragraph was insisted up,)n mainly by M. A. Trainor, of the First Trust & Savinu, in Chicago, and his assistant, Dr. Walter Lichtenstein, and some of the interior :lem7.,ers. Mr. Fred Sent was not present at the drafting of the Resolution, but agreed to it later. Mr. Sisson said that he tried to have it canned, but that ths rest of the c=ommittee believed cometning of the sort should go in. The paragraph was actually drawn up, I believe, b Lichtnstein. ,92__ teSC. 4. I-ZOOM 1-24 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORR E: E5 FD C) P4 E) E: r4 (. E: liPil FROM Governo_r Strong DATE (lc t--30_,_1924_ Business Cycles SUBJECT: Mr. Snyder I did not mean to ask you to sign the letter to Governor Crissinger, but merely to ask if it was (rite all right that I should send it. But as you did sign it, best thanks. As to the subject of discussion for the relation of price changes and the business cycle, Prof. Fisher's view of a causal relationship, for against it, as I have set forth in the brief note Statistical Dinner, on the I don't at all share I think the facts are to him today. 192_ A National Association of Financial Credit Men THE ROBERT MORRIS ASSOCIATES The National Association of Credit Men Affiliated with Dir Me President: FREAS B. SNYDER Upper Darby P. 0., Pa. Merchants National Bank le Trust Company Directors-Ter Research Director: J. N. EATON T er ms expiring .925 UR F. BARNES A V. C. Columbia Pittsb Boston. Louis, Mo. First Vice-President: S. L. EDDY J. F. CRADDOCK Ladd and Tilton Bank Portland, Oregon. Continental & Commercial National Bank, Chicago. J. J. GEDDES Illinois Merchants Trust Co. Chicago, Ill. H. WARNER MARTIN Secretary-Treasurer: JOHN ALEXANDER WALL National Bank Philad Lansdowne. Pa. JOHN Second Vice-President: First S Assistant Secretary: F. S. SIBLEY Rhode Island Hospital Trust Co. R. W. DUNING Providence, R. I. Lansdowne. Pa. Detro E. N. VA Atlanta and Lowry National Bank Atlanta, Ga. American St. Jo HARVEY E. WHITNEY C. W. Bankers Trust Company Commonwealth-A Bosto New York City. LANSDOWNE, PENNA. October 24, 1 Mr. Carl Snyder, General Statistician, Federal Reserve Bank, New York, N.Y. My dear Mr. Snyder: The Robert Morris Associates are planning to hold their Mid-Year Meeting in St. Louis on November 17t 18th and 19th. As Secretary of the Organization I am arrangi a program, and we would very much like to h..J,ve you addre us at either the morning or afternoon session of Tuesday the 18th. while -4e would be glad to leave the choice of the actual topic to y..u, provided you can he with us, I would suggest that our members would be very much intere in a discussion in general on the t. rice index theory whi I am afrlia is very superficially understood and often Supplementing this we would apprec imperfectly devised. very much an analysis of the present business conditions I very earnestly request that you give this invitation as favorable consideration as possible as man of our members are conversant with your 'Rork as a statis of the first rank and as exactly the type of man whom we would like to have with us. May I have your decision an the exact subject of your toiic,if you can accept,as soo as convenient because I wish to issue the program of the convention and the notices to members at the earliest po moment so as to insure as large an attendance as possibl MID -YEAR MEETING -ST. LOUIS-NOVEMBER 17th, 18th, D litt Ce:,- PER CENT. 150 '6° VOLUME of TRADE AND WHOLESALE PRICES PERCENT 300 125 250 VOLUM Eof TRADE 100 200 75 150 20 BASIC COMMODITIES 50 P31,9 1920 1921 1922 1923 192,4 100 19C.3.tIi0141-20 FEDERAL RESERVE BANK OF NEW YORK 'FFICE CORRESPONDENCE 1 Iar ClovernarStrang DATE SUBJECT Novembiem_4_1214 _ Business ,donditione 1r. _Snyder I don not know if you woulJ care to see each month the computations as to bank debits anu deposit turnover, attached herewith. They are the earliest monthly returns which dive sny positive report as to the drift of trade. The most important ie the index of outside bank debits, since this ueually runs very close to our composite index of the Volume of Trade. But since July this index has been several vints cut of line with the composite index, and for the last four months has run: July Auust September October 99 101 99 105 Me index of dpcsit turnover which usually also runs pretty close to the Volume of Trade is no's distinctly out of line, owing to the very heavy increase of demand deposits in the last six months. CI-M*4-24 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To FROM Governor Strong _____ 1 SUBJECT: . Snyder Your memorandum of November 7, in iN441.to forwar I have never believed that it would b much that the material along this line, fo y reliable cancellations varies so to inquiries, erent times. to the type of industries you the avenue of approach as to Ali i5114 contracting: tain very 92_ hESC. 4. 1-200M-1-14 FEDERAL RESERVE BANK OF NEW YORK e OFFICE CORRESPONDENCE _Mr. irtry's/ FROM DATE Nov -. 21,-- 1224 -SUBJECT: .ork of San Francisco Bank Mr. Snyder F4 I attach herewith an extremely interesting piece of statistical work done by the Federal Reserve Bank of San Francisco, and with this a I saw Yr. Perrin at the Harvard copy of my note to Mr. Perrin about it. Annual Conference last Saturday, and he expressed his very great appreciation of the interest we had taken in it. It is really a first class piece of intelligent statistical work, and will provide them, t think, with a very interesting and valuable index we are especially interested in it from this end for the 12th district. because it shows that the seed we have sown is beginning to bear some fruit, even within the system itself. Re.ceiveo _c P J. .1v 1 1924 192_ M'SC FEDERAL RESERVE BANK 4. I-NM-I-24 OF NEW YORK OFFICE CORRESPONDENCE Air Governor Strong Mr FR Snyder DATE Nov._21,_19.24 192 _ suBJE=:Letter_oflov-_1B from . Profeasor_Bullock ,\ r\,) I should rather like to have you see the attached, just so you may know of the very cordial relations we have with the Harvard folk. RECEIVED BY GOVERelliY8 K. sirk2 :C NOV 24 1924 _ 1-71 MISCILI-2001-1-24 FEDERAL RESERVE BANK OFFICE CORRESPONDENCE OF NEW YORK Governor StroPLAL FROM S Mr. Snyder I appreciate very much the sur;j things inevitably use up a lot of valuab they would much prefer hearing someone ne If no other name presents itsel Prof. .handler might undeAake it. FEDERAL RESERVE BANK OF NEW YORK ICE CORRESPONDENCE DATE Nov. 24, 1924 - Governor Strong /VIM kr:w Mr. Snyder L-11-11-1,4 SUBJECT:_ Concerning Policy CTED, 13. a It seems to me there are two or three things that a chorus of criticism from Anderson, Willis, the "Financial Chronicle," and the rest The are instilling into the public mind that are extremely unfortunate. first of these is that the Federal heserve policy, and especially the low discount rate and investment buying and its supposed consequence of cheap money is dictated by the necessity of large earnings to meet expenses. The second that these large expenses are created by the "free services" that are being rendered by the Federal Reserve banks, and, by inference, that these would be greatly reduced if the free services were dispensed with. The third that these free services are "competing" with 'r ember Banks. All of which has been highly accentuated by the very unfortunate paragraph in the Resolutions adopted at the Chicago meeting of the American Bankers' Association, which innulcated just these same ideas, and have given the critics a splendid shillalah to lay about with. Would it not be worth while to work out exactly what these free services amount to in percentages of the total expenditure, second, as to the exact amount of competing that this results in, with Member Banks, and, because these services are relatively a small expense, relieve the banker and the public mind of the idea that Federal Reserve policy is being used to support an expensive organization? You know it is paper reader catches and bits of conversation and firmly fixed in the mind by bankers quite as much just little things like this that the average newsthat stick in his mind, and I judge from little things I have heard that these ideas are pretty average banker and are being disseminated of the as by the Vociferous Klan. As to the effect of the Federal Reserve policy, is not the almost complete answer thereto the simple fact that what looked like, and was so freely predicted would be, a serious depression, has been averted and that in the last four or five months trade has been on the upturn and has now recovered to or above normal, in the face of the fact that the tendency of commodity prices, and especially of the great basic commodities, has been, in spite of the rise in farm products, rather downward than upward. --As is set forth so succinctly in the chart that I attach. Is not this a very good time to make use of what I believe is one of the most effective weapons we could possibly have in answering these As I should like criticisms, viz., our Index of the Volume of Trade. 19C.3.1-90u-1-2o FEDERAL RESERVE BANK OF NEW YORK DATE Nov. 25, 1924 ICE CORRESPONDENCE SUBJECT Governor Strong ROM Mr. Snyder Goncerning_Polioy 2 being used very widely by large sometime to tell you, this index is already It is the sort of thing that corporbtions scattered over the country. is so simple that anyone can understand it. chart as the attached And I can't help thinking that if such a effectively knock the pack endwise. was given wide publicity it would pretty and other of our indexes The interest that was shown in this index St. Louis meeting which I attended is at the Harvard Conference, and at the that the business man can underpretty clear evidence that it is something attention and interest. stand and that incidentally engages his NEWSPAPER REVIEW Federal Reserve Bank of New York, Reports Department, Library November 25. 1924 Tuesday V01.5: No. 275. FEDERAL RESERVE SYSTEM /cicci:" 1, Criticism. The Reserve banks have gone out of their way to do things which really belong to city correspondents, and the enormous expenses resulting from their activities have had to be borne in Some way. Since member banks would never consent to tax themselves, the Reserve institutions have taxed them indirectly by an investment policy which-has IsaIeue down rates o71777 fei-est and been more than hazardous-for bliiinails 131,rge7-77. of C., Ed., 157100 2. Discount rates. The Treasury Department eees no occasion for a change in Federal Reserve rediscount rate levels and believes no early change is contemplated. (J. of C., p. 1.) 3. New York Bank. The resignation of Shepard Morgan as Assistant Federal Reserve Agent at the Federal Reserve Bank of New York was announced by the bank yesterday. Mr. Morgan will accept an appointment on the staff of S. Parker Gilbert. (Times, p. 37.) UNITED STATES 4. French debt. Secretary Mellon expects an early resumption of negotiations with France for the funding of.that country's war debt to the United States. There are ?respects of a moratorium of several years for France in the event of funding arrangements'being concluded, although there has been no official (J. of C., p. 1.) discussion of the probable course of future negotiations. 5. French loan. The new 100 million dollar issue of French Repeblic external loan bonds was sold yesterday at least two times ever and possibly five times over. The money will be turned over to the French Government on December 9, When payment on the bonds will be made by subscribers, and will (Times, p. 1.) be placed on deposit in New York. 6. German securities, G. Henry Schroder & Company, of London, and Speyer & Company, of New York,have announced the purchase of 40 million gold mark This represents 10 million dollars in American shares of the Deutsche Bank. money and consists of stock which the bank has held since the last increase of its capital. It is the largest investment in German securities since the (Times, international loan was floated a month ago for the German Government. p. 31.) 7. Income tax. During the four months from July 1 to October 31, the Government collected in income taxes mere than 430 million dollars, a decrease of but a little over 24 1/4 million dollars from the total for the same months in 1923. Despite the 25% reduction in the tax rate, therefore, there has been a decrease in actual returns of only a little over 5%, which suggests that with a continuance of good business conditions the way may be opened in the (Times, p. 1.) coming year to a further cut in this and other taxes. FEDERAL RESERVE BANK OF NEW YORK ACSC. 4. 1-200M-I-21 OFFiCE CORRESPONDENCE To Governor Strong FROM DATE Nov. 262_1924 Mr. Snyder SUBJECT: associate in the National Bureau of Economic Research, is coming in to lunch. He sometimes writes on questions of banking policy in the Federal Reserve system, and it 9ecurred to me that it might be worth while to have a little talk with him if you were free after lunch. Dr. ant - 140V s: 1..24 M!SC 4. 1-20444-1-.14 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE TOL__ FROM DATE SUBJECT: Nov._214-M4 _192__ Concerning Policy Mr. Snyder It occurs to me that it might well be worth while to have a talk with this Mr. William Justus Boles. You remember that for some time he wrote a very able weekly review for the former New York Sun. He now syndicates bank letters like the attached, which have a very large circulation, I should imagine second only to that of Mr. Roberts' National City Bank cirI was told that at one cular, and reaching a very fine clientele of people. time he was making *30,000 a year out of this work, and I think his friendship is worth cultivating. I am wondering if it would not also be worth while from time to time to invite in several others like, for example, Mr. Geoffrey Parsons, the Editor of the New York Tribune, a very keen and able mine, Mr. W. P. Hamilton, the Editor of the iall Street Journal, who writes very well, David Friday, who writes often for the New Republic, Mr. James Clark, Editor of the Journal of the American Bankers Association, perhaps Mr. Elmer Youngman, Editor of the Bankers' Monthly, and possibly one or two others. .4!SC. I. I-20014 9 -211 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE DATE Gov ernor _Strong FROM_ Mr. Snyder SUBJECT: NOV. 23, 1924 _192_ Concerning Poll 43y 2 And I suspect that Mr. Franz Schaeider feels that he has been rebuffed severl times when he has end,lavoreJ to See you; and ha has a lare:e and important following. 940; eiz fdh6J/t. eZ74we4 TELEPHONE 3 610 BLOOMFIELD November 22, 1924. Personal. Carl Snyder, Esq., Federal Reserve rank of New York, New York City. Dear Mr. Snyder: It was very pleasant to receive your letter of November 20 with its enclosures: Be assured, ho7ever, that the article in the "Harvard Business Review" had come to my notice before I received I congratulate you on handling so the special copy from you. clearly a subject which is very difficult to tteat in such an interesting manner. I should like to have my name added to the mailing list for such statements and data as your department prepares. I have always been a devotee of the Federal Reserve System and shortly after the Aldrich bill was proposed, I made a digest for two different large city banks, one of which sent a copy to every bank in the United States. It was very delightful to meet you and listen to As soon as I can your remarks at the Harvard Economic Conference. I want to come in and have a chat with you, as I am up to my ears The new undertaking which I wish to confer with you about. in a Harvard people are doing a fine work which, however, in my judgment could be vastly improved if they made an effort to lighten the load of statistics and hard business facts by making the matter more genuinely interesting for the average laymAn on whom they depend for Roger Babson, with all his faults, does get financial support. nearer the interest of the average business man merely because he and his associates try to speak to the residents of Main Street in However this may be the Harthe language that they can understand. vard service of course is the soundest of all. I have heard of you frequently and very pleasantly I am enclosing one or two for I think we have many mutual friends. copies of my bank letters which may interest you. 1 The National Park Bank of New York New York, October 23, 1924 quick success of the German Govern- THE loan flotation at New York and in ment London has clarified the atmosphere and made it possible for the leading nations to take up the actual work of putting through the notable reforms guaranteed by the adoption of the Dawes Commission report. The fact that the $110,000,000 American portion of this loan was about six times subscribed and that the bonds instantly commanded a premium on the stock exchange emphasizes the strong investment appeal of the issue which is in many respects "a good faith loan", the proceeds of which will be used to underwrite the solution of the most difficult economic problem that grew out of the world war adjustment. The whole world in a sense has been cheered by the outstanding success of this great loan which was by far the most interesting foreign government peace loan ever offered in the United States. With the broadest market ever enjoyed by a loan of this character, it is probable that a large portion of the American allotment will be held indefinitely by American investors for in- come producing purposes. This would be natural in view of the very generous income return and the sponsorship of the loan itself. MORE FOREIGN LOANS With the German Government loan splendidly marketed, there is likely to be several other foreign government loan flotations in this market within a few months. The authorities of France, Belgium, and various other foreign governments are said to have made overtures to American bankers touch- ing the sale in this market of large and small loans in the near future. These foreign applications are much more comprehensive than formerly and aside from government outlays relate to a variety of industrial, institutional, banking, commercial and other requirements in the countries affected. In this way it is literally true that the United States in a certain sense is "financing the world" and that our advances for such purposes have never been as large, varied, nor important as they are likely to be from now on. There is abundant reason for this in our huge gold reserve which in the natural order of things must be to some extent depleted by these very interesting and urgent demands from abroad. This will be putting the gold to very good use and because of the great strength of our banking position there need be little fear that the expected out-flow will cause money market disturbance here. In a situation where total subscriptions of $600,000,000 for the recently offered German Government loan brought no greater response than a 2 or 3 per cent call money rate, it is clear that the outstanding strength of our Federal Reserve System provides exceptional safeguards against unfavorable money market response. STRONG UNDERTONE There exists a good undertone to business and people generally are evincing a quiet confidence about the future. This has been an important influence in the election discussions for it is admitted on all sides that the highly favorable change in the position of farming communities, as compared with a year ago, has been a large factor in the Presidential campaign. The sharp rise in the price of grain and farm products has added enormously to the purchasing power of whole communities which a year ago were hard pressed and without the means of providing the comforts of every day living. That these conditions have changed radically is shown by the September returns of the great mailorder houses which showed increased sales of 31 per cent for the month and 20% per cent for the year. Chain stores also showed a gain in September business of 3g per cent for the month and nearly 12% per cent for the year. Both systems-mail-order houses and chain stores-in the first nine months of 1924 reported a 10 per cent gain in sales over the same months last year. Some of the large department stores of this city have also made an excellent showing as compared with a year ago with good gains and increased activity in various lines. This reflects perhaps better than anything else the strong pur- cellaneous freight in any one week; the largest number of cars loaded with less than car load lot freight in any one week; and the largest number of freight cars ever moved in a single day. The harvesting sections have been provided with unusual transportation facilities this year and it is clear that the excellent service given by the railroads in the quick dispatch of freight from city to city has contributed in no small measure to the hand to mouth policy of merchandise buying. This has been a feature of the situation everywhere, the movement being strengthened, of course, by the unsettlement of cotton and other raw material prices and the disinclination of most merchants to engage in future commitments on a large scale during a heated Presidential campaign. Many roads are likely to make a highly favor- able showing for 1924, although freight traffic in general during the first eight months of the year showed a falling off of 10 per cent compared with the same months of 1923. chasing power of the people and the continued prosperity of the wage earning classes. In certain sections of the West, there have been good gains reported, the generally higher prices for grains and hogs being a large factor in the improvement. In some wholesale lines there have also been increases shown, although the movement in that quarter has been somewhat irregular owing to the drawbacks encountered in specific industries. RAILROAD EFFICIENCY A factor making for better conditions in the steel market has been the heavy buying of rails, cars, equipment and various supplies by the railroads. These orders within the past month have been quite exceptional and reflect a growing belief on the part of railroad managers in the continued prosperity of the country during the next six or eight months. When considered in connection with the extraordinary equipment purchases of last year, these new expenditures by the railroads emphasize the growing demands of everyday business upon our transportation service which is admittedly the largest and best in the world. During one week the past month the railroads loaded the largest number of freight cars shown in any week this year; the largest number of cars filled with mis- LIVING COSTS All nations are seeking to reduce living costs, as it is recognized that the prevailing price structure bears heavily upon the consuming classes throughout the world. The Fisher index number of American commodity prices in the second week of October was 152.5 based on 100 as the average price of 1913. This represented an advance of 2 points within a week. Crump's British index number for the same week was 162.9, also 2.1 points up for the week. The index number of wholesale prices computed by the Canadian Bureau of Statistics and weighted, covering 236 commodities fell 4% points in September to 153.6. Some further progress has been made in reducing manufacturing costs here, this attitude being strengthened by the refusal of merchants to purchase goods at higher prices than the public is ready and willing to pay. In various lines there is evidence of growing stability and despite the fears expressed in some quarters lest our huge gold stock should lead to further inflation in this country, there are as yet no signs of a dangerous movement in that direction. Even on the stock exchange, where average prices are considerably above the low level of the year, there has been no spirited public last year. The sharp advance in grain prices and in the quotations of farm products gen- in the first week of October reaching 71,134 grain cars, a total never before disclosed in any weekly period. In the same week last year only 50,032 grain cars were moved. All this means a notable increase in genuine wealth for the nation as it is estimated that those engaged in agriculture and related pursuits contribute 33 per cent of the country's buying power. These increases explain also the ability of the farmers to heavily reduce the indebtedness which oppressed them so seriously last year and which forced them to curtail usual outlays for the necessaries of life. With the improvement shown in the agricultural states, numerous interior banks which at this time last year were either closed, or on the verge of suspension, have reopened and are functioning again to the benefit of an immense constituency. There is apparent evidence also that interior trade is improving and that people in many sections are display- ing a confident optimism about the future. This has not shown itself in sensational gains in trade, nor an outburst of extravagant expenditure of any kind. It means to use a homely expression that the American people to a large extent are "saying nothing but sawing wood" and when they do this on a large scale they are pretty sure to achieve sustained progress in no uncertain way. PRESIDENTIAL CAMPAIGN Not for a quarter century or more have the American people witnessed a more extraordinary Presidential campaign than that just drawing to a close. It has been for the most part quiet, orderly and conducted in a good-natured sort of way without many clear- cut issues to excite spirited discussion. Had it not been for the third party agitation the 04258 contest might have been a dull affair with few human interest features. The life-saver for the conservative interests, however, has been the restoration of prosperity in the Ai Northwest made possible by the large aver- w age crops marketable at relatively high prices at home and abroad. The wonderful comeback of the Northwest and the sections generally affected has been the dominant factor making for peace and harmony in a season when the apostles of discontent were organized as almost never before. The sober second thought of a prosperous people, therefore, has successfully answered many of the arguments put forth by those who sought a change for change sake without having any very clear idea of what the new order would bring, or what reforms if any would be accomplished. A Presidential election, however, is always an important affair for the American people, but nothing has happened since the June conventions to indicate that the contest this year has been disturbing to business in any large sense. On the contrary there has been little in the movement of the security or commodity markets to remind one that a great political contest was under way and that partisan appeals through the radio were reaching the largest audience ever brought within listening distance of the voices of campaign orators. This does not mean that the campaign has not been interesting for it has been advertised and popularized in a remarkable way through the efforts made by leaders of all parties to get out a large vote and to excite the sympathy of women voters as never before. The story of the campaign in this sense has been altogether remarkable and suggestive of the inherent strength of underlying conditions and the soundness of the nation's great credit structure. gain for the great producing area. That the country, notwithstanding the setbacks in Whole economic situation helped by the rise in commodity prices with many new high records for the year This is the Boies Bank Letter. It is the most direct and effective advertising medium that a bank can adopt. Unequalled returns for the low cost involved. For details address WILLIAM JUSTUS BOIES. 14 Elm Street, BLOOMFIELD, NEW JERSEY (The Name of Your Bank Will Appear Here) Letter on General Business Conditions September, 1924. AMARVELOUS rise in the price of train and farm products has been the outstanding development in the current economic situation and reflects the extraordinary change in the position of important producing states which a few months ago were in severe straits. With the exception of corn, all the leading crops promise a larger yield than last year, so that the sharp advance in prices has not been in response to unfavorable forecasts for the American crops. In other wheat producing countries, however, including Canada, there has been serious damage reported with better returns for the American farmers as a direct consequence of a serious shortage threatening abroad. Increased buying power of the farming classes which are estimated to con- tribute from 3o per cent. to 40 per cent. of the total, explains the larger distribution of merchandise and the increased business handled by the great mail-order houses. BUSINESS SANITATION THESE changes are quite remarkable and have influenced a better tone to the securities markets and with other factors, have led to a moderate rise in commodity prices. Public sentiment is more confident than it was, although the uncertainties of a Presidential year are keenly appreciated as also the continuing depression in some of the great basic industries. The Presidential campaign, up to this stage, has not disturbed confidence as the dominant parties are not adopting sensational methods nor appealing to class prejudice. Trade on the whole is better than it was a month ago, although in some branches far below the high level of last year. The buyer still has the say in most markets, but this condition may not last long if business improves on the scale ex- pected after Europe takes up the serious work of making effective the far-reaching reforms described in the Dawes' Commis- The business outlook has brightened materially within a month or sion report. two and the strong points far outnumber the weak points. NEW START THERE is apparently excellent basis for the assertion by high authorities that "business has turned for the better". Average daily production of pig iron in July was below normal requirements, the 1,785,000 ton total being the lowest reported, except for 1921, in sixteen years. The last cotton year showed the smallest consumption since pre-war days. Volume of general production in June was the smallest since December, 1921, and figures for July will, it is believed, emphasize this trend. The "shutdown period", usual in the summer months, has been extended this year and production is being carefully supervised. The price trend is being watched constantly. to-mouth buying is still the order of the day and the American people are living frugally, thinking carefully and for the most part doing the things which make for business stability and economic gain. Heavy marketing of new wheat and old corn have helped railroad traffic and increased the nation's buying power. Farmers are vastly better off than last year and through advances by various relief agencies numerous crippled banks in the Northwest have reopened and are functioning normally again. FINANCING RECOVERY I MMENSE investments of American capital are being made abroad, owing to the prospective recovery of industry in countries whose business will be greatly helped by the carrying out of the reforms guaranteed under the Dawes' Commission report. Lower interest rates here and continued influx of European gold have made more attractive opportunities for profitable dollar investments in Great Britain, France, Germany and various other countries. The INCREASED EFFICIENCY THIS country has gone further in the elimination of red tape than any other nation in the world. Business methods are being simplified, industrial leaders cutting out waste and the cost of doing business is being systematically reduced. Out of the stress of the after war readjustment and the intricacies of the European repara- tion and debt settlements, there has developed increased cautiousness in business affairs with the responsibility of leadership more keenly appreciated by those having to make important decisions. Automobile makers are turning out new cars only as the demand develops in the effort to avoid loading up dealers with more cars than the buy- ing public could be expected to absorb. Manufacturers, wholesalers and merchants generally have fought shy of accumulating heavy inventories of high-priced goods so as to avoid the dangers of a possibly falling market later on. No country has developed a higher type of business management and American dollar is still the most sought after of all circulating media and because of our fabulous gold reserves and the fact that the United States alone, among the those in charge of great enterprises prepared leading nations, adhered to the gold standard throughout the war and its aftermath, dollar remittances are popular everywhere THE wheat belt is experiencing the best abroad. With the prospect of an early straightening out of the reparations tangle and the reorganization of foreign industry, there has been pronounced improvement in countries which a year or two ago suffered from acute depression. The outlook in this respect is better than it has been at any time since the armistice. With the Dawes' Commission report accepted, the world is nearing a hard and fast peace basis again. This will be of immense benefit to this nation, for business everywhere has been more or less unsettled by the confusion abroad and the possibility of another outbreak in Europe. long ago for such a trade recession as this nation has recently passed through. BETTER TIMES! prosperity it has enjoyed in many years. Conditions have so improved within two or three months as to indicate that this year's wheat yield will be at least z8,000,000 bushels larger than the crop of 1923, instead of 93,000,000 bushels smaller, as seemed probable when the June forecast was published. Serious impairment has been indicated in Canada where black rust is said to have reduced the prospective wheat yield by nearly 1 so,o0o,000 bushels. The outlook for oats is more favorable, with an apparent gain for the year of 139,000000 bushels and prices ruling 14 cents or more above 1923. These changes are well-nigh revolutionary, all things considered, and with the better prices for live-stock disclose a remarkable MISC. 4. 1-200M-I-24 FEDERAL RESERVE BANK OFFICE CORRESPONDENCE OF NEW YORK Governor Strong 41110.- FROM_ SUB Mr. Snyder Here is a little note fro. M of Moody'e Service, which shows that i agine that we have many, even thoug You will note his suzgestion. MISC. 1. 1-20011-1-14 FEDERAL RESERVE BANK OF NEW YORK de OFFICE CORRESPONDENCE Governor Strong FROM DATE_NQYA_ 28_, _1924____ SUBJECT: Measurements of Trade Mr. Snyder As a example of the extent to which our Index of the Volume of Trade is being used commercially, I append this chart which was brought in this week by a young man from the Hudson Motor Company, of Detroit; and we have found a number of other instances. The interesting thing about this is that they feel they can put their finger on conditions within their own plant which produce the major variations of their shipments, from the course of our index; so that they are utilizing this index as a norm of what their business ought to be. ( I C http://fraser.stlouisfed.org/ Federal Reserve28 1524 Louis NOV Bank of St. 192_ FEDERAL RESERVE BANK OF NEW YORK DATE- Dec. 1, 1924 iOFFICE CORRESPONDENCE 0 Governor Strong RoA40 About a Dinner Mr. Snyder SUBJECT, I am wondering if, instead of the academic group, it might not be worth while to have (juite a different group, made up more of solid business men, a banker, and maybe one or two writers, and invite thereto And have the three Principal Choristers, Anderson, Willis and Seibert. no one from the _:ank but yourself. I was thinking of such a list as, for example: George E. Roberts Lamont, Leffingwell or Dwight Morrow One Director: Owen Young, Woolley or Reyburn W. C. Mitchell A strong business man from outside New York, like, for example, James Simpson A forward-looking banker like Mr. Alexander or Mr. Warburg A manufacturer like Guy E. Tripp, Mr. Eastman or Mr. Vauclain An enlightened lawyer who takes an interest in such matters, like Mr. Wickersham or even Elihu Root A newspaper editor like Geoffrey Parsons, Editor of the Tribune Two or three financial writerci, like Franz Schneider, Thomas F. Woodlock, Mr. Noyes and 4illiam Justus Boles My feeling is that, to meet with a solid congregation like this, might perhaps suggest to the Caterwaulers a little better idea of their importance and mission. RECEIVED DV BOVERNIM Ur/ FEDERAL RESERVE SANK tax. 3. t4w44.24 OF NEW YORK °OFFICE CORRESPONDENCE Governor Strong DATE SUBJECT: December 1, Two Problems. Mr. Snyder FROM Here res two little studies that have puzzled me good deal. The first is the amount of new capital issues in the U.S. by from 1885, plotted on a ratio scale. You will note that, save for the two big years of 1917-18, the chart suggests no real financial convulsions. I. years Puzzle: If in and after the war the general level of prices rose, and now is, about 80 per cent. of pre-war levels, require, for the same rate of industrial growth, something like an 80 per cent. increase, over the normal trend, in the amount of new capital issues? As there has been in recent years no such increase, does this suggest that new plant construction and industrial expansion generally has been actually far below the normal rate? The average prices of industrial shares, as registered on the New York stock market, when divided by our index of general price level, show a very slow, even rise up to 1917, indicating apparently a steady advance But from 1917 on, in the relative or real value of industrial shares. this relative or real value takes a very sharp drop and is now far below the normal trend of the previous 20 or 30 years. II. Are industrial stocks now far below their reel value, and, Puzzle: if not, why have earnings not increased in recent years correspondingly to Other things being equal, it the rise in the general price level? would seam as if a heavy rise in the price levels should mean a corresponding increase in the average earnings on plant investment. why would FEDERAL RESERVE BANK MISC.4.1-24M-1-24 OF NEW YORK OFFICE CORRESPONDENCE Governor Strong DATE_ December 2, SUBJECT: History of the Bank of England FROM _ Mr. Snyder About the only complete hivtery of the Bank of Engiaud is that by Andreadee, who was a Greek who wrote in French, and this only comes down to 103. I hove talked with Dr. Chandler about the question, becF:use he has been especially interested, and he says there ie nothing else that is very much worth while, except interesting bits about special periods, so I have ordered the AndrePdee book for Governor McKinney as the best thing avnilable. Of course, the Keynes and Withers books have a good deal of reference to sore recent history. 4 W.S.C. 1. I -200 M -1 -24 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE FROM Governor Strong would like t of the bank of Lngland" that you think I. 415C I -11414-1-24 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE J011 Governor Strong FROM DATE December 5, 194, Mr. Snyder SUBJECT:_ The btabilized Rentenmark. To the contributory causes which you mention should be added, according to Dr. Glasenapp, the very powerful influence of the rentenmark's convertibility into gold, a feature that I was not myself aware of until I looked it up. Perhaps you would like to glance at his account of it. The figures as to Great Britain's allied and colonial debts are attached herewith. -.;1 C' ./ :,,,%) 8,4, 4 , V http://fraser.stlouisfed.org/ EC Bank of St. Louis Federal Reserve5 124 WX. s. 1-20111Y-1-Z4 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE DATE Governor Strong FROM 4oaember 9, 192A. Stock Market Activity. Mr. Snyder DEG 9 1924 It is quite noteworthy that the Times averages of 25 industrials have made no advance in the last three weeks. This is in spite of a tremendous churning of the market and sales that have broken all records. Such an arrest of the advance, with enormous sales, is usually, with the market at a very high level, the indic 'ition of a sharp reversal. As the market is now at the highest point since 1920, and only a shade below 1919, I am wonderins,if this doesn't prelude a considerable decline; and whether this, if it occurs,` will not put a pretty heavy damper on the much predicted and much advertised boom. In fact, I am wondering if, instead of this boom, we may not have a rather sharp setback next year in business, just as we did at the beginning of this year, and at the beginning of 1923. 1(04,/ iL4L 162-421-&-i dien't} MISC. FEDERAL RESERVE BANK OF NEW YORK ,OFFICE CORRESPONDENCE Governor Strong FROM DATE SUBJECT: December 10, Cul rant Batik Debits. Mr. 'Snyder Perhaps you taulc like to see the cir rt for the ye-r showing total bank debits, including New York CI ty, nd for 140 centers outside N -w *ork City. You will note that the main ptrt of the run-up in itovember was confined to New York City. Allowing for seasonal, outside debit, for hovemt)er declinEld, inste.:d of wondering if tighter mosey now might not have a rather dampening effect. rising; ::nd I 194 MIMAA4M4-24 FEDERAL RESERVE BANK OFFICE CORRESPONDENCE OF NEW YORK Tse Governor Strong FROM Mr. Snyder S As to business conditions: I do not get the impression from any of get, that there was any considerable improvemen O this month, over the two preceding months. the general t this morning's Business Summary, usual seasonal changes, seems to have been slig /i d For example, our index of out All this gi November by about 5 points or so. wave of enthusiasm which swept the East after t great churning of the stock market, has had no If, as I think you feel, the psycho iness. at least for the immediate movement, would not the great hopes established in November be liab rather than the great boom that has been predic You will note that our index of 20 basi an index of business conditions as anything we over the low point of the year, is still below we did not consider high. In view of the really heavy increase i depositsi in the last six or eight months, this But when your friend Dr. A. begins to be prophe doubt. Pt. efrf;, DEC 10 ib24 FEDERAL RESERVt BANK OF NEW YORK *CSC. t.1-10014-1-i4 OFFICE CORRESPONDENCE Governor Strong FROM DATE Dec. 15, 1924 SUBJECT:_ Mr. Snyder You had to listen the other night tD a very grippy and muddled speech--the world's worst, I felt--and I'd appreciate it ever so much if sometime you had the patience to look through a paper which was the background of what I was trying to say. 91 It was a very exasperating thin ideas together. http://fraser.stlouisfed.org/ DEC 15 k 24 Federal Reserve Bank of St. Louis " feel able to put your 4,e7L44-0-0,4%. M'SC 4. I-20014 1-14 FEDERAL RESERVE BANK OF NEW YORK all OFFICE CORRESPONDENCE AIR FROM Governor Strong DATE Dec. 18,_1924 SUBJECT: Major Bellerby Mr. Snyder Major Bellerby is coming for lunch today, with Prof. Mitchell and Prof. Chandler, and then I can gauge his depth a little better. I don't take it from his letter that he in any way sets himself up as an authority or an expert, and that his book is rather an effort to draw attention to the question of unemployment in its relation to the monetary problem. But this seems to me far from an important study, and I have a feeling that if the working classes generally could get the impression that Federal bank policies are being directed towards stability of production and employment, that would be a tower of strength when the test comes ten years hence. _192_ MMC.3.1.0CM-1-20 I FEDERAL RESERVE BANK OF NEW YORK *OFFICE CORRESPONDENCE 40\ Governor Strong TO FROM DATE SUBJECT: Dec. 18, 1924 Use of our Index Mr. Snyder Here is an interesting case of the way that some large enterprises are making use of our index of the Volume of Trade. This is the second or third case that I know of. I think I reported to you the case of the Hudson Motor Company, and also the fact that they seem able to account, from conditions in their own plant, for the discrepancies between the run of their own business and our index of Trade; and here is another case of the same thing. This curious synchronism of industry is the thing that is borne in on me more and more as our investigations progress, the way that whole rafts of things tend to swing together, just like the stocks on the Stock Exchange. Of course there are wide and notable exceptions, always, but the general rule seems to be that of flocking together, up and down. I gave public report of our index just a year ago. If it can get as much of a vogue as this in the first year, I am wondering what it may do in the next five years or ten years. Ikt ail L (A/3T VYk-g It_G 61/Z etti 71101LS Qelt4Lit m19c.3.1.00141-20 FEDERAL RESERVE BANK OF NEW YORK iFFICE CORRESPONDENCE Governor Strong TO 110 FROM SUBJECT Rate Mr. Snyder Do you know the people on the American Banker at all? to be a journal that is a great deal read by bankers. It seems I think the screed is worth reading with a little care, for of all the types of criticism that the system and policy have had so far, my feeling is that this is possibly the most insidious. It is a kind of a catchword idea that can easily get under the skin of the average man, and even the serious and friendly type. You know the "father complex," the instinct to rebel against author,ity, is very deep in us all, and I can't help thinking that there were phrases in the Board report of last January that maybe will come home to roost in a very uncomfortable way. "Judgment" and "discretion" are very fine phrases, but the thoughtful man is apt to ask whose judgment and whose discretion; and if it is to be the Board's, is he not apt to remember the kind of judgment and discretion displayed in 1919 and 1920, quite unmindful that the personnel of the Board And I'd like to ask you to consider what may have changed in the meanwhile? would be your own feeling about the kind of judgment and policy that might be in evidence with you out of it! I never felt that all the attacks of Skelton iilliams and Hefflin and Price and Edmonds amounted to very much, and the recent gabble of Willis and Anderson and Seibert probably still less. But you have yourself remarked upon the idea that the people of the country would never entrust to any board or body of men their economic welfare; and does it not seem to you that some phrases of that report came dangerously near to assuming that prerogative? I write this because of the possibility of a renewed discussion of this problem by the Board, and in our own Annual heport. I attach also another squib, and I believe there was still another in the J. S. Bache market letter in something of the same tenor. I FEDERAL RESERVE BANK OF NEW YORK DATE OFFICE CORRESPONDENCE Governor Strong FROM SUBJECT Dec. 22, 1924 State of Trade Mr. Snyder A preliminary estimate on our Index of Trade for November shows some falling off from October--about 100 for November against 106 for October, 103 for September and a low point for the year of 94 last June. In part this decline may be due to the fact that November ha: fives Sundays, which is always difficult to allow for in the calculation for seasonal changes. It is evidence, I think, as to how sensitive (and how "sound"--?) this index is, that this difference of the number of Sundays in a month should frequently make a distinct difference in the average. On the other hand, the stock indicators lave reversed themselves and, instead of a decline, the market last week mane a very marked advance, carrying the average of a wide list of industrial stocks, like the Standard Statistics average of 202 companies, up to about the peak figure of 1919 and some eight or ten points above the high point of March, 1923. The average of railway stocks is now at the highest point since 1916. In other words, the general trend has oily partly followed the stook market boom, and the indications are that November saw no such great improvement as was so widely expected from the Coolidge election. On the other hand, I hear that steel bookings are very heavy and that this is one of the reasons for the continued strength in the stock market. .4:SC 4. I -LNIM 1-24 FEDERAL RESERVE BANK OF NEW YORK . OFFICE CORRESPONDENCE vernor Strong FRO A 1911 . DAYS. Dec. 22. 24 192 SUBJECTC Mr. Snyder As to current bank debits: 221924 DEC cx-4 I attach herewith our current report of bank debits for 141 centres and for 140 centres outside of New York. The figures, inclusive of New York, have been running a little high, owing orobably to the stock market turnover. I suspect that the figures for this last week are also swollen by the usual tax return. For the country taken as a whole, outside of New York, there seem no indications of any sharp upturn of business. /1449)L-r 0-42'14-/110/ 0 1 (-1"7411 SC. FEDERAL RESERVE BANK 4. I -ZOOM 1-24 OF NEW YORK 11P6FFICE CORRESP To FRO Governor Strong b riATE SUBJECT: . Otto- _24 , _104 Policy _Snyder I '"1,11111)/f I think it would do a great deal of good if that very admirable exposition you gave Dr. Baker yesterday could somehow get into type. It is just that sort of thing that is needed, I believe. Prof. H. J. Davenport, of Cornell University, a. fine old scout and a good friend of the system, is coming in today for lunch. I'd like to bring him in for a moment just to say "How do you do." 192_