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.251...36001021 '-ra FEDERAL RESERVE BANK OF NEW YORK FFIC E CORR ESPON DENCE T 0___ __Gavernar_ strong FROM DATE SUBJECT: Mr. Snycler____ January 5, 1923. Prices and Demand Deposits. &le 61'17) The only thing I would suggest as an addition to your exhaustive list would probably be this The general level of prices, and even to a large extent wholesale prices, normally corresponds very closely to the amount of demand deposits in the commercial banks (see attached chart. Whether this be cause or effect Probably it is alternately either cause or effect, but with matters little. always this in view, that any price level must be financed, i.e. volume of bank credit seems always the limiting factor, much beyond which the price level cannot rise. The volume of demand deposits in all banks on Professor King'slestimate was below 8 billions in 1912-13 and, computed on the same base, it is now above Allowing for possible error, it seems certain that the amount is 20 billions. now more than double that before the war. In the same period the volume of production, and therefore of trade (the two are synchronous except for the element of speculation), has increased more slowly than the normal rate. Indeed the index of certain selected basic commodities prepared by Mr. Stewart for the Federal Reserve Board and 'published in the December number of the Bulletin, page 1414, showed little increase in these particular industries in 1920 over 1913. Of course, this is misleading, as is very clearly shown by the steady, though diminished increase in net ton miles hauled by the railways and the net tons offered. But the probable average increase seems not over about 24 per cent, per annum, or not much over 20 per cent. above 1913 now. If, therefore, the volume of production and trade now stands at an index figure of around, let us say 120, and the volume of deposits stands at nearly double this, or around 225, roughly speaking the general price level will fluctuate around 200. And this appears to he the fact as regards the average of factory wages in New York State and the going rate for unskilled labor. Obviously the wage level in the long run determines the cost of production, so that the general price level can scarcely be much below this; therefore it would appear that without any further increase in loans and deposits the wholesale price level will continue to rise to something lily:, one-third above the present figure. The effect of this speculation, READ AND NOTED, ALICC be another wild orgie of V . 1-I 0-21 FEDERAL RESERVE BANK OF NEW YORK FFICE CORRESPONDENCE DATE SUBJECT: Governor Strong FROM Jan, 2, 192 3 John R.Commons' Statemlnt ______LIE140-4 e'en/W.1,4'1.4Z+ tr-X,) I fear you attached undue importance to Prof. Commons' proposed It was, as he tried to make clear, letter. merely a very rough tryout, and clearly indicated both the questions in his own mind and his lack of definite information on certain points which he wished I personally know him only selection as president until slightly, to know about. and did not know of his after it had taken place. But I have formed the impression that he is a very sincere and earnest sort of man, and represents a point of view and to the Federal Reserve has a following that should be very valuable System. At the sessions of the Committee in Chicago we gave him a pretty vigorous pommeling, which he took with very good grace and apparent profit. I should like to tell you of several very interesting sessions in which we privately discussed the current problem and what the Association might do. The thing that struck me most at Chicago was the seemingly wide expectation of another big wave of inflation, and that the Reserve would not be able to do much to check it. very Federal FEDERAL RESERVE BANK PM SC. OF NEW YORK FFICE CORRESPONDENCE To FROM Cbvernor Strong DATE January 9, 1923 SUBJECT: Mr. Snyder I meant to tell you of what Colonel Ayres, of Cleveland, said to me regarding Mr. Platt's recent speech in Cleveland, wherein Platt referred to the great fall in prices in 1920 as "the greatest surprise to the Board" that the Board never had thought of such an effect, etc. Colonel Ayres described it as a rarely matched combination of inanity and ignorance, and remarked: "For heaven's sake, is there no way of canning such stuff?" READ AND NOTED,. SC FEDERAL RESERVE BANK OF NEW YORK FFICE CORRESPONDENCE To Governar_Strong FROM Mr. _Snyder DATE J anuary 13,_ SUBJECT: Is there any way to get at, from weak to week, the prevailing "line of credit" rate in London, comparable to the average which we ob- tain regularly from five leading banks here! The point is that we wish to get at some definite figures to confute the idea that the Bank of %gland discount rate is regularly above the "commercial" rate for four to six months paper. The so-called open market rate in London seems, as far as I can discover, more comparable to our rate on bankers' acceptances, and there- fore ought not to be used as comparable to our rate on four to six months commercial paper. Finally, is there any way of obtaining regularly the Bank of FIngland's private rediscount rate to its regular customers? 192 3 MIBC.3 I STA7.3600-10-2I FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To FROM Cbvernor Strong DATE SUBJECT: January 15, 1923 Collier_arogrmn_ Snyder Mr. I agree so heartily with all you say in your memorandum, about the socalled Collier program, that I almost wish that you felt like putting it all into a letter. That has been my view for years, and I think it is essentially the view of men of the type of Wesley Mitchell and Prof. and most of the to add, Persons, more solid economists, including especialy, as I should like Prof. Fisher. This was also very much the idea back of Mr. Hoover's committee on business cycles and unemployment, because, as Mitchell, Persons hold, what we vaguely call Perhaps it Unemployment and the rest are concomitants. would be has a very wide circulation. others the business cycle is essentially a price cycle, aid largely dominated by that single factor. simply consequences or and well worth saying this in a letter, as Collier's 4419C 3 1 S1AT.31300-10-21 FEDERAL RESERVE BANK OF NEW YORK iFFICE CORRESPONDENCE DATE____Lanuary 18 1923 SuBJEcT,__Mosement of Price Indices Cevernor Mr. Snyder__ The Department of Labor index for December shows almost no change, and so continues to show no such heavy rise as Bradstreet's, the Harvard Review index, or our own twenty basic. But I should like to point out that this has happened a number of times before. For example, after the outbreak of the war the Bureau of Labor index showed little or no rise until October and November of 1915. But Bradstreet's had begun to shoot sir or eight months before that; and the Bureau of Labor did not overtake Bradstreet's for more than a year later, i.e., the middle of 1916. Again, in 1917, after the price fixing mandates, the Bureau of Labor index showed some decline, but Bradstreet's went shooting on up, the Bureau of Labor trailing along two or three months later. same percentage Both indices reached the peak in the war. Again, in 1920, Bradstreet's turned downwards three months before the Bureau of Labor index, and has so far shown itself the best barometer, i.e., indicator of the trend of prices, that we have. One thing that keeps the Bureau of Labor index down now is that it is heavily weighted with foods and farm products; and so long as the wide spread between these and the metals, textiles, etc., continues the Labor index will probably register little advance. When this spread is cancelled it should go shooting, and I think this is what will take place. I therefore =lour in the forecast of the Harvard Bureau, that general commodity prices (and I believe, also, the cost of living) will continue I STAT.3600-10111 FEDERAL RESERVE BANK OF NEW YORK 1)FFICE CORRESPONDENCE To Governor Strong FFte-- Mr. _Snyder DATE SUBJECT: January i8, 1923 Movement of Price Indices 2 to rise for at least six months. My own view is for at least a year. As the total of bank deposits is now pretty clearly well above the 1920 peak, I should suppose that the rise in prices would be correspondingly heavy. 5,47.11.10-1021 FEDERAL RESERVE BANK OF NEW YORK )FFICE CORRESPONDENCE To Gove MY? Strong DA TE__January 19, 19 SUBJECT: Mr. Snyder herewith charts I attach showing the course of exchange and of relative purchasing power of the currencies of Scandinavia and Holland. Of course it is always true changewhat that heavy buying or selling of ex- call bill pressurewill temporarily affect obviously it cannot the price; but be for long, for the simple reason that, if it were, exports or imports would be sharply stimulated and the difference in the intrinsic or purchasing value would be rapidly cancelled. Not for long, for example, could it be possible to buy potatoes any other or cotton or commodity 25 per cent. cheaper on One side of a bound- In the case of Swedish exchange you will note ary line than on the other. that the purchasing parity, as nearly as it can be computed, was reWetablish( before the kroner went to par. Precisely the same was true of Dutch exchange. In the case of Norway the estimated intrinsic value and current ex- change also now very closely coincide. In the case of Denmark the exchange is apparently unduly depressed, and it will be interesting to see if this is not speedily corrected by a considerable rise. I attach also the same picture for France. Does it seem to you that these are matters of pure chance; or does it seem to you probable that the exchange rate can so quickly affect imports and exports, and therefore the intrinsic value of the currencies, as to be a cause when, as a matter of fact, as a rule the change in intrinsic value precedes the change in exchangt FEDERAL RESERVE BANK OF NEW YORK MSC. 4.1-3001 10-21 OFFICE CORRESPONDENCE DATE SUBJECT 1--k- te rw 0141,: -7k riA9i717t-tjeTR. ciAR,A,)r )147:4: tJ C4r/A4 Kit DWVe CV A C17" /17-frtt 'Iv Teot 4-7rvi This article is protected by copyright and has been removed. The citation for the original is: Kemmerer, E.W. “The Economic Outlook for 1923.” Pamphlet published by The Garfield National Bank (New York, NY), 1923. FEDERAL RESERVE BANK OF NEW YORK ..WFICE CORRESPONDENCE To FROi Cby arnfir_Stran_g DATE SUBJECT: January 23, 1923_ Attached note mr. Snyder If the attached was typed by the author himself, it might confirm some rumors. But it shows that his Heart is Right, and might be otherwise interesting. im a...mcct4.7(-44: a T. 3000-10-2 1. FEDERAL RESERVE BANK OF NEW YORK DFFICE CORRESPONDENCE To FROM DATE SUBJECT. ..-Co-v-ernar_Strang_ February 1, 1923 ___Instex_of Tide or Busines_s_ Activity Mr. Snyder Believing that the time has now come and that we now have sufficient we have determined to attempt the construction of a real index of trade or business activity. Our thought has been this: data, Supposing we could have any data desired to construct such an index, what would we wish to know? The main items would be such things as: Total factory and farm production Complete employment figures Detailed rail shipments Exports and imports by quantities Wholesale trade by quantities Retail trade by quantities Building construction Power production Postal and street railway receipts, etc. All check transactions Total volume of speculation in stocks, grains cotton, etc. Thanks to the rapid development of the data, in part due to the activities of this department and others in the Federal Reserve System, we have now an extremely good sampling of practically every one of these items, and, after an extended discussion, have tentatively considered the following weighting for each of the items, on the basis of 100: 2:>4.iteA-itvtkm-ef basic production, 2, commodities 1:14,per cent. / Elyployment, New York State factories elerchandiaindev mi s c &nano° u s car loadings .Coal and 7,41rEQ: o a din gs Exports imports Wholesale store sales Department store sales -3 Chain and mail order .houses Building construction Electric power production ?Postal receipts ,Dcbits to individual account, explu 1 g New York ,Irrtier.,r! speculation in stocks, grains and cotton -.J ii 2. 5 4/ 10 lpy e 4 2.- _t,s.412,... 2, ..lpie.. wee , Total 1411.A.)' .9--20,4-CAA. (PA ,t. 100 per cent. 9,1A- si S4.-4 N... a ot,m., h7-1 ft rIALt.).3 cf---tAA/v _ I _ FEDERAL RESERVE BANK OF NEW YORK --,OFFICE CORR ES P0 N DEN CE To FROM _Governor Stronz, Mr. Snyder DATE SUBJECT' February 1, 1923 Ird_ex _n_f Trade or Businese Activity--2 Detailed study may change these proposed weightings, but the main consideration has been as to how far the figures which we have are a good samole of what we are trying to get at. This is a wholly new field and nothing like it has been attempted It is impossible to carry this index by months back of 1919. But before. these four years have been years of extraordinary variety in every way, a great boom and a great collapse, a violent rise and fall in prices and in basic production, alongside of heavy department store sales and a record boom in automobiles and building construction, in the face of great stagnation elsewhere; and finally an extremely rapid recovery. We feel that these four years are a fine cross section of business fluctuations and that the index we propose will give us an extremely interesting picture. Throughout we shall attempt to eliminate the seasonal, the secular and the distortion due to prices, and fix the whole in tenns of the normal growth in each item. We should be extremely indebted for any criticisms or suggestions. MISC.9 I ST A7.3600.1021 FEDERAL RESERVE BANK I OF NEW YORK aFFICE CORRESPONDENCE DATE To F ebruars_14_1923 SUBJECT: FROM INDEX OF NATIONAL TRADE AND BUSINESS ACTIVITY Believing that the time hap now come and that we now have sufficient data, we have datremeirted-dba attempt:the construction of a viola index of trade Our thought has been this: or business activity. -to74.4 Supposing we could have any data desired to construct such an index, The main items would be such things as: what would we wish to know? Total factory, farm and mine production Complete employment figures Detailed rail and other shipments Exports and imports by quantities Wholesale trade by quantities Retail trade by quantities Building construction Power, light and gas production Postal, street railway, and amusement receipts, etc. All check transactions Total volume of speculation in stocks, grains, cotton, etc. Thanks to the rapid development of the data, in part due to the activities of this department and others in the Federal Reserve System, we have now an extremely good sampling of practically every one of these items, and, after an extended discussion, have tentatively considered the following weighting for each of the items, on the basis of 100: ,- 3. ,4. .5. /6.,-/ 8. ' .. IO. li. 12. .13. 14. 10. Yl Production of basic commodities, producer goods II II' It II consumers' goods Einploymmat in New York State factories Merchandise and miscellaneous car loadings Coal and t.tier clr loadings Departs 4 Imports 9 Wholesale sales Department store, sales Chain store sales (6-4-- De 5.-mm.--,, ) Chain groceries Mail order house $ 0 6-10-1 Building construction ( 1-.----,;,46) Electric power production Postal receipts Debits to individual account outside New York II II SI II in New York City 8 per cent 8 5 II II 4 " 2. If ,§4 of 4 14, st.if 2 " 2 " II 2 k4 If 2 " 10-1 6_6- ., tdrwt;Aki4) 1..9 , ST AT.$11100-10-.1 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE 192 DATE SUBJECT: To FROM 2 14. . 1.O. 21. 2-per ce New, nsurance Issue of new securities Advertising Panama Carkal traffic 2 2 2 2 2 Y. 2 ski-peculation in stocks in grains in cotton 3. *4. 24f: atmfr-Q-e- 4.44; 2- ro-UOKI,2441,24) i 100 per ca Detailed study may change these proposed weightings, but the main been as to how far the figures which we have are a good sample of what we are trying to get at. consideration has -74114--i-eeriaseirm Oil It is not possible to carry this index by months back of atii3rrtenTiesd rBut these 1919, as most of the indices are new and do not run back of 1919. four years have been years of extraordinary variety in every way): a great boom and a great collapse; a violent rise and fall in prices and in basic production, alongside of heavy department store sales and a record boom in automobiles and building construction, in the face of great stagnation elsewhere; and finally an extremely rapid recovery We feel that these four yec re ere a fine cross section of business fluctuations and that the index we propose will give us an extremely interesting picture. Throughout We shall attempt to eliminate the usual seasonal and the secular change, and where necessary the distortion due to -ywi-ee--eitaigtges , and each fix the whole in terms of the normal growth in We should item, be extremely indebted for any criticisms or suggestions. MISC. 3 I g333.31300-10,1 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE atmag To Governor FROM Mr. Snyder DATE SUBJECT: Febtuaty_5+__ The Question_of 1923 BankaAate_Cnanges In this city last week, at different times, both Prof. Bullock and Prof. Persons, of the Harvard Committee of Economic Research, expressed very strongly their view that there ought not to be any Change in the Federal reserve bank rate until both the banks and the public had been well informed Their of such an intention and of the reasons which necessitated a change. position was based largely upon two especial points: That the banks of the country in the last year or more, in the absence of any strong demand for commercial loans, have loaded up heavily with securities; that business is now having a very remarkable recovery; that prices are rising very rapidly; that the demand for commercial money will soon make itself felt, and that the only way the banks can supply it is by selling their securities, or by heavy rediscounts at the reserve banks. Even selling their securities would require an extended period or else force corresponding rediscounts. They think that, in view of the speculative character of the bond market, a raise in rediscount rates now would make the position of this market very difficult, and likewise greatly increase the difficulties of the Government in their refunding operations. They urge also the same considerations as regards the business and general public, that this public ought to be fully advised of the intentions of the Reserve Banks, as was set forth in detail in the joint article by Professors Sprague, Bullock end Donham, of Harvard, a digest of which was given the Directors last week. Their view is that the Federal Reserve Banks and the Board ought to define clearly and beyond any misunderstanding just what their policy is to be, months in advance of any definite action, in order that the business man may make his calculations accordingly, and that any action taken by the banks will not came as a shock to the community, or be made the pretext for commotion, as was the case at the end of 1919. They feel that the public has a right to know what the bank policy is to be, and precisely what the banks intend to do, since their action will deeply affect the money markets and the interest rate, and through these the general course of business; that sufficiently in advance of any action the probability of that action should be explicitely set forth and the reasons governing the same. It is fair to say, I think, that this same view is very widely held by men of standing; it has often been expressed to the writer. On quite other grounds very strong objections to an increase in the rate at the present time wore expressed at a business luncheon last week. One point of view was that there should be no attempt to check the present tise in prices in this country until it was clear that sterling and (3) MISC 3 I STAT.3800-10-21 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE DATE February 5, To _Bh.vernor Strong SUBJECT: The Question n_f_Bank Bata FROh, Mr. Snyder Changes-2 4., 6\ toi-oluvy' V/41 192 3 E number of other currencies, like those of Sweden, Argentine, Japan, etc., wont beck to par, end that there was P. strong prospect that these countries would lift their embargoes upon the free exchange of gold and the redemption of their currencies in gold. This was the view; of course, advocated in the last two years by..explaingliaila that the United States should inflate surriEr&Jri-to bring-the stranger curraacraiIii0Y-t-E-their former gold pariti-6-6Tiiii-Shortest and surest road to the faifIY-Fenerar-festoration of the gold standard in international trade. Still another view was that, in the present state of the public any attanpt on the part of the Federal Reserve Banks to regulate prices would arouse such criticism as to wreck the Federal Reserve System. It was thought especially that this opposition would come from the enbRttled farmers, but it is by no means clear that the latter would be the case. In e recent letter to the writer, Mr. H. A. Wilace, son of the Secretary, and now editor of Vallaces' Farmer, said: kind, "I have felt that the Federal Reserve Board, in fixing its rediscount rates, should have somewhat in mind a price level which it regarded as desirable. I cannot help but feel that prices should be allowed to go up somewhat higher than they are now, and that, when the Federal Reserve Board does apply the brakes, it should apply them somewhat more gently than it did in early 1920. "I am a strong believer in the Federal Reserve Systen, and hope that the time may never come when the farmers will try to destroy it. Evidently, however, the agricultural and industrial interests should come to some agreement as to the fundamental policy which should guide the fixing of the rediscount rates." In the same way, Prof. John R. Commons, of the University of Wisconsin, in a recent visit to Henry Ford and the editor of his Dearborn Mr. Cameron, found that, in theory at least, they were strongly in favor of some measures of stabilization, and even that, so far as it was practicable, the rediscount rate should be made one of the means of checking violent changes in the price level. Mr. Cameron went even to the length of opening his columns freely to any discussion of this or allied topics by members of the National Monetary Association. SOW1 11 44441 . Finally, Prof. Commons, among others who believe strongly in delegating this power to the Federal Reserve Banks, believes that the banks have now no specific mandate under the law to exercise such power, and that this should be the subject of immediate action in Congress, giving the banks or the Board this so tharrEET-TETIOn would have the full approval and authorization of the country through their chosen representative:, in Congress. http://fraser.stlouisfed.org/ 11(111Federal Reserve Bank of St. Louis ciiliarrFliriaae, INI3C 3 1 S1AT.3600-10-21 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE Strong To Governor FROM Mr. Snyder DATE Feb ruar, 5, SuBJEcT:____The Question of Bank Rate Changes--3 In this connection a digest is herewith attached of an article of unusual interest, eppearing in the Economist of London, in its issue of January 13, dealing with the exchange situation and the position of the The article delineptes in a remarkable way the Federal Reserve System peculiar kind of psychology which seems always to befog such a situation as now exists. 192 3 February 5, 1923-. FEDERAL RE,'5ERVE RATE POLICY An English View An editorial article of unusual interest appears in The Economist, of London, for its issue of January 13, or. the possible or probable course of Federal Reserve policy, evilently written by someone highly conversant with conditions here. The :i.mportant part of the article f "Let us turn accordingly to the ,drift of events already per ceptible in t he United States. The gold reserves of the Federal Reserve Ba.nks amount at present to well over 73 per cent. of their deposit and note liabilities combined. `'44 accordingly, the Federal Reserve Board are governed by ordinary banking principles, an. immense expansion of credit and increase of prices in the United States is both immediately possible and, sooner or later, inevitable. , Er, .,Te in this country expect that such an expansion will, in fact, tahe place, and we hope f or it devoutl-. It would make possible our return to the prewar parity, without further disdeflation, consistently even with some recovery of our own price-level and a consequent easing of the Budget problem. It would reduce the real burden of our debt to the United States. Iastrous But in American eyes the prospect is necessarily less attractive. Unpopular as a period of deflatior is, no one can desire that it should be succeeded by a period of eeually marked And the Federal Reserve Board. are emphatic that this inflation. must not occur. In other words, they deciese their intention of preventing any appreciable rise in prices, be the gold reserve at their disposal what it may. 4.z. Fortunately f or us, their declarations on the oint are couched in vague and general terms, and the matter is one on which the utmost clarity of conception is required f or effective action. The path of every expansion of credit end increase of. prices is strewn thick with illusions. There is the illusion that so long as credit is supplied to meet only the "genuine needs of trade," no inflation of prices can there is the illusion that the rise in prices, which, in fact, takes place, is due to other causes than credit policy, causes which seem in some way "natural." result; k - 2 - All credit-controlling authorities contain members who are take themselves eubj cot to these illusions, and those members with sufficient conf itlence to be a different view seldom hold it calculated, as it willirg to uree strongly a restrictive policy, seems, to hip in the bud, perhaps eereeesearily, a eeriod of active nele they hesitate, the rise in prices is gathering momentrade. tum. To these influences, it may be expected, the Federal Reserve Board will prove susceptible; they may issue appeals end warnings, but they are net likely to nerve themselves to use the unpopular weapon of a high rediscount rate before a considerable rise in prices lace, enough perhaps to send the sovereign in triumph has take!, back home to earity. For the story cannot end there. But what will happen then? The potentialities of ircreased credit in the United States are so vast that prices might well rise 50 per cert. or more before ordinary banking erieciples would call f or a curtailment of credit ; and long bef ore this the Federal Reserve Loard will certainly take action. Probably -their action will be severe enough. to subject America once Then a situaagain to the evils of falling prices and depression. tion will arise in which three features will be prominent. First, the objective of price stability will assume an urgent importance to a publ-ic ereary of the round of alternatire periods of inflation rimd deflation. Second, it will be established beyond a doubt that the movement of prices is powerfully affected by the action of the Federal Reserve Board. Brt, thirdly, it will he established with herdly less certainty that that body must have some more definite eolicy thar a vague determination tb -erevent excessive ircreases, if any measure of stability is to be secured. It is not easy to predict the outcome of such a situation. One possibility is a general attack upon, end collapse of, the But it is also possible that the Federal Federal Reserve system. Reserve Loerd will retain their authority and will pursue their They may then seek end. of ?erice stability with a new precision. for some definite criteria f or the euidance of theer discount policy, and it is possible that they may adopt the cLevicee indicated at the outset of this article; fix on an index number, fix on a par price-level, and, announce that, wherever prices rise above that he put up (or level (or fall below it), the re-cliscouet rate down) as a matter of course. put the point we wish to erre does not depend on events taking It is already the declared policy of the this particular turn, Federal Reserve Board to use their control of credit for the purpose 1hat does of maintaining as much stability of prices as possible. -3To an uttempt to f ix the purchasing power of this amount to? gold, and. so to stabilize prices not only for the United States but f or all other countries, as and when they revert to a gold basis. Thus the Possibility of combining the virtues of stable exchanges and stable prices is already the subject of a singular experiment, which a great country is being driven to undertake, not by any taste f or academic Utopias, but by the ineluctable For America must endeavor to pressure of her own necessities. control the purchasing power of gold, on paying of the alternative of a huge increase in prices, which it is the general desire of her citizens to avert." MISC.3 I STAT.31300-10-21 FEDERAL RESERVE BANK ; OF NEW YORK OFFICE CORRESPONDENCE To Governor Strong----- FRL.M lir.8nydar DATE February_8, 1923 SUBJECT. There seems still a persistent and widespread belief that when business recovers there will then come a heavy demand for bank credits. It seems very difficult to realize how remarkable the recovery in trade has been and how near the country is now to a maximum of production, employment, transportation and distribution. Equally difficult to realize, it seems, is the fact that we have already expanded the volume of bank credit to practically the same levels as the peak of 1920, and that this expansion is amply sufficient to finance the commerce of the country, even probably at a higher price level than that which now obtains. The facts are that net demand and time deposits have undergone a. very remarkable increase in the last fifteen months or more. The figures for National Banks are available only up to September 15. These show that the total must now be close to the 1920 peak. Demand deposits are about a billion lower and time deposits about a billion higher. For the 800 Reporting Member Banks, whose returns are available to date, the low point for demand and time deposits was reached considerably later than with the National Banks. The latter cane in about September, 1921; the 800 Reporting Banks on February 8 of last year, when the total stood at 13,240 million. On January 24 this figure was almost exactly 2 billions higher. This would mean pretty certainly that the increase to date, in a little over a year, for all the banks of the country, must be considerably above 3 billions and might now be nearing 4 billions. This is a very heavy expansion. As to the possible volume of production, employment and trade, we know now to a near certainty that it can go but a few per cent. higher than at the peak in 1920, because in these three years the increase in population and the expansion of factory and transportation facilities cannot have been very large, in fact, probably much below the normal rate. This department will shortly have 'a new index of the state of trade, or of business activity, which will give a composite figure of all our indices of production and trade, weighted according to their estimated importance. Meantime we may consider the important items. Our index of basic production, which includes 22 of our most important industries, is now a little above normal, while the Harvard Bureau index of manufactures is 8 per cent, above an estimated normal. It is our belief that this latter is somewhat too high. MIEIC 3 1 STAT.3600-10-121 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To Govemor-Strong- DATE February 8 1923 SUBJECT: Mr. Snyder There seems still a persistent and widespread belief that when business recovers there will then come a heavy demand for bank credits. It seems very difficult to realize how remarkable the recovery in trade has been and how near the country is now to a maximum of production, employment, transportation and distribution. equally difficult to realize, it seems, is the fact that we have already expanded the volume of bank credit to practically the same levels as the peak of 1920, and that this expansion is amply sufficient to finance the commerce of the country, even probably at a higher price level than that which now obtains. The facts are that net demand and time deposits have undergone a, very remarkable increase in the last fifteen months or more. The figures for National Banks are available only up to September 15. These show that the total must now be close to the 1920 peak. Demand deposits are about a billion lower and time deposits about a billion higher. For the 800 Reporting Member Banks, whose returns are available to date, the low point for demand and time deposits was reached considerably later than with the National Banks. The latter came in about September, 1921; the 800 Reporting Banks on February 8 of last year, when the total stood at 13,240 million. On January 24 this figure was almost exactly 2 billions higher. This would mean pretty certainly that the increase to date, in a little over a year, for all the banks of the country, must be considerably above 3 billions and might now be nearing 4 billions. This is a very heavy expansion. As to the possible volume of production, employment and trade, we know now to a near certainty that it can go but a few per cent, higher than at the peak in 1920, because in these three years the increase in population and the expansion of factory and transportation facilities cannot have been very large, in fact, orobably much below the normal rate. This department will shortly have. new index of the state of trade, or of business activity, which will give a composite figure of all our indices of production and trade, weighted according to their estimated importance. Meantime we may consider the important items. Our index of basic production, which includes 22 of our most important industries, is now a little above normal, while the Harvard Bureau index of manufactures is 8 per cent, above an estimated normal. It is our belief that this latter is somewhat too high, NIIsC 3 I STAT.3e00-10-2s FEDERAL RESERVE BANK - OF NEW YORK OFFICE CORRESPONDENCE To FROM DATE GoYa_mor Strang Mr. Sny4e1 February 8, 192 3 SUBJECT: 2 In recent months, and to date, car loadings, both of merchandising and of coal, have been running very heavy, making new high records, and evidently very close to the present maximum capacity of the railways. Our index of exports and imports is not yet ready, but those of wholesale and retail store sales show clearly that business in these lines in the last six months has been at new high levels. This has certainly been true, also, of building construction, which has in the last twelve months broken all records. We shall soon have indices, also, of electric power production, postal receipts, speculation in stocks, grains, cotton, &c; and it seems fairly certain that most of these are at or near to a high point. In other words, business in the last few months, if not on a boom, has at least been at very high levels, and there are as yet no indications of any reversal of trend. So far from this, the volume of deposits (i.e., purchasing power) is In the 800 Reporting Banks the total increased from October steadily rising. 4, the high point in the stock market advance, to January 4, by nearly half a billion dollars, which was at the same rate as for the balance of the year. Our index of 20 basic commodities continues to rise steadily, and for the month of January Prof. Fisher's new index of 200 commodities shows a rise of 8 points, to 159. The idea, therefore, that the "recovery" in business is something in the future is a delusion, and so, likewise, the suppositious demands of Adequate bank credit for the heavy expansion which has business for credit. taken place has been supplied by the banks through the purchase of securities, and not in the usual form of increased bank loans. The balance has been supplied by heavy gold imports from abroad and the increase of foreign balances in this country. In the next year it now seems improbable that the total volume of production and trade, including all farm products, in this country, is likely to be increased by much more than, let us say, 4 or 5 per cent, above what it is now. If the volume of credit in 1920 was sufficient to finance the nation's trade at that price level, then it seems probable that the volume of bank credit now outstanding will, of itself, finance a still further rise in prices. And if this be true it seems to follow that any further increase in bank deposits would be pure inflation, and could have no other effect. FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To Governor Strong FROM. Mr. SnydAr DATE SUBJECT: In connection with the accompanying memorandum, I attach also two graphs,of the Federal Reserve Board and of the A. T. T. We believe that both of these are defective in constructions and the results not reliable, but it is still of interest to note that both of them indicate the volume of production and business above and not below normal. MISC 3 I STAT.3000-10-2I FEDERAL RESERVE BANK Z OF NEW YORK 'OFFICE CORRESPONDENCE DATE I'abruary_b.,____ 1923 SUBJECT: To FROM 3 pevorful /ftesstatua in price movements, as in Pis there is eamoys Trost othor phenomena involving s vast nunber of people, it would seas further to fellow that any so:Weever to dick the present tlaurbing rise in priest, and in spasulation, should be tuade nos, if it is to ki!.,_ve any salutary ffsert. NIISC 3 I STAT.3000-10-21 FEDERAL RESERVE EildrOr OF NEW YORK -4 DATE OFFICE CORRESPONDENCE -n To Governor Strong m C, 1,1 :13 ....a FROM Mr. Snyder l'n C", C, 70 : , 'Ic 1923 SusJecr:ontrmiof the Volume of Credit_ ___LL_ IV Ffilanga7 13, rrt .... < rn un 01 At your convairenciff following proposals: C, miVlt I ask your serious consideration of the We have established pretty clearly, I think, by our investigations here, the narrow dependence of the general level of prices, so far as they can be measured, with the volume of demand deposits or, broadly, with all bank deposits. At the present time this total volume of deposits broadly depends, or would, at least, in normal times, upon the amount of our available gold In other words, the level of prices is, in a broad way, dependent reserves. upon the rather fortuitous supply of gold. Why should we not reverse this process and have the general level of prices determine the amount of bank credit, and impound all the surAt the present time we practically do impound all the gold in plus gold? the country and issue notes against it; but the amount of notes is limited only by the demand and by the available quantity of gold. Instead of this, Why not have the note issue limited by the price level, put, all the gold behind the notes, and then use these notes exclusively for bank reserves? In other words, why not utilize our gold solely for the purposes of It could, of reserve against note issues and for foreign trade settlements? course, be available for currency, if anyone wished, but this would be as little availed of in the future probably as it is now. Would not the effect of this be to stabilize not only our own price level but that of international prices, else, to a very high degree? My idea is this: As things are now going it would soon be possible for England, Switzerland, Sweden, Japan, Argentina, Spain and a number of other nations to lift the gold embargo and go back to a gold basis. If we can avoid another orgy of inflation, and keep our prices down to near their present levels, would not the rest of the world stabilize at about the same figure? And would we not be using our gold fund practically as a gold exchange fund for just this purpose? At about these price levels we should, I think, more likely gain gold rather than lose it in the next few years. But suppose we should lose a billion? We now have nearly four billions, the rest of the world not much more. If we lost a billion to them that would raise their gold fund by 20 or 25 per cent.; surely enough, if a number of the chief nations were back on a gold basis, to raise their prices sufficiently to reverse the flow and send much of this gold back to us. MISC 3 I STAT.3000-10-21 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To Govern nr Strong FROM Mr. Snyder DATE SUBJECT February 14_ 1923 Control_o_L_Cae Volizle_of Credit 2 We now have a wonderful set of indices of wholesale prices, (4) retail food prices, cost of living, volume of production, amount of unemployment, ekc.; and to all these we shall now add the new index of trade activity or volume of business, which will, I believe, be one of the most valuable of all. Surely, with the aid of all these, we could evolve a means of automatically limiting the issue of Federal reserve notes. And if these latter were made the exclusive basis of the bank reserves, this would automatically limit the total of bank credit, exactly as England used the imports and exports to stabilize their price levels for a century or more before the World War. And is not this practically all that is needed to stabilize prices and business, and solve a large part of our present-day troubles? And, as a practical matter, could not most of all this be done, in effect, by the Federal Reserve Board and the Reserve Banks, without any further legislation or Congressional action? This is an idea that has been haunting me for a good while, and I should like ever so much to know your careful judgment upon it. M1SC.3 1 STAT.3600-10-21 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To DATE SUBJECT: _February 14_,_ 192 3 Stabilizatian-03f-PriCa8 Mr, Snyder FROM It may be laid down as a postulate of the long success of the English system of price control through the Bank of England that: The kind and tion. so directly 001'4 N.10j) $011* tod;fr q, 3t441A,, 9- It was a disregard of this principle that has created a large part For this reason the main features of of our difficulties in this country. (,the .proposed revision of the Federal Reserve Act would be as follows: To make all our currency issues, now outstanding, redeemable in (1) !gold, and the sole legal tender in this country, and the sole money of bank reserves. tTIL Aftft w, To put all the gold now held by the Federal Reserve Banks and the Treasury--row nearly 4 billions--in a common fund and put all of this fund behind the currency issues, thus making the latter nearly 100 per cent. gold certificates. C. VY))). *qi ilAftP::A0 . money of reserves must be of the same value as the mone of current circulathat a demand for the second should affect the state of the first. To limit the total of the currency issue by means of an index number of prices, either of wholesale prices or a composite; checked by indices of production, employment and business activity. OPIe') 'Y (4)- The active agency for this control to be the Federal Reserve Banks, and to do this by varying the earning assets of the Federal Reserve r#841., Banks, reducing this total by selling securities or lowering the total of re14-e) : 1 discounts by raising the rediscount rate, when prices rise, and buying securities a, %;04,00.. and lowering the rate as prices fall; the amount of this change to be determined automatically by the change in prices. A The total issue of notes being controlled by index numbers, and these notes being the sole available bank reserve, the reserve ratio of the Federal Reserve Banks would then vary probably only within very narrow limits. The rate of rediscount would be determined, partly as now, by the state of the reserves and partly by whether the price level were rising or falling. Inasmuch as any fairly effective scheme of stabilization would take most of the incentive out of speculation, the degree of these changes would be much reduced. As to the international exchanges, and import of gold, since the gold would no longer be legal tender nor valid as bank reserves, it would flow directly into the gold fund. The effect of this could be counterbalanced by the Federal Reserve Banks selling an equal amount of securities. Long before the security holdings had been exhausted in this way the bank rate could be raised sharply. This article is protected by copyright and has been removed. The citation for the original is: “The Cleveland Trust Company Business Bulletin.” The Cleveland Trust Co. (Cleveland, OH), February 15, 1923. FEDERAL RESERVE BANK MISC. 0./-30M 10-21 OF NEW YORK March 1, 1923 OFFICE CORRESPONDENCE ATE Yr. Snyder TO SUBJECTS Governor Strong Better now try to formulate the plan to fit with the text of the act and see how it "fits". I can see no need for more law, if the public can be made to understand without more law. And if we have more law, without the public understanding it all, then we will have still more law, and so on It all comes back to what people really want. 9S. MM att. 192 FEDERAL RESERVE BANK 1SC. 1.1. OF NEW YORK FFICE CORRESPONDENCE To _ftirsrztor _Strong FROM Mr. snydsr DATE SUBJECT: I am very sorry to know about that voice. But Mr. Case says that you are quite fit otherwise and that I may send you things. a draft of an article on February_214 So I am enclosing the stabilization plan. I should really be very much indebted if you could give it a pretty careful reading and give me your criticisms. Mark it up all you please. h113C 3 STAT.3600-10-RI FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To Governor Strong FROM Mr. aoyder DATEFSbZryfl, 1923 SUBJECT. I was very much interested to find, from your memorandum to ;Ur. (lase yesterday, that you shared the view I have held as to a greater degree of oublicity as to rate policies, etc., and note your reference to a campaign for education as to these matters. This leads me to the following suggestion: T have had for some time in mind a paper, or speech, on the effect of inflation as shown in the United 9tetes. The ooint is that we now have, for more than fifty years at least, reliable records as to the progress of production in the main lines of industry, mad that we can now say definitely whether, in any given period, production was increasing at a hill or a low rate. We have had now four full years of inflation since the 'aar closed, inflation preceding that; and the evidence sews to be conclusive that the rate of increase in production, either in the last and three or four years of four or in the last eight years, was lower than in the four years or eight years preceding 1915, and lover than the average rate of increase in the last half century. In other words, it seems to me that, in a crucial instance, with every condition propitious for the full effect of a heavy credit expansion to do the best it could possibly, it has been shown that it was not efficacious, but the reverse. Even the high rate of production in the twelve months preceding May, 1920, was only just a little above what would hsve been the normal rate of production if there had been no war at al/. And it goes Without saying, of course, that the people of the United States cannot have more things to enjoy, more comforts and luxury, unless they produce than (or buy than from abroad with other products, which is the sane thing). Do you not think that these facts, simply and clearly set forth, would be a very firm and effective foundation for such a campaign of educa- street, that tion as you speak of, and make it clear, oven to the man in the free and easy credit, with houp-la business, booming prices and high wages, is only a kind of national jag, for which we have to pay very dearly the next morning; I add the further thought that if, for any of reason, with reference to the Poard or otherwise, you or Mr. Jay or Mr. Case did not wish to start such a discussion, possibly T could do it from a statistical point of view, and in such a way as largely to make the facts reveal the obvious conclusion. I think the facts I upeak of would be nor, and, if properly presented, arouse a good deal of interest. 3119C 3 1 STA3.3600-10-21 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To GovernorStreng FRL, A Mr. Snyder DATE SuBJECT:_The Febr ery_27_,_ 1923 W.ff oct of +31eelaank_Rate I did not think the increase to 4+ per cent would cause more than a ripple, and apparently that is the fact. But prices have been rising rather more rapidly since the first of the year, and I have the impression This means that in two or three months from now that this will continue. probably a further raise might seen called for. If this should happen and the rate increase was to 5 per cent, me.ny of the more conservative banks would be inclined to call a halt, and so you might readily have a drifting situation for a few months, with a price level which would quickly be accepted by everyone of the type of Dr. Willis, or my friend Rorty, as a "stabilization at a new level." But the caution of the banks would This might readily give prices take place. market, which, along in the fall, might show fireworks, at a peak along toward the end of soon pass and another rise in the desired fillip to the stock a very heavy rise with the usual the year. The situation might then practically demand a further increase in rates, say even to 6 per cent, and this might readily be accepted by the stock market as an excuse for a precipitate tumble in stocks, with a corresponding disturbance of business, But, as trade would still be good, I should look to see the price level still rising till toward summer, or considerably later. If it rose fast enough and high enough, say to well over 200 on the Bureau of Labor index, and in the meantime gold began to flow out rapidly, we might have a mild repetition of 1920, in 1924. In other words, my feeling is that neither a 5 nor a 5+ per cent rate this year is going to control the rise in prices, because, as I have said heretofore, it is my belief that, even if the volume of bank deposits could be now limited to the present amount, the rise would still continue to probably above 175 or 180, and maybe higher. A 6 per cent bank rate would probably check the rise, but not, as I And I have the impression, which may be wrong, that believe, for very long. while a 5 per cent rate might be accepted tranquilly, a 54-z, or pretty certainly a 6 per cent rate, would meet with very bitter opposition and, I should fancy, with very strong pressure from Washington. (Cries of "Trying to kill prosperity again," etc.) And by that time it might well be that even a 6 per cent rate would have as little efficacy as a 6 per cent rate in January, 1920, did. That is why I hope, by possibly a year from now, to have your concurrence in the idea that some form of automatic control, under an act of Congress, must be substituted to free the Federal Reserve System from all the sinister and powerful influences that it will meet, and to relieve the Governors of the Banks and the Board from the storm of abuse and vilification which, I fear, they will arouse if they attempt to carry out a sane banking policy. S'TA )10t1 Li_J,kAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To FNJM OATS February 27, 1923 SUBJECT. _Go vernsa__Strong Mr. Snyder I attach Colonel Ayres' compilation of the guesses at the probable rise in prices this year, that were made at our business luncheon a month ago. I am bound to say that it was pretty much mass suggestion, I think, that the CimA Nra..46. guesses were so close, for it was an around-the-table stigg..Ptiarn, and not a secret ballot. At another luncheon, the next day, several of us took a ballot on when would be the peak on this upward major price movement, i.e., preceding a serious decline. The estimates ran all the way from Colonel Ayres, this October; Colonel forty, next January; Prof. Persons, of Harvard, the following March; myself, in the following July; and Prof. Fisher, in September. On the same day Kemmerer made a guess of sometime this summer; and Prof. Mitchell's guess is May to summer of next year. I find that there is a general expectation, especially among the auto manufacturers, that things will peak this July. But Colonel Ayres tells me that there was a similar feeling last year as to last July, so IMeanwhile, this does not represent a very careful balance of probabilities. We are tabulating the very interesting replies received from Mr. Treman's letter, sent out to a large number of jobbers and manufacturers by the Secretary of the National Hardware Association. 1141,1rA eifitw #t7e- 4,494c0 gwo kr? eirhe id\ %7Att quit 7pacle,, IR+ misc 3 I 51,7.3600-10-21 FEDERAL RESERVE BANK OF NEW YORK AFFIC, EE CORR ES PC) r4 DE:NC I: Governor Strong FROM DATE February 27, 1923 SuBJECT:__GontroloL_Clarreacy_lasues Mr. Snyder I deeply appreciate your detailed criticisms of the plan for limiting the currency issue. Might I add the following: (1) Is the idea not essentially the English system, with practically a single added factor designed to meet the present extraordinary and anomalous situation? (a). England has practically a single currency and money of bank reserves (or had before the War), i.e., gold or Bank of England notes redeemable in gold; the sole legal tender and the sole money of bank reserves. --I propose the same thing here. lag! 4&41.. (b) The Federal Reserve Banks have the power to manufacture reserves for the Member Banks. The Bank of England has not. --T propose the same thing here. Practically speaking, the Bank of England controlled the cyclical wrings of prices (not the long-range, ten or twenty-year movements) through its rate of discount acting almost automatically through the state of the reserves. --I propose the same thing here, with only this difference: England left the gates open to the free flow of gold, and to the full effect of that gold upon her price levels. I propose a kind of tide-water gate that would permit the free inflow and outflow of gold without changing the price level, i.e., 'England allows her price level to be determined by the caprice of gold production, and hence suffered a long fall and then a long rise in that price level. What I propose is: To maintain a gold fund more than ample to redeem every dollar of currency issued, but to control that currency issue, and through this the total volume of bank credit, by another device than the caprice of gold production. What is so "revolutionary" about that? (2) As Governor of the Bank of England you would be, to all intents and purposes, "directed" to raise or lower your rates by the state of the reserves. As Governor of the Federal Reserve Bank of New York, such a policy of action is impossible. You must depend upon your "judgment" and assume all the burdens and responsibilities therefor, always with the possibility that a political turn of events might unhorse you. WISC, I STAT,I2100-10-21 FEDERAL RESERVE BANK OF NEW YORK )FFICE CORRESPONDENCE To_ 2,aytnasLr_atrong FROM Mr- _Snyder DATE Zebruary_ 27 , 192 3 s u BJ ECT:___Contral_ol_Curranpy Issues (And how about the situation if any one of half a hundred men that you might think of were in your place of responsibility?) It seems to me that what I propose is a clear, simple, scientific method by which the bank rate may be determined without recourse to fallible human judgment as to when and how much to change the rate, and one that Congress and the country could be easily educated to approve. History shows that, in matters of business, any kind of political administration usually goes wrong, and the Federal Reserve System neither has remained nor could long remain free from political domination. What if there were now no one like yourself, with the courage to take action when it is needful? Where would the System then be? As to the present situation, I will make Memo. No. 2. 3509 FEDERAL RESERVE BANK OF NEW MISC. 4, OFFICE CORRESPONDENCE To Governor Strong F,,m Mr. Snyder DATE February 27, 1923_ UBJECT: In view of your friend's long absence in the country, I have been extremely interested in the positiveness of some of his predictionswhich, If I mistake not, will generally prove wrong. PluAti ,e-tACM, r ivt4& -4 ak/iti/3 (let" da5 4,7?rs' , tit Moo NZ P411, 9,7?0, :2,01 WAMMIIMM1101011. FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To Govornor Strong FRO' Mr. Snyder DATE February 27, 1923 SUBJECT: I attach Colonel Ayres' compilation of the guesses at the probable rise in prices this year, that were made at our business luncheon a month ago. T am bound to say that it was pretty much mass suggestion, I think, that the guesses were so close, for it was an around-the-table suggestion, and not a secret ballot. At another luncheon, the next day, several of us took a ballot on when would be the peak on this upward major price movements i.e., preceding a serious decline. The estimates ran all the way from Colonel Ayres, this October; Colonel Rorty, next January; Prof. Persons, of Harvard, the following March; myself, in the following July; and Prof. Fisher, in September. On the same dqy Kemmerer made a guess of sometime this summer; and Prof. Mitchell's guess is May to summer of next year. Meanwhile, I find that there is a general expectation, especially among the auto menufacturers, that things will peak this July. But Colonel Ayres tells me that there Was a similar feeling last year es to last July, so this does not represent a very careful balance of probabilities. We are tabulating the very interesting replies received from Mr. Treman's letter, sent out to a large number of jobbers and manufacturers by the Secretary of the National Hardware Association. ISC 3 1 STAT.9600-10-21 FED ei 17- A6 JFFICE CORRESPO Governor St rng FROM AL RESERVE BANK OF NEW YORK ENCE DATE MarCh 1, 1923 SUBJECT: Mr. Snyder At it again: Or still: All the same, I cannot get away from the feeling, which I believe is very widely shared by some of the ablest and wannest friends of the System, that the Board and the Banks laid themselves open to these attacks by maintaining an air of secrecy, which spread the impression that something was going on that the public could not know. A great many feel that the meetings of the Board ought to be open and transactions public, and in general the public dealt with in the frankest and most definite sort of way. Don't you think, in the light of this experience, this would have been a great deal better arid would be Ft great deal better now? Is it not the dread of the unknown that inspires fear, and not that which is fully and openly and candidly discussed? FEDERAL RESERVE BANK 4.1. OF NEW YORK t'ICE CORRESPONDENCE vernor Strong FROM DATE / March 5, 1923_ SUBJECT: Mr. Snyder The attached came in Saturday's mail om Prof. Hastings, who is Secretary to the Research Committee of the Mo etary Association; and entirely on his own initiative. I should like to know your jud ant about it. It seams to me that it would fit in excellently with the cznpaign of education about which we were speaking. In fact, it seems to me Chat much of this material could better from outside the Fedora Reserve Banks than from inside. came much WS, 4, FED4RAL RESERVE BANK OF NEW YORK .)FFICE CORRESPONDENCE To p. Govarnor-Strong DATE__ FehriaarTJ.T.,_ SUBJECT: FROM In view of your friend's long absence in the country, I have been extremely interested in the positiveness of some of his predictions--which, if I mistake not, will generally prove wrong. 1921 March 1, 1923. PROPOSED STATEMENT to be issued at once by THE NATIONAL MONETARY ASSOCIATION The National Monetary Association is of the opinion that we are now in the early stages of an era of sharp price inflation unless definite steps are taken to check such a movement. The price index number of the Bureau of Labor shows that wholesale prices have increased about 12/0 during the past year, and current business news indicates a still more rapid advance in the near future. Productive activity, according to the Index of Production of the Federal Reserve Bank of New York, is at approximately the same level as the peak attained during the last boom period and no further advance in prices can be justified on the ground that it is needed to stimulate production. With the experiences of 1919, /20, and 121 still fresh in mind the entire country is well aware of the tremendous losses and injustices which are the certain result of such periods of inflation and deflation. Under the present circumstances the Association feels that the commercial banks of the country, under the leadership of the Federal Reserve Banks, should exercise the various means at their disposal to prevent a further expansion of loans and thereby check the upward movement of prices. of the measures at Increasing the discount rate is one hand for accomplishing this purpose and the recent action of the Federal Reserve Banks of Boston and New York in advancing their rediscount rates is to be commended,. The Association does not hold that the present period of widespread industrial and commercial activity can be indefinitely prolonged merely by preventing a further advance in prices. It does hold, however, that the prevention of further ad- vances will: 1. greatly mitigate the severity of the next major reaction in business; 2. materially decrease the length of the ensuing period of depression; 3. lessen industrial unrest and the losses which arise therefrom; and 4. prevent gross in- justice to the great mass of the American people, since their wages and income do not increase as rapidly as prices. (submitted by Hudson E. Hastings) FIFTEEN NASSAU STREET N EW Yo RK March 21, 1923 Dear Governor: Back without incident, save a very late train into Chicago. I had allowed myself four and a half hours there, and just made it. But I assure you it seemed a long and tiresome trip, compared with the going out. I think the break of a day at Chicago was an excellent thing, and I should strongly counsel just that when you return. Three days and two nights steady on the train is a long jolt. Mr. Case is away, but I have written him, and also delivered your messages to Mr. Jay. I explained to him and Mr. Sailer the doctor's idea of a pretty thorough rest for a fortnight or so; and so, unless you wish it otherwise, you won't be very much bothered with any matters here until we hear from you definitely that you "craves action," as Rastus Marsden says. I called up the young lady immediately upon my arrival, and she seemed ever so glad to have a good word about you, and to know that you had found such agreeable surroundings. I hope the radio is working grandly, and that you are having all kinds of fun out of it; and Mr. Morgan and I are going to collaborate on sending you a book or so pretty regularly, though we shall have to make a pretty rough guess as to your especial tastes. A friend of mine told me yesterday that it is the general talk of the Street that the bank rate is to be raised again "in two weeks," and that this is the main topic of conversation. I believe that this information comes mostly from the Treasury at Washington. Getting back did not seem half so fine as going out there, and I assure you that I had a fine time and was very loath to come away. The lady is also very keen over the idea of a Colorado vacation, in case there is no show for Europe. When you have something on your mind and want to amuse yourself, I hope you will blaze away in this direction. Benjamin Strong, Esq., 2 I have written a line to Dr. Forster, to tell him what a pleasant time I had, and that Dr. Houk is a trump. He surely was. Hope everything is going beautifully. With all kinds of good wishes, in which the Missus would like to join, Always y urs, cavi. /7 FIFTEEN NASSAU STREET NEWYORK March 24, 1923 Dear Governor: Miss Katharine advised me by telephone that she had found just the kind of sweater you want, that buttons up around the neck, and she also says that she is sending you two novels a week; so it is understood that she will send the stories and Mr. Morgan and I will send the others. I picked up a copy of "Seven Splendid Sinners" and sent it along. It is just a trifle, but it narrowly missed being quite a remarkable work. One vivid page that I recall from it is that of Louis XV sending for his young daughters to get drunk with him--a curious flash into not merely the manners of the times, as I took it, but also the curious kind of boredom or satiety that must have come to men in his position. Is it not an interesting reflection that this should have been all that was left for a man in supposedly the most envied position And I suppose it has been repeated thousands of times in in Francs? other cases. You see I am in a philosophical mood, which really means I I took such a discovered that I am pining and homesick for Colorado. fancy to it. After all, there is no question that one of the needful things for certain types of people, a little overly intense perhaps in their methods of wort, is occasionally to get away--and a long way--from their jobs, if they are going to keep fresh. Still, we have got going at the moment an extremely interesting bit, and that is our index of trade and business activity. We have found that we can combine now seventeen different series of monthly data of every description, from wholesale and retail store sales to postal receipts and electric power production. For each one of these we compute an individual normal as nearly as we can, and the average seasonal trend, and then to each of the items we give a weight, varying with the importance of the material, either as a good barometer or as regards its money value, and thirdly with reference to the probable accuracy of the data. Hon. Benjamin strong--2 I think this is going to give a remarkably accurate picture of actual business conditions from month to month, such as has never been This has only been possible very recently, with the obtainable before. Before exception of the fourth full year of most of the data involved. this it has been impossible to get any close idea either of the seasonal Our plan is to revise or normal secular trend of the different series. these from year to year until we shall have, I think, in two or three years more, as nearly perfect a picture of the actual volume of business and trade in the country as could be obtained even with the most minute and complete figures. I am expecting, also, that this index, covering four years of tremendous boom and collapse, will also show beyond peradventure and any further question that the variation in the volume of trade from the height of good times to the depth of bad, is relatively small. In a business way it looks as though things were working out very nicely. About every newspaper and postprandial prattler is chattering now about price inflation, commodity inflation, etc.--you see it simply everywhere, and the country is rapidly being educated to the idea that something must be done; and I should not be surprised if there should really be an overwhelming demand that the Federal Reserve Board should take the most vigorous methods to check it. Which would be a very curious reversal of most expectations in this regard. It is quite possible that this same wave of caution will actually check speculation for a time, though not, I think, for long; but at any rate it will probably mean, as I suggested to you on the train, that any serious criticism of raising the rates might not come until late in the year. At present it looks as though the experience of 1920 was vividly enough in most men's minds to really make the present outlook very propitious. Mr. Beyer is attending to the photographing of the menu, and the pictures of the banks, and I believe you were to write your family about certain others that you would like. Mr. Rovensky, and dational work scribed which started. Catchings has had a conference with Warburg, Alexander, several others, and they seem all of a mind that some edushould be begun now, and I believe a fund has been subwill be adequate for present purposes and to get things Mr. Catchings was telling me he understands the Reynolds bank in Chicago, the Continental, is putting out a statement declaring that there is no inflation, but simply a vigorous business recovery, and that all this talk about Which, if I recall, was nonsense. inflation is Hon. Benjamin Strong--3 exactly Mr. George Reynolds' view at the beginning of 1920. So you see there is need for an educational campaign--at least for bankers: This is Saturday morning, and Miss Gross is going to type this out and send it on, as / go to Buffalo tomorrow to talk to the bankers and the Hydraulic Society there, and will not be back until Wednesday. Mr. Jay, Mr. Case and all were so very glad to know that you had found such an agreeable spot to recuperate in, and of the excellent prospects. I don't think there is the slightest thing you about here, or for the rest of the country. With warmest regards, Always yours, Hon. Benjamin Strong, Cragmor Sanatorium, Colorado Springs, Colorado. need to worry FIFTEEN NASSAU STREET NEWYORK March 29, 1923 Dear Governor: I meant last week to draw your attention to the figures on turnover in bank deposits that we gave in last week's Business Summary. Against the possibility that you did not get this, I enclose it. We also have some elaborate computations as to velocity of deposits for the different districts and the whole country, which show almost identically the same thing, namely, that while there is a strong seasonal swing in the velocity, almost strikingly regular, the evidence for a marked cyclical variation, at least in the last four years, is rather And if it would not show up in these last four years I don't know slight. when it ever would or could. We shall be able to work this out back to 1909, and, as I told you, we shall do this as soon as we get our new index out of the road. The latter is coming on finely and I think is going to be the most valuable Or, rather, it will be the sumsingle piece of work that we have done. mation of practically all the new work that we have done since we started. And I firmly believe that when the country and business men generally come to understand it and look for it and appreciate its meaning, the larger part of Federal Reserve Bank difficulties are going to disappear, i.e., it is going to be unmistakable, I am sure, that the supposed wide variations in the volume of trade, and hence the need of credit, are almost a complete myth. These demands vary widely for different trades and lines of business, from Beason to season or even from year to year, as, for example, in the building boom now; but taken for the country as a whole I think it will be clear that the variation is not very wide. Meanwhile, our friends in Washington have again revealed their character and capacity for the job, as you have already seen. It may interest you to see the reception which it had here by the newspapers, and I enclose one bit. Mr. Treman was quite hilarious over it. But, coming just at a time when there was a really strong and widespread feeling that the Board or the banks ought to lay down in the clearest and most unmistakable way precisely what their policy is and will be, so that the Hon. Benjamin Strong--2 country may go about its way and govern itself accordingly, it is rather sad. I was extremely interested in the two meetings I had in Buffalo, and especially with the hydraulic manufacturers. The latter was not a large gathering, and we talked and discussed questions very informally, and I think you would have been quite impressed with their clear understanding of the present problem as we have talked it over, their quick grasp of the difficulties of the situation and obvious approval of the principles which ought to dominate the situation now. They do not want inflation, they dread it, and are doing the very best they can to check it in their individual lines. And I believe that is the feeling of the best element of the country everywhere, and that if the banks or the Board would boldly and concretely declare their policy they would have the approval, as I said, of more than 80 per cent of the country, the farmers included. The heavy bear raid on the stock market seemed to make no appreciable dent and appears to indicate a very sound position there. I have not yet found you a good book for the week, but Miss Katharine says that she is keeping you supplied with fiction. With all kinds of good wishes, Alwa s yours, Hon. Benjamin Strong, Cragmor Sanatorium, Colorado Springs, Colorado. tfl FIFTEEN NASSAU STREET N EWYoRK 0 April 5, 1923 Dear Governor: You will be interested to know that we seem in the throes of Mr. Beyer an epidemic of talk about inflation and means of preventing it. says that you get the Evening Post, and you probably, therefore, have the remarkable editorial which appeared in Tuesday evening's issue; but against And I have also the chance that you might have missed it, I enclose it., sent you a copy of this morning's New York American, with a characteristic You may say that it is on nearly Hearstian editorial on the same subject. everybody's tongue. Nothing could be more propitious, and salutary, and of course it makes a rational bank policy very easy. My only fear is that, after perhaps a brief reaction, and a steadying of business with possibly some decline in some lines, this mood of apprehension will pass and the same agencies will announce that the country is in a perfectly sound condition and that the inflation we have had was "healthy." There seems to be a great deal of talk, also, of a reaction in the stock market, and it may readily take place, though that which is widely expected sometimes does not eventuate. Mr. Catchings has had very satisfactory talks with Mr. Warburg and others, regarding financing the Monetary Association in a modest way, and we are hopeful now that the work of organization may go forward. As you may have noted, an extraordinary situation is developing in Germany, which might readily produce a good deal of a smash over there. They are trying the amazing experiment of attempting to stabilize exchange while printing colossal sums of paper notes. I talked with Mr. Ludwig Bendix, the financial adviser of the German EMbassy over here, and he simply throws up both hands in complete mystification. He says he cannot understand it at all; and this is interesting, because Mr. Bendix was one of those who believed that if they could merely stabilize their exchange over there that would be the foundation for a general reform, i.e., he was one of those who insisted that it was the fall of exchange which necessitated the printing of more marks'. My father writes me an interesting bit about the situation in Los Angeles. He says, "I never knew a people so excited over a boom as the people down here. They are growing towns over night." Hon. Benjamin Strong--2 puzzled to find anything of very much interest I hope you will let me know if there is anything special I am rather send you. would like to have. We are having a With all rather cold and stormy kinds of good wishes, Always Hon. Benjamin Strong, Cragmor Sanatorium, Colorado Springs, Colorado. ours, beginning for April. to you This article is protected by copyright and has been removed. The citation for the original is: “Credit Vigilance is Being Maintained.” The Journal of Commerce. (New York, NY), April 23, [1923]. FIFTEEN NASSAU STREET NEWYORK April 19, 1923 Dear Governor: I have not written to you largely because, I fear, of a difficulty I have always had about buying books, and that seems to be as I have not struck anything bad when it is for others as for myself. that it seemed to me would excite you wildly, end I have felt reluctant to send you what happened to come along. I have been thinking about you a great deal of late, and wonGovernor Calkins reported you in dering how things were coming along. very good spirits; but I can imagine that it might get to be a good deal of a grind to a person of your very active mind. I believe Mr. Jay has written you, and Mr. Case said he was writing you yesterday, so there is no need for me to tell you much about It seems to be pretty much what we have so often disthe situation. cussed--the difficulty of getting any kind of unity of view, or action, from any body of men of diverse personal interests, training, associations and slants of mind. The more I see of what is going on and has gone on in the last four years, the more it seems to me that, unless it was in a narrow field where tradition was very strong and the reaction of men rather instinctive, as, for example, in the case of England's banking policy, it would be very difficult to cope with any new situation by means of any I look to the next two years to justify my belief committee or board. and to demonstrate very clearly that we must get some kind of automatic rule back into the making of the bank rate, and that it cannot be left to the conflicting views and interests of several bodies of men, as it is now. I think Mr. Case has a good deal of the same feeling. I am going over to Washington this afternoon to attend a conference with Secretary Wallace, with a number of economists like George Over there I hope to have Roberts, Wesley Mitchell and Prof. Persons. a little talk with one or two persons and may write you of the outcome. Mr. Case says he drew your attention to a paragraph in the Whaley-Eaton Service for April 12, about regulating discount rates by means of a trade index. This is supposed to come from Mr. Hoover's department, and I don't know if it is a distant echo of our trade index, which I talked over very fully with Wesley Mitchell a couple of months on. Benjamin Strong--2 He was very enthusiastic about our idea, and he has been in very close touch with Hoover, spending a good deal of his time in Washington. ago. We have been finding ways to improve greatly, I think, our original idea so that we shall now have a combination of nineteen or But this naturally delays the completion of twenty different series. But I think it will be well worth while. the work. Everything moves along in just about the same even tenor as in The morning papers record a new "high" for the last eighteen months. sugar, a rise of a full 20 per cent over the preceding big rise which aroused Washington to another of its futile and fantastic "investigations." I sometimes wonder whether we have advanced one foot in economic sense This is more directly suggested this within the last hundred years. morning by the panic in marks in Berlin and a violent drop in exchange. But it seems at I hardly looked to see it come quite as soon as it did. this distance as if Germany had literally gone insane. It seems almost unbelievable that men of the business ability of Cuno and Havenstein and Max Warburg, and the rest of them there, could Even Mr. Ludwig ever have dreamed that such a gamble could have won out. Bendix, the financial adviser of the German Embassy here, who has been a faithful and constant defender of Germany's financial policy, straight through until now, threw up his hands in utter dispair when I talked to He showed me a letter that he had written to him about it last week. Max Warburg, which made clear the simply measureless morass in which Germany is now floundering. Lansburgh, the only sane and clear headed man in Germany, apparently, writes an extremely interesting little article in the same tenor, and quotes a very telling phrase that was new to me: "For the folly of their rulers the people must pay." Is it not deadly true; and is not this exactly what has happened in the United States within the last four years? I had a very interesting luncheon with George Roberts this week, and he is strongly of the view that we ought to get the rate up to 5 per He does not believe that it would be more than cent as soon as we can. a splash in the pool at the present time, and that this is the more needful as it might be much more difficult to get it up later. But he made clear that this was only his personal view and not needfully that of his bank. Down at Atlantic City I came across, in a bookstore there, a volume that I had not seen for five or ten years, that at the time interested me very much indeed. And I am venturing to send it to you to Hon. Benjamin Strong--3 get out of it what you can. I don't mean to suggest complete approval of it, but I know that I got some exercises out of it that I think, first and last, have been well worth while, and it occurred to me that it might fit into your program somewhat out there. So I will send it along with the request that you shy no bricks this way for my so doing. I wonder if you have noticed how rapidly prices are rising 7 abroad. Our English basic index, as you notice, crosses our American index this weak, and the latest official index of prices in France shows a rise from the low of a year and a half ago of 38 per cent. That is distinctly greater than in this country, where even Bradstreet's shows 31 per cent. Does not this mean that we are already afloat upon a world-wide boom, and that we are going to repeat, not merely in this country but all over the world, pretty much the same performance as 1919-'20? I guess this is enough for today. You should know of how great an interest there is here in the smallest word of news about you, such as Governor Calkins sent. A lady who finds it as difficult, as perhaps the majority, to adjust to all the daily trials and tribulations of this world, and to whom you are held up as a. shining model, joins in very best regards and good wishes. Always ours, Hon. Benjamin Strong, Cragmor Sanatorium, Colorado Springs, Colorado. Lest you should not notice it, I enclose an extremely interesting and significant advertisement in the liew York Times, scattered, I suppose, all over the country, and I am having the article itself sent to you. The education of the American people in index numbers seems to be proceeding at an amazing rate, when a popular five-cent magazine can devote its leading article and editorial to a very intelligent discussion of the subject. ri 0 'ERIODICALS Federal Reserve Bank of New York, Reports Department April 19, 1923. Vol. IV: No, 20 - Inquiries and suggestions regarding Review, phone Miss Rose, Autom. 341 - Bell 214 Periodicals may be obtained from Reference Library, phone Autom. 230 - Bell 343 IEDEFAL RESERVE SYSTEM What the Reserve Board meeting accomplished Magazine of Wall Street, 31: pp. 1063-5, 1110-11, 1114, April 14, 1923 The conference between the Federal Reserve Board and the governors of Federal Reserve banks did not lead to advances in rates, or to any announcement of rate policy. The fact that the present growth of commercial loans has proceeded without much recourse to the Federal Reserve banks would have rendered a rate increase ineffective, but now that many member banks are nearly loaned up and market rates are advancing, it is likely that advances in Federal Reserve rates will not be long deferred. It is to be regretted that no announcement of policy was made. The 'Federal Reserve Board ought not to make a mystery of its intentions or to postpone their execution until the last minute. "It is a public system, and its acts are acts in which the public is deeply interested, and as to which the rank and file of the community have a right to be informed." Only by reaeonat and proper publicity can the System regain the public confidence which has bee partly lost through the attacks of demckgogic Congressmen and ex-officeholders. The future policy of the Reserve System is of great importance to the country and it is to be hoped that a definite announcement will not be long delayed. It has been suggested that a super-reserve of approximately 100 Per cent, gold be placed behind Federal Reserve notes, leaving the remaining gold to protect deposits. Then.when the occasion arises for the redistribution of gold, the super-reserve could be released. The legality, wisdom and success of this scheme seem.doubtful. The only proper protection against the inflationary dangers of our gold holdings is a courageous and prompt policy of credit control by the Federal Reserve Board, or a policy of self-restraint on the part of banks and all users of credit, or, even better, a combination of both, resulting in keeping advances down to a level easily supported by our normal supply of gold. . ECONOMIC AND FINANCIAL CONDITIONS Security issues in France and in various countries, M. Galmiche pp. 197-221, ,Bulletin dp la Statistique Generale de la Francs, XII: January, 1923. At the conclusion of a comprehensive study of security issues in France and in other countries since 1907, the writer combines the results of his investigations in a comparative table, converting into gold francs the value of stocks issued in nine different countries between 1907 and 1922. The United Kingdom, in spite of its importance, is not included in this table (Continued) 11 OMS-2 150M-1,0 FEDERAL RESERVE BANK I OF NE, YORK T E INTEROFFICE ROUTE SLIP A. M. OFFICE SERVICE MESSENGER SECTION DATE P.M. kn7, EMARKS fr.i2-,,a1 FROM 77Y4,4- --1/C-P7( * DEPARTMENT DIVISION SECTION N. B. USE THIS FORM INSTEAD OF OFFICE ENVELOPE WHEN POSSIBLE. TO INSUREPROMPTAND ACCURATE DELIVERY ALL COMMUNICATIONS SHOULD BE DISTINCTLY LABELED 4 OUP _ BANK .RK 4111k RITEROFi'ICE ROUTE SLIP (4, A. M. M. DATE =FICE seRvicg MES!,ENGER sE n DEPARTMENT DIVISION SECTION REMA S FRO N. B. Or DEPARTMENT DIVISION SECTION USE T IS FORM INSTEAD OF OFFICE ENVELOPE WHEN POSSIBLE. TO INSUREPROMPT AN o ACCURATE DELIVERYALL COMMUNICATIONS SHOULD BE DISTINCTLy LABELED This article is protected by copyright and has been removed. The citation for the original is: The Literary Review of the New York Evening Post. (New York, NY), December 8, 1923. FIFTEEN NASSAU STREET NEWYORK April 24, 1923 Dear Governor: It was mighty cheering to have a good word from you, and also and to see the letter to Mr. Sailer which was duly passed have your blast on Cassel, Keynes a Company! ( am d, to 2.4 t I hear, by I am sending Robertson's little book on "Money." the way, that Henderson, one of the Keynes-Robertson group at Cambridge, is to be the new editor of "The Nation," London, which W. T. Layton, who succeeded Hartley Withers on "The Economist," and, as I understand it, I have a suspicion that it may have been Keynes, now have control of. Henderson, since he writes well and Layton does not, who wrote those two very clever editorials on the problem of stabilization in this and other countries, in "The Economist" last winter. We have tried hard to find the Guyot book in town, but without Almost nothing of that kind comes to this country except on success. But I And I am pretty sure that it has not been translated. order. am sending for a copy and I will have our clever Miss Frankenstein, or Mr. Bendelari, translate some of the most savage paragraphs on your favorite authors, C. K. & Company! Of course I don't altogether agree with you, as you know, about To me he seems living in another world than that in Mr. G. and his view. For example, I don't see any parallel between which he finds himself. the French situation, now, for example, and ours or England's after our Civil or the Napoleonic Wars. The degree of depreciation with us was, save for a very brief period, relatively slight and more like the English pound in the last And is not this the heart of the whole problem, the question three years. of degree? 21;72-7Pi(0 France today is more nearly in the position of the assignat;and I withAgoverament finance in almost as great a morass as that of Germany, don't see any present prospect for them to pull out of it--do you? We had a very pleasant evening over in Washington with Mr. Welliver and his friend4. Present; George Roberts, Prof. Mitchell, Prof. Persons, There was a very Dr. Foster, B. M. Anderson, and one or two others. Mr. Roberts and Prof. Mitchell, sketched the situation lively discussio ? Rea. Benjamin Strong--2 Bmt.I don't know if it did any particular good, almost as you see it. but at least it was sufficiently jolly, and a pleasant time was had, es pecially by the attending guests. 1-?-t2-71-/4 Lad co( C. ,also bound to say that I feel that you are a little unfair Not everyone can write to Prof. . c rticle in the "Commerce Monthly." like Mr. Roberts, you know, and in substance the article seemed to me Mr. Alexander was so pleased with it that he brought it pretty sound. over to Mr. Jay, who said he thought it one of the best he had read in a I'll remind you of your own doctrine, that the council of long while. perfection does not run very much in this workaday world. (r-"( I got at Washington the impression that there is a very strong tide of opposit on to anything that the most fearful of souls would regard as "disturbing 6 prosperity," and, if I mistake not from the piece which I enclose, it will be verx dif 'cult to get any kind of timely action, I , believe. )--y;//4,C.1 ot,t t cU )14 olf nenWetddft4 I have been casting up the account this morning on the wage situation. Our index of unskilled wages stands now at 199, and the average weekly earnings in New York State factories at 212. 03a,a4 ==.4. /7/3) Even farm wages, according to the Department of Agriculture, showed a rise of 11 per cent within the last quarter, which was a fairly stiff jump. Last week the Industrial Conference Board reported 229 wage increases, and that on top of a long string in the months preceding. And I find there is a disposition to grant these increases freely, for industrial profits seem to be running very high. Now do you see just how we are going to keep down for very long the general level of say around 160, with wages at 200 and over I confess it seems to me very difficult, for, as I end steadily rising? said, it looks as if the present volume of bank deposits was amply sufficient to finance a considerable rise without any recourse to the Federal Reserve Banks. pricesrW We had a very interesting conference with the Agriculture]. DeI gave partment, with Roberts, Mitchell, Persons, at al, in attendance. a little account of it in the "buff sheet" this week. There seemed to be a general feeling that the farm situation was improving end that it might run very much further by fall, with much higher prices for farm products. In other words, that the situation may likely work itself out on the old accustomed lines. Which reminds me of a very striking phrase Hon. Benjamin Strong-3 that a friend of mine, who has just returned from England, and seeing almost all the economists over there, reported as from Prof. Oannaw, to the effect that: "There is at least one group that, through the War and to date, has had nothing to take back or apologize for, since everything has worked out almost exactly as they said it would, and that is the Orthodox Economists." I don't know just how absolutely true it is, but anyway it sounds good, and I think comes somewhere near the fact. At any rate, as regards Germany: May I note, RE to your observation on Ricardo, Mill, Newton and others, that,at least as far as Newton and his law are concerned, the correction for "c" in the formula is so infinitely slight that it is extremely difficult to prove that it is not so AndI have the same suspicion as to our friend, David, et Everybody joins in sending you all kinds of good wishes and congratulations on progress. Always ours, cl;ott-i/ Hon. Benjamin Strong, Cragmore Sanatorium, Colorado Springs, Colorado. 0,6J y / E, 9-/ aa4cp t7 e,tz-y1-4k t (:(4- Federal Reserve Board, Washington, D. C. 5. 4/20/23. Reserve Bank of Richmond from returning as dishonored any checks drawn upon any one of banking institutions joining the injunction proceedings which the drawee bank refuses to pay except in exchange at less than par. TO ADUNNCE CLOTHING WAGES: . We learn from a confidential source that negotia- tions are about to be begun looking toward an advance in the wages of 1 clothing workers in this city. These wages, which advanced more than any others in the period from 1914 to 1920, have been reduced only about 10 per cent. and are still more than twice as high as before the war. While the amount of the advance has not been decided, we understand that it will be about 10 per cent, and this will put these wages back as high as they were in 1920. With this advance coupled with the recent increases in textile mills, clothing for spring, 19241 undoubtedly will be higher in price. Most fall clothing has been sold and it is now being manufactured. Respectfully, Shepard Morgan, Assistant Federal Reserve Agent. Federal Reserve Board, Washington, D. C. SM/EGF 5. IWAGE TREND ADVANCING: Federal Reserve Board, Washington, D. C. 4/19/23. Latest survey of wage changes in industrial establishments by the National Industrial Conference Board shows an unprecedented number of wage increases in the month from March 16 to April 15. tions reported, and there were 229 increases. There were no reduc- This compares with 37 in- creases the previous month and with 42 advances two months ago. The Board says that this sudden upturn is not to be explained wholly by a labor shortage, but in part by improving industrial conditions. The New York Depart- ment of Labor informs us that total wage payments in factories in March were two and two-fifths times as large as they were prior to the war. Respectfully, Shepard Morgan, Assistant Federal Reserve Agent. Federal Reserve Board, Washington, D. C. SM/EGF Federal Reserve Board, Washington, D. C. 4/2 /23 reduced tank wagon prices on gasoline 1 cent a gallon to 23 1/2 cents. The price of kerosene was reduced from 15 to 14 cents, and naptha to 22 1/4 cents. 1 cent These reductions followed those recently made by Standard Oil of New Jersey for New Jersey, Maryland, Virginia; and the District of Columbia. The Texas Company has met all of these reductions. ELEVATOR PLANTS AT CAPACITY: Main plants of Otis Elevator Company are being operated at capacity in on attempt to keep, up with incoming orders, according to I. D. Baldwin, chairman of the board. He said that if business con- tinued to come in as it had recently, it would be necessary to expand the 1, plants. Respectfully, Shepard Morgan, Assistant Federal Reserve Agent. Federal Reserve Board, Washington, D. C. SM/EGF a."- 5 WOOLENS ADVANCE: Federal Reserve Board, Washington, D. C. 4/28/23 American Woolen Company has annouiced advance of 11 per cent. in price of fall woolen goods. Most manufacturers have contracted for their requirements at the lower price but duplicate. orders will have to be paid for at the hic;her levels. The advance was due to higher quotations on raw wool and to the recent advance in textile mill wages. The trade believes that this is a fair indication of the price levels which may be expected for next spring. Respectfully, Shepard Morgan, Assistant Federal Reserve Agent. Federal Reserve Board, Washington, D. C. SM/EGF FIFTEEN NASSAU STREET a N EW YORK April 2E, 1923 Dear Governor: I am having your very interesting article copied and will turn it over to Mr. Jay and Mr. Case and they will write you their views. Mr. J. is still hopeful that we may have some clear and definite statement of policy when Mr. C. takes office, but Washington is a queer place and I don't think they see the situation with quite the same eyes as we do. As to the article itself, I should feel, personally, that anything that would tend at the present time to lessen in the public mind the responsibility of the Reserve Banks would have a rather unfortunate If we are not to get some control from then then I don't know effect. where any is coming from. And as to the need of this control, I am enclosing a memorandum which I wrote today for Mr. Case and M. Jay, as to the probable effect of the wave of wage increases which seems now sweeping the country. As to the causes enumerated on page 5, I fear there would be a good many to disagree with the statement that a number of these are "the most important and fundamental causes." I think you would find that the orthodox view of the economists is that most of these are either transient or very slow in their effects, and that for the most part they tend mutually to cancel each other more or less, so that they are neither very important nor very fundamental. Personally, as you know, I think that we now have worked out in this bank the almost indisputable evidence that the general level of prices, as nearly as we may estimate it, is in this country very closely a "function," as the mathematicians say,of demand deposits in the banks, varying as these vary, and that,because the synchronism is so close, Cccam's razor would rule out most if not all of the supposed other "causes." The point is very simply that we now have definite proof which I think cannot be gainsaid, that in this country at least the variation in the total volume of trade from good years to bad, and boom to depression, is relatively slight; and that the demands for credit vary within about the same proportions. Secondly, that while the variation in the rate of turnover of bank deposits has a marked seasonal swing, we fail to find any evidence of any wide cyclical swing, even in the four tumultuous years we have gone through. Hon. Benjamin Strong--2 This leaves then only one dominating factor, and that is simply the relation of the volume of deposits to a not greatly varying volume of trade. It is my personal belief, Governor, that the evidence for this is now as good as for most other facts which are accepted on a statistical I may add that basis, whether it be in astronomy, physics or economics. substantially the above was clearly the opinion of Mill and Ricardo, and of most orthodox economists since their time, and denied only by a relatively few of the type of Laughlin and B. M. Anderson and Harold Moulton. And I believe, further, that if you will restore the credit conditions prevailing from 1908 to 1915 you will restore the very remarkable price and economic stability of that period. I would not (Well on this subject so strongly, I suppose, if I did not think that we had been piling up a bully lot of stuff in these three years that offer a real solution of the problem in which we are all interested; and of course one hates to think that this has not been worth while and is not going to be used when concievably it might be of enormous value to the whole country. you let this forgive your earnest and somewhat tiresome friend? all It is fine to know that you have a mood and energy for these things, for nothing else could tell so well the story of your progress. We are all delighted. Ever Memo. on Pickett letter: May I follow your suggestion, for this reason: I think it is clear the article was pretty unfair to Secretary Wallace, and looks like a rather nasty drive against a rival agricultural paper and a bid for popularity with the advertisers and boomsters generally. There is much that is true in Mr. Johnson's article, but, as I understand, he got the whole of it from the Agrieultural Department; and all of these things are matters on which the Department has been working on very intelligently and with a far greater intelligence than displayed by the writer of this article. It is not true that the index of the purchasing power of the farmer's dollar was invented by Mr. Wallace. It was begun back of his administration and is simply a hang-over. Nor is there the slightest Hon. Benjamin Strong--3 mystery as to how it is constructed or the reasons for that construction, The comparison with save in the foggy or unfair mind of the writer. the Department of Commerce figure is not a fair comparison, and altogether the article seemed to me to rather maliciously misrepresent the whole spirit I got a very fine impression of the work they and aim of the Department. are doing down there last week; and I think it would be rather hard to imThey are a prove it very much, except in just the way they are doing. live bunch and up on their toes. MISC 9 1 STAT.9800-10-11 FEDERAL RESERVE BANK OF NEW YORK ' VICE CORRESPONDENCE UN, 14,' FROM DATE 4.44...- April 26, 192; SuBJECT: litr. Snyder A molt interesting situation is developing in the widening *spread" between the average price of goods at wholesale or retail and the "cost of living," on the one hand, and wages and workers' earnings on the other. Within the last six or sight months wages have been rising considerably Faster than prices, at least on the Bureau of Labor indices. rages and earnings are approaching the 1920 basis, while prices are still much below, as is set forth in the following table: 1913 or 1914 = 100 Peak lam Average 1920 Latest 1923, Dept. of Labor, Wholesale Priam Dept. of Labor, Retail Feed N. I. G.,""Gost of Living" 247 219 226 204 159 204.5 197.3 159.2 Unskilled Labor Wages Weekly Earnings, New York Factories 234 228 221 222 273 261 U. 3. Dept. of Labor Wages (13 industries) 142 199 212 237 It will be seen that, with our index of unskilled labor wages in this district and the weekly earnings of workers in New York State faeftories, both the peak and the average in 1920 were below the average of wholesale prices. Whereas now they are far above. The third index of wages compiled by us is heavily weighted with wages in the textile and iron and steel industries, which ran very high in 1920, and still seem much above the averages in Lew York State now. Given wide and general employment at these wages, we have a sit- uation that has rarely been witnessed before, that is, retail food and the average enst of living in 'a skilled worker's family at something like 20 to 25 nor cent below the average of wages and earnings. nearly the same. It is a hey-day for labors And wholesale prices How manufacturers and employers generally can go on raising their wages, as they aro, and not rapidly advance their prices, is a puzzle. The advance in wages has been more rapid within the last month or two than at any time since the turn of the tide in 1921. last week the Conference Board reported 229 increases in a single fortnight, which broke all records. And in conversation with employers I have found, apparently, a general disposition to meet demands for wage increases promptly and seemingly without very much question, as though it were wmething that had to be done, and therefore done gracefully and quickly.. I don't know when I have ever seen quite such a situation. 1415C.3 1 STAT.3600-10-21 FEDERAL RESERVE BANK OF NEW YORK JFFICE CORRESPONDENCE DATE To FROM Apri34.4 1911 SUBJECT: _lies _Snyder 2 3ome explanation may lie in the fact that profits are now running very high in many industries, and there is apparently a real increase in efficiency, in some cases to an almost unbelievable degree. The tire ems. panies report that, partly from this increased efficiency, partly from bettor organisation and better process uork, they get four tires per man per day as against an average of about one tire in 1920. And everywhere, in the steel industries, in construction, in the Ford factories, and all around, there are reports of a very marked gain. 50, for example, in the basic industries) of which we have monthly figures we have now a record level of production, while in this :State and elsewhere the factories report about 10 per cent less in the number of eneloyed than at the peak of 1920. The two sets of reports may not be accurately oamparable, but they do seen to disclose a marked vata in production per man. All this vividly illustrates, in unusual demos, that phase in what Prof. Mitehell calls the "round of events" which we term the business cycle, wherein prices are rising, profits high, and wages good. But invariably in the past this stage has been followed by another in which wages and costs rise faster than prices, profits are diminished, and prosperity comes to an end. But this last has always been due, in part at /east, to an exhaustion of purchasing power, which has estoppod further increases in the prices of mods. This check is not now operative. It seems difficult to convince either bankers or economists that we have had a trenendous ex- pansion of bank credit, difficult because this has not taken the usual route of an expansion of bank loans. With bank deposits back practically to the level of 1920, and no material difference in the total volume of trade and production, we have clearly a credit volume sufficient to finance a still further heavy expansion in prices, possibly close to the 1920 level. And this without much recourse to the Pederal Reserve Banks. such high and rising wagon create a trenendous amount of purchasing power among the workers, who constitute 50 per cent or more of the total earning population of the country. This must have and clearly is now having its natural effect in a prodigious volume of retail trade. There seams no piling up of stocks, even with the present high level of production. Now the extraordinary thing is that *Nowlin force in this amazinge ly rapid recovery from the depression of 1921 has apparently been foreign investments and deeosits in this country, buying back our securities which they have sold or leaving heavy leanness here, from the sale of mods. This means that a turn of the tide in this direction might, under existing con- ditions, when the total balance of other payments seems on the whole against ,41,31300-10-21 FEDERAL RESERVE BANK OF NEW YORK JFFICE CORRESPONDENCE IDATE_Apri1_26. To FROM 192.3 SUBJECT: Mr. Snyder 3 us, eaEily bring about heavy gold exports. Does not this singular situation call for an unusual degree of caution and should not the Federal Reserve Banks take the lead in calling attention to this rapid advance in wage levels, and point out its inevitable and unescapable effect! It seems fantastic to create an enormous volume of lurchasing power through hi* wages and full employment, and ex- pect that thetas hi* wages will net be passed on to the mnoumer as raoidly as possible; and that this will not bring about another uprush of prices, to be followed inevitably by another Jellapse. oarnst get away from the feeling that the situation is almest identical with 1919 and 1920, and that unless something is done now to check this headlong pace, it must result in the some disastrous collapse of three years ago. Or 'C. 34.1 601.1 111 1-21 FEDERAL RESERVE BANK SENT BY SEND TO .FILES OF NEW YORK COPY OF TELEGRAM April 27, 1923 ;ion. flenJnin Strong. (Iraqir ganatorim, eolnrado '-)rings, valorade. neeols interested in your artiele and have 411111 COniee to Case and Jay, }lave %mitten you rerxtrding it EWA r. Jny h suggestinca little delay pendinr devalorments at Washington. e otin 'is Carl :inyder vritten Best kg! !Id a ri MISC 3 I STA1.3600-10-21 FEDERAL RESERVE BANK OF NEW YORK JFFICE CORRESPONDENCE To FROM Mr. Jay MON: April 30, 1923 (Copy for Governor Strong) --SuBJECT: Mr. Snyder With reference to your inquiry as to the ratio of money in actual circulation and net danand deposits, we make the following estimates as of July 1 of: 1920 1921 1922 4.87 5.02 (revised) 5.80 (revised; As of January 1, 1923 -- 5.73 (estimate) You will note that there is little change in the six months from last July to last January. The tendency seats to be for this ratio to show a distinct lag on rapidly rising deposits. This was naturally the ease in the Var, when it rose for a short time to about 7 to 1, quickly falling in 1921 to what has been the normal ratio of about 5 to 1 in the last twenty years. This night reflect the fact that retail prices are the last to feel the effeet of a heavy price rise, and that the need of a larger circulation does not occur until this taken place. On this basis the expectation be that a heavy demand for Federal reserve circulation might not show itself until later in this or even next year. might FIFTEEN NASSAU STREET N EW Yo RK April 30, 1923 Dear Governor: no4,10-14m411144A1-4.417 exports. dollars. DCITTrit on the o29,114.1Atet-g0t* rfon did not mean to suggest any deffEraligure, like a ad no particular figure in mind. But less, as Mr. Wagner of the Discoun AitcPoration suggests, my feeling is that, foreign balance in New York continue to incr with our rapidly eclining merchandisebence, we must either curtail our foreign loans r suffer lar d exports. note thi you are please ca ction of with the fling that Prof. Mitchell joins the ranks of them "guessers," a very respectable recruit; in fact, M. Anderson, Dr. Willis and one or two others of tattype, I think t economists are of pretty much the same view as . Mitchell. almigNOW, You intrigue me deeply with your view of what you call my "complex," and I feel like Challenging it a little. Would you care for a friendly wager on the following questions: lowsonamecogissuott (1) Your view is that the Federal Reserve Banks will raise their rates and prevent further inflation of prices and wages, above the present level; that we shall not have another boom and another crisis and another disastrous collapse in prices, production and employment. As this all may take some time, I suggest,,a wager thate, hi/1r one year from date the level of prices will have another notable rise and that, for example, the Bureau of Labor index of wholesale prices, now 159, will rise above 180, if that will be a satisfactory test to you; and a pleasant dinner for eight to the loser. (2) Further, that the loser agrees at the dinner, and thencethat a boom has developed, for prices could scarcely rise that much further without a boom; second, that this was the result of inflation; and third, that this inflation could not be curbed by the action of the Federal Reserve Banks; atimindtgately, to recognize that anything beyond a 3 or 4 per cent increase per annum in the bank deposits of the country results in a rise in prices, and that a 12 or 15 per cent rise in deposits, such as has taken placr, in the last year and a half, results in a pronounced inflation of .,. ices and wages; and finally that the only possible -4,44;11" forth ;4( - Hon. Benjamin Strong--2 way to curb inflation and to prevent a topsyturvy up and down of prices, such as we have witnessed in the past seven years, is to devise a method by which the amount of bank deposits shall vary within narrow limits and proportionally to the normal increase in the total volume of the country, which is within 3 and 4 per cent. Loser to make full acknowledgment, and further to admit that those who, in the last year and a half, have rightly predicted the trend of the price level are not "guessers." FIFTEEN NASSAU STREET NEWYORK May 1, 1923 Dear Governor: We had a very delightful visit from Dr. Forster yesterday, with I got the ima most encouraging report as to your continued progress. pression that he is wonderfully pleased with the steady improvement, and that he has no doubt of the outcome, though I did get the impression that he thought it would be hastened the less the amount of work that you do. I heard a lecture on experimental psychology the other night by a Johns Hopkins professor, and he had a rather novel idea which I will It was this: He says that deaf pals on to you for what it may he worth. mutes, when left alone and unobserved, will, when engaged in any kind of intense thought, talk with their hands much as if conversing with someone This observation, he said, had led to the idea that muscular present. action was a concomitant of all thought, and that this seemed borne out by the idea that children alone, at play or otherwise, talk to themselves And a great many grown people will go along the street continuously. talking to themselves out loud, or at least with their lips moving. Now,he saidlexperiment had shown that, even when the lips do not move, a delicate instrument applied to the muscles of the neck and larynx shows that intense thought always involves more or less muscular action, depending upon the degree of inhibition which had been developed by the individual. And he gave this as one of the reasons why thinking can make us tired just like any other kind of muscular activity. He was obviously of the school that believe that we cannot think without words. Anything less than that is a mere state of emotion or feeling. Which, if true, I suppose would mean that the less you felt inclined to go magazining, and the less you indulge that tempting proclivity, possibly the bettor for the progress of that throat. I meant to ask Dr. Forster about this but I did not. So I will leave that to you. T. note your threat to cut your income and go pamphleteering, but I can assure you from deep experience that it is an extremely expensive adventure all around, and pretty sterile of results. The plain facts seem to be that mighty few People are interested in economics or banking, and the most of the people who are seem to want to write and to expound their own ideas rather than read what anyone else has written. And I would ask you, Sir, to consider if you would the implication of my failure to convince you that we have really solved the problem experimentally, Hon. Benjamin Strong--2 here in this office, of the relation of money and credit and prices; and that we really have the proof, and that this proof is,so to speak, simple bookkeeping, as your phrase is, and exactly of the same order of things as when you strike your balance on your books at night. What I mean to suggest is that almost all our ideas on economics seem so deeply colored by our emotions and feelings and personal desires-so much so that I have come to think of them largely as just "wish thougnts." For example: How many people have ever sat down and laboriously, month after month, attempted to compute the probable average level of all prices and compare this with the wage levels and rent levels and cost of living, and all the rest; and then compare each of these with the increase in bank loans or of bank deposits or of demand deposits alone; or computed the normal annual rate of increase in the volume of production and trade; or the velocity of turnover of bank deposits from month to month and year to year? We have done all these things, and this work is now practically completed, and I think that the results are in accordance and that the proof is just as sure as, for example, that the movement of the earth or of the moon is controlled by gravitation and that their perturbations are caused by the same force. It was a generation, Sir, after the "Principian was published before any but a few believed in it as a great discovery, and the earne thing was true of the atomic theory in chemistry, and of the theory of evolution in biology. And apparently it will be the same thing in economics. --You see today is the first of May, and the sky is very blue, and I wish I were out in the green fields. I note your comment on my summary of the possibility of gold exports. I did not mean to suggest any definite figure, like a billion dollars, as I had no particular figure in mind. But unless, as Mr. Wagner of the Discount Corporation suggests this morning, foreign balances in New York are to continue to increase, my feeling is that, with our rapidly declining merchandise balance, we must either curtail our foreign loans or suffer large gold exports. I have been developing a theory of "automatic prosperity," so long as the gold lasts. I'd like to write you about it if it still looks Hon. Benjamin St ron g--3 good overnight. You may believe, Sir, that everyone was deeply gratified at Dr. Forster's report. --I have posted you a little book on "The Stabilization of Business," and I shall soon send you the Mitchell Bureau book on "Business Cycles and Unemployment." With ever so many good wishes, Hon. Benjamin Strong, Cragnore Sanatorium, Colorado Springs, Colorado. FE.,F'-'ke RESERVE BANK OF NEW YORK MISC. 4.1. .dFFICE CORRESPONDENCE DATE May 2, 1922. - To FROM SUBJECT: Governor Strong Mr. Snyder The enclosed is a list of those who were invited to the Conference at Washington, and will show you, I think, that the department there is quite as keen as anyone could wish, to make the best utilization possible of the immense mass of statistics which they gather, and that they are trying very earnestly to help the farmer in every way they can. And my feeling is that they are doing a pretty good job. (,/,/ PL ai° CO\ 02 Vh-, 4,4 fityvvo 4ictu f , 49019,4 610 UNITED STATES DEPARTMENT OF AGRICULTURE BUREAU OF AGRICULTURAL ECONOMICS FORMERLY BUREAU OF MARKETS AND CROP ESTIMATES AND OFFICE OF FARM MANAGEMENT AND FARM ECONOMICS WASHINGTON C ONFIDENTIAL IN REPLY REFER To FILE April 7, 1923. Mr. Carl Snyder, New York Federal Reserve Bank, New York City, N.Y. Dear Mr. Snyder: I am pleased to have your wire indicating your willingness to comply with Secretary Wallace's request that you participate in the conference in Washington, April 20 and 21, 1923. The conference will be held at Room 720, The Bieber 3uilding, 1358 - B Street, Southwest, at ten o'clock. Within a few days we will forward you authorization for travel and transportation requests to be used for the purchase of railroad ticket and Pullman accommodation. During the past year members of the United States Department of Agriculture and others have continually advised the producers of agricultural products to adjust their production to the demand. It is recognized that in order that producers may act intelligently, in deciding what and how much to produce, they should have more complete information than has been at their disposal as to the probable demand for the different things which they may produce and, also, with regard to what others are planning to produce. The Department of Agriculture is making an inquiry regarding farmers' intentions, the results of which will be available for the meeting. These intentions to plant or to produce livestock and such data as are being assembled with regard to stocks of farm products, what is being produced and the demands that are being and will probably be made for the different agricultural products throughout the world will be considered by the conference. It is hoped that conclusiohs may be reached which will aid the producers of agricultural products in making some adjustments in their plans for the coming year. We would like to have you bring such information as you can which will tend to throw light on this problem. You will appreciate the importance of giving no publicity to this matter prior to the release by the conference. Very truly yours, FIFTEEN NASSAU STREET N EW Yo R K May 4, 1923 Bear Governor: My suggestion about the letter you enclosed from Drummond, of Kansas City, is that you allow Mr. Beyerle reply to stand without any further word. I get an unfavorable reaction from this whole thing, that it is pretty much a one-man affair; and, however well meaning he may be, that it is not of a great deal of importance. I imagine these letters are sent broadcast to a great number of people, like yourself, and that no further reply is really needful. I will hold it until I have further word from you. Colonel Mixter, Vice President of The Deere Company of Moline, was in today and reports that they are doing a very good business and at fairly satisfactory profits, and that the position of the farmer seems greatly improved and a much different atmosphere prevailing. All this seems to be clearly borne out by the enormous increase in the sales of mail order houses, like Sears, Roebuck & Company and Montgomery, Ward & Company, for the last few months. I am sure Wesley Mitchell is right when he says that things are going very nicely, and that the only fear iy that they should be going too ci ati& 'tea, i)k.0-$A4le WI -.- - .,_ cm ,A.I Micah/vb. .1; fir"? c itatt e - 4'_ A_.e, e9 , Would your judgment be in favor of the suggestion which I enI believe tile matter would have to be reported to the Board at Washington, which I think hereafter I shall call the'dheka. close? Thank you much, and deeply, for the very cordial personal note. I wish I were riding up a Colorado mountainside on a horse's bank, with you on another, instead of sitting here and thinking how nice it would be to be out of doors. I never did stand jail life very well, at least in the spring! , t )10,0A http://fraser.stlouisfed.org/ tor Federal Reserve Bank of St. Louis Everything seems to be going very smoothly. An excellent editorial in last night's Evening Post, which I enclose lest you might have missed that copy or may like to have an extra copy. By Mr. Franz Schneider, the financial editor who succeeded the ancient Mr. Noyes. Another collapse in the mark, just as any sane human being would have known there must have been. Is there no financial sense left in Germany? Hon. Benjamin Strong--2 Some very picturesque and well written but emotional and overstrained articles on Germany and the Ruhr situation now running in the current SaIllyALLElysliningjost, which you may have seen. Last night I picked up an extremely convenient single-volume edition of Mill's "Economy," with some very interesting notes. Splendid reading still; and almost all of it might have been written yesterday. while? And has very muzh been written since, in this field, worth With sincere regard, Al ral Cv-iltv); ah 06 Patt. AKE( le-Cd 66 ; u1)-ece' ca fro Am etc fri)iattws e riALL e1a4 Afrtitteo ?vie' At' /?7e (1)217,1/)714444--- Afide bnto-to ag6 ttv trviEji &IQ/ Clatta itat cite_tatir 161 4,46,afk.cx ( 4,7 ett / Oxt ( cirrnAt Ayttlit;71,1 /he, (3/0 ( q-cfP ''rattAzr wA7rei) (ay 4( \t- 7/1 titAr pLco 1-utaett Ay-iv? 644,ctrteal 07)11A/0 reutk.-24 hal-tazAil}!) ,.! /(? eir cer,,,11ct/ 427 (41_ A V trt,11,/v7;k-ertt,t ri4 /X I q 1,1 to 17; 1747$ evt,t. "tf-titA,It ti/IC /7\,4ti? act-/71 r))\.ittr.1 --ttrtt.tr, 761,1E' viLry This article is protected by copyright and has been removed. The citation for the original is: “General Business Conditions.” Harvard Economic Service (Cambridge, MA), May 5, 1923. FIFTEEN NASSAU STREET N EW YO R K -o May 8, 1923 Dear Governor Strong: The good Lord knows that it is difficult to discuss poignant problems, in which there may be a considerable variance in the points And if you have of view, without possibly growing didactic at times. spent years on a problem, with a growing delusion that it is solvable I and even solved, there is equally a deadly tendency to "lecture." can only offer in defence that I am seriously aware of the propensity, and worried when it gets the better of met / am enclosing a little note I wrote to Chandler, apropos of Does it not seem to you quite significant that there his article. been a practical dead level, even of sensitive commodity in the three and a half years which reached to near the end of 1915, and even a year and a quarter after the War had begun; and does not this seem to suggest that most if not all of the forces which you enumerate as affecting prices tend mutually to cancel each other, and that there remains only one dominantly directing force? slyaUlge My point is that in just this period there was remarkable stability in the growth of demand deposits, and that these changes about matched the annual average growth of trade, estimated at about 3i- per cent. Further: You can draw a curving line through the curve of commodi prices, from say 1896 to the end of 1915, this fashion: And you will find that the variations from this median line, month by month, have never exceeded more than 3 o_ 4 per cent. Now I think you agree that the dominant force behind the loLg rise in prices, from 1896 to the War, was the increasing surplus of gold. Supposing that single force removed, we should have had, would we not, a practical dead level of prices through this quarter of a century(4. 0.0 1 And please note further: that it was only when the gold came in in a flood in 1915, and only after it had begun to swell enormously the volume of bank deposits, that this even rise of prices through a quarter of a century was sensibly disturbed. Does not all this seem to you pretty clinching evidence? /1 Hon. Benjamin Strong--2 f Dr. Burgess has prepared an extended article on the question of deposit turnover, or "velocity," and when you have read it I should like very much to have your criticisms, and also to know if you have still doubts as to the significance of the figures. I meant to note that in the little book on "Stabilizing Business," which I sent you, Mitchell makes comment upon some of your testimony in the Joint Inquiry, pp. 38-39. Mr. Case has written you so extendedly on the rate situation and other things that there is very little to add. But I made some comments in this week's Summary on those who are prophesying that the boom is over. note that the new "dirt farmer member" was recommended by Senator Cummins and ax-Senator Rawson, and not by Brookhart, and if so I imagine that he is a fairly sound and capable citizen. They would scarcely recommend anyone for such an important post who was not. But I don't know that this will help much to solve our diffiplty, which, as I see it, is the chronic difficulty of divided councils. And I am wondering if that is not the great source of weakness in the System as it now stands, and whether you will not come to the view that, because of this, some automatic rule of action will be forced upon us? My little article on the subject will appear next month, and I am hoping it may commend itself to your judgment a little more in type, and with extended revisions and modulations. With all kinds of good wishes, Always ours, Hon. Benjamin Strong, Cragmore Sanatorium, Colorado Springs, Colorado. I enclose the current letter of the Harvard folk, and have marked a few expressions that I think will cause you to raise your eyebrows, mayhap. )(rt 0 akA,A. zrt-t 1141--1e e1 1-.-tt LA) C,U v 0 -;4,t 7 )11 .c-eeer /744+.4:, A:7 --7yreg /4IC 3 I STAT.31500-1011 FEDERAL RESERVE BANK OF NEW YORK JFFICE CORRESP DATE SUBJECT: May 10 192_3 The Measure of Credit Needs. .Snyder I agree entirely that it would be unwise that we (the Federal Reserve Banks) should attempt to "control the general price level ,'-not enough as yet That is clear. understood to justify our attempting that role. But is it not equally clear that under existing conditions we ought, nad:o4011 be compelled by the force of circumstances, and by public opinion, to recognize that, as things stand now, the course of the general price level must be one, if not the dominant factor in determining what is adequate credit need and expansion for the country? Furthermore, has not this implicitly always been true? What I mean is this: when we formerly spoke of gold as the great regulator of credit, and a great stabilizer, we hatitts in mind in reality the effect of this gold upon prices - and practically else. The mechanism was that an inflow of gold produced an expansion of credit, and this expansion of credit led to a rise in prices which brought our general price level above the international level of prices. Then the gold flowed out, credit was contracted and prices fell. Is not this an exact statement of the facts? In other words we were aiming at, and did attempt, by this mechanism, to "regulate the general price level," and that was a definite object; and that was why we prized the gold standard, that in a crude way it did achieve just this purpose, and that, as we have found to our cost in the last eight years, nothing else could do this as well. we no longer have any Now that this mechanism is out of commission, regulator of the price level, and this means that we no longer have any serviceable measure of credit needs, Now I do not mean to suggest that the great expansion of credit in this country (and in other countries like England) was the sole cause of the great rise in prices. But do we not all agree that this rise would have been impossible without the credit expansion? Therefore was not credit expansion at least the "enabling act" that made thia great rise possible? And likewise would the new rise in prices, since 1921, have been possible without an expansion of 4 or 5 billions of bank deposits? I at least believe that we now know enough, and have evidence enough, to say positively that this would have been equally impossible. As a guide to credit policy Professor Sprague has proposed that we take the index of production. And we have frequently agreed that high production and full employment means that further credit expansion can only result in the inflation of prices. But the trouble with these factors as guides is that it is practically impossible, with any existing indices, to determine the point at which restraint of expansion should be exercised. Almost no general agreement on this point could be attained, as witnessed, for example, right in our own Board of Directors. 11419C.3 I STAT.3600-10-21 FEDERAL RESERVE BANK OF NEW YORK JFFICE CORRESPONDENCE To Governor Strong DATE_ SUBJECT, May 10, The_Meazure_at_Gredit 19P Needs. FRoM___Irs_Snyder Is it not liable guide to the plicitly, the price ever since the Bank now true, and has it not always been true, that the one reregulation or control of credit has been, explicitly or imlevel; and is not this our fundamental banking principle of Englund developed a clear rule of bank rate policy? And in now saying that we must never attempt to "control the price level," are we not tacitly abandoning this principle, in the sense that this principle is the sole practical guide that we possess at the present time? We are now perfecting an index of trade that will, I think, come as near But, being a real guide to credit needs as anything that has ever been devised. in the light of all our work on the rate of increase of production and trade in the last fifty years, we think it is going to show clearly that anything beyond about 3 or 4 per cent. per annum increase in active or demand deposits is in excess of the actual needs of business and can only lead to a rise in prices. But how many persons are there here in this bank who are convinced of this, and, if so, how long would it take to educate or convince your general public And in the meantime what are we going to do? of the truth of all this? If the banks and the board and every economist and financial writer promote the doctrine that full enployment and high production cannot be enhanced by further credit expansion and that such expansion can only lead to inflation of prices, wages, and the cost of living, I believe you will have behind you at least 75 per cent. of But, in the meantime, is there for practical purposes any other the whole country. workable guide, or test, in this control of credit - I mean as to the time for action than the general price level?" If every week the public reads how much the purchasing value of its dollar has receded, don't you think it is a good bet that they would back up to the limit any definite policy that would seem to promise keeping down the cost of living? FIFTEEN NASSAU STREET NEW YO R K May 11, 1923 Dear Governor Strong: In the current "Economist" there is an interesting review of Hawtrey's recent book on "Monetary Reconstruction," in which it says: *2°. pa/ the and had you "The whole book is an exposition of a monetary theory which is perhaps not new, but which certainly has become more and more widely accepted in recent years. Mr. Hawtrey has made himself the chief exponent of its doctrine in this country; and it is commonly believed that the Treasury and the Bank of Fmgland would like to translate it into practice. 'Monetary Reconstruction' is therefore a book of much more than ordinary interest and importance." You will remember it was simply a collection of his essays on Genoa Conference, the Federal Reserve, and several other matters; that I had it with me on the trip West. I was wondering if you seen all of it you cared to, or if you would like us to send it to now? You will remember that he,also,is unable to believe that an adverse balance of trade is sufficient to account for the depreciation of a currency, to which I would like to add this: It is fairly evident that, for example, potatoes can scarcely be of widely varying price on two sides of an imaginary line, for example, between New York and New Jersey, or, let us say, Denmark and Germany, unless there is a prohibitory tariff. And so on, ad inf. Is it not clear then that, considering all commodities exchanged between nations, the rate of exchange will and must equalize the price levels? If, then, there is any close relation between the volume of currency and credit in a given country, and the price level, does it not follow that it is this general price level which will broadly determine the exchange rate; and that only where the balance of trade would be of such decisive proportions as to cause gold shipments of such proportions as to restrict credit and thus affect the general price level, can the balance of payments more than temporarily affect the exchange rates Hon. Benjamin Strong--2 And in any event is it not clear that we shall ship gold whenever the net balance of payments is seriously against us, as it evidently was in 1919, and now, as I see it, threatens again so to become? We are making progress with our inquiry on foreign balances and securities purchased by foreigners, and may soon have some light upon the situation. The thermometer last night was within six degrees of freezing. w AlC-z-4 Hon. Benjamin Strong, Cragmore Sanatorium, Colorado Springs, Colorado. e You have noted by the morning papers that the situation has now miraculously cleared, and that there is no danger from anything: AMER/CAN ,rmo. mots mo.E1 ,IECY WALLAcE Pus LISHING CONLPAN1 . VVA L LA C E W DES MOINES, iovvA CES9 ARME Good Farming; Clear Thinking; Right Living A Weekly Journal for Thinking Farmers May 11, 1923. Mr. Carl Snyder. 15 Nassau St., New York City. Dear Mr. Snyder: I am looking forward with much interest to reading your article in the American Economic Review. With regard to the June 7th meeting, will say that it is very doubtful if I can get away. However, I shall make a special point of coming if I can iniuce Ed Cunningham to come. I feel that it.would be an immensely worth While thing to get Cunningham acquainted with the fundamental problem in which we are all eo much interested. Cunningham is a shrewd man who is rather more accustomed to thinking in terms of olitios than in terms of economics. He has no understanding on monetary affairs. I think, however, that he will grow much more rapidly than you would expect from a man of his age. He has considerable personal magnetism and a strong following among the fanners of Iowa. he problem is to get him to work seriously studying this hole monetary situation. Ty-a,y I shall know within three days as to whether or not he can come to the meeting with me. HAW RH Sincerely yours, THE ONLY IOWA FARM PAPER THAT HAS BUILT UP ITS CIRCULATION BY REQUIRING http://fraser.stlouisfed.org/ IN ADVANCE FOR SUBSCRIPTIONS AND STOPPING WHEN TIME IS OUT Federal Reserve Bank of St. Louis PAY/VENT FIFTEEN NASSAU STREET NEW Yo R K May 15, 1923 tear Governor Strong: This week's "Collier's," issue of May 19, has an interesting interview with Mr. Owen Young, which you may have seen, but I am having a copy sent you against the chance that you might not. I enclose a little note from Henry A. Wallace, the son of the Secretary and Editor of "Wallace's Farmer," regarding the new "dirt farmer" member of the Board. As I think you 1ike4pretty well Prof. Hawtrey's article on the Federal Reserve, I have slipped out of the current number of"The Journal of the Royal Statistical Society" two little reviews of his, Nothing which you will kindly return to be restored to the magazine. You will see that Hawtrey does not share much else of interest in it. your viow about Prof. Cassel, and even seams inclined to join or endorse us( Firm! That he is otherwise pretty sound,lE witness his little roast of Spalding's book on "The London Money Market," next following. As you have noted in the papers, there is quite a general slump in commodity prices, especially in those like rubber, silk, cotton, iron, 6,c, which have had a spectacular rise in the last year. This is being widely taken as the turn of the tide, though I do not think Colonel Rorty's idea was quite fairly represented in the report morning's "Times." of his speech in this mr, Babson is also predicting a turn. It seems to me that, with all this shouting of caution from the housetops, and the reaction which naturally comes from rather overdoing a good thing, the present situation will prove an acid test of the question as to whether the volume of deposits compared with the volume of trade is the dominating factor in the price situation. To take your list of five factors, we now have no war to force prices up, the fluctuation in the sum total of crops from year to year appears to be relatively small, we have no recent new gold discoveries, and "public feeling" seems decidedly on the cautious side, disinclined to increase bank loans and heeding the warnings of the prophets and the exhorters. Hon. Benjamin Strong--2 Would it not be a fair inference from all this that we should not reasonably expect a heavy rise in prices, say within the next Yet those who hold fast to the volume of credit twelve months or so? idea, I believe, do definitely expect such a heavy rise in prices and believe that the prophets are wrong and that the exhorters will be cf nothing more than passing influence, as they were in 1919. Personally I should feel myself deeply mistaken if this rise in prices does not come, and that the theory had been very rudely shaken. Does this look to you as a fair test, and would you accept it as such? Mr. Donham, Dean of the Harvard Business School, brought over what he claimed was official informaan interesting bit last week, jr tion, that, at the "least sign 0UJf a wane in prosperity," "they," at Washington, purpose to bring a four-billion-dollar bonus bill, and will see to it that it is properly distributed in time to get the full effect for the fall campaign; which is interesting if true, and if realized might somewhat complicate the test I have suggested. But my guess would be that the boom will be on again in full blast in the fall, and that this immediate excuse would be lacking. The new book on "Money," by Dr. Foster and Waddill Catchings, is just out, but I have not had time to go through it very carefully as yet. If it is of sufficient interest I will send it on to you. I note that David Friday spoke last night on "The Economic Need of Increased Production," a phrase that I seem to recall used very freely at the beginning of 1920. I wonder where he has been living in the last three years? We continue to have the coldest spring that the oldest inhabitant can recall. I hope it is pleasanter with you out there. With warmest regards, Hon. Benjamin Strong, Cragmore Sanatoriun, Colorado Springs, Colorado. May 15, 1923. 444 "Collier's Weekly" for May 19 contains an important article from Mr. Young, of which the salient paragraphs regarding credit and banking are given below. It is entitled: "WILL PROSPERITY LAST?" An interview with Owen D. Young, Chairman of the President's Conference on Unemploymerat "The recent advance in wages in the steel and textile industries indicates that we are close to -the limit of production with These raises mean that big employers our available labor force. It is especially significant are finding it hard to hold their men. When big inthat most of the increases affect unskilled labor. dustries are bidding against each other for unskilled labor it means Growth in real prosperity is that the reservoir is getting low. based on increasing'production, but if production is limited by lack of man power, we cannot push farther up on the curve except by boosting prices, selling -the same thing over and over again, laying in heavy inventories on the hope of continued rise of prices, 'skyrocketing' the cost of living - inviting a buyers' strike and disastrous liquidation. "No one can tell how long we can hold our present degree of prosperity - but we can't go much higher without kiting prices forcing the kind of boom that brings a smash. "To an ever-increasing extent the banker is becoming an adviser to the business man - sound advice is part of his expected We believe that the bankers can do a great deal to disservice. courage the woul:O.-be borrower from dangerous overexpansion. "The Federal Reserve Board has an even greater responsibility. It is not operating for a profit, but for the service of the whole country, and its sources of information are much more comprehensive When the Reserve system was created than those of a private banker. it Was assumed that the movement of gold from one country to another But the war would act as an automatic check on the discount rate. resulted in an altogether unprecedented proportion of the world' s Unless the Federal Reserve gold supply coming to this country. Board takes special steps to meet this abnormal situation, we may become as disastrously inflated on a gold basis as are the European If we looked only at the ratio countries by cheap paper money. between gold reserve and outstanding credit, we might expand rapidly, but a credit expansion which is not based 6n increased production means nothing but speculation, competitive bidding for labor and material the forcing up of prices to the danger point,. -2. "Our committee was convinced that a proper coordination between the private bankers and the Federal Reserve system could be worked out, which would forewarn and forearm us against this danger, and have a real effect in stabilizing business and lengthen- ing out this curve of prosperity." UNIVERSITY OF MICHIGAN ANN ARBOR DEPARTMENT OF ECONOMICS POLITICAL ECONOMY, SOCIOLOGY, BUSINESS ADMINISTRATION May 17, 1923. Mr. Carl Snyder, Federal Reserve Bank of New York, New York City. My dear Snyder; I have read with a great deal of interest your article in Administration on "Shall we Modify our View of the Business Of course I quite agree with your general contention C:iclen. that the elements of the cycle are so diverse in character that when an attempt is made to merge all in a single picture the (CertAinly the picture is result lacks definiteness of outline. not as bold in character as many popular descriptions would suggest.) I wonder, however, whether your own discussion of this truth is not going to be misleading to readers unfamiliar with details of cycle analysis. Your argument deals almost altogether This prowith annual data and with data unadjusted for trend. cedure has the effect of merging high and low points in a single annual figure, and of giving 1921, as compared with 1920, the benefit of a full year's accession of normal growth. Are you not going to get a simpler and more accurate picture of the business cycle if you deal largely with monthly data adjusted for trend? - i It seems to me desirable, furthermore, to distinguish trade and production in discussions of the violence of cyclical fluctuations; in fact, differences in the amplitude of fluctuation of trade and production seem to me to throw a great deal of light on the course of the cycle. My own impression is that the fluctuations of trade are much smaller than has been commonly I am skeptical, however, about your implication that 1 assumed. the fluctuations of manufacturing activity ha been exaggerated. 'We have still a lot to learn about the volume of manufacture. 'This is especially true of differences in the rate of production Whether the manufacture of in different lines of manufacture. basic fabricated products in certain phases of the cycle is at greater or less pace than the manufacture of other varieties of goods has yet to be clearly demonstrated. I am by no means sure that my own index of the volume of manufacture fairly represents /the general situation. At the same time, it seems to me by no (means clear that it exaggerates the fluctuations of the volume If, for example, you will turn to the first page of manufacture. of Mr. Barber's article immediately following your awn, you will , find at the bottom of the first column the statement that annual sales tonnages in the business cf Walworth Company I think it vary "from year to year as greatly as 50'7". reasonably clear that the fluctuations of an industry like machine tool trade are probably greater than the fluctuations described by any of the current indices of the volume ithe In other words, I question whether we have of production. gone far enough to generalize concerning the violence of fluctuations in the volume of manufacturing, and I am by no means sure that we can do much better with other elements of the cycle. All of which is designed primarily to get your own reaction. I have much enjoyed your article and, as you well know, am tremendously interested in the subject with which you have dealt. You are doing a fine service in deflating cycle theory. Yeanwhile, I should like very much to know how far you are prepared to carry some of the questions you have raised in this contribution to Administration. Cordially yours, ....C. 3.1 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To Mr. Snyder DATE Januar 13 1923 192_ SUBJECT: Governor Strong FROM The attached letter from the editor of Collier's explains itself. How does the platform strike you? Possibly I should say first, before you reply, that it seems to me to be a rather hazy and indefinite statement of a lot of high thoughts without much in it that is practical. The more I ponder about the problem of labor, the more I become convinced that it is inseparable from the problem of prices. Labor disputes are-never really serious, long extended and disorderly except they have to do with compensation; and compensation disputes almost always arise when prices are rising and when there is a shortage of labor. On the other hand, unemployment and distress,-which is really Un a period when strikes are/commoni-grow out of considerable declines in prices. Therefore, is it not a fact that a stable price level will itself be a great contribution toward labor tranquillity and contentment? 0 This, of course, excludes a very important field of discussion, namely,workang conditions;where ordinary intelligence is about all that is required to .eep men happy, provided industry is prosperous. If you think there is any other contribution to be made to the discussion along this line, won't you give me a memorandum on it. 13S.MM Att. FEDERAL RESERVE BANK OF NEW YORK January 16, 1923 Editor, L'allitELL2221LLE, Per-s"'"` New York City. Sir: ta ideas,..eratiffr ysen expirtu essm any excelle our platfo held for many that moist finking pee be-dy epsentially years,without a great deal of effect; ermi the do riot touch 4p.t....9.1-1 upon peace,, and that is riae what seems to me the prime condition of ind The longer, study the problems of labor and stable economic conditions. of production broadly, the problems of the farmer, the manufacturer and the convincedAhat they are inseparable from the working man, the more Labor disputes, for example, are rarely very serious, problem of prices. long extended or disorderly, except when they have to do with compensation, and compensation disputes almost always arise when prices are rising and when there is, as a consequence, usually a shortage of labor. Periods of falling pries, falling wages and unemployment are 4,4 Afrzie, rarely periods qf prolonged and bitter jaadustrialetrugglesi 7 IP-IL/lute 411-ZACII4 hl A Am, hitt- ivo kto,9 On the other hand, it is almost invariably periods of falling prices that give rise to demands for fiat money and Governmental subsidies of this industry or that. Therefore, is not the fundamental condition of industrial and national tranquility that of a reasonable stability of prices such, for example, as we seemOto have reached in this country in the six or seven years preceding the disrupting effects of the great denands of wer, that is, from about 1909 In the judgment of one of our wisest economists, till towards the close of 1915? Simon Newcomb, crises, hard times and unemployment are almost wholly due to a And this appears to be the conlack of adjustment between prices and wages. clusion of our economists who have studied most deeply what we vaguely call the business cycle,--that the cycle of prosperity, crisis and unemployment is very largely a price cycle, and that if we could attain to some degree of relative stability in this basic factor the rest would be easy. But without this stability of what avail are the best laid plans for efficiency, for industrial conciliation, for enlarged output, and more equable distributions increasing I believe with Mr. Henry Ford that what the great body of our working men most desire is security of employment and an adequate wage that represents a fairly even and stable purchasing power. Take away these and you disturb FEDERAL RESERVE BANK OF NEW YORK 2 ckprt,totA" fete-,Lifro the fundamentals of peOe of mind to the worker, easy relations of employee and employer; upset,the calculations of the wisest managers; convert business eration; give a high premium to the speculator and the adinto a gambling the fruits of the highest and most enlightventurer, and ened type of management. Very sincerely yours, C; FEDERAL RESERVE BANK 4.1.40M 10-21 OF NEW YORK )FFICE CORRESPONDENCE To DATE Mr. Synder January 16, 1.923 SUBJECT Governor Strong tter in my siyle for If you would care to tale a ha z at a Collier's, I will go over it with you; t do. You might ,paraphrase what I p t BS.MM att. t make it too long. my memorandum. 192 FEDERAL RESERVE BANK OF NEW YORK MISC. 4.1-30M 10-21 OFFICE CORRESPONDENCE TO Fehr-nary 27, 1P2:i SUBJECT: Mr. Snyder Re j DATE Strong Tills has certainly been answered, both by our rate action, and by my other communications. Some day soon I want to see you, and will send word. There are a few matters I want tc pour into your mind, and have you promise that they wilT stay there, - and they will be important! 0A,L.ta if t FEDERAL RESERVE BANK OF NEW YORK MISC. 4.1-30M 10-21 OFFICE CORRESPONDENCE TO Mr. SnydeT DATE Fe'yrq]ary 27, 1923 192_ SUBJECT: Renj Strong Much of yours of the 5th has been answered to you directly and in some memorandum I sent Shepard Morgan, which please read. The fellows at Cambrilce have gotten 5 bit too excited. Rate changes, even fairly definite indications of them, in advance, might do more harm than good. The experiences of 1919 taught me R lesson I'll never forget. Now Act we really need, is just what I wrote Shepard Morgan 5 headings - make it 2 or 10, I don't care, so long as we deal with the principles upon which our policies as to rates and open market operations are based. 1 To defer acting because there are 100,000,000 ignorant people in the country would be folly. Educate the thoughtful people and those who lead thought, in farm, in factory, and in office and in politics, and act anyway. What's the matter with that committee that got out Better Banking? Are they dead? FEDERAL RESERVE BANK MISC. 4.1,00M-9-22 OF NEW YORK OFFICE CORRESPONDENCE To Mr. Snyder FM DATE March 2, 1923. SUBJECT Benj. Strong C 0NFIDEllr,1AL This needs more thought than I can now give it, - nor until after I am nest. there later on. Put all the papers with this one together and send them to me I'll then prepare something more deliberate. Am hustling from now on to clean the decks. o' Atre" e 4>t, (9 3 (COPY) Cragmor, April 21, 1923 Dear Mr. Snyder: Of course you saw the enclosed. It pleased me greatly. Not so much what Noyes wrote, but what Yves-Guyot seams to have written, for, as you know, Cassel and Keynes, brilliant as they may be, have riled me a lot. And others as well: I put them somewhat with Sir 0. Lodge, Conan Doyle, Coue, and even your friend Freud, all of whom I of less importance to us than they think. Just feel are chasing exaggerations turn to St. Luke, 15.16 and you will know why my thoughts go back to Adam Smith, Mill, Ricardo and Bagehot. Hew hard it is (sometimes) to stand pat,--even old is being shaken a bit. Al]. of this preliminary Y-G book if printed in English edition. Newton, after 2-A- centuries, to asking you to send me the If, as I recall, you know the author, just write him a nice letter and tell him he has cheered a dumb old cuss out here: Yours, B. S. I like his looks in that picture. Looks sound to met e - - (OP - fig al9/102-6p r2rL")-i6 a711- eL3____6"2/1 -14rw--9 ---Orya9 04/1-)-07,1 v4ie733cN -s-froy- ?,2 -16 I`rove. /179 "lhtio nave 4c174/)7 4107 41999 69 rrivr I mJo3I9 V-4")/ 727-19 )2-9/ t-grikw -9) "Aryv_43) IV 'or Ur11.10 P 69 -419 -"P-4119 17-"T41IrMY -s; g Nr94)Nrkkil mirTYY vt-LI13 Iptiltly drv4 Nrvoef f!"02-rvo 79-Ii 017 17wp-9 -nit! cj1 e-Imy Nrevy (42.7110-1- e--14:erav, ry-tgjai 11±Lry.zI A 1v-di ' 4/mil cncva-, r-riv Qr px--f?-3-19 -17)14 to, P21 kP 4-(C)2471/ffe9 /9'017 i319 cxy-1 mo9 oft, )(xj 11-s4(11-o2 Nil "b% `4-4.L-2.v_te a ill --pm/Jo-tit-fly Inrai "nv C/WYO P9 tY)0 __Arxyv _4020 420y (COPY) :ear Snyder: If Yves-Cuyot's new book soaking Cassel, Keynes, et al, has been translated, will you get me a copy? It will hasten my recovery, judging from Noyes' review of it, I'll write the d- Frenchman and thank him if I can only read his book. Also, will you pond me the little book on Moneywith the Lewis Carrol Chapter headings? I want to look it over again. Am getting along famously, fine weather and yet postponing mail for a time, so as to be safe-it's my middle name. Yours, B. S. Best to everybody (copy) Dear Mr. Snyder: Shall write you when I'm not so buried under "family" mail es recently. It's a stunt with no etenog. and no voice-- Am doing splendidly. My friend, Inouye, doesn't hesitate to deflate. Bank rate 6.0ec, etc. You are going to be fooled, as well as those other guessers about prices and inflation--bccause--unless I'm greatly mistaken--the throttle is to he used this time. They all overlooked or belittled the F. R. System. B. S. Tell Bullock and,Mitchell a dinner is on it (COPY) anin dnue ni) e'qelbaBdO (!oot .EI (About April 25, 1923) Dear Snyder: Read the "Commerce" and "City" in contrast and see how "City" beats "Commerce" for the average reader. Tell Chandler to come down out of the clouds and use language the common fellow uses and understands. He preaches too much on gold when he really means "representative money," bank notes and bank accounts--and will confuse folks. He's all wrong. Note marked passages as follows: Gold exports causing "ext\(1)ame stringency," "deflation," etc., is pifflesome "Economists" never were bookkeepers, drat them; If we keep our heads, when gold exports arise, and larger ones, we will have 75 or 80% reserve--then this will happen, i.e., Member Banks will ship gold, and so deplete their reserves. If we did not exist they must (col- lectively) shrink deposits and loans sufficient to reduce yeauired reserve by amount of gold exported. That would be deflation caused by stringency. Now, however, they will simply borrow from us,--(few people realize that our members will need to borrow when gold exports begin, even though our reserves were laW and it will simply denend upon our discount rate, whether money gets very stringent or not: Chandler better set this straight, or you do it for him. Piffle; just a guess. If the horse hadn't been harnessed to the wagon the wagon wouldn't have run away. Won't even argue this. This is all very good, but is too d-- dogmatic. "why," instead of "what"? Why not say Few people know the reasons lying back of this dogma: and after saying "why," better also say "how"-Same here. Say this in words that folks understand. He thinks bankers and business men are students--they're just money makers (and losers). Pardon this untidy, sloppy scratch, but it's not as bad as (over) (Y900) Chandler's (in such nice print, toot) (Cel ,d3 B. 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Will you please do this: let. Have copied out by Miss Bleecker or Miss McCarrick, who know my scrawl-2nd. You and Burgess do some polishing--in the usual way--and supply figures and check facts needing it. 3rd. Show Jay and Case and see how they like it. 4th. Get a consensus as to wisdom of my taking bit in teeth and asking Lorimer to publish--in Set. Evening Post. 5th. 6th. 7th. Iq; teke all responsibility and only want views. Wire me at once how it strikes you: If it looks like a got send me two fair copies, wide space, for further dressing. A. M. It's terribly rough--1 dashed it off in bed this I may make it planer still. Just depends on how far it's wise to 7p--or would you follow up with a second shot? 8th. Will folks read such stuff as this! Yours, B. S. 4 (Alta ) GF, azir-- fat 27taa xv--1/741,73. 7- ft6 41;1 Pzei-eA-417'ar frce,4 (6/e4tA-- ,971,,,frity E. , 7L41 irevz,D* 46. (1139 A:4- 4194/an-- re-- httV (FD2 90 ate: aitt le: /6 A bet-) rucata:7; , rt4 411-11 a/4 reie vitc,(41 171ti- /-etv Ara7pcxyl (67 61,---<Dtt f 'lime_ 11 "Ara/ ,/ et d f2't (2-rike /1(zal ef_r- Icvt. 6-447 17LE at, 644 oV, edi Ire& (54-74w 1144ortiu4 97\ go-etwA,19-: '1 02 erld 0614-1- fkr*' 1-577, c tt or-7/Z:,,et tutO 064.4 4:a.4,v-2-r4t, e.; ) eat( clete-wrA7 14,1.1-* ca, ,f),4 Ai a ty-et 0 da, (irk 9tuAA2171/0 tlithiR/D kr; ter- ar itor (7q,et 0.91.4i (Mt git-cy eteliet--1) q c2ife o eit)ou E., "3 erift MISC. 3.1 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE 192_ DATE To SUBJECT: FROM ePele(,( hyp 6--t? it; eta9 0-t----orckAr) Kt-M patalf a LINA. 6-rm 0"&&01 jt (litt,tt4 reteto-z.,.4 alti Yh Aeuttf.. k Mu/ 4ot.7 4/tuft_ aikele o-n4", otio; Actor tvto tiket 163np,a,a th'a../21,e t vt. 10-xitraz, to_a_at ,_ t(-C cEmLe_ bltu&A.,i1 erf eet;Litt; 14,;(4 2"'" Clue 211-t-&-u4 Orik-r11) kb? 0-4-1? erive.F,. `t- (-1---frn4A JAI_ et: ra sr ,62-/-ea,__i* ina-eaxa &LIZ Ito TA ke;t, trV? ni,"42 le( MISC. 3.1 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To DATE 192 SUBJECT. FROM /twit --e-it,c4 atozte=3 if-aAm iJ 4,tect (4ett.,a De96-4---oe A 197,11.4-2,-t ry\,_ Zia( t le-ko 1),9 etp,, 7kt tfry c4 F (14: EFTPL L4 ogi lutt 1(..."10 e4 AG 1714)-s (COPY) To John E. Pickett, c/o The Country Gentleman, Independence Square, Philadelphia, Pa. You may recall the story of the discussion at a farmers' gathering, where tempers were being lost in efforts to decide whether it was correct to say that a hen was "sitting" or "setting," when she felt the Some farmer settled the dispute by asserturge of the maternal instinct. ing that "he allowed it were a dinged sight more important to die-cover whether the ole hen were a-layin' or a-liein' when she cackled." Now this tale came to my mind after reeding Mr. Johnson's article We have in the April 21st "Country Gentleman," and the editorial thereon. battled with graphs, and index numbers and statistics in the Federal Reserve Banks, as well as with those who claim to represent the American farmer and I agree with you his bankrupt industry, in Congress and out of Congress: He suffers, and so in believing Mr. Wallace's intentions to be admirable. in fact do we all, from the insidious germ of over-partizanship to his job, Every lawyer knows that a witness shades his to his "side" of the case. So indeed do the testimony to favor the "side" by which he is called. judges know it But the poor farmer, bedeviled, befogged at times, and sometimes betrayed as well, is far from being the man held up in Congress by those who I have known many of them. misrepresent him: They are mostly upstanding, two-fisted Americans; and they are the objects of misrepresentation at times, just as they are victimized by misrepresentation. And unless signs fail, they are coming to see it. The articles I have just read will be most helpful--at least they helped me, if pleasure is ever helpful, and I hope others like it are to follow. Possibly you will be good enough to pass this on to Mr. Johnson; he did a good job and I'd like to thank him. Yours very truly, Dear Snyder: If this is wise, have it copied cut, and send to Pickett from me personally. If not wise, destroy it. If you do sent it, have two copies for Beyer to file. Of course it is not to be published: B. S. IY(ix;at-7. 4444 f2t, eft t ezalAZ._ "?nct-tri, tk, ce(xic,,A:Qhir, cli;77-ef qe a-4014-1_ _ AteA,v-a____E-6z\A-wb wVP (1)-f t-teet_L4iie;V 4(rer o crai v*H-vrf. 11rat,0 // wr-1 ita)i/rA-f-77 17_7?) dl ?, " ttrate__ kevit, 141_ 64' ott-. brked4.._ no_.e. (zt.fr-c fr-171 ttift-eXtgev /t- Co-sniv ditio CP-YrleA- &E-4:43%; Y, 11 eet. __attntucio-evy .475 t4;- _ N-1111-6L-414"1 co-risr Gbcatp.ce)) 09Eatt4ce 0-2 OlittQL Graz iXiG2W14-e.au.4. Fev-vir4" ugo.yur(Ard,i) ie4 cnut-- 6ta , Awn, 44,e'L /0-61 ,ectitt. azza / k oh7e.0#1. i94/2410 kaAirp-bea44,5 Ari ite:0 M1itt to-rg-- fzerh- wtr R-1,9444/1, Go--77X Of) fit-04-1-'1444, 0461,Q, eP ct4,1 fa)(2"Xoi /4,2 eetc,rvm.k_t-f-K, cte..t,) Scatee,-) i27141_7714,,Zt Ca0-1.4dG t, /6(4 rfrt) 3 7ral`t9 e a4i-py Et9 rk-1.; PY;, OleetJ //. hpy4-14 Ittt ) CI!) it ittlie;(% Dr)0 fko, eitiA 626-?="4-1-6-7,41, alM4- " 62e4 - guAtle `2?la. rb14,12tA/lBo'. tit4-6 coZ6:7 72\44: 12114, at '7714.Diati4t46 afiL---ef"f 6+4 freul /\12. arldt eljA2 4 1-A4141"L' twit eviCr 11/4 f atu--74- 17,07, a-r-4 Ayt,ti, eet..) OtiV/0 (4; crxeL aO1 (4-Pcc_P-car arz/R-421 , auf9 CtrzACR th7 I to ate,-) uff-act( &Li 45- 1-4 - Yk-k awee,t; (i_Lec-zowal frtai-etrice _ (COPY) (About April 28, 1923) Mr. Snyder Your April 16th "Confidential." Permit met-- If the Commerce Dept. neople made UD the figures, 1 want to (1) know how, before acce-Aing the conclusions, and see the details, also'. The drain will be to the neutrals and Don't be too sure. the smaller countries, Japan and East, if it comes, and I doubt if it comes very soon in large volume, and when it does, doubt if it runs to t1,000,000,000, as you hint. Their exchange will not recover on good Don't agree at all. They must have money owing them on balance, and their exbusiness alone. change must either be above gold Par--or their currency be devalued, or both. Don't forget the interest payments, Great Britain and maybe others. (5) Don't forget that we are going to gradually, but without any nanicky haste, get a grin on this inflation affair, which I have now named the "Snyder Complex." It will all be fixed UD by the time Congress meets, and we'll again turn our attention to the foreign situation which will be our helpful red herring. Don't think I sit here all day scrawling letters, etc. Half hour at breakfast and half hour at supper does it--save two hours in bed writing that "Price" scrawl. Tlin debating reducing my income some 550,000 a year by coming out with a line of very frank articles,--for they surely would chop off my bean'. Show this to Jay. BS Thank you for the books, old top,--and please give the same to Shop. Morgan and Ten Eyke,--I'll write them in time: M1SC, 3.1 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE Aft To 192_ 11a SUBJECT: FROM 491477 c _ 16 at_. (-4 geufrvritut,e/L 0/5F4L1` ducta,; 7710a-C_e/-17 6/Z-GsAlfx 6,0 Grata- 1iaiwc c--S eC/f--tt elirtG4/0-Wt. rr,"-f; _ (tat,' olt coca.- tetti itutp ood-A,t ottudtauz awn/Frt., a-- cX CitrMA-t W-cu 1 2 a fo fk( ittedra-e,. cetAZA` rowto t4; 77-crav-pk-e , ti( Pi; )liviva (4kik, 4111A 77Lt 144)Y 0.0-- civutaV Cite ittafv/vit 6 lArOtif /61 air/VI_ frc_i 661.001 coca' &-e,4 7t-/L /1/41(itrtrU) 9)144/RAL- tzw, '1-617k-e taX_Ct Xt14, ci/C._; _ - r rAr 01KAA__,( erit-k_sk, -inA4/64, 0,47-2 6g frzra 4,1atAfictit,r oer-o-oot IoA ,' 77k1SO ryX9, tofs-1,14 tey wit ca,,,:cTra olmatii, Caut pct,""ct674,gtAL- 64,1N eq, ax---(Aw tutfeeut, Grp,pa/x oFvfcto-, IkL tace& altetAy_I ge a-014f rtutut oLP - 7to-zo 7taziskt- Cat 094'---CO-CL( 6 04(r-zee__ Conifita,f to 1-6-Tx 77 lar-c-riC., a-4,7 ke-ei&if,ce 711_ oCfahi to-a; 45 f at.c. ra_a- ktAhA/71,-.) 06074/V--f /it klYi/to 4610 j PA/F att 1-co-10-) At- Car-ct-p-12-4/) ctir--//-D kt eVrnatOttu; ke,r-e de- 'ret, f- IoJ 5 SC4 kltiro 015.4) cAre . 171)1V42 ctai1.&4,f- Ak_th-cet.c" 1 -1 ° /64Le oftvu,Ci 1(tita-1 (91 Cer)-A4,;f a}ot- rkei iriyuL, (ia !4y7 cAck4) 15-iff , 014(4 1,fh ILL fatA.Lt ° (me. ft .4c/rotmU r filetfe,dt, y errt,e_ff 02e Cirrai (COPY) May 4th, 1923 rear Mr. Snyder: After the two lectures you send me I shall not waste good paper for carrying unsound views, nor much of this either: I agree about the muscular reaction of thought, but believe it relates almost wholly to involuntary and semi-involuntary muscles, not the bone attached ones, and is explained by the extent to which they are under reflex control. Have a notion that writing stimulates them more than thought: Watching myself--am amazed at the extent to which conscious control can be extended to muscles never before (in 50 years of my life) having that experience, such as the larynx, arytenoid, vocal cords, uvula, epiglottis, etc. It may be a way of solving the constipation problem. I'd like to discuss it some day. I shall not go pamphleteering,--I only want to write two or three: Don't know enough nor write well enough to do so--despite your subtle flattery. You have neither failed nor succeeded in convincing me of the soundness of those conclusions ,--because I have not seen the work,--examined the methods,--nor, in fact, heard nor read the stories in full. It has come in snatches, with my mind at the time too much engrossed in my own troubles, throat, discount rates, etc., I shall never be converted to the idea that we should attempt to control the general price level. Not enough is yet understood (note that I don't say "known") to justify our boldly attempting that role,--becoming a super government,--thinking ourselves supermen, and failing with a crash some day. I admit (and am purposely using "I" with a modicum of "you" as indicating "confession" on.the one hand, and accusation on the other), that credit, or money, is the chief influence, but not the only one, and suspect that "state of mind" has more to do with prices than we realize. I am damned doubtful of all these data on "velocity." You are inclined now and then to push an idea rather hard--and lead mo to wonder whether I have yet contributed anything to your views from my standpoint of bookkeeper. I'm so much interested in the geography of "cause" and "effect," and you seem so much less so. I say gold won't go out 'till the exchanges make it possible. You, Keynes, Canso', et al, think gold can be shipped to England, for instance, with the pound of present gold contents at a discount. Can't be done: At least you won't put less gold in the pound: 2 You have sent me some nice books and I thank you But the ond about old age I have doubts about. Wouldn't fit my case, anyway--and if Forster sees it he'll take my clothes away. The increase in circulation rates is ominous,--and I have been a few weeks wrong in my program. Had a feeling, or hope (poor benighted cuss that I am), that the March Conference would result in some really educational effort. My hopes, wishes, feelings, efforts are dashed to the ground, and we can't go to 53/4 soon enough. I'm sorry, but it's so, and you may tell Jay and Case, but no one else. I am now convinced, after weeks of reflection in bed, under the shadow of Pike's Peak, that were it not for my sense of humor, the last eight years would have turned me into a hardened criminal or an anarchist. Like a dog I'll wander back home in the fall, and be as much amused as ever. So good luck to all of you at the bank. better'. Yours, B. S. My throat gets better and cith (L2 -Kai-- (env 09 ACIttr icy ovvivoq 540 7t41 'Mt etc_ lite;Arb th. (10-0 ff-u/Vivt- cistrt, az-o},A- --7ru.t/o e-tt GU? /6-tcf- 6-5,&05.4a ,9lL/ ac _01 fQ WWI dal ikt ecirivve , C-P:(145T-lic-ve ce4ana-e aq,c_tev efr,t (-k1 (034Yc124)0 "Afittr-27? 71tcva etc,c, .64-%-i 1) txtAntlf )1Ar 6-,7-A4- tL4, Aruci r_ifera-tte--) )14-k lirtnALCCa-A--- A4-171&1r f taift4C &IX-0_3r er_tvea cukAti, cou 14-Ae2 qx,-(Lc, i'hix-tA),-ef,, t/n:freLewpt, cuti-dLeAtAA err--eh r6170-ciot1cqXDtizifiLta CULA £F dt---)Amti cc_---co-cL, afPyrk45-et., AAA _ ett, 4--(91<t. 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',,co et.42,0-- se, `rtak /0'14 /ke Fk- itizo-c.471 , aufbacet ?4/ ihrukt-1 /-)44,QuAt---wc.) Catt i-atztA4A-, , Car-c),A--- Pa.* a/Jo W_S tait (flaza,J . "or - ift(1-5 46-4 -Iktet-iet ke-tc art 1 404,5' /VT' t-k7 eax att., talc. /Wet, c4-: tr-c-) a6_ kietxx Csz_e_ c4.A. chwuk 7uceAf Lee .ce9 bue mr-h(1, ?A", to' CiVe-tacuA-c-trx -Act -Gt.-LK XI VA., 67.2-Y-P6a Ail-ier>s-c Pr/3- 0_0,444 . et tH-cc-) oY ikerlchCA,IntALC-C _71-C/611A--c44: et44-ec-- isenk.( t'afr eiVe/r4% baLtira , fkot., 09 -->vciA ko-tnr Oi-6,vv-t4 ct (111't671( ike *0 , c-,,,A;y-WT 47 v- /7,3, "Iftki -11-0 k11-5 Cesw cibuk 'ho co ecovv-vmel cka ,r/ ((cc 9)bli 41-Kceiti; OXFA Pae rrai. OteLtz-e kat), cturk,,) 16; altxt/v c-ki/6-71 g e,a Ittxteti vot? s&C Astur ci/n14,t,a_u-r) 4A-c-tt cr,-4 rilk/A4A't° \\J v- earvx &C1-4--f-perkat- krti,t c/Y- _ CILA 4;tte.s-47-Vt cc° FEDERAL RESERVE BANK OF NEW YORK MISC. 4. I-30M 10-21 WFICE CORRESPONDENCE To FR,M Mr. Snyder DATE may 7, 1923 SUBJECT: Yr. 3eyar Mr. Strong hex directed me to inform you that he would like to have copies made of all letters and remoranda.,which haVTeen sent directly to you so that they may be kept with his correspondence here in the bank. Will you be good enough to eee that copies are made, or you ..rerer I can have them typed for you. 192 1923 My dear Chandler: As regares the question of "cyclical movements" in prices: We have monthly data on only one widely sampled index of wnolesale prides, the Bureau of Labor, and this carries us back only to 1900. Since then I find the following perceptible swinge: Duration April, April, Oct., Ear., 1900 to Mardi, '03 1 '03 to Oat., '07 07 to e'er.' '10 10 to Apr., '12 36 months 54 30 24 " " ahereafter, to November, 1915, is a perfectly flat line, i.e., for forty-two months. disappears. That is, the cycle idea in this period totally On this slender basis, do you think we are justified in speaking of a definite cycle or of "cyclical movements" in commodity prices? My idea is that, as Prof. Persons has shown very clearly, certain types of commodities do seem to have a definite cycle or period, as revealed in his index of ten supersensitives. But this cycle is much less clear in Bradstreet's, for exemple, and extremely obscure in the Burevu of Labor index; and my idea is that if we could construct an ,index of the general level of prices--wholesale, retail, wages, and all the rest--the cycle idea would wholly disappear. Tven on the Bureau of Labor index the widest downward swing shown in this period was from 97 to 90. And that was after the panic of And if within a. period of fifteen years we have three years and a a901. half in which there is no swing and no "cycle," and if in the remaining period the duration of a wave varied from twenty-four to fifty-four months, does this seem to you to justify the term "cycle?" ath best regards, Always yours, Dr. H. A. E. Chandler, National Bank of Commerce, New York City. May 21st (I think), 1923 (I'm sure) 5:50 p.m. (which is within 15 minutes of being correct) Dear Mr. Snyder: There is but one joke (not choke) to make about this photo and I'm not sure whether I've tried it on the first floor front or not. imbibing an "actinic cocktail" and got snapped by a nurse. I'm simply The picture is deceptive in that it was taken A.M. and I no longer wear the uniform then. Am up for breakfast and one o'clock dinner and go back to bed at two for three hours, unless the sun is good when I take a half hour sun bath tout ensemble. from ill: Am far The nurse figured 1820 calories for breakfast the other day - as banana and cream cereal three eggs five slices bacon three sausages six pancakes glass milk two muffins two cups coffee. follows: You might check up her bookkeeping; and I may have forgotten some of it, by now. I did forget four pats of butLer. All of this familk news in grateful appreciation of your fine letters, and the news, and what not Now to get down to a touch of - beezniz - (poor at Yiddish), here are I like the word because it assumes no originality! a few reflections. First. foregathered in I want to see the list of those men of learning with whom you Chicago, - and the respective dates for the "crest" of this wave; INCLUDING YOUR OWN. As you may recall, my only doubt, but a big one, was lest they had overlooked the intervention of the Federal Reserve System. The said System has been clumsy in the extreme, but helped some (New York and Boston) and the country's common sense is doing some of the rest. late now to change our rate, for a bit. "Burned child, etc." Too Now about friend ("quan. the.")!!! Things are going to happen you say. old pal p.p.p. !II And Do you know who I mean? I think they may; but not what some folks expect. I enclose a little skit which is Starting at V. of C. (know him?) explained as follows: 1st Stage. Theoretical condition of banks at any given date. 2nd Stage. Same banks, theoretically, over night, sell all invest- ments to their depositors. (Of course this never happens, but gradually the Note that deposits have shrunk $6,500,000,000. same thing occurs) Will price level (general) change? 3rd Stage. Loans and deposits increased .$6,500,000,000 over let stage. Won't prices increase? And yet observe that this can occur without a dollar of gold imports or a dollar increase in loans of F. R. Banks. Probably- if this did occur - (Miller would say ha! Empirical) it could not be claimed that it was the cause of any change in G. P. L. State it differently. - How much of the total checking deposits are static and how much dynamic? Or again, if 10%, or any old %, of all money in the country is buried, it won't act on prices - and if 50% or 10%, or any old %, of all bank deposits are static, they won't. Law of averages, etc. - Ha! you say again - Now I have him. But is there any law I've heard you now and then! Suppose of averages to apply to the state of mind of all these depositors? war starts, the % of dynamic deposits might go down and static up by a large proportion, and the reverse if war ends? Is there anything like a compensating average of the state of mind of 110,000,000 people. pessimists, savers vs. spenders, - optimists offsetting workers vs. loafers, etc.? I doubt it. I know a man who had $7,000,000 in bank for five years waiting for the time to invest it. Did that act on prices? balance in bank. Did that? For ten years I have had $10,000 minimum But my expenditures every month do! This "state of mind" is some factor in a country like ours, - and in France also! Next: How does it happen that the exchanges are weak, imports at record, exports back to prewar, travel enormous, and foreign prices advancing faster than ours? Do you know what is the inspiration of the p.p.p. folks? They took us for a bunch of boobs - especially Hawtrey, - they fully expected us to "inflate", cried for it, prayed for it, and autointoxicated themselves into the conviction we would. We'll fool 'em yet. I told you nearly a year ago they tried to put up a job on us at Genoa, and when old McKenna was here, I pleasantly led him a-saunter (a la King Charles) and he gave it away without ever knowing he had. Tut tut, and a chancellor once too: Now joking aside - the tides are swinging - watch them. Don't think that we are to lose gold like fury all at once - we won't - but we can lose some as we did in 1919 and thenstop again. And about old p.p.p. - fill in the follow- ing blanks and see where it lands you. Mr. French finance minister says to Mr. Robineau of Bank of France, "old p.p.p. now enables us to do so, balance of trade improved, budget balanced (?), "our price level and American are at parity on gold basis, - let's buy some "American gold and replace what we sent them via London." So M. Robineau does as follows: Pays out (f ) for *50,000,000 dollars credit in New York, x a say on May 20th at that dayis rate of exchange. for his $50,000,000 ships him Federal Reserve Bank of New York ounces of fine gold, which x M. Robineau puts in his reserve, after coining, as (f difference between the first ( xa x ) and second amount ( ) x b and the ) is his loss, equal to the discount on the franc May 20, or to the premium on gold on that date. Now the only ouestion left is whether the egg came from the hen or the hen from the egg. Do prices cause exchange discount and premium, or do prices result therefrom. I think somewhat both ways - but no matter which it is, - until they change their coinage, or exchange passes gold point, we cannot lose our gold. The neutrals and possibly London and the East will get it. All of the above is addressed to the question, where lies cause and where effect. Can prices climb and do so quite a bit before the "quantity" of money need change. I admit and always have that we can always change prices by inflating and contracting, but cannot prices change considerably without any material change in Quantity of money. Personally I think our data is imperfect on that owing to weakness in bank statistics. Don't bother about Donham. don't worry about the boom. He is a blow hard anyway, at times, and We can hold the fort if we will - and later I'm going to get up a little program to see how it looks. Finally - with all the calamity howling by Cassel, Hawtrey, et al., let me remark that just now things seem fairly comfortable and snug in old U- S. A. while in Sweden - Cassel or no Cassel - they are helping out busted banks still, and not so double damned prosperous. Nor can England brag so much as yet! For the rest of this year if the Federal Reserve Banks will take a base figure of, say, $1,200,000,000 as total earning assets, - and every month or week reduce them by selling good stuff or letting bills run off equal to gold imports, - I'll bet that we will be no cause of a boom. I have urged that now for a year, and last time I did (Oct.) a learned member of the Federal Reserve Board (since out) literally.shouted that he never heard such d We have the stenographic record of it all! nonsense. And in the end I was voted down Jay was there and wept with me. by one vote. That article of mine may appear some day and surprise you, but much polished. That was very rough when I sent it to you. Please send this to Beyer to copy. over my correspondence and see what a d finely. I've a mean habit of looking back My throat is doing fool I've been. Gets dry very often, but I'll treat that myself on my return. Best to you all. Tell Burgess I enjoy his stuff. But it seems to me that the increase in deposits (demand) in past few months, with little gold imported, has an undue share of blame for price advances since last call! -5- My best to you all. This is just steam escaping at the joints. Yours, B. S. P. S. Private! When we put our rate to 4 1/2 I privately wrote some of my friends in the Banks of Issue in Europe that we didn't propose to inflate on our excess gold reserves. P.P.S. Thought they might like something in their pipes to smoke! I may take a look about out here before returning, especially the N.W. How would you like to join me! N. B. Unless the Federal Reserve Bank intervenes directly to export gold - our members must borrow for the amount exported, and the pressure to liquidate might prove excessive and force us to repeat our open market buying of the spring of 1922. Think that thru, old scout. a boom in the nose! Gold exports are bound to crack But they can be financed by us. - I'll show you how some day - so as to easily avoid any strain. Ask the Federal Reserve Board how it can be arranged and let me know what they say! VMS- 1, VI FEDERAL pESERVE BANK or NEW YORK INTEROFFICE ROUTE SLIP OFFICE SERVICE MESSENGER SECTION DATF go DEPARTMENT DIVISION SECTION DEPARTMENT DIVISION SECTION N. B. USE THIS FORM INSTEAD OF OFFICE ENVELOPE WHEN POSSIBLE. TO INSUREPROMPT AND ACCURATE DELIVERYALL COMMUNICATIONS SHOULD BE DISTINCTLY LABELED a/QA WA; Fte etut -rpti 011)1 ecete----4-tx; cu &A/ 4Ateut, v tea rit5 (Af etac_10 dutAi (11,05._ ittatA, ra ockx try a AirriLt; tLit,ayt V cter-fit cyyuc i- Viv-5' fey If cut -e CtAKize; da,A4AA1/4 If folks ask why I'm away tell 'em I have tuberculosis in my larynx. - have had it ten years in my lungs - but am not dead yet and don't propose to be for quite a while ! 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PO-64-00 cr-pr&ci ((LIZ 14-hUl/n tfiy- ktu-ac-a 1. a R. ateti< - titzn,0 aavvvgAlo chnte.ves 17-?vcAsevIA) -nuAQ 0)!.-Pe-r4TI aw (t/A4v Afro CL act,k- 41AV( e)e..evQ/QAV5 114 01--711-- Ca uk tow ktvc Cu/1H) 9kuL-- O1u*(14.KLA Attie /ka4 /90--(4- eteLeA /6-1 CtI cc.-) iff4k camw-k_ atc___La 4--1 Att )1404. aro 1{01 J-k-rcucc._ 0,hril 3 ,IZaA--1 -crd-i-c4-4 f CFCA .14", irm 7,c/Qt--ct)zi itirct orzbwatArTA CutA. fA42 r- SZt crsvi Cragmor 50) June 8th, 1923 C02Y Dear Mr. Foster, Thank you most heartily for your kind note, and for "Money." Your Food wishes help. I wish I might avail of your ouggestion about Mr. Stewart, but I am as yet allowed neither exercise nor conversation, and they do seem to frown upon "company." It's a tedious job,but brings results. 'I am about half way through the book. Its merit, to this tyro, is its simplicity and directness: not to mention that with almost all that I have read I am in hearty accord. There are a few points that I shall write you about when I have finished, and System in my I also aek whether you have anything on the 7. proupect? If so give me warning and a scenario. I may send you a few points that moot folks have not yet discovered - or if they have - are keeping it dark:, Incidentally, you are doing a fine piece of work, one much needed, and I wish I had the time and capacity to help. If you are out hare, do come and see me. I'm ruining my penmanship and the patience of all my callers, but come just the same. Very sincerely, Benj. Strong P. S. Tell Catchings I'm heart end soul with him in the Monetary not weary of well doing. Aeen - and hope he du, - 06-tC1)- Deith4 U4 040 11140 .1 (710-6,44 tnA, krcht_C iger-etnA".6'", eoit 4044- korko apu Aemai 04 77164a, SO rrict, 'or 741.47 Cifra hvid eatiA14c 4111427? )1LiThtazievl') 1. 4,sruit 0.7.--meh 40Wft'0 ottik ' rki( C ilev-rtotPea: 1440 duAsuir 40-t" - 7yrc. P,42. 4 -ittleetivr, 43i 4 /Ate f, (COPY) Dear Snyder: Don't forget thist--as to the "Tidal Times Tables on Prosperity." Comparisons with past periods are likely to be as misleading or more so, than they are instructive. Why? Because (forgive the reiteration) there was no F. R. System during the former swings. If it works well, the swings will be less violent--if badly--they'll be hellt B. S. (COPY) Cragmor, June 28, 1923 [bar Mr. Snyder: ['vs a lot of much enjoyed and much unanswered letters from you. Excuses are good onest I'm now taking 24 hours of sun on the roof, tout Then I rest all afternoon, ensemble, besides a half hour for my throat: ting little more than read the newspapers. The result is a back and front the color of mahogany and quite an empty head: Kath. arrives today, and on top of that I'm moving rapidly toward four hours of sun a day--so I'm busy as hell doing nothing: However, here's a word. I see my N. W. trip going up in smoke. They are too intent on my cure to let me off till all brown and crisp. I'm sorry for wanted to see those wheat farmers. About Foster's book. the trouble. I'd like to send him something, hut here's Since I wrote him have still been uns.hlo to finish reading the last third or so. Too much sun. Also, I am far from convinced that we should deal, or even assume to deal, with prices as he seems to think we thould. On that opinions can properly differ. I might send him something. It will be very useful and is in the right style of simplicity, and I like him'. decently. arrival. After I've finished the book As soon as possible I'll write you Am up at 6 A. M. to write a few letters and get ready for Kathie Mn doing finely'. Best to all at the bank. Yours, B .S. FIFTEEN NASSAU STREET NE YORK 6-1`a_4014-efir _ .0t4)-1 914Alet. 0 if) taccutAYa cov-71-1 filf,71 rnt/o rtit-C4 "tun kluaLc ot_AZ faxii h_ itn4A,o atAkiLare, etc', 6'Y 4-&---a,t /kat, 4t-) , (/It luktro vi t- 7nLceik_ At. NAA.). AvaLcur-- 4r)N C9-cey 044;ltueut4614-- -t fkot-t /64- 04414-0/AfIA 7/14 tYlAt7 et(frt c4 ) "IQ (A: 44-"Ce nuWI (3(____Atg _ --kerikkt,; GR-12 - - tuuio ee-t- 2' 4 4ri4rr-I lei; cut-0 li-44-t'd-ter " 'Gt.& carrice- ok,1 QA ckt, - cC1LCt 4-; °9A2L-k- CGt4_,(64) km-e% gistC°- &A:114-7r 6-47-zo-bk 01. 09j tuz: g)-aTx/ws gernkict, ht/v 11rril4 ike Cit.t_ (9 0 ,A..ZaAri itoa,9-t,4f 27/1,ttet, 14,6t}- -3 atLo 2 /itr 4/62,6uvnt CeULC 621444,c-f Ar7 itcc_e ev ees, inarLer *(4 ( n , Ow--Act-1 /yo efriavyt, d4r5' atzottx: 451tvz,7 1-b-ylk11/ (A4 00;4, `111 Ottr-- tow-"ta, 444, tryvi tfte. top ar---6_ a 4,0 tur-L annAAr- _dd 8ra- 64'- FIFTEEN NASSAU STREET N EW YORK Aufaik 3 Atectch Petah Ct /kto raftiu q wititALIE-gc 44,4 let^S-tri 64 Af C-1" r 61.G1411/77WA--c ettAff ChA ett- Cut./ ,NPIA do Ka.17,) !II/A 4ro 9 ectrvvv, rft "tOah efinti4/6 A,fe,L4 "nts Atri af I, kr-nyv? .7711-17- 41-01c1 676-f5 74aA &I/04 acw Aut24. ae,Ce goaLeL,cf 4 1 Ccutt/ir jaf 10. - gnu_ 49hute CatittA--- -MAK- bra; '61 gs tt k11eifi fattAk4 - trux, (44 lkola-fax Cei 7/1_, (5' CL tal&C ettion4t}r- 71A-db'b itt---1147 ACC(4)/C- rasp GC-0 Ctia Ca_acetaiL, c7LeCEI-a4; 7nadt day 7".4 4autt,ti a- cAlgr.t.9, 65 pu-ta_ IOU; kr/me dal, a 14xt_e_4(' 4 --mA41..1.° far-zA 447-107 1)-( Rea' ,t,49-143 A7/74 azst C.-telrkt/V-A--Ca /0 co74- tafTvicisw. 06-1) erws:,/ " (.. da4 F &IX11 Thr trirz tf7friLta. AnA--; on- LA 0&_?".<4 ow-1A Ce-tct Cakt,Fr ithte g3C01.11 dikatli< cto a CAL 49-ett 6/k4 ftucc 7 yicz (&, 64-a, /lirfr-1L 6cv- elk.4 e'Pe1/44tZt;) cikictik.cA WO---4;n;A,;(7 e_ afra:) CeAr)fir<Lv ( "Arl - c4---/ett-A2 P (COPY) Sunday Dear Mr. Snyder: Please give your lady my greetings: I put the message here as I have forgotten it in former letters, after slamming at folks, etc. enjoy your letters, but why chide me for poking Chandler? I You know he can do better stuff than that article, and you know also that I don't sit on any pinnacle of intellectual superiority in judging, either. Couldn't if I wanted to ,--can't even spell half the time: About that firm you have joined, C. K. L Co., they propose reducing the amount of gold in the coins, do they? they plainly say so? Have you found the place where The And especially in their earlier pronounconents? coins must some day be changed, I agree--but the so-called purchasing power parity, without the change in the coin, in a myth and you will some day pgree--or do now. T can't write much now. But your wire about that shriek of Nice day and I'm going on the roof. mine puzzles me and I await your letter with interest. Do you think our friends in W. have spunk enough to do anything to me--even if they wanted to? Should I break loose just now? Nit: Good-bye and my best, B. S. Am doing finely. It's only ordinary courtesy and decency that keeps me quiet, not timidity. Nothing to be afraid of (COPY) Cragmor, July 3, 1923 Dear Mr. Snyder: I have a lot of interesting letters from you, all enjoyed, but an now so deeply enmeshed in my treatment, sun baths, etc., that I have mighty little time to write. Pardon the brevity of this. I would like Hawtrey's new book. Much of it I have read. Your plan of stabilization must be discussed. Writing is too hard and imperfect. The trip in the N. W. is devilish uncertain. I have greatly wanted to make it but prudence indicates I must stay here my full six months. Your memo. on Strause's letter is too cryptic without the letter to see what he was driving at. My sun baths (now nearly 4 hours a day) also interfere with readI wrote him when about half ing--so I have not yet finished Foster's book. through. Also, don't recall quite what I wrote. I like the book, but cannot agree with his, your and all the college fraternity going to the extreme of having us regulate,- stabilize or fix prices (meaning general level). It's bad talk, will hurt us and lat fix the price problem. This is dogmatic and argument must come later--except--people generally know nothing of "general price level," and first thing we know Mr. Wheat Producer will want his price put up while Misses Sugar Consumeresses will want sugar prices put down. Let's stick to credit and do what we can at that job. without having price fixing thrust upon us! book when I finish. hates us I'll let you know about Foster's But I like what he and Catchings are doing! Thank you for the books. me Willis' book. It's enough Yves-Guyot has not come yet. Do send I want to glance through it and see how bad it is. and me, but I sometimes think he hates himself first and most He 2 Again, many thanks for your letters, for return. I now have Kath. herewhich helps. indeed. Throat looks fine. which this is a poor Also, am doing very well Still allowed no exercise! My beet to you, and to all at the bank. And to your Yours, B. S. boss. iskiwo AltIQ_ .11L, A xoNio, N*)_%), )14-15.3,4 3,!LszT_N TEEN NASSAU STREET NE YORK -A 57ffil cOeca ah)1 Cith aaoif a *or, avyytvakt,; J, 6a1- eit4 cuu Avi Iti / iwzo bLy AR' (urak vilaw/-ruir, otOeittif r /7 6 )1.141 er luta_ ALL() :6-ertric. hts2u0 KaArg %kith /dew achta:&f- kw-el fr3 k2un actir t1( qictaft,,-reu A (0 atueezieuz, wutiek &hal 'Attu& 614 .1-raufl/a Catm -(6 oatAx 6",r- katirtuce_c v444 jaa Lott tkiNctccothA cittf ?7141.4 I ns di/ ocI, 'QS r_ t9fSWiticti-to71 cX,(' eurv, fr; 1 Aj 1 or7-0 LeA_ taw ( 40v0 V. -"-"- g ATI 7111v-as . z cfric;r4v attx (4.4141/14_ C07/-4-- itb20-ta:_c If'. mitt/A-4c -6-~ ixtzn t , citut incv445_- atte (-On &Log a oiltA ecti- ifintAvo 6L-440,/ 09 ga-01anu II 7v4L-4 de-Fac 62E440 cLcvit64- /k-----60--crie Wt a tta Jr ittacir 04-3 isfL2 cacetic I (71liza,,,pli Alm 6-2ig tane lotte PAci eL0a v torkek--- przo-e-iteL91 - citiuttii/ ina_tue 7wittucf- ct_d-a Jr_ " yak.e>zz't_( fuat 1,tü10,1 tecti eitt*/afa,rys Wittut- tleLp(un 044 eseNve kau ittceopo 64A-C CtAx-ar vita 771w Re-ewsife w/Avz cats ova; 4/427A-----wo --krdere,, afr_revpruAki- 4./19 er,,t(A- tittrit, 46-toi /U-Vatf)t_ -9A111- Oraw -forP ta.s an C grrk Pr-cto%) rdttAg-- krue_ov tCP/Q- do-mr" t dZ(Arc cart____AstA---7X110-6 41-1A* 0114;-- 9)(1ftiket"--1 Prce-1)` fr5euir:p ,,/ tqa-evvA4to tc-e-r-A &Yr 2-Que; ialceiktp- Cak---41-ota-4 Amu< Prm 014( eil`Tito-A Raxh4) tah~r---d-datz/r /hrtitck Pa-- CONE , IOU.; ge-g-t slat 4 At Prex)- aLito-fko 4it,0; aietaxx auIA 7xt ca. 14tk.6L;L6 ,61,c/r 42-4497714,; 'Mawr aariAA ktheg KcY-14 ctouq- inxt, oti (eta 101 telk,u2-4 tatteA__ 144r1 turinc) 9 )uou 6°4240 oLfei-a-r- egtoio Vx,i,t_e_Gai e: cote-101J aiiJ fiy fae-TJ,c 7uh takkei: 4011_ fit-44ti 7itztair ftva q vir r-te)c--140 vi net/24----& 4/0-)1 tem L. 6-arTLI ettr. MISC. 3.1 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE tre4A r f DATE 192 SUBJECT: FROM ofrtan, 64, 011144 dki, ,f ,no111,t111/ C, kaio d'X-fj2 >Atata- eWattitat_ 161 ne VVI/P\ a/6-M ettst tratAtt.,, le* L1 TiLiwatkez c-9a1-6,-) r4K.04 0-; 7)4:4 a Atfectet,ti Ctifrik We 0/4 "1 161641 cidek;;Z' Ct-e% 4,4 xT-t, 4f4 -))4t_vl 0,0 Xav S,(4 trirLect Of IMO Acej---4 ado litry tirttAilA 5911/4Zeikira/P: 0A)41 f Oft' oq-oci: /role) 44,3 akt,-11 CIC-Otia't h 4-traKt: irtArCtRAA# eiMj1 0145t4AtA 14144e0 avtepv('''-'4). tArteta-t 10/1 Ga/tAtl, ikcjit/r- OIL ettr; tbAltrx-e77\stAe4-..3 etks? OLLtotia4..4) 1/\014-aleAl A4-01-t4-101' 4re,C0 4i-a.,144 W., A 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE eitili7 cA4/1., (1 f 4 Oat% DATE 192 f SUBJECT ch144 ftfr-V eenynumiv eimio oWita h41j2 >xtata----444 ,444-461c) ct, etrxt / ittr4 traux,-," bviff,-,-, 1,3 M; -7/ Y.- ex at ectfo_k: .. e of`-4 N. ay 41-44171- Oft1jTacwv-- otiacii c4; /141/ ry twvai.tez cal:1:17 '"rt offax-e Viti( to -"we r C ekAk 1- 74," 21,0 t44"4 raT eickfriti einkettvz 6.4)41 Ckm#11',, 1, cati/.2,4 49-Kt: irtgodyv A/ MAA.e.1, ta.4111 A t Ce ) 417 /771 71104- 01-t dstrk tat dm Itchtt frh\...cLie-o,2 Py-e, ?-roc.F//tf aCt 4194vt try-rT (41/vvit---tAir And tritArv,0 is.A- io littevv) irwitka erAlk(ct ctif per/o, Mil hiAdt Cit) ?fret efr4 ) esv °Y /Av144A--- Alikr tr e4\.. 24_ vv- elf77-v avuev#14..... 461141Z 4,/z.t. -7),\Ary-r-71\44A4s tV4 09141A/C taty-vLie .1 714-0 (2k2A141 ria ove----,t- 61-1AA dintA eirrvh47-3 al ULU- knoC4 kw_ 4triAn -1/11.-, 69444.) A ettitvat74/tittk:f DanA)t--10-cret-At-- Ann, lel r "71,Va- 44-4 hiflAd 7rcr; att...0-4\ATte; is) /tilt( af MISC. 3.1 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE 1 92_ DATE SUBJECT: FROM ettda Ic--/A61-4/7\4)9,-, gi cr,--01\-k 4 vi/ es71-, fri , 09444,1 1 1r ato .7 r ,r,,,i, 11(4-442 4 ilattArb /44,4.---.. iv) ...- vcrIt,-.4..a. it__ a -vve T ct (2.#4,47?-)71,64 litie7' t , 4, Wetfatce.... eittlits' X14.4.1 , le i 't:' '' - At( if /11,444,41-1. tiduceiklailZ., ; fr 671,404444 poLet-r-t itz,*tv'D # r' r etervfi;Vi emu-4r 6(.244 eA,ta,ictu, td7-64-4, A"- (P. 7; A July 11, 1923 Dear Mr. Snyder: My comment on "Tidal Time Tables" was badly expressed, but I meant this:--your examination of prices, etc., seems designed to disclose Whether there is or is not a regular rhythm or sequence with fairly regular periods of fluctuation, etc. And you take pig iron, stocks, etc., to show that there is not and that forecasts are hazardous, etc. But no'Where do you point out that such a conclusion could be safely drawn, without any chart, because the whole credit system nf the country has undergone a violent revolution, which makes all such bases of prognostication valueless. That is exactly where Babson went wrong and where Bullock will if he doesn't mind his step. In past years there was no influence or control at all. Now there is one, which may do good, or harm..-but which is certaTET-whatever it does--to make comparisons of pre F. R. System and post F. R. System movements most misleading. That's the point: Few writers realize how great our influence Will be and has been I think your guess was best of the lot as to when the swing would halt. Don't forget that with all our faults and mistakes we have done better than all others, even Japan, in our credit policy and in getting business going and contentment restored. Nature did a lot of it-the F. R. System some; politicians nothtmg: Good luck, . IJ. P. S. I have always felt that the transfer of demand to time deposits at 3% reserve, needed watching. The F. R. Board is just getting out a new regulation. These figures should be in their hands with a recommendation and soon'. Speak to P. J. MISC. 3.1 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK ThFFICE CO RESPONDENCE To 41 Cefrth 7ty StrJECT: act, &IV1 fr4 Ivy &Iaii catztAA/ 404 107 lk kva hut( , (at- 1511, )ntv4.4, effl Cl;-J bank_ C7kat. ACLV (4-- ,NY14-h') gnu ti45- (0-teityy- (--rietje_4 Ac' A _ Wu Veiz4)-11-ta--C 4 -49 4/t/f-fLtt4orit) cuals dt-d-7:/v cralo 5 tio-m- itg_t (A; df4-6.04. Ce--4eva axit cce6u, (>1)-_ct tu,1 Kik./9 faillA II f1 UZLtt/&Q_Etocksivo r. V MAW(---4EI ifeEtc. oq &tor/144, Prucu; itt_cuvr- 6-47-ux ertk_vcL_N 6101 t'e-6 Or oraim - ita_d 4.iyukt4 (---rwt4 a-t-7-)tu4 craK retocka4414 OdcrztYtri 4 77ffyLts, (IT 16ez_af /G 7iLaiet 09.4)", 71,$9 dilittzttc4 '91- c4 ariv(9 frau ik myett,/xsz Ne--&- (6-1/4-- 1ekRb tt-Cd IWO 01-6ace(4,4) ct,t4.1- r&3 or6 P4o-ri--6 Gviik NO/ 19-6 0,--tord-e olkeu Ircvojv k Pra-6aci4. cw tocrxib 01.(1,-) @IA " etc? Low . 4.(40Lea ecte:12_ itrjet,4 airicw4 ewes, rt;c1,4c i elf,AIL4 6bo e§o-- kqvi 4,ott r- kac_tr,s ettarAir - a,9.42tiyrruvo tvd NT trurze ;Le 4 yfty&ffte4 (07-aralz4- Arice_e a Lt&-di,,4 " 6 G7170etakla ifz-e); Col---te4- AA: CIA;i-v_r n7 torrie4 1/0:01-L CIA__ ItsLI, 07'1, >f4t4 cezL 6-1,1 V 456-0 taccif fite.tA r Pre---Aceitro-i ilrfeetzme te-Litc beei ecki peas " 15-art .Ct4 7. aticen_eutHc c4c-e-d--e at-e-4 V-1-geetteciACW. Ain out cvut 117. Artet; 6-trt,1/ Mr/A_ elt Aurt4; tax ofive,y. isucAjczw; ek et,t MISC, 3.1 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK FICE CORRESPONDENCE 192 DATE SUBJECT: TO_ FROM Itor-K/nutck , Tte gLt&13 co- p_t (iLtros 614-v___Zt CPALca.` erd ex, c olkfiLl it- ikt Acce (-477-"-f Arart c-p-m_favccvys; /6-6 t9iL I)Th acct(A/ (JP 41-ah tel 6-1un 7A---( kecr- Artoi-e' CArm__ zteitx criaNt (r- Aci o 6vFi (kvt,t-tk Artuctr)Lx____ ro--0 MIA 1.4/A Rel CatArpliv 71A.et Ct/L 0 --h43 (yrziruAlig- act_ kit)49 Art4 btit-f Ai10v 5titt htezt) otterAL4 051 coxi,o July 12, 1923 Dear Mr. Snyder: I want Willis' book, even if Thank you for yours of the lOth. One must have freaks with a circus. it's a curiosity. Those pages from the "Journal," etc., are no doubt here, but I have not found them. Sorry. Sure they didn't go back? Now I don't like the talk about stabilizing gold, or purchasing power of money, or prices being stabilized by the F. R. System, at all. It is bound to lead to confusion, heartburn and headache. Look at sugar and wheat as examples,--also wages and building costs. ata is credit. Our It makes no difference if it's a deposit or a bank note. If we regulate and keep fairly constant the volume of this credit,--always with due regard to gold imports and exports, which is a part of the credit problem,--we are doing our whole duty. Other price influences may then be dealt with by Hoover, et al. They are not our job. Of course we should watch prices,--and production and consumption and speculation, and lots of things, to insure that our "play" is correct in regulating volume. To come boldly forward, and volunteer to take the price problem onto our backs, and than as we would surely do--is just criminal suicide. Let's deal with people and things as they are and not as one or another of us assumes "as they should be" or "as we would like them to be." aa, Don't forget that Mr. General Price Level is only the student's affair in this world. Prices to all others mean, to the housewife, cost of rents and supplies; to the workman, wages; to the farmer, what he produces, etc. They each complain of one microscopic piece of the picture and some will.1.v asa be complaining. Harp upon and stick to credit'. our share of the job will be well done. past year or so, tool It's our job--forget prices--and It has been pretty well done the Your letter indicates you need no convincing. Read my arguments and urgings with the Governors and you'll see Where I stand. How I wish I could write'. Yours, B. S. etith cLict,-/ coo-ui-elm/V t4'6 "Tkest_t (V; da f &ati,aiefvt airstutiAl I ort' (War/RI:1;37 /54,-fwvve ti; ag-v5 apaisziae_o-A omS2 150M-920 INTEROFFICE FEDERAL RESERVE BANK OF NEW YORK r- 1 TIME ROUTE SLIP OFFICE SERVICE MESSENGER SECTION DATE TO DEPARTMENT DIVISION SECTION REr-ARKS FROM DEPARTMENT DIVISION SECTION N. B. USE THIS FORM INSTEAD OF OFFICE ENVELOPE WHEN POSSIBLE. TO INSUREPROMPTANo ACCURATE DELIVERYALL COMMUNICATIONS SHOULD BE DISTINCTLY arLED GOLD IMPORTS TO AND EXPORTS FROM THE UNITED STATES AND GOLD RESERVES OF EW2.,RAI RESERVE MOM Thousands) of Dollars. (In Excess Gold Imports 1921 1922 1923 Dec. 28 January February March April May Jane July August September October November December January February March April May Jane July 13, 1923. Gold Exports of Imports 26,571 28,739 33,488 12,244 8,994 12,969 42,987 19,092 29,316 20,866 18,308 26,440 32,820 8,383 15,951 9,188 45,357 19.434 863 1,732 963 1,579 3,407 1,601 645 956 1,399 17,592 3,431 655 824 548 25,708 27,007 32,525 10,665 5,587 11,368 42,342 18,136 27,917 3,274 14,877 23,730 24,348 6,984 5,559 8,533 44,533 18.886 411,147 .59,168 351,979 2,710 8,472 1,399 10,392 Total Gold Reserves F.R.System (End of Mo.) 2,869,600 2,911,528 2,951,434 2,975,355 2,994,776 3,007,621 3,020,868 3,071,424 3,063,414 3,076,943 3,078,049 3,072,858 3,049,451 3,075,810 3,072,813 3,069,495 3,080,579 3,108,762 3,087,703 Increase in Reserves 41,928 39,906 23,921 19,421 12,845 13,247 50,556 8,010 13,529 1,106 5,101 23,407 26,359 2,997 3,318 11,084 28,183 21.059 218,103 Qtr? (AWL1714z...)1 ev-euz)) )111Aitak 4( C ceelØt- 4 10714- a-e FEDERAL RESERVE BANK MI... 4. 1.100M3-23 OF NEW YORK OFFICE CORRESPONDENCE To Mr. Synder DATF Nov. 1, 1923. SUBJECT: Governor Strong FROM Here is another report from Miles. Christmas. att. He will be here soon for 192__ FEDERAL RESERVE BANK 4. OF NEW YORK %; FICE CORRESPONDENCE DATE Nov. 1, 1923 _192 SUBJECT - Dear Mr. Snyder: What' s this? A touch? I await your advice, but the papers have not come. B. S. aL( te", 3.1 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To -1 Mr. Snyder DATE Nov. 7, 1923 SUBJECT: Governor Strong A The flour I still do not get the figure that I want on wheat. figure is complete. My point is this: The stocks of wheat are represented by unground wheat in elevators, cars, etc., and on the farms. It is claimed th-t we do have on hand 150,000,000 bushels in excess of what we should have. If the actual visible stock of wheat (not flour) is 150,000,000 bushels, the surplus stock of wheat over a normal supply would be 1b0,000,000 bushels, less what is the normal working stock of unground wheat in the elevators, etc. Certainly we always have a stock of wheat on hand, just as weelways have a stock of cotton or any other prime commodity, and in order to find the surplus we must deduct the normal supply from the total supply and see what the abnormal is. I want to find out, if possible to get it, what is the visible supply of unused wheat on hand this year, and what is a normal supply at this season of the year in years when we have not experienced in this country and throughout the world an excess of production. to get it. BS.MM att. Possibly an average for a period of years would be the way The difference will be surplus! 192_ FEDERAL RESERVE BANK MISC. 4.1-30M 10-21 OF NEW YORK TICE CORRESPONDENCE Mr. Snyder DATE Nov, 20, 1923_ SUBJECT Governor Strong Better let this go. 3S. MM att. I'm not keen about such affairs. 192_ FEDERAL RESERVE BANK OF NEW YORK MISC. 4.1-120 M-1-20 OFFICE CORRESPONDENCE Tc Mr. Snyder DATE Nov. 20, 1923 SUBJECTGovernor Strong Again your friend Rortyl There are so many of these economic -schemes afloat that I get confused as to who and what they all are. I just can't contribute to everything - if they want a contribution - and can't be an endorser of everything! If they just want to tack my name ong'something, won't you please advise me, If this is a part of Moulton's enterprise - which it doesn't, however, seem to be - I must say that I am a bit jolted in my appreciation of their ability, after reading Moulton's book on Germany's capacity to pay. BS.MM att. 1 9 FEDERAL RESERVE BANK OF NEW YORK MISC. 4.1-30M 10-21 OFFICE CORRESPONDENCE To DATE Nov. 19, 1923 Mr. Snyder 192_ SUBJECT: Governor Strong FROM The decline in 1. should soon be reflected in the index of "sensitives". With Sterling 12% or more below par the relative level would be say British about 162 or 3 ff 145 or 6 U. S. A. Watch it and see what happens. Further, I suspect the "wise" ones in Wall Street look for a business setback and have set the stage to "let go". B.S.MM Bow does it strike you? MISC. 4: 1-120 M-1-20 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE .T.c, Mr. Snyder DATE Nov. 24, 1923. SUBJECT Governor Strong FROM Just what I wanted. Keep these handy for me in case want them later. cd,...4 2.32 BB.NLM att, FEDERAL RESERVE BANK OF NEW YORK MISC. 4.1-30M 10-21 OFFICE CORRESPONDENCE T^ Mr. Snyder 1 92_ SUBJECT Governor Strong FROM Professor Bullock hangs on hard (so do you) to the fear that we are in for an inflation boom. Barring a tariff issue, I can't see that politics* will be any influence on business, the next six months. domestic BS.MM att. MISC. 9-I 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To Mr. Snyder DATE Dec. 1, 1923 SUBJECT: Governor Strong FROM I think it would be a good plan to get up a questionnaire for the Department of Commerce. On the other hand, I think it would be a mistake to have us given credit publicly for any work that wd do in this connection. If you understood, as well as I do, after long experience, the reluctance which all bankers feel about giving any information which is to be turned over to any Department of the Government, you would know that a public statement by the Department of Commerce that we had helped to compile this information would greatly increase the difficulty which we might later encounter in getting information in response to any questionnaire. As a friend of mine once said- "It's better to get a thing done than to get credit for doing it." ES. MM att. 192 TRANSLATION OF irconlim CABLEGRAU London, England DeceAber 4, 191;3 Federal Reserve Bank of New York New York N Y No. 41 E3.5.3 3 1/4 Money easy Friday Treasury bills averaged Tap rate 3 per cent. Three months' bills quoted at Stock markets rather more confident but very little bus- iness pending election rise of 4.3 This increase is the greatest for two o 168 years and the new Times index figure for November shows lelita Increase due chiefly to is higher than any since October 1921 and industrial materials specially cotton BANK OF ENGLAND 1140(- (Oj41(9.--)1\14,e. ce-t,,e,t'ett(cem,e_ of FEDERAL RESERVE BANK 4. 1-120 M-1-20 OF" NEW YORK uFFICE CORRESPONDENCE Dec. 10, 1923 SUBJECT: 101-. Snyder F-,om DATE Governor Strong I really think it will be impossible for me to do the War College job this year - it is too much of a drag on one's voice in that wretched hall. Do you feel like corresponding with Colonel Simonds about it and making arrangements for the sort of address they like? I might attend and answer a few questions if that seems worth while, but I couldn't do much talking. BS .M1 192 M ISC. 3.1-200M - .20 FEDERAL RESERVE SANK OF NEW YORK OFFICE CORRESPONDENCE To_Mr. Snyder om DATE Dec. 13, 1925. SUBJECT Governor Strong The question is Did the chicken first come from the egg; egg come from the chicken? Does a falling exchange put prices up; advance in prices put exchange down? impractical economists abroad who or did the or does an You know that great school of modern discussed purchasing power parity so learnedly had certain notions on this subject, and I am wondering how they reconcile with the fact that the balance of payments adverse to Great Britain (service of the debt and export of capital principally throw it out of balance) actually eeems in this instance to have depressed sterling, with a subsequent important advance in the price index in England. of price movement? Ili BSOLM att. or a result You know, there are some of us who think that it is sometimes cause and sometimes effect. do you think? Is exchange a cause of price movement; Again there are some who think differently. That FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To Mr Snyder FROM Governo_Strong DATE SUBJECT: Dec. 13_ 192 3 Japanese Relations If it does not involve too much work, I would like to have a little study made of the extent of the economic dependence of Japan upon this country, which means: The amount and character of their imports from us. The amount and character of their exports to us. The amount of financing they do in this country. The amount of the reserves' held in this country. The amount of the carrying trade in Japanese vessels with this country. The amount of tourist travel to Japan. The probable amount of Japanese remittances from this country to Japan. Other items may occur to you. Is it possible to get at something of this sort without too much vork? Of course the figures wi11 be important as to their imports and exports if we show the proportion of each commodity exported or imported with this country to the total with all countries. For instance, what proportion of their silk do we buy, and what proportion of their cotton imports do they buy from us? It was not this suffice? easy to get all the things that you wanted. Will MISC. 9.1 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK FFk 1-( CORRESPONDENCE Mr. Snyder FROM DATE Dec. 27, 1925. 192 SUBJECT: Governor Strong I remember my father telling me that after the panic of 1873 he had seen oats growing between the cobble stones on Broadway at Wall Street. city was absolutely dead. The The decline in wages following the Civil War advance was about coincident with the 1873 panic and the enormous liquidation that followed. The fairly stable wages from 1870 - 1873, which also appears in wholesale prices, doubtless was due to the fair degree of stability which resulted or was accompanied -by the adjustment of prices to the premium on gold. It seems to me that the conclusion which you draw from the comparison of the two charts is not complete without more clearly stating that there seems little likelihood of a decline in wages unless we have a period of liquidation, and little likelihood of liquidation without credit restriction, and little likelihood of credit restriction with such a large volume of potential credit in the country unless we have gold exports, and little likelihood of gold exports until foreign currencies are readjusted to a new gold standard, and therefore little likelihood of wage reductions. could go a long way on this without reservation. BS.MM att. I 7.. 9.1 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To "r. Snyder DATE Den. 27, 1923, 192_ SUBJECT: Governor Strong FROM In the second paragraph of your confidential memorandum on What is the 4 General Level of Prices?, you mention paper money inflation as having been invented in about 1690. This may be literally true, but there was a species of inflation in India in the 13th Century, which is exceedingly interesting, although, as I recall, it occurred with metal money. One of the slave Kings - I think it was Kutb -himself - who, as you recall occupied the ancient city of Delhi before it was moved, invented a device for issuing a small copper coin which was a representative coin and redeemable for a given value of gold. Due either to his extensive wars, which may have led to overiesues of the copper coins, or, as some have suggested, to very extensive counterfeiting of the copper coins, this metal currency depreciated tremendously in value, and in order to allay the distrust, and avoid a great upheavel, he sacrificed a great part of his fortune in actually redeeming these coins in gold, notwithstanding that there were many of them The Question of whether it was paper or metal is unimportant, but it might spurious. be inte-resting to look into this very ancient history of currency inflation. The memorandum is a very interesting one. I am wondering, however, if it does not involve a species of duplication in carrying wages into a price level including commodities, which already include wages. BS. MM att. FIFTEEN NASSAU STREET NEWYORK May 22, 1923 Dear Governor Strong: I have I have your inquiry about the new Board member. already sent you young Mr. Wallace's letter, and he evidently knows him very well; and I am enclosing herewith a note from Senator Cummins. It was stated in the papers, you remember, that it was mainly due to Senator Cummins that the appointment was made, and in writing him about the meeting of the Monetary Association I asked him also about Mr. Cunningham. I should imagine the latter was at least a great improvement over what I have hard of the late Mr. Campbell. I presume you saw the editorial in the "Evening Post," on "Politics and the Federal Reserve System." I gather from what Mr. Case said that Mr. Schneider had been talking with your friend R. C. L. and had imbibed some of his notions about the increase in investment holdings last year. We had an extremely interesting visit last week from Prof. Kuczyns economist, of Berlin, who told us of his very interesting experiences in Paris this winter. He was there on an unofficial mission to try to effect some rapprochement with the French economists, Gide and Jeze, at al, and reports that their views were very close to those of Loucheur, end that these in turn were very close to what Germany was prepared to offer. He said: "If last December it could have been left to men of the type of Loucheur, or to the economists of France, the whole matter could have been fixed up within forty-eight hours." He thinks that the French occupation of the Ruhr has greatly complicated the situation, and deeply embittered German sentiment, as well as inflamed the French idea of the partition of Germany, so he is far from optimistic at the present time. Mr. K. told us also much that was very illuminating political conditions in Germany. He says that France itself responsible for Cuno, as they believed they could get nothing socialist government, and that the thing to do was to put the ists in the saddle. as to was largely from the industrial- Now the latter, according to Prof. K., are precisely the people who have been fighting the idea of reparations payments the hardest; they on. Benjamin Strong--2 have profited enormously and in some cases colossally by the policy of inflation, and they are now determined to ride it to the last stretch. well known in Germany, and half acknowledged, that He says that it it was Stinnes himself who took the Reichsbank by surprise in April and smashed up its scheme for stabilizing the mark, through the purchase of This precipitated the preenormous quantities of sterling exchange. vailing distrust and led to another collapse. is Of course he represents what might be termed the more liberal sentiment of Germany. He is or was a man of property, as well as of very high ideals, and he looks upon the whole proceeding now simply as a vast plunder of the German pecple by a crowd of ruthless industrialists. He is here to lecture in Washington and at the University of Chicago. I have been very much puzzled by the movanent of demand and time deposits in the banks, and commented on the same last week. I am apprehensive that it is going to upset what looked like a very good index as to the probable course of prices, through the transfer of the inactive demand deposits to nominal time deposits, and so changing the apparent movement. I note that your friend, Mr. V., has been asking bankers some questions, and among others wishes to know: "Why do they have little recourse to the credit facilities of the 7ederal Reserve.Systam, and charge our merchants more than twice as much as merchant borrowers pay in London?" etc. I ask, Do the angels weep? If this is the limit of our "economic ignorance," where shall we look for light? Mr. Morgan has returned from another little bout with his threat, and the happy family is complete again. And it looks as if spring might be here. With warmest regards, Always yo s, a..1;12 1(----' , Hon. Benjamin Strong, Cragmore Sanatorium, Colorado Springs, Colorado. AMERICAN un.e.co. cgs momn WALLACE PUBLISHING COMPANY HENRY' 'ALLACE JOHN P. WALLACE DES MOINES, IOWA Good Farming; Clear Thinking; Right Living A Weekly Journal for Thinking Farmers JAL IL May 23, 1923. Mr. Carl Snyder, New York. Federal Reserve.Bank, New York City. Dear Mr. Snyder: I find that Cunningham has made a very definite resolution to keep his mouth tightly closed until he finds out more about his new job. He realizea--that there is a chance for the dirt farmer member of the Federal Reserve Board to say something which might be misconstrued. I talked with him for an hour or so concerning the lilonetary4sociation and various methods of stabilizing the dollar. He took quite an interest and said he would be glad to talk with our people a year from now when he knees more. HAM RH (1A--tr ct.C6-,-4 41,z Very truly, t.)t- 7 CQL FIFTEEN NASSAU STREET N EW Yo RK May 28, 1923 Dear Governor Strong: We were all deeply interested in the latest bulletin of your progress, with the accompanying photograph and the buoyant spirits It is splendid to know things are turning out so well, and implied. you may be certain that it is a source of deep satisfaction to everyA great many have inquired from time to time, one here in the bank. and I was very glad to have your message to give them. Actinic cocktails seem to have an inspiring effect, and the evidences of this effect have inspired me with the certain conviction that I am sadly in need of them myself. That is a feeling you know we usually have at about this time of the year! I am properly flattered by your suggestion of a trip into the Northwest when you finish up there, and if the fates are propitious, and the way is open, I can tell you that I should enjoy nothing better than to take such a trip with you. It is many years since I have been through that country, but I used to know it very well all the way from Denver and San Francisco north. It would be extremely interesting to go back and see it again now, with all the changes that must have taken place. I knew some of it, at least, when it was still rather in the pioneering stage, and spent one summer cruising around in those wonderful woods of Washington, and up into the Monte Christo mines that seemed to promise so much and yielded so little. ( X44 3.000, 0 0-r x-ev c e IA ArO, a ) I have always thought that the Puget Sound country was far and away the finest climate of any part of the United States. To me infinitely more attractive, for example, than Southern California, which I found enervating, and even at times depressing. I can remember some of those "white mornings," as I used to call them, off in Washington, when the air was singularly still and cool and almost an enchantment. I'd like to go back. For the immediate, there is a lady who has deeply set her heart on a little trip to Scotland and Wales this summer, and as I did not have a full vacation last year, nor any this winter, I am in hopes that the council may squeeze me an extra week or two this summer, so that I may save my job. I am presenting it as distressingly urgent and really pathetic. Hon. Benjamin Strong--2 The walls of Jericho have been deeply shaken by the blasts of the trumpet in your latest, and the ranks will have to be re-formed for an adequate reply. __Loose In file Meanwhile, as a diversion, I am enclosing a reprint of a little article which seams to have stirred up some of my friends a As the subject may interest you, I enclose7criticiem of good deal. Prof. Day, who has been associated with Persons in the Harvard work, and a copy of my reply thereto. I have to add, however, that our index numbers of various phases of trade, expressed in percentages of the estimated norm.. line of growth, are running extremely high and possibly may combine 4a.41. show a much wider swing in the total volume of trade than I had thought proAt any rate, we will soon have some rather definite facts and bable. figures instead of the guesswork that has been almost alone available hitherto, and that will be some gain. Next Thursday a week we are to have our annual golf championship meet, and I assure you we shall miss your lead-off very much indeed. In touching recognition of previous high records in such endeavors, they have agreed to award me a handicap, the equivalent of 120, which, however inadequate, will at least make the results more solacing. Believe me, while I spar for a little time, with best regards, Always Hon. Benjamin Strong, Cragmore Sanatorium, Colorado Springs, Colorado. ours, May 25, 1923 Dr. Edmund E. Day, Dean, Department of Economics, University of Michigan, Ann Arbor, Michigan. My dear Day: Best thanks for your very interesting note of 1:411 17. Of course I agree with you entirely that annual data should not be used where monthly are available, or unadjusted for trend. My only defense would be that, first of all, it just happened that most things were at a pretty high peek throughout the calendar year of 1920. Railway traffic, for example, eons still very high up to December, and then underwent a violent slump, as did a great many other things, with the result that we just happened to have two sharply contrasted calendar years. That would be the only possible excuse for the comnerisons T made, except: (2) important A number of/mthient things are, of course, available only annually. Pinelly, as to the adjustment for trend, that for all industry, :a agree, is in the neighborhood of only 3* or 4 per cent per anntra, and er very few industries much more than 6 or 8 per cent at the outside. And, on the other hand, we know that the slope for crop area moves still more slowly, about 2 per cent per annum. Next, Prof. King's study in unemployment work, sampling a. con- %1.derable number of industries, did seem to suggest that, at least in 1921, the larger industriee suffered much more than the smaller industries, so that I really think there is some ground for believing that the fig- ures Which we have available for production at present are not representative of general production, save in a few important lines. My feeling is they are to be taken with some caution. Moreover, following the extreme unemployment of 1921, we made a number of inquiries, endeavoring to fine out what had become of the men who had been dropped from the factory rolls. A number of large companies, like the Pierce-Arrow of Buffalo, actually had instituted such on inquiry because, when they came to resume operations more extensively, they found that it was very difficult to get back their old men, and were curious to know what had become of them. What they found, and what a number of other industries found, was that the workers had gone into other occupations as, for example, the Pierce-Arrow employee had turned automobile mechanics, or opened a little garage, or gone back to the blacksmith shop, or turned ainters or carpenters or plumbers, whatever their trade might be, and very largely on their own account. And the curious thing was that, even in the depression, they appeered to be doing so well that they were loath to go back to factory work. even those who had not gone into business for themselves reported that they had done a lot of odd jobs, repainting their homes, making enlargements, doing a lot of things of that sort. next, consider the vast quantity of services rendered, of every kind and deeeription, all the my from lawyers and doctors end dentirts to domestic service and all its like, that never get into any kind of quantitative statistics; all the collegiate wort and National, State and Municipal employment, that changes little from year to year. Don't you think that all these very femiliar and obvious considerations do make it clear that in our figures we heve only the extremes of data and not any golden mean; and should not this breed a little caution? The wide swings seem to be more in the production of permanent or producers' goods, and that is why you find such big swings as that which you cite of the Walworth Company, in the machine tool trade. Anther W. Douglas writes to report identically the same thing with the Simmono hardware business, and the figures on building construction bear all this out very clearly. Our index of the actual volume of building will show a swing within two years of from below 30 per cent to above 180 per cent. And we know the vide swings in the eurcheses of the raila roads and inzens of other things. How to strike a fair balance is something beyond me. e4 have been working for a year or more and will soon have ready a long inquiry in this direction. But even here we feel that we have been able to get only the more striking end widely fluctuating data that scarcely portray the real evennees of the flow of the vast volume of geode and servicey in this country. T rant to say, however, that there was one phrase in the little artiele in "Administration," wH1ch does not seem to have conveyed the meaning I meant. That was in ANTagraph 7, as to the question of a sharply defined and regular "business cycle," What the context clearly shows I had in mind was a doubt as to AM "business cycle," as onposed to various cyclic movements in the dif- ferent trades. But even here I may be wrong. What I most wanted to bring out was that the variation from ebb to flood was probably very at lees than popular imagination has painted, and that we were in danger of being misled through data that gave a quite exaggerated picture; and that even in the warat depremgion which we had known in a full generation the colossal tide af consumption and human activity went on. If it did not, then shoed think that the main problem which we have to deal with here, the credit problem, would be an extremely difficult one, and the possibility of regaining any groat economic ettbility rather remote. As a matter of fact, I believe that the work we have done, and that you and many others nave done, all oombineu to shot' that the vtriation in the credit need is like the variation in the total volume of the nation's trade, relatively slight; that it may be fairly well anticipsted, and that in the light of our present knowledge we ought to be able to solve our problem at no distant date. This thought was the background or another article which anpoare It is purposely done without too much detail, and I shfluld appreciate it very deeply if you could find time to give it a reading and your consideration, and then let me hnve your oritioisms. in the June number of the "American goonomi3 Review." I hope the now work opens up agreeably. With all kinds of good wishes, itlways youre, Reviews of Statistical and Economic Books. 217 N?' little points throughout the book where modification would be advisable, but in most cases we feel that they are relatively unimportant, so that to mention them in detail would imply a divergence of opinion and give a wrong impression, for we find our- 14 selves in almost entire agreement with Mr. Spurgeon's point of view, and with his method of setting out what De has to say. Perhaps, however, we may suggest that in some places a diagram would have simplified the explanation, and that in dealing with contingent assurances it would be well in the next edition to make it clear that, where mortality is changing rapidly, as it is in the first few years of assurance, there is a danger in using any formula of approximate integration unless the early period is treated specially. It would also be advisable to set out at an early stage in this chapter an exact expression for the assurance, payable at the end of the year of death. Even although an exact expression may seldom be required in practice, the student ought to have it before him. As has been indicated above, the book will be used chiefly by actuarial students, but it ought to appeal to a far larger circle of readers, and it can be most strongly recommended to anyone who is interested in statistical subjects connected with mortality assurances, &c. It is a new work and not a mere revision of an older one, and it comes from the pen of one who has had considerable experience of the difficulties that a student has to face. Both books are printed by the Cambridge University Press, and no review of them would be complete without referring to the excellent way in which they are printed. There are a few slips which will have to be corrected, but these are not of the kind to W. P. E. create any real difficulty. 2.Money and Foreign Exchange after Cassel. 1914. By Prof. G. viii ± 287 pp. London : Constable, 1922. Price los. 6d. net. The present economic troubles of the world are due above all to monetary causes. Some degree of monetary disorder is perhaps inseparable from the financial strain of a great war, but the evil has been intensified because there has been no adequate and generally accepted doctrine on the subject of currency for the guidance of the economic and political leaders who have been responsible for taking action. They have been brought up to regard the gold standard as the ultimate basis of currency theory, and the balance of trade as that of the foreign exchanges. Systematic treatises on the theory of the subject do not help, because men of affairs do not read them. They can only be influenced through the medium of controversial literature, which seizes hold of their half-thought-out ideas, exposes fallacies by an appeal partly to fact and partly to theory, and points the way to practical action. In this Prof. Cassel is an adept, and his latest book is an important contribution to the process of enlightenment. The book 248 Reviews of Statistical and Economic Books. [Mar.440 is a historical survey, accompanied by theoretical exposition and by a critical examination of the views of those in authority. The explanations of their policy given by those who control the central banks of Europe and America are mercilessly pilloried, and Prof. Cassel's analysis of them helps us to understand the deplorable failure of the civilized world to deal with its monetary problems. Prof. Cassel's constructive views are well known. This book contains a clear and concise exposition of the theory of purchasingpower parities, and of the relation of the foreign exchange problem to discount policy. The purpose of discount policy must be the stabilization of the purchasing power of the currency unit. " The " supply of credit must be so regulated that no rise in prices, and, naturally, no fall in prices either, takes place." But the unit so stabilized is to be a gold unit, and "it is absolutely essential that "the central banks should co-operate with one another in suitably "limiting their demands for gold reserves. These demands must "not be too small, but neither must they be too large ; they must "be constantly adapted on reasonable lines to the market situation, "so that a practically unaltered gold value may be maintained." Perhaps, in treating of discount policy, Prof. Cassel lays a little too much stress on long-term investment in fixed capital. He is, of course, on unassailable ground when he contends that the banks must see to it " that bank currency is not arbitrarily created merely "to meet capital requirements which cannot be met with available " savings." Here (as the context shows) he is not thinking of circulating capital. But is it not in the financing of stocks of commodities that the greatest danger of credit expansion arises, and that the influence of the discount rate makes itself most easily and rapidly felt ? It is this preoccupation with long-term investment that leads Prof. Cassel to the dangerous conclusion that "an " effective limitation of excessive demands for capital can generally "only take place by applying a higher discount rate for a longer " period." For how long a period ? A year would be very short in comparison with the term of an investment in fixed capital. Yet the 7 per cent. rediscount rate of the American Federal Reserve Board in 1920-21 only lasted a year, and Prof. Cassel supplies us with some forcible criticisms of that policy in his book. Indeed he regards the policy of restriction as intended " to force goods upon "the market." Thus, when he comes to a concrete case he looks for the effect of discount policy in the region, not of fixed, but of circulating capital. Naturally much of the historical part of the book deals with Sweden and her two Scandinavian neighbours. In particular there is a very interesting chapter on the exclusion of goldthe policy, that is, of suspending the free coinage of gold and the purchase of gold by the central banks at a fixed price. Prof. Cassel shows how the benefits of the exclusion policy were thrown away through the -inability of the three Scandinavian central banks to resist the movement towards inflation. R. G. H. CIO 1923.] Reviews of Statistical and Economic Books. 249 3.La Monnaie, le Crgdit et le Change % By Auguste Arnaune. (Sixth edition.) x + 291 pp. Paris : F. Alcan, 1922. Price 15 frs. net. This is the first of two volumes, the work having now outgrown (at the limits of a single volume, which were still appropriate when the The descriptions of particular currency systems, which form Parts II and III, will appear in a second volume now in preparation. Those who are acquainted with the former editions of the book fifth edition appeared in 1913. are aware that it is an extremely solid and informative work. M. Arnaune's strong point is in his wide knowledge of his subject. From the point of view of monetary theory he is one of the old guard of the classical school. He builds upon Mill, Bagehot, Goschen and Macleod. His doctrine recognizes no source of value for money or for credit instruments, save in the precious metals. "A promise to pay" and a note is nothing elsemust fall in value when payment "according to the conditions agreed becomes or is expected to " become impossible, for a period which cannot be foreseen" Even subsidiary coin derives its value from the " credit" of the government which issues it (p. 237). The quantity theory is thrust aside, notwithstanding the respectable vogue which it enjoyed in the nineteenth century. To (p. 250). admit that the value of the unit can be sustained by a limitation of the issue would be to allow it a dangerous independence of gold. If an excessive circulation depreciates the value of the note, that is because it leads people to fear inconvertibility (pp. 251-2). The maintenance of the rupee at is. 4d. from 1899 to 1917 is attributed, not to the limitation of the issue, but to a persistently favourable balance of trade (p, 266). If M. Arnaune regards gold as the sole source of the value of money, no one will be surprised to find that his treatment of the foreign exchanges rests entirely on the balance of payments. To prepare a new edition of the book and adapt this theoretical equipment to the events which have passed since 1914 is to sew a piece of new cloth on an old garment. The value of the explanatory and narrative portions (new and old) remains, but to latter-day thought on the problems of currency the book contributes nothing. R. G. H. 4.The London Money Market. By W. F. SpaldingN-. xv ± 215 ± 11 pp. London : Pitman, 1922. Price Jos. 6d. net. Readers of Mr. Spalding's other works will know that he possesses a very extensive and intimate knowledge of the business of the City of London. This new book of his contains evidence of his special knowledge, but there is rather too much repetition of what he has already said elsewhere. The book suffers also from a want of coherence. On p. 2 Mr. Spalding propounds the questions : "What is the Money I 250 Reviews of Statistical and EcononN,c Books. [Mar. itzi " Market ? Where is it ? What do you do in it ? What was its " origin ? and Where did it start ? " These questions he never really answers. Scraps of history about Lombard Street and the goldsmiths bring us down to the foundation of the Bank of England. Then we skip from 1691 to 1811, and from 1841 we skip again to the present day. If Mr. Spalding never tells us what was the origin of the money market and when it started, that is because he apparently has the very haziest idea of what the money market is. He seems at one time to regard it as coextensive with the entire banking community of the City, yet at another he refers to it quite naturally in the more limited significance usually attributed to it. A book about the money market, that is to say, about the organization that exists in the City for dealing in discounts and short loans, must, no doubt, include a description of other branches of London financial business. But Mr. Spalding is content to describe these other branches without making clear their relations to the money market proper. In Chap. VI he comes to a topic 'which really does belong to his subjectwhat he calls the "short loan fund" of the London money market. But instead of giving a connected and straightforward description of what is, after all, not a supernaturally complicated piece of organization, he hesitates before it, calls it "puzzling and "elusive," and refers to mysterious (and apparently very futile) controversies among bankers as to what the so-called " fund" is. He never seems able to look at the matter through the medium of the balance-sheets, which show the short loans as assets in the case of the banks and as liabilities in the case of the discount houses. The banks, as it were, thrust out a portion of the available stock of bills into the hands of the dealers to form a market, and make good the gap in their assets with the short loans. Mr. Spalding is, without doubt, quite at home with a bank balance-sheet in practical business, but that does not save him from taking amazing liberties with it when he has to write about it. He actually (p. 55) adds the total of the deposits to the total of cash in hand ! When we find in Clare's Money Market Primer the statement that, up to the amount of the Government debt to the Bank of England "the Bank's note issue is guaranteed by the Government "and in every way corresponds to a State issue," we may regret that Clare went so far astray on a question of fact ; but we do not blame him for thinking, in the circumstances of the early 'nineties, that a State note issue, at any rate a British State note issue, was something specially sound and deserving of confidence. But what are we to think of Mr. Spalding, who uncritically repeats the error of fact, and, looking back over the wreckage of the currencies of Europe, pays the same deference to a State issue ? R. G. H. it* FIFTEEN NASSAU STREET N EW YORK June 8, 1923 tar Governor Strong: We have had a spell of very hot, muggy, thunderstormy weather that has seriously put a damper upon my thoughts about your various queries, and besides that we had yesterday the meeting of the Monetary Association, very interesting and an extremely successful meeting, at which Ogden Mills, Prof. Kuczynski, and a number of others spoke. But the newspaper accounts of it were, it seemed to me, about the last word of misreporting. Lest you see only the "Times," I enclose two or three others, to show you how varied were the impressions it gave. As for the "report" which I made, which was played up rather conspicuously, that consumed about six minutes, at a business meeting, when there were not more than thirty or forty present, and was of the most routine sort. Prof. Fisher, who is also quoted, spoke for about six or eight minutes in discussion of one of the morning papers, ad that was the extent of his participation. Ogden Mills made a characteristic Republican stump speech, Colonel Ayres gave a series of gloomy predictions, and Jenks gave a little account of his experiences in Europe with the Cerman Committee, 6c. Nevertheless, there were a number of really informative papers on various points, and the sessiOns were unusually well attended, and I think the feeling was that it had really made some impression. Colonel Ayres' prediction was based upon the proposition that booms last for twenty-five months, followed by fifteen months of decline and depression, and that, therefore, the crest of the present wave would come next September and the trough of the depression, as he put it, in 1924, about Election Day. I confess I was rather staggered at the positiveness of his predictions, and likewise the premises on which they I see very little to support the idea of a twenty-five and were based. fifteen months "periodogram," and it seemed to me a matter of regret that he should have taken this occasion to make such prophecies. But, as someone remarked afterwards, none of the speakers in the evening more than barely touched upon the topic for discussion; but o Hon. Benjamin Strong--2 as the speeches were otherwise fairly brief and interesting I suppose that we could not complain. Mr. Catchings reports that there is a surprising interest in the purposes of the Association among manufacturers and others, and that five or six of them, including men like Mr. Erskine, the President of the Studebaker, have already become supporting membere at t100 per year. There seems to be a genuine interest in the question of economic stability, and to many it even seems to be the paramount question at the present time. Mr. Gephart, of the First National of St. Louis, was here to preside at one of the meetings, and reports thnt conditions in the Southwest are extremely prosperous save perhaps in Oklahoma, and generally much improved throughout the Middle West. Mr. Cheney, the Secretary of the Knit Goods Association, was in this morning, and reports that, on account of the labor shortage, their mills have hardly averaged much more than 75 per cent of their estimated normal production, and that some of the mills have even turned aside from filling further immediate orders, to get to work on their fall production, fearing that there might be an unusual shortage if they did not. He reports stocks as necessarily low with the dealers and jobbers, and that the manufacturers are going very slow on future commitments, and also not joining in any raid for labor. We hear a great deal of this sort of thing here, and I think it is highly salutary and promises well for the continuance of the present swing, possibly not on quite as high a level as at the present time, but still very satisfactory. This is why, with fairly cheap money, abundant credit, apparently rather low stocks, or at least no heavy accumulation, and the general diSposition to act cautiously, I find it difficult to believe that prosperity'is passing or that we are now in for a depression. The Harvard folk continue to predict a very prosperous year, and continuance well into next year at least. I enclose a further bit regarding the new Board member, and it looks as if he was a very good politician with a very level head. I hope things are going very pleasantly, and that you are finding the summer climate there agreeable. Mr. Gpphart tells me that he expects to spend part of his stramer in Colorado Springs. With ever so many good wishes, Alw ys, Hon. Benjamin Strong, Cragmore Sanatorium, Colorado Springs, Col. 4,c ir t4.0 d: The Cleveland Trust Company BUSINESS BULLETIN Volume 4. No. 6 June 15, 1923 Prepared and Published by The Cleveland Trust Co. have been 13 periods of pros- production is going ahead in large volume, perity, and 12 intervening periods of that good profits are being earned, that goods depression in this country during the produced are being consumed, that there has THERE 44 years that have elapsed since our national been little speculative buying, and above all money went back to a gold basis after the that money is so easy that ample credit can Civil War. Some of the depressions have be readily obtained at low rates. Those who been long and serious, while others have been argue in this way hold to the theory that the brief and relatively unimportant. Similarly, ample credit resources that are available in sonic of the prosperities have persisted for our banks and through the Federal Reserve several years, and have carried business System will certainly be called upon and utilalong in great volume, while others have ized by business before this period of good lifted industrial and commercial activities times terminates. This view is sponsored by only a little above normal, and kept them the Harvard Committee on Economic Research which has just issued the authoritathere only a short time. tive pronouncement that the present period A study of the data of this long series of of business prosperity may be expected to recurring periods of good times and bad continue until strain has been placed upon the times discloses the interesting fact that a financial structure of the country. sustained and lengthy period of prosperity This controversy can be settled only by the has never followed a great depression. The rule has been that great prosperities are fol- verdict of future events. The distinguishing lowed by great depressions, but that great characteristic of the present period of indusdepressions are followed by brief prosperi- trial activity is that the driving stimulus of ties. Since the depression through which we business has largely consisted in making up have just passed was one of the most severe the shortages that accumulated during the of recent times, it is worth while to consider war period and the recent depression. These whether or not the rule will be altered in the deficits have not yet been fully made good, present instance, and the existing period of but in large measure they have been, and in prosperity prove to be long sustained and of the process competition for labor has resulted in large and general advances in wage rates. large volume. In the building trades these advances, comTwo opposing sets of arguments are being bined with falling efficiency of workers, and expressed in current financial publications rising prices for materials, have lifted prices and in the weekly letters of business services to such a point as greatly to restrict operaregarding the prospects for the conservation tions. In other lines forward buying has of this period of prosperity. Those who think been sharply checked. In the security marit is not destined to endure for any very ex- kets several important groups of stocks have tended period point out that industrial pro- rather clearly passed over the tops of their duction is running ahead of normal consump- price movements, and those of the other tion, farmers are receiving relatively low groups have apparently done so. The weight prices for their products, spring weather has of evidence seems to indicate that the old rule been exceptionally unfavorable for the crops, that short prosperities follow big depressions wholesale prices have been falling for more will again hold good in the present instance, than two months, wage increases have be- and that no long extended continuance of come almost universal, the cost of building such conditions as have maintained in the has risen to such heights that new operations spring of 1923 is to be expected, despite our are being suspended or postponed, and our great gold surplus and our ample credit re- export trade is exceeded by our imports. They point out that these matters are all *sources. condition. Production and Consumption fundamentals, and that they are not in sound Production of raw materials and finished manufactures is going forward in Those commentators who look for a long amounts distinctly in experiod of prosperity point out that industrial cess of the customary, or normal, consuming THE CLEVELAND TRUST COMPANY BUSINESS BULLETIN THE CLEVELAND TRUST COMPANY BUSINESS BULLETIN power of the country. There is nothing surprising about this, for production in times of prosperity is always in greater volume than in periods of slow or depressed business. A be taken as representing roughly the normal' rates of consumption of such articles as are here dealt with. During 1918 manufacturing periods come to an end when the shortages that accumulated during the previous depression have been made up, when costs of production increase so rapidly as to cut down profits, and when volumes of output become so great, and so diverse in different lines, as to exceed the purchasing power that is avail- of 1922, commodities of these sorts were produced in amounts well below normal, but by the end of 1922 they were again back above Meanwhile the prices of cars had continued in the present great rate of activity seems to to drop for about a year after the raw materi- be in prospect, for 10 additional furnaces als had turned up from the bottom, and they were put in blast during May. continued to rise for about a year after the Since the beginning of June there has been raw material prices had turned down from some real improvement of sentiment in the the top. There was about a year of lag be- iron and trade. Increased buying has tween the price movements of the materials appearedsteel for a number of products, chiefly and those of the automobiles, and the price bars, plates, shapes, and pig iron. Pressure changes of the finished articles were also far for immediate delivery still strong, there less violent, for the increase in the price of is little duplicate ordering,isand almost no canthe materials from the bottom to the top was cellations, and there are sufficient orders on 127 per cent, while that of the automobiles mill books to sustain large scale operations was only 66 per cent. Even this comparison for a number of months to come. is hardly fair, for the automobiles had steadily improved in quality. Producers of steel are carefully trying to estimate the probable future demands from $220 leading consumers. These include the railroads, and the automobile, petroleum, build200 ing, and implement industries. Railroad buying has slackened considerably in the past 180 month. The number of new cars ordered was only 2,200 in May, which was the small. 160 est number ordered since August of 1922. and mining were producing at rates far period of prosperity is essentially one in above normal. In 1919 production was close which production and purchasing are carried to a theoretical normal, and in 1920 it was on in more than normal amounts, and such again well above it. In 1921, and the first part able to consume them. Average Produotion 1918 to 1 ==100 Oak flooring Automobiles Wed,"7 re r idff 195 Bath tubs Lavatories 189 w,dyf Aff 161 Gasoline Tires 221 152 AV , lho Petroleum 131 Zino 131 Produotion in the spring of 1923 oom - Motor trunks 130 pared with that level. For the entire five year period the average is close to the theoretical normal line of production, and hence fairly representative of customary per capita consumption. Careful computations show that after allowance has been made for the increase in population, the present rates of production are well above the customary rates of consumption. It must be remembered, too, that during the five year period used for the purposes of this comparison our export trade was of huge proportions, and that during the first part of the period we were also meeting the extraordinary demands of war. The meuning of all this is that the factories and the mines of the country are now producing goods at a 1 rate that cannot be indefinitely maintained. average pro - Pig iron 126 Steel ingots 124 duotion from 1918 through 1922, after making allow- Shoe. 118 ance for in - Maple floorin 117 areas. of population. Soft coal 117 Paper Kerosene Woolen goods 116 115 113 Cotton goods 111 Brd coma 100 Copper This is viroomtually parison between current per oapita produotion, and austomary per capita consumption. 105 The bars of the diagram express in per- centages the recent rates of output in 20 lines of manufacture and mining as compared with their average rates of output during the five years from 1918 through 1922. The greatest comparative rates of output are in lines connected with building or with the automotive industries, and reflect the unprecedented The prices of manufactured articles almost a 1 w a y s Raw Materials change more slowly and in smaller proportions than do the prices of the raw materials entering into the making of those articles. The working Automotive of this economic law is well illustrated by noting the changes that have taken place in the past 10 years in the prices of automobiles, The seasonal slackening of buying by the 114 automobile industry has been unusually small. The curtailment of motor output in 120 100 COST OF RAW MATERIALS IN AN AUTOMOBILE 80 Cost each month from 1913 to 1923 of a bill for raw materials entering into the manufacture of an average automobile. 60 manufacture. If we consider the average price of 25 standard makes of touring cars as being equal to 100 at the beginning of 1913, the rec- ords of the industry show that it fell until it was only 79 at the beginning of 1916, and then rose steadily until it was 131 in January of 1921. Since then a series of reductions has carried it down to 96 at the beginning of 1923. 1260 pounds Steel 800 Pig iron Cotton 140 Manganese Aluminum Lumber 20 and of the raw materials entering into their During this period the prices of the raw materials entering into the average car have earlier and more violently, and their In each case the average monthly output moved changes shown by the line in the diagram for the five year period from 1918 through in whicharethe prices have been plotted by 1922 is considered as 100 per cent, and the months. The lowest point was reached late length of the bar shows how much greater in 1914, when the cost for a typical, but in are the recent rates of production after they complete, bill of raw materials amounted til) have been reduced to allow for the increase only $97. From that point costs increased in population. rapidly and irregularly, until they had The comparison is important because the mounted to $210 by the summer of 1917, production of the five year period may fairly and to $220 by the spring of 1920. booms in those fields of production. ci I 13 14 200 " " " 16 Rubber 50 feet I I 15 Copper 40 pounds Lead 50 " Tin 10 Zino 7 " 100 10 28 1 17 I 1 18 19 1 1 20 21 22 23 During the past year and a half the prices of the raw materials have been rapidly rising again after the great fall of 1920 and 1921. Car prices have of late begun to rise also, and some 17 makes have announced small advances. Because of the intense competition within the industry it does not seem likely that these advances in car prices will be great or very numerous, but automobile makers are confronted with serious problems of narrowing profit margins. immediate prospect, as measured by the demand for automobile sheets and other materials, does not exceed 10 per cent. Demand from the petroleum industry continues impressive. Crude oil production is breaking all records and the need for tubular goods is great. An important development in the steel trade has been the recent increase in demand for structural steel and for reinforcing concrete bars. Demand from manufacturers of agricultural implements continues strong. The tin plate market is extremely active due to the large demand from can makers in expectation of a good canning season. Steel market stability has been enhanced by two recent developments. One is the check in the advance of prices. The other is the disappearance of the car shortage. In 1920 freight congestion during the spring and summer seriously hampered activity in the steel trade. Fears that this condition would be repeated in 1923 have faded before the steady improvement in the railroad situation. Iron and steel average prices stopped rising The production of iron and steel in the first week of May. Since then they Iron and continues to register new high rec- have receded about two per cent. Virtually Steel ords despite some slowing down in all premium prices have disappeared, as buya number of other important lines. ing for future delivery has diminished. Av- During May the output of pig iron reached erage prices for leading iron and steel prothe enormous total of 3,866,000 tons, and this ducts now are about 77 per cent above 1913 is the highest record in the history of the levels, and 42 per cent above the low point industry. The daily output was at the rate reached in March 1922. The reduction of of 125,000 tons as compared with the peak Belgian and French foundry pig iron to $25 a record of war times in September of 1918 of ton, continental ports, may result in increased 114,000 tons per day. No immediate check imports. During March, imports of pig iron THE CLEVELAND TRUST COMPANY BUSINESS BULLETIN has taken place in from two to 10 months. This condition is largely responsible for the hazards of business, and it results in alternate periods of employment and forced idleThe swings of business ness among industrial workers. Our fundaEarnings, Orders from prosperity down to mental industry suffers recurring periods of and Output depression and back collapse, springing from sources beyond its again, are illustrated in control, and which suddenly cut its output in the diagram at the foot of this page. The two and reduce its earnings by 75 per cent. dashed line represents the average daily pig One fact relating to unfilled orders merits iron production of the country each month special comment at this time. During 1909, during the past 22 years, and constitutes a good index of the activity of the entire iron following the severe depression of 1908, pig and steel industry. The solid line shows the iron output made new high records, and the unfilled orders of the United States Steel Cor- earnings of the Corporation were good, but poration, and its slumps and booms represent unfilled orders never reached large proporthe six depressions and the seven periods of tions. The explanation is probably that men prosperity occurring during the 22 years that had vividly in mind the troubles they had the Corporation has been in existence. The suffered in the great depression just behind lowest, dotted line shows the earnings of the them, and they remained cautious throughCorporation. It moves up and down through out the succeeding prosperity, and never amounted to 72,000 tons. For three months the total was 192,000 tons against 10,100 in the corresponding period of 1922. the same swings as the other two lines, show- placed large amounts of forward orders. ing some tendency to make its highest recThe same sort of thing seems to be happenords after the orders and production have ing now. We have lately gone through a sebegun to fall off, but to reach its lowest points vere decline and a great depression, and while the output of pig iron has risen to new high figures, and the Corporation's earnings are back to good amounts, the record for unfilled orders stays low, and has even begun to fall off. It begins to seem most probable that no very high record will be made in this movement and it is not unlikely that the highest figures have already been reached. A similar situation may be noted in many other lines. Production is large, and profits been only one-quarter as great as at the peaks, good, but forward buying is cautious. If this and in 1915 they fell so low as to be only one- condition continues to be characteristic of this period there will probably be no sudden ninth as great as they had been in 1913. or severe depression to follow, but it is also to In most of the cases the change from the be noted that it probably does not portend peak of earnings to the bottom of depression any extended period of prosperity. at about the same time that they do. The violence of the movements of these three curves shows why the changes of the business cycle are important to general business and especially to industries related to iron and steel. The records show that during ordinary transitions from prosperity to depression, and omitting the war period, the Corporation's earnings have on the average declined so far that at the bottoms they have Unfilled orders and MoniSly earnings in millions pig iron I I I 1 1 Scale for unfilled orders is in hundreds of thousands of tons; scale for pig iron produotion is in thousands of tons of output per day 120 90 Unfilled orders of U S. Steel C 40 1101111 '''s theorporation , ," 60 30 , 1 , I1 -' % L,1 .., , ' s , i ,t,, t ., , i I l 0 I t \ , v 1411111111111/ 02 01 , 05 06 07 OB 09 10 11 12 13 14 15 20 , 10 ),klonthly earnings of the ....U. S. Steel Corporation 04 30 , I ,? . . 1 16 17 18 19 20 I %. '.: 21 22 The Cleveland Trust Company 23 June 1, 1923 Hollins N. Randolph, Meq., aandolph "arker, 422 Healey Building, Atlanta, qeorgia. Deer Sir: Governor strong is away, and me your convention is so near T am sending this line, and at the same time forwarding your note to the Governor. I think you will find a very solid baekground for your address in to studieu in the balance of internationel neyments made by Prof. John H. Llliams, end published in the Harvard Review of Economic etetistices for last July. I have an iden that the Ftlanta f.eserve lank hen this publicetion, or would know of someone in Atlanta who has. These studies have seemed to dissipate the idea that there were outstanding last year any enormous foreign ereCit balenees, unl the nteedy inflow of gold since thee rlerming e,timates were made han seemed to nretty thoroughly confirm the conclesions which Prof. rillinne has drawn. Likewise, it would seem to be cilenr that the lessee which this country sustnined in ite foreign relntions, shipments abroed, te, in 1920 and after, have been erossly exaggerated and may possibly not have averaged any more than the losses nustaincd by the manufacturers and wholesale merchants through the drop in prices in this country. Personally I heve knorr of eaverel inetancee of large accounts of' foreign clients, who were unable to pay up promptly, which were settled satisfeotorily on a lonfeetime basis, and I have an idea that there were a great number of adjuntnents and a -rarmemente of this sort. Next, I think you would be much interested, also, in the reviews prenared by Prof. S. S. Davis, for the same Harvard publication, on the economic and business nituation of Murone, the latest of which has been published in the last current number of the Review. I made a rather careful survey of -eiropean conditions at first hand two years ago, and nothing that hes happened since has changed the view that one gained in actual contact with the manufacturers and merchants over there, that (=editions were steadily on the mend, and even in some cases improving very rapidly, that the political and reparations issues had grotesquely overshadowed the actual disturbances, . and that most of the talk about "reconstruction" in Lurene rested upon the most superficial and imnginery foundations. 2--tiollins N. Randolph, Esq. AB to our foreign trade, OA you probably know it appears to huve been declining slightly through the last four or five years, in relative value, but this decline has been minimal as compared with the imprension whieh one would get from studying merely the dollar values. In some linen, as in the exnort of cereals, the last two years have broken all records, and in general the differences between the oak of 1920 and the deoroesion of '21-'22 have been apparently much less than the differences in domestic trade in this country. In other words, our export trade throughout the last four or five years has really beee on a fairly steady basis, with not much change in the total of quantities, although some lines have eerie up while others have no down. In the anew:4J field Auetrit has shoen that the stabilization eroblem is relatively simple, ts soon as reoarttions questioee are out of the way, and there have been some hopes here that the acute situation brought by the Ruhr occueation might speedily lead to mime final oettleeent. But so long as this releine in the hende of noliticiens, lergely ignorant and selfe seeking, no one can eousibly make even a guess. At a hazard I should say that the view expressed by ?ref. Davis that Europe is well on the road to recovery wan fully justified, and that we might look rather to a return to normal growth in our trade there than otherwise. :14r grain exports will probably decline from the record levels of the last teo years, but other thi-go will take their place, and meanehile their exports to up are steadily rising. eo muel foolish and fantastically exaggereted stuff has been eritten about the -gurceean situation that it is difficult to gain a sane view of conditions over there, but peraonally I cat see no reason why we should not begin elein to extend adequate eredite to Europe, on nrivate account, and with the marked revival of international trade whit-et is not in progress probably this will owns of its own accord. If there is any further thouOlt we could supply you from here, if you would kindly advise me we should be very glad to serve you. believe ne, Very truly yours, Carl Snyder, fteneral Statistician MISC.3 I STAT.3600-10-21 FEDERAL RESERVE BANK OF NEW YORK JrrICE CORRESPONDENCE OCI'A To FROM Mr. Snyder DATE SUBJECT, June 8, _192_3 Mr. Albert Strauss! letter ,A / am sure most people who think about such matters are very clearly convinced of the intimate relations between the stock market and interest rates, and equally of the same close relationship between interest rates and the flow of gold, even at the present time. So I feel that Mr. Strauss takes an extreme view, that is shared by few. As to his letter to Mr. Alexander, these facts may be pertinent: After the War began there was no appreciable rise in the general level, even of commodity prices at wholesale, the most sensitive barometer of all, until October or November of 1915, nearly a year after the War's demands had set in with great intensity. There was no appreciable rise in the general level of prices, as wages, rents, retail prices, and the so-called "cost of living," until long after this, that is, late in 1916, and even then only gradual. In the meantime, there were very heavy gold imports, beginning at the end of 1914, and on the basis of these gold imports a very heavy expansion of credit, beginning early in 1915 and continuing steadily up to and through our entry into the Var. Therefore, it seems to me that, in the most crucial and decisive instance that we have, and likewise the most recent, that Mr. Strauss is distinctly wrong when he assumes that a rise in prices precedes an expansion of bank credits. Distinctly the reverse was true, and so much so, I believe, that no one conversant with the facts could doubt at least the time relationship between credit expansion and prices. FIFTEEN NASSAU STREET NEW YORK June 15, 1923 tear Governor Strong: I am enclosing a map of the Northwest country, that has been sent me this week, which seems to me one of the most attractively gotten It just makes you want to go and up maps; have seen in a long while. explore: As the trip to Europe is still in doubt, the lady's thoughts have been turning to Wyoming and the Yellowstone, though I don't myself I take very keenly to the idea of a trip across the plains in August. have tried it before. We might take a boat across the Great Lakes to Duluth, which Judged at this would cut out a little of it, and then go on West. distance, would the latter part of August fit in with your book at all? I will reply to one of your inquiries, and that was as to the probable peak of prosperity, which a number of your friends made last In order of proximity: winter. Kemmerer Ayres Chandler Persons Snyder Commons Fisher Summer of 123 October, '23 "Soon, if European settlement is reached" March, '24 July, '24 August, '24 September, '24 Ayres has since fixed his date at September of this year. 74.13,4L'eopk., I have been reluctant to attempt an answer to your second point, as to what would happen if the banks were to sell off their securities heavily and bank deposits were to fall, largely because, as I regret to note, it is a wholly theoretical and quite improbable problem. Going back a generation, the banks have steadily increased their holdings of securities, with the exception of 1920-'21, rhen there was a good deal of pressure, or talk, to "get the banks out of Government securities." Even then the selling was not heavy, and the holdings were rapidly replaced in the next twelve months, no that they are now at the peak. Hon. Benjamin Strong--2 But to answer your theoretical question, I should say that if you would reduce your deposits at any time, or by any means, by as much as, say, 16 per cent ,which has been about the normal for several of our serious would bring on a major depression and a depressions) you considerable fall in pr ices, and especially in commodity prices at wholesale, and produce something like a panic, as at the end of 1920-the so-called "merchandise panic." And I should imagine that the extent of this fall in prices would depend somewhat upon whether the preceding rise had been unusually rapid, and whether any large set of prices, like commodities at wholesale, were widely out of line with the rest of prices, retail prices, rages, rents, &c, and in swinging back toward their normal relationship would have a tendency to drop below the general price level, as it seems to =Mae quite probably the case in the last year or two. 2. So far as we have any definite knowledge, the general practice of depositors does not greatly change in times of depression or prosperity, and at least until recently the proportion of inactive demand deposits did not seem to vary greatly, i.e., save in the larger cities the velocity of demand deposits, or rate of turnover, does not appear to vary widely from good times to bad. But within the last few years apparently there has been a steady conversion of these inactive deposits to time or savings deposits, which may have an interesting effect upon the correlation between the volume of demand deposits and the general price level. About this I have already written you. I have the impression that the main difference of my point of view from your own is that a careful study of the available evidence seems to suggest, to my mind at least, that your "state of mind of depositors," &c, is not an important factor. But this is simply an impression, and you know my reluctance to It is a point on which I journey much into the field of pure theory. should like to have more evidence. In the same way I have felt that this "state of mind" wouldA only exercise its effect for a few brief months at the most, &s, for example, in the summer of 1919, when there was also a decided halt in the rapid rise of prices. The latter was resumed when the pressure of an excess of purchasing power again began to be felt. And, believing that we again have much the same condition, that is why I am unable to follow Colonel Ayres and many others in their belief that the crest of prices and prosperity is either near or already past. (3) the 'quantity As to whether "prices can climb and do so quite a bit before of money need change:" On this point I enclose a brief memo. to Mr. Jay on a letter written by Albert Strauss, dealing with what seems to be the clearest and Hon. Benjamin Strong--2 But to answer your theoretical question, I should say that if you would reduce your deposits at any time, or by any means, by as much as, say, 16 per cent ,which has been about the normal for several of our serious you would bring on a major depression and a considerabledepressions) fall in p14 ices, and especially in commodity prices at wholesale, and produce something like a panic, as at the end of 1920-the so-called "merchandise panic." And I should imagine that the extent of this fall in prices would depend somewhat upon whether the preceding rise had been unusually rapid, and whether any large set of prices, like commodities at wholesale, were widely out of line with the rest of prices, retail prices, rages, rents, &c, and in swinging back toward their normal relationship would have a tendency to drop below the general price level, as it seems to mehae quite probably the case in the last year or two. 2. So far as we have any definite knowledge, the general practice of depositors does not greatly Change in times of depression or prosperity, and at least until recently the proportion of inactive demand deposits did not seem to vary greatly, i.e., save in the larger cities the velocity of demand deposits, or rate of turnover, does not appear to vary widely from good times to bad. But within the last few years apparently there has been a steady conversion of these inactive deposits to time or savings deposits, which may have an interesting effect upon the correlation between the volume of demand deposits and the general price level. About this I have already written you. I have the impression that the main difference of my point of view from your oval is that a careful study of the available evidence seems to suggest, to my mind at least, that your "state of mind of depositors," &c, is not an important factor. But this is simply an impression, and you knou my reluctance to It is a point on which I journey much into the field of pure theory. should like to have more evidence. 4=' In the same way I have felt that this "state of mind" wouldA only exercise its effect for a few brief months at the most, as, for example, in the summer of 1919, when there was also a decided halt in the rapid rise of prices. The latter was resumed when the pressure of an excess of purchasing power again began to be felt. And, believing that we again have much the same condition, that is why I am unable to follow Colonel Ayres and many others in their belief that the crest of prices and prosperity is either near or already past. (3) the 'quantity As to whether "prices can climb and do so quite a bit before of money need change:" On this point I enclose a brief memo. to Mr. Jay on a letter written by Albert Strauss, dealing with what seems to be the clearest and Hon. Benjamin Strong--3 most decisive case of which we have any record. So far as I know, all the evidence seems to be that the volume of purchasing power must always rise before prices rise, and have always done so, and I personally find it very difficult to conceive the contrary. Is it not clear that prices rise when demand is active, and is it not equally clear that an active demand must always be accompanied by if not preceded by an expansion of purchasing power? And if we have no evidence to the contrary, would not this require a negative answer to your hypothetical question? (4) As you know, I am in full agreement with your plan of keeping the earning assets of the Federal Reserve System at a level and counteracting the effect of gold imports by a corresponding reduction. In fact, it is practically on just that idea that I built the little article which you criticized at length last February. About the only difference I know of is my feeling that it will be very difficult, with a political organization such as we now have, for our banking system to secure unity of action in time to have the proper effect, and that we should gain a great deal if we could introduce an automatic rule, such as we practically had before the War, when gold exports exercised such an automatic, though very clumsy and tardy, effect. And would not such an automatic control, by means of index numbers, take the whole question of the time for as,Iipa out of politics and relieve the Board and the Banks of an immense and very difficult responsibility, wherein human judgment is apt to be clouded by extremely diverse interests and experiences, and wherein general agreement, therefore, is extremely difficult to obtain! And would not this also take the whole question of discount rates and all out of the field of politics and acrimonious controversy, and entirely remove the apprehension or belief in "Wall Street" or "big banking" control of the System, and help enormously to promote good feeling? Is there not a question of political advantage that we have very little considered thus far? As things sometimes look very differently in print than in a rough typewritten draft, I am enclosing a reprint of the article in the "American Economic;" and I should be extremely interested to know whether the idea appeals to you any more favorably after you have read it again. You will note that I have made a number of modifications, largely in response to your criticisms. I have been quite agreeably surprised at the degree of interest which seems to have been aroused by the one-day session of our Monetary Association, and the discussion it has given rise to. Hon. Benjamin Strong--4 Perhaps you would like to read the whole of Mr. Gephart's paper, from which I quoted this week in the Summary, end I am enclosing that also. We have been trying to make some exact estimate of the actual expansibility of bank credit on the basis of a given amount of cash held by the banks, now as compared with just before the Federal Reserve System It is a difficult question and seems ,to turn a good deal upon the began. amount of float which could formerly be regetOted as a part of the banks' "reserves." If you have any thoughts upon the matter we should be very glad to have than, especially as to how much this float was and what proportion of it was utilized in the calculations of reserves. Our amazingly it is warm enough today. 000l spring has continued up to the present, though With all kinds of good wishes, Always yours, Hon. Benjamin Strong, Cragmore Sanatorium, Colorado Springs, Colorado. Fl FT E E N NASSAU STREET N EWYORK June 20, 1.923 tear Governor Strong; http://fraser.stlouisfed.org/ FederalAReserve Bank of St. Louis I am a little puzzled by your comments on "Tidal Time Tables of Prosperity," for, if I follow you aright, you have an impression different from what I meant to convey; so I am enclosing the sheet For I should not like to have again with a paragraph or two marked. The memo, had especially in mind Colonel Ayres' this impression remain. very positive predictions, which were almost wholly upon the "count of months" basis. It seems to me, also, that it is an extremely difficult question For to determine how far the influence of the Federal Reserve extends. example, if the discount rate had been raised in April, the sharp reaction both in commodity prices and in the stock market, and the lull of business which is now taking place, would probably have been widely deAnd, as a matter of scribed as an effect of that action, would it not fact, the reaction =me anyway, without any discount raise (just as, if you will be good enough to recall, your humble servant suggested that it might). 30 I have often wondered if the course of events, say in 1919-'20, would have been very materially different, even to the absence of a pronounced banking panic, if we had had no Reserve Banks, for you remember that in August of 1920 gold was already beginning to flow back into the country, and thus materially relieve the strain which was then developing. I enclose also a little address by Walter Leaf, on the exchange question. You will note that he does not, as I take it, view the P. P. Ps quite with your eyes. I still find it difficult to believe that transactions which might represent a few per cant of the total exchanges between two nations, in a year, are able to control and dominate the respective levels of prices,in the two countries, of enormous quantities of produce and manufactures exchanged by these countries. Does it not seem much more reasonable that the levels of wages and costSof production in the respective countries determine the prices at which these goods are exchanged, where there is not a common monetary standard and you have either a paper or silver currency matched against gold or paper against paper; and that these wages and costs of production and prices will be in turn controlled and determined by internal conditions in each Hon. Benjamin Strong--2 of the countries, and that one of the vital factors, if not the wholly dominating and determining factor, is the relationship between the volume of money and credit in each country and the volume of its exchanges,of goods. And is it not unreasonable to suppose that relatively small payments and transactions as, for example, the payment of the British debt to the United States, can have anything more than a transitory influence upon these price levels? I have been very much interested in following up the line of thought developed in the little memo. on "Transformations in American I have had great It seems really a remarkable phenomenon. Banking." difficulty for a good while in believing that it was more than a transitory condition, but when you draw it out in long-term trends, as we have, running back of the War and back of the Federal Reserve System, and see that it was already in operation before 1910, I am rather inclined to think that it is a definite fact upon which we may count, and I wonder if this change from more or less permanent bank financing of private enterprise to the freer use of bonds and debentures, and the purchase of these by the banks, will not lead to more liquid and possibly sounder banking conditions. I am glad you like the Foster and Catching,: book, for, although they drifted off into the fields of theory and hypothesis in their chapters on "The Circuit Flow of Money," taken as a thole I thought it was a pretty good and very useful book, especially just at the present time. / ;5"/ 7 , Apropos of this, I happened yesterday to be looking up for Mr. Morgan a passage in David Ricardo, and was noting again the beginning of his chapter on "Currency and Money," to the effect that "so much has been written upon these subjects, and the facts regarding them are now so widely known, that I shall content myself with only a brief i chapter." Does it not seem supreme irony now, or was it really true that intelligent men were then far better instructed upon these matters than they are today? You have doubtless noted the strength of Ford in the "Collier's Weekly" ballot. We are having our first spell of hot weather, and I hope you are duly thankful that you are out of it. With wannest regards, Alway yours, ce&tr--- -4Another very sensitive barometer is, of course., the run of prices of c.." stocks on the exchanges. For this the best continuous index is the average monthly price of industrial stocks, which we have compiled from 1872. The follow- ing table gives the approximate Duration of Bull Markets 1877-' 81 49 months 1885-',T3 a 6 months 1896-'01 1903-'06 1908-'10 1914-'16 1916-'19 57 25 25 24 23 months months months months months It will be seen that between periods of prosperity, as measured by a high level of pig iron production and prices for industrial stocks, there is almost no relationship disclosed. For example, during the last long run of "pig iron prosperity," from the beginning of 1915 until nearly the end of' 1920, the stock market had two distinct booms, culminating in 1916 and 1919. In the previous period of pig iron activity industrial stocks generally reached a high point at the end of 1909, while pig iron production continued ,high, at or above normal for three years thereafter. Distinctly, then, the stock market is not, as is popularly assumed, prophetic of one of our most important and most sensitive industrieE, show- ing perhaps greater ups and downs than almost any other great industry that could be found. It would seem to follow, therefore, that even if, as several of our busi- ness prophets so firmly believe, the high point of the latest bull movement in stocks was reached last March, a high level of trade activity, and especially of pig iron production, might for aught the records of the past would suggest continue 71thout serious depression for three years or more. But in the mind of the writer these essentially historical methods of (forecasting are of rather less value for anticipation of' the future than the racing charts of "past performances" of the race track. If they were of serious relia- bility, they would be worth such uncounted millions that they must long ago have been discovered and proved out. They are not. The last serious panic which we had, of 1907, was followed by a remarkably quick recovery in trade and production and an unusually long period of prosperity and economic stability. The next preceding serious panic, of 1893, was followed by an equally sharp recovery, but lasting only a few months and trailing off into a long period of depression lasting nearly four years. seen that the recovery of Who at the time could truly have fore- '95 was to be brief, and of 1909 long sustained? And, equally, who now can positively say which will be true of the still sharper recovery of 1922-'23? Clearly it is the fundamental factors which will determine this and not any mechanical precedent. have no kind of machinery which will foretell the future, nothing which will take the place of a careful balance of probabilities. Just when a seeming regularity seems to have been es- tablished in either trade activity, or in the stock market, is just when it seems fatally the case that this regularity will be broken. (We It is the unchanged view of the writer that the fundamental factors now favor the long trend of prosperity, if the present boom does not, as in 1919-'20, become excessive; and that, in any event, its peak will not be reached in the present year. FIFTEEN NASSAU STREET N EW YO R K Jure 27, 1923 Dear Governor Strong: I an sending you today the little book by Yves-Guyot, on "The Problems of Deflation," which you asked for some weeks ago and has just And, as you asked, Miss Frankenstein has translated a number of come. salient passages therefrom, bearing upon the idea of your friends, Cassel, Keynes & Company. If these tempt you to read further, there may be someone there who would be delighted to read it off for you--Dr. Forster's Or, if you like, wife is herself French, and a very intelligent woman. Miss Frankenstein can make further translations for you. You will remember that Guyot is now eighty years old, and that most of his ideas are those which were prevelent when he came upon the Most of what I have read has seemed to me at least to scene in 1870. have extremely little understanding of the real proposals of Cassel or of Keynes, or of the new knowledge of the relation of money and prices which the War and its aftermath have provided. So far as Cassel is concerned, and his attitude of two years ago and now, I think it is fair tc say that no one could have ventured to predict that the whole level of English prices and wages could have fallen so terrifically in a year and a half, as they have, and that therefore the relative value of the paper pound and the dollar could have risen so greatly. I cannot help thinking that this fall has been very disastrous for the industry and social welfare of England. It has meant immense unemployment, debauching.of a large part of the population through national doles, and, what seems to us at this distance, a crushing burden of taxation; altogether a condition which will very seriously affect the fortunes of that country. And I still cannot escape the view that all this and much else could have largely been avoided by a financial policy that did not mean handing over billions of her wealth to bondholders. On quite another subject, we have had this week the official publication of the German Government on Germany's present industrial position and the effect of the War. Some of the figures and comparisons which are given are of quite real interest. For example that, measured in gold marks, the armies of occupation have already levied a greater cost upon Germany than the entire French reparations of 1871, and more 'on. Benjamin Strong--2 than eighteen times the cost of German occupation of France at that time. They likerise undertake to show that the total reparations payments of all kinds by Germany to date have amounted to forty-two milliards, or "billions," of gold marks, or ten times the French reparations payments of 1871. There is much else, some of it perhaps specious and propagandist, that really does give a striking picture of the extent to which Germany has been crippled in comparison with her pre-war industry and income. Certainly she has paid very dearly and it looks as if the pendulum might swing now in the opposite direction, in view of the implacable position of France. And does not Millerand's speech to the newspaper men rather indicate that France is beginning to feel this pressure already? Dr. Willis' heavy volume on the Federal Reserve System is just out--1750 pages of closely printed text, much of it in solid nonpariel, all the documents and endless quotations and drafts, along with much characteristic comment and pretty much the whole thing designed to show that the Act as passed was the work of the House Committee and Chairman Glass, and, be very sure, of the hand that held the hand of Glass. I have hesitated to send it to you, first because there is not a great deal in it that is new, even Willis' criticisms and opinions having The price is $10, and I do not pretty much appeared in print before. think that the circulation of it will be very large. There has been a very sharp drop in street loans in the last five or six weeks, amounting to nearly 250 millions out of a total of close to This has been about equally divided between loans for 1650 millions. There has also been some drawcorrespondents and for the New York banks. ing down of balances to correspondents since the first of the year, which is largely seasonal. This drop in street loans is quite a little more, so far, than the drop.in last November and December, and it will be interecting to see how far the liquidation which appears to have started will run. The grain and meat situation is one of the most curious and puzzling which we have had in a long time. It is very striking how grain and meat prices have been steadily below the level of other prices now for more than two years, in spite of the enormous grain exports and large meat exports throughout this period. There are many things in this world, apparently, that statistics are not ready to explain, as yet. 0_ --k-4--"" forwarded you a little note from Prof. Foster, and I don't think it would do any harm,if you were so moved, to allow them to use a sentence or two from your letter. Hon. Benjamin Strong--3 We have just been having another hot blast, with a cyclone to end it, and today a cool day in which one rather dazedly wonders just why an entirely perfect creation should seem to involve so much of human discomfort as to require the best precepts of philosophy to enable one to adjust to it easily. With very best regards, Alway Hon. Benjamin Strong, Cragmore Sanatorium, Colorado Springs, Colorado. Litut'7 c4-° 160d- .444,44..; - ?LJ /e4.,, r4-7 le" D ccit itrea4t, Xzvt4 Aim 41,-, Xt fie f Reprinted from the AMERICAN ECONOMIC REVIEW, Vol. XIII, No. 2, June, 1923, the American. Economic Association. Inquiries in regard to membership should be made to Professor Ray B. Westerfield, Yale Station, New Haven, Conn. The Stabilization of Gold: A Plan CARL SNYDER 0 1923] Effect of Open Price Association Activities 275 pared to assume the responsibility for seeing that open price work of equally efficient character is carried on by some less objectionable At:agency, either private or public. To put a ban upon open price liractivities without offering something in their stead would tend to discourage a valuable incentive directed toward the achievement of greater efficiency in bargaining. The greater the development of efficiency in bargaining, the nearer is the approach of actual competitive conditions to ideal competitive conditions. If future observation and experience point to the conclusion that members of open price associations are securing too liberal returns on their investment in business education, at the expense of the ignorance of buyers, the proper solution would seem to lie, not necessarily in prohibiting them from engaging in open price activity, but in widen- ing the sphere of open price influence so that not only members of open price associations may receive the benefit of it, but also all others who have a direct interest in the competitive situation. With all bargainers equally well equipped with scientific business information, no group of men associated for the purpose of disseminating information of this character among its membership would be in a position of dominance in any industry, for they no longer would possess a monopoly of such information. If the necessary machinery could be con- structed for putting both buyers and sellers in every industry in possession of all information necessary to make them intelligent bargainers, one of the most serious causes of friction of the many that now prevent actual competitive conditions from approaching ideal competitive conditions would tend to be eliminated. Whether the function of collecting, compiling and disseminating business statistics should be left in the hands of associations of business men in each of the industries, without, however, confining membership to one bargaining group as is now the case in the manufacturing field, but extending it to include the group of buyers, or whether this function should be turned over to the government to administer, is a question that will not be discussed here. The perplexing and complex character of the issues here involved are such as to call for independent treatment. MILTON N. NELSON. University of Illinois. IP 1923] The Stabilization of Gold: A Plan 277 have redundant gold reserves, the excess gold of this country alone THE STABILIZATION OF GOLD: A PLAN In proposing an international convention, for the restoration of golp as the common standard of international trade, the Economic Section of the Genoa Conference of April, 1922, presided over by Sir Robert Horne, the British Chancellor of the Exchequer, said : The purpose of the convention would be to centralize and coordinate the demand for gold, and so to avoid those wide fluctuations in the purchasing power of gold which might otherwise result from the simultaneous and competitive efforts of a number of countries to secure metallic reserves. And again, in Section 11 of these resolutions, the Committee accented this proposal when it declared : Credit will be regulated-not only with a view to maintaining the currencies at par with one another, but also with a view to preventing undue fluctuations in the purchasing power of gold. The Committee framing these resolutions comprised some of the As to the first resolution, several facts ablest economists of Europe. may be noted: The metallic reserves of England, France, and several other of the chief commercial nations, are, like those of the United States, greater today by far than before the War. The aggregate value in gold of the more stable of the depreciated currencies, like those of France, Belgium, Italy, Czecho-Slovakia, etc., tends to be roughly equivalent to the value which their pre-war currencies had in gold (though their purchasing power would show a depreciation by about one third, just as does that of the United States, due to the universal decline in the value of gold in goods). It follows that the stabilization of the principal currencies of Europe at or near their present gold parity would involve no great demand for metallic reserves, as for the most part these are now ample. The currencies of France, Belgium, Italy and some other nations are depreciated by 70 per cent or more. The return of these currencies to pre-war gold parity, without scaling their outstanding debt proportionally, would involve such a colossal enhancement of this burden as to be almost inconceivable. The burden of taxation necessary for such a step would be overwhelming. The currencies of seven or eight of the principal commercial countries of the world are now above or very close to their former gold par : England, Holland, Switzerland, Sweden, Spain, Argentina, Uruguay, Japan, and we may also include Canada, since it has an independent currency system. Scarcely any of these countries require a larger metallic reserve than they now possess. Some of these countries, like Sweden and the United States, amounting now to nearly two billions of dollars. Sweden has done its Atest to prevent the further increase of its gold reserves, and the United -"States would be vastly better off if it could lose a full half of its present gold stock. It seems to follow that : There does not seem now, nor for years to come, more than a remote chance for any kind of "competitive effort" of the nations to secure further gold reserves. So far from this, it is now clear that for nearly twenty years before the War there was an excessive production of gold, adding needlessly to the world's metallic stock and accomplishing nothing but an inflationary rise in prices, amounting in the United States, according to the Bureau of Labor index, to a full 50 per cent within a space of fifteen years, from 1897 to 1912. This excessive production still continues. This rise in prices in the twenty years before the War was world It follows that there is now, as there was before the War, a redundant quantity of gold in the world ; and the chief fiscal problem of the nations is not how to "conserve" this gold but how to impound it or otherwise prevent it from promoting further inflation. wide, and therefore nowhere due to local conditions. Nowhere is this problem more acute than in the United States. The reasons for this are as follows : (1) The lowering of the reserve requirements through the establishment of the federal reserve system, especially by the war amendments of .June, 1917, aimed to "economize" the use of gold for bank reserves in the United States ; and it was estimated that we might easily dispense with, or "release," from 200 to 300 millions of dollars in this way. (2) Instead of this, the War and its aftermath have brought us near to two billions of additional gold, bringing our estimated gold holdings up, now, near to four billions, in dollars. All the rest of the monetary stock of the world is only a little more than this. It is fair to say that a more fantastic financial situation probably never developed in any modern commercial nation. (3) So far from any present prospect of losing any large part of this excessive gold hoard within the near future, the probabilities seem to be that, unless we should indulge in very heavy loans to foreign countries, we may possibly gain rather than lose gold in the next few years. The balance of foreign trade, and now of interest and other payments, is still clearly in our favor, and the only way now that we could lose much of this gold would be through another great inflation of prices in this country, like that of 1919-1920, and a consequent drastic curtailment of our export trade. Both of these latter possibilities might easily entail another financial depression in the United States, and work great hardship. Yet only a few of our statesmen or economists have given serious attention to this 278 Carl Snyder [June curious predicament, or to what might be done to avoid the consequences of this excessive load of gold. Various proposals have, indeed, been made as to what this country's, might do : (1) Impound an arbitrary amount of this gold, e.g.711117 a billion dollars, and remove it from the reserve account of the federal reserve banks ; or (2) Open large credits, i.e., make large loans to approved central banks in Europe ; or (3) Establish branches in London, Paris and other points abroad, as is permissible under the Federal Reserve act, and through these purchase foreign bills to the amount of a billion dollars or more, or simply buy these bills through the central banks of London, Paris, and elsewhere ; or (4) Make large gold loans to those foreign nations which will undertake to redeem their currencies in gold and lift any embargo upon its free exchange. It is obvious that all of these various proposals are designed to meet a momentary situation; that they are simply expedients and not an endeavor to dominate the situation through the working of a well-established economic principle. Yet, such an effective principle is at hand, as I shall endeavor to show. It is well known that, in a country like the United States, the general level of prices, so far as this may be ascertained by the various indices of prices, and even prices at wholesale taken over a sufficient period, is narrowly dependent upon the total purchasing power of the nation, which is largely represented by the total of bank deposits. In turn, these deposits, save for the import from abroad of gold or other currencies, are largely created by bank loans ; and the total of the liabilities thus established is narrowly limited by the amount of bank reserves. Formerly this was the actual gold or specie reserves of the banks. Now it is largely the amount of gold, and other specie, held by the federal reserve banks. In other words, in a broad way and in normal times (not through and since the War) the average of all prices is proportional to the banks' reserves of gold. The proposal here in view is to reverse this sequence and utilize the average of prices to limit the gold reserves, and then impound the surplus for the fund hereafter described. This could be done in the following way: We now have an admirable set of indices of prices at wholesale, and especially the Department of Labor index; and these indices, it has been shown by the exhaustive researches of Fisher, Mitchell, Persons, and others, are accurate and reliable to a degree no one had ever before Side by side with the indices of wholesale prices we have others of retail food prices ; of the estimated cost of living in a skilled worker's family ; of artisans' and unskilled workers' wages ; of the current volume of mine and factory manufacture ; and of the degree of employment in the chief industries of the nation. believed. 1923] The Stabilization of Gold: A Plan 279 Finally, it would not be difficult now to construct a tolerably accurate and reliable index showing monthly the state of trade or of general activity, and such an index is now in preparation. itusiness With the aid of all these, one checking the other ; the volume of production and trade checked by the index of employment ; the cost of living by the average of wages (they cannot long remain far apart) ; and finally the ratio of bank deposits to the general price level, it should not, in turn, be difficult to establish an index figure wherewith automatically to control the amount of currency to be issued, and therefore, as here proposed, the total of bank credit. We still cling to the fetish of a "gold standard," despite the fact that for more than a century many of our ablest economists and approved financial writers have seriously considered other and more stable standards of value. More than a hundred years ago Ricardo, the greatest of them all, laid it down that the ideal currency would be a strictly limited paper currency, the amount or volume of which should not be determined by the caprice of the production or quantities available of this or that precious metal. Now, in Ricardo's day index numbers, so highly perfected and so universally in use in our own time, were practically unknown. Ricardo's proposal was that the volume or quantity of the issue should be regu- lated by the state of the exchangesthat a depreciated exchange should indicate a redundancy of issue, and an appreciation, a deficit. This method might serve very well in a country like England, whose foreign trade and especially whose foreign monetary exchanges form so large a part of the total, trade and exchanges of the nation. It could scarcely serve so well in a country like the United States, where upwards of 92 per cent of her total of products are consumed at home, and whose international monetary exchanges are still, speaking relatively, extremely smallpossibly not more than 1 or 2 per cent, at the outside, of the total of the monetary exchanges of the country. In the quite astonishing array of index numbers which we now possess, of wholesale and retail prices, wages, production, employment, wholesale and retail trade, volume of goods transported, etc., coupled with most exhaustive bank statements for the whole country, we now have a far more accurate and reliable guide for automatic determination of the currency issue than the foreign exchanges could possibly be; so accurate, indeed, that we now know definitely when and at what rate our currency is depreciating or appreciating, and have little or no need to refer, for this, to the foreign exchanges, as in Ricardo's time. But it will at once be said that this is virtually abandoning the The answer is that it is nothing of the sort. Every dollar of our currency would still be redeemable in gold to the last gold standard. dollar of gold we possess. And all of this currency would then be, as 280 Carl Snyder [June it is not now, fully redeemable, and full legal tender, and the sole legal tender of the country. The only difference whatever would be that we ir) 1923] The Stabilization of Gold: A Plan 281 these would tend mutually to equalize about something like a common level, wherein the prosperity of every class and section of the country would substitute a strictly limited gold standard currency for ii.would be assured. itself in our bank reserves, and thus practically double the amount o1,7 IP We should no longer have interest rates reaching as high as 8 and 9 and 10 per cent, even for established enterprises, and 4 or 5 per cent twelve months later, as was the case in 1920 and 1921; or at least gold available as a redemption fund for the currency itself. That would be all. So far as practically any citizen of the United States is concerned, he would in his daily transactions never know the difference, for there is next to no gold in circulation, or even in the banks of the United States. We now have gold certificates and federal reserve notes, which are practically gold certificates ; and national bank notes, which are redeemable in gold ; and we should have all of these still, unless we should desire to consolidate all of these issues into a single kind. What then should we do with our 4 billions in gold? First of all, it would serve exactly as it does now, as a fund for the redemption of any kind of currency issued by this country. There would not be the slightest restriction, as there is none now, upon the withdrawal of any amount of gold, upon presentation of these currency notes. Second, it would serve, exactly as it does now, as a fund for the settlement of foreign this would be, with a federal reserve system conducted wisely and with foresight, an extremely rare occurrence. We should no longer have an appalling and endless number of strikes and wage disputes, and tie-ups and traffic blockades ; for almost every strike and wage dispute grows out of a changing level of the purchasing power of money, and if this level of purchasing power can be made fairly stable, a large part of our labor troubles, so called, would disappear. And with this would come a corresponding opening to all the talents of our inventors and discoverers and engineers and efficiency and production experts, giving them a wide-open opportunity to get at ways to enhance the man product per hour ; to distribute the product more equably ; to diversify and lighten human toil. But the fruits of this sweeping change would not accrue to the They would, by virtue of the strange and almost miraculous situation in which this country finds itself at the present time, accrue almost equally to all the other commercial nations. For it is in our power, by virtue of our vast hoard of gold, to stabilize the price level, not merely for this country but practically for all international trade; and this means practically for all the countries with exchanges. Simply it would no longer serve directly as bank reserves. Therefore, the whole of our gold fund would be available for the two purposes for which it is most desirable, viz., for the maintenance of our currency at a gold par, and secondly for the settlement of our foreign trade balances. But consider the vital difference which this change would make in United States alone. the present situation. This gold fund could then grow as high as Haman's gallows, but it could not hang us in the noose of a huge which we do business. inflation, as it threatens now to do. It could then no longer threaten the wreck of our prosperity and the fortunes of millions of men by the de- pression which a great gold movement outward might easily precipitate. The capricious inflow or outflow of gold would no longer determine our price level. We could lose a billion of gold in twelve months without undermining credit, paralyzing industry, and without putting millions of men out of gainful employment, as this outflow of only 400 millions strongly helped to do in 1920. With the general level of prices established upon an even keel, the prices of individual commodities and wages and salaries and interest rates would indeed fluctuate widely among themselves, just as they do now under the varying pressure of demand and supply, but in a greatly lessened degree. But instead of having a topsy turvy situation, such as we have now, with prices at wholesale about 60 per cent above prewar level; the cost of living about 60 per cent, common wages about 80 per cent, and factory earnings about 100 per cent higher ; and farm products, and especially grain prices, only 40 per cent higher ; all of I have already noted that we possess now nearly half the world's visible stock of monetary gold ; and I have shown likewise that this total stock of the world's gold is not merely adequate for all our purposes but even, to some extent, redundant and liable to cause a further inflation of price levels if it is allowed to wreak its natural effects under our present system of leaving the purchasing power of our currencies more or less to the caprice of gold discoveries and mining costs. We have nearly 4 billions of the yellow metal; all of the other nations only 4 or 5 billions more. Supposing that our prices are now or should be, at the time when we introduced the new system, a little above the level of the other principal countries. Then obviously our export trade will tend to decline, our imports to augment and the balance of trade to be turned against us just as it always has been. And then, precisely as now, we should lose gold. Let us even suppose that we lost a billion. At the present time such an outflow from this country might easily precipitate a crisis and per- haps a prolonged depression like that of 1893-1898 in the United States. But instead of this we should simply then have 8 billions in 1 282 Carl Snyder [June our gold redemption fund (still vastly more than we need) instead of 4 billions ; and the rest of the commercial countries would have 5 or 6 billions of gold instead of 4 or 5, as now. In the commercial nations that had then returned to the gold stand'', ard and a free gold exchange, the volume of their gold would broadly determine their general levels of prices ; and under the system of free exchange these price levels would be very nearly the same, just as they were for a century before the outbreak of the World War (and just as they now are, very nearly, measured in a common standard of gold). An increase of a billion dollars in the gold holdings of these nations would in due course raise their price levels by an average of from 20 to 25 per cent. The effect of this rise in prices would be almost inevitably to bring on a speculative boom, which would carry their price levels above those of the United States. Then the tide would be reversed, just as, generation after generation, it has been in all international trade. Again their goods would become dear to us and ours relatively cheap to them. Again, the balance would turn in our favor. Again the gold would flow back to the United States. But not into the ordinary channels of trade. Not into the banks, as now. Not into the federal reserve system. Not into any channel where, as is now the case, it could produce a profound revolution in prices and an utter upsetting of all our economic and social arrangements, as did the import of a total of two billions of gold during and since the War in his country. Under this new arrangement the gold would flow back into the gold redemption fund, because gold metal, of itself, would no longer be legal tender in this country, nor lawful bank reserves. And there it would stay until it was again required for the needs of international trade, or such mild demands as were made upon it by timid people who would rather possess stamped bits of the yellow metal than certificates of equal purchasing power, exactly such as we chiefly carry about now. The whole billion could flow back and it could produce no disturbance of the price levels, promote no wild orgies of speculation, such as a general rise in prices always brings about, and seems to threaten again at this very moment. This billion could come, and yet another billion more, and, conceivably, yet a billion beyond that ; and still it would produce, neither in this or in any of the other countries, any deep disturbance of the economic or social order. And now as to the need : Speaking in 1919, with the havoc wrought by the War's upheaval in mind, and only dimly visioning the world-wide collapse that was soon to follow, Wesley C. Mitchell, one of our ablest and best-balanced economic minds, had this to say : One cannot conclude a survey of the violent changes in prices during the 11111 10 1923] The Stabilization of Gold: A Plan 283 War and of the grave uncertainties of the near future without reflecting upon the badness of the best existing monetary systems. The United States has maintained the gold standard without serious 1nitation and has reorganized its banking system on approved lines. 4 Never- eless we have had price fluctuations almost as violent as those of the greenback period. These fluctuations have caused unmerited suffering to millions of families They have caused wasteful struggles, encouraged extravagance among some, and created the class of 'new poor.' They have promoted speculation and reduced the efficiency of management and labor. We are poorer in goods, more quarrelsome in spirit, less ready to work because of these fluctuations. All this has happened and is irretrievable. and have heaped unearned riches upon thousands. But within a few years fresh changes may happen just as evil in their consequences. This wretched record and this wretched prospect are a grave indictment of our present form of economic organization. Have we not sufficient constructive imagination and practical sagacity to develop a better monetary system? In the same year, Lord d'Abernon, banker and diplomat, and one of the most experienced of English statesmen, in an address in the House of Lords said, on this same question: I hold that it is more vital and more urgent than any question now before the country. It transcends and pervades all other problems. Unless right views are attained on this, all efforts towards reform in other directions will be overborne and submerged. Nearly four years have passed, and we seem little nearer the solution of these problems than we were then. The Practical Details In brief, what is here proposed is : To make all note issues, government or federal reserve, fully redeemable in gold and full legal tender, and the sole legal tender and the sole money of bank reserves. Gold itself would then cease to be, directly, legal tender, though practically it would be, of course, just the same as now. And this change would in no way affect contracts now existing, to pay in gold, or the making of future contracts. To put all the gold now in the Treasury and the federal reserve banks in a common redemption fund, used exclusively for the redemption of the currency. This would, in effect, make all the currency issues now outstanding (less than 4 billions) practically gold certificates. And this provision, of course, would mean the repeal of the requirements in the Federal Reserve act, of gold reserves against federal reserve notes and deposits. To control or restrict the total issue of this gold standard cur- 284 [June Carl Snyder rency by means of an index number of prices, checked by other index numbers of production, employment, and trade. The index number of prices might well be the present Bureau of Labor index of wholesalink prices, on the theory that the check applied must be applied early, an that the movement of wholesale prices is much more rapid and always precedes in time any movement of the general price level. This index should be checked by indices of production and employment, on the theory that at times prices might be rising rapidly, with employment below normal ; but this would happen rarely. Control of the note issue to be through the medium of the federal reserve banks, which should be required by law, on a change in the price level of, let us say, 3 per cent (or whatever figure might be decided upon) to raise or lower the rate of rediscount by 1 per cent, or in the same way to raise or to lower their holdings of securities and acceptances by, let us say, some conventional figure like 100 million dollars, as might be agreed upon; or both. The changes in the bank rate and security holdings might be at a mildly progressive rate as, for example, a change of 1 per cent in the rate for the first 3 per cent change in the price index, another 1 per cent for the next 2 points change in the price index, etc. But in practice this would scarcely be needful, or only for emergencies. For example, if, starting from the beginning of 1919, when prices began to rise at the rate of 2 and 3 per cent a month, this arrangement would have brought the rate of rediscount up to 10 per cent within six months, and this would certainly have been sufficient to have checked inflation by, let us say, October of 1919. In fact, with this automatic check it seems probable that inflation could not have gone on for more than three or four months. It seems clear that this control must be automatic and free from the possibility of intervention by any kind of influence, political, financial, or otherwise. It seems evident, from our experience, that this is the one possible means of obtaining such control. Finally, all exports or imports of gold or currency required by law to be registered and certified, and when a given amount of currency has been, for example, exported or presented to the Treasury or banks for redemption or for gold exports, the federal reserve banks to increase their holdings of securities by a corresponding amount (say in lots of 50 or 100 millions) ; and vice versa. The idea, in sum, is to keep the amount of currency and credit in balance with the price level, and maintain the latter at as nearly a constant figure as is practically possible. It is not generally known or realized that in the years just before the War, and extending even past the first year of the War, this country at least had reached a 0 1923] The Stabilization of Gold: A Plan 285 quite extraordinary degree of economic stability, beyond that perhaps of any similar period in a century and more. In the seven years a.om the end of 1908 to late in 1915, the annual averages, even of 111Pommodities at wholesale, varied by only four points, on the Bureau of Labor index (from 97 to 101). Investigations carried out by the writer in the last three years seem to indicate distinctly that this high degree of economic stability could again be attained, rather quickly, and by the simplest of means, as has here been briefly sketched. CARL SNYDER. 0 REVIEWS AND NEW BOOKS General Works, Theory and Its History A Critique of Economics: Doctrinal and Methodological. By 0. FRED BOUCKE. (New York : The Macmillan Company. 1922. Pp. ix, 305.) In this small book, which is a companion volume and "in a sense a continuation" of his recent Development of Economics, Professor Boucke undertakes a summary of the historical background of modern economics and a criticism of both its principles and its methodology. His basic contention is that the development of modern psychology has destroyed the logical foundations of the science in the form in which the present age has inherited it from the eighteenth and nineteenth centuries, and has forced a repudiation of old doctrines and a reexamination of the concepts and methods of thought in this field. Part I of the book, dealing with Principles, is frankly critical in the destructive sense. It attempts merely to show the inconsistencies and untenability in view of present knowledge of facts of the accepted doctrines of marginalistic economic theory. Part II aims to go beyond mere criticism and indicate the lines along which the author hopes to see built up a sound methodology. The most valuable portions of the book in the reviewer's opinion are the introductory chapter on the Problem, showing how current economic doctrine developed out of a sensationalistic psychology framed on the analogy of the Newtonian mechanics, and the criticism of the resulting theory of valuation in the first chapter of part I. The argument here is remarkable for the mastery of philosophical literature displayed and for incisive analysis and clear statement. These chapters should demonstrate to the satisfaction of anyone not already convinced that economic theory cannot be a mechanistic science of values and, indeed, that no such science is possible in view of the modern psychological conception of our affective and conative consciousness. In regard to the remainder of the book, and especially to the infer- ence that the great bulk of extant economic theory must be thrown away and done over, there is more room for difference of opinion. The subsequent chapters of part I deal with Price, Distribution, and Production. The criticisms of doctrine presented are undoubtedly sound as regards the form of statement of economic theories met with in the great majority of textbooks and other works. But there is room for question as to how essential after all the psychological assumptions, or any psychological assumptions, really are for the substantial body of economic theory. From Cournot to Wesley Mitchell authoritative voices have not been wanting to advocate an objective formulation of 1923] General Works, Theory and Its History 287 economic relations, and the recent able study of the whole subject by Professor Z. C. Dickinson shows the same tendency. It may be sug"Nested that the truth of our assumed psychology is not vital as long Fas men in the mass behave "as if" they were actuated by motives of the character described ; this would be analogous to the treatment of force in mechanics. My own view is that the psychology of valuation is important for economic criticism rather than economic theory, and is tributary to ethics rather than economics. It is not clear, even after reading Professor Boucke's Critique that the laws of diminishing (price) productivity and of imputation are not valid scientific principles in a purely objective interpretation, or that expenses of production have no useful import if restricted to the representation of sacrificed alternatives measured in terms of price. We must not lose sight of the fact of overwhelming practical importance, that if we cannot give some intelligible meaning to values, costs and productivities as measurable and comparable quantities,then an intelligent organ- ization of economic activity is impossible and meaningless, and the whole science of economics is reduced to the position of an academic exercise. The real issue with regard to the older economics is better brought to the fore by the discussion of Methodology in part II of the Critique. This discussion centers around the meaning of law and causality, and the most important positive conclusion is that in the social sciences we rarely find connections of the nature of definite functional relations, but must be content with correlations of larger or smaller magnitude. This term correlation is a more accurate expression for what the economist has meant by saying that his laws are "tendencies," real but only partial causes. Professor Boucke rightly insists that there must be a certain minimum correlation before we can consider a relation significant. It is undoubtedly just to face the older economic theory with peremptory questions on this head, to insist that in the future more effort must be made to find out something about the actual importance of the different tendencies and to take account of enough factors in a complex situation to constitute a substantial contribution toward a complete explanation. It is also right to demand that more regard be had to concrete content and less to pure form in working out principles. Thus the desire for wealth as a motive is open to the criticism that the content of the term wealth is all to be determined after the event. This discussion of methodology deals with difficult material and at many points the author's phraseology is perplexing. It is needless to say that most of the problems of philosophy and logic are raised first and last. But the book as a whole is well worth careful reading, and with [June Reviews and New Books 288 a large part of the author's conclusions the thoughtful reader will be forced to agree. FRANK H. KNIGHT. University of Iowa. NEW BOOKS Philosophy and political economy in some of their historical relations. Third edition. (London: Allen & Unwin. 1922. Pp. 424.) BONAR, J. BUER, M. C. Economics for beginners. (London: Routledge. New York: Pp. 220. 4s. 6d.) This little volume is a British attempt to adapt the subject-matter of economics for presentation to young students. The author has broken up his exposition into chapters of three or four pages each and has made considerable use of diagrams. One misses the lists of exercises and questions customary in American texts. Part I deals with questions of value and distribution; Part II, with money, banking, and foreign trade; and Part III, with larger questions of welfare and the economic functions of the state. The preface carries a disclaimer of originality except as to arrangement. Here the "originality consists merely in postponing the exposition of some of the more difficult parts of the subject, even at some sacrifice of logical arrangement." In question of theory the author acknowledges indebtedness to the writings and teachings of Professor Edwin Cannan. The book is so essentially British in its point of view, its illustrations, and its reference to war-time experience that it seems improbable that it could be successfully used in secondary schools in the United States. C. E. P. CUMBERLAND, M. and HARRISON, R. The new economics. (London: Palmer. 1922. Pp. xii, 145. 6s.) DANE, E. The common sense of economic science. (London: Mills & Boon, Ltd. 1922. Pp. 220. 5s.) DIEHL, K. Sozialwissenschaftliche Erliiuterungen zu David Ricardos Grundgesetzen der Volkswirtschaft und Besteuerung. Part II: Lohntheorie, Zins- und Unternehmergewinn; Handelspolitik; Krisen; Steuerehre. Third edition. (Leipzig: Felix Meiner. 1922. Pp. viii, 529. Dutton. 1921. 350 M.) Technischer Fortschrift und Freiheit der Wirtschaft. Staatswissenschaftliche Untersuchungen, Heft 7. (Bonn: Schroeder. 1922. Pp. 62.) Frsp, J. C. L. Engineering economics. First principles. Second edition. (New York: McGraw-Hill. 1922. Pp. xi, 311. $3.) GIDE and RIST. Histoire des doctrines conomiques. Fourth edition. (Bordeaux: Y. Cadoret. 1922. 25 fr.) HAURAND, P. W. Das Nationalokonomische System von Heinrich Pesch. (Miinchen-Gladbach: Volksvereins Verlag. 1922. 27 M.) HILDEBRAND, B. Die Nationalokonomie der Gegenzvart (1848) und Zukunft und andere gesammelte Schrif ten. Vol. I. (Jena: Fischer. 1922. Pp. xxvi, 388.) DIETZEL, H. 0 Alt FIFTEEN NASSAU STREET NEW Yo RK July 10, 1923 Dear Governor Strong; It was good to have Buda a breezy and buoyant letter from you as that of July 3. I am sending the Willis book, but I am afraid you will be Most of his criticisms have been published over disappointed in it. and over again in the J. C. and in his articles in the "Journal of Political Science." If I cannot get you a copy of the Hay/trey book at once I will Which reminds me send you the Library copy and replace that later. that I did enclose four pages from the "Journal of the Royal Statistical Society," and if they happen to be handy we'd be glad of their return. There is a fine review of Havrtrey's book in the current number of the "Economic Journal," and what you say prompts me to subjoin a couple of paragraphs from it. I have thought a great deal about the point you raised, that it will muddle people's minas to talk about stabilizing prices, when they will think of "fixing prices," and especially prices of certain articles, like wheat or cotton, as you suggest. Would it help any to talk, as I did in my little article, about That is a good ways from "price fixing," stabilizing the value of Gold? I took my cue, as you know, from as registered in the popular mind. the Genoa Conference proposals, wlaich, as I understand it, wore largely But I believe you agree with me that he is off in written by Hawtrey. the feeling that there is going to be any big scramble for gold within the next few years at least. It is very hard for some people to realize what an inmense store of gold has been piled up within the last thirty years , more than all the accumulations of the world for centuries before; and that the volume of gold production is now much less important than it was then. Cassel makes very effective use of this in his book, which I suppose will soon be out now in English. Hon. Benjamin Strong--2 X,triy The review I spoke of, of Hawtrey's book, was from Dennis Robertson, who wrote that lovely little book on "Money," with the Alice-in-Wonderland chapter heads, and what he wrote about the present situation was this: "The currency system which Mr. Hawtrey proposes for the world may be briefly outlined as Each country so soon as practicable is follows. to give its currency a defined value in terms of gold, whether (as in our own case) the old value or (as in that of most of the ex-belligerents) a new value more in accord with market conditions. Care must be taken not to choose such a high value as to lead to a breakdown, nor (though this danger is disappearing) such a low value as to necessitate a great increase in home prices and To ensure economy of gold, the values wages. thus determined are to be maintained by means of a gold exchange standard: the participating countries are to Yold balances in one anotherie currencies, and movements of relative prices and exchanges are normally to be corrected by the sale or purchase of these balances rather than by the But the system is still export or import of gold. incomplete; for there is still the danger that the value of gold itself will be subject to violent fluctuation, either owing to the ill-judged efforts of ambitious countries to secure metallic reserves, or (as in the last three years) owing to vagaries of policy or ineffectiveness on the part of the monster which has swallowed two-fifths of the world's Hence monetary gold--the Federal Reserve system. the value of gold itself must be kept stable by means of a concerted discount policy on the part of the various central banks. "There is little doubt that Mr. Hawtrey, like Professor Cassel, deserves well of the world harping continuously on this one theme. Bankers, as he points out, have been for so long accustomed to regard the regulation of gold reserves as the main object of discount policy and the effect on trade activity as an incidental and sometimes pernicious by-product, that it needs something like a revolution of thought to induce them to use the old weapon consciously and continuously for well-defined ifor Hon. Benjamin Strong--3 And Mr. Havrtrey makes great demands on ends. than; for they are not to be allowed (like Professor Fisher's gold-dealers) to pin their faith to a mere mechanical index-number, but must take account of every feature of the trade sitNevertheless it is clear that in the uation. The old method long run nothing else will serve. of regulating credit with reference to reserve proportions was at the best clumsy and slow in its operation upon trade, and under modern conditions may lead, as the present position of the Federal Reserve Man must systenn shows, to preposterous results. take another step forward in the exercise of conWhat with Mr. Hewtrey trol over material forces. and the Stevenson Committee and Dr. Stapes, what a long way we have moved from the days when the invisible hand could be trusted to do all things wells." Is it not clear that we have got now to think of the volume of credit and of its"virtue, as we have slowly educated the masses to think No sane person would now think of proposing that any of the currency? private agency or set of them, like the banks, should be given the right of an unlimited issue of currency, for we know full well the result. Must we not educate the people (and shall I add, tne bankers?) to see that the same thing identically is true of the credit volume, and that we must find some means of controlling that credit volume as carefully and jealously as we would the currency itself? I think you will be interested in the little chart of the total value of the German currency, which we constructed for this week's I did not realize until we got the figures made up Business Summary. how colossally the paper mark issue was overvalued in foreign exchange in the first few months after the War, and what a magnificent opportunity it presented for a speculation upon approved and highly orthodox economic principl es. But is it not, after all, very hard to believe that an economic principle can be almost as rigid and valid and practical as the laws of physics or chemistry? I find myself rather thinking that we are about at the end of the little setback in business and prices, end that from now on the trend will be steadily upward. But maybe I am a little previous. With warmest regards, Hon. Benjamin Strong, Colorado Springs, Colorado. FIFTEEN NASSAU STREET NEWYORK July 19, 1923 Dear Governor Strong: I am enclosing herewith a very curious paper which was given at a recent meeting of the Philadelphia Academy of Political Science, The writer has had a number of articles in the and reprinted here. The President of the "Saturday Evening Post," of the same tenor. Statistics Company tells me that their reprint has occasioned a quite amazing demand, and that they are now running off their third impression in a little over a week. I should imagine it is the sort of thing that might be greedily snapped up by the Ford-Edison people, and could be used with great effect. Germany is, as you know, Ford's favorite illustration of his belief that industry does not need bond holders or "idle shareholders," and that these are a curse to enterprise. It is a highly specious and captivating sort of propaganda, and I should think that if you really were in the writing mood here was a subject worthy of your pen. No fear about that "ability to write." I know of no one who is able to put his thoughts more clearly and precisely than yourself. As you have observed, it is the thoughts that I sometimes want to except to a little, and not the form or the clearness of expression--if you will allow me to put it so, what seems to me occasionally a contradiction between the traditional banker's views and the very clear and perfectly orthodox economic views which you otherwise hold; the effect, so it seems to me, of a long-time association that is hard to get away from. As to your recent memo.: needless to say I agree perfectly with But I am wondering a little how your thesis that "our job is credit." much "sticking to that" is going to help our position or make it much easier. What I mean is that there are only two reasons now that could justify a rise in the bank rate within, say, the next year or two. One is an overextended bank position, which with our heavy reserves is for some time to come Very improbable; or, secondly, rapidly rising prices which might or might not be accompanied by any considerable expansion of our rediscounts. And after all wila, for all intents, unlimited bank reserves, is there any other test of a sound credit position or "inflation," now, than a rise in prices? flon. Benjamin Strong--2 I am in hopes that our new index of the volume of trade will provide such a test, eventually, but I doubt if it can do it now, and anyway it would take a long time to justify a bank rate based upon this index or any other index of production and distribution which we have. Meanwhile, there is, I believe, a large body of very intelligent opinion arising in this country that seeks some way out of this topsy turvy condition such as we have had in the last four years; and it is interested in "credit" only from one point of view, and that is as the unrestrained use of credit promotes or permits tremendous ups and downs of price levels. And I believe with Mr. Robertson, of Cambridge, that this is a situation with which our bankers must deal, especially if we are going to have 96-cent wheat, and $16 a day for plasterers, and elect Magnus Johnsons to the Senate by 75,000 majority. --Don't you! I gave the figures on the transfer of inactive accounts to time deposits in Buffalo to Mr. Jay. But I understand from him and from Mr. Kenzel that this general question was gone into extendedly at the last Governors' Conference, and that they were able to see no easy means of meeting this situation save by a change in the law; and it did not seem very clear to them that such a thing is needed. In an interview on his return, our friend, Brookhart, of Iowa, is quoted as saying that he had had repeated conversations with Trotsky, who "reminds him very strongly of Mr. Paul M. Warburg," and that he was "a very able economist and perfectly spund." And the joy of the thing is that with Brookhart, Johnson, Ships sad, Ladd, Frazier, LaFellette, et al, it only needs one or two more of these birds to gain for them the balance of power in the Senate. We are having, so far, a rather cool summer and I hope it is the same with you., With warmest regards, FIFTEEN NASSAU STREET N EW YoR K July 27, 1923 Dear Governor Strong: I am enclosing you a brief memorandum on the question of what effect this transfer of inactive demand deposits to time deposits If I get it right, has on the "potential expansibility" of the System. it seems to me that the probability is that it would not be very great unless gold were paid out in sufficient quantities to meet any additional demands for hand to hand currency, in which case of course the calculation would be quite different. And of course this latter is just what has happened, and if this were kept up, what you might call the immediate potential would be very heavily increased. But in the end the effect would be, I believe, about as I suggested. I should like very much to know your judgment about it. I think in the new Board member, Mr. Cunningham, we have a very serious and thoughtful man who means to do the right thing if he can. I met him with Governor Crissinger when I was over there on the Agricultural Conference, and was to see him later for a talk about the I did not find the time, and wrote him the enclosed, wheat situation. and I think you will be interested in his reply as indicating his type of mind. The Board has given me permission to make up two weeks of unused vacation time, and we are sailing next Saturday, August 4, on the "Franconia" for a little three or four-weeks outing in Wales and Scotland. I expect to be back around the eighth of September. I shall be in London only a few days probably, but I hope to see Withers and a few others if there is any Chance. You have probably noticed George Reynolds' very gloomy interviews when he returned this week from Europe. As a general rule, wars and revolutions and periods of disturbance tend to arise on the crest of the economic wave, or just following it, and not so much in periods of relative adversity. I confess that I cannot see Germany in any position to make war for a good while to come, or with any disposition to, nor England in a mood to look on idly, as Reynolds suggests,--do you? Hon.Benjamin Strong--2 I enclose a piece from a farm paper which Mr. Webber sends me from Minneapolis, illustrating the kind of thing that is stirring up the present farm feeling. But you probably noted an admirable blast from the "Breeders' Gazette," of Chicago, trying to set the situation out in a little more rational light. As a people we are certainly given to much hysteria, are we I am told that at least some large interests here are beginning to turn bullish, and believe that the reaction has about run its term. not? I have to write a review of Dr. Willis' book for the Evening Post, and I find it very difficult. If there is any message that you would like to have me give the folks in London, you will let me know. I hope that all goes well. With many good wishes, Hon. Benjamin Strong, Cragmore Sanatorium, Colorado Springs, Colorado. W CCMCOA1 BANK FEDERAL rs- .CCCOWC v g-Prsim OF NEW YORK OFFICE CORRESPONDENCE To FROM Otvernor Strong Mr. Snyder DATE_ July 27, 1923 sueJacr:__Effect of Transfer of Inactive Accounts_ It is not easy to compute what would be the "potential expansion" from a heavy transfer of inactive demand deposits to "time deposits." For last December 29 the Comptroller's Report gave the amount of "net deposits on which reserves are computed," for the whole System, at 18,966 millions, and the required reserves as 1851 millions, or very close to 10 per cent. On the same date demand deposits were given at 14,816 millions and time deposits as 7,645 millions, or a total of 22,461 millions. The gross of time and demand deposits as given is higher by 3 billions and more than the net amount upon which reserves are computed. But this would make no very great difference in the calculation, which is as follows: For every 5 dollars of demand deposits, approximately 1 dollar of hand to hand currency is required, and this must be supplied by the Federal Reserve Banks unless there is a source of outside supply, as at present in the incoming gold. Assuming no outside sources of currency, an arbitrary transfer of inactive accounts to time deposits would increase this ratio of deposits to currency approximately in a corresponding degree, so that if, for example, demand and time deposits were made equal, or say about 11 billions each, the ratio of the currency required would probably rise to about 3+ to 1, since on the theory that the proportion of inactive demand deposits was really as high as this, so that they could be easily transferred, the real ratio now is not 5 to 1, but, say, 3+ to 1. This would not very vitally affect the expansive power of a dollar of gold in the Federal Reserve Banks. At the present time that expansive power is apparently between 10 and 11 to 1. This is on the theory that all new loans based upon re.. discounts at the Federal Reserve Banks would become demand deposits. If by any artifice a considerable part of these new deposits were converted into time deposits, this would increase the apparent potential expansibility; but this effect would be counteracted by the higher rate of hand to hand currency required, no that, in a rough way, I should doubt very much if any such device could materially enhance the present power of expansibility. This is not very definite, but after going over the problem pretty carefully I have concluded that the question you raise is not capable of any very definite answer. It is much more complicated than it looks. FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To FROM DATE SUBJECT: Cbvernor Strong July 274 Effact_of Transfer _of _1923 Inactive Mr. Snyder It is not easy to compute what would be the "potential expansion" from a heavy transfer of inactive demand deposits to "time deposits." For last Decekber 29 the Comptroller's Report gave the amount of "net deposits on which reserves are computed," for the whole Systen, at 18,966 millions, and the required reserves as 1851 millions, or very close to 10 per cent. On the same date demand deposits were given at 14,816 millions and time deposits as 7,645 millions, or a total of 22,461 millions. The gross of time and demand deposits as given is higher by are computed. But this would make no vary great difference in the calculation, which is as 3 billions and more than the net amount upon whicl- reserves follows: For every 5 dollars of demand deposits, approximately 1 dollar of hand to hand currency is required, and this must be supplied by the Federal Reserve Banks unlemsthere is a source of outside supply, as at present in Assuming no outside sources of currency, an arbitrary the incoming gold. transfer of inactive accounts to time deposits would increase this ratio of deposits to currency approximately in a corresponding degree, so that if, for example, demand and time deposits were made equal, or say about 11 billions each, the ratio of the currency required would probably rise to about 3-Irto 1, since on the theory that the proportion of inactive demand deposits was really as high as this, so that they could be easily transferred, the real ratio now is not 5 to 1, but, say, 3i-to 1. This would not vary vitally affect the expansive power of a dollar of mold in the Federal Reserve Banks. At the present time that expansive power is apparently between This is on the theory that all new loans based upon re10 and 11 to 1. If discounts at the Federal Reserve Banks would become demand deposits. by any artifice a considerable part of these new deposits were converted into time deposits, this would increase the apparent potential expansibility; but this effect would be counteracted by the higher rate of hand to hand currency required, so rough way, I should doubt very much if any such device could materially enhance the present power of expansibility. that, in a This is not very definite, but after going over the problem pretty carefully I have concluded that the question you raise is not capable of any very definite answer. It is much more complicated than it looks. FEDERAL RESERVE BANK Homeward Bound. S. S. "Caronia." Sept. IO. OF N E W YORK Dear Governor Strong: This has been a rather long break; but there has been very litWe did mostly one night stands, through North Wales, the Lake tle to record. Country, and then up tnto Scotland for a fleeting glimpse of the heather and the moors. Then down thr!igh Durham, York and Ely for a sight of some of the old cathedrals, of which I am extremely fond; and then Cambridge and London, with a bit of motoring up to Windsor and to Oxford: and that was about all. Almost everyone of interest was away on vacation and so I saw very few. Gov Norman came back the day before 1l left, looking very well and fit, altho I understand he has not been well. fhad a little chat with him him, and seemed to cheer him up greatly by telling him it seemed to be the general belief in the States that we should pass the Bonus bill this winter. The policy of the Bank has been pretty steadilg under fire from several different angles, and from a remark that N. made to Dr Chandler, who was also in London that week, I gather they have been a good deal nettled, and perhaps a little apprehensive as to the outcome, as to whether the result would justify their steady determination to put the pound back to par, short of "producing a cohvulsion,"as N. phrased it. Uuch the most active criticism has come from Keynes and his They have now control of the "Nation,". and one of K's young protoges group. has been made Editor, altho I imagine K. is the real director/of policies. They are making a very live paper of it, and I shall send you a few copies which may be of interest. I met Henderson, the active Editor and spent an evening with him, a very keen, cool young chap of the sort they do so well over there; and at Cambridge I met also young Robertson, who did that delightful volume on "Money" and one of the Group that is trying to revive the Liberal party with Lloyd George elbowed out. They had a very novel "Summer School", as they called it, at Cambridge this August, and you will find a full account of it, with speeches by Brand and a number of others, in the papers I am sending. It created a good deal of a stir. I had a visit also with Brand just as he was going away, and with Hartley withers, who has married and has a new baby of which he is enormously pround. W. is just bringing out a new book in which he says he has a chapter on Stabilization and a discussion of my article thereon. Keynes, I am told, is also at work on a new book on the same subject, in which I believe he is to take a strong stand against the policy of trying to force the pound back to pagas suicidal, and declaring for a"managa" currenc*, as they phrase it, and no return to a fixed gold standard--letting the U. S. hold the bag. Henderson, by the way was the author of those two very striking articles on the Federal Reserve System and the prospects for inflation in the U. S. that appeared last February in the "Economist." W. T. Layton, the new Editor of the "E." is very close to the Keynes groupn and so in a way is Hawtry. It is altogether a very stronpand able bunth, and with two influential papers and much literary talent I fear they will give some of the old dry bones a bit of a jolt--as 4. former Editor of the "Economist," Mr Bagehot, did just fifty years ago. Also at Cambridge I had just a glimpse of the extraordinary new work that is being done there by 3ir Earnest Rutherford and his co-workers inthe field of Atomic Physics. They believe they now have definite evidence http://fraser.stlouisfed.org/ ofthe break up of at least six different Federal Reserve Bank of St. Louis ,"elements, so-called nnd . thighr FEDERAL RESERVE BANK OF N E W YORK and it is being done by some Of the ablesth::ic].sts now living, itmmisr-ott science, and not fakes and moonbeam chaser:, R i s now definitely to the transmutation of the elements, at will. One remarkable thing about it is that gold, it is now known, stands in its atomic structure and composition just between mercury and lead, and it would apparently require only knocking out an electron or two, that is an atomm of electricity, to transform the one into the others. Which would mean an almost ironic realization of the dream of the ancient Alchemistd, who labored to identically the same end. Certainly this seems sure that once the nature and composition of a substance being known, its atiificill production is rarely very far off. This new work is the culmination of twenty years of fascinating research, at Cambridge and elsewhere and undoubtedly represents one of the,greatest triumphs of physiIt looks as if the day is not far distant when gold will be made cal science. in the laboratory, from other and cheaper substances, and that the day of the "precious" metals will then be at an end. When this will be is still in the realms of conjecture; but research in this field has been going forward at an amazing rate in the last twenty years and my feeling is that it will not be very long. At any rate we can pretty certainly look forward to the time when gold can no longer be employed as a measure index of value, and indeed it has seemed to me that in these days of perfected Keynes and his group may be numbers, such a use was already an anachronism. only just a little abed of events, matters, I From the few I had any chance to talk to about political settlement of the German Ai got the impression of much pessimism as to any near ruin policy, and dedifficulty, and that France seems committed to its rule or termined to break up Germany if it can. all to pieces, and The mark, as you have noted, has finally gone he now has to bear the Havensteinlis halhng a hard time of it as your friend Minister seems to be a man with a clear brunt of the failure. The new Finance but he found his hands tied by the head and wanting to do the right thing; Commission, which made the Reparations change in the law last year, Screed by flim-flam. independent of the Government. An odd sort of lease of life the Reichsbank be taking on a new On the other hand Austria seems to which is a very agreesomething like its former normal life; anything very wrong and returning to that there was never thing could able confirmation of my firm belief and that identically the same monetary insanity, results, if only they there save its in Germany, ,with the same , at any time have been done I fear both were lacking. had had the sem:e and the desire. Mrlubbock and all of those I saw asked Brand, Withers, Norman, sympathetic that you had been and were deeply great interest, kind from New York, and after you with I have had no word of any time of it. I hope everything having such a sort of news of you. to have any new Dreyer vaccine, it has distressed me not have been reading of the I right. infected glands. has been going along all efficacious in the case of live me as a very for he struck which is said to be especially has been watching it, doubt not that Dr Forster four winds. to all the wire and a very keen mind, open of hopes for a speedy return, With all sorts Always, CaJ 2:4 FEDERAL RESERVE BANK OF NEW YORK Sept 14th. I am wondering if I have been a little asleep at the switch. I have just been reading 1171 article on the new Dreyer vaccine, and there learned for the first time that Dreyer belongs at Oxford and that the vaccine is already being tried out on an extensive scale. 1had read an article about it in a journal I brought along with me on the trip, but it gave no hint as to where Aareyer belonged, and from the peculiar way he spells his first name, Georges, Itook it that of course he was a foreigner; and for the rest the article was not at all arousing, and gave little hint that it may be a momentous discovery. I was twice at Oxford, but as almost everyone was away on vacation I met no one who was apt to speak about it. Now I see in a line in the ships paper this morning that a Chicago physician is making a flying trip to Oxford to get some of the vaccine. Possibly I could not have obtained it anyway, but I might at least have had a try, and maybe brought home a little for Dr Forster to experiment with. But I deeply hope that any need of it has been well passed already, in Your case, and that therefcre it will make little difference that I should have learned about it all too late, to do anything with it. FEDERAL RESERVE BANK 111C 4 1-1001.1.3.23 OF NEW YORK FFICE CORRESPONDENCE To FRC., vernor Strong_ DATE Sept. 20, 1924 SUBJECT: Mr. Snyder It occurs to me you might like to see the enclosed note from d'Abernon, whom I met two yerre ago, and found him an extremely interesting and active mind; and also in the two papers he attaches. And, lest you might not have seen it, I am also enclosing an article from Robert Crozier Long who, you will recall, is the Berlin correspondent of the Economist: of London, Ftnd a very cool rnd excentionally well informed man. I thought the address by Hirsch quite significant of retun. trinity, and Bonn's also, in its way. FIFTEEN NASSAU STREET N SW Yo R K September 24, 1923 rear Governor Strong: You will have a quiet smile at the following paragraph which occurs in Dr. Willis' d.epartment in the "Magazine of Wall Street," to which he is now a regular contributor, and in which I was told he has I will not offend you with the whole magazine. an interest. The article is headed "Banking Policy of the New AdministrationQuestion of Strengthening Federal Reserve Board," wherein he says: "There is a general anxiety to know what will be done with regard to the Federal Reserve Board, and how far if at all that body can be reorganized. "One proposal that has been considered to some extent is that of naming a new Governor for the Board at the time of the next vacancy which occurs during the new memAccording to this forecast, coming Domeier. ber who should be a practical banker of standing would be induced to accept membership with the understanding As the govthat he would at once be named Governor. ernorship of the Board was originally intended to pass from one member to another at short intervals, there would be in this no reflection upon the existing governor who would then have held the office nearly a year and a half. "The first incumbent of the governorship, Mr. Hamlin, How this plan will work out, held it for two years only. if at all, there is as yet no official intimation, though it seems clear that the problem of strengthening the Board is under advisement." I don't know whether he evolved this entirely from his inner malevolence; he goes a good deal to Washington, and that may be the gossip for aught I know. Dr. Gay asked me for a review of his book for the Evezinz Post, and I wrote it with a good deal of reluctance. It seemed to me stronger to let his chronic discontent show in the paragraphs Mr. Clark, quoted rather than to attempt to confute his statements. Governor Strong--2 of the Journal of the American Bankers' Association also asked me for a little article on it, but unless you feel that it is worth while I have no especial inclination for it. As regards the attitude of the new Administration, I am told it is possible that Dwight Morrow may be of a good deal of influence As you may know, they were classmates at Amherst, and with Coolidge. graduated together, and I am told that sometime before the last Chicago Convention Morrow had Coolidge in grooming and invited various friends It seems to be the genin to meet him whenever he was in the city. eral idea that Coolidge would like very much to have the nomination, and that he is a pod politician and plays the game. But it seems also the view that the potency of Mr. Crissinger's influence has been greatly reduced. I hope there is really something in the Willis paragraph, for unless I read the portents all wrong things are gathering for a new upswing in business and a renewed expansion of credit. We have received a net of 167 millions of new gold, so far this year, and despite many predictions it continues to come. It seems as though it was almost certain that this influence must eventually be felt, as I have suggested in a little piece for the Business Summary this week. These are not the views, I believe, of Mr. Woolley and other of our directors who seen to think that the business men of the country can be depended upon to handle the situation properly, es, they feel, they did last spring. And they believe also great gain that the bank rate was not raised in March. that it was a I have been wondering if this is not a mistaken view and will not be rather difficult to raise the rate in case there should be need, after.that experience. whether it T had it in mind to send you Prof. Moulton's new book on Capacity to Pay," that you might see what a curious bit of, as I feel, specious pleading it is--if it is not more. As a first publication of the new Institute of Economics, it is rather regret able, for it roads more like German propaganda than a careful work of inquiry. "Germany's Mr. Morgan sails on Saturday, and we shall miss him very much. --The last exterior work on the new bank building approaches completion, and it begins to take on its deeply impressive character as a building. Governor Strong--3 It is splendid to know how steady has been your progress, and I deeply hope there will be no interruption. With very best regards, Hon. Benjamin Strong, Cragmore Senstorilma, Colorado Springs, Colorado. FIFTEEN NASSAU STREET NEW YoRK September 25, 1923 rear Governor Strong: I am quite perturbed to find, in a file of my correspondence with you which I was looking up, the original copy of my letter of July 27, signed and folded as if it had been sent. But how it could get back here if it had been sent to you I have no mortal idea. I would be very much disturbed if it never reached you, end I had given the impression that I had gone off to Europe without ever sending you a line; and so, against the possibility that it had not been sent, I am enclosing it herewith. I hope that you hardly think that I would have been capable of that sort of thing, but nevertheless it would certainly look as if I had been very careless if I had merely sent you some memoranda and enclosures, with- out any further word. I am very glad to learn from a memorandun from Mr. Beyer that you are well enouga to leave the sanatorium and enjoy a change of fare. Hon. Benjamin Strong, Colorado Springs, Colorado. FIFTEEN NASSAU STREET N EW YORK October 8, 1923 Dear Governor Strong: Thank you for the return of the two German pieces that Did you not think that Hirsch's analysis of the d'Abernon sent. fall of the mark, and the absurdly slight influence which the actual reparations payments had,was very convincing? Prof. Bullock has sent over your memo. of September 12, and we shall make copies and return the same to him, as you suggest. It is a very interesting and extremely concise and precise presentation Needless to say, I agree in practically every line. of the question. The only suggestion I should like to make would be that, in so very precise a statement, I should like it made a little clearer that in such times as the last eight years there is often only a very indefinite relation between "prices," i.e.,cf commodities, and the "general price level," i.e., of all payments including retail prices, wages, rents, interest payments, speculation of every kind, end all the rest. Commodity prices, at tholeeale, like the prices of individual articles, may range widely above or below the general level of prices, just, for example, as they are now and as they were in 1920 and in 1921. And I should venture a doubt if this general price level, not prices of commodities., is ever seriously affected by people's moods, or the changes in supply and demand, which we now knot are, for the vast bulk of things consumed, relatively slight from year to year, Lnless these things effect a corresponding change in the volume of purchasing power, largely represented by bank credits; do you think? For example, apparently we had more of real overproduction of goods last winter and early spring than in the corresponding period of 1919-'20, but so far as I can find, though there has been a sharp fluctuation in commodity prices at wholesale, I can find no probable change in the general level of all prices; and correspondingly only a very slight change throughout the present year in the total of bank credit. In the one case, in 1920 we had a violent fall, both in commodity prices and in the general price level, and this latter seemed Hon. Benjamin Strong--2 to run pretty closely with the decline in the volume of bank credit. As to the question of bank policy, I wonder how many of the committee or of the Board have any such clear-cut and logical idea of procedure as you here set forth. And is not the lack of such the real danger! As to the review of Dr. Willis' book, which appeared in the "Evening Post Supplement" last Saturday, I did not feel that it was the place for a controversy. If it is worth while to make a detailed criticism of it, Mr. Clark would be very glad to have that for the "Journal of the American Bankers' Association." I hear, as you may have, a rather interesting bit that the line-up in the Board now runs pretty generally the four new members of the Board, including Dawes, against the three older members. Always 7/(4.d -W0/4 ///t.i aT4i Hon. Benjamin Strong, Colorado Springs, Colorado. '14/017...,04 t avood 1,./.7-Qi - FIFTEEN NASSAU STREET NEWYORK October 15, 1923 Dear Governor Strong: I have your enclosure from Colonel Logan, and will have a digest of the article made, although it is itself little more than a digest of the book. But I should like to know if any Frenchman ever expressed his full agreement with the conclusions of this book, and I was interested enough to writ'i the enclosed little note to Colonel Logan asking him as to its authOrship. I have been doing a/little review of this book for the American Economic, and it is/certain that if it had been done by a thorough-going German for AMerican consumption it would not have been very much different in material or tone. I have also youi flattering comment on the new index, and have endeavored to answer your question in a little piece for the Business Summary this week. I enclose the original, since it is considerably easier to read. It is very elassuring to know you think "it has a big look," for that was just the'question in my mind, whether it would seem such to others than to statisticians. I will say that among this latter breed it is occasioning great interest and will be the subject of discussion at the first monthly dinner of the season of the American Statistical Association, at the Aldine Club, on Friday evening, November 2, at 6:30 P. M. . Prof. Kemmerer will preside and the principal speakers will be Prof. Persons, Prof. W. I. King, Walter M. Stewart, David Friday, Colonel Ayres, and yours truly. I don't suppose any fortunate chance would make it possible for you to attend, but we should be delighted if you could. As to the review of Willis' book, first of all, he has always treated us up here with great consideration, and my personal relations with him have been very pleasant; and, secondly, it did not seem to me wise that anyone from the New York Bank should display too much animus towards his book, since he whacks us rather vigorously. I shall pass on your suggestion to Mr. Warburg. Hon. Benjamin strong-2 You will be deeply interested in the progress made on the new building, and I am quite sure that its noble aspect will join with the rest of us in welcoming your return. Hon. Benjamin Strong, Colorado Springs, Colorado. October 15, 1923 Hon. John A. Logan, Sr., 18 rue de Tilsett, Paris, France. My dear Mr. Logan: Governor Strong has sent on to me the review in French of the book. "Germany's Capacity to Pay," which you enclosed to him. ''ight I ask if this review was published, or is a private document, and if its source may be known? I am asking because I have to review the book myself, and I should be interested to know if any French economist of standing would subscribe to the doctrines and findings of this book. Along with much careful and well studied work, it seatied to me to be virtually a St at en en t of the most extreme German position, even to condoning the policy of inflation. It certainly goes far beyond the views of soma of Germany's ablest economists. Believe rae Very sincerely, Confidential October 15, 1923 THE FOUNDATIONS OF THE NEW INDEX OF TRADE Governor Strong writes: "The new index has a big look. are the foundations?" How sound The only way to answer this question is to review the materials and the method. In a memorandum to Governor Strong last winter, in which the new undertaking was set forth, we said: "Supposing we could have any data desired to construct such an index, what would we wish to know? The main items would be such things as: "1. Total factory, farm, and mine production Complete employment figures Detailed rail and other shipments Exports and imports by quantities Wholesale trade by quantities Retail trade by quantities Building construction, public works, plant expansion, &c Power, light, and gas production Telephone, postal, street railway, and amusement receipts, &c All check and money transactions Volume of speculation in stocks, grains, cotton, land, &c All professional, personal, and governmental services" The actual material which is available is as follows: Excellent monthly figures of production in almost every one of the chief lines of industry. This material differs in value but covers so wide a range, and being without any inherent bias, the probable errors are mutually compensated, Our employment figures relate to factory employment only, in Ar . New York 41110.p. But these are a good sampling of factory employment for the coun- try, as is shown by the figures compiled for the whole country by the Federal Bureau of Labor, the Wisconsin, Massachusetts, and other reports. We have no index for the vast mass of employment in stores, offices, Government service, and the like, but we shall eventually be able to include figures for railway service, farm labor, and so forth. Car loading figures are an accurate record of actual loadings for the whole country, but do not, of course, give variations in the value of these loadings. This, however, is largely seasonal and not of great consequence. Exports and imports by quantities are available for more than half the total. But careful study of this question convinced us that the actual - dollar figures corrected for the probable price change gave us a more accurate index than the quantity figures alone. The separate index for grain exports is, of course, in quantities. The reports for wholesale trade used are those gathered by this department for this Federal district, and seem to be, judging from the figures for other districts, an excellent sampling for the country. Here, again, variations in prices must be allowed for, and this was made the matter of a detailed study. The same is true for the department store sales, which are those from this district only. The other reports on retail trade are from the chain stores and chain groceries, and the mail order houses, extending all over the country. All of these retail figures are in dollars and the question of compensating, in each of the different reports, for the variations in prices was difficult but we believe not insuperable. BuildinR Construction. Our material here relates to building permits in 158 chief cities of the country, and while these figures do not give an accurate record of actual construction for the particular months re- ported, they do give a good index of the state of the country's mind for that month in this particular field. 3 Electric power production is an industry of rapidly growing importance and of such wide ramifications that its variations afford an extremely sensitive barometer of urban and suburban travel, store and house lighting, small factory activity, ecc. Other excellent indexes of the currents of trade and industrial activity are to be found in the figures for telephone toll service, in postal receipts, expenditures for all kinds of amusements, new life insurance written, and advertising lineage in the newspapers and in the magazines. They give a clue to many activitien that other indexes do not. The issue of new securities in another barometer of the condition of the country highly sensitive to external as well as internal influences. And still more sensitive are our new indexes of speculation in stocks, grains, and cotton. Speculation is a vital part of the machinery by which the trade of the nation is carried on, and the aggregate of these three should give us a trustworthy barometer in this field. Finally, we have bank clearings divided, as is customary, between New York City and the cities outside of New York, since, very roughly, these two divisions are nQarly equal. dollar Bank clearings are subject, like all figures, to the variations in the general level of prices, and this has required a very careful study in order to make the figures comparable. For the vast mass of economic activities represented by every variety of professional and personal service, governmental undertaking, public instruction, and all the rest, we have relatively little data But this we do know very definitely, that in general they vary far less than most of the other lines of industry, and therefore, if we could include them in our index, they would tend to dampen the apparent variations very considerably. of the wider variables and not of the even movers. Our indexes are almost all 4 In brief, it is clear that we have a very wide sampling, of great variety, of the nation's total trade and exchange; and while more complete data might considerably reduce the extent of the changes shown, this would not alter the general picture, but merely flatten it In other words, the whole vast current of national trade may flow on at a more even pace than is depicted by our index. But the ripples or waves in its surface would correspond closely to the wavy line of our index. So, for example, if the extreme of depression in our national activity is shown by our index to be on the order of, say, 10 per cent, below normal, absolutely complete data might reveal that the reality was only, say, 5 per cent, less than the predicted or anticipated normal. But the time and the trend, in other words, the shape of the line, would be the same. We know definitely, moreover, that the variations shown are the maxima, or the outside limits; therefore, that if, for example, we read, as has been fre- quently printed within the last two years, that "business is 30 per cent, below normal" (or even more:), we now know that this is simply nonsense, and nothing more. We are confirmed in our belief as to the adequacy of the data available, and therefore the reliability of our index, by the remarkable concordance which was noted last week between the composite results of our twenty-eight weighted series and the figures for outside bank clearings when these are corrected for the variations in the price level. The computation as to both was undertaken with no pos- sible knowledge as to how closely they would agree. The fact that if a moving average was taken of the two lines, in order to smooth out the possible exaggerations of any given month as compared with the adjacent month, the two lines would be 'nearly parallel, has afforded a high measure of confidence that the results are trustworthy; and, as noted, we are using this correspondence to compute a new measure of the variations in trade throughout the quarter http://fraser.stlouisfed.org/ of a century Federal Reserve Bank of St. Louis preceding. 41111C. 4. 1.100,3.23 FEDERAL RESERVE SANK OF NEW YORK ...FFICE CORRESPONDENCE To Governor -Strong FROM Mr. Snyder DATE October-294-19231n- SUBJECT This dinner will be at the Aldine Club in a large and comfortable room that will seat six hundred, and we shall have probably between three hundred and four hundred. It ought not to be overly smoky, but you know dinners. There would be no need for you to stay the whole thing out, and if you wanted you could come just for so much of the speaking as milted to hear. you roll.CTLT 561A-11-22 FEDERAL RESERVE BANK OF NEW YORK 3FFICE CORRESPONDENCE To Mr. Carl Snyder FROM _Clarlei_E, DATE_ October 292_ 1923. sueJEcT.Stooks and Consumption of Flour. _Cairert I consulted Mr. A.L. Russell, who was one of the chief advisors to the United States Grain Corporation and who is considered an authority on conditions in the grain and flour markets, in order to obtain information on the stocks of flour on hand and the probable consumption. Mr. Russell has computed from data available, which include the estimated stocks held by mills, the amount in transit, and the amount at the principal terminals, an index of stocks on hand. This does not include, however, the amount held by wholesale dealers and other large consumers and distributors. While stocks on October I were larger than at any other time this year, the increase has not been at all alarming and he believes that stocks at the present time are just about a fair normal supply. Mr. Russell has also compiled figures which show the estimated domestic consumption of flour plus exports. These figures only show the "apparent disappearance" of flour from the mills and terminals but are a close approximation of the consumption. The supply on hand is normally equivalent to slightly less than one month's demand. His figures are as follows: Stock on Hand Barrels 1923 ' January February March April May June July August September October .. . 7,700,000 7,400,000 7,700,000 8,050,000 7,457,000 6,800,000 6,900,000 8,100,000 7,700,000 8,800,000 Estimated Consumption (Apparent Disaupearance) 8,560,000 7,994,000 8,852,000 8,427,000 8,701,000 7,445,000 8,442,000 11,162,000 9,341,000 I asked about the amount of speculation in flour and wheat at the present time. Mr. Russell said that such speculation is now at a minimum and that it is not a factor in influencing prices. He said that most interest at present is attached to the proposal to grant Germany a credit of $50,000,000 for the purchase of grain and flour from this country, which is now under conThere is a difference of opinion in the industry as to the feasisideration. bility of granting such a credit, some holding that it would be a good thing, while others are opposed to-the artificial regulation of prices that would naturally follow such action. I attach a diagram which shows the fluctuations in stocks on hand and the estimated consumption during the current year. FEDERAL RESERVE BANK OF NEW YORK ,)FFICE CORRESPONDENCE To DATE Governor_S_trong SUBJECT: October 304 192 3 Stocks of Wheat Flour FROM. In the Business Summary this week we shall give a paragraph on the result of the investigation we endeavored to make as to probable stocks of wheat flour, as per your inquiry in a letter to Mr. Jay. Our best avenues for this have been the Atlantic and Pacific Grocery Company, with their eight thousand stores, as a sample of retailers' stocks, and, on the other hand, Mr. Russell, who specializes in this sort of work, and who was Mr. Hoover's statistician in the grain corporation, and probably has a more detailed knowledge of the subject than any other person in New York. I do not need to tell you of the extreme difficulty of obtaining any very trustworthy and far-reaching information on such a subject. But it is clear that in the trade there is no belief in any great depletion of I should add, too, that this is a question that is closely flour stocks. watched by jobbers and large trading companies, like the Armour Grain Company, and that reliable information upon this subject might readily be worth to them, on a gamble, some millions of dollars. I very much doubt if we should be able to obtain anything trustworthy here that would not be accessible to them, and very well known to them. Ak,fut,_ .2 (*Lot:4-re At min'crizoc7A7------rAretLeL}t 4,044 d'hia ft:nu, Ili (0-tor kivetict;" b'xii/Q4 /ezt. ?ri.),!Cr /era At,. 2ntAcit4ti.. 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A, 41 FIFTEEN NASSAU STREET N EW YoRK October 2, 1923 Dear Governor Strong: I hope, if it is not too much of an effort, that you can take a little look at a brief report on our new index in the Business Summary this week, which I hope will omne to you safely. I have been mulling over it a bit and it really seems very striking how any very wide departure from the normal line seems to And the wider exert a pretty strong pull in the opposite direction. I have a kind of superstitious the swing out the wider the recoil. notion that we have got hold of something pretty good and unlike anything that we have ever struck before. Certainly it seamed to work out in the way indicated this\ I felt it pretty strongly at the, spring, in a quite remarkable way. time, that our production figures were running very much too high, arid\ \ But I did not have the courage of the that the pace was too fast. data, so to speak. Despite a little drop in our index of 20 basic commodities this week, the textiles hold very strong, and they have proven extremeI do not seem to escape the ly good barometers the last few years. feeling that things are in for another strong upward swing, both in commodity markets and the stock markets and in business generally; and that this will carry with it pretty heavy demands for credit. I do not think you could have any lovelier weather out there than we are having now. It makes jail life rather dour. With warmest regards, Alway,I yours, Hon. Benjamin Strong, Colorado Springs, Colorado. FEDCRAL RUSERVE BANK 1.100t,,23 OF NEW YORK OFFICE CORRESPONDENCE To Governor Strong_ FROM Mr. Snyder DATE_____Uovembtr 5, 19_231,2_ SUBJECT The signed article which appeared in the Evening Post of Saturday was simply the press summary which was asked for from each of ( 01444, C1/144, ) the speakers on Friday evening, and which was supplied to all the newspapers which wished to use them; and even a supply of charts was given to the Press Committee. I did not know until the advertisement appeare that the Post intended to make an article of it, and they are such ver good friends of the Bank that it was rather hard to ask them to use 't differently. idIvr c9tiLd oFmta t%), etirmt. ! FEDERAL RESERVE BANK OF NEW YORK )1FFICE CORRE,_ ii3ONDENCE To Governor_Strong FROM Nt._Snyder DA TE_NO v ._14_ 1923 SUBJECT Mr. Clark asks if it would be possible to give him the sub- stance of my talk last Friday night, describing our ney index, for the next numb4r of the "Journal of the American Bankers' Association." Would there be any objection to my doing this* 4 192_ WS, 3.1 501.1.11-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To Mr. Snyder FROM, C.P. Calvert DATE SUBJECT: November 9, 3 192_2 Wheat. (Bushels) The carry over of wheat on July 1, 1922 was The 1922 crop was Wheat and flour imports in 1922 were 80,000,000 862,000,000 20.000.000 MAMMA Making a total of Exports during 1922 were 222,000,000 Consumption (apparent disappearance) in 1922 was 640 000 000 Making a total of 862,000,000 And the resulting carry over on July 1, 1923 was 100,000,000 To which is added the 1923 crop (November estimate) 782,000,000 And assume that imports will be the same as in 1922 20 000 000 Making a total of 902,000,000 Assuming that consumption will be the same as last year (and it will probably be somewhat larger) 640,000,000 262,000,000 This will leave for exports and carry over Exports during the first four months of the 1923 cereal year If this rate is maintained throughout the remaining eight months, after making allowance for seasoral variations, the exports during that period will be Or a total for the year of And the probable carry over will be 73,000,000 110 000 000 183 000 000 79 000,000 It is difficult to estimate the normal carry over, as this varies with the During the five year period from 1911 to 1915 size of the crop each year. inclusive the average carry over, as compiled by the Department of Agriculture, was 80,000,000 bushels. During the five year period from 1919 to 1923 inclusive the average carry over was 84,000,000. In 1916 the carry over was 164,000,000 following an exceptionally large crop. In 1917 and in 1918 the carry over was 47,000,000 and 28,000,000 bushels respectively, reduced because the Grain Corporation was in charge of the situation. Taking these figures into considera MISC. FEDERAL RESERVE BANK I 501,11-22 OF NEW YORK OFFICE CORRESPONDENCE To Mr. Snyder FROM G.F. Calvert DATE SUBJECT: 2 November 9, Wheat. -- tion it appears that a carry over of 79,000,000 bushels, following a yield of 782,000,000 bushels, is about a normal one. No The above figures have been furnished me by Mr. A.L. Russell. account has been taken of increased use of wheat for feeding and of the fact that owing to the quality of the 1923 crop it will take about 12,000,000 more bushels for the usual flour production. Second, in regard to the stocks of flour held by grocers and others, I It is interesting to note, however, that can find no authoritative data. production during the past three months has been 42,731,000 barrels, as comThere has been pared with 43,975,000 in 1922 and with 47,200,000 in 1921. no important reason why production should have been curtailed, as wheat prices Therefore, assuming that consumption has were moderate and labor plentiful. been about the same, it would become apparent that present stocks, slightly below those of the same time last year, are just about normal. 192' MISC. 4.1.1d0M-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To__Mra_Sryder___ NRom DATE November 8 SUBJECT: Calvert" I learn in confidence that the Derartment of Commerce has some figures which show that there is a tremendous world surplus of wheat and that they were Some people heard of it and preparing to release these for publication. pretested. Mr. Julius H. Barnes, president of the United States Chamber of Commerce, consulted Mr. A. L. Russell, who is one of the best informed men In the country on wheat and flour, and LIT Russell has written a letter to Mr. Barnes, which in turn, will be sent to the epartment of Commerce, as a protest against the publication of the original"figures vAthout very careful It should be attach it. I have obtained a copy of this letter and study. regarded as strictly confidential. STRICTLY ODNFIDENTIAL. November 7th, 1923. Mr. Julius H. Barnes, 42 Broadway, New York City. Dear Yr. Barnes: Regarding the world's export and Import wheat requirements which we were discussing today, I offer the following suggestion: United States last year exported 220,000,000 bu., imported about 20,000,000 bu. wheat and flour, an increased carryover of 20,000,000 bu. This year the crop as officially estimated is 82,000,000 bu. short of last year, which would reduce the apparent surplus to 140,000,000 bu. ignoring any question of excess feeding, possibility of decrease in acreage next year, estimated from 10 to 15 1/2%, and also the fact that owing to the quality it will apparently take about 12,000,000 bu. more wheat to make the usual flour production. Canada - crop estimate this year 470,000,000 bu. Carryover July 42,000,000 bu. Assuming the same carryover next year less last year's domestic use, would leave an export surplus of 330,000,000 bu. providing there is no serious weather and rain damage, owing to the huge size of the crop and the consequent inability to protect. 1st, Argentina has exported 38,000,000 bu, of wheat since July let, and will probably export 45,000,000 bu. by January let. The crop estimate 248,000,000 bu. cabled today, less domestic requirements of 70,000,000 bu. would give a surplus of 178,000,000 bu. of which the average exports from January 1 to July 1 are about 70, or 126,000,000 bu. plus the exports of old wheat already mentioned, would give a supply for the year of 171,000,000 bu. Australia revised surplus of about 50,000,000 crop estimates just received indicate an export to 55,000,000 bu, for current year, counting old wheat shipped July 1 to January 1, and 80/,; of the surplus January 1 to July 1. India has exported only 20,000,000 bu. in seven months following Assuming that India has 48,000,000 bu. of surplus two record crops. this year, does not agree with the actual movement so far and the Indian wheat consumption the past few years. Estimates of the Russian and Danubian surplus are apparently guess work. If the extreme propaganda is accepted, Russia has an immense surplus, yet exports from Russia, Danube, and all other countries, other than those named above, since July let have been only 8,000,000 bu. On the basis of the above comments, the world's supplies would appear to be: United States 140,000,000 bu. Canada 330,000,000 bu. Argentina 171,000,000 bu. Australia 55,000,000 bu. 2. India Russia and others Total a 36,000,000 bu. 30,000,000 bu. 762,000,000 bu. Never in the history of the tradithas it been possible to export all the reserves carried over from the previous year, and all the ,:rop surplus from the new crop in all countries within any twelve months. Broomhall assumes a world's surplus of 960,000,000 bu. and world's requirements this year of 656,000,000 bu. His estimate of 960,000,000 bu. surplus seems to be arrived at by including all the old surpluses and assuming that nothing will be carried over July 1 next. World disappearance of imported wheat in the first third of the cereal year has been at the rate of nearly 650,000,000 bu. or almost as large as for the corresponding time last year. Yours very truly, MISC. 4. 1.100M3.23 FEDERAL RESERVE BANK OF NEW YORK FFICE CORRESPONDENCE To.t GovernorStrong FROM_ Mr, DATE SUBJECT November 17, 1923_ In fl ation 4r EriglAnd Snyder You will be interested in these two articles in the Economist and the Nation, taking such radically different points of view, although Layton, who succeeded Hartley Withers as Editor of the Economist, rather believes and works with the Keynes or Cambridge group. Incidentally it iu very interesting to see how the English price as reflected in our two indexes of basic commodities for this country and England have, shall I say, reflected, or forecasted the course of sterling exchange, lately? level, and our own with all the other complications it rather looks as if the "back to par for sterling" programme was likely to have pretty hard sledding, with the Federation of British Industries backing up the assault of the Cambridge group, ilWhat ei-46140/ 607-ft, d iir artelenIst.4) OiSr 4 7° /4-4° MISC 4 FEDERAL 'RESERVE BANK .100.13-23 OF NEW YORK FFICE CORRESPONDENCE To Governor Strnng FROM Mr. Snyder DATE November 20, 192_3_ SUBJECT Our English index of twenty basic commodities has in it many im(C) - ported and several distinctly American products, and is, therefore, automatically very sharply influenced by the course of sterling, se that such a relation as you suggest ought generally to obtain. It is comparison of the wider price indexes, which are not so much influenced in this way, that should give a clue to the direction of English price levels, and therefore, N etetti) so it seems to me, of the course of exchange. )1414' rah Arev1(44414-7) 10-00 P7,(47-e, 44) WOG. 4. 1,00M-3-23 FEDERAL RESERVE DANK OF NEW YORK OFFICE CORRESPONDENCE To Governor Strong FROM Mr. Snyder DATE November 204 SUBJECT As I understand it from Mr. Jay, Dr. Stewart would now like to suppress all of the indexes of production and trade which this bank has been publishing, some of them now for two years or more. May I ask you if you would look over the attached letter and give me your judgment about it? !sal ^414IC. 4. 1100M-3.23 FEDERAL RESERVE BANK OF NEW YORK FFICE CORRESPONDENCE To Govarnar Strong FROM Mr. Snyder DATE Nov Girth er_20_, 1 923_ SUBJECT. In the Harvard Letter I did not mean to refer to their view as to the influence of politics, but their view as to the course of trade in the next eight or ten months. The views here expressed I do not think are especially those of Prof. Bullock, but rather of Prof. Persons and his assistants. tutelf aft 1444;44), ok; ?1,1 Ore; u/yaa--- (Ift( korlb itm cd-a4-10.01fA6a4a#c) FEDIRAL RLSIERVE BANK OF NEW YORK /AMC A. 1.1001.3,3 FFICE CORRESPONDENCE Tc DATE SUBJECT NovemberL21, ItL3 New_Enonomic_Foundation FROM I suppose this is part of a campaign for subscriptions eventually, They have done a fine but all they ask now is an expression of approval. work and have a valuable organization, and I attach herewith just a suggestion. This has nothing whatever to do with the Institute of Economics of Washington, founded by Mr. Brookings, of St. Louis, and in which,I understand, Mr. Houston and Mr. Paul Warburg are his chief advisers. Mr. Moulton is the director, eikerto k-elec Airco tr??' ft, FEDERAL RESERVE BANK MISC. 4. 1.1004,3-23 OF NEW YORK FFICE CORRESPONDENCE To - FROM GovArvinr Strong DATF SUBJECT. November 22, 192_ Ff feet of Inc*A0414E Gold Mr. SnydAr If you mean that incoming gold would almost inevitably become credits at the Federal Reserve Banks, and in that way be used as bank reserves, I would, of course, entirely agree. Still, if all this gold had been steadily put into circulation, the consequent withdrawal of Federal reserve notes, would not this go a long way towards counteracting the credit expansion? with etEkt Witluoletx lice5Lath- 17-a7 /tinoto4frE CiL4,c kfraict t-;1 ke-47 itzt4 FEDERAL RESERVE RANK OF NEW YORK FFICE CORRESPONDENCE To :,4) FROM __Governor-Strong-- DATE_ SUBJECT _November- 23 _194_ Washington-Meeting-et-December b Mr. Snyder I do not know what foreknowledge the meeting in Washington on December 5 may have, but I should like modestly to offer my own belief that we have now in this Bank more accurate and reliable means of judging both the condition and tha trend of business conditions than anythihg be found in Washington or any other place. that is to Personally I have rarely found any kind of oml reports of business as apt to be either reliable or accurate; and I should like to root a little for the idea that we now possess, here in this Bank, the opportunity for both of these latter. I was very much interested in the impression you got of Moulton Prof. Dewey, of the American Economic, asked me to re4iew it and I wanted to rip it up hard." But you can't do that with your friends. and McGuire's book. MISC. 4. 1100M-3-23 FEDERAL RESERVE BANK OF NEW YORK FFICE CORRESPONDENCE DATE__Ihmenhar_26, SUBJECT FROM 1923_ The Prospect fo_r_ausiness Mt. Snyder In the Summary for tomorrow morning I have set forth all our indexes which are available to date, with a very brief comment on the outlook, so far as I can see it, I'd be glad, to show you the basis for my belief that railway traffic, and probably the general production of the country, this year, are scarcely as high as they would have been, at the pre-war rate of growth, if there had been no war and no post-war collapse. 60a ti-L, /1/ do ova elk) /gf MI. FEDERAL RESERVE BANK I 10014-3-23 OF NEW YORK _ FFICE CORRESPONDENCE To Gbvernor-Stron FROM Mr. Snyder DAT November 26, 1923_ SUBJECT This from Logan is an answer to a line of acknowledgment in which I asked if it would be agreeable to tell me the author of the review of Moulton and ,!eGuire's book. I could scarcely believe he was a Frenchman, although it was written in Frennh. FALDERAL RESERVE BANK MISC. 4. 1100h13.23 OF NEW YORK FFICE CORRESPONDENCE To Govern/1r Strong FROM Mr. Snyder DATE_Rovembar 28, SUBJECT Please advise me if there is any reason why we should not get up a new questionnaire, as Mr. Jones suggests? they gave us no credit on the work last year. Incidentally, 1923_ MISC 3 1 STAT.3500.10-21 FEDERAL RESERVE BANK OF NEW YORK JFFICE *CORRESPONDENCE To FROM GoTernor Strong DATe__Kovember 28p_ 192 3 SUBJECln_liortaal Growth_et Bank Resources Mr. Snyder As you will see from the attached chart, it is very difficult, if not impossible, -to get anything like a "normals' rate of growth for bank resources, influenced as they are so deeply by the changes in general price levels. So, for example, you will note that the rate of growth from '96 to 190'7 was very rapid indeed; but in tnat period the average of commodity prices rose about 40 per cent. Thereafter, to the end of 1915, the rise in nrices was much slower, and, as you will see, bank resources also increased at a much slower rate. Personally I think that a much more reliable base is growth of demand deposits in National Banks, which are a very good sampling of the whole banking system and quite consistently very near to 50 per cent of the whole. We heve thee° l'ank to 1909 and the rate of growth of these to the end of 1915--six years--was about per cent per annum. at You will see that this is just a little bit above our estimate of the normal annual growth of the general trade and business of the country, which we figure at from S to 3* per cent. The extra -1- per cent or so might readily be due to the slowly increasing use of bank money in business transattions. Now, if this rate of growth for demand deposits had been continued to the present year they would have amounted by now, as you see by the chart attached, to very close to 6 billions, and the actual figure is a little trader 9. Not to take the thing too narrowly, this would imply a price level about 50 per cent above the end of 1915. But the actual general price level, taking in wages, retail prices, rents, etc., as well as wholesale commodity prices, is probably hiller than that, say 60 or 65 per cent, so my own thought is that business has scarcely advanced at quite its normal rate in these eight years. It may be, too, that the wholesale switching of inactive accounts into time deposits within the last few years makes the figures for demand deposits relatively too low; and if this were so it would about account for the present price levels. eAlsC.3 I STAT 3000-10-an FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To novernor Strmmg FROM Mr --Snyder DATE aacembar 4, 1923 SUBJECT. Lest it should not come to you promptly, I em attaching some pages from the Business Summary this week, detailing some very surprising results of a comparison between our index of the Volume of Trade and our computations as to the velocity of bank deposits. Of course we have here only a sampling of eight cities; but they are extremely good samples, as far as they go, as you will see. In this district, Albany, Syracuse, Rochester and Buffalo each represent a notably different type of city, and for the larger cities of the country at large we could hardly have done better than with Boston, Chicago and San Francisco. But I am very much in hopes now that this computation has become so interesting that we will be able to stir the other districts up to similar compilations, and possibly through these get a rather good measure of business activity in each one of the twelve Federal Reserve Districts. In the present chart I would cell your attention to the very striking result, not only as to the general direction of the curves but as to the actual percentages of deviation from the average shown. For deposit turnover we took simply the average of the first four years. If we had taken the full five years to date, I think the peak and bottom points would have turned out almost identically. We shall try it. I am wondering if you would have any chance to talk with Dr. Stewart about this while you are over there, rnd also, perchance, with Mr. Miller; and see if this new .evidence, or confirmation, at all impresses them. )to Chtow /0-1k Jo , r 4-ff AnAil CkrIA It h418C, STAT3600-1021 FEDERAL RESERVE BANK OF NEW YORK aFFICE CORRESPONDENCE To FROM Governor Strnng DATE December 14 1923 SUBJECT: UrSnyder Naturally an index of commodity prices at wholesale, in a heavily importing country like England, will be deeply affected by the rates of exchange. Such an index as our English 20 basic would respond almost synchronously; a larger index, like the Times index, less so; and a general index of finished commodities and all, still less. An index of general prices, including wages, rents, etc., at times possibly not at all. My belief is that it is these latter, i.e., the general costs of production, which in the long run determine the rate of exchange. Otherwise, how could it happen that the general price level corresponds pretty closely to the volume of currency; or why should sterling exchange fluctuate around $4.00 to $4.50, while the franc is between 5 and C cents? Why should one be depreciated 10 per cent and the other 60 to 70 per cent? Surely it mild hardly be contended that the widely and sometimes wildly fluctuating volume of payments between countries could steadily maintain the exchange figure about a certain general norm unless there was another and independent reason as to vihy that norm should be; don't you think? FEDERAL RESERVE BANK MISC. . 1.100M3-23 OF NEW YORK JFFICE CORRESPONDENCE To Governor Strong FROM Mr. Snyder DATE Dec =bit 10, SUBJECT: With reference to the War College lecture: it is you they want, and in whom they would be interested. I should like to repeat my suggestion that we get up the material for you and that I go down with you and read it, or give the substance of it, and then let them ask questions of you. That would entail no very great strain, if you would like to do it, and I assure you it would be altogether agreeable to me. Sc. 4. I100M3.23 FEDERAL RESERVE SANK OF NEW YORK FFICE CORRESPONDENCE Governor Strong FROM DATE__ DeCeMber-11,---susuEor,_11310A Viheat Situation Mr. Snyder I attach herewith a letter and two circulars regarding the wheat situation. That by Snow is a very able and interesting document and, as you know, he is the dean of the corps. It seems to me that this goes a long way towards explaining the situation. 192-3L FEDERAL RESERVE BANK 15C 4 1-100M-3-29 OF NEW YORK a FFICE CORRESPONDENCE ro Governor Strong :ROM Mr. Snyder SUBJECT: Here is an extremely int,eresti. unemployment in England, little bit as to the cause of at ,9ld Simon Newcomb, about You remeaRlier the wisest economist we ever had, ingisp0 tliat crises and depressions were always the result of a: dislocaL,on of costs, Wses and, prices, and mainly between wages and prices, add,tha3 if we could ;adjust the latter as rapidly as we could adjust pricetthisq would be nO depressions. u/ 'T7 Note also the amusing little WrtteEfroin th delightful Prof. Cannan on the preceding page. Cat P FEDERAL RESERVE BANK MISC 3. 1,01,3.23 OF NEW YORK ,FFICE CORRESPONDENCE To FROM lir. _C_._anyder_ DATE December 13, SUBJECT 13._Roberts I an forwarding attached the final tabulated returns from the inquiry which we made last year into certain invisible items of the International Balance Sheet of the United States, together with an analysis of the replies showing the banks which responded and indicating the extent to which the questions were answered. In this connection it seems to me that we should carefully reconsider the advisability of forwarding a similar questionnaire this year as requested by the Department of Commerce. These statistics are unusually burdensome for the reporting banks to compile, and furthermore are of a confidential character which makes It will banks extremely reluctant in many cases to give them out. be recalled that decided objections to the questionnaire were raised in some quarters last year. Furthermore, the figures themselves have proved to be of doubtful value. Er. Kenzel has stated to me that he regards them as entirely untrustworthy. A glance at the attached sheet giving the Analysis of Returns as reported by the individual banks will show that in a considerable number of cases the questions were answered indefinitely or not at all. It is especially noteworthy that among those which did not reply was J. P. Iorgan & Co, while the National City Bank gave figures for only one of the questions. There is undoubtedly a feeling in some quarters that the Federal Reserve Banks have been a little too liberal in the circuthis feellation of questionnaires. It seems to me that in view of on last questionnaire ing and the unsatisfactory results on our obtain well to abandon an altmpt to foreign balances Qtat we would do similar figures this year. 1923 Number A2 Mr. J. H. Case, Deputy Governor, Federal Reserve Bank of New York, New York City. Dear bir: The questions which you asked us in your letter of May 1, together with our answers, are as follows: 1. Your total balances at credit of foreign clients on the first business day of April of the present year and on the same date for 1922 and 1921. Answer: Net debit 4 /k4- 1922 1921 Cr.$10,325,153.09 $32,027.54 1923 $887,646.59 , ,,,Arcr 2. V )1:' ..,,Eel 4' ,.diok, w. ". Answer: ,2,446,,,o. 4", ,17,1---. . . et, e 3 0 0 E2 o 0 , %5The total value in dollars of foreign c stocks and bonds which you have imported into this country during the calendar years of 1921 and 1922. ,,,., PI Your total amount of loans and securities held for account of foreign clients for the same three dates as number 1. Answer: 1921 P5520.-4. The total value in dollars of foreign currencies other than gold which you hove imported into this country during the calendar years of 1921 and 1922. Answer: 6. 1921 none 1922 none The total amount of American securities bought by you in this country for foreign account and shipped abroad during the calendar years of 1921 and 1922. Answer: 6. 1922 none 1921 none 1922 10,000. The total amount of American securities purchased by you abroad and imported into this country during the calendar years of 1921 and 1922. Answer: 1921 1922 none none It is understood that, owing to the confidential character of the information contained herein, it is unnecessary for us to sign this letter, the number in the upper right hand corner being a sufficient identification. Number A2 Mr. J. H. Case, Deputy Governor, Federal Reserve Bank of New York, New York City. Dear bir: The questions which you asked us in your letter of May 1, together with our answers, are as follows: 1. Your total balances at credit of foreign clients on the first business day of April of the present year and on the same date for 1922 and 1921. Answer: Net debit p, itAfri!-0,#&4=tc _,,..-re c(t(' .- ,.- A4 .,41, ' .4, ..,,,: r ,, .frk 1922 1921 Cr.$10,325,153.09 $32,027.64 1923 $887,646.59 Your total amount of loans and securities held for account of foreign clients for the same three dates as number 1. e 3 . 0..9 , . 71.., A 7,r. 000 et. Answer: ,,1,46.0. 2. I. -It The total value in dollars of foreign stocks and bonds which you have imported into this country during the calendar years of 1921 and 1922. Answer: 1921 P5520.-- 1922 none The total value in dollars of foreign currencies other than gold which you have imported into this country during the calendar years of 1921 and 1922. Answer: 1921 none 1922 none The total amount of American securities bought by you in this country for foreign account and shipped abroad during the calendar years of 1921 and 1922. Answer: 1921 none 1922 10,000. The total amount of American securities purchased by you abroad and imported into this country during the calendar years of 1921 and 1922. Answer: 1921 1922 none none It is understood that, owing to the confidential character of the information contained herein, it is unnecessary for us to sign this letter, the number in the upper right hand corner being a sufficient identification. Question 1 credit balances of foreign clients (both individuals /Total and others) on November 30, 1923 and on the same date for 1922. Question la Total debit balances of foreign qlients (both individual and others) on November 30, 1923 and on the same date for 1922. Question 2 Total amount of loans and securities held for foreign clients, whether for safekeeping or as collateral, for the same dates as number 1. Question 3 . The total cost in dollars of foreign securities (other than new issues and excluding dollar loans) Which you have imported into / ,"- this country dgring the years ending November 30, 1922 and 1923, on your own account or for clients. Question 4 The total cost in dollars of foreign securtties, excluding dollar loans, bought by you in this country for foreign account during' the years ending 1922 and 1923, whether shipped abroad or not. i Question 5 The total cost of all dollar securities, including Government' securities of all kinds, bought by you in this country for foreign account, during the yearcs ending Nov. 30, 1922 and 1923, whether shipped abroad or not. Question 6 The total cost of dollar securities bought by you from foreigners, during the years ending Nov. 30, 1922 and 1923, whether or not imported into this country during the calendar year. This should in- clude amounts bought for American clients as well as for yourselves. Question 7 The total cost in dollars of foreign currencies other than gold which you have imported into this country taring the years ending Nov. 50, 1922 and 1923. v,""1 \,_ ANALYSIS OF RETURNS ON THE ;7 INVISIBLE ITEMS IN THE FOREIGN BALANCE SHEET OF THE UNITED STATES* UESTION 1 2 5 4 3 RUES T ION 6 2 3 4 5 6 Yee Yes Yes Yes Yee Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yee Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No No No Yes Yes Yes Yes No Yee Yes Yes Yes Yes Yee Yes Yes Yes Yes No No No No No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Ind. Yes Ind. Ind. Ind. Yes Yes Yes Yes No No Ind. Yes Yee Yes Yes Ind. Ind. Yes Yes Yes Yes Yes Yes BANKS LOCATED DI NEW YORK CITY ALL OTHER American Express Company Blair & Company Boissevain & Company Brown Bros. & Company Chase Securities Corporation Dillon Read & Company Goldman Sachs & Company Guttag Bros. Hallgarten & Company Handy & Harman Harriman & Company Harris Forbes & Company Hayden, Stone.& Company Heidelbach Ickelheimer & Company Iselin & Company, A. Kissel, Kinnecut & Company Kountze Bros. Kuhn, Loeb & Company Ladenburg, Thalman & Company Lazard Freres k Company Leach & Company, A. B. Lee Higginson & Company Vincent, Maguire & Company. Morgan & Company, J. P. Natienal City Company Neilson & Lundbeck Perrars & Co., Lionello Pynchon Company Redmond & Company Richards & Company, C. B. Salomon Bros. & Hutzler Schell & Co, William Smithers & Company, J. S. Sutro Bros. & Company Speyer & Company Trask & Company, Spencer Wollman & Company, W. G. Wood Grundy & Company Zimmerman & Forshay Bache & Company, J. S. Barton 6riscom & Company Harris Winthrop & Company Turnure & Company, Lawrence Seligman & Company, J. & W. White & Company, J. S. Winslow Lanier & Company 3. Yes Yes Indefinite Yes Ind. (Yes Ind. Yes Yes Yes Yes Y. No Yes Yes Ind. Ind. No Yee Ind. Yes Ind. Yes Yes Yes No Yes No No Yes Yes Yes No Yes No Yes Yes Ind. Ind. No Yes Ind. Yes Yes Yes Yes Yes Ind. Ind. Ind. Yes Indefinite Yes Yes Yes Yes No Yee Yes Ind, Yes Yes Yes Yes No Yes Yes Yes Yes Yes Yes Yes Yes Yes No Yes Yes Ind. Indefinite Ind. Ind. Ind. No No Yes Yes Ind. Yes Ind. Yes Ind. Ind. Yes Ind. Yes Ind, Indefinite Yes No Yes Ind, Yes Ind. Ind. Ind. No Yes No Yes Ind. Ind. Yes Ind. Yes Ind. Yes Ind. Ind. 'Ind. Yes Yes Yes Yes No No Yes No No Yes No No Yes Yes Yes No No Yes No No Yes Yes Yes Ind. No Yes Yes Yes Yes Yes Yes Yes No Yes Yes Yes No Yes Yes Yes Yes Yes Yes No No Yes Yes Yes Ind. No No Yes Yes Yes Yes No Yes Ind. Ind. Ind. No Yes Yes No Yes Ycs No Yes Yes Yes No Yes Yes No Yes Yes No Yes Yes Yes No Ind. No Yes Yes No Yes Yes No Yes Yes Yes Yes Yes No Yes Yes No Yes Yes Yes No Yes Yes Yes Ind. Yes, Yes No Yes Indefinite *12 Banks failed to return questionnaires. under the classification "No." 7nd." indicates Indefinite. Yes Yes Ind. No No Yes Yes Yes /nd. No Yes Yes Yes Yes No Yes Ind. Yes Yes Ind. No Yes Ind, No Yes Yes No Yes No Yes Yes No Yea Yea No Indefinite Yes Yes Yes Chase National Bark Chatham & Phenix National Bank Chemical National Bank Corn Exchange Bark Equitable Trust Company Farmers Loan & Trust Company Fifth Avenue Bank First National Bank Guaranty Trust Company Hanover National Bank Harriman National Bank Irving Bank-Columbia Trust Company Mechanics & Metals National Bank Metropolitan Trust Company National Bank of ommerce National City Bank National Park Bank New York Trust company Public National Bank Seaboard National Bank United States Trust Company U. S. Mortgage & Trust Company W. R. Grace & Co's Bank Yes Yes Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Ind. No YESS Yes Yes Yes Yes Yes No Ind. Ind. Yes Yes Yea Yes Yee Yes Yee Yes Yes Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes Indefinite Yes Yes Yes Yes Yes No No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No Yes No Yes Yes FOREIGN BANKS No Ind. No Yee American Exchange National Bank Barkers Trust Company Bank of America Bank of New York & Trust Company Bank of the Manhattan Company Bank of the United States Battery Park National Bank Central Union Trust Company Yes Yes These were entered Anglo-So.:American Bank Asia Banking Corporation Bence. Commerciale Italiana Bank of Montreal Bank of Nova Scotia Canadian Bank of Commerce Chartered Bk of India,Aus. & China Credito Italian° Dominion Bank Hong Kong & Shanghai Banking Corp. International Acceptance Bank International Banking Corporation London & Brazilian Bank, Ltd. London & River Plate, Ltd. Royal Bank of Canada Yokohama Specie Bank, Ltd. Yes Yes Yes Yes No Yes Yes Yes Yes No Yes Yea Yes Yes Yes Yee Yes Yes Yes Yes Yes Yes Yes Yes No No No Yes Yes Yes Ind. Ind. Ind, No Ind. Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No No No No No no Yes Yet Yes Yes Yes Yes Yes Yes Yes Ind, Ind. Yes . Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Ind. Ind. Yes Yes Ind. Yes Yea Yes Yes Yes Yes Ind. Ind. FINAL REPORT OF THE INVISIBLE ITEMS IN THE ru.(EIGN BALANL EHEET OF THE UNITED STATES (93 Questionnaires sent out) Information Supplied Information Declined Information Indefinite Tctal 1921 First Business Day of April 1922 1923 Net Increase or Decrease April 1921 To April 1922 Net Increase or Decrease April 1922 To April 1923 Question 1 Your total balances at credit of foreign clients on the first business day of April of the pro.ant year and on the same date for 1922 and 1921. 73 13 7 93 *403,248,520 *446,482,177 *442,589,560 $43,233,657 63 16 14 93 690,573,743 721,985,220 911,091,001 31,411,477 $ 3,892,617 Question 2 Your total amount of loans and securities held for account of foreign clients for the same three dates as number 1. Net Increase During the Calendar Years Question 2.921 a The total value in dollars of foreign stocks and bonds which you have imported into this country during the calendar years of 1921 and 1922. 1922 or Decrease Calendar Year 1.711_19._I922 64 16 13 93 226,936,896 326,141,715 99,204,819 63 14 16 93 3,135,444 2,990,833 144,611 64 16 13 93 41,676,292 60,929,094 19,252,802 65 16 12 93 259838,457 34,162,018 8,323,561 Question 4 The total value in dollars of foreign currencies other than gold which you have imported into this country during the calendar years of 1921 and 1922. Question 5 The total amount of American securities bought by you in this country for foreign account and shipped abroad during the calendar years of 1921 and 1922. Question 6 The total amount of American securities purchased by you abroad and imported into this country during the calendar years of 1921 and 1922. .,) 189,105,781 3 I STAT.3600-10-21 FEDERAL RESERVE BANK OF NEW YORK :IFFICE CORRESPONDENCE To GOvArnnr -)m DATE SUBJECT, December 13,_ 1923 Leyele Foreign Exchange Mr. Snyder My notion about your conundrum would be: In a country importing sufficiently, falling exchange from bill pressure would tend to put prices up and vice versa; but The exchanges could not affect the general price level of a country very much for very long, because The general price level is necessarily a ratio between the quantity of circulating media in a country and the volume of its trade; but The exchanges might affect an index of commodity prices at wholesale very much; and Especially a list of commodities in which imported commodities played a very large part. Personally I am not very much interested in this question because we are dealing simply with a question of minor and short time fluctuations. What seems to me the imnortant thing is to determine is the general level That, I think, was in general what about which the exchanges will fluctuate? Oassel, Keynes, and other writers upon the subject usually had in mind. This is a statistical problem, capable of a definite answer. as I can see the other question, as to fluctuations, is not. So far May I add: From about 1896 to1913, for example, prices in England rose 40 to 50 per cent;----171t-FiTTime, or course, the exchange rates remained practically unNo one then suggested in this, or in any similar case, that the exchanged. change rate was the cause of the rise in prices. teco--- iair oith Pr--Geo cto FEDERAL RESERVE BANK OF NEW YORK 3FFICE CORRESPONDENCE Governor _Strong_ FROM_ DATE December 134_ i921__ SUBJECT: Mr. Snyder Mr. Case has raised a rather strong objection to our sending out this new questionnaire for the Department of Commerce. First of all, he thinks the figures are of very little value, and secondly that it is a real annoyance to the banks. I ask your judgment? I attach Mr. Robert's memorandum. May 400, 0,1 FEDERAL RESERVE SANK M F" OF NEW YORK TICE CORRESPONDENCE Governor 31=g Faoryir DATEDezember 31, SUBJECT. Invention_pf 1923 Inflation Mr. Snyder I think you are quite right about inflation probably antedating its discovery in America. I recalled after I wrote the paragraph a vague reference to some Chinese experiments, quite far back. That is almost always the case with almost all great inventions. As to our index of the General Price Level, that is simply such a price index that, used as a devisor, will bring bank clearings into line with the normal trend of growth of bank clearings for the preceding twenty or thirty years. It is a composite of four primary price indexes, so weighted as to attain this result. speak. It may have the duplication, of wages, of which you But it is none the less the average of all payments entering into bank clearings. This is clear because, worked backwards by dividing actual bank debits through by our Index of the Volume of Trade, we get the same line. /kJ I STAT,600-10.21 FEDERAL RESERVE BANK OF NEW YORK FICE CORRESPONDENCE DATE December 314 1923 SUBJECT: .Wages and Booms GovnrnOr Strnng Mr_.Snyder I note your very interesting story of oats growing amid the cobblestones of Wall Street, and though I should scarcely look to see them do so well under the more difficult conditions cf asphalt, I have for some time been wondering if there were vague prospects of another 173 (or '93). I attach some fragrant forecasts and begin to catch the scent of another boom which, I apprehend, may not be nipped in the bud by excessive caution or the superior acumen of last spring, nor, I should imagine, by any probable increase in rates; possibly another year of extravagant auto- mobile production and building construction, with the rise in prices which we did not get this year. And,if it comes early enough, the soldier bonus, passed by Congress over the President's veto, and a general atmosphere of happy hilarity. And then gold exports. And then the natural workings of the vio- lent and unnatural spread between the cost of living and farm prices and factory and urban wages generally. And then, possibly You see I am becoming a little superstitious--? Soo .1 046,0-i /Rh,- (i3iteArm-t7 xzw._-44-ft ....C. 3.1 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To Mr. Snyder DATE Januar 13 1923 192_ SUBJECT: Governor Strong FROM The attached letter from the editor of Collier's explains itself. How does the platform strike you? Possibly I should say first, before you reply, that it seems to me to be a rather hazy and indefinite statement of a lot of high thoughts without much in it that is practical. The more I ponder about the problem of labor, the more I become convinced that it is inseparable from the problem of prices. Labor disputes are-never really serious, long extended and disorderly except they have to do with compensation; and compensation disputes almost always arise when prices are rising and when there is a shortage of labor. On the other hand, unemployment and distress,-which is really Un a period when strikes are/commoni-grow out of considerable declines in prices. Therefore, is it not a fact that a stable price level will itself be a great contribution toward labor tranquillity and contentment? 0 This, of course, excludes a very important field of discussion, namely,workang conditions;where ordinary intelligence is about all that is required to .eep men happy, provided industry is prosperous. If you think there is any other contribution to be made to the discussion along this line, won't you give me a memorandum on it. 13S.MM Att. FEDERAL RESERVE BANK OF NEW YORK January 16, 1923 Editor, L'allitELL2221LLE, Per-s"'"` New York City. Sir: ta ideas,..eratiffr ysen expirtu essm any excelle our platfo held for many that moist finking pee be-dy epsentially years,without a great deal of effect; ermi the do riot touch 4p.t....9.1-1 upon peace,, and that is riae what seems to me the prime condition of ind The longer, study the problems of labor and stable economic conditions. of production broadly, the problems of the farmer, the manufacturer and the convincedAhat they are inseparable from the working man, the more Labor disputes, for example, are rarely very serious, problem of prices. long extended or disorderly, except when they have to do with compensation, and compensation disputes almost always arise when prices are rising and when there is, as a consequence, usually a shortage of labor. Periods of falling pries, falling wages and unemployment are 4,4 Afrzie, rarely periods qf prolonged and bitter jaadustrialetrugglesi 7 IP-IL/lute 411-ZACII4 hl A Am, hitt- ivo kto,9 On the other hand, it is almost invariably periods of falling prices that give rise to demands for fiat money and Governmental subsidies of this industry or that. Therefore, is not the fundamental condition of industrial and national tranquility that of a reasonable stability of prices such, for example, as we seemOto have reached in this country in the six or seven years preceding the disrupting effects of the great denands of wer, that is, from about 1909 In the judgment of one of our wisest economists, till towards the close of 1915? Simon Newcomb, crises, hard times and unemployment are almost wholly due to a And this appears to be the conlack of adjustment between prices and wages. clusion of our economists who have studied most deeply what we vaguely call the business cycle,--that the cycle of prosperity, crisis and unemployment is very largely a price cycle, and that if we could attain to some degree of relative stability in this basic factor the rest would be easy. But without this stability of what avail are the best laid plans for efficiency, for industrial conciliation, for enlarged output, and more equable distributions increasing I believe with Mr. Henry Ford that what the great body of our working men most desire is security of employment and an adequate wage that represents a fairly even and stable purchasing power. Take away these and you disturb FEDERAL RESERVE BANK OF NEW YORK 2 ckprt,totA" fete-,Lifro the fundamentals of peOe of mind to the worker, easy relations of employee and employer; upset,the calculations of the wisest managers; convert business eration; give a high premium to the speculator and the adinto a gambling the fruits of the highest and most enlightventurer, and ened type of management. Very sincerely yours, C; FEDERAL RESERVE BANK 4.1.40M 10-21 OF NEW YORK )FFICE CORRESPONDENCE To DATE Mr. Synder January 16, 1.923 SUBJECT Governor Strong tter in my siyle for If you would care to tale a ha z at a Collier's, I will go over it with you; t do. You might ,paraphrase what I p t BS.MM att. t make it too long. my memorandum. 192 FEDERAL RESERVE BANK OF NEW YORK MISC. 4.1-30M 10-21 OFFICE CORRESPONDENCE TO Fehr-nary 27, 1P2:i SUBJECT: Mr. Snyder Re j DATE Strong Tills has certainly been answered, both by our rate action, and by my other communications. Some day soon I want to see you, and will send word. There are a few matters I want tc pour into your mind, and have you promise that they wilT stay there, - and they will be important! 0A,L.ta if t FEDERAL RESERVE BANK OF NEW YORK MISC. 4.1-30M 10-21 OFFICE CORRESPONDENCE TO Mr. SnydeT DATE Fe'yrq]ary 27, 1923 192_ SUBJECT: Renj Strong Much of yours of the 5th has been answered to you directly and in some memorandum I sent Shepard Morgan, which please read. The fellows at Cambrilce have gotten 5 bit too excited. Rate changes, even fairly definite indications of them, in advance, might do more harm than good. The experiences of 1919 taught me R lesson I'll never forget. Now Act we really need, is just what I wrote Shepard Morgan 5 headings - make it 2 or 10, I don't care, so long as we deal with the principles upon which our policies as to rates and open market operations are based. 1 To defer acting because there are 100,000,000 ignorant people in the country would be folly. Educate the thoughtful people and those who lead thought, in farm, in factory, and in office and in politics, and act anyway. What's the matter with that committee that got out Better Banking? Are they dead? FEDERAL RESERVE BANK MISC. 4.1,00M-9-22 OF NEW YORK OFFICE CORRESPONDENCE To Mr. Snyder FM DATE March 2, 1923. SUBJECT Benj. Strong C 0NFIDEllr,1AL This needs more thought than I can now give it, - nor until after I am nest. there later on. Put all the papers with this one together and send them to me I'll then prepare something more deliberate. Am hustling from now on to clean the decks. o' Atre" e 4>t, (9 3 (COPY) Cragmor, April 21, 1923 Dear Mr. Snyder: Of course you saw the enclosed. It pleased me greatly. Not so much what Noyes wrote, but what Yves-Guyot seams to have written, for, as you know, Cassel and Keynes, brilliant as they may be, have riled me a lot. And others as well: I put them somewhat with Sir 0. Lodge, Conan Doyle, Coue, and even your friend Freud, all of whom I of less importance to us than they think. Just feel are chasing exaggerations turn to St. Luke, 15.16 and you will know why my thoughts go back to Adam Smith, Mill, Ricardo and Bagehot. Hew hard it is (sometimes) to stand pat,--even old is being shaken a bit. Al]. of this preliminary Y-G book if printed in English edition. Newton, after 2-A- centuries, to asking you to send me the If, as I recall, you know the author, just write him a nice letter and tell him he has cheered a dumb old cuss out here: Yours, B. S. I like his looks in that picture. Looks sound to met e - - (OP - fig al9/102-6p r2rL")-i6 a711- eL3____6"2/1 -14rw--9 ---Orya9 04/1-)-07,1 v4ie733cN -s-froy- ?,2 -16 I`rove. /179 "lhtio nave 4c174/)7 4107 41999 69 rrivr I mJo3I9 V-4")/ 727-19 )2-9/ t-grikw -9) "Aryv_43) IV 'or Ur11.10 P 69 -419 -"P-4119 17-"T41IrMY -s; g Nr94)Nrkkil mirTYY vt-LI13 Iptiltly drv4 Nrvoef f!"02-rvo 79-Ii 017 17wp-9 -nit! cj1 e-Imy Nrevy (42.7110-1- e--14:erav, ry-tgjai 11±Lry.zI A 1v-di ' 4/mil cncva-, r-riv Qr px--f?-3-19 -17)14 to, P21 kP 4-(C)2471/ffe9 /9'017 i319 cxy-1 mo9 oft, )(xj 11-s4(11-o2 Nil "b% `4-4.L-2.v_te a ill --pm/Jo-tit-fly Inrai "nv C/WYO P9 tY)0 __Arxyv _4020 420y (COPY) :ear Snyder: If Yves-Cuyot's new book soaking Cassel, Keynes, et al, has been translated, will you get me a copy? It will hasten my recovery, judging from Noyes' review of it, I'll write the d- Frenchman and thank him if I can only read his book. Also, will you pond me the little book on Moneywith the Lewis Carrol Chapter headings? I want to look it over again. Am getting along famously, fine weather and yet postponing mail for a time, so as to be safe-it's my middle name. Yours, B. S. Best to everybody (copy) Dear Mr. Snyder: Shall write you when I'm not so buried under "family" mail es recently. It's a stunt with no etenog. and no voice-- Am doing splendidly. My friend, Inouye, doesn't hesitate to deflate. Bank rate 6.0ec, etc. You are going to be fooled, as well as those other guessers about prices and inflation--bccause--unless I'm greatly mistaken--the throttle is to he used this time. They all overlooked or belittled the F. R. System. B. S. Tell Bullock and,Mitchell a dinner is on it (COPY) anin dnue ni) e'qelbaBdO (!oot .EI (About April 25, 1923) Dear Snyder: Read the "Commerce" and "City" in contrast and see how "City" beats "Commerce" for the average reader. Tell Chandler to come down out of the clouds and use language the common fellow uses and understands. He preaches too much on gold when he really means "representative money," bank notes and bank accounts--and will confuse folks. He's all wrong. Note marked passages as follows: Gold exports causing "ext\(1)ame stringency," "deflation," etc., is pifflesome "Economists" never were bookkeepers, drat them; If we keep our heads, when gold exports arise, and larger ones, we will have 75 or 80% reserve--then this will happen, i.e., Member Banks will ship gold, and so deplete their reserves. If we did not exist they must (col- lectively) shrink deposits and loans sufficient to reduce yeauired reserve by amount of gold exported. That would be deflation caused by stringency. Now, however, they will simply borrow from us,--(few people realize that our members will need to borrow when gold exports begin, even though our reserves were laW and it will simply denend upon our discount rate, whether money gets very stringent or not: Chandler better set this straight, or you do it for him. Piffle; just a guess. If the horse hadn't been harnessed to the wagon the wagon wouldn't have run away. Won't even argue this. This is all very good, but is too d-- dogmatic. "why," instead of "what"? Why not say Few people know the reasons lying back of this dogma: and after saying "why," better also say "how"-Same here. Say this in words that folks understand. He thinks bankers and business men are students--they're just money makers (and losers). Pardon this untidy, sloppy scratch, but it's not as bad as (over) (Y900) Chandler's (in such nice print, toot) (Cel ,d3 B. 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Will you please do this: let. Have copied out by Miss Bleecker or Miss McCarrick, who know my scrawl-2nd. You and Burgess do some polishing--in the usual way--and supply figures and check facts needing it. 3rd. Show Jay and Case and see how they like it. 4th. Get a consensus as to wisdom of my taking bit in teeth and asking Lorimer to publish--in Set. Evening Post. 5th. 6th. 7th. Iq; teke all responsibility and only want views. Wire me at once how it strikes you: If it looks like a got send me two fair copies, wide space, for further dressing. A. M. It's terribly rough--1 dashed it off in bed this I may make it planer still. Just depends on how far it's wise to 7p--or would you follow up with a second shot? 8th. Will folks read such stuff as this! Yours, B. S. 4 (Alta ) GF, azir-- fat 27taa xv--1/741,73. 7- ft6 41;1 Pzei-eA-417'ar frce,4 (6/e4tA-- ,971,,,frity E. , 7L41 irevz,D* 46. (1139 A:4- 4194/an-- re-- httV (FD2 90 ate: aitt le: /6 A bet-) rucata:7; , rt4 411-11 a/4 reie vitc,(41 171ti- /-etv Ara7pcxyl (67 61,---<Dtt f 'lime_ 11 "Ara/ ,/ et d f2't (2-rike /1(zal ef_r- Icvt. 6-447 17LE at, 644 oV, edi Ire& (54-74w 1144ortiu4 97\ go-etwA,19-: '1 02 erld 0614-1- fkr*' 1-577, c tt or-7/Z:,,et tutO 064.4 4:a.4,v-2-r4t, e.; ) eat( clete-wrA7 14,1.1-* ca, ,f),4 Ai a ty-et 0 da, (irk 9tuAA2171/0 tlithiR/D kr; ter- ar itor (7q,et 0.91.4i (Mt git-cy eteliet--1) q c2ife o eit)ou E., "3 erift MISC. 3.1 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE 192_ DATE To SUBJECT: FROM ePele(,( hyp 6--t? it; eta9 0-t----orckAr) Kt-M patalf a LINA. 6-rm 0"&&01 jt (litt,tt4 reteto-z.,.4 alti Yh Aeuttf.. k Mu/ 4ot.7 4/tuft_ aikele o-n4", otio; Actor tvto tiket 163np,a,a th'a../21,e t vt. 10-xitraz, to_a_at ,_ t(-C cEmLe_ bltu&A.,i1 erf eet;Litt; 14,;(4 2"'" Clue 211-t-&-u4 Orik-r11) kb? 0-4-1? erive.F,. `t- (-1---frn4A JAI_ et: ra sr ,62-/-ea,__i* ina-eaxa &LIZ Ito TA ke;t, trV? ni,"42 le( MISC. 3.1 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To DATE 192 SUBJECT. FROM /twit --e-it,c4 atozte=3 if-aAm iJ 4,tect (4ett.,a De96-4---oe A 197,11.4-2,-t ry\,_ Zia( t le-ko 1),9 etp,, 7kt tfry c4 F (14: EFTPL L4 ogi lutt 1(..."10 e4 AG 1714)-s (COPY) To John E. Pickett, c/o The Country Gentleman, Independence Square, Philadelphia, Pa. You may recall the story of the discussion at a farmers' gathering, where tempers were being lost in efforts to decide whether it was correct to say that a hen was "sitting" or "setting," when she felt the Some farmer settled the dispute by asserturge of the maternal instinct. ing that "he allowed it were a dinged sight more important to die-cover whether the ole hen were a-layin' or a-liein' when she cackled." Now this tale came to my mind after reeding Mr. Johnson's article We have in the April 21st "Country Gentleman," and the editorial thereon. battled with graphs, and index numbers and statistics in the Federal Reserve Banks, as well as with those who claim to represent the American farmer and I agree with you his bankrupt industry, in Congress and out of Congress: He suffers, and so in believing Mr. Wallace's intentions to be admirable. in fact do we all, from the insidious germ of over-partizanship to his job, Every lawyer knows that a witness shades his to his "side" of the case. So indeed do the testimony to favor the "side" by which he is called. judges know it But the poor farmer, bedeviled, befogged at times, and sometimes betrayed as well, is far from being the man held up in Congress by those who I have known many of them. misrepresent him: They are mostly upstanding, two-fisted Americans; and they are the objects of misrepresentation at times, just as they are victimized by misrepresentation. And unless signs fail, they are coming to see it. The articles I have just read will be most helpful--at least they helped me, if pleasure is ever helpful, and I hope others like it are to follow. Possibly you will be good enough to pass this on to Mr. Johnson; he did a good job and I'd like to thank him. Yours very truly, Dear Snyder: If this is wise, have it copied cut, and send to Pickett from me personally. If not wise, destroy it. If you do sent it, have two copies for Beyer to file. Of course it is not to be published: B. S. IY(ix;at-7. 4444 f2t, eft t ezalAZ._ "?nct-tri, tk, ce(xic,,A:Qhir, cli;77-ef qe a-4014-1_ _ AteA,v-a____E-6z\A-wb wVP (1)-f t-teet_L4iie;V 4(rer o crai v*H-vrf. 11rat,0 // wr-1 ita)i/rA-f-77 17_7?) dl ?, " ttrate__ kevit, 141_ 64' ott-. brked4.._ no_.e. (zt.fr-c fr-171 ttift-eXtgev /t- Co-sniv ditio CP-YrleA- &E-4:43%; Y, 11 eet. __attntucio-evy .475 t4;- _ N-1111-6L-414"1 co-risr Gbcatp.ce)) 09Eatt4ce 0-2 OlittQL Graz iXiG2W14-e.au.4. Fev-vir4" ugo.yur(Ard,i) ie4 cnut-- 6ta , Awn, 44,e'L /0-61 ,ectitt. azza / k oh7e.0#1. i94/2410 kaAirp-bea44,5 Ari ite:0 M1itt to-rg-- fzerh- wtr R-1,9444/1, Go--77X Of) fit-04-1-'1444, 0461,Q, eP ct4,1 fa)(2"Xoi /4,2 eetc,rvm.k_t-f-K, cte..t,) Scatee,-) i27141_7714,,Zt Ca0-1.4dG t, /6(4 rfrt) 3 7ral`t9 e a4i-py Et9 rk-1.; PY;, OleetJ //. hpy4-14 Ittt ) CI!) it ittlie;(% Dr)0 fko, eitiA 626-?="4-1-6-7,41, alM4- " 62e4 - guAtle `2?la. rb14,12tA/lBo'. tit4-6 coZ6:7 72\44: 12114, at '7714.Diati4t46 afiL---ef"f 6+4 freul /\12. arldt eljA2 4 1-A4141"L' twit eviCr 11/4 f atu--74- 17,07, a-r-4 Ayt,ti, eet..) OtiV/0 (4; crxeL aO1 (4-Pcc_P-car arz/R-421 , auf9 CtrzACR th7 I to ate,-) uff-act( &Li 45- 1-4 - Yk-k awee,t; (i_Lec-zowal frtai-etrice _ (COPY) (About April 28, 1923) Mr. Snyder Your April 16th "Confidential." Permit met-- If the Commerce Dept. neople made UD the figures, 1 want to (1) know how, before acce-Aing the conclusions, and see the details, also'. The drain will be to the neutrals and Don't be too sure. the smaller countries, Japan and East, if it comes, and I doubt if it comes very soon in large volume, and when it does, doubt if it runs to t1,000,000,000, as you hint. Their exchange will not recover on good Don't agree at all. They must have money owing them on balance, and their exbusiness alone. change must either be above gold Par--or their currency be devalued, or both. Don't forget the interest payments, Great Britain and maybe others. (5) Don't forget that we are going to gradually, but without any nanicky haste, get a grin on this inflation affair, which I have now named the "Snyder Complex." It will all be fixed UD by the time Congress meets, and we'll again turn our attention to the foreign situation which will be our helpful red herring. Don't think I sit here all day scrawling letters, etc. Half hour at breakfast and half hour at supper does it--save two hours in bed writing that "Price" scrawl. Tlin debating reducing my income some 550,000 a year by coming out with a line of very frank articles,--for they surely would chop off my bean'. Show this to Jay. BS Thank you for the books, old top,--and please give the same to Shop. Morgan and Ten Eyke,--I'll write them in time: M1SC, 3.1 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE Aft To 192_ 11a SUBJECT: FROM 491477 c _ 16 at_. (-4 geufrvritut,e/L 0/5F4L1` ducta,; 7710a-C_e/-17 6/Z-GsAlfx 6,0 Grata- 1iaiwc c--S eC/f--tt elirtG4/0-Wt. rr,"-f; _ (tat,' olt coca.- tetti itutp ood-A,t ottudtauz awn/Frt., a-- cX CitrMA-t W-cu 1 2 a fo fk( ittedra-e,. cetAZA` rowto t4; 77-crav-pk-e , ti( Pi; )liviva (4kik, 4111A 77Lt 144)Y 0.0-- civutaV Cite ittafv/vit 6 lArOtif /61 air/VI_ frc_i 661.001 coca' &-e,4 7t-/L /1/41(itrtrU) 9)144/RAL- tzw, '1-617k-e taX_Ct Xt14, ci/C._; _ - r rAr 01KAA__,( erit-k_sk, -inA4/64, 0,47-2 6g frzra 4,1atAfictit,r oer-o-oot IoA ,' 77k1SO ryX9, tofs-1,14 tey wit ca,,,:cTra olmatii, Caut pct,""ct674,gtAL- 64,1N eq, ax---(Aw tutfeeut, Grp,pa/x oFvfcto-, IkL tace& altetAy_I ge a-014f rtutut oLP - 7to-zo 7taziskt- Cat 094'---CO-CL( 6 04(r-zee__ Conifita,f to 1-6-Tx 77 lar-c-riC., a-4,7 ke-ei&if,ce 711_ oCfahi to-a; 45 f at.c. ra_a- ktAhA/71,-.) 06074/V--f /it klYi/to 4610 j PA/F att 1-co-10-) At- Car-ct-p-12-4/) ctir--//-D kt eVrnatOttu; ke,r-e de- 'ret, f- IoJ 5 SC4 kltiro 015.4) cAre . 171)1V42 ctai1.&4,f- Ak_th-cet.c" 1 -1 ° /64Le oftvu,Ci 1(tita-1 (91 Cer)-A4,;f a}ot- rkei iriyuL, (ia !4y7 cAck4) 15-iff , 014(4 1,fh ILL fatA.Lt ° (me. ft .4c/rotmU r filetfe,dt, y errt,e_ff 02e Cirrai (COPY) May 4th, 1923 rear Mr. Snyder: After the two lectures you send me I shall not waste good paper for carrying unsound views, nor much of this either: I agree about the muscular reaction of thought, but believe it relates almost wholly to involuntary and semi-involuntary muscles, not the bone attached ones, and is explained by the extent to which they are under reflex control. Have a notion that writing stimulates them more than thought: Watching myself--am amazed at the extent to which conscious control can be extended to muscles never before (in 50 years of my life) having that experience, such as the larynx, arytenoid, vocal cords, uvula, epiglottis, etc. It may be a way of solving the constipation problem. I'd like to discuss it some day. I shall not go pamphleteering,--I only want to write two or three: Don't know enough nor write well enough to do so--despite your subtle flattery. You have neither failed nor succeeded in convincing me of the soundness of those conclusions ,--because I have not seen the work,--examined the methods,--nor, in fact, heard nor read the stories in full. It has come in snatches, with my mind at the time too much engrossed in my own troubles, throat, discount rates, etc., I shall never be converted to the idea that we should attempt to control the general price level. Not enough is yet understood (note that I don't say "known") to justify our boldly attempting that role,--becoming a super government,--thinking ourselves supermen, and failing with a crash some day. I admit (and am purposely using "I" with a modicum of "you" as indicating "confession" on.the one hand, and accusation on the other), that credit, or money, is the chief influence, but not the only one, and suspect that "state of mind" has more to do with prices than we realize. I am damned doubtful of all these data on "velocity." You are inclined now and then to push an idea rather hard--and lead mo to wonder whether I have yet contributed anything to your views from my standpoint of bookkeeper. I'm so much interested in the geography of "cause" and "effect," and you seem so much less so. I say gold won't go out 'till the exchanges make it possible. You, Keynes, Canso', et al, think gold can be shipped to England, for instance, with the pound of present gold contents at a discount. Can't be done: At least you won't put less gold in the pound: 2 You have sent me some nice books and I thank you But the ond about old age I have doubts about. Wouldn't fit my case, anyway--and if Forster sees it he'll take my clothes away. The increase in circulation rates is ominous,--and I have been a few weeks wrong in my program. Had a feeling, or hope (poor benighted cuss that I am), that the March Conference would result in some really educational effort. My hopes, wishes, feelings, efforts are dashed to the ground, and we can't go to 53/4 soon enough. I'm sorry, but it's so, and you may tell Jay and Case, but no one else. I am now convinced, after weeks of reflection in bed, under the shadow of Pike's Peak, that were it not for my sense of humor, the last eight years would have turned me into a hardened criminal or an anarchist. Like a dog I'll wander back home in the fall, and be as much amused as ever. So good luck to all of you at the bank. better'. Yours, B. S. My throat gets better and cith (L2 -Kai-- (env 09 ACIttr icy ovvivoq 540 7t41 'Mt etc_ lite;Arb th. (10-0 ff-u/Vivt- cistrt, az-o},A- --7ru.t/o e-tt GU? /6-tcf- 6-5,&05.4a ,9lL/ ac _01 fQ WWI dal ikt ecirivve , C-P:(145T-lic-ve ce4ana-e aq,c_tev efr,t (-k1 (034Yc124)0 "Afittr-27? 71tcva etc,c, .64-%-i 1) txtAntlf )1Ar 6-,7-A4- tL4, Aruci r_ifera-tte--) )14-k lirtnALCCa-A--- A4-171&1r f taift4C &IX-0_3r er_tvea cukAti, cou 14-Ae2 qx,-(Lc, i'hix-tA),-ef,, t/n:freLewpt, cuti-dLeAtAA err--eh r6170-ciot1cqXDtizifiLta CULA £F dt---)Amti cc_---co-cL, afPyrk45-et., AAA _ ett, 4--(91<t. 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',,co et.42,0-- se, `rtak /0'14 /ke Fk- itizo-c.471 , aufbacet ?4/ ihrukt-1 /-)44,QuAt---wc.) Catt i-atztA4A-, , Car-c),A--- Pa.* a/Jo W_S tait (flaza,J . "or - ift(1-5 46-4 -Iktet-iet ke-tc art 1 404,5' /VT' t-k7 eax att., talc. /Wet, c4-: tr-c-) a6_ kietxx Csz_e_ c4.A. chwuk 7uceAf Lee .ce9 bue mr-h(1, ?A", to' CiVe-tacuA-c-trx -Act -Gt.-LK XI VA., 67.2-Y-P6a Ail-ier>s-c Pr/3- 0_0,444 . et tH-cc-) oY ikerlchCA,IntALC-C _71-C/611A--c44: et44-ec-- isenk.( t'afr eiVe/r4% baLtira , fkot., 09 -->vciA ko-tnr Oi-6,vv-t4 ct (111't671( ike *0 , c-,,,A;y-WT 47 v- /7,3, "Iftki -11-0 k11-5 Cesw cibuk 'ho co ecovv-vmel cka ,r/ ((cc 9)bli 41-Kceiti; OXFA Pae rrai. OteLtz-e kat), cturk,,) 16; altxt/v c-ki/6-71 g e,a Ittxteti vot? s&C Astur ci/n14,t,a_u-r) 4A-c-tt cr,-4 rilk/A4A't° \\J v- earvx &C1-4--f-perkat- krti,t c/Y- _ CILA 4;tte.s-47-Vt cc° FEDERAL RESERVE BANK OF NEW YORK MISC. 4. I-30M 10-21 WFICE CORRESPONDENCE To FR,M Mr. Snyder DATE may 7, 1923 SUBJECT: Yr. 3eyar Mr. Strong hex directed me to inform you that he would like to have copies made of all letters and remoranda.,which haVTeen sent directly to you so that they may be kept with his correspondence here in the bank. Will you be good enough to eee that copies are made, or you ..rerer I can have them typed for you. 192 1923 My dear Chandler: As regares the question of "cyclical movements" in prices: We have monthly data on only one widely sampled index of wnolesale prides, the Bureau of Labor, and this carries us back only to 1900. Since then I find the following perceptible swinge: Duration April, April, Oct., Ear., 1900 to Mardi, '03 1 '03 to Oat., '07 07 to e'er.' '10 10 to Apr., '12 36 months 54 30 24 " " ahereafter, to November, 1915, is a perfectly flat line, i.e., for forty-two months. disappears. That is, the cycle idea in this period totally On this slender basis, do you think we are justified in speaking of a definite cycle or of "cyclical movements" in commodity prices? My idea is that, as Prof. Persons has shown very clearly, certain types of commodities do seem to have a definite cycle or period, as revealed in his index of ten supersensitives. But this cycle is much less clear in Bradstreet's, for exemple, and extremely obscure in the Burevu of Labor index; and my idea is that if we could construct an ,index of the general level of prices--wholesale, retail, wages, and all the rest--the cycle idea would wholly disappear. Tven on the Bureau of Labor index the widest downward swing shown in this period was from 97 to 90. And that was after the panic of And if within a. period of fifteen years we have three years and a a901. half in which there is no swing and no "cycle," and if in the remaining period the duration of a wave varied from twenty-four to fifty-four months, does this seem to you to justify the term "cycle?" ath best regards, Always yours, Dr. H. A. E. Chandler, National Bank of Commerce, New York City. May 21st (I think), 1923 (I'm sure) 5:50 p.m. (which is within 15 minutes of being correct) Dear Mr. Snyder: There is but one joke (not choke) to make about this photo and I'm not sure whether I've tried it on the first floor front or not. imbibing an "actinic cocktail" and got snapped by a nurse. I'm simply The picture is deceptive in that it was taken A.M. and I no longer wear the uniform then. Am up for breakfast and one o'clock dinner and go back to bed at two for three hours, unless the sun is good when I take a half hour sun bath tout ensemble. from ill: Am far The nurse figured 1820 calories for breakfast the other day - as banana and cream cereal three eggs five slices bacon three sausages six pancakes glass milk two muffins two cups coffee. follows: You might check up her bookkeeping; and I may have forgotten some of it, by now. I did forget four pats of butLer. All of this familk news in grateful appreciation of your fine letters, and the news, and what not Now to get down to a touch of - beezniz - (poor at Yiddish), here are I like the word because it assumes no originality! a few reflections. First. foregathered in I want to see the list of those men of learning with whom you Chicago, - and the respective dates for the "crest" of this wave; INCLUDING YOUR OWN. As you may recall, my only doubt, but a big one, was lest they had overlooked the intervention of the Federal Reserve System. The said System has been clumsy in the extreme, but helped some (New York and Boston) and the country's common sense is doing some of the rest. late now to change our rate, for a bit. "Burned child, etc." Too Now about friend ("quan. the.")!!! Things are going to happen you say. old pal p.p.p. !II And Do you know who I mean? I think they may; but not what some folks expect. I enclose a little skit which is Starting at V. of C. (know him?) explained as follows: 1st Stage. Theoretical condition of banks at any given date. 2nd Stage. Same banks, theoretically, over night, sell all invest- ments to their depositors. (Of course this never happens, but gradually the Note that deposits have shrunk $6,500,000,000. same thing occurs) Will price level (general) change? 3rd Stage. Loans and deposits increased .$6,500,000,000 over let stage. Won't prices increase? And yet observe that this can occur without a dollar of gold imports or a dollar increase in loans of F. R. Banks. Probably- if this did occur - (Miller would say ha! Empirical) it could not be claimed that it was the cause of any change in G. P. L. State it differently. - How much of the total checking deposits are static and how much dynamic? Or again, if 10%, or any old %, of all money in the country is buried, it won't act on prices - and if 50% or 10%, or any old %, of all bank deposits are static, they won't. Law of averages, etc. - Ha! you say again - Now I have him. But is there any law I've heard you now and then! Suppose of averages to apply to the state of mind of all these depositors? war starts, the % of dynamic deposits might go down and static up by a large proportion, and the reverse if war ends? Is there anything like a compensating average of the state of mind of 110,000,000 people. pessimists, savers vs. spenders, - optimists offsetting workers vs. loafers, etc.? I doubt it. I know a man who had $7,000,000 in bank for five years waiting for the time to invest it. Did that act on prices? balance in bank. Did that? For ten years I have had $10,000 minimum But my expenditures every month do! This "state of mind" is some factor in a country like ours, - and in France also! Next: How does it happen that the exchanges are weak, imports at record, exports back to prewar, travel enormous, and foreign prices advancing faster than ours? Do you know what is the inspiration of the p.p.p. folks? They took us for a bunch of boobs - especially Hawtrey, - they fully expected us to "inflate", cried for it, prayed for it, and autointoxicated themselves into the conviction we would. We'll fool 'em yet. I told you nearly a year ago they tried to put up a job on us at Genoa, and when old McKenna was here, I pleasantly led him a-saunter (a la King Charles) and he gave it away without ever knowing he had. Tut tut, and a chancellor once too: Now joking aside - the tides are swinging - watch them. Don't think that we are to lose gold like fury all at once - we won't - but we can lose some as we did in 1919 and thenstop again. And about old p.p.p. - fill in the follow- ing blanks and see where it lands you. Mr. French finance minister says to Mr. Robineau of Bank of France, "old p.p.p. now enables us to do so, balance of trade improved, budget balanced (?), "our price level and American are at parity on gold basis, - let's buy some "American gold and replace what we sent them via London." So M. Robineau does as follows: Pays out (f ) for *50,000,000 dollars credit in New York, x a say on May 20th at that dayis rate of exchange. for his $50,000,000 ships him Federal Reserve Bank of New York ounces of fine gold, which x M. Robineau puts in his reserve, after coining, as (f difference between the first ( xa x ) and second amount ( ) x b and the ) is his loss, equal to the discount on the franc May 20, or to the premium on gold on that date. Now the only ouestion left is whether the egg came from the hen or the hen from the egg. Do prices cause exchange discount and premium, or do prices result therefrom. I think somewhat both ways - but no matter which it is, - until they change their coinage, or exchange passes gold point, we cannot lose our gold. The neutrals and possibly London and the East will get it. All of the above is addressed to the question, where lies cause and where effect. Can prices climb and do so quite a bit before the "quantity" of money need change. I admit and always have that we can always change prices by inflating and contracting, but cannot prices change considerably without any material change in Quantity of money. Personally I think our data is imperfect on that owing to weakness in bank statistics. Don't bother about Donham. don't worry about the boom. He is a blow hard anyway, at times, and We can hold the fort if we will - and later I'm going to get up a little program to see how it looks. Finally - with all the calamity howling by Cassel, Hawtrey, et al., let me remark that just now things seem fairly comfortable and snug in old U- S. A. while in Sweden - Cassel or no Cassel - they are helping out busted banks still, and not so double damned prosperous. Nor can England brag so much as yet! For the rest of this year if the Federal Reserve Banks will take a base figure of, say, $1,200,000,000 as total earning assets, - and every month or week reduce them by selling good stuff or letting bills run off equal to gold imports, - I'll bet that we will be no cause of a boom. I have urged that now for a year, and last time I did (Oct.) a learned member of the Federal Reserve Board (since out) literally.shouted that he never heard such d We have the stenographic record of it all! nonsense. And in the end I was voted down Jay was there and wept with me. by one vote. That article of mine may appear some day and surprise you, but much polished. That was very rough when I sent it to you. Please send this to Beyer to copy. over my correspondence and see what a d finely. I've a mean habit of looking back My throat is doing fool I've been. Gets dry very often, but I'll treat that myself on my return. Best to you all. Tell Burgess I enjoy his stuff. But it seems to me that the increase in deposits (demand) in past few months, with little gold imported, has an undue share of blame for price advances since last call! -5- My best to you all. This is just steam escaping at the joints. Yours, B. S. P. S. Private! When we put our rate to 4 1/2 I privately wrote some of my friends in the Banks of Issue in Europe that we didn't propose to inflate on our excess gold reserves. P.P.S. Thought they might like something in their pipes to smoke! I may take a look about out here before returning, especially the N.W. How would you like to join me! N. B. Unless the Federal Reserve Bank intervenes directly to export gold - our members must borrow for the amount exported, and the pressure to liquidate might prove excessive and force us to repeat our open market buying of the spring of 1922. Think that thru, old scout. a boom in the nose! Gold exports are bound to crack But they can be financed by us. - I'll show you how some day - so as to easily avoid any strain. Ask the Federal Reserve Board how it can be arranged and let me know what they say! VMS- 1, VI FEDERAL pESERVE BANK or NEW YORK INTEROFFICE ROUTE SLIP OFFICE SERVICE MESSENGER SECTION DATF go DEPARTMENT DIVISION SECTION DEPARTMENT DIVISION SECTION N. B. USE THIS FORM INSTEAD OF OFFICE ENVELOPE WHEN POSSIBLE. TO INSUREPROMPT AND ACCURATE DELIVERYALL COMMUNICATIONS SHOULD BE DISTINCTLY LABELED a/QA WA; Fte etut -rpti 011)1 ecete----4-tx; cu &A/ 4Ateut, v tea rit5 (Af etac_10 dutAi (11,05._ ittatA, ra ockx try a AirriLt; tLit,ayt V cter-fit cyyuc i- Viv-5' fey If cut -e CtAKize; da,A4AA1/4 If folks ask why I'm away tell 'em I have tuberculosis in my larynx. - have had it ten years in my lungs - but am not dead yet and don't propose to be for quite a while ! 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PO-64-00 cr-pr&ci ((LIZ 14-hUl/n tfiy- ktu-ac-a 1. a R. ateti< - titzn,0 aavvvgAlo chnte.ves 17-?vcAsevIA) -nuAQ 0)!.-Pe-r4TI aw (t/A4v Afro CL act,k- 41AV( e)e..evQ/QAV5 114 01--711-- Ca uk tow ktvc Cu/1H) 9kuL-- O1u*(14.KLA Attie /ka4 /90--(4- eteLeA /6-1 CtI cc.-) iff4k camw-k_ atc___La 4--1 Att )1404. aro 1{01 J-k-rcucc._ 0,hril 3 ,IZaA--1 -crd-i-c4-4 f CFCA .14", irm 7,c/Qt--ct)zi itirct orzbwatArTA CutA. fA42 r- SZt crsvi Cragmor 50) June 8th, 1923 C02Y Dear Mr. Foster, Thank you most heartily for your kind note, and for "Money." Your Food wishes help. I wish I might avail of your ouggestion about Mr. Stewart, but I am as yet allowed neither exercise nor conversation, and they do seem to frown upon "company." It's a tedious job,but brings results. 'I am about half way through the book. Its merit, to this tyro, is its simplicity and directness: not to mention that with almost all that I have read I am in hearty accord. There are a few points that I shall write you about when I have finished, and System in my I also aek whether you have anything on the 7. proupect? If so give me warning and a scenario. I may send you a few points that moot folks have not yet discovered - or if they have - are keeping it dark:, Incidentally, you are doing a fine piece of work, one much needed, and I wish I had the time and capacity to help. If you are out hare, do come and see me. I'm ruining my penmanship and the patience of all my callers, but come just the same. Very sincerely, Benj. Strong P. S. Tell Catchings I'm heart end soul with him in the Monetary not weary of well doing. Aeen - and hope he du, - 06-tC1)- Deith4 U4 040 11140 .1 (710-6,44 tnA, krcht_C iger-etnA".6'", eoit 4044- korko apu Aemai 04 77164a, SO rrict, 'or 741.47 Cifra hvid eatiA14c 4111427? )1LiThtazievl') 1. 4,sruit 0.7.--meh 40Wft'0 ottik ' rki( C ilev-rtotPea: 1440 duAsuir 40-t" - 7yrc. P,42. 4 -ittleetivr, 43i 4 /Ate f, (COPY) Dear Snyder: Don't forget thist--as to the "Tidal Times Tables on Prosperity." Comparisons with past periods are likely to be as misleading or more so, than they are instructive. Why? Because (forgive the reiteration) there was no F. R. System during the former swings. If it works well, the swings will be less violent--if badly--they'll be hellt B. S. (COPY) Cragmor, June 28, 1923 [bar Mr. Snyder: ['vs a lot of much enjoyed and much unanswered letters from you. Excuses are good onest I'm now taking 24 hours of sun on the roof, tout Then I rest all afternoon, ensemble, besides a half hour for my throat: ting little more than read the newspapers. The result is a back and front the color of mahogany and quite an empty head: Kath. arrives today, and on top of that I'm moving rapidly toward four hours of sun a day--so I'm busy as hell doing nothing: However, here's a word. I see my N. W. trip going up in smoke. They are too intent on my cure to let me off till all brown and crisp. I'm sorry for wanted to see those wheat farmers. About Foster's book. the trouble. I'd like to send him something, hut here's Since I wrote him have still been uns.hlo to finish reading the last third or so. Too much sun. Also, I am far from convinced that we should deal, or even assume to deal, with prices as he seems to think we thould. On that opinions can properly differ. I might send him something. It will be very useful and is in the right style of simplicity, and I like him'. decently. arrival. After I've finished the book As soon as possible I'll write you Am up at 6 A. M. to write a few letters and get ready for Kathie Mn doing finely'. Best to all at the bank. Yours, B .S. FIFTEEN NASSAU STREET NE YORK 6-1`a_4014-efir _ .0t4)-1 914Alet. 0 if) taccutAYa cov-71-1 filf,71 rnt/o rtit-C4 "tun kluaLc ot_AZ faxii h_ itn4A,o atAkiLare, etc', 6'Y 4-&---a,t /kat, 4t-) , (/It luktro vi t- 7nLceik_ At. NAA.). AvaLcur-- 4r)N C9-cey 044;ltueut4614-- -t fkot-t /64- 04414-0/AfIA 7/14 tYlAt7 et(frt c4 ) "IQ (A: 44-"Ce nuWI (3(____Atg _ --kerikkt,; GR-12 - - tuuio ee-t- 2' 4 4ri4rr-I lei; cut-0 li-44-t'd-ter " 'Gt.& carrice- ok,1 QA ckt, - cC1LCt 4-; °9A2L-k- CGt4_,(64) km-e% gistC°- &A:114-7r 6-47-zo-bk 01. 09j tuz: g)-aTx/ws gernkict, ht/v 11rril4 ike Cit.t_ (9 0 ,A..ZaAri itoa,9-t,4f 27/1,ttet, 14,6t}- -3 atLo 2 /itr 4/62,6uvnt CeULC 621444,c-f Ar7 itcc_e ev ees, inarLer *(4 ( n , Ow--Act-1 /yo efriavyt, d4r5' atzottx: 451tvz,7 1-b-ylk11/ (A4 00;4, `111 Ottr-- tow-"ta, 444, tryvi tfte. top ar---6_ a 4,0 tur-L annAAr- _dd 8ra- 64'- FIFTEEN NASSAU STREET N EW YORK Aufaik 3 Atectch Petah Ct /kto raftiu q wititALIE-gc 44,4 let^S-tri 64 Af C-1" r 61.G1411/77WA--c ettAff ChA ett- Cut./ ,NPIA do Ka.17,) !II/A 4ro 9 ectrvvv, rft "tOah efinti4/6 A,fe,L4 "nts Atri af I, kr-nyv? .7711-17- 41-01c1 676-f5 74aA &I/04 acw Aut24. ae,Ce goaLeL,cf 4 1 Ccutt/ir jaf 10. - gnu_ 49hute CatittA--- -MAK- bra; '61 gs tt k11eifi fattAk4 - trux, (44 lkola-fax Cei 7/1_, (5' CL tal&C ettion4t}r- 71A-db'b itt---1147 ACC(4)/C- rasp GC-0 Ctia Ca_acetaiL, c7LeCEI-a4; 7nadt day 7".4 4autt,ti a- cAlgr.t.9, 65 pu-ta_ IOU; kr/me dal, a 14xt_e_4(' 4 --mA41..1.° far-zA 447-107 1)-( Rea' ,t,49-143 A7/74 azst C.-telrkt/V-A--Ca /0 co74- tafTvicisw. 06-1) erws:,/ " (.. da4 F &IX11 Thr trirz tf7friLta. AnA--; on- LA 0&_?".<4 ow-1A Ce-tct Cakt,Fr ithte g3C01.11 dikatli< cto a CAL 49-ett 6/k4 ftucc 7 yicz (&, 64-a, /lirfr-1L 6cv- elk.4 e'Pe1/44tZt;) cikictik.cA WO---4;n;A,;(7 e_ afra:) CeAr)fir<Lv ( "Arl - c4---/ett-A2 P (COPY) Sunday Dear Mr. Snyder: Please give your lady my greetings: I put the message here as I have forgotten it in former letters, after slamming at folks, etc. enjoy your letters, but why chide me for poking Chandler? I You know he can do better stuff than that article, and you know also that I don't sit on any pinnacle of intellectual superiority in judging, either. Couldn't if I wanted to ,--can't even spell half the time: About that firm you have joined, C. K. L Co., they propose reducing the amount of gold in the coins, do they? they plainly say so? Have you found the place where The And especially in their earlier pronounconents? coins must some day be changed, I agree--but the so-called purchasing power parity, without the change in the coin, in a myth and you will some day pgree--or do now. T can't write much now. But your wire about that shriek of Nice day and I'm going on the roof. mine puzzles me and I await your letter with interest. Do you think our friends in W. have spunk enough to do anything to me--even if they wanted to? Should I break loose just now? Nit: Good-bye and my best, B. S. Am doing finely. It's only ordinary courtesy and decency that keeps me quiet, not timidity. Nothing to be afraid of (COPY) Cragmor, July 3, 1923 Dear Mr. Snyder: I have a lot of interesting letters from you, all enjoyed, but an now so deeply enmeshed in my treatment, sun baths, etc., that I have mighty little time to write. Pardon the brevity of this. I would like Hawtrey's new book. Much of it I have read. Your plan of stabilization must be discussed. Writing is too hard and imperfect. The trip in the N. W. is devilish uncertain. I have greatly wanted to make it but prudence indicates I must stay here my full six months. Your memo. on Strause's letter is too cryptic without the letter to see what he was driving at. My sun baths (now nearly 4 hours a day) also interfere with readI wrote him when about half ing--so I have not yet finished Foster's book. through. Also, don't recall quite what I wrote. I like the book, but cannot agree with his, your and all the college fraternity going to the extreme of having us regulate,- stabilize or fix prices (meaning general level). It's bad talk, will hurt us and lat fix the price problem. This is dogmatic and argument must come later--except--people generally know nothing of "general price level," and first thing we know Mr. Wheat Producer will want his price put up while Misses Sugar Consumeresses will want sugar prices put down. Let's stick to credit and do what we can at that job. without having price fixing thrust upon us! book when I finish. hates us I'll let you know about Foster's But I like what he and Catchings are doing! Thank you for the books. me Willis' book. It's enough Yves-Guyot has not come yet. Do send I want to glance through it and see how bad it is. and me, but I sometimes think he hates himself first and most He 2 Again, many thanks for your letters, for return. I now have Kath. herewhich helps. indeed. Throat looks fine. which this is a poor Also, am doing very well Still allowed no exercise! My beet to you, and to all at the bank. And to your Yours, B. S. boss. iskiwo AltIQ_ .11L, A xoNio, N*)_%), )14-15.3,4 3,!LszT_N TEEN NASSAU STREET NE YORK -A 57ffil cOeca ah)1 Cith aaoif a *or, avyytvakt,; J, 6a1- eit4 cuu Avi Iti / iwzo bLy AR' (urak vilaw/-ruir, otOeittif r /7 6 )1.141 er luta_ ALL() :6-ertric. hts2u0 KaArg %kith /dew achta:&f- kw-el fr3 k2un actir t1( qictaft,,-reu A (0 atueezieuz, wutiek &hal 'Attu& 614 .1-raufl/a Catm -(6 oatAx 6",r- katirtuce_c v444 jaa Lott tkiNctccothA cittf ?7141.4 I ns di/ ocI, 'QS r_ t9fSWiticti-to71 cX,(' eurv, fr; 1 Aj 1 or7-0 LeA_ taw ( 40v0 V. -"-"- g ATI 7111v-as . z cfric;r4v attx (4.4141/14_ C07/-4-- itb20-ta:_c If'. mitt/A-4c -6-~ ixtzn t , citut incv445_- atte (-On &Log a oiltA ecti- ifintAvo 6L-440,/ 09 ga-01anu II 7v4L-4 de-Fac 62E440 cLcvit64- /k-----60--crie Wt a tta Jr ittacir 04-3 isfL2 cacetic I (71liza,,,pli Alm 6-2ig tane lotte PAci eL0a v torkek--- przo-e-iteL91 - citiuttii/ ina_tue 7wittucf- ct_d-a Jr_ " yak.e>zz't_( fuat 1,tü10,1 tecti eitt*/afa,rys Wittut- tleLp(un 044 eseNve kau ittceopo 64A-C CtAx-ar vita 771w Re-ewsife w/Avz cats ova; 4/427A-----wo --krdere,, afr_revpruAki- 4./19 er,,t(A- tittrit, 46-toi /U-Vatf)t_ -9A111- Oraw -forP ta.s an C grrk Pr-cto%) rdttAg-- krue_ov tCP/Q- do-mr" t dZ(Arc cart____AstA---7X110-6 41-1A* 0114;-- 9)(1ftiket"--1 Prce-1)` fr5euir:p ,,/ tqa-evvA4to tc-e-r-A &Yr 2-Que; ialceiktp- Cak---41-ota-4 Amu< Prm 014( eil`Tito-A Raxh4) tah~r---d-datz/r /hrtitck Pa-- CONE , IOU.; ge-g-t slat 4 At Prex)- aLito-fko 4it,0; aietaxx auIA 7xt ca. 14tk.6L;L6 ,61,c/r 42-4497714,; 'Mawr aariAA ktheg KcY-14 ctouq- inxt, oti (eta 101 telk,u2-4 tatteA__ 144r1 turinc) 9 )uou 6°4240 oLfei-a-r- egtoio Vx,i,t_e_Gai e: cote-101J aiiJ fiy fae-TJ,c 7uh takkei: 4011_ fit-44ti 7itztair ftva q vir r-te)c--140 vi net/24----& 4/0-)1 tem L. 6-arTLI ettr. MISC. 3.1 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE tre4A r f DATE 192 SUBJECT: FROM ofrtan, 64, 011144 dki, ,f ,no111,t111/ C, kaio d'X-fj2 >Atata- eWattitat_ 161 ne VVI/P\ a/6-M ettst tratAtt.,, le* L1 TiLiwatkez c-9a1-6,-) r4K.04 0-; 7)4:4 a Atfectet,ti Ctifrik We 0/4 "1 161641 cidek;;Z' Ct-e% 4,4 xT-t, 4f4 -))4t_vl 0,0 Xav S,(4 trirLect Of IMO Acej---4 ado litry tirttAilA 5911/4Zeikira/P: 0A)41 f Oft' oq-oci: /role) 44,3 akt,-11 CIC-Otia't h 4-traKt: irtArCtRAA# eiMj1 0145t4AtA 14144e0 avtepv('''-'4). tArteta-t 10/1 Ga/tAtl, ikcjit/r- OIL ettr; tbAltrx-e77\stAe4-..3 etks? OLLtotia4..4) 1/\014-aleAl A4-01-t4-101' 4re,C0 4i-a.,144 W., A 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE eitili7 cA4/1., (1 f 4 Oat% DATE 192 f SUBJECT ch144 ftfr-V eenynumiv eimio oWita h41j2 >xtata----444 ,444-461c) ct, etrxt / ittr4 traux,-," bviff,-,-, 1,3 M; -7/ Y.- ex at ectfo_k: .. e of`-4 N. ay 41-44171- Oft1jTacwv-- otiacii c4; /141/ ry twvai.tez cal:1:17 '"rt offax-e Viti( to -"we r C ekAk 1- 74," 21,0 t44"4 raT eickfriti einkettvz 6.4)41 Ckm#11',, 1, cati/.2,4 49-Kt: irtgodyv A/ MAA.e.1, ta.4111 A t Ce ) 417 /771 71104- 01-t dstrk tat dm Itchtt frh\...cLie-o,2 Py-e, ?-roc.F//tf aCt 4194vt try-rT (41/vvit---tAir And tritArv,0 is.A- io littevv) irwitka erAlk(ct ctif per/o, Mil hiAdt Cit) ?fret efr4 ) esv °Y /Av144A--- Alikr tr e4\.. 24_ vv- elf77-v avuev#14..... 461141Z 4,/z.t. -7),\Ary-r-71\44A4s tV4 09141A/C taty-vLie .1 714-0 (2k2A141 ria ove----,t- 61-1AA dintA eirrvh47-3 al ULU- knoC4 kw_ 4triAn -1/11.-, 69444.) A ettitvat74/tittk:f DanA)t--10-cret-At-- Ann, lel r "71,Va- 44-4 hiflAd 7rcr; att...0-4\ATte; is) /tilt( af MISC. 3.1 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE 1 92_ DATE SUBJECT: FROM ettda Ic--/A61-4/7\4)9,-, gi cr,--01\-k 4 vi/ es71-, fri , 09444,1 1 1r ato .7 r ,r,,,i, 11(4-442 4 ilattArb /44,4.---.. iv) ...- vcrIt,-.4..a. it__ a -vve T ct (2.#4,47?-)71,64 litie7' t , 4, Wetfatce.... eittlits' X14.4.1 , le i 't:' '' - At( if /11,444,41-1. tiduceiklailZ., ; fr 671,404444 poLet-r-t itz,*tv'D # r' r etervfi;Vi emu-4r 6(.244 eA,ta,ictu, td7-64-4, A"- (P. 7; A July 11, 1923 Dear Mr. Snyder: My comment on "Tidal Time Tables" was badly expressed, but I meant this:--your examination of prices, etc., seems designed to disclose Whether there is or is not a regular rhythm or sequence with fairly regular periods of fluctuation, etc. And you take pig iron, stocks, etc., to show that there is not and that forecasts are hazardous, etc. But no'Where do you point out that such a conclusion could be safely drawn, without any chart, because the whole credit system nf the country has undergone a violent revolution, which makes all such bases of prognostication valueless. That is exactly where Babson went wrong and where Bullock will if he doesn't mind his step. In past years there was no influence or control at all. Now there is one, which may do good, or harm..-but which is certaTET-whatever it does--to make comparisons of pre F. R. System and post F. R. System movements most misleading. That's the point: Few writers realize how great our influence Will be and has been I think your guess was best of the lot as to when the swing would halt. Don't forget that with all our faults and mistakes we have done better than all others, even Japan, in our credit policy and in getting business going and contentment restored. Nature did a lot of it-the F. R. System some; politicians nothtmg: Good luck, . IJ. P. S. I have always felt that the transfer of demand to time deposits at 3% reserve, needed watching. The F. R. Board is just getting out a new regulation. These figures should be in their hands with a recommendation and soon'. Speak to P. J. MISC. 3.1 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK ThFFICE CO RESPONDENCE To 41 Cefrth 7ty StrJECT: act, &IV1 fr4 Ivy &Iaii catztAA/ 404 107 lk kva hut( , (at- 1511, )ntv4.4, effl Cl;-J bank_ C7kat. ACLV (4-- ,NY14-h') gnu ti45- (0-teityy- (--rietje_4 Ac' A _ Wu Veiz4)-11-ta--C 4 -49 4/t/f-fLtt4orit) cuals dt-d-7:/v cralo 5 tio-m- itg_t (A; df4-6.04. Ce--4eva axit cce6u, (>1)-_ct tu,1 Kik./9 faillA II f1 UZLtt/&Q_Etocksivo r. V MAW(---4EI ifeEtc. oq &tor/144, Prucu; itt_cuvr- 6-47-ux ertk_vcL_N 6101 t'e-6 Or oraim - ita_d 4.iyukt4 (---rwt4 a-t-7-)tu4 craK retocka4414 OdcrztYtri 4 77ffyLts, (IT 16ez_af /G 7iLaiet 09.4)", 71,$9 dilittzttc4 '91- c4 ariv(9 frau ik myett,/xsz Ne--&- (6-1/4-- 1ekRb tt-Cd IWO 01-6ace(4,4) ct,t4.1- r&3 or6 P4o-ri--6 Gviik NO/ 19-6 0,--tord-e olkeu Ircvojv k Pra-6aci4. cw tocrxib 01.(1,-) @IA " etc? Low . 4.(40Lea ecte:12_ itrjet,4 airicw4 ewes, rt;c1,4c i elf,AIL4 6bo e§o-- kqvi 4,ott r- kac_tr,s ettarAir - a,9.42tiyrruvo tvd NT trurze ;Le 4 yfty&ffte4 (07-aralz4- Arice_e a Lt&-di,,4 " 6 G7170etakla ifz-e); Col---te4- AA: CIA;i-v_r n7 torrie4 1/0:01-L CIA__ ItsLI, 07'1, >f4t4 cezL 6-1,1 V 456-0 taccif fite.tA r Pre---Aceitro-i ilrfeetzme te-Litc beei ecki peas " 15-art .Ct4 7. aticen_eutHc c4c-e-d--e at-e-4 V-1-geetteciACW. Ain out cvut 117. Artet; 6-trt,1/ Mr/A_ elt Aurt4; tax ofive,y. isucAjczw; ek et,t MISC, 3.1 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK FICE CORRESPONDENCE 192 DATE SUBJECT: TO_ FROM Itor-K/nutck , Tte gLt&13 co- p_t (iLtros 614-v___Zt CPALca.` erd ex, c olkfiLl it- ikt Acce (-477-"-f Arart c-p-m_favccvys; /6-6 t9iL I)Th acct(A/ (JP 41-ah tel 6-1un 7A---( kecr- Artoi-e' CArm__ zteitx criaNt (r- Aci o 6vFi (kvt,t-tk Artuctr)Lx____ ro--0 MIA 1.4/A Rel CatArpliv 71A.et Ct/L 0 --h43 (yrziruAlig- act_ kit)49 Art4 btit-f Ai10v 5titt htezt) otterAL4 051 coxi,o July 12, 1923 Dear Mr. Snyder: I want Willis' book, even if Thank you for yours of the lOth. One must have freaks with a circus. it's a curiosity. Those pages from the "Journal," etc., are no doubt here, but I have not found them. Sorry. Sure they didn't go back? Now I don't like the talk about stabilizing gold, or purchasing power of money, or prices being stabilized by the F. R. System, at all. It is bound to lead to confusion, heartburn and headache. Look at sugar and wheat as examples,--also wages and building costs. ata is credit. Our It makes no difference if it's a deposit or a bank note. If we regulate and keep fairly constant the volume of this credit,--always with due regard to gold imports and exports, which is a part of the credit problem,--we are doing our whole duty. Other price influences may then be dealt with by Hoover, et al. They are not our job. Of course we should watch prices,--and production and consumption and speculation, and lots of things, to insure that our "play" is correct in regulating volume. To come boldly forward, and volunteer to take the price problem onto our backs, and than as we would surely do--is just criminal suicide. Let's deal with people and things as they are and not as one or another of us assumes "as they should be" or "as we would like them to be." aa, Don't forget that Mr. General Price Level is only the student's affair in this world. Prices to all others mean, to the housewife, cost of rents and supplies; to the workman, wages; to the farmer, what he produces, etc. They each complain of one microscopic piece of the picture and some will.1.v asa be complaining. Harp upon and stick to credit'. our share of the job will be well done. past year or so, tool It's our job--forget prices--and It has been pretty well done the Your letter indicates you need no convincing. Read my arguments and urgings with the Governors and you'll see Where I stand. How I wish I could write'. Yours, B. S. etith cLict,-/ coo-ui-elm/V t4'6 "Tkest_t (V; da f &ati,aiefvt airstutiAl I ort' (War/RI:1;37 /54,-fwvve ti; ag-v5 apaisziae_o-A omS2 150M-920 INTEROFFICE FEDERAL RESERVE BANK OF NEW YORK r- 1 TIME ROUTE SLIP OFFICE SERVICE MESSENGER SECTION DATE TO DEPARTMENT DIVISION SECTION REr-ARKS FROM DEPARTMENT DIVISION SECTION N. B. USE THIS FORM INSTEAD OF OFFICE ENVELOPE WHEN POSSIBLE. TO INSUREPROMPTANo ACCURATE DELIVERYALL COMMUNICATIONS SHOULD BE DISTINCTLY arLED GOLD IMPORTS TO AND EXPORTS FROM THE UNITED STATES AND GOLD RESERVES OF EW2.,RAI RESERVE MOM Thousands) of Dollars. (In Excess Gold Imports 1921 1922 1923 Dec. 28 January February March April May Jane July August September October November December January February March April May Jane July 13, 1923. Gold Exports of Imports 26,571 28,739 33,488 12,244 8,994 12,969 42,987 19,092 29,316 20,866 18,308 26,440 32,820 8,383 15,951 9,188 45,357 19.434 863 1,732 963 1,579 3,407 1,601 645 956 1,399 17,592 3,431 655 824 548 25,708 27,007 32,525 10,665 5,587 11,368 42,342 18,136 27,917 3,274 14,877 23,730 24,348 6,984 5,559 8,533 44,533 18.886 411,147 .59,168 351,979 2,710 8,472 1,399 10,392 Total Gold Reserves F.R.System (End of Mo.) 2,869,600 2,911,528 2,951,434 2,975,355 2,994,776 3,007,621 3,020,868 3,071,424 3,063,414 3,076,943 3,078,049 3,072,858 3,049,451 3,075,810 3,072,813 3,069,495 3,080,579 3,108,762 3,087,703 Increase in Reserves 41,928 39,906 23,921 19,421 12,845 13,247 50,556 8,010 13,529 1,106 5,101 23,407 26,359 2,997 3,318 11,084 28,183 21.059 218,103 Qtr? (AWL1714z...)1 ev-euz)) )111Aitak 4( C ceelØt- 4 10714- a-e FEDERAL RESERVE BANK MI... 4. 1.100M3-23 OF NEW YORK OFFICE CORRESPONDENCE To Mr. Synder DATF Nov. 1, 1923. SUBJECT: Governor Strong FROM Here is another report from Miles. Christmas. att. He will be here soon for 192__ FEDERAL RESERVE BANK 4. OF NEW YORK %; FICE CORRESPONDENCE DATE Nov. 1, 1923 _192 SUBJECT - Dear Mr. Snyder: What' s this? A touch? I await your advice, but the papers have not come. B. S. aL( te", 3.1 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To -1 Mr. Snyder DATE Nov. 7, 1923 SUBJECT: Governor Strong A The flour I still do not get the figure that I want on wheat. figure is complete. My point is this: The stocks of wheat are represented by unground wheat in elevators, cars, etc., and on the farms. It is claimed th-t we do have on hand 150,000,000 bushels in excess of what we should have. If the actual visible stock of wheat (not flour) is 150,000,000 bushels, the surplus stock of wheat over a normal supply would be 1b0,000,000 bushels, less what is the normal working stock of unground wheat in the elevators, etc. Certainly we always have a stock of wheat on hand, just as weelways have a stock of cotton or any other prime commodity, and in order to find the surplus we must deduct the normal supply from the total supply and see what the abnormal is. I want to find out, if possible to get it, what is the visible supply of unused wheat on hand this year, and what is a normal supply at this season of the year in years when we have not experienced in this country and throughout the world an excess of production. to get it. BS.MM att. Possibly an average for a period of years would be the way The difference will be surplus! 192_ FEDERAL RESERVE BANK MISC. 4.1-30M 10-21 OF NEW YORK TICE CORRESPONDENCE Mr. Snyder DATE Nov, 20, 1923_ SUBJECT Governor Strong Better let this go. 3S. MM att. I'm not keen about such affairs. 192_ FEDERAL RESERVE BANK OF NEW YORK MISC. 4.1-120 M-1-20 OFFICE CORRESPONDENCE Tc Mr. Snyder DATE Nov. 20, 1923 SUBJECTGovernor Strong Again your friend Rortyl There are so many of these economic -schemes afloat that I get confused as to who and what they all are. I just can't contribute to everything - if they want a contribution - and can't be an endorser of everything! If they just want to tack my name ong'something, won't you please advise me, If this is a part of Moulton's enterprise - which it doesn't, however, seem to be - I must say that I am a bit jolted in my appreciation of their ability, after reading Moulton's book on Germany's capacity to pay. BS.MM att. 1 9 FEDERAL RESERVE BANK OF NEW YORK MISC. 4.1-30M 10-21 OFFICE CORRESPONDENCE To DATE Nov. 19, 1923 Mr. Snyder 192_ SUBJECT: Governor Strong FROM The decline in 1. should soon be reflected in the index of "sensitives". With Sterling 12% or more below par the relative level would be say British about 162 or 3 ff 145 or 6 U. S. A. Watch it and see what happens. Further, I suspect the "wise" ones in Wall Street look for a business setback and have set the stage to "let go". B.S.MM Bow does it strike you? MISC. 4: 1-120 M-1-20 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE .T.c, Mr. Snyder DATE Nov. 24, 1923. SUBJECT Governor Strong FROM Just what I wanted. Keep these handy for me in case want them later. cd,...4 2.32 BB.NLM att, FEDERAL RESERVE BANK OF NEW YORK MISC. 4.1-30M 10-21 OFFICE CORRESPONDENCE T^ Mr. Snyder 1 92_ SUBJECT Governor Strong FROM Professor Bullock hangs on hard (so do you) to the fear that we are in for an inflation boom. Barring a tariff issue, I can't see that politics* will be any influence on business, the next six months. domestic BS.MM att. MISC. 9-I 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To Mr. Snyder DATE Dec. 1, 1923 SUBJECT: Governor Strong FROM I think it would be a good plan to get up a questionnaire for the Department of Commerce. On the other hand, I think it would be a mistake to have us given credit publicly for any work that wd do in this connection. If you understood, as well as I do, after long experience, the reluctance which all bankers feel about giving any information which is to be turned over to any Department of the Government, you would know that a public statement by the Department of Commerce that we had helped to compile this information would greatly increase the difficulty which we might later encounter in getting information in response to any questionnaire. As a friend of mine once said- "It's better to get a thing done than to get credit for doing it." ES. MM att. 192 TRANSLATION OF irconlim CABLEGRAU London, England DeceAber 4, 191;3 Federal Reserve Bank of New York New York N Y No. 41 E3.5.3 3 1/4 Money easy Friday Treasury bills averaged Tap rate 3 per cent. Three months' bills quoted at Stock markets rather more confident but very little bus- iness pending election rise of 4.3 This increase is the greatest for two o 168 years and the new Times index figure for November shows lelita Increase due chiefly to is higher than any since October 1921 and industrial materials specially cotton BANK OF ENGLAND 1140(- (Oj41(9.--)1\14,e. ce-t,,e,t'ett(cem,e_ of FEDERAL RESERVE BANK 4. 1-120 M-1-20 OF" NEW YORK uFFICE CORRESPONDENCE Dec. 10, 1923 SUBJECT: 101-. Snyder F-,om DATE Governor Strong I really think it will be impossible for me to do the War College job this year - it is too much of a drag on one's voice in that wretched hall. Do you feel like corresponding with Colonel Simonds about it and making arrangements for the sort of address they like? I might attend and answer a few questions if that seems worth while, but I couldn't do much talking. BS .M1 192 M ISC. 3.1-200M - .20 FEDERAL RESERVE SANK OF NEW YORK OFFICE CORRESPONDENCE To_Mr. Snyder om DATE Dec. 13, 1925. SUBJECT Governor Strong The question is Did the chicken first come from the egg; egg come from the chicken? Does a falling exchange put prices up; advance in prices put exchange down? impractical economists abroad who or did the or does an You know that great school of modern discussed purchasing power parity so learnedly had certain notions on this subject, and I am wondering how they reconcile with the fact that the balance of payments adverse to Great Britain (service of the debt and export of capital principally throw it out of balance) actually eeems in this instance to have depressed sterling, with a subsequent important advance in the price index in England. of price movement? Ili BSOLM att. or a result You know, there are some of us who think that it is sometimes cause and sometimes effect. do you think? Is exchange a cause of price movement; Again there are some who think differently. That FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To Mr Snyder FROM Governo_Strong DATE SUBJECT: Dec. 13_ 192 3 Japanese Relations If it does not involve too much work, I would like to have a little study made of the extent of the economic dependence of Japan upon this country, which means: The amount and character of their imports from us. The amount and character of their exports to us. The amount of financing they do in this country. The amount of the reserves' held in this country. The amount of the carrying trade in Japanese vessels with this country. The amount of tourist travel to Japan. The probable amount of Japanese remittances from this country to Japan. Other items may occur to you. Is it possible to get at something of this sort without too much vork? Of course the figures wi11 be important as to their imports and exports if we show the proportion of each commodity exported or imported with this country to the total with all countries. For instance, what proportion of their silk do we buy, and what proportion of their cotton imports do they buy from us? It was not this suffice? easy to get all the things that you wanted. Will MISC. 9.1 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK FFk 1-( CORRESPONDENCE Mr. Snyder FROM DATE Dec. 27, 1925. 192 SUBJECT: Governor Strong I remember my father telling me that after the panic of 1873 he had seen oats growing between the cobble stones on Broadway at Wall Street. city was absolutely dead. The The decline in wages following the Civil War advance was about coincident with the 1873 panic and the enormous liquidation that followed. The fairly stable wages from 1870 - 1873, which also appears in wholesale prices, doubtless was due to the fair degree of stability which resulted or was accompanied -by the adjustment of prices to the premium on gold. It seems to me that the conclusion which you draw from the comparison of the two charts is not complete without more clearly stating that there seems little likelihood of a decline in wages unless we have a period of liquidation, and little likelihood of liquidation without credit restriction, and little likelihood of credit restriction with such a large volume of potential credit in the country unless we have gold exports, and little likelihood of gold exports until foreign currencies are readjusted to a new gold standard, and therefore little likelihood of wage reductions. could go a long way on this without reservation. BS.MM att. I 7.. 9.1 60M-4-22 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To "r. Snyder DATE Den. 27, 1923, 192_ SUBJECT: Governor Strong FROM In the second paragraph of your confidential memorandum on What is the 4 General Level of Prices?, you mention paper money inflation as having been invented in about 1690. This may be literally true, but there was a species of inflation in India in the 13th Century, which is exceedingly interesting, although, as I recall, it occurred with metal money. One of the slave Kings - I think it was Kutb -himself - who, as you recall occupied the ancient city of Delhi before it was moved, invented a device for issuing a small copper coin which was a representative coin and redeemable for a given value of gold. Due either to his extensive wars, which may have led to overiesues of the copper coins, or, as some have suggested, to very extensive counterfeiting of the copper coins, this metal currency depreciated tremendously in value, and in order to allay the distrust, and avoid a great upheavel, he sacrificed a great part of his fortune in actually redeeming these coins in gold, notwithstanding that there were many of them The Question of whether it was paper or metal is unimportant, but it might spurious. be inte-resting to look into this very ancient history of currency inflation. The memorandum is a very interesting one. I am wondering, however, if it does not involve a species of duplication in carrying wages into a price level including commodities, which already include wages. BS. MM att.