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June L6th, 1916.

my dear 7arburg:

In regard to the Belgian currency we were discussing,
this may 'Prove a somewhat larger undertaking than you imagine.

Then the war broke out, the erisis was so acute in
Belgium that a groat many municipalities issued notes for circulation somewhat similnr to our 1907 Clearing ::ouse certificates.

Uncatcelled samples of these, and as complete as possible, both

es to issues and denominntiens, is what I want to obtain.
Since the complete occupation of Belgium by Germany,

the German military government, I understand, has made issues of

such currency and I am likewise anxious to get samples of this

If you hve anzr friend who can secure these for me,

I will very gretly appreciate it.

It may cost quite a little

mo ey and you will, I know, advise me of the amount Involved.
Thank you very much for your trouble.

Very truly yours,

Hon. ?aul M. arburg,

Caro 'Federal Reserve Board,
Washington, r. C.
BS Jr/VC!l








Dear Mr. Thrburg;

Thank you for your reminder of the 5th about foreign exchange men.

I have not overlooked it; on the other hand, for the

past week it has been imposible for me to do anything.about it.
am not acquainted with 11r. Neilson, but I do know Mr. Ro-

vensky very well and believe he is a competent man.
men would probably be very high-priced men.

priced man, in the long run, is the dheaest.
know, Kent would satisfy me the best.

Both of these

Generally, the highOf all the men

He receives a salary, 1

think, of16,000 or 20,000 a year and we would likely be criticized for paying any such salaries.
Jim Brown in dining with me to-night and

will take the

opportunity to pump him.

A cable is going forward to-night in regard to the Rolland
matter nd I will lot you k-Aow the outcome.

Very truly yours,

Hon. Paul 1. Warburg,
Federal Resers77-197PT7'
7ashington, D. C.


January 10th, 1916.
rear Mr. Warburg:

As I have verbally explained to you, our directors felt un-


to authorize the purehase

January 1st.

of United States Bonds until after

They did.. authorize at a

recent meeting, the purchase of

2,500,000 and uuderstadding that the Oomntroller of the Currency had

from time to time, bonds for sale for account of:national banks, we
have had the enclosed telegraphic and letter correspondence with him
with reference to tho purch-se of bonds.

the matter

that you may be informed should

I am sending this in order

be brought no for discussion

at a meeting of the Federal Reserve Board.

The Comptroller's letter of January 8th apparently takes exception to the exnression "considerably below par" which Mr. Kenzel usei
in dictating the letter of January 7th, signed by me, having in mind, of

course, that if we purchased a large block of the bonds at a difference

of, say,
of money.

of 1

in price, the added cost would be a considerable sum

It is a se:all matter, but the Comptroller's attitude does not

indicate a very friendly disposition


our plan for buying U. S.

Bonds, particularly, as I believe he sold a block of bonds to one of the

other reserve banks at a price somewhat below par.

If the Comptroller vants to sell a block of :"2,500,000 of 2 s
at 99 i, ve could buy them.
Very truly yours,

.44:Auir4,3r .

Hon. Paul


Federal Reserve Board,
Washington, D. C.




January 14, 1916.


Dear kr. ;,arburg:

Section 13 of the F-deral Reserve Act limiting acceptances eligible
for purchase by us to maturities of not more than 3 months, conflicts with
the usance of the Fax East.

Those bills of China and Japan exporters which

appear in this market are drawn at 4 months' sight, or if the shipment has
been made by sailing vessel, at 6 months' sight.

In many cases, the acceptor:.

are undoubted New York banks or bankers.

The imports of silk, silk textiles, tea, hemp, jute, rubber, etc.,
for the 9 months ending September 30, 1915, amounted to $37,909,000 from China
and $73,784,000 fron Japan.

This movement is mainly financed by the HongKong

and Shanghai Banking Corporation, the Yokohama Specie Bank, Ltd., and the
Charter Bank of India, Australia and China, Ltd., the agencies of these institutions in New York carrying in their portfolios large amounts of such acceptances.

For example, we are confidentially informed that the New York Agency of

the HongKong & Shanghai Banking Corporation for the year ending October, 1915,
handled $29,000,000 di. eastern import bills and $16,000,000 of bills representing exports to the Orient.

The average holding in their portfolio was about

$7,000,000, a volume which has not been materially increased since the war began,

That agency has discounted in the New York market bills amounting to

2,000,000 of which only $350,000 are now outstanding.

The Yokohama Specie Bank has now under discount in New York
$3,500,000 at an average rate of

to 2%.

These bills represent an important

part of the international trade of the United States, and would seem en-



Hon. Paul M. Warburg


titled to be considered for purchase by the Federal reserve banks.

They will

probably take an increasingly important place in the New York discount market.
The usance is, of course, firmly fixed by custom and by reason of
the distances, so that if we decide later to pLrchase such bills, it will be
well to have in mind an amendment of the law that would extend the eligible
maturity so as to at least embrace 4 months' bills.
Yours very truly,


Honorable Paul M. Warburg,
Federal Reserve Board,
Washington, D. C.



June 28th, 1916.

Dear Warburg:

Hooray for the first recruit if we land him:


has been like the camel and the eye of the needle - half of us
pushing from the rear and the other half pulling on the other

In regard to the Belgian currency,


with which I hate

to bother you), it is one of those matters that would have to be
dealt with, I am afraid, after some correspondence.

There are,

of course, a good many people thoroughly acquainted with the history of the Belgian emergency currency who could estimate what
the cost of a collection of uncancelled samples would be;
cancelled form, it
celled, and


would be of

in un-

much greater value than the can-

that, the samples which I have from other

countries now are all uncancelled, including the French, of which
I suppose there are 500 to 600 samples, costing possibly from $250
to $500 in uncancelled form.


the best way to handle it

would be to make inquiry as to how extensive these various issues
were, and if they are too extensive for my pocketbook, then we
might get them cancelled.

In any event, please do not bother too

much about it, because I have no right to shift it over to you.
Mrs. Warburg has just called to say "good-by" and this
will be my last letter to you before reaching Colorado.

I cannot thank

you enough for a great many things, including your sympathy and help.




Hon. Paul M. "Itrburg.

With warmest regards,

Faithfully, your friend,

Hon. Paul M. Thrburg,
Federal Reserve Board,
Washington, D. C.

P. S

My first job in Colorado will be to formulate

something on the Bank of England matter.




January 14, 1916.

Dear Mr. Viarburg:

Section 13 of the Federal Reserve Act limiting acceptances eligible
for purchase by us to maturities of not more than 3 months, conflicts with
the usance of the Far East.

Those bills of China and Japan exporters which

appear in this market are drawn at 4 months' sight, or if the shipment has
been made by sailing vessel, at 6 months' sight.

In many cases, the acceptors

are undoubted New York banks or bankers.

The imports of silk, silk textiles, tea, hemp, jute, rubber, etc.,
for the 9 months ending September 30, 1915, amounted to $37,909,000 from China
and $73,784,000 from Japan.

This movement is mainly financed by the HongKong

and Shanghai Banking Corporation, the Yokohama Specie Bank, Ltd., and the
Charter Bank of India, Australia and China, Ltd., the agencies of these institutions in New York carrying in their portfolios large amounts of such acceptances.

For example, we are confidentially informed that the New York Agency of

the HongKong & Shanghai Banking Corporation for the year ending October, 1915,
handled $29,000,000 cif eastern import bills and $16,000,000 of bills representing exports to the Orient.

The average holding in their portfolio was about

$7,000,000, a volume which has not been materially increased since the war began.

That agency has discounted in the New York market bills amounting to

$2,000,000 of which only $350,000 are now outstanding.

The Yokohama Specie Bank has now under discount in New York

,500,000 at an average rate of Zi to 2.

These bills represent an important

part of the international trade of,the United States, and would seem en-.



Hon. Paul M. Warburg


titled to be considered for purchase by the Federal reserve banks.

They will

probably take an increasingly important place in the New York discount market.
The usance is, of course, firmly fixed by custom and by reason of
the distances, so that if we decide later to pLrchase such bills, it will be
well to have in mind an amendment of the law that would extend the eligible
maturity so as to at least embrace 4 months' bills.
Yours very truly,


Honorable Paul M. Warburg,
Federal Reserve Board,
Washington, D. C.




January 14th, 1916.

Dear Mr.


Replying to yours of the 13th concerning :Ir. Dens,

I am afraid that

Hurlbut's influence may interfere with
gother from what Kent tolls me

our landing 11r. Deans.

that Mr. Hurlbut thi-lks tht Deans is too big for the job.


am awaiting the result of a telephone conversation to-day and
wil not know until ::onday whether Yr. Deans is coming or not.

If he does a;me an for an intorvieoi, I uiil try to got him to
come over to ashinnton.

I am undir commitment to stop One or two nights at

1718 H Street on this trip.

,Aild you care to have me stop

one or two nights at your hoube, or are the social allurements
of ":ashington keeping you ri.nd

with regular boarders?

rs. .arburg too busy to bother

I will adapt my plans to your conven-


Very truly yours,

Hon. Paul 11. Warburg,

rederal neserw:

Y:ashington, 7. U.

trong but
signed in his absence.
Dictated by Mr.



January 17th, 1916.

Lear mr. Warburg:

I have to thank you for your favor of the 5th
inst., containing copy of r. .11ozi letLer addressed
to Aonorable John Burke, '2reasurer of the flited States,

same relating to operating charges in conneetton with
th(? Gold Fund.. With this in hand, I am able to make a
report to the Conference in -:ashiugton which I am quite

sure will be satisfactory.
The copy of Ur. Allen's letter is returned

Very truly yours,

Hon. f)aul U. "oarburg,
Federal Reserve Board,
Washington, 7. C.
BS Jr/VCM -2



January 17th, 1916.

Dear 7arburg:

Thank you for your telom about stopping

I shall certainly go directly

with you this week.

to your house and will try to leave here in time tomorrow to take dinner with you, provided you are not
expecting guests.

Will move

over to 1718 H street

after slending a night or two with you.
Sincerely yours,

Von. Paul

Federal Reserve Board,
Washington, D. C.
133 Jr/VC!


January 26th. 1916.

Dea.r Mr. ':arburm,

This to remind yau that you promised

send me letter of introduction to:0851°B.
LIontagu & Company, nr Felix Schuster and Iesrs.
N. M. Rothschild r, Sons.
TlyJncing you in advance and with Denim-

ad assurances of my consi oratiet, I beg to remain,
incerely yours,

Hon. paul714, ":arburg,
Peqer.1 istsoryo 3oar41,

ihington, D. C.

?MW/RS Jr Id












March 5, 1916






Best uishec for your trip and a safc return


Having read the conditions printed on the back hereof, I request thii,t the above telegram be forwarded by the Western Union Telegraph-Cable System,
subject to the said conditions to which I agree.





Direct Wires from Cable Stations to all the principal commercial centres in Great Britain, United States and
irect connection with Central America, West Indies, South America, Australia, New Zealand, Fanning, Fiji, and Norfolk Islands.

Telephone Nos.

NDON: 1, Old Broad Street, E.C.


3761 Wall

63, Old Broad Street, E.C.



48a,Gresham House,Old Broad Street,E.C.


21, Royal Exchange, E.C....


39. 40, Mark Lane, E.C. 1070, 1384 Avenue, 3762
3763 Avenue
East India Avenue, E.C. .
The Baltic, St. Mary Axe, E.C. 6974 Central, 976

34, Throgmorton Street, E.C.
I, Drapers' Gardens E.C.
109, Fenchurch Street, E.C.

General Offices


1368 Wall

1830 Central
1050 Avenue



10, Holborn Viaduct
Effingham House, Arundel Street, W.C.

4119 City
1713 Gerrard

34, 35, Southampton St., Strand, W.C.
... 3598
2, Charing Cross, W.C.
5, Royal Opera Arcade. Pall Mall, S.W. 2073 Central
34, Victoria Street, S.W. ...
3716 Victoria
48, Tooley Street, S. E.
... 984 Hop
LIVERPOOL. Cotton Exchange
D6, Exchange Buildings




BRISTOL : Canada House, Baldwin Street
BRADFORD: 10, Forster Square ...
DUNDEE: I, l'anmure Street
EDINBURGH: 50, Frederick Street
CtASCOW: 4, Waterloo Street .. 4581 Central,

2017 Central,
113, Hope Street
LEITH : Exchange Buildings
MANCHESTER: 31, Brown Street

Tel ephone


I, side



Telephone No


2324 Argyll

PARIS: 1, Rue Auber.

4. Avenue de Keyser.
49, Canal des Reeollets.
4, Weesperzijde.
57, Calle Caspe.

CHRISTIANIA: 4, Prinsengade.



118, Boulevard Strasbourg.
12, Ernst Merckstrasse.



Academia, 10.
Via Marina Nuova, 14/18.

VIENNA VIII, Kaiserstrasse, 24.
ZURICH: 59, Rigistrasse.


37, Rue Caumartin.
26-27, Piazza di Spagna-

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Half Rate

Week E
should mark
e class of service




Send the fo1iowingtTegram, subject to the terms
on back he 40, which are hereby agreed to

New York, April 14, 1916.


American Ambassador,
Just arrived.

Very fit.

Spend next week Washington collection

Best regards your party, particularly yourself.
Benj. Strong, Jr.

Charge to

Federal Reserve Bank,
62 Cedar Street.

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R'S No.




SEND the follg Telegram, subject to the terms
on back kti/eof, which are hereby agreed to

New York, April 14, 1916.

1704 Eighteenth
Washington, D. C.

'rs. Paul Ti


Have just jumped from the boat into harness and find your letter on
top of the pile.

Thanks for the warm welcome.

brought Godknawswhat with me.

Wish I could have

Will see you Sunday.
Benj. Strong, Jr.

Charge to

Benj. Strong, Jr.,
62 Cedar St.

Form 260

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For this, one-half the unrepeated telegram rate is charged in addition. Unless otherwise indicated
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The Company shall not be liable for mistakes or delays in the transmission or delivery, or I
amount received for sending the same; nor for mistakes or delays in the transmission or delivery, or fo
the sum received for sending the same, unless specially valued; nor in any case for delays arising frond
errors in cipher or obscure telegrams.

In any event the Company shall not be liable for damages for any mistakes or delays in th
..gram, whether caused by the negligence of its servants or otherwise, beyond the sum of FIFTi DOL
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Accepted up to 2.00 A.M. at reduced rates to be sent during the

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A deferred day service at rates lower than the standard telegram
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Accepted up to midnight for delivery on the morning of the tic
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day rate for 10 words shall be charged for each additio'_ial 10 words
less. Must be written in plain English. Code language not p,
missible. Mail delivery, postage prepaid, permissible.



May 12th, 1916.

Dear Mr. Warburg:

Thank you for yours of the 10th just received.

Very much to my regret, it hay seems possible for
me to get over to Washington for, at any rate, more than one day

I gill, however, try to run over either Monday or

next week.

Ruesday, if that is entirely convenient to you, but I may be unable to do even that.

It will be fine to have opportunity for a long chat
and exchange experiencefl.

Mrs. Warburg I hope will be willing

to put me up.

Sincerely yours,

Hole. Paul 7. Warburg,
Care Federal Reserve Board,
Washington, D. C.



May 12th, 1916.

My dear Warburg:

I am enclosing with

this an analysis of the

reserve posltion

of each New York City bank and trust company that is a member of the
New York Clearing House Association as of April 29th, 1916.

You will notice that of the total surplus reserve, now
somewhat less than $100,000,000, tee National City Bank alone holds

9,000,000, the other $60,000,000 being held principally by eight

or ten institutions, some of the most imeortant banks in the CJearing House Association eaving entirely exhausted
serves, including oven



surplus re-

First National Baek.

The significance of this statement reveres no explanation.
The general expansion of loans and deposits taking place at many cenhalf

ters has absorbed

reserve provisions

of the surplus reserves arising from the new

and from importations

of gold.

At this season of

the year, however, and

paricularle with the great business

and with planting only

recently completed,

demand for money than later in the

see the reserves


there is always a greater

Summer, so that I would expect

increase a little later, rather tean declimany

I am sending you this








tion in connection with the policy of so many reserve banks to pur-

chase Government bonds.

The system now

of Government bands and I learn in a

holds in round figures e50,000,000

general way that orders are still

outstanding for considerable additional




Hon. Paul M. Warburg.


Realizing that this is really none of my business, I am
writing you personally to ask you to consider the following features

of our situation:
The general uncertainty in all financial affairs by

reason of the war demands that our course be

very conservative and

that our resources be kept in hand,
Operations now undertaken in

Mexico with the


ity of their enlargement make it reasonable to suppose that the Government might find it necessary to

borrow some money, possibly to

sell some Panama bonds,

The revenues of the Government are still considerably

below their expenditures and the

condition of the Treasury without re-

gard to the 7exican situation might necessitate the

Government selling

some bonds,

The volume of bills is constantly increasing, not only

in total, but as regards eligibility on account of the filing of statements by various private bankers, and we should be able to at least
hold or even inCrease the amount purchased for the System,
No matter what conditions may be in the future, the

Federal Reserve

System must buy


of bonds every year, or

appear before the country as failing to carry out one of the principal objects of their organization, and we can, therefore, count upon
a constant increaee in our bond account,

If money rates work higher and if the


Government is

selling bonds in sufficient quantity to make the price of 2s




Hon. Paul M. Warburg.

Vey 12, 1915.

ease off, the offerings of 2s at par each quarter will grow in volume
and we may be in the position of being required to buy 16,250,000 every

three months at prices somewhat above the current market.price.

If the entire amount of bonds- purchased could be con-

verted into 3s and one year notes, it would put the

Federal reserve

banks in a somewhat more favorable position, should they have a
large bond account.

Under the present plan only a small pioportion

of the total holdings of bonds can be so converted.
In former years, before the Federal reserve banks were organized, had the Clearing House balks of New York City

serves in the neighborhood of 20%, as at

repirted re-

present, we would have had

a most serious situation to deal with, possibly struggling
Clearing House certificate problem and

with the

certainly having no market

to rely upon for long time bonds; money would have

been unobtainable.

The aseurance widen now prevails, notwithstanding the many causes

for conservatism growing out of the wer, indicates the extent of
the reliance of the

bankers of the country generally upon the Federal

reserve banks and the degree to which

belief nrevails that

can meet any strain. I .am, therefore,

writing to express to you :1'

the system

personal view that no further Government bonds ihould be purchased
by the reserve banks; that we should take steps to convert as many as

possible into one

year notes and

You know this town

market Lhe 30 year 3s.


than I do and how promptly senti-

ment changes and things go to pieces under the influence of distress.

we cannot afford to miss


opportunity of showing our strength for



Hon. Paul M. Warburg.

the sake of a few dollars of earnings.

May 12, 1916.

I am writing to you person..

ally as i do not want to be in the losition of criticising the man..
agement of the System as a whole.

if you feel disposed to snow

this letter an a parsons' communication to your associates, please

do not hesitate to do so.
Very truly yours,

Hon. Paul 4 Warburg,
Care The Ysdcral Reserve Board,
Washington, D. C.
BS jr/Vai..



Form 260


ER'S No.






the following Telegram, subject to the terms
back hereof, which are hereby agreed to


..011:41,49 U.




Paul M. Warbur..,

1704 - Eighteenth St.,
Washington, ). C.

1111 be over tomorrow in time for dinner.

II you have engage..

ment will dine at the Clrb.

Benj. Stro, Jr.
Char:' to

1 eserve Ba
Equitable Building.


To guard against mistakes or delays, the sender of a telegram should order it REPEATED, that is, telegraphed back to the or
'g 01
Fm. this, one-half the unrepeated telegram rate is charged in addition. Unless otherwise indicated on its face, THIS IS AN UNRE:
I'AID FOR AS SUCH, in consideration whereof it is agreed between the sender of the telegram and this Company as follows:
The Company shall not be liable for mistakes or delays in the transmission or delivery, or for non-delivery, of any IINREPF
amount received for sending the same; nor for mistakes or delays in the transmission or delivery, or for non-delivery, of any REPEATED eleg.
the sum received for sending the same, unless specially valued; nor in any case for delays arising from unavoidable interruption in the workin;',



errors in cipher or obscure telegrams.

In any event the Company shall not be liable for damages for any mistakes or delays in the transmission or delivery, or for the non-deliv, ry,
gram, whether caused by the negligence of its servants or otherwise, beyond the sum of FIFTY DOLLARS, at which amount this telegram is hereb, VZ
a greater value is stated in writing hereon at the time the telegram is offered to the Company for transmission, and an additional sum paid or agreed o
on such value equal to one-tenth of one per cent. thereof.
3. The Company is hereby made the agent of the sender, without liability, to forward this telegram over the lines of any other Company wh en
reach its destination.
Telegrams will be delivered free within one-half mile of the Company's office in towns of 5,000 population or less, and within one mile of sue ho
cities or towns. Beyond these limits the Company does not undertake to make delivery, but will, without liability, at the sender's request, as his a gen
expense, endeavor to contract for him for such delivery at a reasonable price.
No responsibility attaches to this Company concerning telegrams until the same are accepted at one of its transmitting offices; and if a telf gra
such office by one of the Company's messengers, he acts for that purpose as the agent of the sender.
The Company will not be liable for damages or statutory penalties in any case where the claim is not presented in writing within sixty day s at
gram is filed with the Company for transmission.
No employee of the Company is authorized to vary the foregoing.



A full-rate expedited service.

Accepted up to 2.00 A.M. at reduced rates to be sent during the
night and delivered not earlier than the morning of the next ensuing
business day.
A deferred day service at rates lower than the standard telegram
rates as follows: One and one-half times the standard night letter

rate for the transmission of 50 words or less and one-fifth of the

initial rate for each additional 10 words or less. Subordinate

to the priority of transmission and delivery of regular telegrams.
Must be written in plain English. Code language not permissible.

Telephonic delivery permissible. Day Letters received
express understanding that the Company only undertakes
the same on the day of their date subject to condition tha
time remains for such transmission and delivery during rq
hours, subject to priority of the transmission of regular

Accepted up to midnight for delivery on the morning

ensuing business day, at rates still lower than standard nigh
rates, as follows: The standard day rate for 10 words shell 1
for the transmission of 50 words or less, and one-fifth of sue
day rate for 10 words shall be charged for each additional 1
less. Must be written in plain English. Code langi ag
rnissible. Mail delivery, postage prepaid, permissible.

Estes Park, Colo., July 24, 1916.
Mr. Paul M. Warburg,
Federal 7.e3erve Board,
Washington;'D. C.
Dear Warburg:

I have addressed some letters to


Warburg and

to you at Loon Lake. New York, and am wondering whether that
aaress le sufficient. If you are wondering also why you

have not heard from me, possibly that iu_ties explanation.
Yesterday's mail brought yours of the/ st of lav time
le still spent loafing here, but I r/in abo one hour a
da y. working and hope shortly to inc efiee that -0 an hour and
a half. Treman and the others at the-, office ite me regularly end tell me of the meetinzs, which I am Sure are good
fer everybody.

About rates, I hav .ome to e conclusion that if
even time money gets up t5 per ce4t., or higher, in New
to increase our disYork, it will not 1) dviSdble for
count rate, but shou me& \the siti.tion by changing our

rate for bills, defer

until there is °onside
rediscount eommercia

z_170t14),& in the discount rate
e teiidency for member banks to
The world's money markets are
ait Ve and we can change our rates

now getting pretty,
fl _a,y, but I believe a change in our
for bills without(
rate mi It be, reductive of harm. It is a matter
that wir , require sifl1ful handling and I regret very much
not being watch matters move this fall. The view
yoa oxpree rebeat7ihe short loan rate confirms my own view
about all the rates for discounts. You have Loubtless been
advised that the minimum rate for bills is now 2;,:- per cent.
I Ongratulate you on establishing relations with
e will get them in time,
Sabin looking to membership.
but I would be more pleased te see the time in the near .
future than deferred until next year. If we get the Guaranty,
we will get the Bankers and Tith them the vtholc state bank
membership problem is solved.

Don't you dare insult me by calling those Republican
obstructionists in the 3enate my friends. I have no use for
any of them. After the hard work that we have ell given to

the subject of Amendments, it makes' me sick to see those
jealous time serving partisans throw us down. i,or the first
time I have been tempted to "write a letter to the Press"
on the subject. Can't we push the matter along 'through the
rreeident arid wouldn't it be a good scheme if some of us
addressed a letter-Or-two to Colonel House on the subject?


I am glad the responsibility has been made clear, but it

shoul.i be done publically.
Thank you for sending me a copy of Mr. 11/abort's
letter. He is a fine fellow and if you and your associates
can make a generous ruling, on the Clayton matter, we can
start the bail rolling in Chicago just. as 11 as in liew
York. Jimmie and I have exchanged postalE rind. I am trying
to tempt him to stop up here for a visit fol his way home.

It is well worth the extra time for the ouitry is wonderful.

You .astound me by your
erence to your
wife and Settina by sayilv7 with- thqse two
ent there is
ace give em both my
but little left of your famIzaZI

link it has been better

ilbout al& own progre

the last two or three days
stronger, more energettef

now we are engagiO/In bu

rear of the cottaee, and

in the office arrangements

trying/tv=ax hi


at any time. I am feeling
e a better appetite. Just
Line sleepine; porch at the
ther small improvements

letter from Fred Strauss and am
out here in September, intimating
that with a bit of persuasion you and L':irs. ilarburg might be
eaggest September rather than August as
tompte4 also.
the a mate is
n at its best and the Park will not be so




rmest regards and endless thanks for your

letters, which male me feel that I still have a hand in

Faithfully your friend,


Estes Park, Colo., August 1, 1916.

Hon. Paul M. Warburg,
Loon Lake, N.Y.



There is very little news I can sen.çyou from

here, as news implies activity and---tleate. tp just now Tito
I have a boss h'iivaine-th shape of Miss
out of my line.
Thompson, who holds me down,atat-4his wee

be indulged by a short all)* nce Cf fishin
you know the outcome.

am going


I will let

e me frequently and I
The boys at the off
vhat is going on. They
am pretty well in teueh wi
bond arrangement on a basis
have concluded th°_agov.
au can be worded out
that seems to mp/as sat*
uree we missed our market,
under present p nditionet
through no fa 1 of our p n.
a le& memorand




d and forwarded to Lew York

mueh/too long I fear, in relation to
A couple of weeks' quiet doliber-

fore gn correspondent°.

atji on thattter up here in the mountains convinces
me iat 'it is/ eally our duty to conclude an arrangement,

I regal4d, as most favorable, while the opportunity
existdhch I fear will disappear if we procrastinate
with it:-- have a vision which may be over optimistic,
but which I think you have sometimes shared with me, that

in a few years the Federal Reserve

ystem may be able to

develop relations with the principal central banks of
Europe, such as never would have been possible prior to
the passage of the Federal eserve Act. This country of
ours needs it as one of the safe-guards against unfavorable after -war developments. ala views on this matter are
__not partisan and if conditions respecting communication,
security, etc., made possible, I would be just as ready to
extend this plan into Germany as into any other country.
For the present it seems to me we should make banking arrangemente with the Bank of England, the aank of France,
the Bank of the Detherlands, some of the South American
Banks and possibly a little later some of the Scandinavian
Banks. After you have been over the memorandum I wish
very much you would write me fully your views about it.
If the situation makes it necessary for you to turntheir
matter over to your associates without influencing




decision yourself, then write me your views personally.
I have a bully letter from Mrs. Warburg, in which
she reproaches you for deserting her. It leads me to
renew my suggestion that this is a good place to spend

part of your vacation and it is too far f
to result in interruptions.
My best regards to you old man.

can spare the time.

om Washington


W irte me when you


Faithfully lizrxr>


Estes Park, Colo., August 5, 1916.
Hon. Paul M. Warburg,
Loon Lake House,.
Loon Lake, liew York.

Dear 4arburg:

I have your
long letter of July 31st,
tated at Loon Lake,fine, au dictating an answer in dicand
our new
thatparlor, which looks rightwith at the Continental Divide
is still well sprinkled up big 8,4671-ft fts.
I wish
you were here for there seems to be an!end-I4
matters that we could discuss with 9/vantage, umber of
as you seem to be worried and as';a4sf G.Z.W. wil ticularly
I am the best
soporific for these un
ortunate/meods of


Your good spouse te

in wonderfully fine shape,

by the "row" over the Gov
old man
would be


think of
much worse t

me t

at menta

phycuiy you

are much harassed

th orship. /Don't lethappen that
things at might it worry you
-`thine/that you now fear.

I have

ice a memorandum about the Bank
oo long and in pretty rough
but I have asked t
it down and polish it off and
send it
the Bo=
eiling from the Bank. Ia
I have
Aoleted t
line of an arrangement by addition
which all
twelve of a i-':eser
nks would conduct foreign transactions in elle_
, the
the account ova it to a liew York :Aserve hank to manage
of the Gov nors. This iscertain supervision by a Cominittee
also tentative
seat both lacuments to you direct, except and I would have
of England matter.

courtesy i
in exile.

as a matter
seemed 'necessary for me to first consult of
the bank, as well as the
diliectors, while I am

Ai are going to have a great
opportunity in the near
future to develop arrangements of
value and importance abroad.
A letter just received from
dial expressions and asks if Ir. Vissering contains most corcannot

arrange to visit Holland
and talk over
that is one of banking matters with him. shouldover get well,
the first things that we If I do.
thank you for

advising me about your correspondence
with Sabin and the new ruling about acceptances.
You and I
might not consider the ruling good
business under ordinary
conditions, but in order to get
these laggards into the
system where they belong, I think
any ruling of that kind
is justified.



Thank you also for sending me the letter which the
Board sent to Breckenridge Jones. It should answer his

objections, Which I recall were very fully set out in a
brief, covering this very point, which struck me as being
an able argument. Of course Beeckenridge Jones has dealt
with the Charter powers of the Mississippi Valley Trust
Company pretty generously, but he is a sound banker and a
safe man in mu opinion and hie institution is undoubtedly
In good shape.


The newspapers report the passage # the Amendment
Bill by the Senate, so I am acting upon y - modification
of my suggestion and writing simply_to Mr/ lass. It hardly
seems nececsary now to write. Senat-evaDwe4:
copy or r1V
letter is enclosed and I hope 1.,t meets with, our approval.
Ay best guess is thatt,'we ar0 going to Vr6e money
reasonably easy until nepte bger o ctober, but after that
a good demand. I suspecthp.r.t oo of the gold recently
importel hau not yet appear's
bank reserves in llew York;
where it comes from _ie to eo extent a mystery, but can be
Jane° has not shown any
increase but a cOng6iderab dee e se in its gold holdings,
notwithstanding that the 4nch people are still giving up an
average of a mill on and alcuarter dollars a week from their
hoardings. To tlqic can bd ddea the nroduction of the

partly explained.'

African 0A2lustr aIs, which probably amounts to

four anata half mi Il.oe]adollars a week, and, as you ourmitine
very ognsiderable contributions by eussia.. We must not
overle k the aJ also that tlw effect of the issue of English
curre4r notes hfs been to drive gold into the London joint
saspect that some of this old is also
beine u7-Wring the period that gold shipments were suspended by the :13en'e of ehlgland the accumulations from these
four sources of supply were doubtless considerable. I must
say that the skill with
these great transactions are
being managed justifies admiration. It indicates that they
propoHe lo keep our bank reserves fluehee with gold so long
as they are large borrowers in our market. Possibly you
observed some months ago that the Bank of Russia announced

that in publishing its gold reserve it uid not include its

stock of bold held abroad; that gold was undoubtedly in
London and quite likely had been moved there a long time ago.
Your suggestion about Aiken has long been in my mind.

It is a matter that I woule hesitate to broach in i;ew York
without first conferring with Jay, and, as he will not be
back until August 21st, pcssible It would be well to wait
until then. Aiken would be a great addition to our force,
but a tleaenduous loss in Boston, where in my opinion he has
ahhieved a greater succees in securing cooperation from his
members than any other bank. He is a lovely fellow and would
prove an eminently satisfactory associate; nothing would
suit me better.


had heard of Billy -.Arter's illness before
fact, the first news
was a letter of sympathy Aaich he digtated I had of itlong
after he was taken sick, and you will agreeto methat was
most characteristic of him. It is a terrible blow to all
of us who have been fond of him for many years.
This is enough to inflict
am sorry that yo:Ir letter had you with at one sitti
stating that you had been haileda sting i the postscript,
to "dashtown" as :ill's.
darburg has christened it.
leaving Dew York; in

As always,


Aitied4W4 =AP

Estes Park, Colo., August 7, 1916.

Ur. Paul I. Warburg,

Loon Lake House,
Loon Lake, 14ew York.


One of the boys at the offid-a-iv t
a copy of the Dew York


nol \ExaminerNsind you

will be amused at readl,
ticle on the first
\\/' f which are marked.
page and an editorial., bd'it
It simply in4i tes t
soNof the old heresy

is extant.
Ii keen interest the outooØ of your negotiations for the passage of the
am 14i6aing-47

Yours sincerely,


Estes Park, Col.,
August 24th, 1916.


For over two weeks I have been without( alp here and

ot of °there,
won't attempt to do so to-day, but wi ifTts4 fully to..

consequently unable to answer your letters and
morrow or next week.


--Am going to/D0,av14* baturda\ o meet two

of my yonngsters who are coming

I have a letter from

t wi )my brother Billy.

// Glass expressing confidence

tne exception of the -prow
that the smendmentgwili-Ta)\
vision authorizing change of ileder'$Yreeerve notes for gold.

This is very disappiki tiny."may get up a little brief on this
end him ari'AlAsend you a copy. he certainly takes
a narroi view of eor very fundamental banking prineiples. If
he does
may decide to send him two or three good
books on thEIT-gaject which he should neve read long before attempting to say *hat kind of legislation this country needs.
t.ave 4uet learned confidentially that we wore very near
success in
ting the New York trust companies into membershipi
but they h Vs now been advised that membership in the system will
Me imposwiible co long as they have any private bankers on their
Board of4Directore and, consequently they cannot afford to join:,
matter w


Hon. Paul Y. Warburg.

Aug. 24, 1916.

This is another kick-back from that wretched Clayton Act, which in

turn, was a product of the still more wre,ched FUjO fiasco. It means
a new aampuign to amend thc, bill and we must get at it promptly.

have written the office that I expect to deva01 a little time to getting up a brief and draft some sort of amendment and I hope that you

and your associates will get your shouldars behind this and get something lone next December, if it cunnet be done now.

There is little news here exce?t a very favorable reort
from Dr. Sewall whom I saw last 8aturday and who says that I am mak-

ing excellent progress.

taint all this Winter.

he has determir441/-to ke

e inhthe mount-

As thio place v& 1l be dose tled next month,

will take tne opportunity to
serious we
increasing the
quantity as the Doctor permi e
Please toll 1 s. - burg that have ar unanevured letter
from her which will roc u er.4-ation. She is the best correspondent I have, and eyNo say without qualification that it is
not the only roopoe n whi ,fine is the "best ev(Jr."
also ha
e'tter from Bettina, but no oho Zailed to send
a microsci0
sitI have not been able to read it -1 yet.
opo they are not keeping you trotting hock and forth to
CI if you are going to indulge in any traveling, come out


My warmest regards to you, old man, and molly thanks for
your letters which go a long way toward convincing we th* 1 am not

yet out of it.

Hon. Paul
Loon Lake house,
Loon Lake, "ew York.

iaithfully yours,


Estes Park, Ce1.1
August 25th, 1916.
Dear Warburg:

In my letter of yesterday, I omitted entirely
to refrer to the Kansas City Convention o fa-A erican
This is the most/importan

Bankers Association.


to be held by our members since the organization /o the


7yetem and I feel convinced

INss the-rts-skive banks

and the Reserve Board are a equately presented there we
may suffer the ince isnien kof_ hos,i1 aclion.




My experi
of representatives


/the West at these bankers meetings

actsrut: some rest int



s hat-494-en'that the mere psesence



)51/ioringe about more conservative

Cannot y'an-nnd some of your associates arrange


to atten Fa m

it not be a good scheme to notify the
Federal sterve Banks generally that they should endeavor
to have zpresentativee there!
I am mighty sorry that I
cannot be there myself, but our office will be represented
and I hope adequately.

I will write you fully about various matters
next week.

Sincerely yours,

Hon, Paul M. Warburg,
Loon Lake House,
Loon Lake, New York.


The telegram given below is hereby confirmed.



August 24, 1916.
Paul M. Warburg,
Loon Lake Hesse,

Loon Lae, N. Y.

Aenuments reported by Conference ysterAay.

Changes in Senate bill

are as folio s: First, L.,e;ber ban,,s'alloveXto carry voult reservs in Federal
reserve banl,s with Board's auproval. Se5end, wr-iver claust, amended to re..ld
Upon tae iLiorsecent of arty of .iite member b4n,s which &Lail be de zed
a waiver, etc. as to its own indorsensent e:,011.7sively End qr.ote This elitiQuOte

nates :lecesoity of expresseu "ialveybut it does not correct difficulty raised

It bills
Third, Amendment to Seetion 16 coppletely mlittai
of sichai,ge ;nd ban ere' ccsloYsLces furcaa.:ed La open market are ma,le eligible
as collateral. Fourth, brancE bank arverrit.ent stricken out. Fifth, me,rbar
bark acceptances draAn to tarnish exchang, lifcited to filty :Lr cent of capital
anl surplte of acceptimg26en.. Co lerence failed to incororate days of grace
in Section fourteen, failed tc ncorporaLe provision authorizing Federal reserve bans to,acquire bills drawn by non :lember a7; pell as rLember ban-5 f,r
exchange purpttseilo ani failed to incorporate provision authorizing reserve banks
to receive deposrls fror non member ban ;s for collection purposes.
by bankr...




(Stoma) G. L. AILISON
Assistant Counsel.

August 23, 1916.

aocordanee -ith the provide= of paragraph (o) Of
section 14 of the iederal Reserve 'Lot, the iederal Reserve iiank Of
New York hereby reapeotfully maknn application

for the consent of

your board to open and maintain a banking aoeount with
the .1.1ank of
:nglund, a private corporation established under the laws of the
United augdom of Great..A-itain and Ireland having its principal

place of business in London, :.*:rland, and to appoint the said :Ank
of ,..agland its aorrespondont, and to establish the said. 3ank of

Ima its agent in the said United Kingdom.
.inoompmering this applioation is a memorandum prepared by
Governor Strong of this bank outlining the reasons for uthIitting

the applioatien at this tile.
Respect /7'414,

Deputy Glove .or.

Federal .ialserve Liourtt,
Washington. D. O.


Estes Park, Col.,
August 29th, 1916.

Dear Warburg:

Yours of the

26th has just come

and I am still not

going to answer this and the other two lettere-i-f*T I have
been a bit knocked out by some mysterioul/

use, po

*bly a

put it MOwn to

little cold or something disagreed with


the devil's hendiwork anyway.


put me to bed and that is wh-

I have b en since last 'fivers-


cat Itesh-s_suzgWetion

Lay eye just

from my earlier

re, as you/ iae

sue plea

,isu can




dce'-kii- telegraph me in advance so I can make



that you may come

up but it is a case of duty ver-

I am crazy

out here.






fiAn-A:Ap not AiLbil, they

Officially, I say, do not


Pe donally, I

say, let Kansas

City go hang.


I eidded another blast to my first letter to Glass, af-

ter hearing from him that the note
send you a

provisions would

copy for such use as you may desire in

with the Kansas City


be lost, and


it is the product of a fevered

and distempered brain, but I would not have written it
felt pretty


of the ground.

unless 1



Hon. Paul M. Warburg.

Aug. 29, 1916.

I will be delighted to go over your manuscript but
do not feel that L can "put it info shape", as you suggest.
You are the great speech writer and I am simply the dull critic.
My very b3st to you and all the family.
Sincerely yours,

Hon. Paul M. Warburg,
Federal Reserve Board,
Washington, D. C.


Estes Park, Col.,
September let, 1916.

Dear Warburg:

I have three letters from you unansweiprd, all dated
from Loon Lake, the 1.1st August 26th.

neon's wire about the
to send me, an4 your

Also, tie copy of liar-

amendments, whiAhsysoui

good enough

own official i-elegram,

irst of that

character from you as Vice Gov.1;

infernal "days of grace" whi
up the chimney and gettIng,som


tivisAng me

bout those

o have a way of popping
re and hiding, so far as the

public press is conicerned.\\

I sincere

hope ev4

by nan_d_i-da

in Washi

thing is coming smoothly for you
the new organization turns out

ell. /Now I would like to drop in on you.
and whi

last4j )iteek or

ten days I have

been feeling wretched

upset, I suppose it sets
I felt mean for a while.

just an unfortunate

me back somewhat and certainly

in an

also, has resulted
some days to


of mail which will take

About the Aiken suggestion; he has all along been my
firel choice.

On the

other hand, I

omitted to

mention in a

that the development of the foreign business
would make it highly desirable for us to get Kains, if he 'Would
be willing to come, (which I doubt). I am writing Jay on the
former letter


Sept. 1, 1916.

Hon. Paul M. Warburg.


subject to.-day, carrying out the program we arranged by corres-

pondence some weeks ago, and you will undoubtedly hear from him

about it.

I suppose you realize that Kains knows the London

bill market

better than any of us.


and English bankers pick up information

those Canadian,


English bills, no

matter where they may be carrying on their nefarious trade.

also knows the usage, as well as

thG technique of

the business.

I hope you and Jay and Treman talk it over the text time you have

a meeting together.
I am glad you liked my


care as much for the seoon
If you decide at


the subject of the notelpeue
manuscript of your






You may

o come out squarely on

am awaiting anxiously for the
I will adopt your suggesw

tion and begin tote a few)a ticles for the papers on various
e Fed\11\1R
reSystem and takeagood hard lick




at thie/Oarticular subject.



Possibly you


u with

.4- of the manuscripts for

16/Itiso take

won't mind if I in
editing and censor...

up the question of Treasury relations,

business and (what interests me more

now), the whole subject

of our currency and


anything just

its defects.

idea was to make it as litle technical as posoible.
About Russian conditions, I must say I am not very

fully informed

and certainly not well enough posted just now

to do any newspaper writing, nor did I see the article in
Wall Street Journal to
paper out here.

which you referred.


I do not get that



Hon. Paul U. Warburg.

Sept. 1, 1916.

People who visit Russia tell me

that if Russia had

a year-around, ice-free port, say, for exampbe, a Mediterranean port, the development of agriculture in that country
would be astonishing.

Russia must go


the same period

of exploitation, financial, industrial and political,


of its unfortunate

histok immediately

following the Civil war. When her productive

balances that4;;=47i7ia


elusion of the Civil war, I hay

ahead fast, end in a general<
about their future.
but on the whole,

those in inv


0 ed after the con-


hewill jump

e about the last Russian loan,


on any of these foir ign loans

acity begins to

a e been rather optimistic

I know



that ultimate4with beneficial

results marked the 25 or 30 years of our

build up thbeebig


we are going to lose money

hat are now being placed, either

hape or/those

handled by the banks.


would rli,bir thatavakiifba.e--61/the securities now being issued



to the public han


seems to be the case.

Any/ of them, but


are short

I think our

time loans and,

frankly, I think are bettor and present less peseibility of
shrinkage than much of


American stuff that the banks have

formerly held when they ought not.

Do not forget that you are going to send me a letter
in regard to the matter of

our foreign correspondents.

The fate of the omnibus amendment bill is
The note provision was the most important of disheartening.
all and
losing that makes me sick.

Glass has fallen down there very



Sept. 1, 1916.

Hon. Paul M. Warburg.

badly and displays an ignorance of the whole subject of currency

that is deplorable in one occupying his position.
Can I now urge you to try and postpone any further action in the matter of postmasters acting as collection ag,nts!

If we have to employ their services, don't let us advertise the
fact, but take isolated cases, like Lyford who is amusing himself by shipping silver dollars in settlement of items, and get
either the postmaster or some one else of responsibility in his
town to present chocks at his


appreciate greatly the wafm e preesions)Of regard

from the different meaers of

who writs/me and hope

that from time to time as tej have o.prtun1tf they will keep
me in touch by drovi g me t line. Wuld you mind saying this

to some of them if you
Your last

you are feeling p

26th gives we

the impression


It made me cheerful, particsuggLet
at you might get out here the last of
-.120:11,:fail to do it if there is a possible way of
would have liked seeing you before the meting and gilng over that speech with you, but that of course is
y ohe

i /-

Some time, if you have the

opportunity, would you mind

whispering in Delano's ear that I consider him a loyal friend of
the Federal Reserve System and one of our main standbys there in

He will know what I mean, just as you do.



Sept. 1, 1916.

Hon. Paul M. Warburg.

Of Rourse, I know that nothing will induce you to throw
up the job, that you are going to stick


out and that I am going

to be back there with you in some shape or other to help where I
If we could get the note provisions right


Uncle Sem to pay the

cost of the note issue, say for a period of

years, you and I could make this

Federal Reserve System the great-

Without the note provisions fri.ght, we are going

est thing ever.

to be terribly


I have a great feeling of sympatw1k
others about



I wish I could


sary und

you and the

he Clayton Act.

the puzzle and have asked

h I could do some work.


like M

tan glad yl,


out 150 pending applica-



them to send me aryl



The office advises me that the

and then get


He is a splendid fellow

and it was a gods* d that b9fould step in there when I left.
e above


e little rears to send from here.



Vy younger boy and

1 are/ with me and I expect Ben in a few days.


\erriTiiime y running comments on your

likary bi'here for some

time as the college and school open-

ings are delayed I believe by reason of the epidemic.
Please give my
Bettina and

tell '!rs.

will probably take

warmest to

your partner and wife and to

Warburg that a letter is germinating which

form in a few days.

ment, I am enclosing some photographs
son, giving

various views of the

mistake one of them

sleeping porch.

Hon. Paul M. Warburg,
Federal Reserve Board,
Washington, D. C.

Meantime, for

that were

her amuse-

taken by Miss Thomp-

mansion we are occupying

for a hospital ward.

Aaithfully yours,

It is


just the


Estes Park, Col.,

6th, 1916.

Dear Warburg:

Yours of the 1st just received, and a letter received
or two ago from Harding, intimate t

come out here

I.= oth


you might

for a fe.Y days after the Asivention.

lease try

and do it.

I will meet you in ,Osem,azjf you pref4, to save


time, which would be

the two

the Park and back again\
Thank you for





it wo t# talitYSrOi; to get to

/ / the days of


That poor little amendme

ms to have passed through every

vicissitude before f

'4ng through.

the bill Nw

I am glad


but terribly disappointed about

note issue.
oltat the foreign business; of course, I can understand the hielitation which you and some of yolir associates die
the amendme tril:r7gad to the

play in regard to starting transactions with the Bank of England

until the State

On the

Department has had ovortunity to consider the


hand, is

it quite fair to conclude an

rangement now with no expectation of operating under

quite °leer to the
Y u I am sure, agree

we make that


Bank of England?

with me that the advantage of the

arrangment at the present time is really more with us
Dank of England.



than the

The amount of money we would employ would be

Hon. Paul M. Warburg.


Sept. 6, 1916

small in comparison with the total of all credits

employing in this country, and on the other hand, we


.d accumulate our exchange

our bills on


which they

at most favorable ratee and buy

favorable terms.

Say $25,000,000, em-

ployed as a stabilizer by some one operating carefully in sterling, will go very much further than one would imagine offhand.
Nor do I believe, as you seem to infer, that the Federal Reserve
System could undertake successfully the entira-buzden of
exchange around parity.

We need to devejo,

our f

ities and

1 aleititys have

machinery, simply to do our share.

mind that

we have taken about*600 000 009.--61147

of which

from Eur


must return, possibl


some part



/a very


ge part, and the Fed-


eral Reserve Bank of Ne\ York

supported, tiy the

banks, should be the one

-'teuj.nie flow as far as regu-

0 r

other reerve

lation is possible.




held in

gn countr,

/Chili, Argentine, Brazil, Australia,

Japan, India



in regard to gold reserve



carried gold fibroad and counted it

other countries, have

in one way or


another as re-



At 1,he prenent time, the Bank of France is carrying

573,000,000 franca abroad in

that way which, of

course, it shows

separately in the statement, and the Bank of Russia is carrying
a very large sum abroad,


Bank of

which it shows

in its state-

England, as we know, does not carry gold out-

side of the British Empire, but it does

South Africa and



Canada as pad of its reserve.

gold in



Sept. 6, 1916.

Hon. Paul M. Warburg.

I do not feel very strongly one way or the other
about this particular

point at

the moment, although logically

if we are to effect international gold arrangelents at all, it

must necessarily be upon a basis of counting gold held abroad
as reserve, if the arrangement is to be of any considerable

In regard toithe gold held abroad by the Bank of the


Netherlands, I think it would be found on
the Bank of the Netherlands has actually




fljatiod no e


this gold and that it does count as partial!' the notl eserve
/Bank of

of the bank, but the point is 17t-Alt-e,rial as to


6-a-rryi g\ over BO

the Netherlands because they


reserve now



notaOssue is

and, besides that, thei

the bank

without spocifi \IKlecii


Osnured by the assets of


e case

of our notes'.

There never ha1i1\7 time since the days when we
confiscated Tory pro
ur discr

greatly t

diately after the Civil war, and
,Ar,t private property has not been re-


spected by

r-lalli_gsrente in the present war.

no concern


I really have

about the possibility of war between England




and this colinjtry resulting in the wholesale theft of private

property, such as you seem to fear.

1 admit

it was

done by this

country in a most discreditable manner about 130 years ago, and

the brightest spot in Alexander Hamilton's record is the magnificent fight that he mnde in New York State to save this country
from the everlasting blot on its honor that would have resulted in
the violation of the treaty with England and the wholesale thievery

of real estate and private property held by English citizens in
this country.



Sept. 6, 1916.

Hon. Paul M. Warburg.

You and I would feel very much easier about this mat-

ter if

the note provisions Of the Act were in

better shape and

if we had succeeded as we might under different conditions, in the greater part

of the e600,000,000 that has re-


cently been

Please do not forget that


arrangement is


upon a purely selfish motive, namely, the desire to protect ourselves later on against what is almost sure
When this miserable war is con rded, if i ever is,
I have hopes that you and I will journey to Europe AOgether and
perfect these arrangements al


finishing stroke of the

lhank you v r


very much bet or to talk t is

to have

ing to


me out he e and


'Xbest regkr-do/to

that can be
b before
both take to the woods.
for your:1 tter. It would be
metttar-ver and I am terribly keen
The best way is for you and Harda little holiday with me.
Po s

you, old man, and many thanks for

your patietde irithis difficult foreign business.


Faithfully yours,
Hon. Paul M. Warburg,

Federal Reserve Board.
Washington, D.C.

UNIONForm 260









SENDthe following Telegram, subject to the terms

on back hereof, which are hereby agreed to


Estes Park, Col.,
Sept. 11, 1916.

Paul M. Warburg,

Federal Reserve Board,

Washington, D.


Sending important telegram to Jay, Shoreham Hotel regarding inter

locking directors.
Benj. Strong.





'b .

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., Jnd
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Estes Park, Colo.,
Ceptember 11th, 1916.

Dear larburg:

Yours of the 6th end 7th and the copy of the Kansas
City speech are all here and I expect to return the manuscript

I heve read it through once and am just
getting ready to tackle it again. lt is very good indeed, but
will reserve all comment until I have finished it.
It has been snowing up here all nignt, just now is
raining and I expect when it clears up to find the mountains
prettl white with snow. This is the first touch of 'Ninter
some time to..morrow.

that generally sweeps over the Rockies at this season.
The statement of the bank of September 5th just
renchee me, snowing Due Other Federal Reserve Banks, over

$48,roo,000 gross, end :'432,750,000 net, An a result of their
lerge seedigs a! exchange, our silver certificates and greenbacka ere up to about $27,000,000. This is the same old difficulty which we have discussed so many times. ;With the pleth-

ora of gold in New York just now, I imagine they will be able to
work off the silver and greenbacks in the course of a week or two
but the situation is really a bad one and throws the entire burden on New York of sorting all this money received in settlement

I think we ought to straighten it out. You will
notice that I mentioned this in my letter to Mr. Glass, on which
of exchange.


Hon Paul V. "darberg.

Sept. 11, 1916.

would like to heve more ex ended comment than is mede in your let-

ter, end I mention the matter now in the hope that you and your associates may feel justified in pointing out to !er. Glass very forcibly thts

fundamental weakness in

the whole situation.

There seems to be three things that we can do:

One is

to present these silver certificates and legal tender notes to the
Subtreasury ae raeidly as they accumulate and demand gold.


will raise the dust right away; the necond is to enter into arrange-

ments with the big

New York banks to buy exchange on the other ied-

eral reserve cities.

This is not a good plan, as it will be construed as retaliation by the other banks and, furthermore, will enormously increese the float, which by all means we should avoid.
also breaks down the system of deferred credit.

The third


plan would

be to regulate the amount of sendings from the other reserve banks by
a system of charees.

This will be strongly resisted

by the other

banks, as they are now making profits out of New York exchange, par-

ticularly, Chicago, and any systm of charges which we might impose
in New York will have the effect

of dividing their profits.

am sure,you will agree with me that in settling the
policy in New York in the-se matters, we heve been willing always to

ignore questiors of profit in the interest of the whale system. 3ut
we certainly cannot afford to ignore a situation which has the possibility of pumping our gold out in e few days or weeks and stripping

us right down to silver and greenbacks.

Once before, this occurred

when our holdings got up to a totitof
You can imagine
what a position we would be in if this accumulation took place at a


Hon. Paul M. Warburg.

eept. 11, 1916.

time when the exchanges were adverse and New York was shipping

gold to Europe.

Ne would literally be swamped with silver and
greenbacks and unable to meet the demands of our members for ex-

port gold. Frankly* I do not think this situation is one with
which we can afford to procrastinate. So much for the domestic
exchenge matter.

New, replying to yours of the 6th, I am keen as a
brier to see you out here and your letter gives me the first real
hope that you will make the trip. i expect to meet you in Denver anyway, and the only question to be decided is whether you
fool able to spend the time to run up to Estes Park, which would
take one day each way.

We could come up by automobile if the

weather wee good und you would have one of the most beautiful

ride in the country.

Any plan you make would satisfy me entire-

ly, enj if you eey atop in Denver, I will get rooms at the Brown
Palace Hotel and we can divide the time between a good chin in
the hotel and some drives about the country. A letter just reeeived from rre. Warburg indicates that she is tempted to come
too. If you can add to the temptation and just bring her along,
I will be more than delighted. Please do not disappoint me about
coming and let me know whether Harding expects to come too.


wrote me that he night come with you.
A few days ago, Frenk Vanderlip telegraphed me that he
expected to go to Kansas City and he and Frank Trumbull might come

out here efter the Convention. As you will come before, tore is
no chance of bumping heads, but I telegraphed him that you expected
to come on if you could and you may hear from him about it.


Hon. Paul M. Warburg.

Sept. 11, 1916.

All that you say about Aiken and gains is very true

I have asked Kains if he could recommend a good foreign

If we could get just the right man and then make
a combination. with Aiken, it would give us o splendid situation in
New York.
Aiken is already very well and favorably known in New
York and is such s charming fellow that he would he a great addiexchange men.

tion to the office.
It amused me to read your explosion about Ruesit and
Sam McRoberts.

Russia is a good deol of a mYstery to me.

I have

red very little about the country and, of course, defer to your
own batter knowledge. After ell, is not the groat difficulty
there the character of the people, rather than the cou'htry itself?
Bad politics, unreliable business principles and the indifference
of the upplitr classes to commercial and industrial conditions will
destroy the prospects of any country, and I suppose that is the case
in Buseia. On the other hand, they undoubtedly have tremendous resources for development end some day they will get ther producoing.

I am astonished at what you say about the amendments.

Carter Glass in too erratic and emotional altogether for work of
the character that he his undertaken to do. He strikes me as being
full of prejudicee without logic. Possibly, his own mistakes are
necessary to convince him of his liMitations. I have rot yet re-

ceived the final draft of the bill as passed, but when it comes will
make that the excuse to write Glass again if you think that is a
good plan, and give him another jab on the acceptance matter,


Hon, Paul



Sept. ll, 1916,

I am getting ready to prepare some of thoee articles,
in feet, have made notes already for one and hope to start dietetion before you get here.
While it is none of my business, let me repeat what
I wrote to Vxt. Warburg yesterday. Don't take any risk in bringing Petsy down from the mountains until cold weateer has regally

set in.

I have a horror of the possibilities of infantile 'par-

If it ill not fetal, it invsriably leaves a cripple.


hove a little cousin about Betsyle age who will never take a step,
ac a result of this disease some years ago. letter let school and
overytting elze go rather than risk a new epidemic, and possibly,
The quotation you sent me from the Economist is very

interesting. I think we have got to recognize that during present conditions when the trade of the world is so terribly out off
balance,. meny financial expedients must be employed to keep things

I suppoee we have got to do our moderate part.

I would

like to see more bine appearing in New York with documents attach-

ed and yet realize that wonderful progress has been made in that
direction already.
I suppose you know that the Bane of France and the Chamber of Commerce have a representative in New York just now doing

nothing else but negotiate such credits and they have fallen in with
the idea of having them opened in the right way and having bills
neeotiated without renewal obligations. They tell me such credits are being arranged for certain purchasee of railroad materials



Sept. 11, 1916.

Hon. Paul 4. Warburg.


purchases of copper, for financiklg Egyptiae cotton and for a

good many other purposes, the aggregate amounting to a large sum,

but no particular credit b

Ang very extensive.

um advised that some very large cotton investments
this year will be carried on 90 day bills drawn in dollars.


were also advised that the 40,000,000 credit of the Bank of prance
was paid off in full and a new $25,000,000 credit arranged, the
same to cover the movement of new commodities.

It is a little egotistical to take all the credit for
influencing matters in the right way and yet 1 know from what has
transpired in New York that it has been our own insistence that
these bills should be drawn in the right
in the development of the market to date.


that has resulted

Our ability to say that

bills were eligible, or not eligible, according to our own notion
of what was the proper method, has really forced them into line.

The English MIAs referred to by the Economist are of identical
character with many of those being drawn in New York.
You will be somewhat surprised that Jim Brown has written me that Sir F,dwerd aolden is reported to have caoitulated, at

last, in the matter of dollar bills, and the possibility of


banks deliberately adopting the policy of recommending American draw-

ings. Unfortunately, as stated in the article in the -conomist,
the supply of bills in London has dwindled tremendously. To-day,
it is not more than a quarter or a third of the normal volume, due
of course, tc *the large amount of government purchases, for which


Hon. Paul M. Warburg.

Sept. 11, 1916.

ensh in paid; in other words, treasury bills h,ve supplanted comracrcial bills. This puts one sicie of the market, that is the
inveslment side, in distinct opposition to our efforts.
Pardon this long letier. It is jusi,fiod by yours
of the 6th which I hnvc enjoyed very much. Do it again.
With lots of good wishes,

Paithfully yours,

Hon. Paid. P. Warburg,
Yeder41 Reserve I3oard,
Washington, D. C.


Estes Park, Colo.,
6eptember 12th, 1916.
Dear Warburg:

I did not realize until sitting down to go over your
Kansas City address that it is a good deal eesier to make suggestions and criticisms personally than in writing. When you
come to read over the manuscript, you will think possibly that
I have a very pour idea of your diction. Please consider that
every change suggested is merely a suggestion and not a criticism, and that most of the changes of words were made with a
view to strengthening the sound of what you say rather than the
substance, and to save time, I have raids practically all comments in the text on the margin.
The following special comments, however, seem necessary:
Page 13.
In discussing banking reform, we have always

considered that individual gold reserves were a source ofweakness to the System and your language on the first line of this
page might appear to contradict your former statements on this

The incro se of nearly 400,000,000 of gold
net, I believe has taken considerably more than one your for us
to accumulate. The gold movement in our favor, as I recall,
started in the early Summer of 1915, but the net addition of
Page 17.

$600,000,000 would have to cover the whole period of two years

so as to includO the earlier loss of gold which was later made
up by large receipts.


Sept. 12, 19161

Hon. Paul M. Warburg.

Page 16.

You refer to $2,500,000,000 of gold as being

the country's total gold supply, but the language on page 5a,
line 15, might be understood to mean that the country's total
gold supply is ttl,.:),000,000.

I think you mean that this sum

is in circulation in addition to the t530,000,000 held

by the

reeerve banks.
Page 19.

I am not at all positive about my comment

on the figure of 1500,000,000 of AldrichVreeland notes.


memory, however, ie that t388,no,000 were actually put into

(Again let me apologize for numerous changes of

language, which probably are not justified, but which it seemed
to me might make the speech "hear" better).
Page 21.

AsI recall, the total deposit


of national and state banks in the United States is rapidly approaching $20,000,000,000.

This must be three or four times

the total of the Lnglish banks.

Adequate protection to the

stock banks of thi* country would really necessitate assenbling


in our central banks three or four times the size of

deposits carried by the English banks with the Bank of England.
The note on page 21 in regard to the theory is simply
to draw attention to the fact that this

referehce to

the theory

is a bit obscure.
Page 4a.

The same note in regard to the Chronicle

might appear on almost every page with equal jusitfication.
Page 5a.

The statement of the amount of gold with-

drawn from circulation in France during the period of the war


Hon. Paul M. Warburg.

Sept. 12, 1916.

as 01,000,000 is really quite incorrect.

What has happened

in France is not directly reflected in the statement of the

Bank of

When the Rank of France and the Government


made the appeal to the French peasants to deposit gold, the response was instantaneous and tremendous.
last February,
had been


gave me the figures showing that t260,000,000

deposited with the

this appeal.

When I was in France

Bank of France, an the result of

Since that date,

these deposits liave averaged

about :-5,000,000 francs a week right along.

The reason why the

Bank of France does not show a greater incsease in its gold Holdings io because it is shipped to London for shipment to haerica.
Nobody knows

just where the

gold reserve of the Bank of

France is now held outside of the officers of the bank and the


Recent reports show

that nearly

600,000,000 francs

surmise is, and has been right along, that
there is a oonstant movement of gold from France to England; partare held abroad.


assist in
It is quite incorrect to

ly for security's sake and partly as a contribution to

correction of hmerloan


say that only $71,000,000 has been withdrawn from circulation during the war period, because it is probably

more than fear times

that amount.

Another point in regard to the language which you use in
thbee few sentences is the failure to explain just what you mean
by withdrawing gold from circulation.

Some people might construe

this as meaning hoarding by the people. I understand it to mean
withdrawn from circulation by the central bank.


Hon. Paul M. Warburg.

Sept. 12, 1916.

The other note on page 5a relates to the matter mentioned above on pege 18.
Page 6a.

Your expression "unduly early end unnecessa-

rily drastic measuren of defence" strikes me as a bit inappropriate.

The logic of your argument would lead to the conclus-

ion that we will be forced to take emergenoy measures at the
last minute wnioh, as a result, would have to be unnecessarily
drastic and alerming in order to accomplish a purpose which could
have been brought about easily and without shock, if undertaken


in advance.

This all recall

the days when we were sitting

in the Subtreasury in New York and the Treasury Department in
Washington devising all sorts of schemes to get together gold,

exchnnge, provide marine insurance and do all sorts of things,

many of which would have been entirely unnecessary had our bank-

ing system been in full operation, not as provided by the present
statute, but as would have been possible with the Federal Reserve
Act in operation as amended by recent proposals.

Later on page ta

you refer to surplus reserves being tied up RS the basic, for enlarged deposits.

,This might open the door to criticism, because

deposit liabilities eannot increase without a corresponding increase in the loan account unles s, of courne, accompanied by a
very 1erge corresponding increase in unemployed reserves.

It is

a minor point, but I always have in mind your friend the Chronicla
and the joy with which they will pick any flaws in your address.
Page 9a.

I hate to read any statement from you which

condones, accepts or even tolerates, the perpetuation of our bond


Hon. Paul M. Warburg.

Sept. 12, 1916.

Maybe I feel too strongly about this. The
succeeding sentence, which I have marked 0. K., takes the sting
out of the previous one, but does it do it enough?
secured bank note.

I have not the data handy to make a calculation but my impression is that if one deducts from the net liability of the Federal reserve benks on Federal reserve mtes the
Page 10a.

actual amount of Federal reserve notes hold in the tills of all
the Federal reserve banks, along with their other vial, it will
be found that there has been no he issue of Federal reserve

notes at all.
Page ha.

The marginal note needs no explanation.

It strikes me on reading the address th+
second time that you have intvoduced the subject of the Federal
reserve bank notes and national bank notes between two different
parts of your argument in regard to protecting the gold reserves
of the reerve banks. Might not the last line of page 12a, all
of 13a, all of 14a and the first two-thrids of 15a naturally come
in the middle of, say, page 10a, or possibly at the end of the
first paragraph on page ha?
Page la. iciu seem to accept as final, the conclusion
that the only method of retiring greenbacks is by the application
of the accumulated profits of the Federal Reserve System. You
and I should be the lest ones in the world to accept this as final.
Page 12a.

Some day, means must be found to eliminate the greenbacks, and /

believe that once we get at it earnestly, particularly, if there
is a new and Republican Congress, it can be done with less


Sept. 12, 1916,

hon. Paul W. Warburg.

difficulty than one would imagine.


far, our excess profits

pay only Irish dividends and won't retire any greenbacks.. The
gold reserve of 0.50,000 000 behinC. the greenbacks has been increased to 0.534000,000 by the profits of the Udrichi-Vreeland
currency. It would please me a lot if you would avoid mailing
your colors to the meat ae to how the greenbacks may be disposed
of, as some day we may be working on a plan ror their retirement
and this speech might come back to worry you.
?age 3a.
do not understand your reference to return,L

ing a portion of the paid in capit-:1.

The member banks won't

want it returned whenever we pay them 6 % on the investment.


woAid be inclined to leave out this reference about a probable

return of the capital.
Page 6a.

The sentence in the middle of the page 1.4..

plies that memberonip by state banks only results in burden,
whereas, in another p6t of your speech you have strongly empha..

sized the policy of the Board in making it so easy for the state
banks to take membership and that they are,maally enabled to en-

joy benefits with veri little burden. 1 suggest putting in both
sides of the picture.
i'ago ha. Please pardon the facetious comments on the
margin. I can almost smell the sulphur when this is read. The
sentence marked to be omitted might be construed to imply that

there are A let of questions pending thnt cannot be discussed in
public and some newspaper might make this the basis of a story
suggesting lack of harmony.

Hon. Paul M. Warburg.


Page 12a.

:10dt. 12, 1916.

I have made a slight change in language to

avoid ineonsisteney and hope it appeals to you.
Rider x. The use of the wrd "secure" will certainly
be eisunderefood. So many people have in mind thnt oer note
issue is secured by gold that they won't catch the meaning of this
Rider d. The figure of $204000,000 of gold mystifies

me a bit. We have received $603,000,000 net from Furope since
the Federal reserve banks opened, a greater pert of which, (if
not all), has come to New York. Does this mean the amount which
has been taken in by the Yederal Reserve Benk of New York and

again peid out through the Gold Settlement Fund, or otherwise?

If this is the meanirg, I still think the figure incorrect adcording to a statement recently sent me by the boys at the office.
So much for coement on the lenguage of the speech in de-

As a whole, I believe you are going to have a little difficulty in holding the attention of a large audience through your

elaborate argument which contains mnny figures in regard to the

It in a difficult and technical matter to explain and I am inclined to recommend that the middle ortion dealnote issue, etc.

ing with the subject of reserve notes and national bank notes be

restricted a little bit for the purpose of reading, but published
just as it is now. It will be easier for you to hold the interest of a crowd of wooly bankers.
The whole address is mighty good, timely and very much to

A lot of thoee farmers won't understand, but it is nibt
necessary they should. They will be impressed with the importance

the point.


Hon. Paul Me Warburg.

Sept. 12, 1916.

end seriousness of the whole subject and the fact that you and
your colleagues know what you are talking about and that the
average country banker is very ignorant on these subjects.
will undertake to say that there will not be more than 150 or
200 men in your whole audience who will grasp the importence

of these matters, but all of them will be very much impressed
with their own ignorance after hearing it. That is one reason
why I think it is a good speech.
There is one point that I would like to see in there
that you hayt not mentioned: Every time we get together with
member banks or with a Committee of their organization, we make
some progress.

Take the cooperation which developed from the

meeting with the Committee that represented the t4tional Hank

I believe it would be a good plan to tell the Peso

elation right frankly that no opportunity has been overlooked
to invite the member banks into their councils and you are pre-

pared to continua that policy, expecting they will cooperate
with you in solving problems rather than standing on the outside
and throwing stones.
I congratulate you on the result of your work and hope

that it takes like "mother's milk".

I hope to be prepared with

something on the subject of the noteissue as a q9melDP.c to the

Chronicle, which will certainly criticize everything you say.
In the meantime, 1 hope still more that we will have a chance to

talk it over.


Non. Paul M. Warburg.

Best regard3 and good luck.

Faithfully yours,

hon. Paul M. Warburg,
Federal Reserve Board,
Washington, D. C.

Sept. 12, 1916.

Estee Park, Co/O.,
-September 15th, 1916.
Dear t7arburg:

The statement of September 10th just received brings

out quite strongly one feature of the exchange situation which
I think should have creful stay. Exactly a year ago, the
float between the reserve banks was e8,000,000. It is steadily
increasing and on September let was 35,000,000, September 8th,
2B ,000

Every dollar of that money is an impairment of our reserve position. I judge that it is due to two c,Juses principally; one is the practice of the interior banks in taking New York
exchange, and posSibly Chicago exchange, for immediate credit at

a discount; and the other is the inacmracy of the transit time
allowance adopted for the new collection plan, whore not suffic-

ient time is being allowed on certain items to enable us to get
do not think that the reserve banks to-day are justified in accumulating a float of t35,000,000, it iq equal to
on the reserve on all of their denosits. Th5s is just a
suggestion for consideration and I will try and think of this
matter to discuss with you when we meet in 9enver.
Viincerely yours,

Hon. Paul M. Warburg,
Federal Reserve Board,
Washington, D. C.



Estes Park, Colo.,
September 29th, 1916.
Dear "Varburg:

can't tall you what a pleasure it was to
nave that visit with you in oenver. After a rather
cold but delightful ride by automobile, i reached hero
jesturday noon and found a great mass or m 11 to clean

up, which 1 expect to tyke rather leisurely. The only
trouble with your visit wac that you had to cut it too
short and missed seeing the mount.,inc which I much regret.

1 an going to write you separnte letters on the
difisfent topics,
lith this I enclose another copy of my letter
to Mr. Class.
Please give my warr,est regards to the family
and tell a. Warburg I am owing her a letter which will
soon be written.

Lost sincerely yours,

Hon. Paul P. Warburg,
Federal Reserve Board,
Washington, D. C.



Estes Park, Colo.,
September 29th, 1916.
Dear .4arburg:

You will reaali our discuesion of the method
of treating the item of organization expense in the accounts of the 12 reserve banks. This is just to remind

you or ny suggestion that I think the Board might issue
regulation which will ensure this item being treated
uniformly by all the banks. As I recalloyou agreed
with the propcsol , as sernings now justify it, thet
everything be written off thic year except the item of
unissued Federal reserve uote which can quite properly
ho carried as an asset. The net earnings of the New York
bank to date are about $280,000. Yf they keep up as they
are running at present, they ought to be able to pay a dividend of 6 5 for a period of approximately nix months, after charging off $140,000 of organization expense.
Very truly yours,

Hon. Paul U. Warburg,
Federal Aesofve Board,

ftehington, D. C.


Estee Park, Colo.,
September 2Ah, 1Q16.
Dear ',7arburg:

in or discussion of the method of handling
foreign accounts, I spoke of a letter which I had drafted for use when the time arose in arranging final details.
Copy of thio letter is enclosed. It iu, of course, only
tentative and I would be glad to have your views regard-

ing it.
Very truly yours,

Federal Reeorve aoard,
Teshiggton, D.. C.

Hon. Paul M.



Estes Park, Colo.,
September 29th, 191(.
Dear -aarburgi

1..-ong the mattero discurced in )onvor was the

method of exlaining Federal rescrvo note action in the
weekly cttemert for 1.10 press. If you will rofer to
the lust paragraph of the st,,terert of "entember 16th,
;.e. 801, you will see thnt one not fomilicx with our accouniing method would fi:d it irr,olsible to strike a balance betweer the total amount of note r issued to the Fed..
oral Reserve Banks and the arovnt of collateral which is
hold to seovre them.

light it not be a good plan to put a little tabular ottAsment in the press rutleso so as to eliminate
the :_pwrance of a difference in the account:
Very truly yours,

Hon. Paul M. Warbure
Federal 1:eserve noard,
Vishingion, O. C.


Estee Park, Colo.,
Sentember 29th, 1916.
Dear Warbu#g:

About the Gold Settlement Fund and the difficulty of
keeping down our holdings of silver certificates anti legal tender notes: I have just received from the office a memorandum
of the way Clearing House balances have been running from

June 1915 to August 1916, inclusive.

The total credit balen-

000 htve been $291,516,000 and the debit balances :20,148,000,
eo that payments to the New York Reserve Rank by the Clearing

houee which are largely made in silver certificates and legal
tender note have exceeded n net amount of e 70,000,000. This

illustrates graphically the state of our difficulty. TO Would
heve cleaned the city of silver end legel tenders bed it net
been for the importations of eold, and only through the courtesy
of J. P. 'organ & Co., and to some extent , some of the member
barks, have we been able to effect exchange nd get the gold
which ha o been ueed to settle with the other reserve /meshy.
Through Morgan el Co. we received 453,841,000 between

October 27, 1915 and June 7, 1916, when operations were suspended.
Between September 6th and September 22nd, 1916, we received

455,229,000, a total of over 4109,000,000 from this source alone.
The other 4160,000,000 has been made up bu exchanges with Clearing

Howie members, shipments of exchange direct, shipments of silver

2Hon. Paul M. Warburg.


Sept. 29, 1916.

in some cases and about every other expedient that could be de

The largest item, I believe, outside of the jorgan

gold, has been the increased inventment account

of the


system throughout this period which, of course, has enabled us
to work off some silver.

T1ese figures wore not here when 1 wrote to Mr. Glass

poesibly, you will be good enough,,to show him from the above

how the exchangeo oeerate and what a serious situation it might


thl exchange:3

against us and wore we exeorting

gold to Furooe at the saqle time that hew York exchange was

discount in the interior.
Very truly yours,

Hon. Paul U. Warburg,
Federal Reserve Board,
Washington, D. Cl


t a


Estes Park, Colo.,
5eptember 29th, 191'6.

Dear "arbbrg:

You will recall our discussion of the basis
of apportionment of invostments by the flow York Reserve 3ank. It would be a good pin,: I believe for you

to take the first opportunity to talk this over 14th
Mr. Treman and Yr. Jay. It seems to me that those banks
which arc earning t-eir full dividends should ,:;et no part
of the allottmente et all, and correepond.ngly, those not
earring any dividend should get an increased proportionment.

It is hardly a matter that

can handle from this
end, eltnough I an -,ritin5 7r. frreman about it.
'Very truly your 3,

Hon. Paul M. Warburg,

Federal Reserve floard,
Washington, D. O.


Estee Park, Colo.,
October 3rd, 1916.
Dear Warburg:

Yours of the 30th from St. Louie reached me yesterday

and i took the liberty of reading the greater part of it to Frank
It made a great impression upon him, au it did upon
me, as by the same mail we got the New York papers, giving the

news accounts and editorial notes on both your address and his.
Vanderlip gained the impression when he was in St. Louis,
(which, of course, wac before your addressvas delivered,) that the

Convention was generally hostile to the System, and we could not
help but draw the conclusion that your address, together with such

assistance as Harding and the officers of the resorve bonks afforded, really changed the tenor of sentiment and enabled us to get by
thie difficulty with great advantage to the rihole System. ' can
not tell you how delighted I am Wit the outcome. It gives us a
year in which to wear dewn prejudice and we must take advantage of


I personally believe from reading the newspapers that your
address had a tremendous influence so the agony of preparation and
delivery was worth while.
am letting mail aocumulte while Vanderlip and Trumbull

are here, taking advantage of the opportunity, however, to bring
Vanderlip up to date on some of the difficulties about amendments
in which he is very keenly interested. You may hear from him direct
on the Subject.


Hon. Paul

Oct. 3, 1916.


.The many articles appearing in the newspapers about our

currency difficulties justify I believe going ahead

with some of

the articles that we thought might safely be publisned, and I will
let you know as soonaas the thing is in ouch snape that it seems
safe to print it.

We are all going down to Denver on Friday or Saturday
;aet for his echool on Sunday

Grandin starts

after Kains arrives.

and then for a few days we will be busy packing up and i expect
there will be an interval when you won't hear from me very often,

leut I do hope you will write me and keep me posted on news from


end of the line end I will catch up as soon ae we are iettled in

Pleese give my love to Ere. Warburg and tell her that I
have a long letter in course of mental preparation which will be put
on paper at the first opoortunity.

I am jusi now reading Balfour's

book that she sent me, in enatceee, and find it mighty good reading.
Your visit out here wee a life saver and I am really counting on coaxing you out again some time this Winter.

We won't have

to spend the time in :Jenver if you allow reasonable tine, as the Lewiston will be °leen and One other little inn further up in the mountains if you care for a rougher view of the 'eark, and we can spend
11 the time you can spare out hors to great aevantee

'ZJith best regards

to all the members of the Board, I am,

Faithfully yours,

Hon. Paul M. Warburg,

Federal Reserve Board,
Washington, G. C.


rston Park, Colo.,
October 11th, 1916.
Dear la..5>g4.,,L 44.

Mail has been iwpossible the past week whA.e Vanderlip

and Trumbull were here, but I will be writing you fully in a
day or two.

Am moving to Denver Fridliy.

shall not reply by
telegraph as a long let-fer had already gone to Mr. Jay in reYour wire has been received but

gard to Liken and you doubtless heard from him confirming this.

Personally, I think the matler is more up to Aiken than anyone
else, as I fed i sure our directors will welcome the suggestion,
particularly now that Treman has become so well acquainted with
If any doubt arises, I will let you know and will write
Mr. Jay again very strongly.
Beet regards.
Faithfully yours,

Hon. Paul W. Warburg,

Federal Reserve Board,
Washington, D.

Estee Park, Cole.,
6ctober 11th, 1916.
Dear Warburg:

I have yours of the 3rd and 6th, also, the ne:.aper
articles which an very interecting, and will help in preparing
more "dope."

You ehould %.tve learned long bofore this that ilarding
is no man to play seven-up with unless you are well.eheeled.

might be able to beat him at cribbage, but not at seven-up. he
is an artist at that game and I wonder he ha v not retired long
ago on his profits.
Llother was delighted to receive your letter and appreciated your thoughtfulness. I really think she feel some encouragement that 1 am going to get well.

'bout %be Kaheas City speech, from all quarters i hear
that it was a tremehdove suceeze and certainly, barring the Chronicle, the newepaper comments have been encouraging and complimenta-

impression is that it saved us from a bad setback, so you see it does pay to put in the work, eubmit to the inconveniences of the trip and particularly to keep your Voice up.
ry in every Way.

Vanderlip and Trumbull have been here a week, leaving

I had a wonderful visit with them. Have
been all over this currency problem with Venderlip, who is convinced
that the time has arrived when we should take up energetically the
::-Aanday night irom Denver.


Hon. Paul M. Warburg.

completion of the reform.

Get, 11, 1916.
The Federal Reserve System is a good

basis on Which to develop it, end even if Congrecs is unwilling
to deal with the matter in December, we ought to take it up actively next yeer. Unless I am mistaken, if Ur. Hughes is elected

it can be made a pt of the Republican legislation program.
of that must be kept in abeyance until after election.


I wrote Jay fully about Aiken some time ago and he should

heve received the letter before your visit with him.
There Jo no doubt that so long fte gold forme so large a
pert of our circulating medium, the belances of trade originating
in the gfeet would neturelly move a large part of 'Ude gold Went,
but the economic position of the courtry with reference to gold

I believe is a little different from that deccribed in your letter.
Our enormous surplus of exports are being pnid for by Europe


three methods:


By sellirg us back our own eecuritite,


fly berroeieg money in the open market,


By evening up the bale:nese not covered by the
first to methods, by actual shipmente o gold.

'rho gold receieed should be irlpounded by ell of the twelve
reeerve banks; some of it, of course, would fin&rite way to other

reserve banks than New York but all of it should have been retained
in the 'e'ederal Reserve System instead of being distributed emong the
reserve banks, by them to member banks and through menber banks to

the public. The only way this can be eorrected is by giving our
note issue the proper status.

00 5411N1

Hon. Paul


Oct. 11, 1916.

An glad you gave NcDougal

a dig for those fellows in
Chicago need it.
e would be better protect-5d by a large gold
holdin resulting from note iosuee than by the voluntary deposit
of optional reserves, which are likely to be checked out in time
of trouble and give us a pinch. The articles in th Wall street
Journal all helped.
My article

about rem:1;i fcr and I

m going

to send it. to Jay for the necessary arrangements in a few
This will be followed by a description or the functions of the
various classes of currency now in circulation and ho; legislation should deal with this complex situation.
r. Hendricks is here for a few days.
J. am moving to Denver on Friday :Ind my addreE:i thGre
will be 4100 Montview Boulevard.
Am still behind hand wIth the


Please tell :q-e. Warburg tnut tht letter is still ger.minating.

continuo to think of ycur visit here as a bright spot
and hope you can malze me another this Winter.

viith warmest regards,

Faithfully yours,
Hon. Paul kf, /arburg,
Federal aeoerve Board,
Washizvton, D. C.


October 11, 1916.


I enclose letter from the vice president of the National Bank of
Commerce which, with his consent, I am submitting to you,and should appreciate very much your view as to our purchasing drafts with such a long series
of renewals.

If it is possible to ship the goods before the end of two

years they will be shipped and the credit will'cease.
belief that this may be possible.

It is Mr. Rovensky's

This credit seems to be based upon the

storage of a readily marketable staple.

You will remember that we have pur-

chased- bills covering some shipments of railroad supplies to France which had

five renewals, the credit thereby extending over eighteen months.

--Te were

advised to-day by Messrs. Brown Brothers & Company of the new credit of
,5,000,000. which they in conjunction with Messrs. J. P. Morgan & Co. and

Messrs. Lazard Freres were about to put in effect before the Orleans Railroad
of France covering the shipment of rolling stock and calling for fourimemals
or a total period of fifteen months.

-fill you kindly return Mr. Rovensky's letter with your reply.



October 11, 1916.

Federal Reserve Bank,
New York, N. Y.
Dear Sirs:

A client of this bank desires to purchase hides in Buenos Aires for
the purpose of exporting them eventually to Germany.
As shipping facilities
between the Argentine and Germany are at present disrupted, he desires to
store the hides in a public warehouse in Buenos Aires until such time as he
can safely make shipment.
Our client desires to finance the purchase of these hides by drawing
on this bank at 90 days' sight with the agreement that renewals, not exceeding
7 in nutber (making a possible total of 2 years' time) would be granted.
The bills of lading or warehouse receipts controlling the hides would
be held by our agents as collateral and no renewals would be granted after the
goods had passed out of our control.
Please advise whether drafts drawn under
this arrangement would be purchasable by your bank, and oblige

.Very truly yours,

(signed) J. E. Rovensky
Vice President.

4100 Montview Boulevard.

Denver, Colorado,

October 18th, 1916.
Dear Warburg:

/loving down from the Park of course necessitated packing

the "office" and unpacking it again and for about a week I heve

been out of business, so to speak.
My last letter to rs. Warburg gives about all the personal news and just now there seems little else to write about as
my visitors hnve all left and I an settling down to loafing at the

Enclosed, aro two press statements which the Comptroller

has sent me (I tot all of these as published), and 1 am wondering
whether the policy, tnd more particularly, the conclusions, exhibited by these statements are as well-considered as they might be. I
doubt that the Federal Reserve Act has had anything at all to do
with the changes in bank deposits by districts, as is intimated by
these circulars. The cause of the increased bank deeosits in interior cities is undoubtedly the result of the general prosperity
of the country as a whole. If I were the Comptroller, I would lay
emphasis on the extent to which the reserves unlocked by the Reserve

Act and the imported reserves in the form of gold are being used
for credit expinsion and the possibility of danger growing out of
tient expansion. The reason why I an sending you these circulere



Uct. 18, 1916.

Paul M. aarburgg

is because they give the appearance
City of one member of the Board

after your addrees in Kansas

pointing out the danger to the

country of this expansion and another member of the Board bragging
about it.

am just completing that article on note issues, etc.,

and will probably send it to Mr. Jay this week and ask him to arrange for its publication.

made very much shorter than

The next one, which I think can be
the first, or


the same length

as the first and second, if the article is Out in two, will endeavor to


present the currency situation in an entirely different
I want to base the argument for amendments to our curren-

cy laws upon the fact that we are not now proposing to inflate the
currency, but to deflate it.

about $1,600,000,000 and

Our currency is already inflated

the next job in currency reform is to so

rearrange the holdings of gold that

the existing currency will be

put on a sound basisehAch has never heretofore been the case.

Won't you write me a line about the political outlook?
Every time I read Hughes speeches, I

get discouraged even to the

point of wondering whether it is going to be a good thing for the
country to have a change of


Let me know if there is any special work I can do out
Am still enjoying your visit and hoping for another.
Beet regards to you, old man.
Faithfully yours,

Hen. Paul M. Warburg,
Federal Reserve Board,
Washington, D. C.


October 20, 1916.

Dear Mr.



I a- sorry that we Jot cut off this morning in discussing the
action of the Board in reeard to the Central Trust Company and the Bank
hen the line was interrupted you were explaining that if

of Commerce.

either institution should liquidate the other would not profit thereby,
to which I replied that this related only to the liability side.


I wanted to say further wae that I understood we all agreed as to that at

the time the matter wasA.cussod in


ground of competition wae on the asset :ide;

and that the only possible

namkly, as to the use of the

funds of the two institutions in the credit market.

,hile I am extremely elad that the Bank of Con eree has eel=
able to retain Mr. Jarvie as a director, I have, as you know, explained
the position

of the

Board to a umber of the le-ding bankers here and have

-tated that the erinciple on which they wore considered competitors was
one which I had

recommended, and in every way

the Board, and I know that you
Delano when he was over here.

I have stood behind it and

understand this.


stated it also to Mr.

It seems to me that the only way such a

policy could be carried out we to put it into effect with complete consistency

Fnd impartiality.

I must say that the action of the Board in

the Central Trust Company case leaves

e all up in the air as to what their

policy is and I really think I am entitled, as the Board's representative
here, to be furniehed with a complete statement oa: what it is in order


I may know how to deal with the questions which, it seams to me, are almost


Honorable Paul M. Warburg,


certain to arise on the part of other barvs in view of tbe action in the
Central Trust Company case.

Trusting that I shall soon receive this, I am,
Respectftlly yours,


Bonorable Paul M. Warburg,
Vice Governor, Federal Reserve Board,
Washington, D. C.

Washington, October 6, 1916.


Section 8 of the Clayton Act, which becomes effective on October
15th, 1916, prohibits private bankers under certain conditions from serving as officers or directors of member banks.
A number of inquiries have been received asking the BoardsinterAs
pretation of the language "private banker" as used in the Clayton Act.
the Board is required, under the provisions of the Clayton Act, to prosecute
those violating its term, it is necessary that it should make clear its interpretation of the language used in order that the banks may comply with
the letter and spirit of the act.
The purpose of the Act, as its title implies, was to prevent unIt is obvious, therefore, that Congress
lawful restraints and monopolies.
intended to prohibit common control of member banks and of private bankers
member banks, and that it intended to preengaged in the same
serve competition in cities of more than two hundred thousand inhabitants
between member banks, private bankers, and other incorporated banks, and
likewise intended to preserve competition between member banks, regardless
of their location, and state banks, trust companies, or private bankers having aggregate resources of more than five million dollars.

activities as

In this view the Board interprets the term "private banker" to in,
elude partnerships or individuals who are engaged in the banking business,
as that term is generally understood, -- including those partnerships and
Individuals who solicit or receive deposits subject to check, who do a foreign exchange, acceptance, loan or discount business, or who purchase and
sell and distribute issues of securities by which capital is furnished for
business or public enterprises.

The term "privatebanker" is interpreted hot to include the ordinary stock, note, or commodity broker, unless a substantial proportion of his
profits are derived from, or a substantial part of his business consists In
one or more of the banking activities described, nor is it interpreted to
Include partnerships or individuals using only their own funds in making
loans or investments.
No private banker whose partnership or firm assets aggregate more
than five million dollars is eligible, under the terms of the Clayton Act,
to serve as a director of any member bank, and no private banker, regardless
of the amount of partnership or firm assets, is eligible to serve as a director, other officer or employee of any member bank located in a city of
more then 200,000 inhabitants, if such firm or partnership is located in
the same city.
The Kern amendment to the Clayton Act does not authorize the Federal Reserve Board to grant permission to such private bankers to serve as officers or directors of a member bank even though it appears that they are not
in substantial competition with sadh member bank.

Denver, Colorado,

L'otober 20th, 1916.
Dear Warburg:

There is no particular news since 1 last wrote you, nor
have 1 heard from Jay about the Aiken matte though he has report
ed all the difficulties about the Clayton At and it seems to me
from what he says and from what the P
as said that an
amendment to take care of the situation with ?jte bankers has
about as much chance as the p
celluloid c.A.
What did the Vres
hen he said there was a conspiracy to get control of the
nking system/
Did he refer
to you Or to me, or
'er? So far as we are concorned in eow York
y has been, as you know, to persuade the liew York
e enough illative interest in the
managemente bank,to_e tre the election of good directors.
You can e sure that' ome one has been pumping him full of some
I am mighty sorry that he believes them.
ridiculo snotions
sing a copy of that article which has just
gone to A.1". Jay. / hope the next one will be better.

Write me when you can.

with beat retards,
Faithfully yours,

Hon. Paul U. Warburg,
Federal Reserve Board,
Washington, D. C.


4100 !Iontview Boulevard.



October 25th, 1916.
Dear Vier

It was really

very good of your to

e egraph me after
Ahe French credit.

your conference with Jay and Curtis ilres
They doubtless explhihe
led to them about an announcemo

t e

lews which

t so If1t repaid.

with these matters, 1


But in connec-

great importonce to the country as a.,_sphaao ofh existence of a large volume
of these bills, even1e to
f finance bills, as an

offset later on to


in mind the


tion we will have whe\a\t-ha_yar


It is

the best pretec-

e ever.

shock to learn that the Syndicate
t out cir+uJlars stating that the bills would be eligible, plrti
y did 30 without authority, !tnd in that
connection, I wai
to refresh your memory of my own attitude with
both kr. Brown and Nr. Kent as well as Bonbright company in regard to the e.trlier credits. I told them in each case that we
considered it our duty to make clear the meaning of the law and
something of a

the regulations issued by the Board so that their transactions
could be made to conform to them if

eligible in in character.

they wanted

the bills to be

On the other hand, that we would take

no part in the negotia4ions, would make no pleiges to buy the bills
and if we did buy them, the amount would be governed by our on



Oct. 25, 1916.

Ilion. Paul M. Warburg.

Furthermore, that we would

rules and requirements.

not favor

the Federal Reserve Sank investing in bills by direct purchase,
that in each instance

they would

find and make a market for

paper and if we in our own discretion


determined to buy any of

its we would do so in the regular way in the pen market and

not as one of the primary parties.

The obje

of this attitude

requires no explanation.
The same attitude maintained in conndwl:\ n with this
eedom of Sition and
.credit would have left us with p f
a e held a considerable
while, of course, the reserve

amount of this paper, they ha

ld too much by any means,

considering the high ch:,

dit of

the acceptors.

announcement of our attitude
e that
towards any epocific edit oou d readily be construed as a rei
flection upon tiaejpro cl%4*et goodness of that transaction and,
to change
furthermor, , ight'embaraee us later if ocoasion arose
Then egii it seems to me we cannot expect in these
our policy

It seems t

war tiAse t a

1 credits will take the form most accept-


Our exoorts must be paid for and the machinery of our banking system should be adjusted to meet the unusual demand, both in amount and caaraoter, that grows out of our

able in times of peace.

huge foreign business. I was not aware that an announcement had
been made officially by the Syndicate managers and think that was

a mistake, if they did it

without authority.

Hon. Paul M. Warburg.


Get. 25, 1916.

I do not need to tell you that the rather vigorous
opinions which I hold on this matter have no relation whatever

to my former affiliations nor to any politioll sympathy.


Would feel just the acme about lerman credits or any other cred-

matters to

its and I only wish that it were possible for these

take such shape that suggestion of discrimin
sibly be muds.

As the


reserve bank

originating with

tically all the bills





score if



unable or un-

this country.

en 1 t er from you yesterday to

which I as going to(r ply in ki.



Willing to negotiate direct oral t

I had a ni74(

rmw42 banks in South


f dirimination, but unfortu-

any one attempts to make charg

re handling prac-

no fears

are offered to us, I

nately, ac you know, the Ge

ion could not pos-

My best regards to you, old


man, and don't let t iW businai

worry you.

Ask,,Miller to shew-iou my letter to him about his Indianapolis ad r SO.
Sincerely yours,

Hon. Paul M. Warburg,

Federal Reserve Board,

Wishington, D. C.





Nign. message


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October 30th, 1916.

Dear Warburg:

I am dictating this reply to yours of the 23rd with your
picture in

front of me, which reminds


that I

w uld be glad to have

one if you have a spare copy kicking about the h use.
Forbes' skit is all right so far as -fiThe,v


career are

concerned, but

we about


.atment of that Jekyll Is-

land meeting might lead one to W

t it was a conspiracy to

justice to all of the men

loot the Treasury, and it is real
who were interested in tha,ktdrloh pi
Your letter

o cross dnine containing a suggestion

that you ask Dr. Mille
dianapolis spee".._:_j Of



y letter tehim about his In
writing Miller, 1 did not attempt

--any argument ly. /the general economic proposal


of deposit banking

versus noteows as much,or more,about the history of
banking develO 1S44:0



The trouble is in this address he got

the wrong pig by the ear and unless I am mistaken
that will shift his grip to the right one.

he is not

the kind

Aside from his argument

as to the method of dealing with this surplus of gold that we are getting, I really think his speech is a very good one irideed.

He has

made a fine temperate analysis of the situation and iilpressed me very



Hon. Paul Me Warburg.

Oct. 30



Aiken recently wrote me of Wing's suggestion wnich
he sags he declined and Jay has written me in

reply to

my letter

that he will answer my suggestion later, presumably owaiting a
conference with Peabody and Woodward.

Has it occurred to you

that Lr. Jay himself may feel a little
this suggestion!

d and hurt by

mentioned this
discour: :n you were in




I have written !ir. Jay quite franii-iu

in the bakk,

dwelling particularly

the work

own criticism without,

of course, mentioning your name

e can be convinced by

d hop

this and other preweure that one

(t do it all.

Now about thit Frelle}1,\C\


My previous letter writ-


ten before yours arrivai xplaine

hat our attitude had been in

discussing the earlier c edits wit

Brown and the others.

as our oen attitu

think it has


no different

r m what you and the others

had us consi t ntly main
necessity for

been correct and

ir. Washington would have

do not, therefore, understand the

c statement, or even any telegraphic advice,

to the reserve banks, and referring specifically to




So far


to the

merits of


the business, I

action of
am inclined

to think that it acted hastily in sending the telegram, welch implied that the reserve banks were either committed or, even without
commitment, were liable to employ an undue amount of their funds
in investmeAts of this character.

We must not forget that bueiness

of this kind negotiated by state banks and private bankers only affects the


system to the extent that we buy the billsamd


Hon. Paul M. Warburg.

Oct. 30, 1916.

and that is a private matter among ourselves which does not justify
any public announcement.

I am assuming, of course, that the busi-

ness is not ultra vires as to national banks.
As to the goodness of the business, I

presume you


agree with no that all of these dollar credits to England, France
and Germany, (if the last-named were


hem), are intrinsi-

You and I would b th like to see the

cslly good and will be paid.

bills drawn if possible in the good 01

Nway, but these are

war times, and a lot of old rules neoassarily have b
Emergency machinery must he devi



n abandoned.


in order

to avoid continuous disorgani

t e exchanges.

you that it would be very nice

these bills so drawn that we

could drive them home a

but you seem to overlook

the fact that even ifa rate o
bills would stay here

I agree with

count was not guaranteed, the

t the s 2h until the credits matured, the

only differenc -76-Sing thatnif_ti'd


by the guar

would risk having to pay a higher

ee of disacunt


drawess wsre not protected


med comes when we have very much higher discount


rates for bills than at present, and


than those on the other

side, in other words when a situation develops which would justify


domicile of these bills from New York to Paris or

London, you must admit that exchange at such a time must be adverse
to this country.

Under those conditions, we must


upon the money market working out its own relief and

if we have a large volume
of floating foreign

it will do so

of all sorts of bills, by the attraction


identical bills, in that way


to New York for investment in these


pressure on our money market*


Hon. Paul M. Warburg.

and on the reserve banks.

Uct. SO, 1916,

In the past, when

Lombard Street has been

working normally and exchange became adverse to London so that


begins to move out of the Bank of England, the bank raises its rate,
not so much in expectation that bills will not be

arawr on London, but

in the expectation that floating capital will be drawn to London to
invest in bills. I really do not think your ar merit is a conclushat they can be

ive one thet these credits should be in such for

whenever, our rates get

shorter and would in


ordinary times.

American banks, whether commercial o

celled and withdrawn every
have a bill market.

Their ma

But if


xtended by

n ial, are going to be can-

time omoney/rtes

If oar disco

ity might be

advance, we will never

t works as it should, an

es in London, in postponing

advance in our rates will

nance bills, but an advance

the drawing of a certain/

our foreign commercial and

shoald never be expecte

bueine,,eb1 eaun _a--oiancellation of foreign credits.
-If an advance, our diecount rates is not effective in attracting
money to New
k for inv tment in bills as the chief relief our
\ \
literally thrown




slop a discount market is
away, for that is the way relief would naturally come.
T do not agree with you at all that this is "unscientific,
work in endeavo


rotten and dangerous"




tiees we are in.

The real objection that I see to the method employed in handling
this business was entirely in those two paragraphs in the confidential circular.

The bankers were 4ot justified in making

in regard to the Federal reserve banks unlese

ed the

first consult-

management of those banks, and particularly so, when this is

the first 18 months credit which had been
Federal Reserve Bank of St. Louis

they had


for 12 months only.

been arrarged, the others having


Oct. 30, 1916.

Hon. Paul M. Warburg.


I feel now just es 1 did when these matters
discussed.' ie must not use



used three years ago in dealing with

were first

rule such as might have been

the affairs of the

We have to modify a great many things,

present day.

among others, finance credits,

in order to meet the requirements of a trade

surpassing anything

known in history.

I felt a great deal of concern over
the Federal Reserve Board

making a

the Board in any way

criticism o

in a


possibility of

ch would


c goodness


these bills

or even of its being legitimate b iWs to form, etc.
an attitude by the Board I
You say that



I think in spots in this
reluctantly liberal, b t that it



you to take and in viol t on of y u


your strong co

commerce shou


credits, you have been

been a difficult

attitude for

Many years of training and

ons a4--th'e way the bill business should be

s is not-Ire


infinite harm.


I know you



time when prset# theories of the way

d can

be strictly applied.

holiire_r_y- much that you and yourassociates will see

fit to let this matter develop just as


and then arrange with Mr. Jay or Mr. Treman

former transactions did

to point

or whoever was responsible for the circular that


out to rr. Kent
should confer

before assuming themselves to state what attitude the reserve banks
will take.

The President has


committed himself so

Comptroller and has made such

strongly in regard

a rash and unjustified



Hon. Paul U. Warburg,

in regard

Oct. 30, 1916.

to Wall Street control of the Federal Reserve System

that I believe we are going to have great trouble in getting
legislation of any kind in December. I am sorry Vanderlip spoke
as he did at Kansas City but you realize of course that constant
men are bad men, that

reiteration by the President that Wall Street

is, that eome of them are, and his
Bank does not

refe e ce


inspire any very cordial






am inclined to agree with you that Wilerin will

I did

not think so until


three week

last t

It was mighty good of

always managed to agree upon a

in this case.

;te me so fully.

You may connide wn this credit is

ing 1100,000,000 to

De ocratic pros erity.

Just think

out of thack.

and to the family.
incerely yours,

Hon. Paul M. Warburg,
Federal Reserve Hoard,
Washington, D. C.

concluded -

done your loyal part in add-


garde to )r1

e have

tio pl these matters and I know

which no doubt it will eau hae
you will get

be 'r4elected, although

of the comfort

November 3


Dear Mr. Warburg:

In looking over the November let Bulletin, copy of which ar-

rived to-day, 1 note that on page 598 there is a table showing the Operations of the clearing plan, in the last column of whieh headed "State

'remitting at par" New York is reported as dealing with


I fear

that this


figure is due to our having folloved strictly

;e have only thirty-one state banks to

the wording of the heading.

which we send items direct and which remit direct to us at par, but we
are handling at par items on two hundred and twenty-nine state banks in



These are divided as follows'

Members of N. Y. Clearing House, N. Y. City,
Nonmembers of N. Y. Clearing house, N. Y. City,

Remitting direct outside of N. Y. City,
Collecting through member banks,


I note that eoston's figures include all




state banks in

the district, and undolibtedly our statistics should be presented on the
same general principle.

Furthermore, I note that some of the large

western banks have over 1,000

state banks

on the par list and I feel

quite sure from our conversations with some of their officers that they

do not have anything like this number of state

to them at


institutions remitting

Undoubtedly a large proportion of

collected through member banks just as in our own case.

VVery truly yours,

Honorable Paul M. Warburg,
Vice Governor, Federal Reserve Board,
Washington, D. C.



them are

Vovember 6th, 1916.
Dear Warburg:

I am glad you enjoyed the letter I w cte to rr. Yiller
about his Indianapolis address.
The reason why I suggested some dou t as to your standinE hitched on the note


proposition was because

er degree of reliance upor the val

e amendmen


member banks tc carry all their r serve

believe is justified.

our much great-


ith reserve banks than I

I thinkizt71lywe cannot rely upon anY


permanent or dependable h

carried by that method,


at least, until many y
tem has a much strong
than it has durin
with a littl


s have

the Federal Reserve Sys-

hold on b. king affairs in this country

thi \!rarma'


easiness your possible

Consequently, I view


about what might

be accompli h d by this ethod , fearing that it might even to some
slight exten
feet o r determinatio* to keep pushing on the note
provisions of the

ederal Reserve

In principle, you and I


are in

complete agreement as to

the note issue ought to be hsndled; we are
agreement an to whether the other plan will he

not, however, in
worth much or not.

I think the argument contained in the second page of your
letter is

claim that

good so

far as it goes.

It may be logical enough


notes should count as reserve so long as balances do.


Hon. Psul U. Warburg.

Nov. 6, 1916.

The difficulty is that member banks will not give us the balances and as the law now stands they cannot count our notes
as reserves. 'o not abandon the fight for the note amendment.
know you won't, but I do not want you to lose even the slightest degree of enthusiasm on the subject.
Faithfully yours,

Hon. Paul M. Warburg,
Federal Reserve Bourd,
1Nashington, D. C.


November 6th, 1916.
Dear Warburg:

30th has been read

Yours of October

with a great deal

of interest and, if I may say so, with a grea

teal of sympathy

for your views in the wetter of this French or,


As I wrote you before, I tOink the b4nre
hasty in Lending out their circular.
said to theca justified

tneir duin

an unfortunate mistake of




were very



had ever

seems to have been

in all


of these matters, when you come

with Kent, let me say
that you can rely upon hdetin rity.a good faith to the utmost.
He is, of course, inc i ed at ti
to be very enthusiastic, but
he is a man of great

eetration/aid ability and not the

would take anynfnir a v



the view

that the

future pro-

ill depend later very largely upon our
ket in which foreign banking capital can

be invested when the exchanges turn against us

and, of course, to

same extent our ability to discontinue finance credits
when they mature,without


do anything improper.

e other hand, I hold

tection of h e counter


such as these

dieturbieg normal commerciel credits of


type that you and I both prefer to see develop. If this theory is
at all sound, objection woul,i not lie against the -rench credit on


Hon. Paul M. Warburg.


ground of size.

Nov. 6, 1916.

At present, in payment for every thous-

and million dollars of excess exports we to-day receive


one hundred millions of gold and nine hundred millions of finance paper.

That is a great deal better than receiving one

hundred millions of gold and nine hundred millions of American

When the trade balance turns aga nst us, as I

certainly think it will, we can hand back sho t government notes,
finance credits and other similar obligations

than we can re-negotiate American secu444e

reat oeal easier
so that if

the position becomes exactly reverst4 ibl we have E. pay, say,
one thousand million dollars f

cess i ports we can ship back

one hundred millions of gold
.(whether by cancelling cre

rndred millions of credits,

ing capital in bills

his s

much les

we had

strain than


viting investment of bank-

a:14 eet the situation with
bille of this character as a

safety valve.

you as tothe disposition of the matter

now made betouse it hi

really reached a position where this

course seem

everybody and avoids any unfortunate



I really do not think that the Board should take the
view that these credits with renewal privileges are anything
less than legitimate under the circumstances.

English banks

for years have opened similar credits wit* New York banks with
similar renewal privileges, not running, to be sure, as long as
18 months, but then no war conditions Justified credits of that



Hon. Paul



Nov. 6, 1916.

This also applies to guarantee of discount which is
not unknown by any means, although possibly not as usual as
the other type of credit where the drawer niust necessarily rely upon the London discount market, but we must not forget that
these foreign bill drawers still view our discount market with
some doubt and suspicion. They do no4know
ther we are going
to have rates jumping up to 130 1. as they ha et in past years,
and it is most natural that they shuu
ection of this
charauter. On Lhe other hand,
like to se our accepting banks sell the bills and no arry
in their portfolios.
almos', agree with
Much hinges on New York State.

hope we can gat at th

Wilson.'s re-election.
0 ver is elected, however,
right after results are

nest rogar

o you

d many thanks for your


itTFully yours,

Hon. Paul M.


Reserve Board,

jaohington, D. 0.


P. S.

System and

what yoou say about
You do not surprise me in

time on the Reserve
He and 1 have disagreed every
about this type of business which

knows nothing

contribution to the dishim to make any valuable
would enable


November 16th, 1916.

Dear Warburg:

I have not heard from you since
on the subject of that French credit -Ind

last effrvescence

e my pigheadedness

guess not,

has not finally exhausted your u
and surmise th-A you have been too busy to wri
The President is


Why is not

a proposal for the furthe
is opportunity it se
country by subm

for retiring


repare enothei message to

rtunity to interest him in
nent of our currency?

o a great service tc, the
me a well-considered plan

tening the retirel6ent of nation-'
al bank notes
e system of fixing denominations
of gold
s wnd then fortifying issues af reeery otei; to take the place of greenbacks and national bank
y accumulaii
gold daring this period of its redundancy.
This is so bviouily the thing to do and I feel that
you w
°artily with some such plan that I won't

elaborete at all.

The principal thing is toget the Reserve

Board and the Reserve banks committed in recommending thorough-

going revision of this *lobs matter and I should think the
ident would welco:le this opportunity of adding this to his



Hon. Paul V. Warburg.

16, 1916.

constructive achievements, now that he has four more years ahead
of him.

This letter is unofficial, but if yo A would like to
h-lve me write an official letter to the B
plan, I tLi& I could do it in a vf,ry hor time.

Best regardn to you and the fw!il
Sincerely yours,

Hon. Paul L. Warburg,
Federal Reserve Board,
Washington, D. C.


17th, 1916.

Dear Warburg:

My last letter

to you was hardly

fore I was delighted with the arrival of yo
and immediately afterwards receiv

the mail box bebirthday telegram
tter of Novem-

ber 10th.

First, about the

It was just like you


than I can tell you.

think of sending it and
You honor me by referring t

nks", after having invited

me to become your

rietorship and

ly inviting a 1


I don't regret it and

hope you don't

d wishes in the

Jay a


About the election:


shape of some

the oAcome as

riff man and


I do not feel nearly as badly

u may imagine.
on now do


I have never been a

believe in a protective

ar breeder, has enveloped the country in an

isolated hothouse atmosphere that is unhealthy in the extreme

and one of

its results is

to mislead the people of the country

as to our true economic condition, which is not sound.
that, I have not much use for Hughes and



think it is a



our Supreme Court judges to cast their eyes at the
As you know, I have always admired a good many



Hon. Paul M. Warburg.


Nov. 17, 1916.

things about Alson and now that he is elected, it may be that
more can be done in the particular line of our work than would
have been possible had Hughes been elected, although I fear

complexion of

the uouse and a possibl


Now about the main subject of yo
glad you wrote me exactly as you did.


letter as soon as I have finished


I am

1 destroy the

ask you to do

the same with this.
In the first plac

say that I have been con-

scious ever since we star

bers of the Federal Reserve

years ago, that the mend particularly you, have

been more than patie

,e have all of us

he16. 7.retty stro

mportant features of

the Reserve Sys

nately have not always been

in accord, and


frequently when we have been
shown a great deal more consid-


for me and my very positive views on these subjects than
ly I was entit
to write to

d to receive, or have shown them.

So I

y exactly as I would talk with you were

However, I want first to state my conviction about
the present condition of this country:

We are storing up

Pnergies that are bound later on to make serious trouble for


England and

her Allies have apparently adopted a


erate policy of loading us wita gold in order that they may


Nov. 17, 1916.

hon. Paul M. Warburg.

continue to borrow money and buy goods from us.

No serious

harm would r suit from this if the expansion of our credit
system took the form of foreign loans of different kinds which
Expressing it in another way - if

could later be recalled.

$100,000,000 of gold will support $900,000 IOU of credit, we
could with safety take the gold and extend

e credit and ship

en we may have

the $1,000,000,000 of good d becaus

$1,000,000,000 to pay Europe, we can hand back

of obligations and $100,000 0ld, leaving ou
in equilibrium.

illustration of what is

This is

eve lopment of credit ex-

. my conviction, as to the o

pansion as a result of

d imp

not taking place.

What I

loans, but mor

partly by forei
and to

largely in buying back our own

ank loans for domestic purposes

d in

dvancing prices.

rry the burd

to c


emands are .go

The wotld is going

We are going to have most of the

anue the gold

to be made upon us in ways that cannot
ich inevitably will result in the return of

now be
some of this


we are inflating our credits

over $100,000 0


own affairs


If we must in consequence deflate our domes-

tic credits, we have a hard time ahead of us.

It does not make

any difference whether the demands come from neutral nations or
from former bell gerents.


The effect will be the same.


fore, my whole attitude has been to encourage transactions which
are not ultra vires and which will put Europe in our debt.



Hon. Paul M. Warburg.

Nov. 17, 1916.

I am satisfied that your letter was inspired very
largely by an unfortunate expression

used in my

letter to

New York, which possibly should not have been read to yo,
but which, on the whole, I am glad that you saw.

It related

to rulings on credits to Continental banks

And now, let me

explain just why I feel as I do about that.

The aaendment to

the Federal Reserve Act provides that member

anks may accept

drafts, etc., drawn by banks or b

n countries

for the purpose of furnishing

ired by

the usages of trade in the

Very broad

powers of interpretation

the Reserve Board by

this amenament.


interpretation to

that it is limited in its
ions only in those coun-

tries, such as

ere t is has been a long-estab-

lished custom,

ederal Reserve System will

always be the t

Our member banks must wait


eign insti

e already established customs of


haracter, in is her wOrds, until the banks of other coun-


are doing taati


in the Act

be limite

siness before we can start to do it.
ggests to my mind that

thie amendment should

acation to South Am rican countries only.


pose England or Fr.alce or Germany being unable to pay cash, wishes

to establish a practice similar to that employed in South America?
What means exist for our banks 4o

join in establishing this cus-

tom so that we could enjoy the benefits ;rowing out of this business?

How many transactions


necessary in order to establish


Nov. 17, 1916.

Hon. Paul M. Warburg.

Custom grows up out of a series

One or a million?

a custom?

of transactions of which there must be, of course, the initial
How are we to take

transaction and subsequent transactions.

our place as international bankers if our members are debarred

by law from undertaking the development of business customs with
our cred-

any nation of the world that raiuires the
Possibly I am

it system?



was intended to have generalappli
your statement to the Committee

suming that t

ion and the re

seems to indicate

I am in favor of opening the


and which wi

the law permits which are sa


rd of


ions which
bring the world to

this country for banking f
are inclined to

It has alwa

Federal Reserve Act

follow a very strict int

oral reserve banks to observe

in requiring member banks
what we


will agree

in connection


egarded as sound business


th bi

recognize tha

abandon a goo

of exchange and that you are
r conditions make it necessary to

ormer notions of what is exactly the

right way to do a thing, in favor of methods which have become
necessary by rea
ing principles.

of tha war and which seem to violate old bankersonally, if the law permitted, (but I do not

assume to urge my opinion against yours), I

would make the widest

interpretation permitted by the law and bring all these big foreign

banks to our doors just as rapidly as possible; get them



Nov. 17, 1916.

Hon. Paul U. Warburg.


dependent upon us, make all

the money

we can out of them and

hold a mortgage over their future performances so that we may
protect ourselves when we need to.
I agree with you entirely that there should be some

limit upon the amoun4 of bills of this cu; cter which the reserve banks should carry.

Whether it is

or 850,000 000, is not material, but
is surely sound.


When the Bonbright credits

would not buy the bills

s been wretch4, managed.
e arr


I told Kent that we

d made a market for them

1. they

that he must not depend upon

and had found their market 1

and urged that he pursue

our money in any
f of

the course adopt

This should

five bill house

ciple of a limitation
dling of the bills

I agree with

sollie of the banks in New Yo


ing the bills to four or

ways be done and the accepting
o buy their own bills, but they

banks should ne
in m



.0 ,000,000, 1530,000,000

prohibited from doing so.

I do not agree with you absolutely as to the guarantee
of d




as to justi

a not such an unusual condition for long
discrimination against such bills, particider the history of our erratic money market

and the natural fears that mi,;ht be entertained abroad in regard

to being sure of discount at reasonable rates, but 1 would of
course, very much prefer to see no guarantee of discount in connection with these credits, if it can be avoided.

This I have

always urged in these matters, and will continue to do so.



Nov. 17, 1916.

Hon. Paul M. Warburt.

do not



understand why the Board failed to appreciate
The Brown credit,

character of this guarantee of discoutt.

copy of which

cussed and

with the Board and which was

was filed

plain and

explained, I am sure makes this feature

the point was mAe clear when


matter w

as 1 recall in a ruling as to



fully dis-



of Section 5200 of

the Revised Statutes.
In regard to the last french credit,

s before know i g anything

,oard's telegram to the Reser

about the

want to say that I

banker's circula

but I still

k the Board acted rather has-

completing inquiries in

tily in sending

as 1 understand it, so that

of that matter

upon the



ad been ex-ere

f having the

it ar

ements th


bly to feel that after




But all

full information.

regard to the c

no absolut


putting those two clauses

bankers were most in

in their circular,

ot word of the


in New York to avoid even the


all the care


in any way paties to

circular should


these cred-

be sent out that very calm-

position of being a party to the trantEs,ction,
ly put us i
approving it and indicating our willingness to buy the bills.
About a differential in

rate, I

am not inclined to

with you, at any rate, verystrongly, on tLis point but
want to ask you to think of the difficulties in the way of discrimination of that character. In the first place, our rates



Hon. Paul M. Warburg.

Nov.v 17, 1916.

are already so complicated that no one outside of the management
of the System really understands them. The rates now shade from
the minimum applying to bills of the strongest member banks drawn

against actual shipments of goods, to various kinds of bills drawn
and accepted by importers and exporters a endorsed by the agencies of foreign banks. Somewhere in betwe these extremes, would
come these finance drafts, handled ,_a dif ent rate, The finance drafts now being drawn are


cepted by some of the strange

trinsically, they are a a

e only ones accan banks an
kers. In-

some case

ter than bills which we are

buying at fairly low rate
made by some of the smaller
institutions whose credit is n
early as good as the institutions
accepting these I
ce dra
rate difficulties would be
straightened ou f the bankers could hemselves market all the
drafts through okers and let
market afford some test as to
rates. Teir u llingness t. do so in a l!trge way mnkes our
rate o treater impo
at it should be. I had rather see

it a

serve banks fo low the mixket just now than have them lead
all of my neg ations with Bonbright, Kent and the others


I decided



ject in view.

Uster reading your letter,

to the bank in New York and recommend that they

establish a.differential after further discussion of the matter
with you, but will first await your reply. It certainly will
A1111111111111 40 noharm to try this and watch the result, and I do not want

you to feel that I am more mulish than I am.


hon. Paul M. Warburg.


Nov. 17, 1916.

I am really much more concerned by what your letter
says in regard to the development of the System and the establishment of its policies bringing at issue the question as to
whether it will
You are too



be run by the Board or by t e New York bank.

experienced in





these matters t


with me

the form of organizat

always present this pa

n of the R
conflict and

of authority of influence and it can only be a
d by the
exercise of a great deal of
by looking at hese mat-tars in the broadest possi
ch I am willing to confess I may not always have


cognize, that

.greatest importance

ganizaIon in t'

oor instrument

of th

o go to

n every time

to e


f Europe;


minds o


to carry out


to get

of prestige that is enjoyed by the

t that, the

feeling of assurance,protec-

oh should be and is

constaetly growing in

York bankers, will certainly fade away.

agree with you that the situation can be


ing had to be done. Ii really

blish the kin

the lam York

membership in New York.

ew York Reserv

tion a

It is of the

d autoritative or-

bank establish it



etant conferences and bystickimg


dealt with only by con-

determination to common

gebt N.

plans for carrying our the purpose of

its organization.

would be the death of the System to have the impression





Nov. 17, 1916.

Hon. Paul M. Warburg.

abroad thttNew York

was going ahead without

regard to

of the Board and assuming to run the whole show.

the views

It would be

equally disastrous to have the Reserve Board assume the actual

reserve banks, if

management of the

gional principle at all.

it is a protection to the

tablishment of these credits, if
on the other hand,




r is to agree if we


country ts encourage the es-

ey are no


tra vires, and


in buying th
king the

have the effect ulti

borrowers a

course to pursue

I think the s

in these matters during the period
can that

we are to preserve the re-

e charged

little more

This can be done ve

money cost


for commercial

h betier when there is a large

volume of bills a


in advance before


volume develops

ously I stick to the idea that

obstacles shoul


of th
will lead to



e way of


teis business


any other


development of a
If acme

long as they are good.
complete harmoney in our


to con-

I woule welcome it heartily, and promote
ggestion of yours to get results.

Can appreciate more than I, who have been so

much in

your confidence, thal driving a team of twelve unbroken

nags is a difficult ana haraseing job.

I dodt want to add to

your troubles a bit and particularly net at this time when I
am unable to keep closely in touch and sometimes may

ons wilhout adequate information.

form opin-




_41 e.

You refer


Nov. 17, 1916.

railroad acceptance credit.,
along the lines which you ap-

the french

The arrangmement in that matter

rove was to a considerable extent due to my urgent representations to the Frenchman who was negotiating the matter, that
guarantees of discount, etc., were unwise

encourage our

want to



d that we

enter into

but I

intention to withhold info u,tion o

In the



the Board, togeth


in jus

Reserve Bank,

th ac


a m

otherwise than deal

ole subject was laid before

he o ficers of the New York


ri d*


n the other credits would nec-

Washington that I must always brand it as

would have been more

ky let

(Went to t

acted haetily

do not think for a moment because






t it must be a epted that they

apply tot




of the agreement and I

ce to Kent an

in the be

rOM yo.


the Ronbright credit

in identical terms, th

ed in the

there was

do notthink you should


ueh agreements.

Your stricturesupon the method p
French credit are doubtless justi le



accurate had I

law is ineffective because it cannot be

irection except we are willing to trail along

after foreign banks which have already blazed the trail.'

the ruling as m de by the Roard is required by



terms of the

statute, I have nothing to say, but I hope that is not the eas!..,y
I agree with you about-a central bank not now being

It would be


beet solution of some difficulties


Hon. Paul , Warburg.

Nov. 17, 1916.

but would invite others. If the Reserve System was one bank,
I fear it would invite )olitical attack and be destroyed and
certainly it would mean that the central bank mumag ment would

be mare concentrated in the Board in Washi gton and the mama-

gers of each of the twelve banks would b

thing would run in a very loose-jointed fa
have a central bank, it must be r

cal clerks and the

If we ever

York by a Board of

"eirectors on the ground and nothing woule invi

reater antag-

onism that such an instituti
e specific business in
ding to be arrived at befront of us and the better
er these foreign credits
tween the Reserve Boar
hope it can be arranare to be encour
If you ad No' York can agree
ged that they
y in that regard, I am sure you
as to what is b
likewise in adjusting rates so
will have
Board will b
ectly satisfied that the System is
e amount of paper of that kind which gets
hold g a check over
into ts portfolio, d you can count on my doing everthing in
about. If the 'bard takes the view, on
o bring
my Po
the other
that these credits should be discouraged and
strictly limited, then it seems to me lhe only possible position
for the i4ew lork bank is to handle these bills just the same as
Nos, in conclus

any others which are good, without any discrimination, because

then the amount will have been so limited_ that the will not in
any case prove a menace to the System. Personally, I do not


Hon. Paul M. Warburg.


Nov. 17, 1916.

think there is the slightest chance of any trouble arising ou*

kind, in

of credits of this

am exceedingly anxious

fact, I think good will result, but

to see the Board

and the New York


work in harmoney and in thorough accord.

Before writing New York, won't ye
letter sing me how all this5trikes you
effort to work it

out along the lin

feasible, and then let me


them strongly


lately, who u

just now laid up, urgin


d whether


estion is not

I have been writing

ling of some matters

send me anolher


le more sy7tematic han ,


eveloped right away.

much is done at the las


Recent correspondence

with him encourage

would welcome Aiken

as an associate

onfidence that Aiken, who has

a lot of punch,

oing a little more


e disturbed because of some

e expression

y letter of Nine to New York.

am ab..lutely confide

that had we both been there, this mat-

ter w

sted with much less difficulty and


13 have been a
Your l

ir has gone a long way toward accomplishing

what you ana.0th want, although difficult to bring about just
now with 2,000


between us.

I am dictating

a little upset

while in bed

for I have had

the last day or tw9,but expect to be

right by to-morrow.

this letter

around all

Don't ever forget that I think you entitled



Hon. Paul M. Warburg.

Nov. 17, 1916.

to the credit for ev?rything that has been accomplished in
the last two years and none of it would have been possible had
it not been for your patience and good nature, particularly

Yours faithfully,

Hon. Paul M. Warburg,
Federal Reserve Board,
Washington, D. C.

November 17th, 1916.

Dear -arburg:

A rumor just reaches no that th reasury Department is considering a plonfn: i9suing go id iertificates in
It seems to me that thing could be
denominations of
e do not
so fatal to our Plans as such a vo opmen .
the country in
want to scatter this D,2old all

but want it in the renerve

cannot bell

-nyidered by Secretary
mind dropping me



ul r. Warburg,

1 Reserve' Board,
rgton, D. C.

uach plan would be even

this time.

Woulj you

ovember 18th, 1916.
Dear Warburg:

Yours of the 14th enclosing copy

f your letter to

r. Viller has just reached me and I have

with a great deal of


amusement if you


not saggested

amused me a good

deal because of

d the enclosure

I would no

hae admitted to
ly it has

the very frank

you have undei-taken to lamba

in which

your associate.

also got considerable amu

e evidence at the foot

of page 6 and the top of

t some of the doctor's

remarks rather got

argument about

because I


satisfied fro



struck me as being ab-

bservations on

eforme to be

that on


ow d r


and following it

a s)ecific sugges'ion

with a

some way.



one con-

or retiring greenbacks and has-

be retirement of national bank notes!

it would

offehd the Doctor!

That is the

Sincerely yours,

Hon. Paul E. Warburg,
Federal Reserve Board,
Wnshington, D. C.


Bank of Eng-

feel about my publishing that

Federal Reserve Bank of St. Louis


undertaken in ,?,rig-

len the war is over will be to modify the
it elastic qualities in
.ote issue to
re discussin t than I was there.

cutting it in two


bully one.

I real

Do you think

last thing

I want to do.


November 20th, 1916.

ear Warburg:
I was delighted

to receive your

ter and

the photo

graph which I really prize.

It is a good icture and exhibits

that stern Warburg character,

temp red with ood nature and a


on closet.

Please hang it in th

It would be most
couraged by

if Mr. Jay

any changes

hinted to him

" sent you at

I will order one of my own

sense of humor.

should be dis-

our organization.

that I would li

I have

see him out here if he could
ated with anyone who has a

break away.

higher sense o

I know he is conscious of sol::e

shortcomings i

p and keep moving a large and



ing would


t into my

t he could

suit me better

shoes, but I am not

than to

the injustice of withholding my own con

you or the b

s qualifications are not in that line.

on that Mr. Ja




ell him th

so by sug

;ame thing exactly and indirectly have done

g Aiken.

This is a coldblooded world and I wish I could avoid
my own res,onsibility in this matter, which is certainly not to
p-rmit any mistake to

be made.


-2Nov,*. 20, 1916.

Mr. "jarburg.



-y last letter

aboutthe French credits answers

yours almost entirel:.

I have already written to New York,


notwithstanding what 1 said in my last letter, suggesting that
they consider a differential and am referring to it in another
letter to-day.


After reading your letter ( and

this), I rally have t

my sayin

know you will pen
inding there is so


in this appar-

little difference between us and that experi
ant difference of opinion


so closely a

e never failed to get to-

mer differences of opini

idly in this matter.

gether and we are doing

n a

business, put


i.e bit!

arm somewhere and enjoy
e children ou

ifference does it make or will
hether Mr. Austin knows how to


mate in r


you and I get out of

a minu


it make


helped me a

last longlong letter

ourselves a 1.

of our for-

If you lived out here for six


e undertthe h

ky Mountains you would begin to realize


do that a lot

these things do not count for very much.
o the subject again of discount rates, I



ter the war we are going to have very high rates,

first, abroad and then in this country.
any of these credits will default,
be renewed.

I do not think that


some might have to

I believe that rather than suffer the slightest

default, England and France would pledge the last scrap of

, I































Nov. 20, 1916.

Mr. Warburg.








available property they possess to effect renewals at any old



Furthermore, I

m hopeful that the war is not going

to last as long as some people think.
Will read your letter to Glass very carefully and
write you a full reply later.
any thanks for your nice iette
courage me.

Faithfully yours,

Hon. Paul M. Warburg,
Federal Reserve Board

Washington, D. G.

which always en-


November 21st, 1916.

Dear Warburg:

With this I am returning your pr

osed letter of Nov-

ember 14th addressed to Mr. Glass, concerni

weich you ask for


4ith one or two excep

ment as


to the advisability

do no more than

we are so

ily in agree-

ndment suggested that I will

refer t

of them.

First, I do not th

schedule of the

be considered compl

amendments can

f our gold reserves without


should be


retired and Federal

issued in their


y laws should be amended respect-

ing the arrangement of






ent kinds

denominations of dif-

of paper money,

e.present practice of thWrreasury in bu'jing
gold should he modified so that the reserve
banks can get in between the public and the
Treasury Department.

In this connection, one of the most interesting recent
developments Las been the ability of the New York Bank to buy gold
bars because of the inability of the Assay Office to take it for
cash as promptly as offered.

If we could pay for the gold with



Mr. Warburg.




Nov. 21, 1916.

and the Assay Office mode depositors await the smelt-


ing return, we couldAell the imported gold, almost wehout ex-


The abeve simply refers to


from your letter

which it seems to me are of sufficient importance to. emphasize.
I am ve

1-ecommendetion No. 3:

doubtful ate ut this.

It has the effect of taking the pressure an
pressure which we can exert, off tt te bank3
and might result in an in efinite


almost the only
d trust companies
ny general


movement to take full members
Recommendation N

strikes me


sant necesity.

right simply because it

hand, I do not think the under

being all
On the other

rig that member banks shell in-

creese tneir reser

uivalent of the paid in


capital is pract

it practicable, the statutory

amount of reeer

increase and that, I believe,

to he unreeessarl

or und





sed deposits could be

ending abo
upon and you



11 find that in the New York District the

CitY ha

or exceed

any informal arrangement

elready carry excess balances with us
the amount of their capital contributions.

think the

Board has in

in dealing with this subject of

a measure

felen down

amendments, it3 not so muen in

whet they have proposed as in the method pursued to secure their

The Board has

undertaken alone without

any outside

support to influence iJessrs. Owen and Gladd and their associates,

and through them, Congress.

amendment proposed,

Regarding some of the most

the members


the Board heve




Nov. 21, 1916.

Mr. Warburg.


themselves and have not hesitated to expose their differences
r. Glass and others.


This I regard as fatal to success.

At different times I have di cussed the subject of

amendments, particularly to our currency lams,
of our Congressmen and


stated that if the membere of


and in e



of the reserve banks, as well as bank

throughout the country, agreed u eon

'it n a number

case they have
ard and the manaof experience

e wiso. .f the amendsecuring

ments proposed, there should

ship or feeling of respon-

No pri

their enactment.

ems to me, justify the

eibility in these matte

Board in the present junctur



or "omas who called



on the reccmmendateon of the

is elread, made
ration, ao


ahe p




or me the

gram for the short session

other day that


dealing with them by the

as a part oft'

ently, the


can be introduced with

gram for tnis sessien had to be

any chance

adjournment bargain at the last session,

amendments, if Senator Thiwts' advice is
neat with by unanimous consent. It is a

very uncertain end probably hopeiese outlook for important


ments should


belief, therefore, is that all of these amend-

be studied up with the


strongest posoibL argu-

for Submission to Glass and Owen and they

should be sudported by the recomeiendations of all the




Nov. 21, 1916.

Mr. 1Iarburg.

reserve banks, by endorsement from leading bankers and, if necessary, even bi a few hearings when oral statements could be
made to the


and house Committees.

am returning

the letter and hope you

don't mind my

frank statenent af the way in which this matter impresses
i would be willing to lel ever
if we co 1d get the note and currency ov sions in Success to your effor-ts.
Faithfully yo

Hon. Paul 7. Warburg,
Federal Reserve Board
Washington, D. C.



ovember 22no, 1916.

Aar Warburg:
You have referre

in a nurber

ettersto the amount

of finance renewal drafts which we had our

ased in hew fork for

the whole System in a way which mi7ht lead

e to believe that

e as closel as
I have wat nod it from
possible and from time to t
ent me showhad stater,:ent
ing the bills accepted by
Out of nearwe were overbuying.

ly ;100,000,000 of bill

whole System, our records

Ne- York show as of recent

a little over p,23,000,000 of

this class of pan

000,000, over y8,000,000

hear endorsemen

of responsib

ton to the obi

ations of the

inst tutions or firms, in addiawer and


position of the reserve banks
is bei

ned in this field of investment by



ct that the nu ber of accepting institutions is


sing as the bu


many time


the variety of names on our
ness develops,
hat it was a year or a year

and a

ndividual obligations not only no
they were, but in many cases considerably smaller.
and the

half ago



The informetiot which you get frcn:, your statistical
department is liable to be

somewhat misleading, as it

.does not assemble endorsements -o as to indicate

name liability of the

various acceAors is.


what the single



Nov. 22, 1916.



One of the most injpottant elements in tnis acceptance

business, as you know, is the amount of acceptance liability un-

dertaken by
amount of

the various accepting houses in proportion to the

their resources.

7his we have w tched with gr0 care

and you will find that the total risk Beau

d by Fitly one of the

acceptors is so insignificant as a banking

sk that all doubt

t exce7tion is

ar, to the goodness of tnese bills

I have deferred writing you on this


ter until I could

and inc figure

hear from 4

just re-

ad right along.

ceived confirm the impress
I would like to

2;3,000,000 of finance paper

aloniLside of the paper taken h

three Southern bnrks and


probably by all

, including New fork,

and let you be

is the best.

judge of whi


es ie concerned, of finance

tale '25,000,00
ptp,per at

se of the mat-

I the


kind of

paper which we get


The risk of loss on the for-


ccmyared with the risk of id be on the latloss triflin



d it is not on

ing se

more le

pe'r made by



intrinsically but it is it

a bank-

The little country banks send us pa-

eir regular customers

lending money as long as they remain

o whom they expect to be
their custom,:rs.

It has a

nominal maturity date to he sure, but is in fact rarely psid off
and has no collateral behind



I am writing along this line simply to indicate my conthat if any rate discrimination is to be made (and to

which I have already

agreed in my

letters to New York), it can



Mr. aarbug.

Nov. a, 1116.

only be justified unon the assumption that this paper in form is
less desirable than commercial bills and consequently the amount
should be rFeiricted by charging a higher rate. 1 have agreed
and even urged that this be done largely or account of your strong
feeling on the subject, my personal belief °waver, being that
the amount of pper of that character alrea held is not yetlarge
enough to justify discrimination.
office last
i have just learned of the meting at
things out in fine shape
week which seems to have stra
and I am delighted that it

Pest revrds,

hon. Paul
Federal Res ve So



November 25th, 1916.

Dear Warburg:

Thanks for yours of the 21
relief you have given me about those


of both Miller and Del

One thing in that si
inability to get hold
of view of the
given us whe gi 1 ler ma de

ointed in the
d to our note issue.
haz been puzzling is
easoning, logic or point
tunity to do so was
is Ind napolis address.

we get at 'Dela

Now, how ea

e interested

I wil

hear what Your Advisory

in the meantime, my


mest regards.

thfully yours,

. Warburg,
Federal Reserve Board,
Washington, D. C.

Hon. P


old certif-

The rumor gave me

I am terribly


and for the


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Ipauica tor. Xoni.a cq, .epe syvisq ;r. 40


November 28th, 1916.
Deer Warourg:


Yours of the 2:3rd with enclosure
and thiseLorning me newspaper contained an

tion taken by the Board and the

plete picture of just that has

It wae characteri
I deeply appreciate
.. in this course even when ee
cloeo eite this cop,
bearing on tnis

ached me yesterday

ccount of the ace me a very com-

going on.

to Wits me so frankly

always do better by pursu-

es and this leads me to envs te-day wtitten :relean
in our cenviction,which may

d irtinctiv

s to the goodness of t:iese
, that they are good and will be
though the tar lasts considerably longer; even, in
austicn. As I wrote you befoee, eome
feet t. the point of
of th
bills may L e to be renewed and they may have to be
rates but I still believe that they will

be s3mply latent

all be paid and, furthermore, if the bankers are else and skillful, they will be laegely absorbed by the public end not peeve a
menace to our banks. This, of course, does not meen that I
would like to see the banks generally, ard paticulirly the reserve banks loaded with finance paper.

Nov. 28, 1916.

Mr. Warburg.


Where / differ from the attitude of the Reserve Board
is in sugveting a policy of repression w)..,ich is not construc-

tive and which is certain if successful to cayse trouble with

some disorganization

the exchanges and

of our foreign trade.

uld it not be a stronger, wiser and ]es

imid policy to ad-

mit the existence of a situation which imp

s certain oblige.

tione upon us which it will, in fact, be d'

icult for us to

discharge, which even contains e

men s o

so that we cp ischarge

set about to fortify ou

the obligations and minimi

not feel very

e foreign

ith a
erfectly normal situation

bank notes


in regard to t

reerve notei;


if w

ive it int

withdrawn -eft*

credits if we

and very much reduce the

amount of netio

dealt wit

Would you

in the reserve banks and 80 1

more o

a in

4101,4erve, no green

the dangers.


had t1500,000,000 or

r and admitting

ven the silver menace can be
ircul8tion to


the piece of

ucing denominalAons-

I won't c mment in detail on th, most lntering

tive of what h

been transpiring of which you write me.

in my hear

at you agree with my views about the cur-

rency in

u would feel very much

easier about all


foreign business if our currency and reserve bank reserve situation was on a sound basis.
About the war situation, it

is worse than

and I cannot see any outcome to the deadlock.


Even President



Hon. Paul M. iiarburg.

Nov. 28, 1916.

Wilson can do very little if anything with feeling so bitter
between the belligerents.

Don't let either ofus lose sight

of the fact, however, that while the war does continue and
innsruch as we can have no patt in stoppin

it, a construc-

tive program is safer than a program whic

nterferes with the

eoeration of natural laws and those which

vo been accepted

betrez2n nations as lawful and pro

feel that
.ment that

I am justified in repea

gold reserve in t

down as being rr

chuckle over

aving all

having an



loans are not good

tection is in

believe our gre

urope in pawn, so to spe


the state-


If these foreign

are, then you can put re
id srre day you can

th'it and I won't hqvc g word

to sql.

ank you many times for writing
me _o


Faithfully yours,

Hon. Paul
Fedcrul Reserve Boaed,
Washington, D. C.



November 29th, 1916.

Aar ..arburg::

It was necessary for m to order that
rk o I was
picture from the photogra,ph
unable to put my name on it.

This wil

:ou still have it, w

am in Watling on


an ever there aga

Hon. Pau

g on,


now adorns my chiffon-

ier in a most gorge

done if




December 2nd, 1916.

Dear Warburg:
I am enclosing a letter addr

which I will a2preciate

that he attends

Agents to be

however, and should


era]. Reserve
shington, D. C.


m in the

the m iting of Federa

held in W

be good enough to

sed to r. Jay


He ha


not been well

ere, I will ask you to
him at New


December 2nd, 1916.



Thanks for yours of the 27th ult.
Of course, many of our letters b'ick

They are the best we c

coal barges in a sense.

forth are like
do in the way

of discussion with 2000 miles between
eed in all tha

I am very much interested
your letter.

eed with the recent

You know that I h

re and I think it is

policy of the Board in some o

y man I know of with whom

honest of me to say that you are

just as frankly as agree-

I feel at liberty to ex
ments without the s

ty o

test possibi

Just one at word on this

ubject to express what is

ave brought about an immense

o absOlut

our export trade; it cannot all be paid for in gold,


nor in ft, by the'retu
for its exi

ume depen

If these ore

of our securities, so the trade in volnee upon the amount of credit we extend.

eatly enlarged and are good, we insure our-

selves against future disaster.

issension resulting.

atural laws over which we

really my theory of
can exerci

ou say in

This is all repetition of former

What we need to guard against is using this mass of gold

to extend our domestic credits.

So, in general, my view is that

these foreign credits are far safer for our banks and for our
country as a whole, than wild speculalion and huge inflation resulting from further additions to our gold, which are bound to



Dec. 2, 1916.

Mr. Warburg.

It seems as though

to follow if we refuse to extend credit.

a policy of repression is not only timid but will
result,if the policy is effective, in development

somewhat as


rpeses; this means

First, belligerent countries will


upon imports of goods not necessary for war
losses to exporters who are not dea

tions, while mu-

in mu


nitions makers will reap huge profits and get t
Europe of

As we graduall

export trade.

increase to our

abroad the cost of all of


We suffer

their invec

Hum and bend

at a m

at can



be gath

part of

And a


get rid

reasonable limitations upon
their government bond holdings

ergies to assembling every dellar of
d into the vaults of the reserve banks?

the joram, undertake an


cks and retire

energetic campaign to

national bank notes more

by working the denominations of


1Nou1d not

his matter develop naturally

eserve banks



on at home.

the constructive .licy be to 1
and safeguard th

the ex-

of disorganized exchange,

ade and

curtailment of our


urrency premium advances

changes become demoralized


ulk of the

our paper money

as you and I have frequently discussed, it seems we can



country in an impregnable position by driving gold, not only into the


banks, but into the

vaults of

all member banks.

I am tempted to illustrate my feeling by compering it

the position of

his friends

on shore

a swimmer who is caught in a sea puss;
shout to him and


him to bend



-3Dec. 2, 1916.

Mr. Warburg.


to drown.
every energy to swim against the current, he is bound
with the current
One cool head encouraging him to go along
The policy which
edge along toward shore will save his life.
fellows,(and I regret to say those Solons of the Advisory

n effort to swim
Council,) have adopted impresses me a
g for us and will
against the current, which will prove too str
exhaust even the most "'powerful swimme .
lead you to
Don't let our disagreemon In this ma
e behind the a of the
suppose that I read any sin,ap.te u.
It is a subn my mind.
no-rd. There is nothing of at sort

ject on 'thicb the bee' may
will find out who was right.
write me so frankly
hand you would


would express you





1 M. Warburg,

'eserve Board
D. C.

some years hence you and

best part of it is tht you
noes me that were I on
views just as freely as you


December 6th, 1916.

Dear Warburg:

The enclosed copy of letter se

tion to do

I would not

have written him wit

the Board an

this Federal


rig progress.

New York naturally

The high call ra

ee ju

trouble to mak

what takes place

olume, you will realize

when bills co

f in a real crisis are

that our means



If you will take the


more bills into t


ve note

ressing that I want to

problem is really so impor
contribute what

ut an invitame copy of

so, but he was good

his memorandum to

Delano explains

d would hardly be effective


s emergency action was taken to give reserve notes a
US similar to

e enjoyed by the Aldrich-Vreeland


Hon. Paul M. Warburg,

Washington, D. C.


December 13th, 1916.

Dear Warburg:

This is one of the days when
out of my


system and I

as I understand the


as the


Bank of New

situation, i

sf New York;
its ex-

w earning all


The Federal Re-

day of its organization

York since

4 n its power to contribute

contributed everything that

toward making

little less

Federa. Reserve Ba

penses and nearly if not all

good job of it.

might ns well mak

The Federal Reserve Bank of
than one-half as large

1 wan

a succ


dividing its invest-

ments, sacrificing

ion in the central market of

the country

vemy turh to subordinate self-




This is no


officers of






been affor ed continuously.

l Reserve Ban

gold in

vaults ac

Bnnk of Chic

to Chicago of

of Eew York

ulated by




At the present time,
about $95,000,000 of

note issues; the Federal Reserve

about $4,000,000.

their note iesue has

the bank



I presume the total cost
been over $6,000 or t8,000;

ours has probably been nearer $200,000.

It is none of our business to criticize or interfere
with the policy of the Federal Reserve Bank of Chicago so long
as it does not affect our own affairs, but I find recently that



Hon. Paul M. Warburg.

Dec. 13th, 1916.

Chicago banks that have been in need of currency, particularly
new bills, have fixed up some sort of an arrangement by wi.ich

against New York exchange that comes to us through the Chicago
Reserve Bank, they are getting through their New York correspondents Federal reserves notes of the Federal Reserve Bank of

New York.
7.7y advices are not suffice tly complete

thorough analysis of this matter,
on the ground in

New York), but I

what as follows;

w ich would have
believe it is wo

A Chica

ve Bank of Chicago which

checks on New York with

are sent us and credite
the Chicago Yedera

serve Bank of


es a transfer of some

kind on us to Chicag

ter bank remits the trans-

fer to its New York cor
to us with the check


a.dent, say Bank Bi Bank B then comes
d a re.

eral reserve notes

.t for, say, $100,000 of new


omptly ships to Chicago Bank A.

Further evi

of the generous spirit exhibited by

that outf

reply to our recent letter about har-

monious acti

in regard to government bonds. ;"

Chicago objects

to the plan.
I h

on the part of

been quietly watching these manoeuvers, not only




on the part of other re-

serve banks that have been indulging in that time-honored pnactice
of trying to beat New York.,

in some new scheme.

Every now and then, it breaks out


Hon. Paul M. Warburg.

Dec. 13th, 1916.

Realizing that in these matters it takes time for the
Board to take action, I am sending this private and personal


you as a warning that"as, when and if" I get back to

bank in New York, this sort of business is going to stop,

if it means blacklisting those particular b
antics of this kind.

If I were in New York

tify the Federal ReserveBank of Chic

business with

them of


ny, I would no-

e, would do no more

any kind and make it clea

Conference just why we were goi

being there, as I said above
my grouch and tell you wha

can be

that indulge in

when 1 get back to New Y

e that posit

the Governors

give you the benefit of

sure to happen as anything
if this sort of thing contin-


After r
is happening to is
at any rate I hay

Hon. Pa
II. Warbur


ere to-day, you may wonder what
ns that I am getting better -

as I hope this letter discloses:


December 13th, 1916.

Dear Warburg:

Some time ago, one of your letters

ntained an inti-

mation that favorable decision had been arrivd at in the matter
ondent in

of our application for the appointm

I am just how in receipt

dvices that ?

y has

rno.r Harding that the

been informally advised verba

e any position in this

State Department does not

matter and that the Reserve BoaT7 1 deal with it simply as
serve Board is willing

a banking matter.
that we should corn

dertake any busin

This lea
h woul


of New York,


go ahe

with the 'plan

into op

tion or not

s as

roposed but not to un-

authorization by the


an absolutely impossible
personally, as well as the Reo justifiable criticism if we should
thout knowing whether we could put it
d then finally have the approval of the

Board with

am sending you this letter,-wishing to be absolutely
frank with you at all times in these matters,-simply to say that
'I am writing Mr. Treman on the subject to the effect that the
informal advice of the Board with a string attached to it is not
of a character that would justify me in doing anything further



Dec. 13, 1916.

Mr. Warburg.

towards completing these arrangements and that I believe the
Federal ReserveBank of New York is entitled after waiting
seven and a half months to a definite "yes" or "no" from the
Reserve Board in response to its application

r authority to

appoint a cornespondent in London.

This letter is sent to you personall

because my as-

sociates in New York may not agree

am express-

ing to them and it is a matter in which the bank


d take

formal action rather than be dAi by me from De ver.
As all questions
:latter strikes me about as fol

to give or withhold it
business of the Re
act the business.

The duty of the Board is
t once given, it is the
go ahead and trans-

s is started, if the Board

in its supervisory
York is d

are eliminated, this


t the Reserve Bank of New
d business, it is the Board's

course, to call their attention to the fact.



owever, that t

in the

sformal way w

think the


do not

Board should give a conditional consent
h it has in this matter and frankly I
own very little consideration to me and

my associates in hanging the whole matter up for over half a

Why don't you cut the knot by approving the appointment, which is the thing to do, and then, as has always been the
case in the past, have a frank general understanding about our



Dec. 13, 1916.

Mr. Warburg.

policy which is ftexible and subject to readjustment as conditions
justify* I.
not like the evidence of distrust exhibited by the
Board and believe that you would be just as impatient and just as
disgusted as I am to be asked to do bsuiness o this character with
a noose around your

just as


You can get just as mad as I am abou this and write me
frankly as I have written you
s I 4a e been waiting some

mpnths to get this

out of my system where it has

for more or less mental disturb


Hon. Paul M. Warbur
Federal ReserveBo

Washington, D. C



Denver, Colorado,

December 15, 1916.


Federalneserve Board,
-eashington, D. C.

Dear Warburg:

You have not written me lately and I know y

s and not

ourings of

because you are put out by mg recen

dissatisfaction about the way y

als have been behaving.

This letter is princip

s my satisfaction that

.Germany has finally made a wove toy


as I pray it is, 2ngl
world eith anything

not listened



to realize that is is because you are

well enough


If it is sincere,
t face the civilized
f the suggestion is


a may have opportunity to

I do not kaaa

o may have an influence in the

situatieo but let me ex/ ess frankly and honestly the following

not only gro

but from

y observat



out of my own thoughts on the subject,
made abroad.

France most fear is a termination of the war

Which will not result in disarmament or Which will not insure so far as
human arrauLlements can insure It, no recurrence of a similar kind.

the war stops before one side or the other is beaten, the only real
assurance of permanent peace will consist first, in disarmament and


a formal, definite understanding between all the great


2o - Mr. ,arburg.

December 15, 1916.

nations, including the United States, that dif' ences between
nations will be settled without force and that ttlement, if necessary, will be imposed upon parties to dispute

a combination

of the neutrals.
believe today that Germany could recover a

prestige lost in this country

art of the
e if she displ ys a true

willingness to disarm and to

eai and enduring and binding

league for peace.
This peace devel

ring on our future plans.

c)11 and 1 should

come to an agxe


them frankly and try and

Which should


policy of the Res

System shoul

ot be difficult, as to how the


e shaped. I cannot tell you howmith you ,%nd how much I need it.

If yo

ould only break away for a week and spend a few days with

1 wo

rejoice beyond

ression. In any event old man you must


rget what 1 sa

in a former letter - that differences of



us are never personal, are mostdifficult to

adjust by correspondence and nothing that you could write me, expressing your views Which may be opposed to mine, would ever give rise to

any personal feeling, so write me frankly in reply to mg recent letters,

but better still come out here and see me if you can.
Federal Reserve Bank of St. Louis

With best regards and success to the peace move.

Faithfully yours,


Denver, Colorado,
December 19, 1916.

Dear .darburg:

It was a great pleasure to get your letter s the 15th.
I had appointments both at the doctor's and dent t s today so have

had no opportunity to dictate a rely

you a careful

to read very th

one in 'a day or two, Which I want

tfally and

hat I have never felt the

deliberately at home. Let me
need so much of a good vie'
The boys get here this wee

e-going immediately away

up in the mountains t
will be back proba

spend the Holidays and I

the first o,


) start the boys back

to school.
Please give m
same to

and e
on my


ry best to LI

Warburg and Betsy, and the

e thought I have every morning

ng When I see your picture in

,Jagnificent silver frame

Faithfully yours,

Denver, Colorado,
December 21, 1916.

Dear 's,arburg:

This is replying to your long letter of th

5th, which I have

read with great interest and agpreciation.

were most satis-

that t

Reports of the conferences indicat

other sid

factory and this, of course, I get from the

yOu will

let me make a few frank comments,

this matter

ey to Governor

Harding with your unfailing tee
erienced at the Governors'

One of the difficulties

rankness and plain indicatiOn

Conferences has been a lack mf n t-ep

gether on the basis of

of views by the Reeerv

ther put in the position of be-

a partnershio, but t

ing school boys work

s with unexpres


lack of


will rea

ze that the gov

on practi

certain amount of interest, corn-

work wi

teachers, who
bined at

eacher, or a board of school

under a schoo

this can be


ors as a whole are

forever if the Board

exceedingly well informed

they discuss, and desire to establish a work-


ing arrangement with the
pupils and tutors.

criticism, and, to be frank, a certain


Board as partners rather than as between

I do not say this offensively or with any hard feel-

ing whatever, but it is undoubtedly a
this growl of twelve men

fact that

technical bank detail

kne.7 infinitely more about the subjects they deal

with, as a rule than do the members

of the Board: ihereas, on the other

hand, the members of the Board have an infinitely better general point of

of the whole system than anyone of the governors can have.



To - Mr. Warburg.

December 21, 1916.

advantages of the Board's general supervision

and of the


technical knowledge can be made the strength of the system, if the two
bodies work together, and they can be made

they are kept apart.

the s .. s

Governor Harding is just th$


of discord if

n to handle this

situation right and if he will start everyone of t conferences with
a good, plain talk, directed rather to H I
i .
t than towards
cracking the
of authority, h
4 himself dri. Ap a 12-horse

team of

se tell hi this along with

unexampled loyalty and a


assurances from me that he ha

ahead of him with certain

Ti I think you know that no one

success if this policy can be lirsu

the situat


better, or so well,

as I do.

It is a deli

of those folio

f the affection and loyalty


ugh to send me.
ally been



quite ill, but is very


,.,ut the whole amt of clearings.
important ttters; one

c are faced with three

. the problem of charges outlined in the Board's


circular No.
serve banks

I am in constant

is immediate

credit of

checks on Federal Re-

end the third is the movement in the American Bankers lAso-

ciation to destroy the

work we are doing.

I am very trongly
and send you quite

on the subject,

opposed to the plan of charges outlined in 901

confidentially copy of a letter I aLn writing Hendricks

which please keep for your

private use. As to Seay's re-

port, I must take time to study it and prepare a memorandum, which I will



December 21, 1916.

To - Mr. Warburg.

send yo

I think after While the object that Seay's verbos


report aims at can be accomplished without forcing the System to risk
the dangers that are really inherent


On Reserve Banks for exchange purposes.

icted use of checks

the unre

-All wri e nothing more until

I study his report further:.

About acceptances --I am sorry

ot to agree


views you express as to the way the

s evidence

' -arb

in every single pa

Banks i


thout any ob
the law, that

rinsic value t

and in
fer to Wh

is never

the New York B

would develop so


lack of courage

e Now York Bank was to my mind right

at a time When the p


If the

to will all run off in a few

The 312,000,000 of bills that you r

it mature


are being

will never amount to anything.

up bills a bit, the Federal R

bill held by

you in the

ry and we begin to pile

Board gets timid every time the

weeks and really,



the facts ;hat every single

ood as gold, will be paid the instant

for renewal, that everyone of them comey are infinitely better in quality, in liquidity

almost all the

commercial paper jhich you re-

off in fact and that this recent transaction by

what in former days you and I have hoped
that we could exhibit

both here and abroad

and prayed

that we really

amounted to something.
I really think you are mistaken in your view of this matter, as well
as your view in regard to the length of the paper.
instance, handles only short paper.

Yon will find a negligible quanitity

of 60 and 90 day bills ordinarily in their

The Bank of France, for

portfolio. The Bank of Lngland

December 21, 1916.,

To - Mr. Warburg.

does not discriminate at all against short paper Which comes ii through
the bill houses. In fact, it ver;j frequently is short paper and I should
a sudden turn in

Say ti ordinary times is generally short paper

money rates forces up the rates


houses carry their portfolio and makes it

on which the bill

on day to day 1

or them to dump
o agree witn you

their bills into the Bank of Ingland.
about a-differential.

out of deference

did recommend

that it be ad

n New York

ut against my personal

to your views


Nov, the real trouble with


in New York, .kt does not

ither as to rates, maturities

arise from any policy of

practice of New York banks

Or methods; it arise

own bills.. Once they

for they will persi

once, the

It is

rate situation would

f itself and no discrimination would be needed or justified.

that acceptors

their own acceptances, the trouble

ir1141abt th&J own acceptances.

cioally, let their bills go to the market.
seem to think it is a reflection

on them to


You will observe that the

rience, viz.- Morgan, Brown, Heidelbach


The now fellows at the business
have their bills offered.

is because they are banks of deposit instead of

fear it


everything bearing their own ac-

suaded, educated or

take car



acceptance houses, and I

will take a lohb time to overcome the trouble.

Instead of


your suggestion


regard to discriminating

against maturities, by all means let us undertake a campaign of


To -Mr.


or anply

pressure, if necessary, towards forcing the banks to discontinue

December 21, 1916.

the practice of buying their awn bills, and I am sure that most of our
difficulties will disappear.

Wont you

consider t

carefully before

urging Treman to undertake a course which I am,qui

convinced will not

be effective because it misses the mark.
Now about this exchequer bill opi ode, don't 1

wrangle over this because that water
you realize that you

e over the dam.

and your as


hear the truth from your

friends, or read it in the pre
matter has created.

Ou and I

sal impression that the

I blame Davison

ly for what happened, but after

hearing the story from

the Board could have met

the situation by stet

ies of foreign governments

in this market were

two en those- governments and our

bankers and inv

rd did not propose to interfore,

and that


upervisory p

sure co

r member banks would be exorcised

at ism




the future as in the past, to in-

co of the law in the way in -Which invest-

hat the Board got outside of its baliwick pnd
aroused suspicion as to the sincerity of its

expressions. In

other words,

it has been universally whispered about that there is something behind
it all that has not been explained.

i can appreciate that you hi no

difficulty in convincing those newspaper men that the Board was in a

hole after Davison's call, but don't forget that

newspaper men don't

always say all that they think.



- Mr. ,;arburg.

December 21, 1916.

The danger in my mind resulting from such affairs is that the
Reserve Board would got itself into such a

situation that

men of the country will ignore them and the Intl

ce of the Board, in-

stead of being an effective one, will be rather t


the important

of a captious


So much for this.

I have writte

I always do

and know that you will take it in
I an glad you spoke to Ire

ody about a new Deputy

more progress is

Governor and cannot for the l'

stand wk,

not being made in New York on this

Some way or other, punch

does seem to be lacking

eman a

bit, both


he is new and becaus

posii.on for one to fill tem-

porarily any way.

evelops, i would want him to

come out here for a

plain talk coveria, various


unate to be obliged to correspond.

must never underrate Jay; his abilities, his mental power

and hisortance in-the
and a re

t for that h


I have q

Very deep affection for him

piece of his which you would feel in a
re along side of him.

His clief trouble is

i ability to organize and coordinate his work and to make the other fellow
do 90% of it.

I have had some very frank correspondence with him lately

and I think only his illness prevented your seeing the result of it.
I ay. not going to refer to the drafts of amendments in this letter,

but prepare separate memoranda on

On the whole,

each one, Which I will

they strike me very favorably,

send forward

but i do




To - Mx. 7arburg,

December 21, 1916.

they don't reach the committeDstage until I can send you a feu sugges-

tions, just to show you that my band is not entirely out of it yet.
In general, there is one danger to fear f
Congress and that
is that they will den any amendment Which opens t

door to expansion

or inflation. My letter to Delano, v)hic' I hone inc with your approval,
was intended to suggest the impossibility of inflatio
Federal Reserve
banks and I fear that the argument

, nearly as

ng as it

might have been.

oust let the Board rely upon

In pushing for amendment

their own efforts alone.

not always agree among its own

fore Glass

meMbershin and when


associates, an amen

is necessari

tion behind the eff

by calling in


bankers to

o stir him up,

write Mc


my opinion, or


that they are





.nwen and their

lost- Get every pound of ammunieserve Banks and important

you think it advisable for me to
really does now and then Show some re-

least has in the past, and I think he is
est ones. So far as the President is conass convinced first aid McAdoo to join him, you

should have no difficulty with the White House.


This is a very long letter, so take it home, mull it over and
send me a reply, only When you have got plenty of time and wont be

Best regards from,
Yours sincerely,

Denver, Colorado,
December 22, 1916.

Dear Warburg:

I have been studying over the proposed ans

nts that you were

good enough to send me and find, as you ma7y, imagin

ich is not avail-

require a good deal of study and in some

able to inc here. They are all distinctly in the righ
the memorandum, commenting on each a'-

herewith must only be underst

that they really


-ection and

.tely, Which I ii sending
ssion of views which I am

hopeful will help.
Some of them strike

so far as language i

ittic crude, or unfinished,
they have not been

subjected yet to th
May I also re
Board will b

All oth

t. o be

before - that I hope the
possible outside of its own

support of the program of amendments as finally adopted.
comments are in uded in the enclosed memorandums.

Very sincerely yours,
Hon. Paul M. 'Jiarburg,
Federal Reserve Board,
Washington, D. C.


Denver, Colorado,
December 24, 1916.

Dear Weburg:
Yitre, 'sf

the 19ta is just received. Did

and I were not


Minim are working


ou oyf -klitOW

ver mutual craakv
kna:i those cranky

along AL-

rvations of mine sometimes h


a time

,giving you a

ferent point

view, just as yours do mi
;hat you so.' about

th8 Trust Companies interests

Ira the first p

very. much.

Ou know we kes,

of this in New or

very close

eptance accounts

hankers; as to

nf tho


dingly moderate.

As to the

eally do not think the time has

arrived as yet

11 on thim score, except possibly

bank i

e a little personal discussion with

oper officer of the Guaranty and the Equitable of such a charae'


uld have the a
ng of a New


for the

ranee of being merely a routine inclutrv at the
Beyond that I


business, all

objects to accomplish in developing this

of AliCh cannot be accomplished

dealt with in their order of


complished is to develop volume of


at once, and


they must be

The principal object

to be ac-

business, even though it seems at the

make one or two or throe acceptors a

volume means that every avenue

would not 6o just nov.


We have a good many



bit tophoavy. Developing

through which credits can be opened in


To Mr. Warburg,

December 24, 1916.

foreign countries should be employed to the maYimum at the outset.
We must not regard it

from the

standpoint of the figures of any other

acceptor so much as from the standpoint of



is transpiring at the

Tng minute the

end of the lino where these bills origite.

impression gets abroad in South America, and n

iOularly id

the East

tors are in any

where communication is so slog, t

being restricted in openin,


it will chi

2s development

as sure as fate.

The second object to


d is to develop extensive

machinery abroad, and,

ng its development, to use ItAdoo's

[4-ia:lession we mus

w curry Our horse.

IrLst Co. has b

any of the othe


ness of tFe Go u.
I 'aou



South Amen

t recognize

tha they almost al
e third dev

latic in


The Guaranty

direction than

.y are handling the bulk of the busi-

Banks and a vast deal besides, and


anything to Check that growth.

'f you look at the bills we get on the Guaranty,

come through with good


ment, Which comes slowly but recently very
increase the number of accepting names.

astounded to see what a growth has taken place in

I am

the last three

months. Yacility with which bills are drawn and negotiated in the
East and

in South America helps this development immensely and

Guaranty again is doing yeoman' S work



that regard.

The fourth development is to straighten out the man:: kinks and

irregularities in our own New York discount market; with this we must



December 24, 1916.

To Mr. -,arburg.

I don't believe

be exceedingly patient during those early years.


realize how effectively

market when the time

the New York bank can control the local

cones to do so.

I have endeavored to naze


evelopment in its

process o

sons for sugesting

logical sequence as it appeals to me, and mu

tions named at

that either nothing be done about t

present or that the matter be dealt with as one o
attempt to an

not to arouse commenting and

tine so as
y pressure

or excessive rate discrImm
judge that the Guaranty's

From last year's expe


aficount is now at a

shortly decline Pril

to the abnorma;ly high

that the increas

id that the institution is in

price of cotton


better shape t

perusal the Minutes of the Conof '2edera1 Reserve Agents.

ks and hear fro.' 'ther sources that the impression made upon

nts and later






I was delighted to read Harding's

of 1

the governors was most favorable as



p that he was disposed to assme and the vmy

in which he had handled matters.

While I do not agree with


he said, I do heartily agree

with his expression that this System can be run without arbitrary direction from the Board, and on the other hand, without lack of coordination
if we will get together, discuss matters frankly and agree as grown up
men as to the policy of the system as a whole.

Things look pretty bright


To Mx. ':,arburg.

December 24, 1916.

to me for the future and I hope
you feel equally encouraged.
We are off to the mountains
hear from me for about ten days.

tomorrow morning, so you wont

Best regards to you and all your pals.
Very sincerely yours

Hon. Paul M. Warburg,
Federal Reserve Board,
Washington, D. C.



January 11, 1916.

Dear Governor Strong:
Thank you very much for sending me a copy of the
questions that you asked your English friends, directors
of the Bank of England, and for sending me a copy of Mr.
Grenfell's reply.

Then you go over to London, I hope you will further
investigate the matter as I do not think that the replies
are quite to the point.

It is not the question of who is

right or wrong, but it is important that we agree concerning proper principles.


I can well see from Mr. Grenfell's

reply that, in answering your questions concerning finance
bills, as the questions have been put by an American, he
has in mind American finance bills.

You may recall that,

concerning those, I have always stated that I thought they
were treated differently in London from finance bills of
the same character drawn by a country that had a proper
finance system.

In the past, in the United States, there

have been no commercial bills of exchange which could flow
from one country to another, and, owing to the fact that
large crop movements had to be anticipated, the finance
bills have played a legitimate role.

But, as I told you,

a bill drawn, for instance, against collateral of securities by a German banking or brokerage firm on English bank-



ing house was not considered a desirable bill in years gone

by, even when political conditions were still entirely normal between those two countries.
Reading between the lines of Mr. Grenfell's letter,
does he not say, as a matter of fact, that "finance bills

drawn in the early part of the year have rarely been criticized, as it was felt that the same would be disposed of
or replaced by Wheat and Cotton Bills in the fall.


however, bills came forward in very large quantities at a
time of wild speculation on your side, the bank has some-

times issued a private warning to the market that it disapproves of same", etc., and later on he says, "If it considered finance bills for speculation were coming forward
on any house in too large quantities" about the same course
would be pursued.

That means that, essentially, they take

bills which have some commercial foundation, and it leads
to the question, .what would they do if they were faced

with an issue of 425,000,000,

50,000,000 or 4100,000,000

of paper drawn bya foreign government on British banks.
Would they not feel - first, that the commercial character
was lacking (particularly if there were agreements to renew) and - second, that there would be too much on single

Would they not consider these bills under the head

of something like speculation?

Orcourse, just at present, these men over there, in
formulating what might be considered the normal attitude of



the Bank of England, subconsciously will be influenced by
their own abnormal conditions and requirements.

But, be-

fore you and I shall be through with our jobs, I hope that

normal conditions will prevail again in Europe, and I am
confident that I shall be able to prove to you that the

Bank of England will object to $25,000,000 worth of bills
drawn by the Government of Roumania dh British bankers and
that they will stop these bills from going into the Bank of

England to any large extent - not by a regulation, as we
unfortunately have to issue, but simply as Ar. Grenfell
describes it, by indicating that it would not favor these

I feel so strongly about the principle involved here

as one which Federal Reserve Banks should observe that I
hope that when you are in England you will get all the
light on the subject that you possibly can.
Thanking you for your letters and hoping to receive

some more, I am
Very truly yours,

Benj. Strong,Jr., Esq.,
Governor, Federal Reserve Bank,
New York, N. Y.

Paul M. Warburg,





se three symbols
Io check (number of

this lea day message. Othercharacter is indicated by the

appearing after the check.



Day Letter




3IZB 404:40"





Night Message


Night Letter
If none of these three symbols
appears after the check number of
words) this is a day message. Otherwise its character is indicated by the

symbol appearing after the check.


1106A JAN 15 191.6 44"








Day Message

January 29, 1916.
Dear Sirs:

Permit me to introduce to you the bearer of these lines,

Governor Benjamin Strong, of the Federal Reserve Bank of New

Mr. Strong is about to visit England and some parts of
the Continent for the purpose of making some preliminary studies as to the best course ultimately to pursue in making arrangements for the Federal Reserve Bank of New York, and possibly some of the other Federal Reserve Banks, in opening connections in Europe.
Knowing the valuable services rendered by your esteemed
firm to some of the GovernLent banks for which you have acted
as correspondent, I,have taken the liberty cf giving Governor
Strong these lines, confident that you will be able to give him
most valuable advice and hoping that possibly this preliminary
conversation may lead to some connections being established between your own bank and the Federal Reserve Banks.
Bespeaking for Governor Strong your courteous reception,
I am, dear sirs,

very faithfully yours,

N. M. Rothschild and Sons,

London, England.

January 22, 1916.
Dear Sirs:

Permit me to introduce to you
Governor Benjamin Strong, of



bearer of these lines,

Federal Reserve Bank of New


Mr. Strong is about to visit En:aand and some parts of
the Continent for


purpose of making some preliminary stud-

ies as to the best course


to be pursued in making

arrangements for the Federal Reserve Bank of New York, and possibly some of the other Federal Reserve Banks, in opening connections in Europe.
Knowincrthe valuable services rendered by your esteemed

firm to some of the Government banks for which you have acted
as correspondents, I have taken the liberty of giving Governor
Strong these lines, Confident that you will be able to give him
most valuable advice and hoping that possibly this preliminary
conversation may lead to some connections being established between your own bank and the Federal Reserve Banks.
Bespeaking for Governor Strong your courteous reception,
I am, dear sire,

Very faithfully yours,
Messrs. Hope & Co.,
579 Keizeragracht,
Amsterdam, Holland.

January 29, 1916.

My dear Sir Felix:

Permit me to introduce
lines, Governor

to you the

bearer of


Benjamin Strong, of the Federal Reserve

Bank of New York.

Mr. Strong is about to visit England and some parts
of the Continent for the purpose of making some preliminary studies as to the best course ultimately to pursue in
,making arrangements for the Federal Reserve Bank of New

York, and possible some of the other Federal Reserve Banks,
in opening connections in Europe.

Bespeaking for Governor Strong your courteous reception and availing myself of this opportunity of sending you,
through him, personal greetings, I am
,Very f ithfully yours,

Sir Felix


Union of London & Smith's Bank, Ltd.,
London, England.

January 29, 1916.
Dear Sirs:

Permit me to introduce to you the bearer of these lines,

Governor Benjamin Strong, of the Federal Reserve Bank of New

Ir. Strong is about to visit England and some parts of
the Continent for the purpose of making some preliminary studies as to the best course ultimately to pursue in making arrangements for the Federal Reserve Bank of New York, and possibly some of the other Federal Reserve Banks,


opening con-

nections in Europe.
Knowing the valuable services rendered by your esteemed
firm to some of the Government banks for which you have acted
as correspondent, I have taken the liberty of giving Governor
Strong these lines, confident that you will be able to give him
most valuable advice and hoping that possibly this preliminary

conversation may lea

to some connections being established be-

tween your own bank and the Federal Reserve Banks.
Bespeaking: for

Governor Strong your courteous reception,

I am, dear sirs,

Very. faithfully yours,

Messrs. Samuel Montagu and Cc.,
Sixty Old Street,
London, England.


January 29, 1916.

Dear Paul:

Permit me to introduce the bearer of these lines, Governor
Benjamin Strong, of the Federal Reserve Bank of New York.
Governor Strong is leaving for Europe in order to find, in
a preliminary way, a basis for connections which the Federal Reserve Banks will ultimately have to establish in Europe.

He in-

cidentally will want to inform hi self about financial conditions
in England and on the Continent.

Mr. Strong is a personal friend of mine, who, in the same
spirit as I, joined the Federal Reserve System

for the purpose

of rendering a National service, and his unselfish co-operation
has been of the greatest help in the development of the System and
to me, personally.

I bespeak for Governor Strong your friendly reception and any
courtesy that you might show him and any advice that you might
give him in his errand, I shall consider as personally rendered to

Incidentally, I am happy to profit by this dportunity of sending you most cordial greetings both from Nina and myself.
Hoping both you and your wife are in the best of health, with

fondest regards, I am
Paul Kohn-Speyer, Esq.,
18 Fenchurch Street,
London, E. C.; England4

faithfully yours,

January 22, 1916.

My dear Sir Ernest:

Permit me to introduce the bearer of these lines, Governor
Benjamin Strong, of the Federal Reserve Bank of New _York.

Governor Strong is leaving for Europe in order to find, in
a preliminary way, a basis for connections which the Federal Reserve Banks will ultimately have to establish in Europa.

He in-

cidentally will want to inform himself about financial conditions
in England and on the Continent.

Mr. Strong is a personal friend of mine, who, in the same


as I, joined the Federal Reserve System for the purpose of

rendering a National service, and his unselfish co-operation has
been of the greatest help in the development of the System and to
me, personally.

I bespeak for Governor Strong your friendly reception and
any courtesy that you might show him and any advice that you might
give him in his errand., I shall consider as personally rendered to

Incidentally, I o4 happy to profit by this opportunity of sending you most cordial greetings both from Nina and myself.
Hoping both you and Mrs. Cassel are in the best of health,
with fondest regards - also for Mrs. Jennings - I am
Always faithfully

Sir Ernest Casel,K.C.M.V.C.O.,etc.,
Brook House, Brook Street,
London, W., England.


January 22, 1216.

Dear Dr. Vissering:

Permit me to introduce the bearer of these lines, Governor
Benjamin Strong, of the Federal Reserve Bank of New York.
Governor Strong is leaving for Europe in order to find, in
a preliminary way, a basis for connections which the Federal Reserve Banks will ultimately have to establish in Europe.

He in-

cidentally will want to inform himself about financial conditions
in England and on the Continent.

Mr. Strong is a personal friend of mina, who, in the same
spirit as I, joined the Federal Reserve System for the purpose of
rendering a National service, and his unselfish co-operation has
been of the greatest help in the development of the System and to
me, personally.

I bespeak for Governor Strong your friendly reception and
any courtesy that you might show him and any advice that you might

give him in his errand, I shall consider as personally rendered to

It may be that Governor Strong can discuss with you some of
the difficult problems that at present puzzle both you and us, and
if some satisfactory arrangements could be made between your great
institution and our Federal Reserve Banks concerning certain information of actual operation, I should be only too happy.


Inasmuch as the problems of the Federal fleserve Ban17. of

New York and wor own are very much alike,

I should be extreme-

ly grateful to you if you would permit Governor Strong to acquaint himself very fully with your methods employed in deal ing with fo_.eign countries, as I am sure that nobody will be

able to give him as useful advice as you.

I assure you in

advance of my sincere appreciation of any help or courtesies
that you may be able to :ender to Governor Strong.

I am harpy to profit by this opportunity of

sending you, through Mr. Strong, most cordial greetings.
Very f/ithfully yours,

Dr. G. Vissaring,
The Netherlands Bank,
Amsterdam, Holland..

January 29, 1916.

Dear Sirs:

Permit me to introduce to you the bearer of these lines,

Governor Benjamin Strong, of the Federal Reserve Bank of New

Mr. Strong is about to visit England and some parts of
the Continent for the purpose of making some preliminary studies as to the best course ultimately to be pursued in making
arrangements for the Federal Reserve Bank of New York, and possibly some of the other Federal Reserve Banks, in opening connections in Europe.

Knowing the valuable services rendered by your esteemed
firm to some of the Government banks for which you have acted

as corespondents, I have taken the liberty of giving Governor
Strong these lines, confident that you will be able to give him
ost valuable advice arid hoping that possibly this preliminary

onversation may lead to some connections being established between your own bank and the Federal Reserve Banks.
Bespeaking for Governor Strong your courteous reception,
I am, dear sirs,

Very fthfully yours,

Messrs. Lippman, Rosenthal & Co.,
Amsterdam, Holland.





(a44,11 414

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Copy of handwritten letter

1704 Eighteenth Street

April 13th 1916

Dear Ben Strong,

Here's a warm welcome to you! After all your surely varied experiences,
I trust that you are glad to be home again, + I trust it will not be long, before we
have an 8 - 10 o'clock breakfast, at the above address, so that I can hear all about
your wild doings
my wild husband stops his Spanish flirtations, in Buenos Aires
tomorrow, to make new conquests in Chile T Peru, before coming back on May 9th.
I never quite realized how far away South America is! I'm afraid I'm not born 66
be heroic! It was so nice of you, to think of us, [?] you were living, at the
rate of 70 - miles
an- hour, + I sent your last, interesting letter - quite
unconditionally - on to Paul, hoping that it will reach him, when he gets to
Knowing how busy you will be the minute you step ashore - if not before?I shall add no more than all "Itm migtty glad your back:" + my cordial greetings, from

Yours sincerely
[signed] Nina L. Warburg






Prepared by. .



Check by..

Code used

O. K.



May 10, 1916.

Dear Governor Strong:
I have your letter of May eighth,

and thank you

for the same.

I have decided not to go to White Plains this

week-end because I have agreed to be


New York on

Monday, the twenty-second, to attend the dinner to be

given by the Economic Club, so I expect to e there
from Saturday, the twentieth, to Monday, the twentysecond.

If meanwhile you find an opportunity of com-

ing here, I shall be only too glad to ..velcome you.

Since ely yours,


Benj. Strong, jr., Esq.,
Governor, Federal peserve Bank,
New York.




givbelow ioereby confirmed.


.4ssistant Secretary.

May 13, 1916.

Benjamin strong, Jr.

Federal Reserve Bank,
New York City.

Expeot you for dinner tomorrow.

ur room is ready.


une 7, 1916.

Dear Mr. Strong:
I have your leZer of yesterday and am sorry

to learn that your back is bothering you so much.

Mr. Delano, Mr. Harding and I will come to
your apartment in Park Avenue on Monday morning at

If my time and engagements permit, I shall come
in during Saturday and 84iday and cheer you up.

With best wishes for your back and for the balance of your soul aid body, I am
With kind regards,

1y yours,

Benjamin Strong., Jr., Esq.,
Governor, Federal Reserve Bank,
903 Park Avenue,
New York.



June 16 1916.

Dear Governor Strong:
Thank you for your letter of


fourteenth instant.-

Mrs. Warburg gives me the most/Cheerful accounts
about you, so keep it up./

I expect to go to New York


afternoon, and

shall look you up either Sunday or Monday, or both.

Delano is going with me, and on the way I shall
try to work out some of your Bank of England conundrums.

Looking forward to the pleasure of shaking you by
the paw, I am
Always si c rely yours,

/11R,f-Benj. Strong, jr.,
Governor, Federal Reserve Bank,
New Ycrk.




June 22, 1916.

Dear Governor Strong:

Just to keep you busy and to keep you amused, I
send you the enclosed.

Mrs. Warburg telephoned
you are


that she saw you and that


With kindest regards,
Sin erely yours,

Benj. Strong,- jr., Esq.,
Governor, Federal Reserve Bank,
New York.





June 27; 1916.

Dear Strong:

I have your letter of June twenty-sixth.

You say that you want samples of the currency issued
in Belgium during the occupation.

Are you quite sure that

cancelled currency would not do just as well?


currency will either not be obtainable or will have to
be bought at its actual face value, and that may be a very
expensive operation.

Delano told ma that you "escaped" with him yesterday
and went on a spree.

I hope you enjoyed it, but you

ought to get a spanking, and I am sorry that I will not
see you before irou leave so that I could apply it in

I had a very satisfactory lunch yesterday with Nash
and Frew, who are now going to definitely put up the question to their counsel and their directors.

So far as they

are concerned, they are ready to take the jump.

I an de-

lighted with that and have no doubt that they will get it
past thei

directors, the most obstreperous one of whom

I met in the morning and,

I hope, straightened out.


With fondest regards,




Benj. Strong, jr., Esq.,

Care Federal Reserve Bank,

New York.



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June 29, 1916.
Dear Strong:

I hope these lines will reach you at Denver and I hope that
you got there without too much fatigue and that you are pleased
with your surroundings.
As a first greeting I send you a copy ofaletter which I received this morning from Mr.
please you.

Goff at Cleveland, which will

We must now secure at least one letter of this kind

a week.

We have not yet heard from Mr. Frew and I wonder what they
did yesterday.

I note what you say about Belgian currency and I have dictated a letter to my brother today

and have inquired what the cost

will be for cancelled or uncancelled notes, and shall let you
know as soon as I hear.
We have a group of Governors here today, who are
with Delano and Harding about clearings,
later on at

and I shall

meet them


If anything interesting occurs, I shall let you know.

Now keep well and get fat; do


worry, and swallow raw

eggs, one every half minute.
With fond regards, I am
Always cord ally yours
Benjamin Strong, Jr., Esq.,
Care Dr. Oake's Sanatarium,
Denver, Colorado.



Cleveland, June 27, 1/16.

Dear Yr. Warburg:

Absence from the city has delayed an earlier acknowledgment of your letter of June 18th.

I al greatly o-

bliged to you for sending me a copy of your Atlantic City
addresc, which I read with great interest and profit.


the most part I agree with all you say with regard to the
desirability and duty of state institutions supporting
the Federal Reserve System

The matter of applying for

membership has receivedcareful consideration by our officers and directors and I am very pleased to say to you
in confidence that, in my opinion, such action will be
authorized before the close of the year, possibly sooner.
With assurances of respect and kindest regards, I am
Very truly yours,
(signed) F. H. Goff.

Eon. Paul M. Warburg,
Federal Reserve Board,
Washington, D. C.


July 6, 1916.
Dear Strong:

I thank you for the telegram which I received at White
Plains and for the word that I received this morning.
I am glad to see that you are getting along.

Donl,t get

I have been, myself, in similar surroundings some

years ago and I know that it takes some time to get used to them;
but after awhile you will find them most peaceful and will not
have any difficulty in being perfectly happy in your idleness.
I thought you would be pleasaito hear about the Corn Exchange bank and therefore sent you the wire last night.

I had

another talk with Mr. Frew and Mr. Vaughan, one of their directors, on Monday last and they arranged with Mr. Jay that they

would try to push through the application in record time.


New York committee passed upon the same yesterday and Broderick
is there today and I expect to hear from New York every minute.
I am very anxious to have the thing settled before I leave for
my vacation.

I hope to push it through tomorrow.

I had a nice letter from Jack Morgan and append a copy, as
it may please you to read it.

I shall be in New York Monday and Tuesday and shall try to
get in touch with Sabin and see what I can do.






Our amendments are still hanging fire and I am somewhat
disturbed over the outlook because the shipping bill may create a situation where our amendments may possibly suffer.
But I hope we may be able to avoid this pitfall.
Apparently trouble will be

You were right about Mexico.
avoided, which is a great blessing.

My son left yesterday for Pagosa Pass, Colorado.
therefore in your neighborhood.

He is

He will be on his survey trip

there for five weeks and maybe he will come across you or you
will come across him before he returns.
The family is well and happy and we talk about you often and strange to say,-kindly.
I suppose that New York advised you of the talk we had
here with the Governors about the joint selling of Government

They are in agreement now but the difficulty is that

the market has now gone to pieces.

I do not think that we can

do anything until either the Government has sold its bonds or
has put a quietus on the apprehension that it might contemplate
to sell bonds.

Without more for this time, except best wishes and most
cordial greetings, I am
Always s

Benjamin Strong, Jr., Esq.,
Care Dr. Oake's Sanitarium,
Denver, Colorado.

rly yours



July 10th, 1916.

Dear Strong:

I am here for the day and have had a little chat
with the officers of your bank.

My object in coming down town to-day was because I
wanted to lunch with Charlie StL.,You may be pleased to learn
that I think things are moving favorably in that direction.
We talked for an hour and a half, went through the whole business with much frankness and I shall be much surprised
the outcome is not a favorable one.


It may take a little

time and, of course, unforseen things may


that may

give the matter another twist, but as it was left to-day, it
looked pretty good to-me.

I thought you would be much pleas-

ed to hear this.

I had a talk with Frissel, where things look less

He wants to come in but is bothered by his

small stock capital and is afraid that increase might have
the effect of bringing too much of his stock into the market.
He evidently had some talk with the Chemical National Bank
people and Porter gave them information which had a discouraging effect in this connection, but somehow or other, sooner
or later, I think he will come in.



Benjamin Strong, Jr, Esq.


Had a talk with Kelsey of the Title Guarantee and
Trust Company and set him going.

We shall have to see what

ill become of that.

Jimmy telegraphed that he saw you and found you
looking well and I was might' glad to receive this little

bit of news of


Otherwise, there is not much that I could report
0-day and am, with ki/dest regards,


/, /

Benjamin Strong, Jr., Esq,
2825 West 32nd Avenue,
'Care Rev. F. W. Oakes,
Denver, Col.




July 18, 1916.

Dear Strong:

We were delighted yesterday to receive a letter from
your brother and this morning your postal arrived from Estes

I am mighty pleased to receive such good news about

you from your brother and to know that you safely arrived at
the Lewiston.

I hope that everything is pleasant and I have no doubt
you will now make

rapid strides toward full recovery.

Before coming here to Loon Lake I spent two days J.=

New York and had a conference with Messrs. Treman, Rhoads
and Aiken; and, of course, Messrs. Kenzel, Hendricks and
Curtis were present.

We discussed the Government bond

situation, some clearing topics, and discount rates.


suppose you are advised as to what is happening there and
I have written Mr. Treman

you know more about it than I.

today to keep me advised about what is happening.
You will have noticed that there was a short flurry in
the call loan money market.

While I advised New York to

Increase their acceptance rates - which they did - because
I felt that they would not lose any business in doing so, I
advised them to keep the call loan rate at 3%, because there
is not much risk in doing that.

If we get too much we can

always be out of the woods within ten days - then increase

the rate.

I am very anxious to see the member banks get

the habit of applying to the Federal Reserve Banks in just such
cases as the one we went through.

Acceptance rates (I think(

we can probably safely put up to 2% as the lowest basis, and
probably they may be able to go up higher without losing any
business, and still our margin would be wide enough as against
England, where they now have a six per cent rate.
From the statement that I saw in the papers, which must
haveembnated from Sabin, I should think that his trust comI am anxious to get back and

pany is about due to come in.

follow the matter up, but shall try to do so from here.

I am somewhat apprehensive that we shall have trouble in
getting our amendments through.
trying to push them along.

I am keeping at everybody,

The amendments were brought up in

the Senate last week, but your friends, the Republicans, played politics; and we hope that they will pass this week.


will be more difficult, however, in the House, where Mr.
Glass is less enthusiastic about some of our amendments than
Senator Owen.

But I have made it quite clear to him that

the responsibility for whatever may happen if we do not get
the amendments, will be his and not ours, and I have also

up Mr. McAdoo; so that apparently he is doing all

that he can in bringing pressure upon Mr. Glass.

I had a letter from Mr. Hulburt, of which I inclose a
copy, which will interest you, because it shows that things
are moving well all over the country.


We are having the usual restful time here at Loon Lake
and I am sorry that I cannot give you this year an exhibition
of my wretched golf, but I hope that we shall play together
next year.

What little is left of my family - being the wife and
Bettina - are well and happy and talk of you frequently and
send you their warmest love.

I am glad that the various paraphanalia arrived safely
and I hope that they give you some comfort.

Do not feel that you have to write to me at all, but send me
a word sometimes through whomever may be with you.

We shall

want to know how you are getting along.

Please give our warmest regards to your brother and tell
him how much we appreciate his letter.

With warmest regards and best wishes, I am
Always cordially

Benjamin Strong, Jr., Esq.,
The Lewiston,
Estes Park., Colo.




o ct,b)


tr CU



112 West Adams Street
July seventh
Nineteen Sixteen.

Hon. Paul M. Warburg,
c/o Federal Reserve Board,

Washington, D. C.

My dear Mr. Warburg:
I have received your letter of June 30th and appreciate very
much both the letter and the speech.
I read the speech some time ago rather hurriedly and have kept
it before me for further study.
So far as I am personally concerned there is but one thing that stands in the way of our applying for
membership in the Federal Reserve System and that is the matter of
interlocking directors.

We have seventeen directors, two of whom happen to be Directors
of the Illinois Trust and Savings Bank of this city and another is a
Director in the State Bank of Chicago.
Several, I believe, are
directors in New York Institutions, but I presume there would be no
difficulty on that score.
As a matter of fact, I do not think the Federal Reserve Board
would in any way violate the amendment of the Clayton Act if this
situation was allowed to continue.
The law, as I understand
permits the Federal Reserve Board to authorize men to act as Directors
of more than one bank, provided these banks are not in substantial
This, of course, gives the Board pretty wide discrecompetition.
Take the case, for example, of this banks and the Illinois
Trust and Savings Bank.
This bank has seventeen directors when
the Board is full and the Illinois has eleven.
Two of the Directors
happen to be common to both banks, but, so far as I know the presence
of these men on both Hoards has bo effect one way or the other on the
competition between there banks.


The Illinois Trust and Savings Bank is essentially a savings bank
and trust company.
It does not solicit comercial business and lets
it be known that it does not care much for it.
Its loans are confined almost entirely to loans made on collateral.
We have a Savings Department in our office but it is not an important part of Ike our business, deposits in the Savings Department being only about 48,000,000. in a total of over 470,000,0OG.
the case of the In. Trust probably three fourths of their deposits
are savings and inactive accounts.
We might be considered competitors for savings business and we are
active competitors for trust business, that is particularly in the line
of managing estates.
I take it that the framers of the Federal Reserve
Act, as well as the Clayton Act, had in mind cormercial business so






0-3 H



'0 M

75 0



as banks are concerned and gave no consideration to trust business
f this kind, or savings business.
So far as savings business is
concerned, there is practically no competition anywhere.
All good kux
bank, as you know, pay substantially the same rate.

This bank is essentially a commercial bank, having nearly as much
com-ercial business as all the other state banks in Chicago.
as these two banks are not substantially competing so far as commercial business is concerned, I am wondering if the Federal Reserve Board
would not strain the technical point in our favor, in view of the fact
that the spirit of the law would be in no way violated by so doing.
I agree in a general way with your criticism of state
trust companies for not entering the systev. I have never
ever that this bank is open to such criticism. The law of
silent as to the reserves of state banks, and each bank is
own devices in the respect, with such moral suasion as can
by the State Auditor and Clearing House Assn.

banks and
felt, howIl-inois is
left to its
be applied

Notwithstanding this, it has been the practice of this bank, I believe, since its organization to aarry substantial reserves, averaging
more than the law requires of the national banks. At the present time,
for example, we are carrying a larger cash reserve than would be required if we were members of the Federal Reserve Syatem. We have never required assistance in times of stress and have always been glad to
join in assisting our neighbors at such times.
So far as I know, no
good customer of this bank has ever had his credit line reduced in a
time of panic.
I do think, however, that we ought to do our part in
unifying the banking system of the country under the Federal Reserve Acy
but do not think that our joining the System would in any substantial
way benefit either the bank or its clients and I do not think we
should be penalized if it can be avoided.
I should appreciate it very much if you will give me your views
Ai this subject at an early date as I am in correspondence with several
large state banks and trust companies with a view of our all joining

With kindest regards
Very sincerely yours
(Sgd) E. D. Hulbert.
I haveeshown this letter to Mr. Keep, V.Pt of the III. Trust Svp
He says it might have been made stronger as that bank refuses to
corm. accts.
I congratulate you on getting the Coma Exch.

of N. Y.

Loon Lake, New York.
July 31, 1916.
Dear Strong:

I wrote you yesterday a personal note and have received
today your typewritten letter of July 24th.

I am glad to see from your letter that you are settling
down to business; that you are permitted to do some little
work regularly.

That will be a great help to us and will

be some help to you in whiling away the weary hours.

I wrote Sabin from here, sending him the new ruling
by the Board, which I had brought about during my short
visit in Washington, which permits member banks not to count
as outstanding their own


in excess of the 50%

or 100% limit if the excess amount beyond the limit is held
by the accepting banks themselves.

This was something that

bothered Sabin and I am glad that I could satisfy him on this

You may also be interested in the copy of the letter which
we wrote Breckinridge Jones; in which we go a little step
further than in the past in stating frankly that state banks
and trust companies operate under charters of their own states
and that we do not mean to restrict these charter rights when
once a bank is admitted, and that we feel that we should not
restrict any of their charter rights which pertain to true
banking functions.

Breckinridge Jones thought that if we

give a satisfactory ruling in this respect that he and
aicago banks - quite a number of them - would come in.

He had raised the point that the law did not permit us at all
to prescribe regulations interferring with the charter rights
of State banks and trust companies, because that would be
legislation which Congress had no power to delegate to us.

We have not conceded that point and it would be dangerous for
us to do so; but I think we have met his point of view by our

Our amendments appear to be making headway, but they have
not yet quite passed the Senate.

That should now, however, be


You ask whether it would not be a good thing to write to
the President or to Colonel House on the subject of amendments.
I do not think it is necessary, nor do I think it would help

If you wrote, however, to Senator Owen or Mr. Glass -

particularly the latter - it might do some good.

Money seems to be easier again, but there seems to be no
end of what Europe will borrow from us and the way they are
handling our market by steadying it by remittances of gold
whenever necessary, is simply marvellous.

I cannot suppress

the suspicion that a good deal of the gold that we are receiving is Russian.

Russia shows in her public statements an

increase of her loans during the war of about one-half of
France and Germany and about one-third of England.

With all

that, no country has been forced to buy as much abroad as



It is only possible that either she does not show

all her loans - some of which she may have contracted with
her allies - or she has been paying by sending gold and does
not show a loss of gold in her statements.

Or maybe it is

that she has been doing both of these things.

Before you left you told me that New York is looking for
a permanent Deputy Governor.

Have you ever considered whether

Governor Aiken of Boston would not be a proper man?

He is de-

voted to you - so much so that I am inclined to think he might
be willing to be your second in New York instead of being first
He has enthusiasm and snap and has a pleasant

in Boston.

way in meeting people.

I think that during your absence he

would undoubtedly do well and after your return I think you
would find him a delightful associate; and I know he would
enjoy nothing more than to be working with you.

Anyway, I

have not said anything about this to any one of the New York

men, as I should like to know before I do anything, how you
feel about the subject.

If you thought well of it, I would

try to sound out Aiken before mentioning it to anybody in New

Did you hear that poor Billy Porter has had a stroke of

some time ago?

While I hear he is now on a fair

road to recovery, it is a terrible blow for so young and active a man.

With best wishes and warmest regards, and hoping to hear


from you soon, I am
Always cordially yours,

Benajmin Strong, Jr., Esq.,
Care "The Lewiston"
Estes Patk, Colo.

August 1st.
Just after dictating this letter, Mr. Warburg was
called to Washington - leaving at 10 P.M. - on amendment
He will return Friday.



July 25, 1916.
!Jr. Breckinridge Jones,
President, Mississippi Valley Trust Co.,
St. Louis, Missouri.

Your memorandum


reference to Circular No. 14 and Regu-

lation M, Series of 1915, which relate to State banks and trust
companies as members of the Federal Reserve System, has


submitted to aniconsidered by the Board.

It appears that you are of the opinion that many of the
State banks and trust companies are apprehensive that membership in the System may involve an undue restriction of their
corporate activities as a result of future regulations of
the Board and you feel that some assurance should be given to
applying banks that, as members, their status, so far as the
exercise of legitimate


and trust company powers id con-

cerned, should be more definitely determined.

As the extent of the Board's power to adopt any specific
regulation involves a questio# of law which must be determined
by the facts in each case, it is of course impracticable to
outline definitely the scope of all future regulations.


order, however, that the attitude of the Board may be made
clear I am instructed to state to you that the Board understands that it is not its function to urdertake to impose on
the activities of member banks any restrictions that are not
contemplated by the Act, but only to prescribe such regulations as are designed to carry out the purposes of the Act.

-2 -

There are a great many decisions of our courts dealing
with the subject of the scope og authority of administrative
bodies to promulgate regulations.

The principles establish-

ed by these decisions will, of course, be adhered to by the
Board in adopting regulations.

While Congress could not delegate its power to make a
law, it can, as stated in Field v.Clark, 148 U.S. 649, 694,
"make a law to delegate a power to determine some fact or
state of things upon which the law makes or intends to make
its own action depend," or, as expressed in the case of
Lockets Appeal, 72 Pa. St. 491, 498 "The legislature cannot delegate its power to make law,
but it can make a law to delegate a power to determine some
fact or state of things upon which the law makes or intends
to make its own action depend. To deny this, would be to stop
the wheels of Government. There are many things upon which
wise and usefyl legislation must depend which cannot be known
to the lawmaking power and must therefore be a subject of inqui
ry and determination outside of the halls of legislation."
The Board does not feel that it is one of its functions
to undertake to restrict State banks and trust companies in

the exercise of true banking or trust companyTowers as defined
by the laws of the state in which they are created.

In pass-

ing upon the applications of State banks and trust companies,
however, it believes it to be its duty to admit only those
institutions which are solvent and sound and whose membership will not constitute an element of weakness in the System.
The Board does not consider that it is a prerequisite to the
admission of Amy State bank or trust company that it should
possess any certain amount of paper eligible for rediscount
with a Federal reserve bank.

Congress has provided that the






















0; *


privileges and advantages of membership may be extended to State
banks and trust companies

thus creating one compact banking

system while still preserving the integrity of both/State and
and national system.

Leaving aside any question of their

duty to the country, it is manifestly to the best interest of
every strong and sound State bank and trust company to contribute its share to the strength and protective power of the
Federal Reserve System by subscribing to the capital stock
of its Federal reserve bank and by maintaining its required

This is true whether the State bank or trust com-

pany has a small proportion of its assets in liquid paper
eligible for rediscount or has any paper of such description
at all.

The fact that it has little eligible paper would

not of itself make its membership an element of weakness or
danger and it is obvious that as a member of the System it
would be in a fosition to contract for loans and to obtain
cash from other member banks having paper


for redis-

count and thus indirectly to obtain the desired accormodation.
The ability to lend assistance to member banks directly and
indirectly will be increased as the strength of the System and
lending power of the Federal reserve banks are increased.
There is no reason why such assistance should not be given freely to a member State bank while in times of stress the non-member banks may find the member banks less disposed or able ix)

give them this indirect assistance.

It is, of course, indispensable that any paper offered
for rediscount to a Federal reserve bank should conform to
the provisions of the Act and of the regulations of the Board.










is clear, however, that a Federal reserve bank will have to




the more carefully into the status of a State member

bank asking for rediscounts if such State bank or trust company
exerc4ses banking functions that are likely to interfere with
the liquidity of such State member institution or that may
lead to over-extension.

In other words, the Board might consider the exercise


extraordinary powers, such as might make an applying State bank
or trust co. an undesirable member, a sufficient reason to refuse the grant of the application.

After such State bank or

trust company, however, has become a member bank, the Board
does not expect to interfere with the exercise of those banking
and trust company powers authorized by its charter.

If the

exercise of such power should, however, tend to interfere with
the liquid and sound condition of a State bank or trust co.
member, the Federal reserve bank would, of course, be justified
in taking due precaution in dealing with the applications for
rediscount by such State bank or trust company.

For your confidential information, I may add that the reissue for 1916 of the Board's regulation (which has been kept

In abeyance pending action of Congress upon the amendments
proposed by the Federal Reserve Board) does not contemplate
the reissue of the circular which accompanied Regulation M,
covering the admission of State banks.

Regulation M will be

reissued with some slight modifications which will be in keeping with the general thoughts expressed in this letter.
Memo. for Mr. Strong:
This copy has not been compared with original for verification.






Loon Lake, N. Y.

Dear Strong:

Your letters of August let and 3rd have been received and

Bettimalso received a letter from you

hailed with delight.

which has filled her with pride and glee.

I shall be very happy to read your memorandum on the foreign
correspondents question and shall write you frankly my thoughts
concerning the same.

I do not think I have written you since my last trip to
Washington, where I went to talk amendments with Glass.

I send

you herewith for your amusement the latest draft as the thing
We have put Glass wise that certain changes

passed the Senate.

will still have to be made and I hope he may be able to get them

He told me that he could probably not get the domestic

branch paragraph in this lot of amendments as he had some kind of
an understanding with Mann not to connect the foreign and domesand
I saw Mann/talked to him, but
tic branches in one amendment.
without much success.

He is opposed to branches on account of

the Illinois situation, where no branches are allowed.


promised that if he could not get the domestic branch clause in
this amendment, he would immediately introduce it in another
amendment - and inasmuch as it has passed the Senate, I hope he
may be able to get it through in that way.
The power to count 5% of deposits as reserves if held in
Federal Reserve notes got lost in the Senate.
opposition to it.

There is too much

However, Glass is very much in favor of


of having an-

amount of the reserve kept as balance with Fed-

eral Reserve Banks in


option of member banks, and I hope

that will go, and he proposed to put that back, though in the
last minute it was left out in the Senate.

I found Glass very shakeyas to the power of Federal Reserve
Banks to issue notes against gold, but I hope I straightened
him out on that.

They were to go into conference yesterday

and I expect then that quick action will be taken on the whole

You will see that included in the amendments is the power
of Federal Reserve Banks to open accounts for foreign correspendents.

That will give us an opportunity to begin corres-

pondence with foreign countries.

I hope that you and I may finally agree on what the best
steps will be in the matter.

As to collections and Postmaster-General, I fully agree
with you.

I had taken your point of view not to make any

noise about collections from postmasters, but I had hardly gone
when McAdoo got away with it, as usual, because he thought he
had a good thing for the Secretary of the Treasury to advertise.
You may have noticed the form of the statement that was given

It was all Secretary of the Treasury, and the result was

just as could have been foreseen, and as you foresaw it a long
time ago - a 'general kick and then a quick run on the part of

those who had put the thing out.

If he had done the reasonable

thing, simply presented here and there some checks to the
postmasters, we could have had the desired results without

any stir.


As to the governorship question, the thing must be decided
today or tomorrow and there is no use writing, filling paged

with that any more, because when this reaches you the decisions
ought to have been reached.

We have, I believe, maneuvered

well and got all influences to play upon the President that may
be expected to have any effect upon him.

It is now with him

to do the reasonable thing or the unreasonable thing, and we
have to meet as best we can whatever may be the outcome.
I had a letter from Dr. Miller, in which he wrote that some
weeks ago he wrote me asking your address, wanting to write to
you, but his letter has never reached me.

As everybody's

else, you have his fullest friendship and sympathy and he
joins us all in

hoping that you may soon be on deck again.

I miss you at golf and oth?.rwise, to which fact Mrs. Warburg
can bear witness.

I had to send'Bettina to a specialist because

her eyes were absolutely ruined after she had finished reading
your letter.

With warmest regards from all of us and thanking you again
for your nice letters, which I hope will continue to come frequentr

ly, I am

Always sincerely yours,
Benj. Strong
Jr., Esq.,
"The Lewiston"
Estes Park, Colo.







Loon Lake, New York,
August 9, 1916.

Dear Strong:

I wrote you yesterday and hope that my letter reached

This morning I have your letter of August fifth, which
I was delighted to receive.

I am glad to know that the Aiken suggestion struck you

Of course, Jay is the man to be spoken to first, after


Would you suggest the matter to him and draw him

Or would you rather that I should do it?

the matter would better come from you.

I rather think

It is true Aiken

would be a bad loss for Boston, but the Boston matter is pretty
well in hand now and of course we should have to try to find a
good successor for him there.

During your absence New York

will need some one who has snap and imagination and some ton,.
Gtetorey of leadership.

Treman is excellent in many respects

but, as you may well realize, there may be danger that things
may slow down too much and the staff and member banks and
would-be member banks may lose interest.

There is no hurry

about this, as both you and I can crack the whip and keep
things going, but on the whole, I think a man like Aiken
would be a most welcome addition at this time.


I read your letter to Mr. Glass and think it is admirable.
I am delighted that you wrote it.

And that reminds me of a thing that I forgot to write you

If you feel strong enough and if it would not

tire you too much, I think you have a wonderful opportunity

while you are thereto write every now and then a letter to



newspapers-w44-eh-A,7m publishlfig some articles.

thinking, for instance, of the Financial Chronicle.

ticles that this man writes are


I am

The ar-

abominably stupid that

any one who will go to the pains of answering the arguments
will have no end of fun.

The difficulty is, not to write a

good argument, but not to write too good an argument and show
up the stupidity of the man and make a permanent enemy of him.
But some reply ought to be written and if you think you should
not sign the


in your own name, somebody else might

put them in; but I believe that it would be a very excellent
matter for you to sign them.

Think of the nonsense the man

wrote when he did not see the difference between money with=
drawn and locked up in the Treasury and money transferred from
the member banks to the Federal Reserve Bank47-1-ere by indirect method the money can at once return to the market by rediscount of short paper by member banks.

Think of the other

stupidity when this man does not differentiate between reserves to be kept by member banks and reserves to be kept by
Federal Reserve Banks.


I had a letter a few days ago from Mr. Welton, written on
behalf of the American Bankers' Association, urging me to
address their meeting at Kansas City on the subject of reserves.

That is not a stupid suggestion, and I may possi-

bly do it if I can get out of another engagement which I
have a few days before at Cincinnati to address the American
Institute of Banking.

I am keeping this matter pending, as

much will depend upon the decision that the President will
make with respect to the governorship.

If we should get in-

to a row, my speeches will have a very different tendency from
now on from what they had in the past, for whatever may be the
remainder of my incumbency.

Another thing that I think somebody should write about
is Russian conditions.

I think that the City Bank is taking

a very grave responsibility in boosting that country in the
way they are doing it.
Wall Street Journal.

I do not know whether you take the
If you have, look at the issue of

August 7th, page five, and you will find there a compilation
of per capita debt of the warring nations.

I shall inclose

a memorandum in which I shall give a rough outline of what
I think ought to be said in this respect.

Of course it

would be absolutely impossible for me to say anything in
this connection, though this is not a question of pro-Ally
or anti-Ally feeling.

I do not think that so long as the

foreign loans are good it is anybody's business to sound a


note of warning, but when we are going to be persuaded to make
loans that are likely to be bad, I feel that some one ought to
get busy and prevent disaster.

If you could devote yourself to matters-of this kind
during your exile, sometimes using your own name and sometimes
possibly suggesting your thoughts to others, I think you could
do a lot of good and, incidentally, keep your mind occupied.

It is raining pitch forks today and this may account for
the second letter within so short a time.
The family is well and happy and sends you best love.

We almost got burned up yesterday on the way, our motor catching fire, but the bad pennies turned up all right, none the
worse for wear.

I am glad you had a line from Jim.

I shall be happy

to see him back here.

With the most cordial greetings and good wishes, I am
Always f ithfully yours,

Benjamin Strong, Jr., Esq.,
"The Lewiston"
Estes Park, Colo.







".?1,00enake, N. Y.
A' 26, 1916.




I do not recall when I wrote you last, but it is quite
some time ago and I am


that I neglected my correspond-

ence with you.

However, as my women will have kept you advised, I had
to go to Washington in between, and came back just for a
week, and expect to leave

tomorrow to go

"Laundryville" for another year's work.

back to beautiful
I hope I shall be

to come back here for a week the middle of September
and then possibly go from here to Cincinnati and Kansas City,
where I shall have to make some speeches on the 21st and 23rd.
of September.

have in mind, if I can, to escape from the Bankers'

Association at

Kansas City as early as possible, and go to

see you for a day:

But I am not quite sure that time will

so do not expect me until I shall give you the defin-

ite word.

It is this devil of a speech which has kept me busy here
this week.

I tried vary hard to get out of it, but they

would not let me, and so I have concocted something, dealing
primarily with the subject of reserves and Federal reserve
notes as reserves.

The thing is still in very crude form

and as soon as I get back to Washington and am able to put


in the statistical material that is missing, I shall send
you a copy and shall be very happy indeed to have you lick
it into shape.

I received news from Washington two days ago that the

Conf-rence committee has agreed on its report about our

They passed a good many most desirable things,

such as foreign branches; power to accept for domestic transactions (though they limited this to drafts secured by readily marketable staples); mortgage loans; power of Federal Re-

serve Banks to take fifteen-day notes of member banksito
open toreign accounts for their correspondents; for member
banks to accept finance drafts; power for member banks to

keep as a cash balance with the Federal Reserve Banks any
part of their required vault cash reserve.
a batch of good results,

This is quite

They struck out the domestic

branch and the power of Federal Reserve Banks to issue notes
against gold/i7 The waiver amendment was somewhat changed it was not completely stricken out.

I inclose you here-

with copy of Mr. Harrison's telegram, which tells the whole

I shall send you from Washington a printed copy of

the amendments as soon as they are finally passed by both

That, after all the hard work we did,the gold note

issue amendment was lost is a most disheartening blow; but
there is nothing to do but try again.

Maybe if we get a


Republican House in the fall,(and I think that is not at
all unlikely) we can do more.

So far Glass's power ap-

pears to be absolute and in spite of all the effort that I
made and in spite of all the pressure that Mr. McAdoo brought
upon Glass, we evidently failed.

Still, we have made quite

substantial headway, and have to be satisfied to move step
by step.

I do not recall at all whether I wrote you about the
governorship question.

I am of course delighted to have

Harding take Hamlin's place; but the principle adopted is
It is perfectly rotten that a man like Delano

all wrong.

who worked like a steer and who two years ago was entitled
to think that his designation as vice-governor was meant
as a compliment, is now being demoted and that quite arbitrarily Harding and I are promoted - if, indeed, my desig-

nation can be considered as such.

The way the thing is now

being handled, a vice-governorship is what in slang we would
term a "lemon".

as Delano

If I an to be treated on the same basis

next year, a vice-governorship is not a step to-

ward governorship, but a step away from it, and next year
two new men would again be appointed - in that case, Miller

and Hamlin!

That is, of course, quite idiotic and we must

move to have the law amended in this respect.


ships should rotate automatically by lam and there should be
no such humiliating condition as there is now, There the man


who might curry favor with the President or the Secretary
of the Treasury might be likely to be advanced, while the
man showing independence is likely to be demoted.

In it-

self the thing is immaterial, because we must have a sufficient pride not to feel ourselves better or worse according to whether or not people who do not understand our
work think it advisable to give or not to give us a title;
but as toward the world, that does not understand the situation as we do, the thing is stupid, galling and humiliating, and will prevent in the future men of independence
from joining the Board - and that, after all, is the only
thitg in which I an concerned, and why
mind that, no

I have made up my

matter what people may think about my own

interest in the matter, I am going to fight this thing through.
Of course, our best.chance would have been to throw this
thing into the elebtion campaign, but, some how or other, we
feel that we should hot do that; but we are going to take it
up in Congress in the fall and we have already laid some
wires in this direction.
whole question.

Delano acted like a brick in the

He has developed splendidly and I believe

that this latest intermezzo's brought him, Harding and


very close together.

I am going back tomorrow because the Clayton Act applications have to be acted upon, and Miller will be back, so


that for a week we shall have a full Board, after which
Delano will be gone for several weeks.
business is not an easy matter.

This Clayton Act

It is a problem full of

I expect to have a little talk with Jay at New

York day after tomorrow on my way through, and my plan is
to have the Federal Reserve Agents at Washington to advise
with us when we finally pass upon these applicationsT any
how, those of the larger and more important cities.
I have had sev-ral opportunities in New York to discuss matters with Yr. Trewan, and the more I see of him the
better I like him.

He is level-headed and is a gentleman,

even though he is somewhat lacking in aggressiveness.

Peabody appeared to take quite an active part in Jay's
absence, and I was very much pleased to see him do so.
Let me hear from you again soon.
a great joy to me.


Your letters


417' itte41



With warmest'regards,in which my women folk join, I am

Always coially yours,

Benjamin Strong, Jr., Esq.,
"The Lewiston"
Estes Park, Colorado.




Day Message

Day Letter


.nose three symbols
a the check (number of
s is a day message. Otherharacter is indicated by tho


appearing after the check.





Night Message







Night Wier
If none of tleso three symbols
appears after th a check number of
words)this isa day message. Otherwise its character is indicated by the
symbol appearing after the check.


3 6D



11e4tAM 1916









September 1, 1916.

Dear Strong:

I received yesterday your letter of August twentyfifth, in which you express your thoughts concerning
the advisability of my going to the Kansas City Convention.

I am glad that my 1,6044T thoughts in this respect
crossed yours.

You will meanwhile have received my

letter in which I told you of our plans.

I spoke last

night with Jay, and he said that maybe he would make/i=
a point of going out.

You got a telegram yesterday from Mr. Allen concerning days of grace.

I was pleased to tell you that

these three,days of grace had been smuggled in by/grace
of the clerk Of the committee, who stated that it was
a clerical error that the provision had been left out,
he taking the blame upon himself.

The amendments have

now passed both houses and we are awaiting the President's signature.

As to the Bank of England memorandum:

I met Jay,

and Treman in New York on my way back, and we

had a "Clayton Act dinner" together.

Curtiss went

with me to Washington and showed me on the way your



memorandum and the application to the Board.
the matter fully.

We discussed

some members were in favor of tabling

the entire proposition at this time as they did not think
the time opportune for sending our money abroad.

I put

the motion that authority should be given to the New York
Bank to sign the contract provided, however, that New
York should agree not to exercise its right to put this
contract into operation before the end of the war, as provided under Section 9, et:r=*fttil the Board ha; been con-

sulted again concerning the proper time and conditions

to put the contract into operation, and, furthormora,
JA:L_Qrder toglue the Board


communicateJwith the

State Department concerning the propriety of such action g-rtvi.aalar-ly during the war.

(Mr. McAdoo, who is absent

just now, had written the Board that he advised that we
should communicate with the State Department before takThis motion of mine prevailed, and a

ing any steps.)

committee was appointed (on which I had announced that I
would not


and Delano.

serve) consisting of Harding, Hamlin

This committee made promptly an appointment

with Secretary Lansing and placed your memorandum and
application in his hands without, I understand, much further comment.

Lansing said that this was a matter to



which he wanted to give a great deal of careful thought
and that we should hear from him after a little


I trust that all this is satisfactory to you.

I have not much to say with respect to your memo/-;

randum except that I thinkAyou want to consider carefully the propriety of counting foreign credits or foreign
ear-marked gold as reserve.

It may be interesting to you

to know that the Bank of the Netherlands carries the
gold that it has ear-marked in New York as foreign credits - not as



After all, we must bear in

mind that we are the reserve banks of the country and
that if gold is required it should be available.


you and I see the advantages of creating an organization
by which gold held in foreign countries might also be
called reserve, we differ in this respect: that I think
to count gold held in foreign countries as reserve is
somewhat irregular, and if we want


take that



will have to take all possible precautions concerning
the property right in such gold.

If, on the one hand, we

take it that the Bank of England is a private institution
our gold with them would no more be free from seizure
than gold held with any other stock bank in case we
get into a war or complication with England.


My conten-



tion has been that there must be treaties that will hold
even in case of war between the nations.

while I grant

that these international treaties cannot well be concluded at this time, I do not see that there is any particular hurry for them either.

While England has thrown in-

to the scales not the credit of the Bank of England,
which would be insufficient, but the credit of its government secured by the foreign bond holdings of the nation, our measly 4125,000,000 more or less will not be

able to stem the tide one way or the other if England's
heroic methods do not take effect any more.

The machin-

ery that you have in mind is a very pretty one in case
of peace. ,'In case of conditions like the present, how-

ever, it would be but a drop in the bucket.

It would be

entirely impossible for us, in the teeth of present conditions, to attempt to stabilize exchange.

Our entire

free gold reserve is at present about $250,000,000 and
we cannot take a very large proportion Of this gold and
put it abroad so that I think your estimate of t25,000,000 is about correct, and I do not think that would carry us very far.

I do think it would have a very good

effect for the future if the contract be signed, no matter whether or not we shall be in a position to operate


( 5 )

in the near future.

We can leave that matter open for

further discussion and watch conditions as they arise.
From the sentimental point of view, I think it is ad-

visable to grasp the hand that the Bank of England is
holding out to us, even though, as you know, there are
several features in the contract with which personally
I do not quite sympathize, but that fact is a minor
Very si,rIcerely yours,


Benj. Strong, jr., Esq.,
Estes Park,




Septembe4p6, 1216.
Dear Strong:

I have just received your letter of September first with
the photographs, which look very attractive,

and I was glad to see


your own face and to see from theJ-that you are up and about



I was very sorry to learn from your letter that you have had
a little set-back, but I hope by the time this reaches you that
will be past history.
I received the copy of your letter to Glass.

I am half

through it, but have so much to do that I have not been able to
complete it.

I shall write you fully about it as soon as I get

the time.

A draft of my speech will probably go forward to you tonight

and I

shall be happy to have your comments as early as possible.

It is well possible that I shall see you before I deliver it at
Kansas City, but after I have delivered it at Cincinnati.
shall have to speak there on September



leave there

for St. Louis; hope to reach Denver on the twenty-fifth of Sixth;
spend two days with you; and then be in Kansas City on Thursday
night or Friday morning, i.-There I am slated to speak on Friday, the


This is my present plan, but I am not quite sure

that I shall be able to carry it out, and I shall keep you advised
as to further happenings.


I am interested in what you say about Aiken and Kains.


think that of the two, there is no doubt that Aiken will be the
better man for what you have in mind.

Keine is a charming fel-

low, of whom I am very fond, but after having been with him for
two months in South America, I think I know him pretty well, and

I do not think that he has the keenness of perception that Aiken
has for the real problems of the Federal Reserve System.

I think

he is lacking in enthusiasm and vision in this respect - the very
things that Aiken has.

Moreover, Kains has not been a country

banker, while Aiken combines the experience of a country banker
with. that of the banking knowledge he has acquired in Boston.

There is no doubt that as far as foreign relations are concerned
Kains would be excellent, but as far as that problem is concerned
you can get a.good foreign exchange man who will contribute that

Kains is a splendid "mixer", but too much of a "mix-

er", and would in the long run be on terms of familiarity with all
New York - no doubt about that - but I doubt

that he could pre-

serve the degree of dignity in that respect that Aiken might maintain.

Aiken is capable of cultivating cordial and friendly rela-

tions without, at the same time, carrying into them the golf club
or smoking room atmosphere that Kains is apt to carry.

That is

part of Kains's charm, but in this case I think it is also part
of his shortcomings.

Jay will be here day after tomorrow with


a load of Clayton applications and I shall then take an opportunity of discussing this matter with him.

I have not done so

in the past because I wanted to hear your views first.
About Russian conditions I do not agree with you.

I think .\

that people generally labor under a misapprehension about Russia.
They think that this country has not had an outlet for her goods.
Samuel McRoberts - big fool - writes in his article, "Even if the
war had not brought the fair prospect of the fulfillment of
Russia's long fostered ambition for an outlet for its commodities'
through the BosphorWs, etc."

He apparently does not realize

that Odessa is one of the principal ports of Russia and that durinv times of peace Russia has never had any difficulty, whatsoever,

in getting all her goods through the Bosphords and carrying on a
most lively trade in that way.

It shows how superficial and

reckless this man is in making his statements, and what chances
the American people take in following a man of that type in making
their investments.

As to the Federal Reserve amerndments, I agree with you.
thing is most disheartening.


We have received another blow since.

After the Senate record showed the conference report as agreed upon
by the conference and passed by the Senate, Carter Glass got it
into his head in the last minute that he wanted to restrict the
power given to accept for domestic transactionsto 500 of the capital and surplus of the banks.

He thereforeAstruck out the Board's


power to grant the 100% limit , but in doing so, overlooked the
fact that he was interferring also with the Board's power to grant
this permission for transactions involving the importation or
exportation of goods.

When the bill was sent over to us from

the White House to be passed upon before it was signed by the
President, we discovered this mess, of which we had had no indication before, and at once got hold of Glass, who frankly acknowledged that he made a mistake and tried to undo it, but he
and Owen agreed that it was impossible to undo it at this stage
of the session.

They all advised us, however, to close our

eyes and disregard the consequences until the fall, when they will
put the 100% limit back.

This is the worst kind of mess and we

shall have to worry along as best -c'e can until Congress convenes.

Ohl what unmitigated joy it is to do business under Government
I hope that when you get my speech you will find that it is
time for you to write-some articles.

But please bear in mind

that your health is worth more than any amendmlnt to the Federal
Reserve Act.

Write enough to keep yourself busy and amused, but

do not for a minute think of beginning to work hard if that can
interfere with the rest and recuperation which ought to be your
main concern.
I shall be glad to give Delano your message.

He deserves to

get it.

I am glad to know that your boy and girl are with you.


They will be splendid company and will help you to while away
the weary hours.

With no more for today, I am,(s the President always says,)
"Cordially an

Sincerely yours,"

Benjamin Strong, Jr., Esq.,
The Lewiston,
Estes Park, Colo.

Sapienti sat.

From the London Economist, August 19, 1916.

In the middle of the week a rumour Tent abroad that large
batches of Argentine bills might shortly be expect Edi and the

market seemed to expect some scheme for financing Argentina by
means of London credits.

This impression, which was difficult

to reconcile with the facts of the position, was corrected by
the appearance of a Treasury Minute, which shows that the British
Government's purchases of sugar and meat abroad are to be financed
by bills of not more than six months' cureency drawn on London
banks and banking houses.

The total drawn for meat in any one

month is not to exceed 2 1/2 millions, and the total outstanding
at any time is not to exceed 10 millions for meat and 5 millions
for sugar.

No bills drawn under this arrangement are to mature

later than October 31, 1217.

The acceptors will receive a com-

mission of 1/4 per crit. on three months' and 1/2 per cent. on
six months' bills.

The bills will be a welcome addition

dwindled supply of bank paper.




September 7, 1916.


Dear Strong:

The copy of the draft

of my speech which was forwarded

to you last evening was incomplete.
and would thank you to make the
Page 6, line 5:

I enclose some riders



Change "1909" to "1910".

Page 9, line 5: Change second word "of" to "or".
17 Page 12, line 10: After word "reserves" insert "or gold exports
of alarming proportions".
Page 17:

Where it reads "Take statement Jacobson No. 2"
insert Rider A.

Page 20, next to last line.


Page 22.

Change "gold" to "specie".

Illustration consists of Rider B followed immediately
by Rider X, Rider C to appear as foot note to Rider B.

4 Page 23.

Line 5 Of text, change "national bank circulation"
to "other kinds of currency".

V/ Page 24.

Precede paragraph beginning "Take our present" with
Rider D and insert Rider E where illustration is
called for.


Page 4a, next to last line, change "705/0" to "60%".
Page 5a, line
Page 6a.


France $71,000,000; Germany $230,000,000;
$799,000,000 Franceaand $364,000,000 Germany;
"about $1,970,000,000.

should be
in line 3
5 of that

at top of page beginning "The question"
inserted as sentence after word "anyhow"
of succeeding paragraph. Amount in line
paragraph should be $272,000,000.

Page 13a, line 2: change 114,000,000 to $16,000,000
line 3: change 166,000,000 to $164,000,000
line 8: change 108 millions to 100 millions.


Page 14a, line 4:


Change $166,000,000 to $164,000,000.

Page 2A, line 3, insert in the blank
"after November 21, 1917,"
Page 5A, line 9, change "34" to "35".


Benj. Strong, jr., Esq.,
Estes Park,
Denver, Colorado.

y yours,

September 18, 1916.
Dear Strong:

I received your letter of September 12 with comments

upon my speech.
I have only one fault to
is that you thought



with youlletter, and that

necessary to apolpgize for changes

when you know that I appreciate most

or suggestions

cOrdially any


I am very/grateful to you for hav-

from you.

ing gone to the trouble of going .through the speech so carefully.

Almost all of your


have been embodied

in the address, barring only One or tao little things where
my time did not permit me tO recast the matter.

many of your criticisms h
letter arrived and your
same lines.

A great

already been 406004.e before your

orrections and ours were on the

In a great/many cases your point was very well

taken and I was very gAad to act upon your suuestions.
As to the French gold, the figure had lalanwhlle been
changed to '0.25,000


Mr. Jacobson made quite some study

of this matter but si
tanfortunately, the report of the Banque


does not4give a sufficient clue because the export

statistics do not ehow what of the
country for England.

old withdrawn left the

I have finally decided to put the whole

paragraph into lse definite language in order to make it
less vulnerable.

I had no intention of inflicting the whole speech upon
I have cut out for the reading

a long-suffering audience.

almost all the inflation argument

then it will

and the national bank

still take between three fourths



of an hour

and an hour to read the stuff, which is too much

for me and too much for the audience, but I am very much
puzzled how to condense it more.
I shall be most happy

Thank you for your telegram.

to meet you at Denver, but I sincerely hope that you are
not doing a

stupid thing in coming down.

fer to spend three

days with you instead of losing two on

the trip to and from Estes Park.
you are not doing

Of course, I pre-

On the other hand, I hope

anything that may

progress of your health.

interfere with the good

Whatever you arrange will be satis-

factory to me.

I am looking forward to the pleasure of "chewing the

with you".
As to your letter to.Mr. Glass and as tt the bothersome

question of regulati

r the accumulation of silver certifi-

cates in New York, I shall talk with you fully when I get

I thought your letter was admirable.

I shall also

tell you more about the Clayton Act, which was a lard nut to
crack, but I hope we have found a settlement of the matter
which will give general satisfaction even though, of course,
there will be grumbling in some corners.
With cordial greetings,

Beni.Strong, jr.,Esq.,
Federal Reserve Bank of St. Louis




W. M e C. MARTI N,








T.0 .TU PP ER,

D.0 . BIGGS.












September 30, 1916.



Governor Benj. Strong,
Long's Peak Inn,
Estes Park, Colo.
Dear Strong:

I hope you got the telegram I sent you yesterday from Kansas
City, after the delivery of my speech.

The delivery was prompt and pain-

I kept up my voice, thinking of your Scotch story.

Though the hall

was Very large, the accoustics were good, and I had no difficulty to get
away with the address.

It was better received than any paper I have ever

read, and I had a real ovation after I was through.

A very Iarge number

of men came to me on the platform, and a small number of State bankers stated
that they saw a different light and some said that they would come in.


of the country National bankers were most complimentary, and said that they
would act upon my suggestion with reference to their gold.

was there, and moved a vote of thanks for me.

George Reynolds

He said that he had given

orders to reverse the gold holdings of his bank.

Up to now he had about

ten or eleven millions in bank and twenty or thirty millions in vault



think those were his figures), but he had given orders to reverse the figures
and keep two-thirds in bank and one-third in vault.

Pretty good - isn't it?

Similar sentiments were expressed by various bankers, and I am really quite

The best result of the meeting is that there was really developed

a real and most welcome spirit towards the 'Federal Reserve System.

The country

bankers, who had. come to the convention with the evident desire of expressing


displeasure with the System, and who had begun by formulating motions
along these lines, finally ended by bringing in a motion of approval of
the Federal Reserve System, and the only thing they did was that they ap-

pointed a committee to go to Congress and ask for a change in the law,
permitting member banks to charge a maximum of 0..00 per thousand when
remitting for their own checks.

Harding was called upon to speak upon this

motion on Thursday, and I am told he made an excellent speech.
was very much pleased with it.


He made a frank statement, saying that we

were not a legislative body, but an executive body, and if they wanted to
make a change in the law, they had the right of every American citizen to
go to Congress and see what they could do.

He managed to pass the buck

to Congress this way, and everybody was pleased.

The new chairmen of the various sections spoke to us.


dent of the Association, Mr. P. W. Goebel, of Kansas City, Kans., was very

cordial, and stated that if he could co-operate in any way, he would only
be too pleased to do so.

He is an old countryman of mine, and I had no dif-

ficulty in making friends with him.

The Chairman of the National Bank Sec-

tion, Mr. J. S. Calfee, of dt. Louie, expressed similar sentiments.
the new Vice-President of the Association,
whom I had already met in tha't city.


So did

C. A. Rinsch, of Cincinnati,

Mr. Stoddard Jess, of Los Angeles,

who wants to be remembered to you, made a very satisfactorg talk, in as much
as he is the new Chairman of the Clearing House Section.

He brought up the

question of effecting an arrangement enabling the clearing houses to turn
in their gold to the Federal reserve banks, 1...s*agua..t.along the very lines that

you and I had discussed.

I explained to him what I thought could be done, and

and this he promised to doq-.

I spent a good deal of time with the Governors of the various Banks

Hendricks was there, too, and I think their presence had a very good



effect in bringing about the proper spirit.
I hope you got back to Estes Park without being affected by
the rough weather.

In Kansas City, it was beautiful, and here it is

getting a little warmer.



Pte, -

With kindest regards and best wishes, V
Yours sine





Dear Strong:

I hope you got the letter which I wrote you from
St. Louis.

I got home safely - playing Seven-Up with Harding
all the way, which made my trip cost me

5 more for

which I cannot charge the Federal Reserve System.
I found my family well.

Te are glad to be re-

They all send you their best regards.

This morning I find a dozen letters from you and
am delighted to have then.

I cannot answer them to-

day because Jay, Curtis and Cotton are here and we
shall spend the morning
Clayton problems.

ith them discussing

In the afternoon we have some Clay-

ton hearings with some people who want to protest
against our decisions.

I hope to be able to write

you fully in a day or two.

I had a very nice letter from your lother, who
was delighted to receive the good news about you.
I suppose that you had Vanderlip's visit meanwhile



and I hope you enjoyed it.

Hi z speech in Kansas City

is said to have been very good, but it was not over-

warm insofar as the Federal Reserve System was concerned.

With a fond hand-shake,

sincerely your

Benj. Strong, jr., Esq.,
Estes park,



October 5, 1916.

Mr. Pierre Jay,
Chairman, Federal Reserve Bank,
New York.
Dear Mr. Jay:

Referring to the subject of our conversation Tuesday
afternoon I have to report that the matter is still in the
hands of the State Department, and there is no immediate prospect of getting a favorable ruling.

In fact, I believe that

if the matter should be forced, the decision would be unfavorable, so I would advise that you find some way to temporize,
either by writing your friends on the other side asking about
some matters of detail, or in such other way as you can.


while I will watch the situation closely at this end ani push
for action at the earliest opportune moment.
Very truly yours,


P. M. Warburg.


October 6, 1916.
Dear Strong:

Since I wrote you a few days ago I have been so
driven that I did not get a chance to attend to my
correspondence and, therefore, I have delayed writing
you with reference to your various 1. tters.
I expect to be in New York on rionday, in order

to register as a good citizen, and I shall then take
up with Jay the question of the apportionment of investments.

I shall also discuss with him some of

the other questions that you mention in your correspondence, and shall write you again more fully when
I return.

As to the gold and silver clearing, I cannot
help feeling that the fact that gold came into New
York and was credited to the other Federal Reserve
Banks is probably only a natural economic development in view of the fact that these interior districts produce so much *hat Europe is buying at present and that the gold, to a certain extent, is streaming into the United States in payment for these very
things that these districts produce.

As long as the

gold remains in one of the other Federal Reserve Banks


I do not see any harm in its being transferred from one
district to another.

The difficulty arises, however,

when it begins to go into circulation in those districts
because Federal Reserve notes are not issued there and
the settlement takes place in gold certificates.

I had

good chance to discuss this question at Kansas City,

where McDougal,Wold, Aiken,`444ins'(of San Francisco)
and Hart (of Philadelphia) dined with me.

It gave me

a chance to give McDougal a dig about their stinginess
in not issuing Federal Reserve notes, and I think I
made some impression upon him.

In St. Louis, I dis-

cussed the same thing at the bank,with Watts and Hill
present, and I think you will find there will be a
change in the attitude of all these banks.

we discussed the same matter at Kansas City.

Of course,

I am go-

ing to study this question of silver certificates very
closely and will let you know what I find.

The Wall Street Journal last week had an article
about the status of various issues of money, which I
send you enclosed.

I also send you copies of articles

which appeared in the same paper dealing with my

Note particularly the one of October fifth,

sailing into the Commercial & Financial Chronicle


which may be


interest to you.

what this idiot wrote.

Of course, you saw

It would be

fine if

he could

be taken to account, though I think he is hopeless.

His criticism of


my argWeX, does not take up any ar-

gument of mine but is

siLiply dealing in

general asser-

tions which it is quite futile to attempt to refute.

Have you shaped up your article or what are you planning in this connection?
With heartiest good wishes and kirik 7t regards,
Very sincer

k/Lt 1,7,697




7r1/11-e'l- IL/4

Benj. Strong, jr., Esq.,
Estes Park,

y yours,






















CT 10 1916



















October 12, 1916.

Dear Sir:

Your letter of October 11th has been received, enclosing a letter
from the rational Bank of Commerce in New York, inquiring whether or not the

purchase of hides in the Argentine, to be warehoused there and to be carried
until after the war, could be financed by acceptances drawn upon a New York
member bank.

The bills of lading or warehouse receipts. controlling the hides

would be held by the agent of the accepting bank as a collateral and no renewals would be granted after the goods had passed out of the control of the
accepting bank.

In reply, I beg to state that the New York member bank could give
its acceptance for the transaction indicated, as they are given to finance a
transaction involving the exportation of goods;

in accordance with the board's

ruling of September 1, 1915, page 268, Federal Reserve Bulletin, 1915.
Very truly yours,

(signed) aul

Pierre Jay, Esq.,
Federal Reserve Agent,
New York,




October 23, 1916.
ly dear Strong:

I have before me your letter of October 20th, inclosing copy of your first article, which I shall take home and
study tonight.

I retaliate by sending you herewith a copy of Dr. Miller's
speech, which I have not had an opportunity to read in its final form, but I suspect that you and I shall find some spots
with which we shall not be in accord.
About Aiken, I telephoned Jay on Saturday and he told me

that he

had spoken to Peabody, but only in a hurried way, and

Woodward had been away; but he expected to take the matter

up energetically-this week.
to make much

progress during

ly, that is not his


I have my doubts that he is going

the next few days, as, unfortunateIt takes a whole lot of patience

but I have no doubt that finally he will pull the latter off
all right.

In all


to him, I must say that he has

had his hands Pull with Clayton matters, in which he has been
very intelligent,

though all




the time tardy.


that keeps him busy.

of New York directors is taking place just now

I suppose he,is all up 'in the

air today about the

which the Board found it necessary to take with
one-hundred million

dollar credit



to be negotiated by the

to the


Guaranty Trust, the Bankers Trust and Bonbright.

When we dis-

cussed the first credits of this kind, you remember I pointed
out the dangers of opening the door in this way, but

finally you

urged us not to close the door and to leave it to the discretion
of the New York Bank to discriminate at the proper moment if
the thing should outgrow safe proportions.

I am sorry that

you were not here last week, because not only do I believe
that you might have seen the thing coming, but I also think
that you would have been the first to recognize that it was
time to protect the system.

I inclose herewith a copy of the

telegram 3hich we sent Jay and the other Federal Reserve Agents.
The point is this - since the Brown credit there have
been two or three new credits, with which you are familiar,
bringing the total of these acceptances up to about fifty milThen with this new credit


of one


millions -

ninety day bills to be renewed five times and a definiteagreement on the part of the acceptors to advance the money at 5e0


acceptance commission for three months, secured by


Government bonds, he441-44mon made payable in dollars so as to

coincide with the maturity of the eighteen months' credit.

The Board in its considerations/regarded entirely the question of whether or

not this was a

French Government credit, but

considered only the question of whether or not it was


tiethe Federal Reserve Banks to have the impression go out that
they would stand ready to hold the bag for 4100,000,000 of these



There was unanimity in the Board that we could not
As a matter of

take the responsibility of standing "pat".

fact, these are eighteen months' cash advances made by the

who has no interest

accepting bank to the French borrower,

whatever in the rediscounting of these acceptances.


draws upon the American bank as a matter of accommodation
so as to enable this American bank in
the Federal Reserve System.

cepting banks will


convenience to soak

Whenever money is easy, the ac-

carry their own acceptances, but when a

sharp turn will come, there may be $150,000,000 of acceptances falling down upon the Federal Reserve System ably more, because if we do not call

a halt

doubt that similar credits will follow.

1.1d prob-

now there is no

The vicious part of

it is that, while I should be delighted to see this country
accept $500,000,000 to finance foreign trade, I should want
it to be accepted in a way that puts the burden of the discount
operation upon the foreigners, so that in case we find ourselves
obliged to protect


and to raise the discount rate

we could force back the foreigner to use acceptance credits in
his own country.

However, whenever, as in this instance, the

acceptor take)the entire burden of the financing, we might raise
our discount rate to 20% and we would be hitting


our own

banks without being able to re-transfer the burden to the other

of the water.

That is unscientific, rotten and danger-

ous financing, and while Mr. Kent, in a letter addressed to Mr.
Jay, thought he was doing wonderful pioneer work in educating


our banks to use the acceptance facilities, I think that it is
mighty poor educating - in all of which I am certain that you and
I are in accord.

This kind of eighteen months' borrowing on such a scale as
that proposed ought to appeal to the investment market, but
should not be dumped on the discount market.

If thatpolicy

should be permitted, theBe finance credits would ultimately
'dictate the discount rates to the detriment of the normal bus-

iness of the country, and it would be"putting the cart before

Of course, we would not want to interfere at all with the
member banks' right to accept for this kind of transaction; but
we want would-be acceptors to understand the situation before
they commit themselves.

You know that I am a liberal con-

structionist and that I made a pretty arduous fight in order to
secure for banks the right to accept for renewals; but when I
see how foolish the banks are and at once abuse their privileges,
I can understand how Government officials gradually turn into
strict constructionists.

What you say about the Comptroller's statements is quite
in line with my own thought about the subject.

As a matter of

fact, I wrote the Comptroller at once when hie latest statement
was published that I did not agree with his conclusions, but
his answer was that he did not agree with mine.

His point of

view is plainly to analyze the figures which he gets, not from
the point of view of safety for the Federal Reserve System, but


in order to find material from a political point of view to
boost the benefits of the system.

It is most regrettable and

Is one of the things that we shall have to take up with Congress during the next session.
You ask what the President meant when he said there was a
conspiracy to get control of the new banking system.

I think

this remark was called forth by Vanderlip's criticism of the
system at Kansas City.

He spoke there of the fallacy of de-

centralization and stated that a good system had been spoiled
by too much political administration.

These remarks were most

unfortunate, as was the comment made by the President; but what
the latter meant to say was that Wall Street, if the Republicans
were elected, would want to establish a central bank and then
get control of the system.

That, at least, is as I undetstood


As to the political outlook, I know as much about it as you

Everybody is simply guessing.

My own

that Wilson will be elected.
With kind regards and hoping that you will continue to
enjoy your new and pretty Denver residence, and with cordial regards from all the members of the Board and of the W"rburg family, I am

sincerely yours

Benjamin Strong, Jr., Fag.,
1400 Montview Boulevard,






23, 1916.

Board is advised that an acceptance credit approximating one
hundred million dollars, drawn on American banks and trust companies, is about to be concluded, on ninety day drafts, subject
to five renewals, the accepting banks committing themselves to
advance the money to the foreign borrowers at five and one-half
per cent per annum, plus acceptance commission of one-fourth per
cent for each three months. In view of widely circulated press
statements that these acCeptances will be eligible for rediscount or purchase by Federal reserve banks, ;Board deems it its
duty to point out thatlanking prudence and obligations toward
general commercial interests of the country require that Federal reserve banks should not acquire acceptances of this character
beyond a oonservative amount, This view is consistent with the
Board's pOlicy in the past, and while it Wishes, through all legitimate means, i.e promote the development of the American acceptance market and to further the growth of our export trade, and
while it wishes to avoid any attitude of interference with the
powers of member banks in this respect, Board feels nevertheless
that it should be clearly understood that these acceptances which
represent obligations for cash advances aggregating a very large
amount, by the acceptors for eighteen months, cannot properly be
regarded as paper self-liquidating within a period of ninety days.
If offered in excessie amounts, Federal Reserve Banks may ID
obliged to discriminate against or to exclude entirely acceptances
of this character. Board feels that prospective acceptors should
have a clear understanding of this.








f these three symbols
the check number of


is aday message. Otheratracter is indicated by th e


wv-i.s- yr



Day Message

Day Lett,


Night Message


Night Letter
If none of these three symbols
appears after the check number of
wordsithis is aday message. Otherwise its character is Indicated by the

symbol appearing after the check.

appearing after the check.



25 RI 2



























t Message


Jigh, Letter
none of these three symbols
'ears after the check number of
srds1this is a day message. OtherIse Its character is indicated by the

TEL zrev
Plc Le

44:I4F, Nit



ymbol appearing after the check.

B475CH '223 GOVT N I TE


Auypt,ys OPEN.-

Day Message

Day Letter


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Night Letter
If none of these three symbols
appears after the check (number of
words)this is a day message. Otherwise its character is indicated by the
symbol appearing after the check.








TO BE GI v EN -ser woun ,







October 30, 1916.
Dear Strong:

I received today your letter of October 2 th, about
the French credits, and I was very much interested to read
your views.

I am particularly glad to have them because

I am frank to say that it was not easy for me to deal with
this matter according to my own conscience,

surmising from

the telegram that you sent to your New York associates that
you were not quite in sympathy with what we were doing.


am glad to see from your letter that we are not so far apart
as I was afraid we might be.

You have meanwhile received

my letter.

I am confident that if you had been in New York and seen
the thing coming, and we had exchanged views in

time, a good

deal of trouble might have been avoided.
Some of the difficulties arise from the fact that we have
not been willing, as you correctly say, to look into these
credits but simply deal with them by general regulations.
Unfortunately, the fact that the two banking institutions
stated in their



this paper would be

Federal Reserve
thousand banks, forced


for rediscount with the

Banks and sent the


our hand; and we had

to four

to take some notice.




The matter has



been fairly satisfactorily settled.

were here on Saturday.

The latter made

a fool of himself while Kent impressed me as being very sin-


and serious in his aims.

He and I had quite a discuss-

ion before the Board about what acceptances ought to be and

not to be,

what they ought
a new light.

and I believe that I gave him

I shall be very happy to see him again and
I only wish that he

discuss this matter further with him.
had come before.

They told us that


from $100,000,000 to $20,000,000 and that they had applications for only $18,000,000 ,and that probably they would make

up the rest themselves so that the topmost they could offer
the French - if that much - would be
of the


were no more


In view

that as far as outsiders were concerned there


$20,000,000, we


decided today not

to force them to revise their statement by sending a second
circular, nor to make a public statement ourselves. Harding

is going

to deliver a speech Wednesday at New York and will

make a very

general statement about acceptances without men-

tioning any names, and he will fully explain what we think
is right and what we think is wrong.

he says about acceptances on pages nine

You will



to nineteen.

I am frank to say that I never realized before that
there was a definite agreement in all these credits on the


part of the acceptor to carry his own drafts at a given

rate. As we are now informed, substantially the same
stipul tions existed in the other French credits. About
thoee4 credits we never received any information except,a
al 214U12-0-4
few weeks ago,c we received a synopsis which did not mention

this phase of the arrangements at all. It is clear to me,
as I wrote you the other day, that a definite agreement on
the part of an acceptor to provide money for eighteen months
at 6i% renders the acceptance a subterfuge for the mere purpose of the possible accommodation given to the acceptor
for his benefit. The drawer is not interested any more

at all in the entire acceptance manipulation.
Of course, there was a strong tendency in the Board to
go to the other extreme tiev. and declare these acceptances
as ineligible. I.took the view that that would be over-doing it entirely - that renewals in themselves were 11g111:mate, provided they took the proper form, but that as a

matter of 2.1icy, the banks should protect themselveaA4-the
market from an over-dose of such renewals and from an abuse
of the acceptance facilities. That view finally prevailed.
On the whole, I am glad to say, there was complete unanimity on the part of the members of the Board in dealing

with this matter.

(4 )

It may interest you to know that both Boston and
Philadelphia had advised their member banks that they
should not expect that the banks would hold the bag for
these acceptances - even before the Board had sent its
telegram; and Chicago's view you can best judge from the
fact that they over-reached themselves to the extent of
declaring these acceptances ineligible for open market
operations, a point of view from which we shall have to
make them retract.

Other Federal Reserve Banks expressed

themselves at once as in entire harmony with our views and

in full acobrd with what we want

I believe that Jay, alss is

to achieve - even though I believe at times he was afraid
that the "big stick" vould be swung too energetically.
Though at some times it looked that way, this has been avoided and I think the matter has been handled and settled
in the best possible


It is necessary, however, that the banks protect themselves, and I am rather inclined to think that it would be
advisable to treat unendorsed finance drafts of this nature
on a basis a little less advantageous than the regular commercial paper.

I think a rate one-fourth per cent higher

will at this time be sufficient, just as an indication
of the policy of the banks, and it would then permit us,


whenever it should become necessary, to discriminate more
or less.

Miller told me that he had received your letter and
I expect to see it tomorrow.
This is enough for one mail.

soon again

I expect to write you

and I hope that meanwhile you have not fretted

about this matter, which I think has been disposed of to
the best interest of the system.

With kinect regards, I am
Always einc rely yours,

Benjamin Strong, Jr., Esq.,
4100 Montview Boulevard,
Denver, Colorado.













October 31, 1916.

Dear Strong:
I have just read your letter to Mr.

Miller and want

drop you a line to tell you how much I enjoyed it.

most excellent and
very helpful.



It is a

convincing presentation, which will be

in your letter (which I have


before me)

amused me very muoh - or rather, puzzled me.
You say that
you are not quite sure/that I am getting away from you on the

question of the issue of notes against gold and that you hope
I shall stay "put" with you on this proposition.

I cannot

imagine at all why any such doubt could have originated in
your mind.

My fight for issue of notes against gold and

notes as reserve money anti-dates,by several
tion of the Federal Reserve Act.


the crea-

I did say at some time that

the most important thing to secure was the power to have vault
money kept with the Federal Reserve Banks as a balance and
counted as reserve.

But I ir.s only willineto strike for this

amendment first because I felt certain that when once we had
crossed this line, the next step would follow almost automatically.

What will now happen is this:

Either the banks will put

their vault money into the Federal Reserve Banks and retain
only a small proportion in their vaults (in that case the entire


argument of the terrible inflation that would ensue if the
remaining comparatively small amount


that would be kept/in

Federal Reserve notes,would fall to the ground); or, the alternative, that banks will not be able to increase their bal-

ances very much because they need so

large an amount of till

money that it is clearly shown that the additional strength
necessary for the Federal Reserve Banks

without permitting the notes to be

cannot be



as reserves. It

would also show that as long as the law discriminates between
Federal Reserve notes and lawful money the banks, too, will
discriminate in favor of lawful money against the Federal Re_


Bank balance.

In addition to all that, we have now

the argument which cannot be
the entire vault

beaten, that

money to go into

when the law permits

Federal Reserve Banks and

have that counted as reserve money, there cannot be any logic

at all or any business

that unguaranteed balance
cause inflation while a few

reason why

should be reserve money and not

Federal Reserve notes taken from the balance and kept in vault

should be considered as a source of danger.


My feeling was

simply that the first amendment we could secure without much
difficulty, and that this amendment once
would soon have to follow.
your head that I

was going to

But I hope you never got it into

the fight for this most

necessary perfection of our system.
Cordially yours,

Jr., Esq.,

Benjamin Strong,
4100 Montview Boulevard,
Denver, Colo.

Dictated but not read

"put overa, the rest



,A,Arb I PO
November 10, 1916.

Dear Mr. Jay:
When in New York a few days ago you 3hoved me a

:atter received from Governor Strong in which he took
.u.e with the Board for haviwf ruled adversely in the
question of the application of the Mechanics & Metals
National Bank for permission to aocept for three
months' drafts drawn for the purpose of furn!shinr
dollar exchange by banks or bankers in France or England.

I told you that I had peronally secured thia
Aldment and that I felt responsible to sesAthat it
4,s not now abused.

I doubt very much or
Governor Strong have ever read my oorrespondence. with
Senator Crxen or my testimony before the Coniittee on
Banking and Currency in thin respect. If Governor

Strong had, I am sure that he could not have insinuated
to the Board that we should permit British and French
banks, on the f=trength of this nmendment, to go ahead
and draw any kind of a finance bill, and that he would
not have characterized as ridiculous the Bo:,,,%1's ruling
in this respect. If we did at Governor Strong asks
us to do we would open the door wide for any kind of



finance draft from Europe, and, as a matter of fact, we
would have nullified all the provieione in the act which
try to restrict the power of American banks to accept
only for oertain nell pecified transaction's.
If I lent my hand to any such ruling, I eould feel
et-tia ,e0 e tvk
that I had broken faith with those who enacted the 1w,
In my letter to Senator Owen, which apeears on page 67

or the enclosed copy of the hearings, you will find the
following paragraph:

"I an fully consciouc of the fact that a
draft of this kind, if permitted, might be
clacsidied as closely aperoaching or being
a speciee of the finance draft; but to the
extent as above outlined I think this draft
has to be sanctioned in order to place our

banks on a per with the Britioh banke and
other foreign banks operating in South and
Central America.
If Oongreca eill truet the Federal Reaerve Board to oupervise theze transactions
and keep them within proper bounds, I believe that an amendment as here proposed
-eculd rebove a greet handicap now burdening
the Amerioan banks, ehile any abuae of Chase
facilities could be stopped at any time by
the Federal Reserve Board."
On pagee 73 to 76 you'Alli find my testimony with
referenoe to this particular amendment, and, on page 76,

you will find that I said:
"But because we realize that this is not

a thing that should be done promiscuously
and should not be abused ee heve put in
both, for the accepting end for the purehasing of eccptanoes the poeer of the Board

to regulate and euperviae it."



Governor Strong honestly believes that it would be
the beat for the growth of our acceptance system if there
are no reetriction whateoever - a n ngland - and if
our member banks could be permitted to accept according

to the requirements of trade and finance, leaving it to
the businene judgment of the central banks and the bank1n E comeunity in general to regulate any abuoe. That,
of course, is the ideal way for the development of banking wherever such development is safe and permitted by
the law. We must remain conscious, however, of the fact
that we are operating under a lam and that we must not
exclusively be 31eided by what we vieh but that, as citizens and, to be sure, a@ a government body, it is our

duty to live up to the reetrictions of the law.

We should

not be astonished to find that the member banks from
time to time will try to beat the law. But if the Federal Reaerve Board and the Federal fleeerve Bankn should
adopt that attitude it would be the en 1 of the ehole eyetem.

I am sending a copy of this letter to Governor Strong.
Very truly yours,

Pierre Jay, Esq.,

Federal. Reserve Agent,
Now York.


November 14, 1916.

Dear Strong:

I wrote you a few days ago and send you herewith copy of
a letter which I have written to Dr. Miller.

I thought it

might amuse you to read the same.

I have received a couple of nice letters of yours and
shall reply to the, in a few days.

With kindest regards,
Sincerely yours,

Benj. Strong, jr,, Esq.,
4100 Montview Boulevard,
Denver, Colorado.

November 16, 1916.
Dear Strong:

I have not yet answered your letter of October 30th.
Your request for a photograph of mine is highly flattering, and I am sending you one under separate cover, upon
the condition that you sand me one of yours.

If you should

find, however, that looking at my face will interfere with
your digestiontso that you do not put on five pounds a month,
please turn that photo of mine to the wall or dispose of it


any other proper way.

I am afraid that you are right that Mr. Jay might feel
little bit discouraged.

But our minds evidently met, be-

cause when he was here I spoke to him along the same lines,
telling him how impossible it would be for him to carry on
this work alone and as he was over-crowded, I believe that
ne sees the necessity.

I fear, however, that in spite of

all that,he does not feel quite happy at the thought of
playing second fiddle to anybody but you - though he is too
decent and proud a fellow to say that in so many words.
Unfortunately, however, he is not enough of an executive
and I feel very keenly that it is high time that some aggressive second in command were put into the bank.


About French credits, I regret that we do not understand
each other, but evidently we do not very well.

We did not

make any public announcement, but it was plainly our duty to
put would-be member-bank participants in the French credit
on notice, inasmuch as the circular of the Bankers Trust
and the Guaranty Trust was misleading.

As you noticed,

there is no scarcity of short loans made to European belligerent countries and as long as the country and its investors think that it is safe for them to buy these loans, we
are securing just what you desire - that is to say, maturing
foreign credits with which we can protect ourselves if the
tide should turn.

These credits are increasing at such a

rate and the banks and the public will be so filled with them
that it certainly is not necessary to involve in these investments the ultima ratio of our country's reserve money - that is,
the Federal Reserve System.

For foreign acceptance credits in

the regular way, or even somewhat irregular, we want to open our
acceptance facilities as wide as we possibly can.

But there is

no sense whatever in getting this acceptance market overloaded
with essentially investment paper when the investment market
itself is so wide open and in a fair way to be overloaded.
Bedause other countries are at war and have to forget every
rule of sound banking, we need not lose all direction and do
the same.

Our responsibility is even greater in this respect

because we are now laying the foundation for future business


methods and have a great responsibility upon our hands in not
teaching our country poor banking methods.

There is no nec-

essity for doing so and it would be nothing less than reckless.
What you say about the power cf discount rates is only
partly true.

It is true that the higher discount rates

draw money into a market for the purpose of buying bills drawn
on that market.

But at the same time the volume of bills

drawn on the market is being strongly reduced, owing to high
interest rates.

I know what I am talking about because when

still a banker in New York and in Germany I covered our long
bills on London and used other credits whenever the interest
rate in London was raised to a point where our margin against
the home market was wiped out.

As to my being "reluctantly liberal" in the acceptance
business you are quite right - I am a liberal constructionist
for any kind of a legitimate acceptance.

I have been fighting

for that, as you know, against practically every member of the
Board, who, in the beginning, all thought it was dangerous to
permit the bankers acceptances to absorb too farge a portion
of the Federal Reserve Banks' funds.

But I have consistently

opposed any abuse of the acceptance business by the finance
draft, and your point of view has been more responsible for
that than anything else.

I have felt all along that you do

not see the dangers of having the acceptance market filled with
"investment acceptances" in the same light as I do, and I feel


that recent events have fully justified my fears, and all my
colleagues have come around to seeing this thing more in the
same light as I did a year ago.

Your point of view was then

that we could keep these finance drafts within proper limits.
We were then dealing with the one comparatively small credit

and at that time I think you would have said that you were certain that you would only get a small portion of that.


is now over one hundred millions of these credits and we have

about thirty millions of these drafts in our system.


there has been no indication that the Bunk of New York of its
own accord found it necessary to begin to discriminate against
this paper and to state in so many words how far it wished to

Quite the contrary, all that we have been getting from

that quarter and from you are expressions to the effect that
the Board was interfering with the free development of the
acceptance business in trying to keep this thing within reasonable bounds.

As a matter of fact, even yesterday I re-

ceived a letter from--Mr. Austin in which he says that he does

not know how to discriminate; that New York des not know
how to do it either.

If that be true (and of course I

think it is silly) how does New York expect to make good its
plan of protecting the system from an overflow of these drafts?
and if they cannot, would not those be right who say that these

bills must be absolutely excluded, because if they are not, the


legitimate business of the country will have to pay the price
because in that case every new twenty-five, fifty, or one-hundred
million dollar credit would force up the discount rate for all
the legitimate bankers' acceptances of the country, which ought
to be encouraged.

Think it over a little more, old man, and don't forget that

we are not at war and that it is our duty to remain strong and
healthy for the time after the war.
I inclose a copy of a tentative letter which I have addressed to Mr. Glass without having any intention of sending it.


wrote it only for the purpose of getting Messrs Harding, Delano,
Miller and myself in line on what we want to secure during the
next session of Congress.

If you think that there are any

amendments which are necessary which.I have forgotten, please
give me the benefit of your suggestions.
With kind regards and b st wishes, I am


Benjamin Strong, Jr., Esq.,
4100 Montview Boulevard,
Denver, Colorado.


sincerely yo re,




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November 21, 1916.


Dear Strong:

I just received your two letters of November seventeenth.
Let me answer the business letter first.

There is nothing in the rumor that the Treasury wants to
issue gold certificates of the denomination of


Mr. Treman

advised me of this, and when I investigated the matter I
found it was absolute nonsense.

The Treasury wants to coop-

erate with us all they can in issuing the large denominations.
Mr. Malburn is absolutely splendid in this matter.


comprehensive can be done, however, as long as Federal Reserve
notes are not reserve money.

Unfortunately, I have not 80

far been able to get Mr. Miller and Mr. Delano to cooperate
with me fully on.these lines.

I shall write to you fully about this matter and about
your charming fourteen page letter, which Iqlave just finished reading and which gave me no end of pleasure.

The whole

matter you refer to therein has meanwhile been put into pretty
good shape.

I shall write to you probably tomorrow at great

length about it as today we have the Advisory Council here
and my time is pretty well taken up.

I am awfully sorry to learn that you have had a little

I hope it does not amount to anything and that, by


the time this

reaches you, you will be up and about again.

The sixteenth I spent in New York and dropped in at the
bank, where I happened to find Treman,
also Sailer, Kenzel and Curtis.

Aiken and Rhoads -

I believe we had a very use-

ful chat together in which later on Mr.

Peabody and Mr. Wood-

ward joined.

I found your sweet telegram when I got home, and thank
you most sincerely for it.

You are over-stating the case by

a long shot, and I should like to return the compliment to

But the main thing is, when the next birthday comes, A-4-

we shall have you back again in the front


With warmest regards, in which Nina and Bettina join, I

Always co dially yours,

Benj. Strong, jr., Esq.,
4100 Montview Boulevard,
Denver, Colorado.



Uy der Ur. ?reptant
hmrs your- let0er of November Und end thank you very

A for the same.
1 sincerely appracite your biW.k.yld encouraging zeplarke
-,'4out what we Axe try na to accomplish here.

4x,r4 very norry to learn that M. jay in laid -up acain
and 1 hope that he v411 be better again in a fes lays. A.
patently he has taken a cheasea4a detting out too early - a

thing that he out to have avoided.
Tour sucoostion that I orite lr:o about our recent conforeLce hero sith the Aelvloory Council I4M hany to act up,on; all the more aim, oiling to the abentIce of Mx. U.::4.3a41
froa tke cont6rence, you, slight otherwise not be adeised as

to stat transpired. I am incloning hereuith a covy of the 4Aatement giv
to the press at the end of te oonference a rerort Ithich no
doubt you have seen in the papers.
I migb% add, because it is or considerable. interest,
tht,t it reference to the first topic - that ie, 1 transfer
of wait money to t
added that this development vvould be tosatIy facilitated by

nrthg an 'amendment permitting the member banks to count

7ederal Reserve notes as resevee.

All members prent favorld such ma amendment with the exception only of Ir. Rowe of
Cincinnati. Ur. Morgan and. !jr, ewinney ware not present.
le know that nr. lioran is in favor of such au a&endsent. I
not quite posted o4 tc Mr. Swinneyos position in the matter.
A free discussion of this topic ensued witn the Board, in
which both sides of the problem were fully developed.
There is one additional racsamendation which may be of

interest to you, as follows:
*The Council reccends that to the exoetions oonr.

tained in Section SJOZ R 8 e Lzended by Section i of
the Feleral Reserve Act the following w.ould be adaed. 45

a sixth exception:

*6th. Liabilities at; an end(Tser on acepted
bills of exchange. =tuf1:4 owned by the associ tion

and ;s.edisocunted ut home or abroad.**

atn diPoussion was on the general financial situation; a topic witn which there are closely connected the questione of reserves, old importations and torelen loansi also
the question of foreier acceptc.nos ere its.
To begin with the latter, the Council unresrvedly
creed the position tp,ken by the Board, aa exzesseci in

Governor Mrdingle a(Wress in Ne* York.

They even 7ent fur-

ther that that a 'position tich i4 not quite shared by the
Board.I stir believe that the position which ve took is



- that is to nay that we hmid not go to the ex-

tree*: of declaring tete° bills Aei1i

but simply to deal

a matter of ;:olicv. I do not think that the of view taken by the Council, that these acceetacees
mi ht be eligible for rodiecount when offered by oember banks,
but ohould not be taken in the open market, is a. logical one e
any how, not as a matter of ruling. that they mermt to say
th therii

mac that inasmuch As some member banks now had thee bills,
they ought to have Ma opportunity in ceee of need to rediscount

tAe) parer. They did not feel that such obligation, even
though it might be only a moral one, existed towart non-me ber
eanks, ene they were in eeneral aoeord that these .acceptarcee
were not a %eery dneirable investment for Federal Reserve Banks,

and that their use should not be freely. encouraaed.
Ae to the eniral finanoial eituation, it W68 pointed out
that money was not so easy ao it looked; that in most of
districts member banks were now lending up pretty veil to their
local reserve limits and that it would not st all surpriee
the etehere of the Council if In the near future Fedveal Reserve Banks would be mere freely resorted to. As a matter of
fact, in some dietricts, particularly In Boeton, banks are
pretty -real loaned up and rediscount et thie time pretty freely
nith the Federal Reeerve Bea*.
itr in ioatione you have
seen in Nee York.


It wh.s also stated that in ooze dintricts ban had
been investing P., little bit too freely in fweign lots, z,nd
that it wts time thtst the 1341.rd sounded A Litte or warning
Axst rurther loan axvInsion and locicing up of funds.
Tic question ToirAt discussed wLether or not
Yoyember 16, 71,717, should be aavatced so us to terminate soonthe vractice of counting alences with correspondents in
rev rive and central reserve cities a& reserves. If tha final
tiore, as colltemplated for November, iSI7, took pince to4ay, the
cec4sh retrves wovld be wiped out t'xid it world be found

tit, as e eat er of fnct, tte batis are pretty well loned
up to their lezza limite.

The so-cillied sxss reserves*

7?ith rofm,rve azents of &bout 46CiC,4(10 would tben appear
sr what, in fact, they are, bank Oa/Knees which have been
lnve6ted in loans tay corzespondent re,saxvo sonts. It wr,s

firly felt the,t it tould be to tbs boot advsntmEe of the
entire Cinancial sitution ir Cones would ezipowar the
Feder?.1 Reserve Board, with sixty day*, notice, V; put this
fiaal °image into effect. It would put all the 'banks on notice and -emove 80011 atisconceptions 8 to the existing financial situation. It edanerally felt that a step or this
kind would have 00*4 erect in expididine the theory that further importations of gold must of necesity uring inflations


banks theaselves have the power to u certain extent of
dwAlingwith this danger by keeping the reserves higher; and
there are other ways ami zeans cf dealing with an .overflew
of gold eo A6 to keep it out of harm's way.
On the other hand, the feeling was freely espreod. that
some cool thought ought to prevail in dealing Pith foreign
loans; thAt they oucht to be closely ocrutinized and, that we
should not overlook the that that,if ti e wax net on for a
long period, even the strongest &monot the European powers
at the end be in a financial situation which would be

critical - to say the least

and which would. force those
who now believe themselves. to Se making' ehot loans, to ac-

cept ion 6 term bonds in payment of these hew pparently short
Inveotwents. It 11-6 stUd that sooror or later this unnatural-

ly atizulated export trade roulo come to atop and that it
vouad be better to bring it down cradually to a nemal scope
than to keep it up by an urtificial atimulation of foreign
that when peace bhould ue eet7,bli3hed there would

off and not a perpendicular drop. It
was thought that at the end of the war there would be east
orrOrtunitiee ror the United Stat to act as the world's
banker and to do ita share in the ox k of reconstruction
than to begin; and that vo should ase to it th t ret
keep ourselves strong for that moiscat und be careful not to

be a grtdtal fUi


E;et involved so -deeply

this ti .w


to become the .:2art.-

A3 r of the tel. ieente to such an sztont that when peace
Amid be restored * should, be in, the position of hailli;
dependent upon our debtors Uther thsn of bean& .17,Ten4ent
and: choosing our own cour,74.

The Botxd did not feel that it should tvke the rPtporbibilit. of advising the investors and it vas thought that
afa in AZ thore WsViei a nwtural prooesa of financing out

foraign trade by a bacrlow of zecuritiev into the hands
or the inve;rtors, the United St%teit Iere doing, in effect
a 'eh busine44$ which could only be ooneidered u healthy
On . A similar relult vou d be reached by fere/F.1i lor,nn

secured by out olifn sooritiev. 'Von, however, our trade
is to be maintained, by the granting of practically unlimited amvunto of uneccured loans to belligerent nations
and particularly when these loans ate to be put into a form
appealing to our 4a4ks ratter than to Inveztcra, the Board
teals i;hat uch a devflopment rould not be a ';'ealthy one undor
pt con,litibneg, While in form these short term, uni7,:od
foreign bonds or notes may a.r:'.ear

ter of fact, the result will be the. in the aggrer,at.


,r4 a matlinny

hundreds el zillions, or possibly an amount which. might apvroaCh a billion, would Ole icolced up by it hanks in zm nvestment which eould have to he .$, coan, through to the end of the


7,;ar and it ?oovld. then probably bava to be turned. into long
term 911tourities.

The Advieory Council nenthrs oxreesed teir uhreorvad
opinion to tile ofTect that this was not adviaable and. that a
further lock up of funds by the buni4e of the country in such
a manner could. only be considered with eerious.Alegivings.
In etrioteet confident,*
The Kr. D.vison %as here
lavA Fatv,rday. he dieouseed with the Board the que.1-Aion of
the British Reohequer bonds aru:i in thibi entirely informal
conference views Tere ',:levelopsti by the Govern** and members

of tbe Board on tEee)o very lines and it we a great satienction to the Board to see Vlat the Adviecry Council sembere, who
Independently considered the vituation, reached eANctly the
same conolutione.
Vory truly yo
R. H. Trea4,n, X5q.,
Deputy Gov: rnors
Feder41 Reeerve Bank;
Re% York,

,( Signed) PAUL M.






November 23, 1916.
Dear Strong:

I have just finished dictating a letter to Mr. Treman, in which I give him the meat of our last conference

with the Advisory Council and also of our meeting with
Mr. Davison, who was here last Saturday.
As you know, there has been going on quite an active press campaign, the object of which was to show

that unless we granted foreign credits quite freely
the country ran the risk of being choked with gold
with the attendant consequences of inflation of prices
and credits.

Mr. Davison came over last Saturday and had a talk
with the Board and expanded upon this theory.

He ad-

vised the Board that Morgan's had planned to offer 41100,-

000,000 of British bonds payable in dollars which were
to mature in scattered maturities falling between three
months and one year, it being apparently the plan to
arrange the maturities so that .S10,000,000 would mature

each week and then be renewed which would indicate, as
he did not deny, that, provided the banks would take it,
they would follow this first issue with others and place



here about $500,000,000 of these exchequer bonds.


these would have been placed, of course, they might consider the placing of more.

But, for the time being he

said, the British Government would not want to place

more than a weekly maturity of $10,000,000.
Davison took the point of view that they only wanted
to do what was good for the country, but that the British
Government was buying about .i,10,000,000 worth a day, and

if we did not place these loans we were taking the responsibility of cutting down the trade of the country a very serious responsibility as we were now in a fair
way of becoming the masters of the world,* -end-that-the

more we stimu-

lated this trade,and the more loans we made to these
foreign countries


GovernOr Harding (who had taken the precaution during these last weeks to place himself in touch with the
leading authorities in questions of foreign policy in
order to be sure that we were acting in fullest accord
with what generally would be considered the best interest
of the country) pointed out to Mr. Davison that there was
some danger of a creditor becoming so much involved
with one debtor that finally, no matter whether the creditor wanted to or not, he would have to go in deeper and




In other words, while you thought you had the

bull by the tail, as a matter of fact, the bull had you
by the tail.

In this case, it is John Bull who would

have us by the tail.

England has now outstanding in short loans an amount
which must be as large as between one and two billions
of pounds.

How these are to be funded, nobody knows.

England's per capita debt next year will have multiplied
by seven as against the beginning of the war.

The con-

tinuaticn of the war, therefore, appears madness, and
as long as nobody knows how long this madness will last,
there is no saying in what condition Europe will be when
the war ceases.

The feeling generally appears to be

breaking through here at Washington (and I think also


amongst a substantial part of the oloarer elements of
the country) that the end of this war will be a draw;
that the sooner it ends the better, and that continuing
the war means only a needless and fruitless sacrifice
of life and treasure.

To think that this war must go

on to keep our trade going is an abomination.

To think

that it ought to be the duty of the Government or the
Federal Reserve Board to prevent disastrous economic
consequences by prolonging it is unjustifiable.

And we

said to Mr. Davison that it was the general feeling that


we had grown enough and that we should be in a position
of contemplating the breaking out of peace without a
thought of alarm; that to our mind it was better to let
this extraordinary trade gradually go down to more nearly
normal proportions than to have it stop with a vengeance.
Davison himself said that he thought there were

$500,000,000 or $no,000,000 of first c;ass American securities which were held back which we might still receive in payment of goods that we are sending.

We all

feel that the export trade would not stop at once but
trizifttEatietnd would possibly take smaller proportions and. 474/71u,elt pay for it with our securities and maybe, to a certain

extent, with shipments of gold.

As long as Europe sells us secured investments and
as long as the investors take them there is no harm done.
Altogether, We do not feel that we have the duty of protecting the investor;but we are concerned in the strength
of the banking situation, and it was generally felt that
these exchequer bonds, while they were made up in a form
which made them appear self-liquidating, were as a matter
of fact what in the aggregatelconstitute a lockup of the
funds of our banks and in the end would probably have to
be turned into long term bonds.

When the war is over,

it may or may not be good policy to grant these long term



and unsecured foreign loans, but we feel that first we
should know whether and when and how the war will be over.
As to the gold danger, the Board feels that there
are many ways

which it can be dealt with.

We have

$700,000,000 of national bank notes which could be withdrawn if our gold circulation should increase too fast.

We have greenbacks the gold cover of which could be provided very acceptably.

We have a Government that will

have to borrow sooner or later and should come4ito the
market and borrow at this time4to lock up the gold.


could induce our member banks, either by voluntary agreement
or by law, temporarily to keep hiehtr reserves.

And, fin-

ally, we could, as a beginning, advance the date of November, 1917, so 'as to compel our reserve transfers early
next year.

The latter proposition appeared to appeal to

Davison, who, on the whole, placed himself in a position
of only wanting to do what was best for;the country, and
it was very satisfactory to us that the Advisory Council
had independently reached the same conclusions as to the
general situation.

Forgan stated that they were all down to the lowest
point of reserves.

In New England the strongest banks

are rediscounting quite freely with the Federal Reserve

In New York we have noticed that, in spite of the



increase of the acceptance rate, we are getting our material quite freely, and, while it is true that our gold
holdings have increased, our loan pyramid has increased
in proportion; and while our cash reserve in 1914 was
12.8 it is now 13.6, so that

as a matter of fact, we are

where we were and there is serious danger in letting
the thought go out that it is safe for us to pump into
our financial structure a dose of one half a billion or
a billion of self perpetuating foreign bonds.
The discussion with Davison was very pleasant and


zaaoked to no definite conclusions, which I believe he
wanted to avoid.

He understood, however, our point of

While he pointed out to us that we had a duty to

finance this trade, he could not answer us when we pointed out that we were financing ten days according to his
own statement and that he could figure out for himself
the tremendous amounts that this country would have to
take in foreign loans if his argument were to prevail
that this trade ought to be c nt nue

by continuing loans.

He answered that, of course, they would not go beyond a
reasonable amount, but I believe we have lost what was
our standard for what is reasonable and what unreasonable;
and, moreover, the further we go the more difficult it
will be to stop.



Men like Wing, Rue, Forgan and Fleishhacker all
shared these views, and as to the foreign acceptance
credits they went in their recommendation even further
than the Board wishes to go.

They recommended that

these acceptances should not be purchased in the open

market while they might be taken when necessary as rediscounts from member banks.

They all felt that in

this question of acceptances the Board had acted splendidly, even though they apparently felt we had not
gone quite far enough.

I know that there are two sides to the arguments

It is not an easy matter at this time to decide what is
right or wrong, but apparently the general consensus of
opinion is getting around to the point of view that we
should not over do this foreign business at this time
and that the harm would not lie so much in the influx .44

of gold as in the over stimulation of our trade leading
to enormously increased prices, thereby increasing the
volume of credits with the entire chain of increased
cost of living, wages, etc.

I could write volumes about this without being able

to exhaust the subject, aAd for fear of exhausting myself

and my stenographic staff, I\A*1344better stop.
Let me only tell you again how much I enjoyed your



letter and how glad I am that this whole business has been
entirely cleared up.

I shall write you in long hand as

soon as I get the time.

It is too bad that Jay is laid up at this time, but
he expects to be all right for the meeting here on December fourth.

s cordially yours,

Benj. Strong, Jr., Esq.,
4100 Montview Boulevard,
Denver, Colorado.



s Jo9a. 19/6
November 27, 1916.

Dear Strong:
I halre your letter of November twenty-second,

which is "carrying coals to Newcastle".


however, as this article is very expensive just now,
it is very welcome - as is every line from you.

There cannot, of course, be any two opinions
about thet(goodness of these renewal acceptances.

We discussed this point fully at New York.

The ac-

ceptance of the City Bank is as good in the case of
a renewal draft as in the case of a bill drawn from
South America.

It is only in order to prevent an

over supply of this kind of paper and because it
is essentially not based upon a commercial transaction but upon a perfectly unlimited government credit behind the transactions that the system must protect itself against an over supply of this paper;
and when I say "system" I do not mean the Federal
Reserve Banks alone but the entire discount market,
which will be blessed, as I understand, with another
$30,000,000 credit of this kind so that our banks
will be carrying about $150,000,000 of paper of this



I have never, in talking to others, raised the
question of4responsibility, and I have followed quite
carefully the conservative methods of your bank in
watching Ithdorsements and liabilities.

the slightest concern on that score.

I have not

You appear to

deal, however, only with those acceptances that were
bought in New York, but, as a matter of fact, quite
a batch of that paper has been coming in at other Federal Reserve Banks, particularly in Boston, San Francisco and Philadelphia, so that, as I stated before,
we have about $30,000,000.


I do not care, whether we

have 125,000,000 or 0,000,000.

The reason why I

think it is necessary that we should discriminate is
that I think it is proper that we should put the banks
on notice that this output of foreign credits running
for eighteen months is a thing that ought to be kept
within reasonable limits and in which they must not
rely too much upon the assistance of the Federal Reserve Banks.

As I wrote you the other day, there was not one
member of the Advisory Council that did not agree in
these thoughts.

I am afraid that you will not be in

harmony either with what we are doing with respect to


the British and French treasury bills which Morgan's
expect to offer to the banks of the country to the tune
of $500,000,000 or, if the banks are willing to take it,
up to a billion.

While you may think I am the chief

devil, you are mistaken in that.

The Board is unanimous

in its present attitude concerning,this matter; and some

of my colleagues have been much more'aggresive in the
matter than I.

The Board will advise the New York bank, cithcr

taaa*-e4 in a few days

thatit has no objection to

having the contract with the Bank of England perfected
substantially on the lines drawn by yourbut that the
Board wants to be consulted again if it is planned to
go into substantial operations before the conclusion
of peace.

So there is at least some news that will

cheer you:

As to the rest, I believe that the Board is acting
wisely if it puts the principle of safety first and
United States first before the so-called question of
our national duties in the fight for "civilization".

Very sinpuely
Benj. Strong, jr., Esq.,
4100 Montview Boulevard,
Denver, Colorado.





tl 4 .


December 19, 1916.
Dear Strong;

Since I wrote you last Saturday I received several
letters from you, dated December 13th and 15th, which
I was very glad to receive; even though I noticeithat
you had some cranky notions in your head, some of which
I hope my last letter has destroyed and about the balance
of which I shall write you fully as soon as I get a breathing

Don't get it into your head that we are getting afraid
about our end of the situation.

From that point of view

we have not begun to worry yet.

Whatever we are doing

is being done from the point of view that we should not
get into a condition that we might have to be afraid.
The object of these lines is only to ask you what is
your view about-non-member banks' accepting in excess of

1CO% of their capital and surplus?

Shoyld we try to use

our influence in case they should accept in excess Of'this

-hat do you think?

acceptances are up to

The Guaranty Trust Company's

52,000,000 ( Capital, surplus and

undivided profits C45,180,000); the Equitable Trust Company
is up to

12,600,000 (Capital, surplus, and undivided prof-

its 412,813,000).



Of course we do not want to be small about it

and watch this thing with a ruler, but I should like
to know what is your general thought about this

I hope I shall be able to write you very shortly
and am,

Always s

Benjar4n Strong, Jr., Esq.,
4100 M'ntview Boulevard,
Denver, Colorado.

cerely yours,

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