View PDF

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

Stuyvesant Road,

Mtmore Forest,
Biltuores N.C., Fobruery 14, 1927.

Dear Pierre;

mail accumulated so rapidly and I have had so little inclination to visite any letters at tell that I have eimpiy written none, even

those ehich I was most anxious to send promptly.

Now that I have nom° help, I must first eend you a most inadequate
lino of apprecietion of your bully letter and of the wonderful cuff links.
I am so glad to have exactly whet you sent me.

They were not only a re-

minder of our association, for which no reminder is needed, but in my mind,
being what they c.m, they emphasize what did co :such to rake our association

and the work of the Dank successful, and that is the splendid tradition that
you brought to it.

It hies been the happiest weeerionce in my bucinees life,

...nd the Bunk eill never seem the se.uo withoet you there.

Now I do wish you every pousible success in Berlin.


You will have

splendid lot of mon around you, and with Gilbert end Shop !Aorgrn there, you

should feel at home.

You made a great contribution to the succosc of the

blugest enterprise the world ever undertook in econowice, and I


the many

thrills that it will E,iwe you.

As to myself, I an progrocsing slowly, but au still not allowed to
take a particle of exercise beyond coming downstairs once a day.
few weeks I expect to begin walking.
to be back at the Dank.

In anot4er

Possibly by early April I shall hope

Phil and I are keeping house in a little cottage,

Ernest is also with ushers to help, and we have a good Southern cock, so we
Ere comforteb20

and live very lazily.

Won't you give my boat to Urs. Jay, to Gilbert and tc :'orgen,and


Mr. Jay.


to any other of my friends whom you may come acrost, and every kind of
good wish to you.
Faithfully yours,

Mr. fiorre Jay,
c/o '.ronEfer Comittoa,
Reparvtions Commission,
33, Luiverxtraoso,
133RLIN, Germany.

Stuyvesant Road,
Biltmore Foreut,
Piltmore, N. C.
March 15, 1927.

Dear Pierre:

It is high time that T wrote you, although about the
only matter that t can put in a letter it an account of myself,
for I am still at Biltmore, climbing back to health.

You will certainly recognize this letter, if
any that
I ever write you seem familiar, because I

am dictating it to Mites

Holmes who is down here helping mt catch
up with mail, ane teenerally making me feel that I am able to do
a little work.
Phil and I have a little cottage which we finu very
comfortable. WE have an excellent colored cook, a
very stout
dy who is the wife of a Methodist minister in Asheville,
Ernest does everything else.

I have eo far gotten beck to normal that I can keep up
with my mail and tame a walk of three quarters of an
hour every
day so long as I do not climb hills, and spend
an hour a day at
the dentist's.
I have no temperatuve and no particular thing

mind me teat I have been ill at all except that
I cannot exert
v'elf without come fatigue. Dr. Ringer, in whose
care I am conigned by Dr. Miller, tells me that I have
Improved conetantly,
nd all the signs are satisfactory.
The Ilet X-Ray picture was

even better than the one Dr. Miller last took, which
you saw.
shall be back on the job. I hope, before
the end of April.

Everybody was delighted about McGarrah's decision.



will be a most eftiefactery member of the family, but
noons could
have taken your place.
The last word I had
geLted that
Federal Reserve Bank of St. Louis

p rom Washington sub-

McGarrah would continue as a member of the Reichebank


Stuyveeant Road,
Biltmore Forest,


'Iiltmort, N. C.,

March 26, 1927.



It was indeed a great delight to -day to have your letter
of March 8.

You anticipated a great many queetions which I would

have teen asking you had you been here.

I ehahn't send you much in

reply, except to comment on one or two matiere you mention, and to

report on my on progrees.
Taking the latter first, I am really very much better.
Of course, I am not playing golf yet, or doing any foolish things

like that, but I am doing a regular amount of work, sleeping well
nights, maintaining my weight, and

I feel that the general

tension resulting from my illness is very much lessened.

The doctor

Gives me a good report, so I am returning next week to New York to
have Miller examine me, and going immediately to Atlantic

ity for

two or three weeks.
Except for a,ae

the development: in Poland and

erbia, anu

a possible development in Italy which is mere remote, I agree that
there are no prospects for stabilization programmes in Europe this

My trip abroad is still indefinite.

you deprecate the idea.

I can understand why

Nor would the trip be in connecti n with

anything like stabilization, but having to do with mother
development which is fast approaching but which probably cannot be
dealt with until next year anyway, and that is the need for some
attempt at

_wising a formula to regulate or control the operations

now developtiing under what is-goeolftrly kno4 as the gold exchange

This is, of course, quite confidential.

Some of our

banking friends abroad are getting a bit agitated about it, and some
of our directors are viewing the subject with some concern.

I shall

Aver. Jay

- 2 -

not elaborate in this letter.


In fact, my own ideas are still pretty

Put the time ie coming when, for our protection if not for

the maintenance of our banking poeitioe, in the world, something will

need to be done about it.

That you write about the aLitation in regard

to Germany's

capacity to pay under the Dawes Plan intereete me very much indeed.
It was played up pretty strongly over here, and in come of the preen
notices was represented as a deliberate effort to start an agitation
in anticipation of demands to moderate the scheme of payments.


tainly thie would be the worse possible policy just now, and I em
glad to have the simple effective explanation you make of what has

All the other matters you write about interest me so much
that I am hoping you will develop the habit!
(Speaking of interesting books, I don't know whether you

can get it in Germany, but you certainly should read Ludwig's"Wilhelm

If you haven't read it and can't bet it there, let me

khow and I will see that one reaches you by nand.
pitiful picture.

It is a tragic and

It gives one a great sense of clapreeeion, but every

one should read the book.

The most recent developments in connection with filling the
unfillable gap which you left are partly satisfactory and partly the

MoGarrah's acceptance, of course, was most satisfactory.

He will be a fine cooperative and helpful colleague.
that respect is everything that we could -aieh.

The outlook in

The less satisfactory

development was apparently unofficial but due to some inspired statements in the press coming from Washington, that the Board proposed
now to take advantage of the passage

of the McFadden r5ill and the

3 =


extension of the charters to reorganize the scheme of management of
the Reserve banks, kick out some of the }federal reserve agents, and

replace them with stronger men, and ex-rciee a more effective control
of the :yetem than had heretofore been possible.

(`f course, all

sorts of exaggerated reports resulted, some of them appearing in
print, many of them passing by word of mouth, and the reaction,
naturally enough, has been very critical of any utich proposal.

I am

told that ?enator Glass has taken the matter up vigorously, and unless

he can get satiefaction he is threatening to ask Congress to modify
the powers of


Board when the congress meets in December.


course, this is all gossipy, but is an iniication that rehab you and

judgment is that

it is in the minds of only two or three members of the Board, arei the

only result of the agitation will be to cause a certain amount of
discredit on be management of some of the Reserve banks which will do
noone any good.

The real misfortune growing out of this development

is not so much in the public reaction, but in the disturbance which
it has cau,ed within the Reserve bank


Mr. case was

here recently and told me thut in a number of the Reserve banks there
is a good deal of anxiety.

o rany of our good men have been induced

to continue their work and decline attractive offers elsewhere - and

thieopplies to other banks than ours

- tiett

I fear if anything in

the nature of a confirmatinn of this programme should develop we
vi)uld lose some of the beet men we have.

This ie where the poesibil-

ity of a real calamity lies, and it gives point to your recommendation that T should stay home this summer, which I am indeed tempted

to do even though the urge to make the trip and start eomething in
the way of an underetandinLiis liable to become fairly strong.
Federal Reserve surmise that
Bank of St. Louis


the decision in this matter rests more with Dr. Miller

r. Jay

- 4


than with anyone else.


promised a picture of you and, ao I recall, the bargain
was clinched by ;Visa Bleecker delivering you a picture o

not recall scein6 the picture, although it mizht have Ar

as so full of.dope, diatuee and depression that I don't
If I hive not got onee.and I inoiet upon Navin

one - T

for it gold a foremout place in my collection.

Now do write me again, and you can count on my
ball rolling.
liAithfully yours,

Mr. Pierre Jay,
33 Luizenstrasue,
Berlin, Germany.

.01:71I AL

July 21, 192T.


Deer Pierre:
It was fine to h-v0_,

your letter of June 22, and it bas


unanswered until the present moment simply because of lack of time whine our
visitors were her,_, as we were out of tom slaost


This letter is, of course, quite confidential, but I

wish you would

show it to Gilbert and than put it away safely, for I should like you both to
know something of

the talks which took place during

this much-advertised



subjects discussed, with what might he described as an official

background, were roughly as follows:

The position of the Ban',- of France vie-a-vim London and New

York as to its immense holdings of devisen.
extraordinary movelynta of

gold between the markets.




The technical pr, ctice of our Treasury Dept.rtment and the

Reserve bank in buying gold.

A possible method of temporarily arresting shipment= of gold

to this country so E a to avoid the addition of the expense of movin; it to
New York and back again to



The possibility that the return to the gold standsrd and the

necessery policies of the banks of issue in

for th- recent

steady de line of

connection may be responsible

the general price level.

Central bank policies be

terest in respective


to rates anU

relative levels of in-

markets under present conditions.

Of course, such discussion < as the' al7ove cover en immense range of
Mr. Pierre Jay
Federal Reserve Bank of St. Louis


- 2 t



Mr. Pierre Jay
liquidated, and which
year tf25,000,000


will doubtless be returned in kind.

must be transferre:

Naturally my interest

in cesh

In the

fifth annuity

or kind, leas payments made. within

in connection with

the gold etanderd is as to

eee possibility of these being made without difficulty, one I should
like your ouramente upon the following views.

Up to date the entire amount which has been paid by Cerium,' on repara-

that ie to et.y, by the orieinal loan

tions has been covered by foreign locale;

of 4-'000,000,00C, in 1924 ana by the subsequent private loun made to German
etetee, municipalities and industries.

German banks now owe abroad on

On top of that it ie suggested that the

abort credits no ieee than t500,000,000, offset

poseibly to the extent of 1:300,000,000 by funds which they have one may or

another invested abroad for themeelvee or



have been place: in this country during the pest
may continue to be a resource
may dry up.


three yearn

Losne such ea
by Germen borrowers

for transfer purposes, but on the other hand they

If the moment arrives when the entire

amount of the annuities can-

not be transferred and funds begin to accumulate in the hence of the. Tre.nefer

Agent, sill it not then bemuse impossible for German orroeere to negotiate
loans in foreign merketa in a large way? It seeme to me to be likely, partly
because of the doubt as to Germany meetini.

the. service of

the loens and partly

beesuee of the eritetion and possible hostility which mill be displayed by the
principal reparation creditors to having the service of those loans met and
transfers on ac_ount of reparations reduced

or niscontinued.

hue. a position

by Germany's creoitors may not acco-d with the terms of the plan and say not

be just, but seems quite likely to arise, nevertheless. The obvious aneeer is
that the principal of th.. loans were themselves tre Mf11-116 origine13) of mtking

zerretion trtnefere, and the lenders should Dot, of course, be peaaised after


rr. Pierre Jay



Mr. Pierre Jay





there ultimate payments to the United States without a heery strein upon the see`, upon the resource's of the benhe of issue, end ultimately upon the
gole etanderd.
Ar to the first ponsibility, if there is to

be any

readjuotment -

end as to thet of course I cen have no ju4ment - it ,:eene to me that it ehoule

be attempted ee aoon as poseible. Hoe it can be Attempted is the


and who cen rkire the question? Gun it be suggested in connection *WI turtilei

negotiatione for the funding of the French debt to the United Stet

e, or cen it

be eiugriebted by kr. Gilbert,' Certainly it is not likely to be euteeetod by the

I do noe find that


belief that the question can

there i rs any sentitsont in thi

e country justifying

be brought up successfelly here, ano certainly not

before the elections, end then may it not be claimed that

ny suggestion coming

frog Gilbert in outeide the (-lope of his responsibilities under the Oen? This,

of course, is -.her speculetion. I ,eould personally feel Viet the -orlu
be sefer e.nd the possibilities of disorders be better avoided if early approeoh
acre made to this subject. rrt.her then to hove it delayed until ke etzospeere of
doubt bf-.d been erected End all the difficultire eccoapanyinL such coteitions

w, re elloeed to develop.

is to the second point, the attitude
not hepe but feel th..,t if Cermeny is

of the Gelman

to the Transfer Committee, when doubt are to cep?city

that Germany has promptly

msee but



to continue to collect testes and

melee eepmente to the frensfer Arent end leeve the subject or

Mr. Gilbert would be in a position to

Govee-netent - I


transfers entire.10
transfer tie-teed

say that the treeefere cannot be fully

amt her eresseements under the

plan without

Than Germany will leein the support of the world and be in a totter

position to negotiate than if her Government, eere led to undertake .ny prelimfinery mefieuvere car prorteende. or make any other

effort to deal with tie question


Ir. Pierre Jay
of trttnsfert

i n

dvpnce. Your letter touches upon ',hi

the German
point on n),we 6. Government r

in my opinion,


borrowing by the atatee

matter of common knowle


reports, will all

advanced as the


city to make trensfere,

afford good

,,-; for


teken up eerly rather th

There is a su

'enk and Schecht'e atti
execution of the


vertiee them.


em led

product of the




of this with
t he saw the

exeggeratint3 them or ev

billion m rks of devise
from the

same time

combination of


required by Germany to
tion in stocks

beyond w

Peichebank has undoubte

private banks abroad wh

Any doubt

&rising as to

funds no matter whet m


Mr. Pierre Jty


11,e (lerman economic inquiry of last fall Welch :)roduced Schacht's testimony
likwas i'Ede some time prior to the

extraordinary developmente of last

wintur and

the firet part of this year which htc.i so profound an effect upon the position

in France, Germany and


I should .iuppone

that if he were asked the

same questions to-day his ane:i3rs would dieolose quite a different situation
and give rise to his expressing quits

different opinions. His exnlanation of

keeping, his rate down seemed to be rather convincing, even though

upon a false

It was the speculation io stocks ard the inducement of profitable

rates which caused the flow of funds to Germany to Pone extent, and

rates with the Stock market still

rising, might well

of funds, thereby greatly undermining Sehechtle
Tou may take it

from me that I


still higher

induced further flow


am always inclined to discount state-

mente which appear to have their origin in self-interest. The visit of these
eentlemen here bee resulted in my gaining

ever had of the facts and

a much better



putting those along ride of

then I have

facts of our position

shown in the enclosed statemmte, have confirmed the doubts which you know I
have long held on, the transfer question,

can 'e done to

anticipate the

and now I am wondering whether


strain or whether it must be courageously faced

when it arises.
The election position does complicate setters.

next May and obviously no Frenchman prior to

anything in the way of an adjustment.

next fell, makes it

The French

the election


can advocate

The German election as tel

impoeeitle for any Cermen statesman to 6ctait

capacity to make full transfers, and most of them, I
raise doubts and objections. In this

suppose, will be tempted to

country I can hardly see how any


could come out squarely for a revision of debt Eettlemente before the election.


rierra Jay



while I peraoh.11y do

t tLink

Mould be tin control:Arc factor ...r& our

policy it f...o o»... that iiivee rive to

in. po sieny important


qlibtIt,111 1410. i t ilia to be reckoned wi th.

I hat. just raibleO Bloat, in this lot', bs tLcutil

't.. :Jerk-, talking

to arbor, sad it would be of the 6roo.tlal:, koaaille _ervioo too ra4 if you could
write me Ltuitt as fully ..ud franily, sad especially if you


talk with Gilbert.
My plane

;.il rather indefinite. I en going to take it ewer .hie

have 601.1e thOlte;bt th,t -1YWil.srti6 the end of the year I I'ould


It.aian bo1.t, off J.t GILT -Ittr, and apend boat, tine at ta&ecirto, which la
a cou.:orteble

quiet pli,00 .)nci abere

come and r14 t me if I do

hrvs proeined to

of ori

Should this plan mT.tErialile I hope Gil t,:t or

you cool:: come doer' there, or possibly bath of ys:,u, for
no conotro about



You need

The vieit of our centrtl b-!ok frioude, ubile Li-a-

eendouely e..Ovorticec. here, hoe, OE the whole, procluoed a ft.voreble reaotion,

liLiGt I bdieVO tho pest yotro of advertiiiind clf our moctint;e have re:suited in

their being igener4ly accepted

e-lidcace of progrera an..-3 good order iu

worlu finanoe.

Sty beat rez,-..rde to you b..ncl to Gilbert and to all the rent in Berlin.
I hope to hear from you befole 1on6.

Ir. Pierre


Berlin, Germany.
'-22'11.4-frtzu -


C- -et-


LicAR Lf G.






\A/4C- t-411.1,L--4(



August 4, 1927.

Dear Pierre:

Since writing my letter of July 21 dispatched through Vigglesworth, I
received a ceile signed jointly by Gilbert and yourself which naturally raised the
question as to whether some representation as to our talks had already been made
to you; also possibly whether you might not feel that what I have already written
is not somewhat influenced by views which may have been expressed to me while
Norman a.nd


were here.

As to the first question, I think you know my feelin. e about this transfer problem;

they have been unchanged from the start.

from the Dawes Plan was that

it would


most I have

ever hoped

put those concerned to bed for a rest cure

for a period of years and that at the end of the cure the situation would have de-

veloped to a point (both economically and
be possible such as was

entirely out of


where a final adjustment might

the question at the time the Dawes Plan wee


As to the wisdom of the plan I have never had any doubts;


I have

as to its

never felt that the transfers could be fully and indefinitely


My own concern with the situation ariees principally as to probable stains
upon the gold standard, and if the strain does arise within say two years, as to the
extent to which our investors will by then have poured money into the lap of a debtor
who mt./ not be able to meet all of his engagements and will then have no choice as to

which debts he shall meet.
As to the second po,:eibility, 

pl 'etre dismiES


I have al ways been


Mr. Jay


*alive to the various interests =,nd motives of some of our friends across the veAer:
There is one point which I failed to cover in my letter of July 21, and


the oft repeated

statement that a

large amount of the foreign lo ens placed in

this country has been repurchased by investors in the countries by which



If you will look over the tabulation sent you I think you will agree

were i seued.

with me th-t securities so repurchased are confined to only a few of the borrowing

countriee such as the Eritiah, French, Swiss, Dutch and to some extent the Germans.
But if we

lumped them all

together and assumed arbitrarily that even 25% of all of

these lEE0,16 had been repurchased, the results would not be very gre.tly affected.

There is no

:ay of arriving at fii:ures, and

time loans also


complication of the cross currents of
The probable fact is thst the

somewhat obscurer: the picture.

short credits owed by our country are very largely counterbal "nced by the short credits

we have extended


account could be

If the whole short credit

reckoned up it

would likely be found that we owe short time balances and investments to foreigners
-hich are counterbalanced by short credits


throuehout the world by our own


bankers which would not be much short of this total, and porsibly

But of course this

I have


time now to


exclude at least a part of the unusual French devisen.

4ive you a

very brief outline of the


first six topics mentioned in mine of July 21 and of course this is all most

tial, but I think you


and Gilbert should know about

of the



The position of the B.nk of France visa -vie London and Ne* York as to

its immense holdings of devisen:

Their holdings of gold and devisen are certainly as

large as tte current published estimates.

They have complete

confidence in


ability to negotiate checks upon and get gold from New York to any amount desired.
They co not feel so as to Lon :on.

Means have been fours.

with some slight assist .nce from uc and now that the

to ease the position along

tide has at

least partly turned

and the purchases of devisen by the Bank of France have dropped to what might be regarded

Mr. Jay



a normal

figure I doubt if any trouble arises from this

in the French position.

They will

buyAkme gold with sterling, and

agreed that these solo
of payments to


The extraordinary



be able to

suite willing to

profitably to

here be a possible


are at

possibly some steps can

so long will

and the possibilities




ultimately to pay for

at which gold is sold by the Treasury

between the buying and selling price ie 1-1/2 pence an ounce.

deferred, that is

ment to


the depositor.

below the per

the time required
The result is

of exchange tn,n

tween London and




All other



difference is

into coin for pay-

gold import point is a smaller

iaour5,ola export point above the par

it w Yore it costs


the period for which payment is

convert the gold bullion

of exchange.

As be-

about 4 cents on a pound sterling to move gold to this

country and then back to London, but roughly

the gold (after

In Fnglend, as you know, the

interest lost


to 98% of the aeemed

and alloy charge which is still imposed).

price than they cell et.

equivalent of

the Reserve

in our gold practice and

Tre eury is eethcrileci to pay cash up

(excepting for the alight melting.


Under the law passed before resumption

be taken to remedy it.

the assay is concluded) at exactly the same


of a gold inlietion

practice of our Treeeury Department

value ce gold eeposited with the Assay Office and


as this tendency

the possible menace to the gold stead -

a ,;rent diee.dventeee in

in '79, Lhe Secretary of the

pay a loser

So long


in buying


;chat some people

This was a subject on which in'ormetion was exchanged,


The technical


temponry, and

the Brink of France) .

general uneasiness

menace to

but nothing cefinite


the major exchanges hover at the point at which gold cen be


and be the ceuse of some


analysis °tossed by the unusual weight

movements are in the last

many of

some sterling into dollars,

leave large belances in London.

this country (but to some extent by the

continues and so

extraordinary development

movement of gold between the

describe as the icapricioes" demands of




two-thirds of this coot is represented

Mr. Jay


byethe cot of exporting the gold and only

about one-third by

the cost of importing the


This is due partly to our identic.1 buying end selling price, and pertly to


charges which are higher going east than west.


we adopted a

practice similar

to that of the Bank of Eltglend, which we feel is legally possible, it would be more nearly

as expensive (es an exchange operation) to -ove gold to

this country as it

is to teke it

In other words the exchange would have to go somewhat below the present shipping

point before gold could be sent to us profitably.

bile it eppeers simple on the surface

to alter this practice it nevertheless involves various technical difficulties and details
and it is impossible

s yet. to say whether our practice could be chenged so as to make it

as expensive for Europe to ship gold to us as it is to take it away.

A possible method of temporarily arresting shipments of gold to this

country so as to avoid the addition of the expense of moving it to Ne.w York and beck again
to Europe)

Just for discussion I suggested a scheme for handling gold which struck me as

being capable of development as a temporary measure to operate for say a year or two until
the outlook was clearer.

In brief it was this:

If the principal banks of issue would

purchese gold when attempts were nade to withdraw it for export to the United States so
that the intending exporter would realize exactly the

some in

dollars that he could get by

shipping it to New York and it were assembled in one pool, we might then arrange to setke

advances on it at very low rates of interest to each of the banks which lost
to carry it for a time until it might

be poseible

the gold and

for them to repurchase it without loss.

Of course we could just es well buy the gold outright,

but to CIO so would raise difficulties

here, one of which is that if we purchased the gold outright we would furnish credit to our

market exactly

as though the gold were importee.

In order to offset the

securities and

purcheses (and of advances as well) we voula be obliged to liquidate our
thereby raise the old questions of earnings,


effect of large

But even at a very low rate of interest

for advances our earnings would likely be sufficient to minimise this argument against
carrying the gold abroad and give us a much better earnings

with the gold movement in

position so

as to temporize

the hope that some day it will work itself out.

The real ef-




lest would be to postpone heaving the gold come into this mouse trap where a cost of

4 cents or more per pound has to be made out of the exchange rate before we can

foreign banks of

issue can buy it without heavy loss.

Nothing has been

done about the matter but it presents an interesting possibility and
again later.


will be discussed

It is understood, however, th t we will all endetvor to reduce or retard

the physic 1 movement.

The possibility that the return


to the gold

standard and the necessary

policies of the banks of issue in that connection may be responsible for the recent
steady decline in the general price level:

Of course no conclusion could be reached

but the general feeling was that to some extent arguments could be advanced in support
of this charge.

Ify feeling hrs been that further price

one of vital importance to banks of
ehould have a good alibi.
and if our friends


The only

of this in Furope

this issue

issue and I am anxious th t we in this country

alibi is a low discount
ignore the

Washington ere willing to

upon our oolicies we may be able

declines will make


in the

.ould be to at least

futture to


before long the establishment of lower rates

rate by the reserve banks


market as an

establish the alibi.


The reflex

further advances in rates end even Justify

than would be possible



say prove to be their alibi.

Central bank policies as to

the respective markets under present



end relative levels o" interest in

I think we all agreed

that the dif-

ferential between interest rates in New York and in London has been too slight to afford
sufficient protection to European gold reserves in the face of the normal fall demands of
buyers of our exports,
tion the growing

which will

burden of debt

arise r..s


soon se our

crops begin to move, not to men-

This is particularly true this year when the

rank of France has skimmed all of the loose doll r exchange and all of the free gold
off of the markets so that the esual

for use in the fall has not

accumulation of

been possible in London.

both New York exchange end of gold


Mr. Jay


Host of the matters disceseed point very strongly to the necessity for
doing what I had concluded sr a nece4er.ey even before Any of these gentlemen errived,
Ahat. is to establish lower money rites are' a lover di scount rate

in New York.


have been reedy and willing to attempt it whenever LI.:e time wee propitious, but the

money market needed a 116tle attention first.

By the

time this

letter reches you

possibly even before it is disptched.

matters will heve developed much further;

This is the briefest possible sketch of the things we discussed and I
.ending it to you for your oen perean-.1 use end Gilbertle, but with perticol.;.r



that it must ;,o no further.

It will interest you to leLrn


our friends the Italians have been

concerned about our meeting and seemed first to have thought tlet 4..ey had been



The Abessador has twice discussed it with me end I have explained that

the meeting, was entirely fortuitous, being ooceeioned by my illness and that no me:.tere

tobe discussed

And I exp.leined besides that

which Italy was concerned.

we rave no relations with

the Bank of Ite.:ly and it would have been rather unue.ed, and

possibly not very polite, for us to have invited them to seed a representative here to
.L.sten to di cuseions of matters in which they had no direct interest.

cetrse expre-sed less bluntly th.n
bile di co..seion of

Thir,, LIS of

I have dictated it.

reparation matters,

e4ecially of the transfer problem,

wets entirely a bi-product of the disc:le:Edon of central banking

mAtere, it ie now impoe-

sible for b. ny of us to here any vies se to the future of the exchanges or of the gold
rldard or even of the policies of
!-,e)efer problem.

central banks without taking account of

Ne none of us have any


folly as you can.

the wy they are handled.

Best regerde to you ell.

Faithfully your;.,



Pierre Jay,

P, rl in, Germany.


direct responsibility in the matter except

(*we suffer from the consequences of developments and of, please write


(see n. 7)


Mr. Jy




As I had expected in dictating the above, our directors tothy reduced our

Cliecount rate to 3-1/2%.

The ease action ha.d been taken alre..dy by Boston but

announcement was withhelo until our directors had acted, so that the reduction
in both Boston and New York is published today.

heretofore reduced.

Kant:as City sand St. Louis had

We rather expEct that Cleveland will follow suit.

As to the

others, - delgyed directors' mtiltings and some differences, of view may result in
the 4%. rate bein m-Ant,,ined fors time, 'slid possibly permanently eh:es:here.

we can rely upon our rate change for the accomplishment of the main purpof7e



am well content with the action taken.

It is interesting in this connection :;o note th'it the c'4.bIe. which 'e
have received during the past few d,.:ye indicate that had we deferred this action

few weeks ionizer we would prob:bly have had a 5-1/2% bank rate in %gland,

September 6,


Geer Picrre:

Thank you for yours of Au.ust 27.

Gilbert arrives: yesterday,


,ut I 11168 rt Tuxedo visiting Mr. Baker and hive not yet eeen hia.
is cxpect,-d in to-dcy

-e shall have a good clack.

Just a lino to comment on your


about our G,-rman

I chid not repeat in my firs-, lettor the subsiance of our


convureation atout reparations, but what I wrote in my second letter,
which tent by mail, I think throws some light on hi8 attitude.

He to tc impressed by whet I have siid, and I kiar from some of my

friends in Ppris throuth Fraser tht.t it certainly Hid make cm( improsion on him.

I hope it sticks.

With teat rerr,rds to you %11 in 0-r1in.

Faithfully yours,

Mr. Pierre Jay,
C/o The Transfer Committee,
Berlin, Ge,rmary.


October 8,

My dear Castle:

I hope you will be good enough to

the enclot,ed

envelope to Mr. Gilb.:;rt in the pouch. I to tnxioue that it

should be 8:-fely 'aelivered rIthout rink of 1388 as it contEine
conilruthtioo of our Vt...ti011b code meani-,.

Tb,c.nklng you, I beg to remesin,

Wiry truly yours,



A ssi stant Secretary of Stute,
PPehington, U. C.



November 10, 1927.

It was fine to have your long letter of October 24, end you need not

apologies as to the views expressed

have made reservations and

after ell, the problems

t!ey were expressed, because,

non© of them capable of

They are all just
aid to


you are deeline with are

by mathematically

being dealt with

or as to the way

accurate formula.

questions of human judgment and I find the greatest possible

judgments is


exchange of views with such friends as you and


There are a few eointa in your letter which I would like to mention
epecifi celly


thile it

was unfortunate that Moreeu could not come to our

meeting, there were of course


no English and I notice

strong tendency to drift into

11E. S

culties with English arise.

advantage in



Thie would have

having Hint

visitors to exrress vieee to me

in the presence of all of

and really

knowledge of

eavantages in having Hist.

here was


the others.

Moreau speeks

hrench when

been unfortunate for me.
in the





need fur each of the three
were unwilling to express

It was a peculiar and at times difficult

worked out as satisfactory as it did because of the full

English which all

four of us enjoyed and the only language which

we all spoke in common.

Of course I

agree as to

artificial steps which might be taken

to facilitate transfers, but the word artificial, like every other edjective
in the language, Introduces uncertainty more than it introduces definiteness.
It can hardly be claimed that borrowing



for the promotion of transfers

our market is an artificial measure
any more than it can be claimed, or

November 1.0, 1927.

Mr. Pierre Jay.


I should say, charged that such borrowing in our market is undertaken for the
The really important question about these

purpose of defeating transfers.

°Sloane is to see that they are adequately controlled in Germany and are con-

fined to those which are fundamentally good and which do not undermine the

German economy but rather strengthen it, and I extend this observation to the
point of saying that they may indeed undermine the Geemen

.seonomy if they

have the effect of enabling the German States or Otties to appropriate


ues for wasteful purposes which otherwise would be employed constructively
and so reduce or avoid berro.eing.

Any artificial element in the transaction

will be that arising in Germany and not in our market, and in my opinion


be mainly due to lack of adequate control, for which Germany is in part re-

eponeible, but for which the other

creditor nations are also somewhat re-

sponsible if they fail to intervene if they este evidence of tendencies which

will defeat the plan.


gat eomewhat imnatient of the attitude altogether

too common nowadays, and doubtless pertl v resul ting froar eupervi sion by the

Department, thrt

in some trey or other ;American

for the consequences of these loans to Germany.


are responsible

The responsibility rests

upon Germany, upon the German creditor netions, of which we are almost the
ellest, and of course upon the Da-wed Organi


While of course

it is encouraging to feel that the Beratemg-

sstelle may be induced or compelled to function more serviceably, I regret
the nette of pessimism as to this being promptly accomplished.


of the whole affair.

It is really

It would not surprise me to see our State

Department entirely discontinue such slight supervision as has been exercised before very long.

note has


In thie connection, the publication of Gilbert's

raised sufficient doubts so es to make the outlook for

further German borrowing in this market quite

ttee:etee' and the

results are known.

uncertain until some loan is

Most of the Carman listed issues




hovember 10, 17.

Pi erre jey.

off slightly but very much less then wee to be expected. I imagine they have
all been more or leee supported by the issuing houses. The one issue which

0 not only did not decline but ndvanced slightly Imes

Rentennpnk bonds and

those have always been highly regarded, but I do not think that you and
Gilbert can overlook the feet,

that the eublicetion of thin reamorendurs 1.

likely to have somewhat the same consequencee es would hove

the publication of his letter to the Finance ?Meister

resulted from

on the eubjece of the

first Prussian loan, and it may be that German borrowinr;



time will

have an up-hill rocky road to travel.

Dr. Burgess will give you or Gilbert a report on the publicity
anc I believe he f c sending ell the clippinge when they tr-ve been collected.


t..c to the trnefer problem.

It in my reeollectioe of


figures on (Jemmy' e trade tor thin yeer (the figures Ere not before me)
that the excess of imports over exports is composed of

n'ar meteri el o

1,7C.'.),C0',:',,10C marks





Viecelleneous E.00dre
chiefly manufacture& 1;00,000,000

thae reeking up the trade deficit of 3,000,000,000 mm rke for

quarters of this calendar yeer.
such articles d8



firet threede

They have largely increeeed their Imports of

end cotton


thi e country.

Ihi e mesns of course

that Germany I. rebuilding the working cepital of goods which are eseentiel

to the ultimate recovery of an export trade, Fine the bed trede figures of this
year may not be as bad fundenientally ne they eppeer euperfl cit3ly, but only

time will tell. But I still believe, Fe eteted in my earlier letter an in
the eemorandum eent you a week ego, that the problem of transfers le bound

to erica within eighteen months and that it is poesible tYtt tie test will

now arise etrlier than that if this publicity restricte our market for

Vr. Pierre Jay.


German eeeuritiee.

November 10, 1927.

whet you ray ebout the decline In the urge to export

ie illureineting end may rrove to be a serious rector when the rest is over e.


You are quite correct.

ment le ineleded ae


pert of

The $100 ,000 ,000 owing tc our Govern-

the figures by way7

the $8 5,000,000.


of contrast simrly to bring out that, while a billion done:re must he neid
to our Government and investors

evoh yesr, of this 8825.000,000 is theoretic-

ally to be rrovided by Germany and failure to effect trenefers in behalf of
Corwin reparations is bound to raise the question of trenefers to the


States both as a political matter and RES RD actual problem in the exchange

This pertly answers the

first paragraph

on your third page

about the continuance of American investments in foreign securities, but


is only as to foreign securitiee as a whole that you may be right. In other

if we and other lending markets, principally Great Britain, become

concerned over German loans, our surplus savings for

all other markets but Jemmy and then


transfer oroolem till certainly

It wee for this reason that I had exereesed the hope thee too much

publicity about German credit would not occur just
and the

investment may eo to

unjuet alike.

somewhat in our way



It bite the


lie are probably in entire agreement and simply differ

of expressing it.

still think, and have no

view, that yr; rill have

rceeon to

the cheap money market


anticipate any change

and most of the

rest of the

world fairly deer money for some time to come, barring of course such special

situations of have arisen in FrFnce, but even

that money

market is an


on© just now, and when etebilization becomes a fact, I would anticipate

higher rates in France.

I wholly agree P.13 to Schacht's eolicy about the bank rate

and I think I may have written you that I tobd him so when he was here.



vae too slow.

Mr. Pierre Jay.

November 10, 1V27.

But, on the other hand, I rather disagree with the argument

in Gilbert's letter of May n to Governor Norman, and when

finial; reeding

dithe papers which accompanied his letter I um k;clug to write him a tit about
0-le bank rate problem as we see it here.

I think you were wrong about the ef-

fect of our bank rate. The sentimental effect of our reducing rather then
London advancing was


both in this country and in grope.

tual effect 'As been to maintain e somewhat wider differential
two markets and toarreet gold imports to
a :loss of gold by Lonaon and

of cooperation

Liiia Gourii,ry.

The ec-

between the

It aideu in arresting

the evidence of the result of that eetion


between the banks of issue 1s shown in i.he fact thet we :lave

sold another fifty millions of gold to France, we are eellieg fifteen
millions to Poland, have shipped tnirty-one and a half without. to Argentine,
are now shipping thirty-six

and a half millions to Brazil, have cold

a few

millions to Belgium, and it is likely that no small part of this demand would
have fallen upon London and to a wailer extent upon liolianci eau even
Ewitterland had we cot reduced our rate, end of course had there been no

understanding between the bankcs of issue.

the change in the


It is aty personal oplaior, that

transferred some hunareda of millions of ahort-Lize

financing from Luropean markets to the Lew fort market as well aa moving
balances to London to tam:e edvantage of the hi



As to your suggestion that this also may be an :artificial pozi Lion
and that our rates later might be navencea arm .eurepe take

care of itself by

corresponding advances, i am not ready to actait that Chit is counu.


per cent rate in London and relative levels on the Continent would mean tact
ell commercial and industrial borrowers abroad would be paying from 5 to C

per cent or even more for accommodation, with tre exception of France.


would be a rather withering influence upon trade, not dimply tae interest
cost, but the gene: al psychological effect of this diecouraging move.


taining our market at present levels, if it can be safely done, is the best

Mr. Pierre Jay.


way that we know of to maintain our export trade.

November 10, 1927.

We have excellent crops

this year, prices are much higher, and we want to see the surplus sold in
reign markets.

Next January it will require a very slight manipulation

of our investment account to insure the return of all of the holiday currency i881105 and still not force higher rates or promote artificially low

Eo far indeed the situation has worked out Ps rerfectly as I believe

it Is noseible.

The last paragraph on page 4 expresses very much what I have

said to Gilbert and what I believe I wrote you or him.

I think Gilbert is

the one to raise the question not only about transfers but about any sort of
a settlement which must be made, if at all,


I em

order to avoid a crisis.

not looking forward with any comfort or satisfaction to the possibilities of
any sort of


crisis, but this transfer problem is of a sort which usually

cannot be solved without the influence or impact of come sort of a crisis.
In fact I do not think that the French budget difficulty could have been
solved at all had not the people of France been facing a catastrophe.


may be a similar situation involving all the important nations and I see no
possibility of anticipatory action except through the intervention of Gilbert.
Should he successfully intervene and some arrangement be effected to moderate
transfers for a period of years, then we will never know whether a crisis
would have arisen or not.

But I believe in avoiding the risk if it can be


I was amused by your introducing the quotation from Kiddy's
article in the Evening Poet.

It is exactly the statement that I made be-

fore the Houee Committee at the stabilization hearings last summer and I

as Kiddy tad shortly before received n copy of the testimony,

that he may have gotten the
he gets from Norman.


from there.

Moat of his notions

Now end then he gets some from thi s side.



December 7, 1927.

Dear Mr. Jay:

On account of the hurry end excitement of last week your

letter to sir. Strong of Hovember 13 did not get answered.

Put Mr.

Strong asked me to write you baying that he would reply to it as
soon as he returned, snd that, in the meantime, Mr. MoGarrs.h and Mr.

Harrison were reeding it and also the copies of newspaper articles

The latter are voluminous, ne you know, 'And ns our people

have not finished with them, they have not yet been shown to Messrs.

Young, Sterrett and Fraser, but this will

e done as soon as possible.

I have not heard from Mrs. Jay nor Louisa since they arrived.

I hope they will call on ue be:ore they re!,er. It would be pleasant
to see some of the Jaye main.
I am vetr happy working for Mr. Strong.

find a year ago I

did not eApect co be so happy again, ever.

I am so glad you refer to your present secretary as "ehe."
Sincerely yours,

Mr. Pierre Jay,
68 Lui eenstras
Berlin, Germany.

S.S. "Mauretania ",

December 25, 1927.


Dear Pierre:

Your letter reached me at Campden Hill just before I left, and

again it made me feel that I had been deprived of the enjoyment of such a
welcome visit from you in London simply because we were engaged every
minute of the time, even to the extent of putting in a full day at the Bank
on 3unday.

Since leaving, I have been kept fully posted about our Italian
program by a series of wireless messages, and it now seems that all the
banks of issue invited have joined in the credit and it has become a notable
and impressive party.

Cables from Rome and London are very definite that

it has brought great rejoicing in Italy, and that is most desirable, as you
realize, because final stabilization does dash some hopes on the one hand
by the class which would benefit by a higher rate, just as on tho other by
a large class which would benefit by a lower rate.
I have just finished reading Gilbert's report and it is a splendid document, most dignified and restrained.

I agree with you that it is

desperately long, but hardly see how that could be avoided this time.
I read the report rather critically, especially where it touched
on Bank policy, and find but one place where possibly the "pundits" might
cavil a bit.

It is next to the last paragraph on page 103.

I don't

think the statement is accurate that the import of credit is equivalent
to an import of gold or that it provides a lawful basis for expansion,

except the bank of issue is operating upon a gold exchange standard and
acquires the valuta proceeds of foreign loans.


Mr. Pierre Jay.

December 25, 1927.

Mr. Pierre Jay.



rather uncertain.

December 25, 1927.

It is hard to believe that the amount of exchange

has been very closely related to the differential in rates for bills between Berlin and New York.

It seems to me much more likely that the

curve of exchange rates is directly and possibly entirely associated with

the volume of foreign borrowing by Germany and the rate at which valuta is
converted into marks by the borrowers.

I am not certain enough of this

to more than suggest the possibility, because when there is so great a disparity in rates as exists between Perlin and New York on bankers' bills, a
difference of ; of 11. or 1' even in the spread strikes me as likely a

slight influence in the movement of bank funds.
lve have had a fairly comfortable trip home, and I am dictating

this letter on Christmas Day, which is beautiful and clear and smooth.
The most important event on the ship so far was the arrival of two new passengers last night, in the shape of twins in the third cabin.
Please give many good wishes to the family and my friends at
Luisenetrasce, and certainly to Dr. Schacht, and my very beet to you as

Sincerely yours,

Mr. Pierre Jay,
33, Luisenstrasse,



Form 1256

to the account of





FM Rate

Hell Res Deferred

Cable Le.
Week EndA. ter

Patrons should mark an X opposite
The mass of service desired; OTHER-




Time Flied

February 7, 1928.

33 Luisenstraese
Berlin, Germany

Now up part of each day.

number of Words


nd the following Cablegram, subject to the terms
on back hereof, which are hereby agreed to

Thank you.


Hope to go Atlantic City in ten days.

lot el Bright on,

March 2,


City, N. J.,

Dear Pierre

This is a very belated acknowledgment of your letter of
November 3.3, explained, as you know, by the fact that I Inve been

ill. It was not a very serious illness, but

it came near enough to

duplicating the one of a year ago t o mn la me pretty cautious, so I
have been getting back t o work very
His appointment has turned out to be in
every way id eal . It may be t hat some o f t he folks consult ed felt
that his rather determined anal so:nett-es arbitrary scotch-Irish disposition would make difficult ies. I never feared tint. He is a
strai.ght-shooter, and plays cricket according to the rules. As I
told :!r. Mellon, while he 1rd much t o learn he could be counted upon
to learn it anti to k--ret commend of the s ituat ion just as rapidly as
ho di:1. acquire the necessary knowledge. This has proven to be more
than true. '.7hen he doesn't know a thirE. or is uncertain, he frankly
says so, and until he does know he mkes tio bluff or yretenee of

The result of this is mrfeetly obvious in t ho fact tInt

he has already gained the moral and intellectual control of the Board
such as no other governor has ever Ind. He has Mr. Mellon's entire
conf i<7 en co, and all who have intimate relation with the 7loard's affairs conraent enthusiastically upon the revolutionary change that has
taken place. He made an immense sacrifice to do this, cut tire his
Income in half. But ho says that it is really his wife 1,0-io made the
sacrifice end he hope s to nnk_e it up t 0 he r later. The feet is tha t
he is a fine gallant .fellow who deserves our support and is bound to

get it.

So much for that question raised b:7 your letter.


ier re Jay

niucla interested in the second page of your letter. As
for i.;chacht, you fellows are mi{:hty lucky to have him in that pos it ion.
I have a great deal cf confidence indeed that he will stand by his
runs for sound principles but, of c ourse, there are many occasions
when he will be seriously embarrassed between loyalty to the plan and
public opinion at home. I was rather disturbed this morning to see
a newspaper article ialiwtine t het efforts would be made to repeal
the tax of 10 per gent. Imposed upon foreign loans, which is the basis
of control exercised by the _Teich. If t hat should go and nothing
effective be albstituted it might mean t rouble.
There is no doubt that the publicity resulting from r.ilbertts
statement aril the annual report hatl had a far-reaching effect upon
1r)ans in this country. :Ty absence has prevented my getting a reliable
report on the success of the two issues which have been attempted since
then, but at the first I heard that it was not very successful.
:his seems to be almost unnecessary as a news letter, because




:7cCarrah sails t o-day , e n a you will get eve Ty th ing di directly from him.
?ut at Isnot I can send you direct word that I am very much improved
an d hope to be book at work on part -time very shortly. (.then I want

especially to thank you for sendirc me the clippings.
ith best regards t o you all,
Sincerely yours,
Mr. Pierre JEw,
33 Luisenstrasse,
Berlin, Ge many.



7/ashington, D. C.,

March 26, 1928.


Dear Pierre:
This is really my first opportunity to !rive any consideration to your

letter of February 27 end mmny others like it, although I did roc

it when it

arrived end am really writing now at the very first opportunity.
First, about myself.

You will have heard all the news from McCerrah.

I am about well attain, although still a little weak, and have to go rather slowly
in resumine work at the bank.

There has been a multitude of arraneements neces-

sary in connection with my plan to t et away thi7 sumer, but it now boils down to
a hope that I shall sail May 5.

The Governors' conference occurs on April 30. It

will be an important one, and I must be here to attend.
earlier in the year is not suitable.

Besides that, the weather

I shall go directly to Paris for a short

stay and then eossibly to the south of rrance to Beau Vallon, which is between
Toulon end San Pefael.

It is very quiet but delightful at that sea
Sane of

my friends have eromised to visit me there.

After a few weeks there I hope to do

the same thing at "vim where T steyed two years ego with Mr. Thllon.
I shill feel eeunl to traveltn


I feel.


to ?ems before going to Milan, bue it depends upon

TIvian is favorably situated for some of our other friends to visit,

and from there I would hone to po at least to Berlin, to 7arsaw if possible, thence
back aeain, stoeptne possibly at Ameterdam and Brussels and so to Landon. Another
visit to 7)-ris would depend upon developments.

I do not feel equal to making an

extended trip through Middle Marone, nor would time permit if, as I anticipate,
Phil is to be married late in August.
This will give you a rough idea of the project, all depending, of course,
upon What happens between now and then and how I feel.
I was much interested to learn of Nancy's engagement.
home for a wedding, unless you propose to have it in Berlin.

This may brine you

What are the cheaces?

All that you write about financial and fiscal matters is most interest'ng

Mr. Pierre' Jay


2 -


I am so glad to have these first ;and pictures of how matters are going.
I shall show your letter to Mr. Case and Mr. Harrison.
Your handwritten, confidential postscript and the enclosures I rend with

keen interest.
Gilbert's memorandum strikes mo as a statesmanlike, finds docurent.


questions will only be satisfactorily settled as the result of a strop; leadership
by someone who has a definite clean-cut theory to work on, and certainly Gilbert's
talents run in just the direction needed in this very difficult reparation problem.

I shall write him separately aloe% tho memorandum, Which he also sent me, and you
will get another batch of letters from me which go at the some time to Shepard

Now, a word about things over here.
speculation, as you notice,

We have been having

At the same time that we have experienced very heavy

exports of gold, a considerable portion being out of bank resetves and not earmerked

gold, and we have also sold 150,000,000 of Government securities.
borrowings from the Systen are nor over

500,000,000, but, unfortunately, the lode-

stone of the stock TerChance seems to have drawn enough funds
the banks pretty well out of debt to us.

]`erher bank


hew York to keep

It looks az though We meld have to do

some hard sledding and possibly put the screws

ei quite a bit tighter.

Por a time

after the turn of the year when we were exporting eold and selling securities, and
when we ,ut our bank rate up, the volume of credit shoved a tendency to decline,

but in the last two or three weeks it started going up again, so I am dictating
this letter on the train going to 'lashington where we should have a meeting to discuss the situation to-morrow.

The outstanding dovelo1x.ont in certain respects lies

in the export of a crtain amount of gold as an exchange traneaction.

71en nne

considers that this is in face of a favorable trade balance of 4,:600,000,000 last

year and without any very great business recession, I think the conclusion is inevitable the t eo ( lending more money to the rest of the world than they need for trade


Pert of the loans are boinr used in the stock market, and a part in buyini

. 3 -

Pierre Jay


ef2f1 /38

I hope we are not forced to go still hither with our discount rate, especially

116in a year surcharged with politics nad at a time when there has vadoubtedly been some

business hesitation.

The position of the

oreign exchanges is no

such, however,

that some pressure on money rates is much safer from an internetional point of view
than at any time in the last two or three years,

I was called before the House Banking and Currency Committee arsin to discuss the eleventh revision of the sixth revision of Congressmen Stronelo bill to
stabilize prices.

Confi'entially, there is quite a joke about that.

He got very

discouraged at the attitude of the Reserve System and. thought es were rather stubbornly oeposiag his plans.

It resulted in a situation whets I finally drew the bill

for him, very different from the one which ho had_ introduced.

'Then I had it completed

I was obliged to tell him that I did not approve it in all particulars, but that it


which eliminated some very fundamental objections

which had not been discussed;

brt that I could not suonort the bill as the attitude

of the System to the bill would be detennined by the Tederal Reserve Board.
time of my appearance Governor Young wee present and was called first.

At the

He said that

he was no' very well acquaented with this subject, so Dr. Miller and Mr. Goldenmeiser
would appear later in the Board's behalf.

One of the members of the coeudttee naked

him if the Board favored the bill, and he replied thee the Board was opposed to it.
That was all that he said.

I was called next and tried to make an impartial statement

about the bill, weighing the various considerations raised by the bill without commiting myself as being in favor or against it, but nevertheless, rather strongly emmhasized' some of the objections.

After the hearing, ehieh only took about an hour and a

half, everyone in the room was convinced that my statement had killed the bill with
the committee.

So here is a oase whero I have had the curious easerience of drawing

l for Congressman Strew! and then killing it in the committee.

Of course, this

expresses it rather broadly, but it is what happened and could not be avoided.

I *far

a similar fate is in store for Senator LeFollettels bill proposing to deal with stock

term Jay

- 4 -


spe culat ion.

I can send you little news from tho bank as I have only boon them twice
since roturninr from Thiropc to attend irroortant directors' mo.:tince, and all the


ma doing; has either b^ r. up-tmm or in Thdhtneton.

trip I will try md

t more in touch with what is goinf!, on.

Best rerards to you all in Berlin.
Sincerely yours,

Mr. Pierre Jay,
33 Luisenstrnsso,
Berlin, Germany.

en rerftnine from this

Grand Hotel,
Grasse, June 4, 1928.


Dear Pierre:

Your letter and the siiipl*ent dated May 18th and May 20th were

,444161,catby Wig4lesworth in Fa.tis, and I would send you something like a
1$1,6KAti-..CiiiPtatV140174W40.4411i0 I not determined upon loafing for a time

before attempting any mail of consequence.

It is not so much that T am

not able to do a bit of work, but this last complication that I onccuntered
has made it desirable for me to use my eyes rather sparingly, and I want to
go another week or two before doing very much reading.
what a deprivation this is.
Dr. Stewart and Norman met me at Cherbourg on arrival there, and
I stayed over two days for a visit with them, and then motored to Paris,
taking two days for the trip.

In Paris I had some nice visits with the

fficers of the Bank of France, and by good fortune Gilbert was there at the
ame time that Jack Reynolds turned up and I have rarely had no satisfactory
visit with Gilbert as I did then.

Ho certainly is In good form, nnd the

can be said of Grandma without reserve.

After about a week in Paris I motored down here, selecting Grasse
ez; the advice of Dr. Rist, brother of our friend in the Bank of France, and
s was a lovely drive.

7e took three days to make it, and I felt bettor

arrival than when I left Paris.
Despite prophecies to the contrary, and I believe largely due to
riends in Paris, we have so far escaped a lot of newspaper nonsense.
will probably sur;xise you.


Mr. Pierre Jay.


Just now Cecil Lubbock is here with me, and as I have kept the


motor, we are covering the country about here, lunching at different
places and enjoying it immensely.

My plan is to stay here during June, and as it gets rather hot

after that, I shall ppbably go to Evian for July and sail for home on

August let, as MA's wedding will take place the and of August or early

I shall miss him greatly.

I do hope you can arrange a visit before I return.


ing that you have become a great traveler, you might feel like running up
to Evian.

I would certainly go to Berlin, wore it not that I um advised

to reduce traveling about to a minimum.

I expect quite a number of visitors

at Evian, but we can fit it in some way, and by that time I will be equal to
a party.

Please give my best to all the folks at Luisenstracne, and the
same to your goodself.
Affectionately yours,

Mr. Pierre Jay,
33, Luisenstrasse,




f VaLAfit-
























COPY of longhand note from Jay to Gov. Strong


January 2, 1927

Dear Ben,

I have been through an extaordinary experience these last two weeks
and though you have been absent throughout, yet at every one of the occasions which has gone to make up the experience you have spoken by telegram
or letter and have thus taken part in the occasion. Your letter at the
first dinner, your telegram at the second, your telegram to the steamer
were all very much appreciated, as I wrote you about the first mentioned.
The greatest surprise of all was on Friday when I lunched with the Officers'
Council and Harrison handed me from you the gold cigarette case with an inscription inside that I value fully as much as,if not a great deal more than,
the case itself. What with the ivory humidor, the lovely gold watch and
knife, your gold cigarette case, and a wonderful brocade dressing gown from
the teachers at the Brearley, King Solomon will have nothing on me as I enter
Berlin. With these things and the talk that has gone on, beginning with
your newspaper interview, any shred of the modesty you pinned on me have
gone out of the window, and I can strut lying down. Even at the Christmas
party of the F. R. Club, which by the way was a very successful one, tho'
lacking the spontaneity and personal element of last year's, I received a
Well, I only hope I may
parchment scroll with nice things engraved on it.
get down to earth when I reach Berlin!

But, really, however undeserved many of the statements of fact are, they
have made a very happy ending of my association with you and with all the
people who go to make up the Bank, They have shown that something of what I have
felt for you and for the Bank has been felt for me in return, and that, of
course, makes me feel very happy.
The spirit of the Bank is wonderfu
is no place like it -- and you have made it for all of us; and if you ever leave
it, which as you know I hope you never will, you will get a blast which will
blow you clean out of the water!
As to the gold case you sent me, that is something I never aspired to and
it pleases me greatly to have it. I shall get lots of solid enjoyment from it and
from the familiar script inside, and I thank you a thousand times for it.
Nelson Perkins and family are on board, and I'm getting lots of background
from him.
I hated to go off with the Chairmanship still unsettled, but believe it was
well to have it go over till all salary questions were out of the way.
Then it
By this time, it may be decided, but at any rate Harrison
can be calmly discussed.
is with you and you know all there is to know.
I expect to be in London in the first part of Feb. and shall be hearing
from Njorman] all about you, which I hope will be all good.
With my affectionate regards and hopes for your complete recovery.

P. J.






parch 8, 1927.

Benjamin Strong, Esq.,
Stuyvesant Road,
Eiltmore Forest,

Dear Pen,

Just as I was hearing about you from Forman, who was here last
week, came your letter of February 14th, which indicated to me that you were
getting back on the map again, because you evidently have A secretary, awl
car thus let off without too much effort a little of that ever flowing
current of spirits, intellectual, human and otherwise, which even in your
sickest moments never seems to stagnate.
I had been frankly a good deal disturbed by the preceding longhand letter which you had written to me, in which you spoke of your nerves
being so shot to pieces as a result of your illness, but your typewritten
letter speaking of returning to the bank by early April, and what Norman
told me of his visit to you, were very reassuring.
It is true he adrrTTted
that Tou were nervous, but then you always are a hit nervous, and he reported
you as being in pretty satisfactory shape for one who has gone through such


He came here fresh from Paris and reported that Moreau had recently
received a good letter from you in which you spoke of coming over here again
this summer, with the idea, I suppose, of helping to "finish the job", to
use an expression of our Victory Loan.
As far as the job is concerned, I think everyone over here is agreed
that as far as stabilisation goes/1927 is likely to be a blank.
The time
for it in France was last summer when you were over there.
Rut that moment
pasE.4 and what, with the attitude of the French Government, and the big
rise from Amsterdam erd elsewhere, the French have gotten
specuilatiot o
for the time being into a very very strong position.
Consequently, stabilisation is out of fashion for the moment, and as long as Congress is adjourned
till December, and the Debt Funding Commission has dissolved, it seers quite
unlikely that Foincare'will even think about debts until the very end of this
Meantime the French are postponing gradually their floating debt, and
expect by the end of the year to have it all on at least a one year basis,
possibly some of it on an even longer Iesis.
Mearti4-TFather that Italy
is not likely to make any move independently of France.
All of this is of
course disappointing, but I believe it reflects accurately the present


Since the foregoing was dictated ter Meulen has been in and
expressed the view that the French will not be likely to trike up stabilization
until the middle of 1928, after their periodical elections.
There are also elections in Germany in 1929.
the end of the year, but might very likely be anticipated by a few months!
so, oil
things considered, it looks like a quiet time ahead with regard to all of the
thin; s thit are brewing, unless soncthire unforesen should turr. up.
During the past three weeks we have been through an interesting cycle.
The Finance Minister, in presenting his budget, abeet which he was quite
pessimistic, and rightly so, expressed serious doubt about the ability of Germany
You doubtless saw t'-is comment in the
to meet the increasing Dawes payments.
Of course, the Nationalist papers here took the cue at once
Americen papers.
and vociferously agreed with the !:inisterts statement.
The New York papers
attached great imeortnnce to it, and the Nationalist papers attempted to assert
that this was propaganda of the Agent General.
The French papers took little
notice of the statement however, and the ether Gerner papers did not eon ,ent
very fully upon the incident.
Forever, notice was evidently taker of it by
the authorities here in Germany, and inside of two or three days the Finsr.ce
Minister gave a statement to the associated Press in which he said that the
sentence casting doubt on Gerneny's ability to pay should be read in connection
with his statement that it was the Treasury polier loyally to endeavour to carry
the Dawes obligations.
I met the nnieter out at lurch last
and he
brought Ile subject up, saying that he could not ur,lerstPnd why ,o
made of his remark in the papers, that of course he was for the policy of fulfilment, and had recently given an interview to the "New York 7orld" which made this
Indications hRee cone from various sources the+ the Thole question of
fulfilment has been thoroughly discussed again in authoritative circles, and an
unequivocal attitude has been reassumed looking- towards fulfilment.
So that
the incident, -Mich did rct look very mood at the tine, has had the result of
hrireinc the new administration face to face wit' the subject early in its
existence, and I think the remark is to be considered as halving been a blessing
in dis guise.

The budget is suite an unsatisfactory one.
It can only he balanced
by borrowing some 500 million mar.:1s:
it cortefrs a lot of unnecessary erants and
it does not derl with perhaps 200 or 300 million marks of unennloyment
payments which must be made:
it includes as income 190 million marks seignorage
on minting coins already redundant! a settlemeet of the t'lxPtion prol-lem hetween
the Reich or one side and the States are' Communes on the other is definitely
postponed for one year, with the possibility of two years.
It looks to me,
in view of the existing unemployment, as i' they went too far last yeer in
reducing taxation.

Except for coal, production seems to he keeping up at a high rate, and
the movement of freight is eery heavy, ever heavier than at this time last year,
notwithstanding the felline off in coal.
Imports are increasing quite
one of Vee items being cereals, to ,el:e ur for the crop ehortage last summer.
Our Leone Lic Service estimates that in the first half cf 1927 Germany rill have
to import 300 million mrks more of cereals than last year.


- 3 -


Tit?' regard to the total belence of irede the situation is not so
clear, because foreign loans are seldom being made just nt present, end this
fact, together with the money ease here, and the placing of e good deal of Cermet,
money abroad for a temporery or longer investment led to a great outflow of
Devisen between the middle of January end the end of February, and about 400
This seount represents just shout the gain in
millions in all flowed out.
In the lest fortnight,
Devisen between September and the end of the year.
end it looks
hardened quite 0
particularly over the end of the month, money
The bankp bell to
as theueh it would not return to its former low level.
come into the Reiellshenk for somethire over SOO millions st the end of February,
one of tle lightest of the months, and Schacht has been taking thee to task for
it, with the result that there was a meeting of +he Cleering House a day or two
Just what was
ego to discuss the situation and arrive at some understanding.
Of course, there is an immense amount of money
done I have not yet heard.
used in stock speculation here, and after the tremendous rise ir1226 in the
stork market, stocks went up on the average About 35 points more during the
I know nothine eheut the comrenies or the
first six weeks of this year.
values, but German bankers all say that generally speaking stocks here are at
In the
Unemployment seems to me likely to be a lone job in. Germany.
first place, there are 371 million more people in industry, or in employment
eeneeelly,than before the war: second, there are a lot of refugees from the
territories which Cerman lost! and third, and most isuortant, there is the
constant attrition of the rationalization plane which is constantly spreading
The other
and is likely to become more and more intense as the years go on.
night I sat next to Ileinbardt, head of the Osram 'arks, whom I sew pailfe a little
I asked him how his programme of economy was getting on. He
of here in 1924.
said that in 1924 when I was with him he had 23,000 workpeoole erel t '-et now he
Of course this is exceptional,
had only 10,000 and was getting 205 more output.
being an industry that lends itself peculiarly to oreerisation of labour- saving
"tut", said Yeinhardt,"our payroll}as decreased very little".

It looks as though there would he quite a general increase in wages
Rents are to go up 1070 on epril 1st, and another log on October
this string.
The raising of weges will douhtic
This in itself is bound to raise wages.
movement, but of course it should
still further stimu' ate the rationalisation
increase consuming power on telerce.
As to my own job there seems to be a good deal of reading to be done
in it in keeping up with the current affairs in Germnry, and to some extent in
What with that and going out a good tit at night, and tekine German
lessons in the morning, I do no seem to have much leisure time for writing letters
I have however been reading some of "The Charterhouse of Parma"
or reading.
which you sent me for Christmas, and which arrived a few *seeks ago, and I em
It is such an
I wonder how you happened to hear of it.
enjoying it greatly.
written and translated in such a delightful style.
unusual kind of took, and both
I an greatly obliged to you for it, and as for the cieerette case, it is an
hourly satisfaction.

Your friends here, as well as in Paris where I spent a week, and in
Frussels where I spent e clay, heee asked anxiously after you, and I have been
I think, however, from
delighted to he able to give them optimistic reports.
whet Norman told me, and from your own letter, that you will have to count on


-4 -

going at half seeed for a while after you return to the office, end hope
you will be able to readjust yourself accordingly.
Witt, regard to your proposed trip to Europe this summer, I must say
that I cannot help questioning it both from the point of view of your health
and from the point of view of the bank.
I mention the har': on account of the
really serious feeling which developed in New York, and I think to some extent
in Tashington, about your long absence ahrovi last bummer.
You probably weren't
back lone enough before you fell ill to sense this feeling.
At any rate, it
probably wouldn't be very fully expressed to your fore.
Put in view of the
fact that there isn't any stabilisation programme in sight this year, there
would seem to be no necessity for your coming over, and it would seem to me to
be ar excellent summer from every point of view for you to be at home and perhaps
let Harrison do what travelling over here may seem desirable.
He coullFo about
without creating any publicity or comment, and keep you posted on everythin that
is going on, and you could always be in readiness to come over if necessity arose,
and you will doubtless aFree that it would he very developing for Harrison to make
a round of visits, and inform himself at first hand of the situation in the various
European capitals.
There is another point of view which I mention with some
hesitation, namely that, as you were over here so long last summer, and talked with.
so many people about stabilisation, your presence here aevin this summer, particularly in France where the Government attitude is all seeinst stabilisation, might
possible be regarded as an effort to stir up stabilisation again.
I em sure,
however, you will take all this in the spirit in which it is meant.

Speaking about the office naturally brings me to the subject of
Chairmanship, and I hope most sincerely that you feel entirely happy about it.
All the letters I have had indicate this is the case.
From the point of view
of the public it is better than your original suggestion, although internally
the contribution will not be so important, 1-ut
personally feel very happy
about it, and I only hope that you do.
Also that yea do not mind the change in
tle Chairmanship of the Executive Committee, which after ell is only a logical
I had an extremely nice letter from Owin Young the other day on the
whole subject, and em looking forward greatly to seeing ncGarrah, who, I believe,
sails tomorrow.
My family are gettirg over here in detachments.
No. 3 arrived in
early February, and we have beer keeping house toFeth.e.
Po. 2 arrives in
France a fortnight ago, and is now touring southern Europe with three college
No. 4, with Loulie, are due to.errive at Hamburg on Sunday.
I shall be very glad to pet them all toe:ebbe:- here.
We have a furnished apartment
till October 1st about three doors from where Sterrett lived, about a hlok off
the Tiergerten.

However interesting it may be, it seems very queer to he tackling an
entirely new job, in a foreign country, and in entirely strange surroundings,
and I miss greatly my long and daily association with you and with the other
officers of the bank, where I felt so much at home in every phase of the work.
The more I look hack or it all, the .more wonderful end happy an experience those
twelve years seem to he.
I only hope they will continue to he so for you for
many years to come.
Hopirg most earnestly that your expectation will 1-'e realised, and that
you will be vial' get back to the bank early in April, and with my best

I am,






iisoTELEPHONE:NORDEN 11900-11910



BERLIN, J11.21/3 22, 1997


Dear Ben:

Your letter of March 26th reached me at Easter time and I

have had it in mind to write you a decent letter in reply but the fact
is that immediately after Easter I began to work on the aeport, which

has just come out, and have refrained from writing any letters or doing
anything else except the work on the Report, save for cases of absolute

I was delighted with the tone of your letter, particularly as
it related to yourself, and the news I have since heard from Case, and

others, all seems to bear out your gradual and steady return to health
and activity.

I am sure that nothing will be more tonic for you than

getting back on the job.

Indeed, when I was in Paris last week IA)reau

told me he was getting daily telegrams from you and thus I see that although you are not over here you are keeping your fingers pretty closely
on the European pulse and that, I am sure, is the best kind of an after
cure for you.

I was interested in the third paragraph of your letter of March
26th with regard to the tendency of foreign central banks to invest so
freely in our markets.

This subject was discussed quite a bit at our

Directors meetings last November and December and of course is a matter of

-2 -

first-rate importance.

Doubtless you will be able to discuss it quite

effectively at the forthcoming conference with London, Paris and Berlin
which is about to take place in New York.

I only learned of this con-

ference last week while in Paris and want to tell you how opportune it


First, that the conference was to be held, and, second, that

it was to be held in the United States.

Particularly in view of the in-

volvement of the Reserve System in the proposed central banking arrangements
between London and Paris, it is important that our Directors and the Reserve
Board, and the officers of the other Reserve Banks, ail of whom may have to
become involved in these transactions, should have personal contact with the
Muropean central bankers interested and should learn from them at firsthand

of the situation rather than that you alone should take the responsibility of
explaining the situation at the American end.

It will be a great relief to

you, and I am sure a great satisfaction to the others at home, to be aole to
talk about these things face-to-face with the Muropean principals.


more, there is the attitude, several times expressed in our Board of Directors
during 1926, that when illurope has something it wants of America the natural

place to discuss it and negotiate it is in America.
In connection with this forthcoming meeting it has occurred to me
that in case the subject of reparations should come up you would like to be

posted on the latest developments in regard to the functioning of the Dawes
Plan, that is why I am going to write you fully and frankly, and confidentially, what may prove to be a pretty long letter.

- 3 -

(1) Attitude of Germany.

As I wrote you in my letter of March 8th, the Finance Minister's
remark in his February budget speech that he did not see how even with the

best of good will Germany could find the money for the increasing payments
under the Dawes Plan started active discussion of the subject in Parliament
and in the press.

This discussion continued right up to the faster recess

when the budget was finally adopted and Parliament adjourned for awhile.

When the budget was being finally discussed early in April a leader of the
Center Party made a long statement about the unbearableness of the Dawes burden, and as is customary here the floor leaders of each of the other Parties
followed with a statement on the same subject.

This came

ing a consensus of all Parties, but too much significance should not be attached
to it as once the question was raised no Party would want to be off the bandwagon in decrying the Plan.

There was some suggestion that under the circum-

stances the German Government should make an official statement, reaffirming
its position on the matter which, by the way, it had done privately to Gilbert
in February after the Finance ianister's speech.

The German Government, how-

ever, considered it inadvisable for reasons of internal politics to make such
a statement at the time but on May 2nd the Finance Minister made a long speech
before the Association of Berlin Merchants and Industrialists on the budget
question which was very good as far as it went, and in which he said of the
Dawes Plan:

"I have reason to believe that nobody in authoritative
circles doubts the loyalty of the Government of the
Officially, then, the German Government is entirely loyal and all payments
are made promptly.

On the other hand, the fact that the Plan is beinP ful-

filled does not seem to prevent individuals in or near the Government from

- 4 -


critically discussing the Plan and its effects on the German economy.
The public and the newspapers continue to discuss the subject freely.
(2) The Budget Situation.

The budget for the present financial year, ending March 31,
1928, includes the first five months of the fourth Annuity year La which
tha Annuity increases considerably, largely out of the funds provided from
the German budget.

It is discussed very fully in the Report of June 10,

1927, but I think it may be useful for me at this point to insert the following table from page 25 of the Report, from which you will see that the

big jump of 750 million marks in the budget contribution between the fourth
and fifth Annuity years is, when translated into terms of budget years, spread
over two years, so that the incidence of these payments on the German budget
is not nearly so abrupt as it appears to be under the Plan itself:
Annuity years, ending
August 31st
Budget con- :Transport
Contributions from
proper (1)
the German Budget
:(in millions of gold





Budget years, endi
March 31st







(1) Subject to increase from 1929-30 onward, depending on tha ind
of prosperity described in the Plan.



On the other hand, early in December, 1927, the Finance Minister must
submit to the Reichsrat the budget for the financial year 1928-29 in which
the total budgetary contribution will increase about 400 million marks and
will start the discussion going again.

As you know, there was considerable

difficulty in balancing the 1927-28 budget, and loans of 466 millions had to
be authorized.

The question of balancing the 1928-29 budget with its in-

creased reparation charge will be interesting to say the least, but if labor
conditions continue to improve and the Minister is rigid about expenditures,
it should not prove too difficult.

I was very glad to see from your letter of March 26th that you
agreed with me that it would be a shortsighted policy for Germany to attempt
to agitate so far in advance for a revision of the Plan.

I am sure that her

best course lies in going straight ahead and making her payments and not crying until she is really hurt.

She will get much more sympathy in my opinion

by pursuing such a course, and than if she has shown evidence of conducting
her affairs with reasonable prudence (which you will note from the recent Re-

port is not yet proved) and under these conditions finds it extremely difficult
to make her payments, that would be a good basis for asking for a revision.
But the recent wide-spread discussions have raised a big question mark on the
subject through ilurope and have certainly tended to impede negotiations with

France on evacuation and other problems.
(3) Reichsbank Policy.

Perhaps one hardly needs to read between the lines of the last
Report to",pee that one of the factors in the Reichsbank policy in recent months

has been the evident desire to make the situation not too favorable for the
execution of the Dawes Plan.

Indeed Schacht, who, as you know, is quite mer-

curial, practically admits that much.

In order that you may not have the

trouble of looking for it in the Report I quote here a paragraph from Schacht's

- 6 -


testimony before the German conomc Inquiry last auumn, which is reproduced on page 64 of the Report:

hese stocks of devisen which the foreign credits
bring into the country at present accumulate at the
Reichsbank to an axteat which is far too great for
We do not need
the cover of our note circulation.
Consequently if I were to be asked by
this cover.
the ALTent General for Reparation PaymentsCan you
now produce devisen for transfer purposes'?, I could
Itsay to not be The German currency cannot stand it'.
would him
possible for me
only answer yes.
The German currency would remain intact even though
a great part of the devisen of the Reichsbank were to
be withdrawn position therefore is that
at the moment we are making display of a
capacity not only to pay but to transfer which must
in the natural course diminish and totally disappear
at the moment when the position is reversed and we
The capacity to
have the other side of the medal.
transfer which dispay will beyond
at present
doubt have ceased to exist after a certain time. As
make interest and
however we shall then have also
redemption payments
foreign borrowings, the
are creating an advantage for a
oday at the cost of a private

tors there were which induced him to keep

h and partly thereby to lose in a few months

n, there is no doubt that the loss gave him

of view that it reduced the facility of mak-

p feeling that he may be a bit imbued with the

nd the public man already referred to who do not

good in Germany for fear it will help the execu-

ther hand, the President of the Reichsbahk, in

ifically enjoined to cooperate in the execution

nt and the (Reichs) bank shall undern every reasonable way within their
he (Transfer) Committee in making
Federal Reserve Bank of St. Louis

7 -

of funds, including such steps as will aid in

- 8

is the only Power which has any such attitude.

I think Norman has as

little of this as any one, but, as you know, he is very fond of Schacht

and may be a bit inclined to take his point of view in such matters instead
of advising him for the more straight out course which I have discussed in
Paragraph 3.

I add this Paragraph,


4, merely to give you a little of

the background and atmosphere.
(5) Elections.

Parliamentary elections occur in both France and Germany in 1928
and their influence on talk about the Dawes Plan in both countries cannot be

Zven Reinhold, who was Germany's Finance Unister for most of

1926 and until the end of January 1927, with whom Gilbert's relations were of
a very understanding nature, is now making speeches, in anticipation of next
year's election, in which he decries the Dawes Plan.

It is going to be as

popular a thing to talk against as the railroads and trusts used to be in our


elections at home, but there is no indication whatever that it will be an issue in the elections.
(6) Conditions in Germano.

These are covered pretty fully in the Report, of which you have
received a copy by this time.

The one condition which is disquieting at

the moment is the steady import balance which in the past seven months has
aggregated about 1,800,000 marks.

On the basis of the seasonal movement in

exports before the war the last six months of the year should show a rising
volume of exports.

Particularly should this be true in 1927 after the great

increase in imports of raw materials of the last six months.

Also, should

the German harvests be normal we should see a falling off in the imports of
foodstuffs, which have been unusually high in the past nine months owing to
last year's poor harvests. regret
Federal Reserve Bank of St. Louis


greatly not having a chance to have had a good talk with

Berliner Tngeblett.
June 3, 1e2Y.




The Inetitut f r Konjunhturforschung publishes to-day

the first of its quarterly publications for this year on the
investigetion into the state of business.

It confires that

the hesitating upward movement reported in the lent
tinue' it a more rapid rate.



Teich has


'economic activity" has reached

'ready led to a certain amount of friction

any' ieeications of tension, which are characteristic of a phase

of recovery eperoechine maximum tension."

It cannot, however,

be stetec' with certainty :ellen economic life will cater this

phase, "p .rticulerly


the durattdon of the individual phases

cannot be calculated at present.


relaxation of tension might


even occur next."

It is rightly declared that the reaction on

the Bourse Jo in no way the signal for a decline to
in beeinees life.
sentence is added:

.2 anticipated

Curiously enough, however, the following
"The weakenine of stock quotations

is pro-

bably rather a result just of the greater productive activity
and merchandise trade."

Further, it is stated test tie Carmen

econoley hec att,inee almost everywhere greater conoolidation since

The reconstruction of mobile capital is seeken of with a

sort sin eeount of justice.

irogreseive improvenant is notice-

able also on the merchandise oide.

Production, employment and

turnovers have greatly increased particularly in the pet few

June 20, 1927.


Accordine to

the Be

in newspapers this afternoon,

the French Prime 7inister, M. Poincare, spoke yesterday at
Lunoville upon the occasion of the dedication of F. W17 monument.
The Prive :A.nister reviewed the reletions between Frence erd

Germany since 1915 and then stated that France had offered her
hand to Germany on condition that no attempt be neei e to deprive
France demended was the

her the fruits of her victory.

security of her boundaries and thereparation payeente to 'Which
she was enbitled.

But 'dale there wao a spirit of reconciliation on the
art of France, the same could not be said of Germany.


instance; Germany still neinteined a battleship celled the


on 7ovenber tieand 3
1925 not 1 least


important member
the German Cabinet had declared that Ger-

renunciation of armed force was dictated merely by the

hat She had no lonner any armed force at her disposal.

rlin Government must not believe thnt s-ach interpretetion

Locarno Agreements corresponded cuthorities of
dther hand, were hieji financial to the ideasin France.
now indicatili that eermany would denend


s Plan within two years and no longer nake the pay-

plated under it?

':!ere these really words of wisdom

iation which France
estionswith respect

incare continued,

s and security, the
Gerelen newspapers

faCt 7

thet France

ion of treaties.



An attempt to justify the policy hitherto followed by the

(Aandels-,eitung des 3erliner-Tageblatts
No. 272 of June 11 1927)

Dr. Prie.

The grounds for the raising of the discount

rate at yesterday's meeting of the Central Jommittee of the Reichsb6

13=km:ilia-now .be announced.

Accordingly the 'resident of the

Reichsbank, Dr. Schacht, made the following statement:
"After the rates of interest on the open money Liarket

- mainly as a result of the continual inflow of foreign loans

during the whole of 1926 -

for a long period on end rnained con-

siderably below the official bank rate, the Reichsbank was obliged
on January 11, 1927, to reduce its discount rate to 5 per cent.
It was emphasised in this connection that further developments in
the national economy itself would show whether this level could be

maintained for a long period or whether circumstances would soon
make it imperative to restore the old rate.

;_t the same time lit

wagowdeimite*Ahavt Vie reduction in the discount rate was expected to

have the effect of checking the inflow of foreign short-term monies.
it was clear that the reduction of the bank rate to 5 per cent
could not and was not intended to create a new level of interest
for the investments m_rket, if only from the fact that the rate for


i.dvances against collateral charged by the Reichebank (7 per cent)
was maintained.

As a matter of fact, during the first two months

after the reduction of the discount rate considerable amounts of
foreign loans flowed b ck into the countries from which they had

i,fter that, however, calls were made upon short-term foreign

money to a larger extent than before by the German banking world at
rates which were independent of the discount rates of the Reichebank;
this money was extensively used for financing purchases of securities.
Although the .1eichsbank, when it explained the reasons for the

reduction of the discount rate in January, pointed out that thenceforward German capital should more than ever be employed in the most
economical manner possible, the effects of this warning
coulter -acted by exaggerated speculation on the Bourse.


term foreign indebtedness and Bourse commitments mainly based on
credit Iwo further reduced the necessary economic liquidity,


the measures taken by the banks on May 12 for limiting speculation 7=
had.,been introduced, and the neutralisation of a defective discount

policy by means of calls upon foreign monies for Bourse purposes
bordsEtirEen reduced, the discount policy of the Reichsbank regained

a natural basis.

It is nevertheless evident, how little liberty of action is
even yet enjoyed by the Reichebank in its decisions on discount

it cannot mainly depend on a money market operating with

its own resources;

on the contrary the highly developed German

economy still requires foreign capital, as a result of the shortage


0 al/

is also notevorthy that the average due dates for discounts

been not inconsiderably extended during the few months.


figures are as follows;


Handed in by

2u banks in
January, 1927
February, 1927

26.1 days

9.9 days

24.2 days

-arch, 1927

32.2 days

18.4 days
24.0 days

April, 1927

27.4 days

May, 1927

35.3 days

19.0 days
26.7 days

The total foreign exchange holding of the Reichsbank has
diminished since the beginning of the year by about HM. 1 milliard.

On the other hand, the circulation of Reichsbank notes has not
appreciably changed, because the foreign exchange reserve hrs for
the :lost part been replaced by German bills.

The circulation of

Reichsbank notes amounted at the end of last year to RM. 3 736
millions and on

zkly 31, 1927, to 3 719 millions.

Nalms, although

the note circulation has remained about the same, the composition
of the cover has changed.

Translation 4562 (from the German) : translated (LIP: checked NL.



ossischo -eitung.
June 2.), 1927.




Not only the


-:eichsbank but also the entire public has

long desired a change in the fDrm of the bieemonthly balance
sheets, and especially a :lore detaile

in6ividual items.

1Zegotiations on this niatter had been going

on for weeks between the
the banks.

specificetion of the

eichebank and the reeresentatives of

The course of the conversations showed that a

change is riot possible in the near future because a settlement

ich law woul- be necessary for this.


current detailee specification woul

Furthermore, a

necessitate a change in

the book-keeping methods of the banIze.

For this reason, the

leieLebank long desired an internal elucidation of the individual iteme in the balance sheets.

It must be mentioned here

that the banks belonging to the atempelvereinigung have, on the

basis of a voluntary agreement with the Teichsbank, always furnishee such information, upon request, in tie past in order
to give the 71eichsbenk eome baaia for judgine the .financial

position of the bank in question.

But it was always only a

rough basis, acid it is comprehenuible ie view of the events of


past few weeks that the Heichebank d-si

for itu judgmeet.

The filling out of this que
But the Reichsbank assumes that the o

banks will furnish the desired statements, and, aocoreing to our
information, some banks have already furnishes the information

The more serious the decisions *Lich the !ieichsbank

must make with re

to its credit policy, or, more exactly,

the greater the decidini, influence whicn the :eichsbank tries

to exert oe the credit policy of the banks, the more necessary

iu it for the e idhsbank to have really accurate and detailed









TELEPHONE: WAGRAM 21.2 2 -2 1. 2 3


Paris, August 27, 1927.

Dear Ben,

I have just been in Paris for yesterday and today, in
the middle of my vacation, for a meeting of the Transfer Committee,
and nave received your letter of July 21.

I have, as you suggested, shown it to Gilbert who is
sailing for New York on the 30th, in fact, on the very boat by
which this letter will go.

He is taking a copy of it with him and will doubtless
discuss it all with you at much length.

H)wever, some of the points which you raise we have
already discussed here in a preliminary way.
I am leaving in an hour or so for Ragusa to finish out

the remaining fortnight of my vacation, and shall not attempt to
write you a letter in reply until I get back to Berlin the middle
of September.

Indeed, I doubt if I shall write you until after

Gilbert comes back, when I shall have the advantage of his conversations with you on the subject of your letter.

He will

doubtless tell you of the present attitude of your German
colleague, which is very different from what it was in June, and
I think the conversations you and he had have been very beneficial.

Your proposal of a rest at Algecerts sounds very
pleasant, and if I could arrange it I should like greatly to see

you there or elsewhere during your stay in Europe.

Your letter

inaicates to me that you are in your usual good mental form, and
I hope the

same is true physically.
Best regards.
Faithfully yours,

Mr. Benjamin Strong,
33, Lioerty Street,
New York.







itELEPHONE: NORDEN 11900-11910
riez.zonnins: AGENTREP, BERLIN

TicLAPHontE: WAGRAM 21.22-21.23



October 24, 1927.

Benjamin Strong, Esq.,
Federal Reserve Bank,
33 Liberty Street,

Dear Fen,

No sooner had I gotten back from my vacation and Gilbert returned
from America two or three days later than the Prussian Loan discussion arose
and the preparation began of the memorandum on economic conditions in Germany
which Gilbert presented to the Finance Minister on on the 20th instant.
result of these was that we have all been working at high pressure, and I
have had only the most meagre opportunity for /( .king with Gilbert of his
discussions with you on the subject of your two letters while he was in America
And tomorrow we must start in full steam aheadzon the preparation
of the annual report, which is due to appear on December 1st.
So I see no
onportunity of any further discussion with him at the moment, and will take this
brief respite to send you some views, which I am afraid will not be very well
put together.


In the first place let me thank you for your statements of the
subjects which you discussed at the Central Bank Conference and of the general
confiiensus of views which prevailed upon them.
It sounds extremely interesting
and it !1!1111fIgitunate in many ways that Moreau was not there instead of Fist.
Schacht is the only one I have seen since the Conference and his attitude with
regard to transfers, as I think I have already written you, seems to have
changed quite radically since before your Conference.
He now seems to feel,
or did quite recently, that the one thing that Germany mustn't do is to let
transfers break down.
This Krees entirely with the views expressed on
page _3 of your letter of July 1 and it seems to me an entirely sound view,
although only if carried into effect in a reasonable way.
That is to say,
it seems to me that no artificial steps should be taken to facilitate transfers,
but on the other hand no obstacles should be interposed to hinder transfers.
In other words, the German economy should conduct itself in such manner as
will best promote its own sound developments, irrespective of transfers, on the
theory, which Gilbert stated in his lest report,
"that what is in the interest
of the German economy is also in the interest of the execution of the Plan".
If the German public bodies borrow their heads off abroad it facilitates
transfers for the moment, bul on the other hand stimulates over-spending andelrise in prices at home which cannot help hindering the development of Germany's
export trade, on which, in the long run, she must depend to pay her various
nerar,-tien obligations.


Benjamin Strong, Esq.,


October 24. 1927.

Since Schacht came back from the United States he has been ranking
strenuous efforts to get a reform of the Beratungsstelle which passes on
foreign loans. he has had a certain measure of success.
By agreement with
the Government the Beratungsstelle must now consider not only whether the
loan is productive but whether it is advantageous for the German economy
as a whole to hove the borrowing done.
On the other hand, the composition
of the Beratungsstelle is not charged,but it is provided that when a vote is
not unanimous,
in the first instance/in which the assistants of the
five members do the voting, appeal may be taken to the same body, but on
such appeal the principals themselves must sit.
This latter arrangement is
not much of an improvement, and I understand that Scacht is not at all satisfied
with it.

Now as to the Transfer question/I would be the last one to attempt to
prophesy since the Plan, which is cur bible, wisely said that only experience
can show the amount that car, be transferred.
I agree that the transfers have
been largely covered by foreign loans.
How long Germany will continue to
want to borrow abroad to recreate her liquid capital and make improvements in
excess of her own savings is very difficult to say.
Furthermore, how long
foreign countries will continue to want to lend to Germany is another equally
unfathomable consideration.
It is quite conceivable that a general settlement

might be made a year or two hence in which, under presertions,ai-al

foreign borrowing,she might undertake to pay abroad somewhere around the
now being paid; and thentsay,five years later. should her need for foreign loans
greatly slacken, find that her exports were quite incapable of meeting her
transfer obligations.
On the other hand it is certain that the preserl.
uncertainty as to the ultimate amount of Germany's reparation debt, a&Athe
number of years for which she must go on aying,creates an atmosphere unfavourable
to a united effort on the part of the
economy to make its maximum
performance in respect of exports.
Particularly at the present moment is
this true,when the stimulated internal buying power is creating such a home
demand that manufacturers arc feeling much less of an urge to export.
important German industrialist said to me the other day that he thought the
worst thing that had happened to Germany was the British coal strike, because
just at the moment when German industrialists were tightening their belts and
starting on a programme of urgent rationalization the British coal strike
prematurely eased end stimulated things in Germany in such a way that the reform
was not fully carried out, and the industrialists became more interested in volume/
than in cost of production.



The foregoing suggests some of the unknown factors, which you yourself
have doubtless thought of, which make it almost impossible to make forecasts
The amounts of international transfers are certainly
of present possibilities.
staggering as you have indicated on page 4, and in this connection you do not
menticn the various governmental war indebtedness to England.
It would seem
to me, referring to your figures/that the t200,000,000.- owing to our Government
is included in the $625,000,000.- that Germany owes her creditors.
I have
always been rather sceptical myself about the ability of countries to transfer
to other countries huge sums representing loans which did not represent value
received, as is certainly the case with all these war debts.
Any settlement
of the reparation question seems to me likely in the last analysis to result,
as far as America is concerned, in placing German obligations in the hands of
Americen investors in place of English, French and other Government obligations
in the hands of our Government.
Js to the non-war obligations of foreign

Benjamin Strons, Esq.,

October 24, 192g.



countries and industries now held by Americans, the service of which is now
running at $700,000,000.- a year, as long as our present prosperity keeps up
at home it seems to me that there will be no difficulty in our re-investing
abroad an amount roughly equal to the service of the foreign obligations we hold.
My reasoning on this proceeds from the experience of our mutP1 savings banks
at home, tr which, except possibly for panic years,showsthst the total savings
deposits increase.' at an annual rate at least equal to the amount of interest
In other words, the millions of people who have
created during the year.
these billions of savings do not use the interest on them but leave it to
I think the experience of England before the war, with relation
Thus it seems to me that taking
to her foreign investments, was quite similar.
foreign investments as a whole, now that we have begun to make'them and provided
that the prove satisfactory/we are going to continue making them, and are going
to increase them whether in the form of bonds or 01' shares to an amount on the
average, and in the long ru n, of not less each year than the amount of the
interest, dividends and sinking funds we rece've on these investments.
of course,assumes that the smericen
doesn't have serious disappointments
with foreign investments, although in the case of England even such experiences
did not seem to chill the British ardour for foreign investments.
If the foregoing is at all a correct forecast, it would seem as
though the necessity of receiving 4700,000,000 or more a year would not create
serious transfer difficulties, or necessarily endanger the gold standard.
But as to Germany itself, a single country, transferring out such huge amounts
as its reparation obligations and the service of its non-war obligatien7tYtt
is another question about which I cannot attempt a forecast.
I think the
time will come when Germany will not wan' to borrow anything like what she is
borrowing now, and I therefore think the service of Germany's foreign obligations
will probably result in foreigners gradually taking over large amounts of German
shares as Germany's industries become strong and flourishing.
Of course present
share prices are at a ridiculous level considering present returns.
They have
discounted the future quite heavily.
When the rate of return comes down
to an attractive level I see no reason why our people should not bur' German
shares quite freely. another of your points, page 4 of your letter of
This brings me to
July 21, in which you say that these "staggering figures indicate a lone* period
of depressed European exchanges, rather high central bank rates, and rather
high interest rates for capital if not for short money as well".
I remember
the first time I met Norman and he discoursed to me upon his theory or-,Internstional
relationship of central bank rates,he said that the countr which had the largest
amount of gold or liquid funds for the time was entitled to have the lowest
rete,oghich seemed perfectly reasonable and logical.
Presumably the converse
would in a general way be true.
Viz-a-viz the United States I should think
that the European countries, particularly those which suffered most from the war,
would hive high rates for o- considerable length of time.
Particularly would this
be true,I should say/with countries whose liquid capital was so largely lost
by inflation.
Higher rates stimulate saaving at home and draw funds from
both of these movements are necessary for a prolonged period while
reconstruction of the credit system is going on.
Germany it seems to me must
look forward for many years to relatively high rates.
The 5% bank rate of
winter and spring was due to an exceptional combination of circumstances, and

Benjamin Strong Esq.,

October 24, 1927.




certainly was justified for not more than a couple of months.
similar combination of circumstances might temporarily reduce it again,
but it looks to me as if the Germar rate would for some years have to
fluctuate between say 5
and 74, while our rates at home might fluctuate
between 3A and 4
save under exceptional circumstances.
But these higher
rates may not always mean very depressed European exchanges, nor will the
level of American rates always have a controlling influence on the state of
the exchanges or the level of European bank rates.
On page 7 of your letter
of August 4 you say that if you had deferred reducing the rate for a few weeks
longer you would probably have had a 5i3 bank rate in England, a 7% rate in
Germany, a W. rate in Holland and quite possibly a higher rate in Switzerland.
No-; the fact is that you have got a 7g rate in Germany and a 0% rate in
Holland in spite of your reduction.,
And nearly all the exchanges of stabilized
countries, viz-a-viz the dollar, have so advanced that they do not any longer
indicate cold imports into the United States.
::or; mucll of this movement
is due to your rote action I have no means of knowing, but comparing August 1
with June 1 it looks as if the appreciation of many of the European exchanges
had begun before you took your action.


I have always belived that it was desirable,in making our rates,
to take into consideration their probable effect on conditions in other
countries and broadly on the gold standard as a whole.
But I think that
this consideration should only be a side light, and that the main consideration
should be what is our own interest under the circumstances.
If it is to our own
interest, to prevent gold from coming in or otherwise, to Lfya 31% rate, I think
But I do not think we should have iTPa the -may. purpose
we should have it.
of ebabling other countries f.4344 keeplwg their rates from g oina up, whether
or not such action on their part may lead to a fall inprice level.
advantatse of the gold standard it seems to me is that it automatically forces
each country which had adopted it to take such action internally as will
protect that standard, and as I have already indicated,50% of the eventualities
which you thought on August 4 had been avoided by your rate action have already
In this connection I am sending you a very brief enclosure
which I took from a Federal Reserve Bank blue sheet which has come on to my desk
to-day, end which expresses in rather a nutshell what I have just ben discussing.

One other topic which you take up at some length in your letter of
July 21 was the desirability of a moderation of the volume of transfers
In this c99.nection
prior to the time of strain arising (see pages 4 and O.
I was interested to notice a sentence on :,our letter of September 24to Gilbert
on the subjecl of the Prussian Loan as follows: "This will precipitade the test
of the Dawes Plan at least earlier than it seems to be desirable and possibly
I do not knor what conversations you had with Gilbert on the
subject while he was in America but I judge you may hove had a good many.
Personally I do not think one can say when the question will come up.
it come up in the normal way through transfer difficulties it would seem to
me that possibly the Transfer Committee would be the best agency through
which to have the question of a general settlement raisedj inasmuch as it is
an international body and the body which is primarily charged with responsibility
My own belief is that matters will jog along for another 12
in the matter.
months or so, and that no opportunity will arise to take up the question of
settlement until the winter of 1929-29.



October 24, 1927.

Benjamin Strong, Esq.,

85 -

Now it is 7.30 p.m. and I must stop in order to give my secretary
a chance to write this and get it off by toni7htls mail.
I have not touched on lots of things I should like to have written
about ant having whetted my appetite,by this discourse,for a further talk
with youlshall hope to continue it in the course of the next few days on some of
the more personal happenings of the past few weeks in and out of the Reserve
I am not writing anything about the memorandum recently submitted
because I understand that Gilbert is writing you briefly and sending you
a copy of it by this same mail.

With my very best to you and all my friends among the direeors and
officers and others in the bank, I am,
Faithfully yours,


As I stop dictating I am conscious that this is a very rambling
letter, and as I read it over forany possible stenographic mistakes
I shall doubtless feel that some of ,:hat I have said may not be
But I am going to send it along all the some with
very dound.
the feeling that you will recognise that sane of the thoughts may
be merely "happy thoughts".


IA3 Co






I TELEPHONE: NORDEN 111100-11910



TELEpuores: WAGRAM 21.22-21.23


November 13, 1927.

Benjamin Strong, Esq.,
33 Liberty Street,

Dear Ben,

This is just a brief line written on Sunday afternoon in the midst
of the annual Report preparation period, in regard to which both Morgan and I

are sitting at 33 Luisenstrasse,waiting for Gilbert to turn up in order that

we may discuss with him a draft of his reply to your cablegrammhich I understand
that he dictated this morning.

It certainly raises a very fundamental question

in a very urgent way.

When I wrote you two or three weeks ago I said I was going to write
you another letter soon on personal matters.

What I really had in mind was to

say how very pleased I was to learn of Younglsanpointment as Governor, and to

express the hope that,if all the resolutions you had in the spring of 1926 with
regard to your own relations to the System did not disappear during your illness,
4.10,150.AIAI the appointment of Young as Governor has definitely put an end to them.

It seems to me a splendid choice, and while I understand you sugiested,as well,
our friend the ex-Congress,men from Minnesota, I think the selection actually made

was better if for no other reason than that an officer of the System was chosen
as the head of the Board.
in future.

This is a precedent which I hope will often be followed

Some time when you have an opportunity do drop me a line as to how

Young showed up during the conference, and how things seem to be lining up in the
Board under his leadership.

The more I think of it the more it seems to me to

have been the best possible solution.

Benjamin Strong, Esq.,

November 13, 1927.
- 2 -

Apropos of the Memorandum, it occurs to me to send you quite a
batch of translations of articles from the German papers on the subject.


had not meant to send you so many and asked my secretary to look them through
in regard to interesting ones.

She reports that she thinks they are all

interesting, so I am sending them along" to you with the suggestion that you

ask Burgess to read them over and give you the ones that he thinks will interest

When you have read them I suggest that you show them to McGarrah, and

if you both feel like doing so,yee- also show them to Owen Young, Sterrett and

Of course if any others might be interested there is no reason they

shouldn't see


I h,ve some of the translations at home, and will

therefore mail them in a separate envelope.
One of the jokes going* round German banking circles is that it

would be a good thing for Germany if Gilbert were Finance Minister and KBhler
were Agent General


But don't report this as coming from me.

One of the results of the Memorandum and the Government's reply is
that Schacht, who, until a month or so ago, was rather a voice crying in the
wilderness, feels that the wind is now blowing with him and is going to make
a strenuous effort to get the beratungsstelle not only to establish an effective
control over foreign borrowings, but to exercise considerable influence on the
financial policies of the States and communes.
speech to be made at Bochum about a week hence.

The following appears to me to be the net result of the Memorandum
and the Government's reply.

The ' Memorandum was a document attempting seriously

to warn the German Government of the effect of certain tendencies.

These were:

November 13, 1927.

Benjamin Strong, Esq.,
- 3 -


Thetendency of the Reich to over-spend.

replies that the extraordinary budget (through which the over-spending
was done) will be compressed almost to the point of suppression.


Government's policy having been to cover extraordinary budget expenditures

by borrowing and keeping the ordinary budget strintly in balance, this
will mean that hereafter the consolidated budget wit.' be kept in balance,

Of course they are comlitted to some of the extraordinary

or nearly so.

budget expenditures of 1926-27 and 1927-28 and will have several 100 million
marks to borrow on this account when the market will permit it, but they
are evidently going to steer pretty clear of borrowing for any budgetary
purpose hereafter.


The tendency of the States and comlunes to over-spend, and the

neoessity for sill ot leadership in these matters.

In reply lo this the

Government, while claiming that State and communal borrowing has been
largely productive, nevertheless say they will take a strong stand for


The handling of public funds, at times in opposition to the Reichs-

bank, has created in effect two credit policies, an impossible situation.

The Government admits that governmental policy and heichsbank policy must
be unified, and will take steps to this end.


The need for administrative reform.

The Government admits this need

and will take aotive steps to endeavour to bring it about.

I have picked out these four points from the Memorandum because they
seem to me, while many other incidental points were mentioned, to cover the
principal things necessary to be done to make the under-lying financial

November 13, 1927.

Benjamin Strong, Esq.,

- 4 -

condition in Germany sound, and on all four of them the reply of the Government,
when you strip it to its essentials, is satisfactory.

But of course to be

effective the decisions they take must be translated into action, and the
question is whether they will be effectively put into practice or not.
that point only time will tell.


The difficulty of course is that there isn't

any one outstanding man in the Government to see them through.

The Transfer question was only raised in the Memorandum incidentally
and as a part of the whole picture.

Referring to your telegram about Dewey, of course we shall be delighted
to see him here, where he must in any event come en route to Warsaw..


preparation of the annual Report, which is somewhat behindhand on account of
the Memorandum and its consequences, will keep all hands here, at least during
November and until the heport appears.

It is scheduled to appear December 1st.

With best regards to you and McGarrah and my other friends in the Bank
to whom you are at liberty to show any or all this letter in accordance with
your judgment, I am,






239 -2.41, kue &kortor6
(Place Venddme

Adresse telegraphique:




SEINE 58057



Tel Central 41-92


Federal Reserve Bank of St. Louis







_27 .



HOTEL de France et Choiseule
239-241, Rue St. Honord
(Place Vendome)
Dec. 19, 1927

Francheul- Paris

Dear Ben,

I saw Moreau this morning, also Rist, and gave them your messages
about not coming to Paris, but as they did not mention the matter for which'
But I noyou came over, I did not either, in accordance with your wishes.
ticed that Nogaro (Italian), Trustee for the Industrial Debentures at Berlin,
whom I saw in our office here this A. M., and who had just come from Rome,
said Stringher had been in London for two or three weeks arranging for
stabilization. However, perhaps its just as well not to quote him to
Moreau had just received your letter, and said nothing to me
about its contents. I only stayed a short time, and we discussed mostly'
Gilbert's report, which seems to have disturbed the French because it mentioned the total amount of reparations, and Beringer is out with a big statement.

As to the suggestion you made the other morning regarding a possible
job, I was so surprised that I hardly knew what to say. As I think I made it
clear, I am greatly interested in my present work and have not been giving any
thought whatever to the future, though I realize fully that the future
The idea of a job that might have a little
will some day have to be faced.
elbow room in it, as far as income goes, would be something I have never experienced and would have an undoubted attraction for me.
materializes, I should be very glad if I might hear about it and have a look
and in any case I appreciate greatly your thinking of me in regard to
at it;

It was great to see you again, for even so short a time, and find you
in such good form -- altogether it gave me more satisfaction than any experience
I've had over here. It seemed like old times, and as if there hadn't been any
interruption of our association.
With my best regards to all my friends in the Bank.
Yours as ever,


Looking forward to seeing you in Berlin in the spring.

So if a










February 27, 1928.

Benjamin Strong, Esq.,
lederal Reserve Bank,
33 Liberty Street,

Dear Ben,

I was very much disturbed and worried at hearing that you landed in bed after your trip to London and appreciated very much Harrison's
letter of January 16th telling me of your satisfactory progress.

But just

about the same time a report came to us through Holland that you were not so
well again, so I sent a cable to Harrison and was delighted to get a cable from
you yourself saying that you were on the mend and hoping to go to Atlantic City
before long, of which I got a confirmation from McGarrah in a letter of
February 15th,received to-day, saying that on February 16th you were to make your
first visit to the Bank and then go soon to Atlantic City.

I was sorry to learn

from McGarrah, however, that you had indefinitely postponed your trip to Europe,

although he did not give any inkling as to the reason; that is, whether it was on
account of your health and wanting to stay near the doctor, or on account of
some Congressional action, or other Federal Reserve reason.
hope it will prove to be a good decision an'?

Whatever it is I

shall look forward to hearing from

McGarrah in person about the reason for it.

Over here things have been going alonT fairly quietly, except in our
family wher

we have been quite excited over our second daughter' Nancy's, engagement

which we learned of by cablq about ten days ago.
and likes him.
ono he was.

Loulie knows the boy slightly

I met him once a couple of years ago, but cannot recall j.11+ whirth

However, all contemporary opinion from

scorns to be to the

Benjamin Strong, Esq.,

February 27, 1928.

effect that it is a very satisfactory engagement, so we are correspondingly
pleased and happy.

The German Government Coalition, which had been groggy for some weeks
if not months, was officially dissolved about a fortnight ago, but

on the urgent

representation of President Hindenburg decided not to break up the session of
Parliament, if it could be managed, without first passing the budget and one or
two other pieces of legislation.

The elections are to come about in the middle

or latter half of May and naturally with agriculture, particularly in Prussia, in
very poor shape after two or three years of bad harvests, there is a great demand
for emergency relief and the various parties are vying with one another to be good
to the farmers.

The Government will apparently give about 150 million RM of

grants and perhaps guarantees oe second mortgages of an equivalent amount.
Finance Minister feel:.


L'ee., they have done pretty well in holding these expendi-

tures down to this figure because the pressure has been very great.
from taxation are remarkable.

The returns

In the first ten months of the financial year

ending March 31, the revenues were 702 millions greater than the estimated revenues
for the entire year.

The prospect is that February and March, the last two

months of the year, will bring the excess up to between 750 to 800 millions over
the estimates, making about 10% increase.

That is almost as good proportionately

as the way our taxes have kept rolling in at Washington.
in spending the money and that is the real trouble.
down their expenses.

But there is no difficulty

They are no

really holding

The unemployment has begun to decrease a trifle.

running up about 1 million above the low point of the early eutumn.



On the other

great bulk of the increase is in the building and agricultural fields and

represents, to a considerable extent, people who were always heretofore unemployed
but hadn't before, under the rules, gotten on the unemployment lists.

Indeed, in

February 27, 1928.

Benjamin Strong, Esq.,
- 3 -

the building trade, wages have always been adjusted to a high per diem basis
on the expectation that the workers would have a good many weeks or months of
unemploy.eent in the year.

But, with the unemployment insurance scheme they get

very high wages and then, during their unemployment, get relief in addition.
So that they are pretty well off and not to be pitied.

With the agricultural

labourers, they always expect some unemployment, although. I don't believe their

wages .ere ever very good.


But the same is true in every country.

with the unemployment relief payments they are certainly much better off than

Business seems to be going a pretty steady clip without

mucl-. sign of any immediate important set-back.

The big wage controversy in

the machine industry affecting 850,000 workers was settled, though not to the
satisfaction of either side, by an increase of a trifle over sg in their wages.
the prospect is that this will be reflected in somewhat higher prices.


are p great many wage contracts coming up for settlement this Spring end this
was looked upon as rather a test case by both sides.
with new agreements on a 5

If they


get away

increase basis it won't be so bad.

trade balance continues and in January was the highest I think since stabilization
Exports are nearly always low in January, and the imports were swelled to some
extent by technical accounting reasons.

In spite of this and of the very small

amount of long term loans recently floated, and in spite of our transfers, of
which you in the Reserve Bank have the practically complete picture, exchange
keeps very strong indeed which indicates, as we know to be a fact, that short
money is coming into Germany again.
At the Reichsbank the situation is quite satisfactory and the currency,

which has continued for the past two or three years to run somewhat over 500 mill

in excess of the/ of the previous year, is now running along only a little over

Benjamin Strong, Esq.,

February 27, 1928.
- 4 -


400 millions over/corresponding months of 1927.

The 200 millions of Rail-

road preference shares with dividend guaranteed by the Government, which were
offered here,werc very well subscribed for and I understand, very well distributed.

Of course, the papers made a great deal of talk about the amount of foreign
subscriptions as o crack at Gilbert, but in the allotments the foreign subscriptions
were out down pretty low and did not amount to more than l/ to 15g of the total
200 millions.

I do not understand that the American subscriptions were very

In fact, most of the foreign applications came

from Europe.


in this month the Treasury issued 40 millions RM of treasury bills, of which,
confidentially, 25 millions were taken for
Commissioner of Assigned Revenues.

tl-c, investment of the reserve of the

The remainder went into the banks, but

naturally you cannot make much of a market on 15 millions.

Later on the Govern-

ment will doubtless have to issue more and then we all hope en endeavour will be
made to develop a real market.

On the other hand, Schacht doesn't know much

about doing it, and the German tradition is all against having an open market in
treasury bills.

Schacht and his wife are away now for a month in Sicily, but

should be back next week.

We are planning to go to Paris about the middle of March for a
month, so that I can get better acquainted with the people there, and I am looking
forward to it very much.

I am enclosing herewit

for your confidential informa-

tion a copy of a memorandum which Gilbert sent to the Reparation Commission a few
days ago, which speaks for itself.

But I think you will be interested in reading

it, and I am sure that Gilbert will be quite ready to have you show it to Case and

With very best wishes for one of your good, strong come-backs, I am,
Faithfully yours,

Copy of longhand letter: Pierre Jay to Gov. Strong



33 Luisenstrasse

Feb. 27, 1928

Dear Ben,

This is just a line to supplement my dictated letter, and to say that
the talks Gilbert had in Paris on his way back from America last month were most
satisfactory. The attitude was entirely reasonable and understanding and a readiness was expressed to give consideration to serious proposals if made, though
naturally France was not the party to make them.
Through these conversa
progress was made on the idea of dealing with the reparation question on its own
In Brussels, the attitude
merits instead of as a reparation-debt joint question.
was also similar. Other centres have not yet been visited. In Germany, the attitude
So that it
as been very restrained, both in public speeches and in the newspapers.
pears as if the suggestion in the last report and the ensuing discussions and conrsations had led to a distinct clarification and progression in the views of important
ple as well as, to some extent, of the public generally.


'1711:E TRANSFER Co 11





TELEPHONE: NORDEN 11900 -11910

TfiLatpnoNE: WAGRAM 21.22-21.23








(-1:1) e_4L


- duL4-44-








24)1ir fj






18 FLUE DE TxLmirr









2 6L---%K,
















Page 2

Just now, he is planning a short visit to Paris to attend the Rep.
Com. meeting of May 26, and possibly present to them a memorandum carrying a
bit further the ideas re settlement which he expressed in the memo of February
It is likely that the conclusions to the report
of which you received a copy.
we are now preparing will contain some further thoughts on the subject, tho'
(All this, of course, is private.)
that is not yet decided.

But, as a result of the position taken in the last report and the
visits since made to London, Paris, Brussels, and Rome, the influence of Gilbert in Europe has increased immensely. In Paris and Rome, I believe it is
little short of remarkable.
He is planning to go to New York (as yet very confidential) about
June 15 for a few weeks. Morrow will be there, the campaign will be taking
shape, and an estimate can be formed, very likely, as to what the prospects
are for a liberal attitude next winter should any proposals be made.
Moreau's trip here was an excellent thing from every standpoint.
Schacht has written
You have doubtless heard from him of the result of it.
or is about to write M.[oreau] a letter giving his position which is cooperative but with reservations about Rumania's attitude towards Germany which must
first be met. Now I remember that the letter has been sent, and a copy forwarded to Norman, because I understand that Stamp who was here last week
expressed the view that he thought Schacht's position reasonable.
You have doubtless been in touch with Norman and know his plans.
I only know that when I saw him in London a month ago I thought he looked
badly, and Stamp thought he would have to go away for a good long rest.
I hope you and he can have it together somewhere.
Don't think of bothering to answer. I will get your plans and your
I hope
address from Dean Jay and try to keep you in touch with things here.
you haven't brought a secretary over.

With best wishes for a good rest and recovery, and if there is
anything you want to be informed on, be sure to telegraph, if you think I
can help.

Faithfully yours,



33 Luisenstrasse

Copy of longhand letter to Strong from
Pierre Jay

May 18, 1928

Dear Ben:

This is a line of personal welcome and to wish you a good recuperation over here from the trials you've had since you sailed in December.
Aside from general statements about your health, I've had two specific
glimpses of it, one from Burgess who told of your testimony on the Strong
Bill, which sounded as if your tail was up and scraping the sky; and the
second just now from Fraser, who told what he'd heard of your feeling rocky
So here's
at a recent directors' meeting, which sounded anything but good.
hoping you're really going to rest over on this side, and not work your head
off, at least till you've got the machine well oiled and running again.
Aside from greetings, this letter is to tell you a bit of our private affairs here, by way of bringing you up to date since Gilbert returned
from New York in January.
In Paris, he had a long talk with the Finance Minister and they
reached without any difficulty a meeting of minds on the idea of a settleBut, naturally, it
ment in the not too distant future, without a crisis.
was not for the creditor to bring the subject up.


Gilbert also had a most satisfactory session with the Rep[aration]
also with the Foreign Minister.

From Paris, he went to Brussels and had an equally satisfactory
time there.
About the middle of March, he went to London for a week and had very
good talks with the Prime Minister, the Chancellor, and others, Norman being
absent. From London he came to Paris at the end of March for a Transfer Com.
meeting and at the Finance Minister's request went to see him again.
found that in the interval, since January, things had been developing a bit
in the F. M.'s mind, and you doubtless saw what he said a day or two later in
It created a good
his speech at Carcassonne on the subject of Reparations.
deal of a sensation in both France and Germany.
From Paris Gilbert went to Rome for a week and had several long talks
with Volpi, and one short one with Mussolini as a result of which, I gather,
they are most cordial to the idea of an early settlement and ready to use
their influence in this direction when the time comes.
Thence Gilbert went to Baden Baden for a 3 weeks' rest, and returned
about 10 days ago more rested and refreshed than I have seen him since I came



Page 2

Just now, he is planning a short visit to Paris to attend the Rep.
Com. meeting of May 26, and possibly present to them a memorandum carrying a
bit further the ideas re settlement which he expressed in the memo of February
of which you received a copy. It is likely that the conclusions to the report
we are now preparing will contain some further thoughts on the subject, tho'
that is not yet decided.
(All this, of course, is private.)

But, as a result of the position taken in the last report and the
visits since made to London, Paris, Brussels, and Rome, the influence of Gilbert in Europe has increased immensely. In Paris and Rome, I believe it is
little short of remnrkable.
He is planning to go to New York (as yet very confidential) about
June 15 for a few weeks.
Morrow will be there, the campaign will be taking
shape, and an estimate can be formed, very likely, as to what the prospects
are for a liberal attitude next winter should any proposals be made.
Moreauls trip here was an excellent thing from every standpoint.
You have doubtless heard from him of the result of it.
Schacht has written
or is about to write M.[oreau] a letter giving his position which is cooperative but with reservations about Rumania's attitude towards Germany which must
first be met. Now I remember that the letter has been sent, and a copy forwarded to Norman, because I understand that Stamp who was here last week
expressed the view that he thought Schacht's position reasonable.
You have doubtless been in touch with Norman and know his plans.
I only know that when I saw him in London a month ago I thought he looked
badly, and Stamp thought he would have to go away for a good long rest.
I hope you and he can have it together somewhere.
Don't think of bothering to answer. I will get your plans and your
address from Dean Jay and try to keep you in touch with things here.
I hope
you haven't brought a secretary over.

With best wishes for a good rest and recovery, and if there is
anything you want to be informed on, be sure to telegraph, if you think I
can help.

Faithfully yours,








T*Lf..-Puork: WAGRAM 21.22-21.23

May 20, 1928.


Benjamin Strong, Esq.,
C/o R.B. Wigglesworth, Esq.,
18 rue de Tilsitt,

Dear Ben,

I have two recent letters from you unanswered, those of March 2 and
March 26, the first from Atlantic City and the second from Washington.


I have just received from Sheperd Morgan a letter you dictated on the "Mautetania"
on Christmas Day.

Let me first run over these letters and see what there is

to answer in them.

First of all you spew: of your plans to spend some time in


I hope that you are still planning to go there, or somewhere else

of that sort.

I shall expect to see you somewhere over here during your stay,

but as our organization may be pretty thin during the next two months, owing to
absences in America, I may not be able to move around very freely.
ing to go home at the end of August for a few weeks.

The occasion of it is

Nancy's wedding early in September, but it will give me a
pick up threads

I am propos-

welcome opportunity to

with my friends, with wnom I am a bit out of touch because, as

you know, I am not a good correspondent.
Your letter of March 26 dealt to a considerabl, -xtent with home affairs
and conditions in which. I was, of course, greatly interested.

It is too bad that

the Stock Exchange has intervened so strongly of late in the credit situation,

but of course, the only thing to do was to meet it by a rate increase, and the
outflow of gold vis-a-vis the rate situation has thus far been an ally.


May 20, 1928.

Benjamin Strong, Esq.,
- 2 -

France stabilize in the next few weeks as many people think she will, the effect
on the exchanges, particularly sterling, might be interesting.

Stewart, with

whom I talked in London a month ago, felt that sterling would not be greatly
I have heard other observers express the view that it would depress


sterling a couple of points if the franc became tied to gold rather than to sterling.
My own belief is that there are so many counter-currents that no-one



predict what the effect of stabilization in France would be.

Here in Germany the money rates keep pretty high and the market for new
issues is again pretty well congested after showing signs of life during the late
winter and early spring.

The quarterly average of securities placed in 1925

was 258 million marks; in 1926,818 millions-and in 1927, 723 millions.

In the

first quarter of 1928 it was 974 millions, which included 200 millions of railway
preference shares.

In April the States, cities and girozentrale placed 226

million of loans on the domestic market, but about the end of April the market,
never very broad, became congested.

domestic market were either purchased on order from foreign countries, or were reoffered in round lots by issue houses in European countries.

In one way this is

an evasion of the efforts at control by the Beratungsstelle, for of course, the
effect on German credit abroad, and on the German exchange, is largely the same as
if they were placed abroad.

On the other hand, the readiness of foreign countries

to invest in mark obligations seems to me quite the most important development in
German relations with the rest of the world since the establishment of the Dawes Plan
in view of the confidence that it indicates in the German currency.

Also it is a

much healthier medium for the inflow of foreign credit than the medium of short
banking end other credits which were used in the preceding months.

On the other

hand, it is a medium which is only practicable when the internal issue market is

Benjamin Strong, Esq.,

May 20, 1928.

showing signs of life.
is not very strong.

3 -

Just at present, as I have indicated, the spark of life
In the meantime, as you will have observed, th, German

exchange naturally keeps amazingly strong.

Business on the whole is good though somewhat spotty, and the prices
of consumers' goods have increased slightly, and are likely to increase still

further, owing to the epidemic of wage increases averaging from 5% to 8% which
have been goinc: the rounds due, in the main, I should guess, to the effect of
the Reich salary increase.

As you know, an increase in railroad rates, due

primarily to the same cause, is also pending.

Possibly these wage increases,

like ours in 1922, can be absorbed without affecting prices seriously, but I
doubt if the psychological and other factors are here to cope with it as we did.

Unemployment is following almost preciaely the same curve of seasonal decrease
as last year, but with the total number of unemployed running about 100,000 less.
The tax revenues in the fiscal year ending March 31, 1928, were amazing.


increased about 18% over those of the preceding year, and a still further, though
much smaller increase is foreseen in the present year.

This has enabled the

Government to navigate and assume additional burdens without borrowing, and my guess
is that by economizing on expenditures, provided no economic set-back occurs, they
will also be a'le to balance their budget next year when the Annuity reaches its

A little over a year ago this looked like an impossibility.
The Government has taken a firm stand for the control of foreign borrowing.

By dint of much conversation Gilbert has gotten them to recognize their responsibility
in this matter, and they are going wt it full tilt.

No Reich or State borrowi ngs

abroad, and only a very limited communal borrowing abroad, is the announced programme,
and I think they will stick to it.

The declining curve of unemployment in view of


Benjamin Strong, Esq.,

May 20, 1928.
- 4

the lessened activities of the communes, due to lack of money, is accordingly
all the more encouraging.

Coming back to your letter frog the "Mauretania" and its discussion
of the December report, I note your comment on its length which was desperate,

but it didn't seem practicable to reduce it and at the same time deal fully with
the situation.

Furthermore, it was greatly lengthened by the three annexes

representing the correspondence between Gilbert and the Reich.

This June we are

working towards a 75 page report, whichwould be about one half the length of the
December report.

I was much interested in your comment on certain remarks in the credit

section, in which the import of credit was likened to an import of
ing lawful basis for expansion.

I have also seen your subsequent correspondence

on the subject with Morgan, this being his particular part of the report although
of course we all go over all parts of the report carefully before they are published.
I think the difference between you and us is small, and as you yourself indicate,
it is largely a question of whether a bank is operating on a gold standard or a
gold exchange standard.

The heichsbank is certainly, in pert, operating on a

gold standard, and any portion of these valuta that came to it and stayed with it,
it seems

to me formed a basis for currency expansion.

The statement would doubtle

have been better if qualified as you suggest, by indicating that the expansive effect
was potential rather than automatic.

At any rate, whatever the primary

cause may

have been, the total volume of circulation in the country has been expanding almost
steadily since stabilization.

Througeout 1926 and 1927 currency expansion kept

about 500 million marks ahead of the 1 evel of the preceding year. In 1928 it is
running about 450 million marks ahead, and the Reichshank from time to time has had

May 20, 1928.

Benjamin Strong, Esq.,
- 5 -

to convert some of its devisen into gold, or to purchase gold, in order to maintain
the 1,:gcl ratio

of gold to circulation.

To-clay is election day and tomorrow morning we shall be hearing some-

thing about the composition of the new Reichstag, and of the new Government, which
will naturally be of great interest for this organization.

Faithfully yours,






18 nun DE TEY.St.777.


November 5, 1928.

the Bank on learning of your father's

y to you and your brother and sister,

nd a bit caught up with my work I

reat shock and wrench

it was to me

a sudden relapse and was actually

orld seems to me quite a different
close association and friendship we

e of the best things in my life, and the

deral Reserve Bank have been by far the

m the newspapers and periodicals the

ave had'from various people, and the

on the value of the groat services he

While associatin0 a.

to his achievemants,I have no intention
elaborating them, as I coulel very well
write down a few things that have occurr-

cteristics, which, after all, you know




33 tossrmsrmt.ssr




Benjamin Strong, Esq.,

November 6, 1928.

ly convincing, and what was equally important, gave the members of the
Committee a great respect for his frankness and clearness.
In his relations with people in Europe he left the .:iame impression.

Count Volpi, whom I went to see two years ago when he vas still Finance Minister of Italy, started at once to talk about your father.
as I can remember it,

He said, as nearly

"I have a wonderful regard for Governor Strong.

I have

met a great many men in various walks of life, but I have never met anyone who
combined in such a remarkable way a broad understanding of the principles of
finance, a complete disinterestedness, friendliness, and an earnest desire to
be helpful':

After all, it vas his human relationships, combined with his other
qualities, which made possible many of the things which he accomplished.


own magnetic way, his affection for his friends and associates, whether Ministers
of State or clerks in the Bank, called forth loyalty and responsiveness.
Governor L!oreau and Dr Schacht, whom I went to see soon after I landed to tell

them personally about his last illness, both expressed their affection for him

he Reserve Bank

aturally we talked


"we were

we felt as if


had a constantly
But I had

e would have


November 6,1928.

Benjamin Strong, Esq.,

he could settle down in some agreeable place, suited to his health, enjoy
life as such, -with occasional studies of contemporary proble'ms, and occasional'

trips, and in this way develop the many tastes he had but which, for lack of
time, opportunity and energy, necessarily remained largely latent.

In this

connection I think particularly of the expansive influ.ences of the trip you and

he took to Japan, Java and India in 1920, which, however, were somewhat held in

by his eager desire first of all to master the financial problems of

these countries.

Finally, let me say how glad I am that I was in New York last month
and had a chance of seeing him several times, and was able to join the little
group at the hospital the morning he was operated on, and to learn something of
what the future had in store for him had he lived.

AS far as his work vent,

it was finished, but the failure to realize this future was the really desolating
tning about his death.

Pith my warmest sympathy to you and your Mother and to Phil and
Catherine, I am,

Sincerely yours,

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