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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

DATE

J anuary

13,_

Mr. _Snyder

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
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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 s c &nano° u s car loadings
mi
.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

4
k

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

DATE
SUBJECT:

Febtuaty_5+__

The Question_of

1923

BankaAate_Cnanges

Mr. Snyder

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

192 3

Changes-2

4.,

6\
toi-oluvy'
V/41

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 in American eyes the prospect is necessarily less atBut
tractive.
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
willirg to uree strongly a restrictive policy, calculated, as it
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

DATE

February_8,

1923

lir.8nydar

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.
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.
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.

DATE

Mr. SnydAr

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 : ,

rrt

....

<

rn
un

'Ic

1923

SusJecr:ontrmiof the Volume of Credit_

___LL_

IV

Ffilanga7 13,

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.
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?
not be using our gold fund practically as a gold exchange fund for just this
purpose?

If

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 the
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

Mr. Snyder

SUBJECT

Govern nr Strong

FROM

DATE

February 14_

1923

Control_o_L_Cae V

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

DATE

February_214

Mr. snydsr

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

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

DATEFSbZryfl,

1923

Mr. aoyder

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

DATE

Febr

ery_27_,_

1923

Mr. Snyder

SuBJECT:_The

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

DATE

Zebruary_ 27 ,

192 3

Mr- _Snyder

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

DATE

February 27,

1923_

Mr. Snyder

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

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FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
To

Govornor Strong

FRO'

DATE

February 27,

1923

Mr. Snyder

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 M
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 o
pute 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 i
haps 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.
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."




I ta

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, Apri

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

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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."
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.

I

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

199

273

261

212
237

U. 3. Dept. of Labor Wages (13 industries)

142

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
d r suffer lar
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.
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.

(,/,/

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49019,4

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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

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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,
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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.

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/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?
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.
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 production.
In other words, I question whether we have
of
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 any excelle
essm
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

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(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)

(!oot
.EI

anin dnue ni) e'qelbaBdO
(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 d

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 passage

Gold exports causing "ext ame stringency,"
\(1)

"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)

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'SC , 3.1 60M-4-22

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(COPY)

April 25, 1923

Dear Snyder:

I couldn't hold in any longer today after getting a letter from
Mitchell, Which I sent on to Mr. Jay, and enclosed is the result.

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.

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(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 If not wise, it, haveit. copies
you do sent destroy two
for Beyer to file.
Of course it is not to be published:




B. S.

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(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:




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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 o
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

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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

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
http://fraser.stlouisfed.org/ now
Federal Reserve Bank of St. Louis

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?

Th

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

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




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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




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(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
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(COPY)

Sunday

Dear Mr. Snyder:

Please give your lady my greetings:

I put the m

I have forgotten it in former letters, after slamming at folks, etc.

I

enjoy your letters, but why chide me for poking Chandler?

Y

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 t
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 reading--so I have not yet finished Foster's book.
through.

I wrote him when about half

Also, don't recall quite what I wrote.

I like

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.

It's enough

without having price fixing thrust upon us!
book when I finish.

But I like what he and Catchings are doing!

Thank you for the books.
me Willis' book.
 hates us


I'll let you

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.

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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

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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

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FEDERAL RESERVE BANK
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TIME

ROUTE SLIP

OFFICE SERVICE
MESSENGER SECTION

DATE

TO

DEPARTMENT
DIVISION
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REr-ARKS

FROM

DEPARTMENT
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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

Gold
Exports

Jane

July 13, 1923.




1,579
3,407
1,601
645
956
1,399
17,592
3,431
2,710
8,472
1,399
10,392
655
824
548

411,147

March
April
May
Jane
July
August
September
October
November
December
January
February
March
April
May

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

.59,168

863
1,732

of

Imports

25,708
27,007
32,525
10,665
5,587
11,368
42,342

27,917
3,274
14,877
23,730
24,348
6,984
5,559
8,533
44,533
18.886
351,979

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

9

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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

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?

You know, there are some of us who think that it is sometimes

cause and sometimes effect.
do you think?

Ili

BSOLM
att.




Is exchange a a result price mov
or cause of

Again there are some who think differently.
That

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
To

Mr Snyder

FROM

DATE

Dec. 13_

192 3

Governo_Strong

SUBJECT:

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.
does not involve a species of duplication in carrying wages into a price level
including commodities, which already include wages.

BS. MM

att.




I am won




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 extreme
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 f
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, B
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
close 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 steel trade. Increased buying has
tween the price movements of the materials appeared 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 is still strong, there
less violent, for the increase in the price of is little duplicate ordering, and 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

This is viroomtually
parison between current
per oapita
produotion,
and austomary
per capita
consumption.

100

Copper

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
In each case the average monthly output moved earlier and more violently, and their
the line in
for the five year period from 1918 through changes are shown by have beenthe diagram
in which the prices
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.
they had until
rapidly and irregularly,
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

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 ex22
pectation 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




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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

,?

.

.

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16

17

18

19

20

I

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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, belie
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/
FederalA
Reserve 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
one 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.
employment, 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




It h

'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-°

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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




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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 the aid of all these, one checking the other ; the volume of
With

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
That 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.
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 foreig
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 p
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 t
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
belief that industry does not need bond holders or
and that these are a curse to enterprise.
captivating sort of propaganda, and I should think
were in the writing mood here was a subject worthy

illustration of his
"idle shareholders,"

It is a h
that if you really
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 a
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.




CCMCOA1 .CCCOWC g-Prsim W
BANK
FEDERAL
rsv

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




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 "elements, so-called nnd
Federal Reserve Bank of St. Louis
,.

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 compos
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
the Reichsbank
be taking on a new lease of life
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
identically the same thing could
able confirmation of my firm belief
they
monetary insanity, and that
there save its
,with the same results, if only
at any time , in Germany,
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
great interest, and were deeply of any kind from New York, and
after you with
I have had no word
I hope everything
having such a time of it.
of you.
to have any sort of news
Dreyer vaccine,
it has distressed me not
have been reading of the new
I
right.
infected glands.
has been going along all
efficacious in the case of
me as a very live
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

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.
review of this book for the
I have been doing a/little
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/ a century
of
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

DATE

October-294-19231n-

Mr. Snyder

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.
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.



The

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,_

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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

SUBJECT

Governor Strong_

FROM

DATE_____Uovembtr 5, 19_231,2_

Mr. Snyder

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

DA TE_NO v ._14_ 1923

Nt._Snyder

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,

DATE

November 9,

3
192_2

C.P. Calvert

SUBJECT:

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

DATE

November

9,

Wheat.

G.F. Calvert

SUBJECT:

2

--

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

DATE

November 20,

192_3_

Mr. Snyder

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

DATE

November 204

Mr. Snyder

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

DATE

Nov Girth

er_20_,

1 923_

Mr. Snyder

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

November 26,

1923_

SUBJECT

Gbvernor-Stron

FROM

DAT

Mr. Snyder

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

DATE_Rovembar 28,

Mr. Snyder




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

aacembar 4,

1923

SUBJECT.

novernor Strmmg

FROM

DATE

Mr --Snyder

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

DATE

Dec =bit 10,

Mr. Snyder

SUBJECT:

With reference to the War College lecture: it is you they want,
and in whom they would be interested.
I should li
gestion 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
last questionnaire on
ing and the unsatisfactory results on our
obtain
foreign balances Qtat we would do well to abandon an altmpt to
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 stocks and bonds
c
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.
1921

1922

none

Answer:

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.
1921

1922

none

Answer:

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
3.

6

3

Yee
Yes
Yes
Yes
Yee
Yes
Yes

Yes
Yes
Yes

Yes
Yes
Yes
Yes
Yes

4

5

6

Yee

Yea
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




2

Yes
Yes

Indefinite
Yes

Ind.
(Yes

Ind.
Yes

Yes
Yes
Yes

No
Yes
Yes
Ind.
Ind.

No
Yes
Yes
Ind.
Ind.

No
Yee
Ind.

Ind.

Ind.

Ind.

Yes

Indefinite

Yes
Yes
Yes
Yes
No
Yee
Yes
Ind,

Yes
Yes
Yes
Yes
No
Yes
Yes

Yes
Ind.
Yes
Yes

Yes
No
Yes
No
No
Yes
Yes
Yes
Ind.

No
Yes
Yes
Yes
Yes
No
Yes

Yes
Yes
Yes
Yes
Yes

Yes
Yes

No
Yes

Indefinite

Indefinite
Yes
No
Yes
No
No
Yes
Yes
Yes
/nd.
No
Yes

Ind.

Ind.

Yes
Ind.
Yes
Ind.
Yes
Ind.

Ind.

Ind,
Yes
Ind,

Yes

Ind.

Yes
Yes
No
No
Yes
Yes
Yes

Yes

No
Yes
No

No

No
No
No
Yes
Yes

No
Yes
Yes
Yes

No

No

Ind.
No

Yes

Yes

Yes

Yes

Yes
Yes
Yes
No

Yes
Yes

Ind.

Yes
Yes
No
Yes

Yes,

Ind.

Ind.

Ind.

No
Yes
Yes
No
Yes
Ycs
No
Yes
Yes
Yes

No
Yes
Yes

No

Ind.
No

Yes
Yes
No
Yes
Yes
No
Yes
Yes
Yes

Yes
Yes
No
Yes
Yes
No
Yes
Yes
Yes

Yes
Yes
Yes
Yes
Yes

Yes
No
Yes

*12 Banks failed to return questionnaires.
under the classification "No."

7nd." indicates Indefinite.

No
Yes
No
No
Yes
Yes
Yes
Ind.
No

No
Yes

Ind,

No
Yes
Yes

No

Yes

Chatham & Phenix National Bank
Yes
Chemical National Bank
Corn Exchange Bark
No Equitable Trust Company
Farmers Loan & Trust Company
Fifth Avenue Bank
First National Bank
Yes
Guaranty Trust Company
Hanover National Bank
Yes
Harriman National Bank
Irving Bank-Columbia Trust Company
Yes
Mechanics & Metals National Bank
Metropolitan Trust Company
Yes
National Bank of ommerce
National City Bank
National Park Bank
New York Trust company
Public National Bank
Yes
Seaboard National Bank
Ind.
United States Trust Company
U. S. Mortgage & Trust Company
W. R. Grace & Co's Bank
FOREIGN BANKS

Yes
Yes
Yes
Yes
Yes

Yes
Yes
No
Yes

Yee
Yes

Yes
Yes
Yes
Yes

Yes
Yes
Yes
Yes
Yes
Yes

Yes

Yes
Yes
Yes
Yes

Yes
Yes

Yee
Yes
Yee
Yes

Yes
Yes

Yes
Yes
Yes

Yes
No

No

Yes

Yes
Yes
Yes
Indefinite

Yes
Yes
Yes
Yes
Yes
No

Yes
Yes
Yes

Yes

Yee

Yes
Yes

Yes
No

No

Yes
Yes
Yes
Yes
Yes

Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
Yes
No

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

Yes
Yes
Yes
Yes

Ind.

Ind.
Yes

Ind.

Ind.

Ind.

Yes

Yes
Yes

Yes

No

No

Ind.

Yes

Yee

Yes
Yes

Ind.

Ind.

Yes
Yes

Yes
Yes

Yes
Yes

Yes

Yes
Yes
Yes
Yes
Yes
Yes

Yes
Yes
No
YESS

Yes
Yes
Yes

Yes
No
Ind.
Ind.

Yes
Yes

Yes
No

Yes

Yes

Yes

Yes

No

Ind.

Indefinite

Yes

Ind.
Ind.
'Ind.
Yes

Yes
Yes
Yes
Yes

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

Chase National Bark

Ind.

Yes
Ind.

No

No
Yes

Yes

Ind.
Ind.

No
Yes

Ind.
Ind.

Ind.
Ind.

No
Yes
Ind.
Yes
Ind.
Yes

Yes
Yes

Ind.

Y.
No

Yes
Yes

Yes
Yes

Yes
Yes

No
Yes

No

Yes

Yes
Yes
No
Yea
Yea
No

Indefinite Yes
Yes
Yes

Yes
Yes

These were entered

Anglo-So.:American Bank
Asia Banking Corporation
Bence. Commerciale Italiana
Bank of Montreal
Bank of Nova Scotia
NoCanadian Bank of Commerce
Chartered Bk of India,Aus. & China
Yee
Credito Italian°
NoDominion 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.

Ind.

Ind.

Yes

Yes .

Yes

Yes
Yes

Yes

Ind.

Yes

Ind.

Yes

Yes

Yes

Yes

Yes
Yes
Yes
Yes
Yes
Yes
Yes

Yes
Yes
Yes
Yes
Yes
Yes
Yes

Yes

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

Indefinite

Information
First Business Day of April
1922
1921

Tctal

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 any excelle
essm
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

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: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)

(!oot
.EI

anin dnue ni) e'qelbaBdO
(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 d

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 passage

Gold exports causing "ext ame stringency,"
\(1)

"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)

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April 25, 1923

Dear Snyder:

I couldn't hold in any longer today after getting a letter from
Mitchell, Which I sent on to Mr. Jay, and enclosed is the result.

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.

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(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 If not wise, it, haveit. copies
you do sent destroy two
for Beyer to file.
Of course it is not to be published:




B. S.

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(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:




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(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 o
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

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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

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
http://fraser.stlouisfed.org/ now
Federal Reserve Bank of St. Louis

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?

Th

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

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




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yet and don't propose to be for quite a while !
I hear some are asking!
if they know!




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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




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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
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(COPY)

Sunday

Dear Mr. Snyder:

Please give your lady my greetings:

I put the m

I have forgotten it in former letters, after slamming at folks, etc.

I

enjoy your letters, but why chide me for poking Chandler?

Y

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 t
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 reading--so I have not yet finished Foster's book.
through.

I wrote him when about half

Also, don't recall quite what I wrote.

I like

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.

It's enough

without having price fixing thrust upon us!
book when I finish.

But I like what he and Catchings are doing!

Thank you for the books.
me Willis' book.
 hates us


I'll let you

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.

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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

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MISC, 3.1 60M-4-22

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OF NEW YORK

FICE CORRESPONDENCE

192

DATE
SUBJECT:

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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

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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

Gold
Exports

Jane

July 13, 1923.




1,579
3,407
1,601
645
956
1,399
17,592
3,431
2,710
8,472
1,399
10,392
655
824
548

411,147

March
April
May
Jane
July
August
September
October
November
December
January
February
March
April
May

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

.59,168

863
1,732

of

Imports

25,708
27,007
32,525
10,665
5,587
11,368
42,342

27,917
3,274
14,877
23,730
24,348
6,984
5,559
8,533
44,533
18.886
351,979

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

9

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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

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?

You know, there are some of us who think that it is sometimes

cause and sometimes effect.
do you think?

Ili

BSOLM
att.




Is exchange a a result price mov
or cause of

Again there are some who think differently.
That

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
To

Mr Snyder

FROM

DATE

Dec. 13_

192 3

Governo_Strong

SUBJECT:

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.
does not involve a species of duplication in carrying wages into a price level
including commodities, which already include wages.

BS. MM

att.




I am won

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