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COPY - MD GREEN Paris, Dated January 3, 1922. Recd. 1:52 p.m. Secretary of State, Nashington, D. C. 1, January 3, B 613. 4 p.m. Germany paid 1:1,745,605.11 December 30 through Federal Reserve Bank New York to National Bank Belgium on account Belgian priority. This sum represents conversion part paper marks received from customs duties and export taxes. HERRICK Boyden. January 3, 4 p.m. C NFIDENTIAL January 4, 13,1-- Dear Mr. Gilbert: Thank you for your letter of December 31 enclosing cory of a telegram from the Amerieem unofficial Reprecentutire with the Reparation Commission with respect to the oenversion of currencies -dyable to Belgium on ,ceount of reparations. Very truly ycurs, J. H. CUE, Deputy Governor. Honorable 3. P. Gilbert, Jr., Under Secretary of the Treasury, Washington, D. C. J 4A0OPY - XD IIP Paris Dated January 10 1922. Jeoretary of state Washington. 8, January 10 B 616. 4 p.m. German Government announces following payments: ,3,100,000 Federal Reserve Bank, Nex York, 5,000,000 Belgian franca National Bank Belgium, 5,000,000 French fr3mos Bank of Frince, 845,00J pounds sterling Bank of England. All foregoing payments applicable Belgian priority and represent conversion paper mark proceeds customs receipts and export levy due January 1st. Total eciLivalent about 0,625,000. Actual completion above payments not yet confirmed. January 10 5 p.m. HERRICK 462.00E29/1368 Boyden. THE UNDERSECRETARY OF THE TREASURY WASHINGTON January 12, 1922. .3 :7 LI._.'1!T 14 dear Governor: w s I enclose for your information a copy of a cablegram dated January 10, 1922, from the merican unofficial representative at the Reparation Commission as to unconfirmed German payments. Very truly yours, Benjamin Strong, Esq., Governor, Federal Reserve Bank, New York, N. Y. 1 enclosure. TREASURY DEPARTMENT WASHINGTON OFFICE OF ASSISTANT SECRETARY an.,:ary 12, 1922. Dear Ur. Case: We have been sending from time to time copies of cables from Boyden relating to reparation matters. ill I Since 1:r. Strong h%s been think this flow of cables has somewhat ceased. I write to ask whether you would be interested in receiving these cables in '.Ir. Strong's absence. If so, let me know and I will arrange so that they automatically go forward. Yours very truly, (4 sin Assistant Secretary. J. H. Case, Esq., Deputy Governor, Federal Reserve Bank, Federal Reserve Station P.O., New York, N. Y. v\. r,A)1A) (con) GTh,1123 Paris, Dated January 12, 1922, Rec'd 13th, 1:15 a. m. .secretary of State, Washington. 12, January 12, 8 p. m. Number 617. Pursuant reparation decision 1459 Commission turned over to Bank of Lt(gland 150,000,000 paper marks ahineland customs duties collected while sanctions in force March 8th, 1921, to May 1st, 1921. Conversion these paper marks completed January tenth realizing pounds sterling 376,078 which will be debited against costs British army and up to May 1st, 1921. Paper marks collected Rhineland cus- toms from May 1st, 1921, to removal of sanctions in October not yet converted but still held in Rhineland banks. ary 10th our 8-616 now confirmed. Boyden. Payments cabled JanuJanuary 12, 9 p. m. }MUCK CONFIDENTIAL By By request of the State Dept. I be dat.. conts!red herein is for informs:L:0n or Trresnry officials ard is not to Do given to any one outside of the Secretary's office. January 13, 1.422. Dear kr. Wadsworth: Answering your letter of January 12, I shall be glad to have you send to 111,:, in the absence of Governor Strong, copies of cables from Mr. Boyden relatine to reparation matters. Very truly yours, H. CASE, Deputy Governor. Honorable Eliot %scielorth, Assistant Secretary, Treasury Department, LautiagWa, D. C. HAE 11.:1.41:,L January 13, 1922. Dear Mr. Gilbert: than4 you for yopr confidential letter cnclosint copy of cablepra... of January 12 received from the American unofficial representative at the Reparation Commission. The payment which having been -r.z.de to tne received by us for the the German Government announced as Federal Reserve Ban4 of rew York has been account of the liat tonal Bank of Belgium. Very truly yours, J. H. C.4.3E, Deputy Govermr. Honorable S. t'. Gilbert, Jr. Under Jecretary of the Treasury, Wasaincton, D. C. COPY - MP UEEN Paris, Dated Jamary 14, 1922. Rec'd 5:27 p.m. Secretary of State, Washington, D. C. 16. January 14, noon. B-620. Reference our 3 -634 and B-611. Adverse exchange has prevented any conversion Italian lire now invested Italian national bonds. French Government has transferred to Belgian Government French bonds nominal value about two hundred ten million francs market value about sixteen million dollars being investments of French francs mentioned our B-604. Belgium agrees accept debit reparation account market value of bonds date of transfer and convert gradually as required. HERRICK 0 X Hodge. - ID J14 GRY,EN HCC Paris, Dated January 18, 1922, lith, 9:15 a. n. Secretary of state, ;;ashington. 19, January 18, 8 p.m. b-622. Jan,ary 17th German Government directed payment account National Bank Belgium applicable Belgian priority following sums: "2,429,297; one million pounds sterling; five million Belgian francs: four million French francs. marks This payment approximately equivalent thirty-one million gold apparently made compliance Reparation Commission's decisions at Cannes. Actual payment not yet confirmed. Boyden. RF.2RICK ii.PD sirn - ID WF Green Faris Dated Jan. 21, 1922. vacd. 3:46 a.m. Jan. 22. Secretary of State, Washington, D. 26. Jan. 21, 5 p.m. B 624. Payments mentioned our 622 confirmed as made January 18. imoyden. HERRICK C3a Gernany with the consent of the Allies, The remaininr7 7,7, milliards shall be distributed as (E) follows France Italy Belgium Serbia Others Powers entitled to Reparation (6) 22,0 milliards 4,25 " 3.35 2,2 " 1,2 The british and French Governments agree not to call for repayment of advances made during the Afar to Allied or Associated Governments signatory to the Treaty of Versailles unless and until, and in any fvent to no greater extent than they may be themselves called upon to make payments to the Government of the United States of America in respect of advances made y that Government, vs the result of default by Germany in respect of her recondsry liability of 65 milliards, (7) The Receipts from Germany in respect of the costs of the Aries of Occupation shall be distriouted between Great Britain, France and belgium on the basis of the maintenancr in the british, Yrench and Belgian Armies of men respectively, in the 01.1upiee Areas, in the following percentages France 50f Great Lritain 33.0 Belgium 16,7 Any reduction in the number of :nen maintained shall entail a proportionate reduction in the amount to which each Power is entitled under this clause. (8) The Allies agree to cancel the liability of Austria and :ungary in respect c: re-nration under the Treaties of ..]t, ler!,ain and Trianon, respectively, and to reduce the liability of Bulgaria for reparation under the Treaty of Weuilly to 30 million pounds gold to be distributed as ,,viy be agreed .etween Italy, Serbia http://fraser.stlouisfed.org/ Roumania Federal Reserve Bank of St. Louis and Greece. 11, ::eadu oticreeneet I:etven the Alli.es theueelveu. .12/Va.' oteoithstanding and without prejedice to anything contained in the Treaty of Versailles, or in any subsequent Inter Allied Agreemel;t; (1) As from the lot January 1922, no Ally shall be entitled to Any further paynent in roupect of Costa of Arey of Occupation up to that date. Ally shall bt called u7ion to account for or to (2) pay over to t::e leparation Corytteraion the value of any deliveries or payments received before the lst Jan.:ary 1922. (3) All sums in the hands of the Renaration Commission on the let January 1922 resu1tini from undistribute Aaaets or fra paynents received either under the k;chedule of Pnymenta or the Treaty of Versailles shall be paid to Lelgiu:I. paragraphs (2) and (3) For the purposes of the awls distributed by the Reparation Commi43ion since the list subject to agreemonta ,1921, or repayneet on deeand of the Reparation Cortaluaion ehall be regarded as having been diatrituted to and received by the Ally in whoa-0 hando the auee, are in fact )eld on lut January, 192'-', (4) The share of the Britiah ::::epire of the 35 milliards shall be 2 milliards lelich shall be ree garded au One hundred million pounds which shall not bear interest for three years from the let January, 192, Thereafter it uha?1 bear interest at . It; ahall be paid out of receipts under the Reparation Recover; Act, unless otherwise srtiafied by C,r; a.17 P.eparation to which auch Allied or As,aciated Power is entitled under any Allied Agreement of which Ger,lary shall have been notified. The waount to 've credited to Germany in reoect of oupplies made under such agreenenta to tic detortnined by agreement between valuers appointed by each side subject to Repration Complisaion. Sie approvr11 of the in the event of disagreelcient or disapproval by the lieparatiora Coos:sill:don by a neutral arbiter, 8. In the event of default by Gernawthis agreement shall be determined forthwith and the ausperaion of the obligationa prescribed in the 6Chedule of Payments cancelled. Gerin.ny Shall release to the reparation Comte rlission the bonds of .4elries A and 1' and C referred to in clause 6 and shall be entitled to the return of the Treasury bills referred to in Clause 5, ,000ndary liability aLd has paid by -mane of loans raised abroad in respect of her primary reparation liability drini; the year lut January 1022 to the 1st J'tnuary 123 not 1es.1 tLan 3 milliards cold mar' s. Ti n a 1923 " " not less than Tmilliards void nar s, It 1924 1(:25 ess than 10 milliards cold 'lax .s, 20 0 ss than 5 milliards by other mens, d by Cernany in each year whether in ct of her primary liability shall deposit with the Reparation Como ear the payment of her Vqaparation greement Ger,ian 5, Treasury Pills to iards. e]lcy of the acre(r:ent the Ger nn and C delivered under the .schedule deposited to a neutral. :Aink in the ny and the Allies, and the annual f then and all other oblicatione dule of Pc.4yments shall be suspended. ee, subject to the approval of the , to enter into Agreemntu with any Power for the supply of such material y be required by the Allied or in the total of the proportion of Reration 1924 . (e) The reconstitution of the Peichoba'.k so au to place it in a position to impose terms in accordinc:: advances to the Ger-an Governmert torether with the appointukAA to the i.oard of a neutral banker to be dhoaen by the Tieparation Comniasion in agreement with, the Gerian Covernnent without whose conocnt no advances should be ylnde to the Ger,lan Covernment. (f) Customs duties on exports to bo calculated in Gold and paid in the equivalent in paper marks Tulin; time of clearance, such rate heir,, t the fixed by the Lcjaration Commission at regular intervals not exceeding one week in accordance with market quotations, (g) The internal price of coal to be raised to the extent required by the Ilcoarotion Colmassion so au to brim,: it irito reasonable relation to the world price. The mount of the aunual payments provided for by the .ichedule of Payments, which are postponed, shall bear interest at during; the moratorium period, oucl, . interest Lein 3. . added to the capital of the debt, Gernmy's liability for the coots ot the Arnica of occupation .p to the 1st January 192f". to be re:arded as diacharged. After the 1st January 1922 her liability 120 to be limited to 1110 million Cold maro pluu the value of "presations° and of the coat of the U.O.Arny. 4. 4...Aw Allied to withdraw the ArrAies of Occupation not Este than the lot -ay 1925 provided that Cor:-Iari, ia not in default in respect of any payment due under her secondary Proposals for the Reconstraction of the ArralqAments for Reparation by Ger 'any, ?ART I,. 1. heads of Agreemeit between the Allies and Gerylany. Germany's total liability for re,)aratior as on the 1st January 1922 Shall Le limited to 100 milliard gold marks. Of this amount, 35 milliards shell represent a primary liability which shall be disCharged within years. Germaxly's liability with resnect to the rerlaining 65 milliards shall be secondary are contingent and shall nature as and when, sari: to the extent to which, any Allied or As-ociated Government signat.)ry to the Treaty of Versailles is called u:)on to re-pay to any other Allied or As,ociated the G9vernment advances made for War purposes durin Tar, the ay founts hereof res-jActively to be recognised rl:d acreed. 2. Geriany to balance her budret and to cease the further issue of notes at the earliest possible mcmnt, and to issue loans the proceeds of Which shall be applied to the payments to be made under this Agreement. Ger,lany to agrec to (a) Complete withdrawal within such e7iod as -ay be deter-tined by the Reparation Con-lisQion of the food 71.nd railway subsidies. (b) Increase in 7 ,atal chard -es sufficient to cover the deficit in postal administration, (0) Increase it taxation in the ,marrer and to the extent required' :y the heparat ion Co7mlission. (d) such reduction as :-qty be required by the T,:e.Aration Conmiaslon in expewAture on administrative se vices.. (0) The internal price of coal in Germany to be raised. 8. not later than 1st arch, 1922, to a figure not less than three-fourths of the world price of coal and to be ke.,t thereafter up to such )roportionate figure. Committee of Guarantees to work out in co-operation 9. with the German Government a plan for (lying adequate cLu..ity for foreign loans to be raieed by Germany, and such loans to be issued withthe approval of the `separation Commission. III (1) IJILCA-' The ,ost-Ar!Astice and Reconstruction 'oebt of Telgium and any other l'ost-Armietice Debts due to the drifted Kingdom ano with (2) ranee to be funded in the form of a: !'onde per ainum for sinking fund. The question of writing off the Reparation ,ebt of Austria and liungary and reducing the julgarian Debt from ,Z90,00(),0 to (say) £30,)09000 to be carefully considered without delay. (3) lussian Debts not to be included in the General zettle. ment but to be separately considered. (co long as ehe is not in default) for any cum exceeding 160 million gold marks per annum (glue "prestntions etc.") for the ritish French and relgian Inaies. The cost of the United ,totes Army of Occupation both ''efore and after let January, 1922, to be treated as a matter for arreement 1:etween the United States of America and ;lemony. II GUAYWTTY.-T.E. In consideration of the espension of the ..chedule of l'ayments, Germany to acree to the following conditions, the due fulfilment of -!hich ball be 1.upervised by the 'reparation CommiEsion IThich shall h-we the right, if it ic of opinion that :ermany it not observing the conditions, on givint; three months' notice, to terminate this agreement and to revive the :schedule of layments:. 1. ludget to be balanced as soon ac possible and in no case later than the 'Aid get of 1c24. 2. All subsidies to ceace not later than let Jul.., 1922. 3. All tudget deficits, so long as they exist, to be covered try internal loans, other than Treasury hillfl discounted 7rith the reichslank. 4. .sett to the r?eichebank to be dreressively reduced. t. .eichsbank to be given a due measure of independence (under the supervision of a -edtral adviser to te appointed by the German Government in acreement with the F4eparation Commit:1'10n), 6. new issues of raper Currency to bepermitted beyond a maximum to be fixed forthwith, and ste,a) to be taken at an early date to introduce a new currency unit in place of the paper mark. 7. Customs -utiei to be collected in cold. 8. consideration the suzc already received in cash, kind, and ceded :roperty, etc., ty the inuividual powers up to 71st 1 91 inclusive; each Allied rower to retain the receipts -Thich are in fact in its ands on .1st Jecember, 1921 and not to be called upon to acco.tnt c)r them to the reparation Commission. .vercetagee unmodified would give 52 Prance 73 the s 66.6 Italy = 26.66 milliar 10 the agium 8 the etc. 78 (f) Each Power entitled to a share in the 4% milliards to he allowed to negotiate, vul,ject to the approval of the reparation Commission, agreements for deliveries in kind up to the amount of its share at any time remaininc unpaid, saferuards ae to valuations being provided for by requiring valuations to be made by one va.Lter for Germany, one for the recipient 1-'ower, Ind an Umpire appointed by the heparation Comlission. (g) .;ermany to agree to use her beet endeavours to raise by international loan operations sums of not lets than milliards in 1922 7 milliards in 1.923 lu milliards in 1924 10 milliards in 1925 and the Allied Governments to agree to withdraw their Armies of - ceupation not later than let ilay 1926, if before let January 1926 Germany har discharged, with interert, milliards out of the 4u milliards, 211E any sums 7,6 ayable by her up to that date in re, pect of her contingent liability of G5 milliards. (b) fl-e cost of the Armies of ccupation other than that of the United states of America up to '1st .ieeemter 1V11 to be rogardeu as satisfied by the paymente made up to that uate, and as from lst January, 19::2, Germany than not be liable (so when notice is given, part passu with any German Government obligation then outstanding. .' ranee (c) The Gov emmente of the United JAngdom a.nd to agree that they will demand payment of dete owed to them by other Allied Governmente only if and in so far as they (i) are themeelvee called on by the United tates Government to make payment and (ii) fail to recover from Germany. (Taking the Inter-Allied arDetts as leing approximatiy 40 milliards due to the United ::tater, of NmericA, ZO milliards due to the United Kingdom, and b milliards due to 'ranee). (u) of the remaining 45 milliards due from ,:ermany, 5 milliaros to be converted into a sterling debt of £260,000,000 to the ritieh Gov ernment carrying no interest for 3 years and thereafter, interest at 5; per annum payable half- yearly. This debt to be eatisfied during the -rivet 7 years out of the droceede of the Peparation (Pecovery) Act i.evy or any similar levy imposed by any ;Titieh ;)ominion or Colony ( olbject to a first charge on the Iritish levy for the costs of the 3q.itish Army of in kind as ,-ccupation) or by means of such deliveries Irty be agreea with the German Government with the apc.roval of the 7:eparation Comroission and thereafter in ouch manner Is may be aFreed upon. ,Ayments in rtw)ect of this X250,00000c to he divided se to 10,!. to the fritish xchequer and as to 90% to the jominions etc. (including Irsi (e) The remaining 4_, milliards to carry interest at per annum payable half-yearly and to to divided am3-1.- the Allies rovers (other than the :ritieh ance with the . aspire) in acc3rd. a lercentages, subject to such :codifica- tions, if any, as may be agreed u on after ta:Ang into considtratielt lir d-CotA4- flan for a fi The following plan is dut forward as a has of discussion rathr than 'LE representing a filal and coneidereo judgment on the suljecte with .1-ich it de-le. q The central feature is the eurgeetion that Germany accept A liability for all Inter-Allied -p' t, each t,eing contingent upon the extent to H-ich creditor r. Governments call upon ie'rtor Covernnente for payment, and that in consideration for Germany's accepting this contingent liability the amot:nt of Germany's 1:e.,.aration s!o4iu be reduced ty the fall -valunt of the inter- 1. Ltarti- reparntion dn.t of -41111rds (subject to certain ldjustmentr), and in order to cut ehort interminahle accounting comulic'Itions and value Lion disputer, it ie ;,ropeed that (a) non-German reparation shall be regarded ns amounting to 25 milliards, and the payments llrefA.dy made ly Germany up to :1st A3cenlber 19"l inclusive RP reducing her outstanding riell as on let Jqnuary to ex- ctly 11c milliards. (b) In satisfaction of G5 milliards of this debt Ger. many to accept a con:.incent !i1)ility to 'pay on demand any principal or interest in rerpect :3f Inter. Allied -ar .Jebts which any creditor Government exact from any debtor Government. ::say LblicatinE of the German Government :,ayable -kt one month't notice to a total of 65 milliards to be de,osited with the Reparation Cdarlirsion to rank, sr and when notice "LEDGi. rralirlifignrbt rs, bittbarL*. 04: GRE,a; Paris, Dated January 30, 1922, seed 9:22 a.m. Secretary of state, Washington. 41, January 30, 10 a.m. B-627. German Government January 27th ordered following payments made to National Bank Belgium account Belgian priority: 38,000,000 Belgian francs, 1,000,000 dollars, 250,000 pounds sterling, 20,000,000 French francs. Foregoing second payment 31,000,000 gold marks every ten days conformity decision commission January 13th. Payments not yet confirmed . HERRICK CSB Hodge. 0 GREEN HCC Paris, Dated January 31, 1922. Rec'd 1:24 p.m. Secretary of State, Washington. 44, January 31, 3 p.m. B-628. Reference my B-60. Payment suns mentioned now confirmed. Also additional nine million French francs. thirty-one million gold marks. Total approximate value Boyden. HERRICK Re payments to National Bank Belgium ordered by German Government. GRERzi ii Cc Paris, Data Mb. $, ..ecd. 12:61 p.m. Secretary of State, dashin6ton. 67, February 8, noon. 6-632. German Governmont February seventh ordered following pay- ments made to National Bank Belgium account Belgian priority; 34,003,000 Belgian francs, t1,000,300, franc,. 5000 pounds sterling, 17,308,00) trench Approximate gold mark value above amounts 30,810,89. Fore- going third payment 31,300,000 gold -narks every ten days oonformity decision commission January thirteenth. Payments not yet eonfirmed. Boyden. ILERfleX 4.10FY - HCC GREEN Paris, Dated February 9, 1922 Recd. 2:46 p.m. Secretary of ',Asti, Washington. 64, February 9, 3 p.m. 8-633. Bank of England advises pursuant to instructions Commission paid British Government, January 14th, f'58426.16 from reparation funds. Above represents balance proceeds deliveries dye stuffs Textile Alliance prior lay first due England account army costs. IOYDEJ HERRICK HIDD Paris, Dated Pebruary 14, 1922 riecd. 2:36 p.m. Secretary of State, Washington. 70, February 14, 4 p.m. 3 -635. Our B-632. Payment sums mentionei confirmed and additional 500,000 Belgian francs National Bank Belgium. Totil paylents February 8th approximately 30,968,00J gold marks. Boyden. HERRICK W3B ik February 17, 1922. Dear Paddy: 1 I have just received copies of two cables respecting reparation payments, doubtless comici; fro's you, for wMch I as, very much obliges, and which I hope you will continue tc send as as we really find it important to keep poeted on how these matters ^re progressing. Tours sincerely, Honorable Eliot Wadsworth, Assistant Secretary of the Treasury, Trc&sury Department, Washington, D. C. Mak: February 18, 1422. Sir Basil P. Elackett #2 the merket should broaden still further. My of my personal views and of our policy with far I think, without being euccess in assisting friend Norman is fully advised respect to this development, end so vainglorious, vs can claim to have realised Knee toward the recovery of the value af foreign currencies, measured in dollars. You have sant me a rather difficult memorandum to comeent upon, and after consideration, I of the scheme therein possibly mure complete less not do not think I ehruld express an outlined. tha views as to the ,letail ly ancwlerige of the situation abroad, while acme who express opinions in the press, is neverthe- adequate te. give any definite julgeent as to Germany's ability to pay, nor as to the equities in division of eaysents, etc., so I shall only comment upon the recital in the axon!, the Allied governments; -reamble which reads: "The central feature is the suggestion that Germany should accept a liability :er all inter -Allied debt, such liability which creditor governments being contingent upon the extent call upon dotter governments for ; :cement ***" My interpretation ef thi is thst the author o; the riemerandum expects the United States Government tc :reps for eayeent er its claim:. ageinEt the Allied Governments; bet that the Allied levernmente intend to ,'rese fur !,:eymeeet !Irene, themselves ...ell; LL the extent that the Unites' tat ms presses fur eayment. Dieregerding all of the ether ;.revisicns of the memorandum, this seems tc suggeet that in case the. United Stetes Gevernment calls upon the Allies to pay ti sir debts to it, the Allies shall at once n. e demends of eoual Germany, and in case Germany deeps act reepend, the creditor Allied extent. upon Governments shall treks claime upen the debt -r Allied Ge-,vernments. Please understand that my comments are strictly my own; that I have tee information at the moment of any program by our Gcvernment; and could not in any event speak for the eficers of the Geverneent. This v uld appear to be an Germany three:4 likely to be a The coms.ents eculd be as fCilcws: ingenious methed of traneferring pressure u;:en the Allied Governments now debtor to us, cause of dispute and bad fee!ing in case an:I would seem to me it .were attempted. It February 18, 1922. Sir basil P. Blackett 03 seems tc make the payment c° reperetic s to th- extent of 85 milliards, contingent upon its being forced upon Germany by demands ef equal ameunte made by the United States upon Allied Governments. Frankly, it strikes me it ic calculated to facilitate the adjuetment ef this difficult matter. Yee eteuld possibly consider the present situation in this country. Congress has passed a bill extending only limited peters te a ceamiseLn of five, tc be apptinted by the Preeident, to negotiate an adjustment of indebtedness ::.Vin,, to this Government. The limitations imposed upon the commission indicate the mind ef Cengrese, which ie that the debt should be paid; that the interest sh_uld be not lees than provided by existing law; that the chligetions should mature in not longer than 25 years; and that the obligation of one government should not be taken in settlement of the debt Jr another government. (I 3.r not attempting a recital of al; of the provisions as /ou deubtless have them before you.) last is important in its bearing upon y-ur prpcsal. The It aeons tc no it evidences a desire upon the part ef Congress tc prevent our getting intj I pceitio where our claims may be converted, directly or indirectly into claire upon Germany. ceurse, the Allied Governments have the right to enter into any arrangement ameng themselves that they please fr efecting an adjustment of the Inter-Allied debt. There is nethine' in the funding bill whic iltimates that it is the intention of Congress that the officers of ;ur gL.vernment shall interpose as to any such arrangements. You gill find, however, in reeding the reccrd cf the hearings before the Senate and house comeittees that there appear to be strong objections to any plan for swapping lebte, and the point I maks in regard to the sentence euoted above is simply the practical one cf avoiding the creation of a situation by the making of formal agreements which might in any way hamper or embarrass perfect freedom in dealing vith the whole subject. I em not arguing the merits of the question, but simply stating the facts. My understanding of public opinion in this country at the -resent time is somewhat as follows: °- Sir Basil P. Blackett 14 Demands for government economy are insistent. tax reductions. February 18, 1)?.?.. The same is true fer The need for further revenues enlargos, as estimates indicate a deficit in cur budget for the coming financial year. Cengross seems insistent upon passing a bill authorizing the payment of large bonuses to those ehe served in the ear, ehich may add to the liabilities of the guvernment any There fr:e tee to five billion dollars. There is ne general public understanding of the ability of the debter nations to :ay, re_r cf ehat economic disturbance might result from successful collection. The President is resorted to have definitely advised uesibere of Congreee that he is opposed to any plan for making the cayment of bonuses tc soldiers contingent or dependent in any say upon the collection of debts (need us by the Allied Governments. There is a section of eublic opinion, hoe much can not be estimated, ehlch favors cencellation all around. Another section ehich favors forgiveness of intereet for a long period, five to ten years even. They are not vocal, and it is charged that these vi?es are selfishly held by those mho are themselves interested in securities uf foreign governments and fear that their's sill not be paid if our government insists upon the collection of debts ogling to it. From this you mill gather that there is a confused public opinion here, and, as I firmly believe, very little real knowledge of the facts, in or eutside of Congress. !fox that the funding Lill has passed, I thing: my judgment is that the test course freer now on, bah for cur gevernmeet and for these governments ehich are indebted to us, vill be to promptly undertake negetiatiens and incurs Chet the cemmissien gets both all the facts, and 4 thorough knowledge as fell of the economic problems *rapped up in the = attar of debt collection, including reparations. In general I should ear that me agreement by the :ertias ether than the United States ehich appears t. be designed ti treesfer .ressure uson Germany weuld be unfortunate. /net is m,re needed in this country than anything -lee just now is real 'enceledge of these matters. The Commission affords the means fur conveying it. If it might superficially appear that cur attitude inwards some of these difficult matters is seifich or inspired by any antagonism er animus, I think you should promptly dismiss the thought. My belief is that ignorance explains most of our difficulties Sir Basil P. Blackett #5 February 18, 1922. and it is a most natural ignorance vhen c -e considers our distance from the scene of affairs and cur lack of constant contacts such as you have and ve have not. These expressions would not be complete without my adding one word, which I ar sure you will not misunderstand. For the past year, and longer than that, some of the most responsible men in the country who are nut only impartial, but even friendly to the vnrious Alied Governments, have begun to questicn the wisdom of generous policies in these matters, so long as evidence of extravagance in Government finance by some of the dotter nations continues to be so obvious. This especially relates to the maintenance of large military establishments, to the payment of doles, and to financing by printing money rathar than by t-,.xee, loans, etc., etc. Ihile indulging in these confidential and discursive comments, growing .ut of your letter, let me add the following purely personal views: I believe the Treaties no submitted to Aar Senate, as tho result f t1.e lashington conference, will probably be promptly ratified after dircussion. take some time. If it is the desire of the foreign governments th 01 It may our government should :articipate in a conference to discuss economic matters, I can not help but feel that the Treaties must first be ratified before an answer should be expected from lashington. This simply means that it might be crecrtune to delay the Genoa conference for some months, as press despatches now indicate may be done. I also think that it will be inopportune for such a conference to discuss the terms of settleeent of the Inter-Allied debt, (ae to the United States), except through the newly constituted comeiesion, which I am confident will be a good one. The outstanding public question in this country to-day is the distress of the .Pnrmers. It is both economic and political. ge '.ave a mist important election in November when a considerable part of the Senate, and aver two-thirds of the members to the House of Representatives, C(119 up for re-election. deal with luesticne of a character requiring important an election of this character is pending. It is difficult ,t a time when All of these ecnomic questions seem to Sir Basil P. Blackett February 18, 192,2. *be reflected back in one respect or another, to the plight of the farmers, vhich has been Best deplorable. I can not help but feel thet the officers of some cf the foreign gevernments interested in these questions may not alwpsys be as well advised as is desirable as to political ccnditicne in the united States. You doubtless heard, for instance, cf the Administration and Congress being "bulldozed" by a se-called agricultural bloc, thr_ugh the exercise ef the power to defeat legislation without any pester to pass legislation. Nctvithrtsnding that some of the members cf this group in Congress have bitterly criticised me personally, I must frankly state that I have a great sympathy ' r their difficulties. There are a number ef states in this country where ever 75 eer cent ef the value of the produce is agricultural, and vhere financial paralysis hAs everteken a large proportion cf the population. Their representatives in Congress are subj,ct to tremendous pressure from home to adopt measures t- relieve this distress. reasures they propose may not always be wise. The My experience with them has been that meet of these men desire to be reasonable and are honest, striving with a situation which, frankly, is toe difficult for them, and would be too difficult fir no to solve were I in their position. to pass legislation to forgive Can men in these circumstances be expected cr greatly reduce t10 or tll billions of dett at a time when the burden of heavy taxation is felt and when distress of that character prevails? si It seems to be only human nature thet they sleuld hesitate to do until they are pretty well essured that its collection will result in more herd- ship than would forgiveness cr deferment. In the long run, as I have repeatedly stated, when the people of this country knew the facts, they can be relied upon tr deal honorably and even generously with such a matter as this foreign debt. I dread the possibility of our drifting or being gradually maneuvered into the position because of political or ether conditions abroad, or possibly because of cur own ignorance of insisting on the one same hand that our recent Allies must pay vhat they Owe ue in full, while at the time le may seem to be complaining that those same nations are insist tine too http://fraser.stlouisfed.org/ vigorously Federal Reserve Bank of St. Louis that Germany, our recent enemy, must pay debts so Justly owed. one February 18, 1c?2. word. !Pr' Final I am 4riting this long letter for the nurpose cf expressing the view that much #hich msy me'de you restless about our attitude may be due to the ignorance of our public; that under those conditions delay in preeeing questions for decision is alNaye vise; and that certain special conditions now exioting, other than the ignrEnce I refer to, make it peculiarly desirable that no haste be made in pushing plans to alter the status of these matters, except !t be after deliberate examina- tion cf the facts and a start in negctiatins thr'ugh cur Commiesin. You see I have taken your invitaticn as excuse ftr writing y. u a lecture, r -Mich I apolcgi:.e, but which I Ire, you will arrreciate is sent in te friendliest passible spirit cf belpfUliness. .Pith best regards, I no, Faithfully pours, Sir Besil P. Blaokett, Treasury Chambers, ihitehall 5.4., London, England. 411111i tEASURY DEPARTMENT, PLAIN OFFICE OF ASSISTANT SECRETARY, Feb. 21, To Governor strong sworth. Paris, Undated, Recd. Februnry 18, 1)22, 10:20 a.m. cy,SCIa7,2 ri secretary of State, Washington. B-636. German Government February sixteenth advises made follovsing payments reraration account: Twenty-five million Belgian francs, three hundred thousand pounds sterling; thirty million French francs, one pillion four hundred thirty thousnd dollars. 111 effected through Reichsbank excert one million four hundred thirty thousand dollars nrJde by Devisenbeschaffungstelle. foregoing to meet thirty-one million gold marks payment due February eighteenth under decision commission January thirteen. Payments not yet confirmed. BOYDU 4'3B GR3EN Paris, Dated Feb. 22 , 1922 Rood. 12:06 p... xcc Secretary of State, Tashi tan. 83, labruary 22, 3 p.m. B -637. paid Our B-636. =ayments mentioned confirmed. Germany further January thirtieth 13,848 dollars 44 oents federal reserve credit national bank Belgium. Belgian !riority amount the customs exports receipts November rrior reparation oommission decision January thirteenth. Boyden. c1q :bbruary 23, 1922. Dear '.:addy: ,he copies of the two cables dated Asbruary 14, and 18, with respect to reparation payments, have been received, and 1 :appreciate your courtesy in forty. riling thin for our confidential information. Yours sincerely, Hon. Lliot ;aidsworth, 2,ssistant Qecretary of the Treasury, Treasury Department, Washington, D. C. JAMES A. LOGAN 0 R. Paris, 18 rue ue Tilsitt. 24 February 1922. PERSOKAL & COUFIDLY2IaL 14 dear Ben, Loose in file I enclose herewith the following documents, viz: Exhibit A - Annex C.G. 134d, which is a Comparative Study of the Burden of Taxation in Germany and France by the Information Service of the Reparation Commission. this report shows the difficulty in arriving at any definite conclusion on this subject. A consideration of this question is made incumbent upon the Commission by sub-paragraph b, paragraph 12, Annex II of Part VIII of the Treaty. A cursory examination of the document enclosed herewith demonstrates the difficulty of this task. Exhibit B - A Statistical r.lvamination of the German rational Budget of Expenditures for 1921/22 and 1922/23. A casual examination of some of the items set forth on paces 15 to 23 inclusive opens criticism that the German Government "is doing business as usual" without reference to its position vis a vis the reparation settlement. Items marked with green pencil on page 18 are specially illuminating. Exhibit C - Annex 1267 is the Report by the Committee of Guarantees' Berlin Delegation on the ;;;ensures of Control over Foreign Bills Bought in the Open Larket. Exhibit D - Annex 1247 is a copy of the Report Requested from the German Government by Decisio4 Adopted by the Reparation Commission on January 13, 1922. (Inthis connection see sub-paragraph b of Annex A enclosed with my letter to you of February 16th). Exhibit E - Annex 1282 are the Remarks by the Intelligence Service of the Reparation Commission in Connection with the German Idemorandum, (See ixhibit D above and especially sub-annex 2 of Annex 1247a. annex I therewith). Exhibit A with my letter of February 16th sets forth the The Germans, provisional payments to be effected by the Germans. 7th and to date, have met the January 18th, Hanuary 28th, February paid over, to date, In other words they have February 17th payments. From what I gather the Germans are only in a 144 million gold marks. this provisional arrargement position to continue to make payments under 27th and Larch 9th, and perhaps on the following dates, viz: February JAMES A. LOGAN JR Larch 19th. On this _atter date they will be at the end of their The present dowTward trend in the value of the paper string. Our mark indicates this time as being about the breaking point. best observers in Germany confirm this view and from what I gather the Germans are now preparing to inform the Commission accordingly. I hope that before this time the question will be referred by the L.11ied Governments to the Reparation Commission and that this latter body will see the light and base German payments for this year on Germany's capacity. The amount which will have been paid by .arch 19th, according to my estimate, will be approximately is the same figure which Germany offered 200 million Lold marks last December as being their best cash payments on account of the January 15th and February 15th instalments under the Schedule of i-ayments of _ay 5, 1921. I believe that the Allied Governments hope that the Commission's decision for this year will be base) on the unconfirmed Cannes Conference basis (see Lxhibit C to thy letter of February 16th). I personally question whether Germany is in a position to reach the Cannes figures on "reparation" payments. As a matter of fact in addition to the "reparation" figures mentioned, approximately 30 million gold ...arks per month throughout the year must be made forthcoming on account of "clearing of ice" transadtions. tit 6,-,AJ`-'2"Ar Faithfully yours, JAL/Bj Incls. The Honorable Benjamin Strong, Governor Federal Reserve Bank of Kew York New York city, JANACS A. LOGAN JR 1,ii,A13 28 192? 1=. rue de Tilsittki 3 19.zZ. illasauL Dear Ben, Loose in fil I enclose herev:ith ;:eekly Beichsbank Statements covering the period January 14th up to and including February It occurs to me that you may find this information 15th 1942. useful in this form. If so I will be tlad to keep sending L.ou copy of the weekly statements as they appear. If they are not useful and if you have the information from other sources please let me know and I will not forward them. The present downward trend in the value of the paper mark indicates clearly that an early revision of the fiLures for German reparation cash payments is imperative. The matter was brought up this morning in the Commission at the instigation of the British and it was agreed to hold formal conversations between the Delegates commencing the first of next ve6k on this The present provisional schedule of most important subject. payments under which the Germans are operating was enclosed I still maintain hibit A. with my letter of February 16th as the views expressed in the last half of my letter of February 44, 1922. Faithfully yours, Ji4BD 5 incls. 4.ft he Honorable Benjamin Strong:, J-overnor Federal Reserve Bank of New York, New York City, r. Y. 16*, Green Paris D?.ted 1:artria 5, 1922 Aeceived 5th 9:45 a.m. ..;e0 °tar.; of State, Washington. 96 11roh 5, le a.m. 8641 February 22 commission paid Great Britain 158,000 Danish crowns proceeds sale German aeronautical material, approximate vlue 6,389 pounds sterling applicable oritish army costs prier lay first. Payments mentioned my b-639 confirmed. Boyden. RUE I a l:REASURY DEPARTMENT, OFFICE OF ASSISTANT SECRETARY, 1i22. To Green lzomernor___J_tx_cuag fro:n Lir. Wadsworth. Dated :arch 6, 1322 deceived 11:54 a.n. Secretary of ;Mate, shington. 98 liirch 6, 4 p.m. 3-642. dank of E.ngland notified Col:mission February 27th 24,106 pounds sterling equivalent twenty million paper marks proceeds sale war material received and applied against British army °sets prior Jay first. Boyden. RUBIO( WSB copy ?'irch 0, 10.1,7. My dear Lcgie: I am more than grateful tc you for your letters of February 16 and vhich I have read vith a great deal of interest; but so far have not had time to go over the enclosures vhich accompanied them. I As in leaving to -day for a ten days pleasure trip, it may be some time before you get any comnents on these documents. that you say about the course of the mark hereafter, expresses just atout the feeling that I have had myself. had such a rough tric, over. The same renort comes to me from everybody. The ocean is nut behaving veil this linter at all. test regards to Boyden, and the same to yourself. Sincerely, Colonel James 'A. Logan, Jr., 18 rue de Tilsitt, PariE, France. Sorry Please give my ECC Paris, Dated :ilaroh 9, 1922 Recd. 10:15 a.m. Jecretary of State, Nannington. 104, :_arch 9, 10 a.m. B-644. payments b, priority: German Government larch 7 announces following Reich' yank to National Bank Belgium, Belgian Belgian francs 4,000,000, pounds 1,400,000, French franc' 7,500,000 approximately 30,253,340.86 gold marks. 609,449 gold marks mentioned our B-640 as overdue February 18th now reported as over payments. Revised figures indicPte tot-il of 932,815.45 gold marks overpaid between January 18th and February 28th. Boyden. RERRICi. tAC;' JAMES A. LOGAN J %iAR 28 Paris, 18 rue de Tilsitt, a s. 10 March, 1922, Pi RSOEAL & CONFIDE:72LLL LT dear Ben, he difficulties of the continued payment by Germany of 31 million gold marks each ten days as provisionally fixed after the failure of the Cannes conference are now being presented acutely as registered by the continued decline in the value of the paper mark. Germany has just effected the payment of her instalment due Larch 8th with the effect which you have perhaps noted on her exchange position. She may be able to make her Larch 18th payment but this can only result in a further fall in exchange. If any attempt be made to continue payments at the present scale after March 18th, I am satisfied it can only be accomplished with most disastrous exchange results. The Reparation Commission had an informal meeting last week when the situation was discussed. All except Dubois the Frenchman were in favor of putting the brakes on the demands of Germany for payments and reverting without delay to the schedule of payments in the Cannes project, (see Art. 6, Exhibit C with my letter to you of February 16th). Dubois expressed himself as being strongly opposed, giving every indication that in the event of a vote he would be formally opposed. On the other hand, French officials, including de Lasteyrie, appear willing to revert to the Cannes schedule. They do not say this publicly for under the Poincar6 policy of putting the decision up to the Reparation Commission they have Lractically transferred responsability vets h vis French public opinion to the Commission and particularly Dubois. Dubois is a French political leader not directly affiliated with the Poincare party and it will therefore be interesting to see if and when the vote is forced (which I expect shortly) he will maintain his present position, reaping any glory that there may be in it with the French public, or perhaps even resigning or bowing to the majority. I am satisfied that the Cannes figures will be shortly adopted by a majority vote and I have few tears to shed and only a small floral tribute to place on Dubois tomb if he decides to suicide. Obviously the Cannes figures are only a temporary palliative designed to tie the situation over for a few months. Germany can only meet the cash payments involved under the Cannes schedule up ler J. A. L. J P ap, until say August of this year, and therefore we must expect another breaking point in cash payments and further conversations at It is a pity that German payments cannot be settled that time. once for all, but apparently this is impossible, political exigencies prevent any other solution than that of approaching the ultimate The fact must not be lost sight of goal by a series of jumps. that in addition to the demands on Germany fcr foreign exchange on account of reparation payments, there exists the Treaty requirements of the "clearing office payments" which involve the payment of an additional 35 million gold marks per month. This Germany is now meeting and must continue to meet up until March 1923 at least. There was also a payment made under Article 58 of the Versailles Treaty on account of Alsace-Lorraine liquidations on December 15th There is an outstanding balance on last of 10 million francs. this latter account of approximately 90 million francs to be paid this year. Faithfully yours, JAL /BD The Honorable Benjamin Strong, Governor, Federal Reserve Bank of New York, New York c...., ,,,,............_ (1, 2, 1111 loiopy -resit Paris Dated March 11, 1922, 'ecld 3 P.M. Secre'ary of state, shington. 109, March 11, 5 p.m. B-648. -"aymenrits notions(' our 5..644 conrirued. March 8th Commis,ion paid National Bank Belgium account priority 1,996,598.35 Belgian francs approximately 718,000 gold marks proceeds ergo German coke %uxemburg December. HCC Boyden. JAMES A. LOGAN J. i'441 28 Paris, 2ardh 17, 1922. ?lersonal and Confidential. '4 dear Ben : I enclose herewith a copy of the French text of the Financial Arrangement of :!arch 11, 1922 signed by the Finance Ministers of Belgium, France, Great Britain and Italy. Faithfully yours, G (ILL /145L. The Honorable Benjamin Strong, Governor, Federal Reserve Bank of New York, New York, U. S. A. JLL/A Enc. tut, "'") pa JAMES A. LOGAN JR. MAR 28 13. S. Paris, :larch 17, 1922. Personal and Confidential. Subject: Reparation Situation and Proposed Organisation of Committee of Financiers to advise on the possibilities and ways and means of Germany floating a lari;e external loan. dear Ben: In my letter of March 10th and previous letters, I referred to the difficulties of the continued payment by Germany of 31,000,000 gold marks each ten clays, as provisionally fixed by the Reparation Commission after the failure of the Cannes Conference. All Allied Govern ments have now left the entire question of postponing reparation payments during the year 1922 to the Reparation commission, as contemplated by paragraph 12 (b) of Annex II of Part VIII Versailles Treaty. Duoois, the Frenchman, while still opposing any reduction from "31,000,000 every ten days" is weakening and I believe will bow to the inevitaole, Which today is the Cannes schedule (see Par. 6, Exhibit C, my letter of February 17th). The majority on the Commission are prepared to officially adopt the Cannes schedule. Seydoux tells me both Poincare and De Lasteyrie hold Dubois' position untenable and that in their opinion the Commission is wise, in view of the present trend in German exchange, to revert immediately to the Cannes schedule. However, these political gentlemen having "tagged" Dubois with the responsibility vis-a-vis French public opinion are not indulging in any public utterances of these personal views as conveyed confidentially to me by Seydoux. At a recent unofficial Commission meeting, Dubois was forced to agree to an official consideration of the question next Friday, March 17th, and at the same time (larch 15th) an "official" statement was given to the Press to the effect that "The Reparation Commission was earnestly engaged in considering the German position, particularly with regard to reparation cash payments; that the Commission intended having an official meeting next Friday, when it was hoped that some definite conclusion would be reached" This announcement was made in an endeavor to suPport the falling mark. Today Dubois has been granted up until Monday, :.Larch 20th, for "additional study". I believe the Cannes schedule will be adopted Monday or Tuesday next. Dubois may vote against it and may even resign (however, he may disappoint me in this Particular), but the majority will carry it. 4101111 To Governor Strong - Personal and Confidential. O. A. L. Jr. Page 2. At the unofficial meeting, .:arch 15th, the British Delegate, Sir John Bradbury, submitted the enclosed draft resolutions and letter, which he Proposes officially submitting to the Commission Friday, viz: Exhibit 1 - Draft resolution of Reparation Commission reducing Germany's total cash payments on account of reparations from January 1, 1922 to December 31, 1922, from approximately 1,612,000,000 gold marks 31,000,000 every ten days) under the "provisional schedule" now in force, to a total cash payment during the same period by Germany (i.e. including payments effected from January 1st to date), of 720,000,000 gold marks on account of reparations (i.e., the Cannes schedule). It 2 - A draft letter from the Reparation Commission to Dr. Wirth, Chancellor of the Reich, notifying the German Government of the decision in (1) above and laying down certain principles of budget reform, increases in taxation, control of the issue of paper money through the -reichsbank, internal loans, etc., with a threat that if these Principles are not made effective before 31st May 1922 German payments revert automatically to those of the formal Schedule of Payments of May 5th, 1921. (The "separate communication" referred to in the last paragraph of this draft letter has not been formulated, being dependent on the adoption of the draft resolution in exhibit (3) below). It 3 - Draft resolution contemplating the Committee of Experts to consider the possibilities, ways and means, etc., Government floating a large external appointment of a question of the for the German loan. Attention is particularly invited to the fact that the enclosed exhibits are only in Provisional craft form of proposals; that they have not as yet been considered by the Commission and to date only represent the views of the British Delegate. My personal view, (Exhibit 1), so far as even the reduction of the German cash payments on account of reparations from the present provisional figures to the Cannes figures is concerned, has been covered in previous letters. Concisely, this view is that the Cannes schedule without an external loan will break down some time in August 1922. However, the adoption of the draft resolution, or something approaching it, will have the oeneficial immediate effect of steadying German exchange and thus giving a breathing space during which more conservative factors can make themselves felt. The craft letter, (Exhibit 2) is, in my opinion, generally sound, subject to the specific reservations raised in the preceding paragraph and also subject to certain questions of detail. J. A. L. Jr. TO Governor Strong - Personal aria Confidential. Page 3. The draft resolution Exhibit 3, contemplating the appointment of a Committee of Experts (Financiers) to consider the possibilities of Germany raising a foreign loan "to be applied to the redemption of a Part of the capital of the Reparation debt" is, in my view, the most important step ever contemplated by the Reparation Commission and, if adopted, would create an agency the results of whose work might have far reaching effect in the settlement of the whole reparation problem. I Personally do not know what the situation is at home and whether or not our Government could appoint a representative banker, or group of bankers, to this Committee as "American Financial Delegates". It is obvious that the French, Italians and Belgians are feeling the "tactful pressure" now being applied to them both airectly and indirectly through our financial houses in America in the latter's treatment of foreign Government tenders for loans, The saner element, both in the Governments and Putsiaea_are 'vial aware that the German Government has no foreign exchange available to turn over to them on account of reparations and that the only hope is to interest foreign bankers to advanne money to Germany for the purpose. They also reluctantly realize that when the question comes up of Germany borrowforeign money, the conditions and amount of such loan will not be dictated by the politician but by the fellow who is going to lend the money. If this resolution goes through and if our internal political situation and Government policy would permit, and if American bankers were interested, the time is rine for a good constructive stroke at the Reparation question. Obviously, no sound banker would advance a cent to Germany to be paid over to the Allies unless his loan be protected by the German renaration bill and other treaty There is charges being reduced to a figure that "Germany can and will pay". If all an unlimited field of real constructive activity for such a Committee. agree to a sane treatment of Germany, a substantial business loan, properly secured, might have an excellent effect by immediately providing money urgently needed for reconstruction of devastated areas, while at the same time putting On the other hand, if a business the damper on a lot of political nonsense. arrangement be impossible, the reasons for failure would become public and would go far in the education of public opinion by forcing it to realize the The scheme has the additional feature that it can be worked on inevitable. our part through private bankers, with perhaps representatives of the Federal Reserve Bank, without the direct interjection of our Government into any political phase of the question. The question concerning the possible appointment of a Committee of Experts (Exhibit 3) has not the same pressing importance as the readjustment of German cash payments (Exhibits 1 and 2) and therefore I have every reason to believe that no definite action will be taken on this phase for If you are interested in this matter, it is important two or three weeks. not to confuse the possible creation of a Committee of Experts (Financiers) to consider the external loan possibilities with another Committee of 'axperts (exchange men) which has already been created by the Reparation Commission This latter Committee, its functions, and is now in process of orgalisation. etc., are limited, as already explained in previous communications, to giving advice as to the method of handling German cash payments so as to least disThe other Powers have turb exchange - a very restricted field of work. nominated Exchange Experts for this purpose, (see attached list of names), but it is not yet decided whether or not we are to add someone from home. It goes http://fraser.stlouisfed.org/ Federal Reserve Bank Jr. Louis .1. A. L. of St. To Governor Strong - Personal and Confidential. 11011 J. A. L. Jr. To Governor Strong - Personal and Confidential. List of Exchange Experts nominated oy Allied Governments as members of the advisory Committee of F.xchane Experts organised by the Reparation Commission. (See end of page 3, this letter). Belgium - Omer Lepreux, Vice-Governor of the National 3ank of Belgium. Italy - Joe Nathan, Financier, business man, etc. etc. Japan Sadahiko Nakane, superintendent of the London Agency of the Bank of Japan, 7 bishop's Gate, London, E.C.2 Great Britain - Sir Charles Banking Elpert of distinction. France - L. Picard, Sous- Gouverneur de la Banque de France. Page 5. -g ttpj euk-i4 List of Enclosures with letter of J.A.L., Jr. to Governor Jtrong of Federal Reserve Bank. Letter dated '."arch 17, 1922. ..ilkhibit 1.) " n 2 3 ) Described in letter. ) Reparation Commission: Germany: Document, Berlin 505 516 517 522 524 Document, Paris 520 tt Pt 525 Annex Nos. 538/13 bis. u u 1247 " u " n 12 84 " 1292 1303 " 130 7 B. Austria and Hungary. I. S. No. 583 586 " " 584 592 585 593 41i1L11 d.-:41:1711..) . PALM Al JUTE DEPAILTIOZT Dated :arch 18, 1922. Ito. 126, .darch 18, noon. 8657. German Jovernment announced _larch 16th payment by :teichsbank 5,000,000 Belgian fruncs; 1,100,030 pounds sterling; 10,000,000 wench francs; and by 3evisenbeschaffungstelle 16,000,0,0 Belgian francs; total approxifiately 31,000,000 gold istirl+.s. These not yet confireed Will go to France instead of Banjul". Joe our b-654. 41,4a 28 ASSISTANT SECRETARY OF THE TffASURY WASH I NGTON I5 :larch 23, 1922. Dear Ben: Perhaps you read irench. ere does. If not, no doubt some one Here is a letter from a Belgian which was to me by de Cartier. The aan who wrote the letter is high in Belgian financial circles. when we meet. ituation. I will tell you his It is rather an interesting comment on look it over or have some one translate it u -.nd let me know if you agree. Always yours, Honorable Benjamin Strong, Federal Reserve Bank of !Tew York, New York, N.Y. Enclosure. ruz-Lx,. Al7t" 7russels, February 11, 1922 My dear friend, During a trip which I have just taken in the Succession States of the former Austria-Hungarian Empire, I was able, in the course of various conversations with public men of these countries, to get an idea of the plan which these states had decided upon for their economic restoration. This plan, for all these countries, is copied from the one which Austria has established in agreement with Germany. The numerous indications which I saw right and left show very clesrly that the plan in question has been studied and developed to the last detail since the armistice. The indispensable basis for the realization of this plan is the arrival at an understanding with the Allies on the subject of the reparations, resulting in the fixing of the total at such-and-such a compensatory figure; that is to say, that it is indispensable for Germany that she be told, once and for all, what is the maximum amount that she will be required to pay in gold. To arrive at this compensatory agreement is the object towards which all her efforts have for two years been tending, for as long as this fundamental decision is not reached, it will be difficult for her to proceed without unexpected results, towards the realization of the plan which she has conceived. This consists, in fact, of devaluating her money as sosn as the principle of compensation has been accepted, and a figure has been specified. At this point, she will try to assemble a sufficient reserve of foreign securities or of gold - either by succeeding in raising a loan, or by making her manufacturers, who all possess abroad immense reserves of foreign securities, furnish her the sums which she will need. This gold of which the government has maintained, it continues the monopoly now at prices inferior to the cost price, instead of demanding of the manufacturers who acknowledge considerable profits - the increase of the workers' wages. The case of coal is still more typical. We see, in fact, the Boche govern- ment effect a regular "dumping" here, granting all industries, even the most prosperous, enormous concessions, either in the form of special transportation rates, or even in money. It is a fact that we have been able to obtain from certain Boche factories the official invoices and the secret invoices remitted to the manufacturers for the coal which was delivered to them, and the price of which, at the close of the account, appears at 310 marks a ton, delivered at the factory, or less than $1.50, when in Belgium, the cost price of coal, at the pit, is more than $4.50. All these favors granted to the manufacturers represent the price paid for their complicity in the execution adopted; their role is to establish, thanks to the favors accorded them, the large reserves of foreign securities which they own today outside of the German frontiers. In a word, all this is still part of this famous plan which has as its aim, in reality, to bring Germany to internal bankruptcy, without one's being able to say, however, that she is stopping the payment of her debts, since she will continue to pay them in paper marks. This what I shall call scientific bankruptcy. to In order the better /judge the retlults which Germany intends to derive from it, let us take a concrete example. The Government of the Reich owes at the present time to her nationals ( and also to the foreigners who have rushed after German stocks which Boche propaganda made them expect would rise rapidly) a total of from three to four hundred billion marks. In gold, this represents scarcely one billion or one billion and a half dollars, say, 20 dollars per capita at the http://fraser.stlouisfed.org/ maximum. Federal Reserve Bank of St. Louis - 4 - 5 - to prepare for her future generations an absolutely privileged situation in the world whose economic conquest will be an accomplished fact. This plan is also the one which Austria has adopted, and , following her example, all the Succession States of the Austro-Hungarian monarchy. See how striking is the comparison which can be made between Austria's situation and that of our country, Belgium. of about eight millions. Each has a population Austria has, or will have at the moment when she hopes to be able to realize the Boche plan, a debt of about 300 billion crowns, which represent today 150 million gold francs. This de den of 20 gold francs per capita, while in our case, even if we should apply an arrangement of the Austrian plan, we could never devaluate our money except upon the basis of its present rate of exchange, which is still from 30 to 405 of its gold value; that is to say, our 40 to 50 billions gold paper debt would still represent ten to fifteen billions in gold, say, 1500 gold francs per capita. I told you at the beginning of this letter that this plan has been prepared since the armistice; I have had the proof of it in the course of numerous conversations. As soon as her plan of restoration was well studied out and definitely agreed upon, that is to say, from the beginning of 1919, Germany began, through her agents and the mediation of her friends abroad, an Um restrained propaganda in all the countries of the world, in Asia, South America, the United States,everylhere, in short, in order to spread the idea of the rapid economic reestablishment of Germany and consequently of the rise (*her exchange - at that time, the mark was worth 40 to 50 centimes. At the same time, through the intervention of the German banks, she enlisted all her great manufacturers, all her business men, in a word, all her accomplices, in selling - 6 - marks in order to raise the large reserves in foreign securities which the Germans now possess abroad. Thus one sees today Germans owning in Holland million assets of from five to six million florins; in Belgium, several hundred/francs; in Argentina, hundreds and hundreds of millions of pesos; in the United States, I do not know how many dollars. . How much does this total of foreign securities in the hands of the Germans amount to today? No one can say, but nevertheless, it is to be borne in mind that in the course of the discussions of the Supreme Council, allusion was made to the figure of a billion dollars, without raising any protest from the German delegates. Now that the mark has fallen to less than a farthing, and will be kept at this rate of exchange, if indeed they do not try to make it go lower still, how much would Germany need to buy back all the marks that she has sold in the entire world: Scarcely a few tens of millions of dollars, leaving her thus a considerable profit on the speculation which she has carried on thanks to the propaganda conducted by her government. And it is precisely this profit which is going to serve her, later, in establishing the gold reserve of the banking institutioAkhich she intends to create. From all that precedes, it follows very clearly that if we do not pay attention, and if we do not find a way to parry the blow with which the Roches are threatening humanity, we are going to find ourselves, in a few years, Americans and English as well, and especially the countries with a favorable exchange today, in a frightful situation. In my humble opinion, ono remedy exists: To declare to Germany, clearly and precisely, that the total amount of the indemnity which she owes, by virtue of the Treaty of Versailles, will be exacted to the last centime, even if the payments have to be distributed over a century, at the risk of having fixed each year the amount of the sum to be paid the followini: year, in proportion to the capacity of the country. 4 - 7 =al To act otherwise, that is, to satisfy the desire of the Boche government in indicating a compensatory figure, is to impose upon our children a situation from which they will be unable to extricate themselves except by another war. How, moreover, could so many people be deceived by the illusion that the Germans, who have always taken a long-sighted view of the future, would have accepted the situation in which the war has placed them, such a situation as the Treaty of Versailles imposes upon them, if they had not already traced for the future a plan for an economic campaign, a plan drawn up by men gifted with that mentality which even before the war they were known to possess, that is to say, a spirit of conquest and of economic and political domination? Today, my dear friend, you see all Germany turning towards Rathenaut But it is solely because before 1914 he was one of the most ardent promoters of world economic conquest. At that time, in order to realize the projects of the Empire, he made use of the powerful instrument which he had at his disposal and which was called the "A. E. G." from the name of a combination of electrical trusts which he had created, and the action of which is felt not only in Germany, but in France, America, Italy, Belgium, and everywhere else. Rathenau, let is be said, is one of the keenest blades in Germany, he has the aualities of his race, the gift of flattery, of lulling distrust. He has made use of these gifts in the past and will use them again in the future, but when he believes he has attained his ends, he will raise his head to rule those whom he has conquered. Vie Belgians have had the proof of this during the war. Rathenau, as a matter of fact, came here formerly to secure the control of many electrical concerns; he entered into relations with a number of our business men whom he flattered and cajoled. Then the war came, there was not a man who did so much harm to the Belgians and French of the occupied regions as this softspoken Rathenau. It was he who was the author of the requisitions of machines and industrial material; it was he again who conceived the destruction of factories. It is understood that what I am writing you is said merely in a quite personal capacity, and that I do not wish my name to be published, nevertheless there is no harm in your quoting me in your conversation with your friends over there. "ery sincerely yours, Translated by K. D. Frankenstein, Statistics Dopt. March 24, 1922. G ME/ JAMES A. LOG \N JR. Paris, 18 rue de Tilsitt. 24 March, 1922. PERSONAL & CONFIDENTIAL Subject: Reparation situation and Proposed Organization of Committee of Financiers to advise on the possibilities and ways and means of Germany floating a large external loan. My dear Ben, With my letter of March 17th I enclosed a draft decision as Exhibit 1 and a draft letter as Exhibit 2 which had been formulated by the British Delegate and submitted for the action of the Reparation These Exhibits proposed an immediate and substantial reducCommission. tion of the demands on Germany for reparation payments during the year 1922 and the conditions under which such partial moratorium would be granted. I enclose herewith as; Exhibit A - the formal decision of the Reparation Commission taken on March 21st 1922, and as: Exhibit B - the formal letter of the Reparation Commission which has been sent to the German Government under date of March 21st 1922, The enclosed draft decision and letter were apiroved in the Commission by unanimity. It was obvious during the last few conferences preceding the formal adoption of the decision and letter that Poincare and de Lasteyrie had forced Dubois to back down from the position he had previously taken. This action of the French Government is in my opinion most encouraging. However, I remain of the opinion that the figures of cash payments (Exhibit A) are beyond Germany's capacity; that Germany can only meet such payments up until August 15th at the maximum and at that time, though preferably before, they must be revised. 'With regard to the letter (Exhibit B), this is of course an "ideal" arrangement but imposes conditions which in my view can never The reform of German finance is essential for reparations, be carried out. but there is no way of permanently reforming German finance or of obtaining the maximum possible indemnity which does not begin by reducing the total In other words I am convinced to a figure within Germany's capacity. that the increase in taxation necessary not only in raising cover for the existing German budgetary deficit, but also the additional cover required to meet reparation payments set forth in the decision is outside Germany's S 4p J. A. L. J n. TO GOVERNOR STRONG - RE2SONAL & CONFIDEETIA.L Page I personally doubt if the Wirth Government will weather the storm and therefore look with considerable apprehension to the resulting political, financial and business disturbances which are If the W'irth Government which is conciliatory bound to follow. falls, the danger is of its being succeeded by a reactionary Government with the result that more fuel will be added to the flames. If by chance Germany could develop a new Government willing and stroOg enough to exact the measura contemplated by the Commission's letter, I should nevertheless anticipate very complete business disturbances during the period of adjustment to the new conditions, also the final failure of the measures adopted to produce any close It is obvious that so long as this approximation to the results desired. letter remains in full force there is no possibillty of Germany securing external short term credits even for slamm amounledhich to tide over Fortunately the letter the situation in which it is now placed. is carefully worded and while giving satisfaction to the lessening extreme anti-German public feeling in Allied countries, nevertheless leaves loop-holes through which very considerable amendments are The advantage however of the latter is that possible at any time. it is likely to bring matters to a head without delay. capacity. The fight in the Commission the last few days before the enclosed decision and letter were approved, and after Dubois had agreed to the reduced payments, centered on the nature and extent of control to be exercised by the Reparation Commission over German The French Government through Dubois was for a administration. control somewhat approaching that of the "The Ottoman Debt", or "The Chinese Customs Administration", whereas the other Delegates were opposed to any such method of mixing up or assuming direct responsability in any way whatsoever in German administration. The French proposed the organization of a "Committee of Guarantees" with headquarters in Berlin, nominally under the Reparation Commission but "with authority to report direct to the Allied Governments". The obvious purpose of this arrangement was to set up a new body for handling reparation questions with a new constitution from which latter the few redeeming parts of the Versailles Treaty concerning "considerations of Germany's capacity", "German internal taxation not to exceed that of the highest enforced in any Allied In other words the whole countries" etc.. could be eliminated. proposal was "political eyewash" designed to cater to public opinion. The other Delegates counter-attacked by maintaining that this proposal contravened the words and intent of the Treaty; that they would not recommend the setting up of any such veiled form of independent "Committee of Guarantees" in Berlin and that as future. developments in the German situation might require the presence of the Reparation Commission permanently in Berlin they proposed that the Allied Governments be asked at once to give their consent to the transfer of the Reparation e')- A A. L . Ur. '20 GOVIMOR STRONG - PERSONAL & CONFIDENT= Page Commission's permanent headquarters from Paris to Berlin "if and when the German situation requires additional direct control of German administration". The French immediately withdrew their proposal and the whole matter was dropped. I do not want to give an exaggerated impression of the importance of the foregoing French Government's proposal as it was not forced I am inclined way and as Dubois himself was obviously against it. in an to believe that it was a sort of political ballon d'essai of de Lasteyrie. The British proposal for the appointment by the Commission of a Committee of Financiers to consider the possibilities, ways and means of Germany floating' an external loan (see my letter Larch 17th and Exhibit 3 therewith), has not as yet come up for the formal I still hold the views expressed consideration of the Commission. in my previous letters as to the importance and the possibility of this Committee's operations being the opening wedge for a business settlement of the entire reparation question. Admittedly the proposal has certain phases which are "loaded" and a good target for public outcry ("Interference of Loney Interests", "London Financiers", "all Street Dictation" etc..) as any business settlement would have to "prick the balloon" of pthlic opinion in certain Allied countries. On the other hand I believe that the far sighted Allied politician now realizes that his Government for its very existence needs hard cash; that the total of the reparation bill and practically any schedule of cash payments which can be evolved in the present situation are ridiculous and that he is therefore about ready to lend his influence to solving the present dilemna on sound businees lines involving heavy concessions in exchange for others granting a loan to Germany with what If money could be made forthcoming on business lines from to pay him. the joint loans of financial groups of all Allied and neutral countries and America, the devastated Allied areas could be restored and thus reasonable and equitable reparation claims once and for all satisfied. I also enclose the following documents as being of possible interest to you, viz: Document Paris 530 - The Commonwealth Draft Law Concerning The Reform of The Constitution of The Reichsbank. Document Berlin 546 - Financial Position of The Reich. Document Berlin 547 - weekly Statement of the Reichsbank. I.S. 601 -Veekly Balance Sheet of The Austro-Hungarian Bank. 1.6. 608 - Weekly Bank Statement of The Hungarian Bank. Faithfully yours, JAL/BD 7 incls. The Honorable Benjamin Strong, Governor, Federal Reserve Bank http://fraser.stlouisfed.org/of New York. Federal Reserve Bank of St. Louis In connection with the control I ilt J. A. L. Jr. TO GOVERNOR STRONG - PERSONAL & CONFIDENTIAL Page 4 question referred to in page 2 of the foregoing letter. The original ideas so Bar as t control of the Reichsbank was concerned and which was at first fathered by Bradbury contemplated insisting that in addition to the Reichsbank's complete separation from the Reich, a neutral adviser was to be added to its staff to have a general supervisory action The French were quite insistent that on its operations. Bradbury's ideas be put into effect and that provision for the neutral adviser be incorporated in the letter to the German Government. Bradbury then said in explanation of his change of view that he had been talking quite recently with Le Normand (your friend of the Bank of England) and that the latter's arguments against the appointment of a neutral adviser had changed his opinion. Bradbury went on to say that Le Normand is personally taking a great deal of interest in the Reichsbank and "as a matter of fact considersiit one of his children and was giving its operations his closest personal attention". He then said that all of the great Governments' banks, referring not only to the Bank of England but also to the Federal Reserve Board, would not regard with indifference any endeavor of the Allied Governments to mix up in the internal affairs of the Reichsbank by the proposed appointment of a neutral financial adviser, but that they were entirely in accord with the Reparation Commission in insisting upon the autonomy of the Reichsbank from Reich's control. March 28, 1922. My dear Logie: I am much indebted to you for your letters of larch 5, 10 and 17 (2), which are most illuminating. I hope you can continue to send me the Reichetank statements, and in that connection, that is your personal view in regard to the re various estimates which A made of the amount of so-called exported German capital? I recently eat an estimate of 90 billion marks. Assuming that this figure is correct, which I would greatly doubt, at an average value of the mark of one cent, it would represent 000 millions. I do not believe that one-half of that figure is justified, but admit that I am guessing largely, although we must remember that the German Government seems to have disposed of 25 or 30 billion marks in one way or another in acquiring the foreign currencies with which to make reparation payments, and to the extent that these have been made in foreign currencies, the amount of the foreign hoard has correspondingly been depleted. Another point on which I would like to have your opinion is as to the efficacy of the plan just ado;:ted tc restore autonomy to the Reichsbank. the terms of the bill? that does autonomy mean? that are And how effective will the proposal be? Another point is as to the reports now in hand that the internal debt of the Imperial Government has been extinguished. How was it done, if it was done? I would like very much to know some more about that. As to your letter of March 10, the Cannes project now having been adopted, it remains to be seen what will be the resulting effect upon the mark, provided Germany assents to the demands embodied in the last communication of the Reparations Commission. My guess is that the only thing that can save the mark sill be thorough-going adoption of the demands of the Commission by the German Government; is that and socially tnd politically possible? I very much doubt it, as you seem to, Colonel James A. Logan, Jr. March ?8, discussed in your letter of March 17, and ,hich is indeed a moat interesting resume' of the situation. I have read it with keen interest. A surmise as to the German condition has been growing in my mind in recent months, and I am wondering to that extent your views might confirm it. It seems to me that the German profiteer, that is to say, the business men of the Stinnes type, has sought to take advantage of the depreciation in the currency to scoop up all the fixed property that can be bought, that it is probable that these purchases are -ade with h cautious avoidance of fixed interest bearing obligations of definite maturity, and th-t when the complete collapse of the German mark takes place, these gentlemen will be found in possession of vast properties !which will in turn produce to them vast profits if they are able to retain them upon the b5sis of some restoration of the value of the German mark, even as a consequence of devaluation or repudia, A good line mould be had upon this subject if one could ascertain just how tion. these gentlement have conducted their creretions, and whether they have been undertaken by h scrupulous avoidance of the issue of fixed interest bearing obligations. This would be the key to their policy. Should my surmise be correct, then it mill to seen that the German Government, in order to meat reparation payments, and at the same time protect the value of the mark, must impose taxes which would take away from these gentlemen the enormous paper profits which they have realized, or expect to realize. Therefore, if the German Government is dependent upon the support of the large business interests, will they not resist a sound financial program, and will not, their demands to defeat it result in the downfall of' the present government? I em much interested in whpit you trite about the contemplated appointment of a committee of experts to consider the possibilities of foreign loans tc Germany. At the first opportunity ashen I am in fashington possibly I may be able to ascertain a little bit of what might be expected. I would greatly doubt any affirmative position being possible by our government, but, on the other hand, they might be unwilling to interfere in case our tankers undertook to eesociete themselves 41IrIC-..rch 7,8, 19'n. ssi::y not until after the election, the development of some sort or constructive program, if that is politically possible. To attempt to hasten matters much beyond this till be very difficult just now, although I gather that it is the desire cf the Administration thct we should be officially represented on the Reparations Commission, in the interest of our own country's affairs, and that the ?resident, so I have been told, hes not hesitated to state thie. Thank you also for the French text of the financial -:.rrangement covered by yours of March 17, which I shall have translated here. My best regards to you, and apologies for such an une.tiefactory reply to your fine letters. Please remember me to Eoyden. Also bear in mind that I have not been in Narhington recently and have had nc opportunity to talk gin the people over there. Icurs sincerelf, Colonel James A. Logan, Ir., 18 rue de Tilsitt, P-ris, France. ES.IIM March 28, 1021. Dear ?faddy: I have received, and with this am returning, the document handed you by your Belgian friend, and take the liberty of making the comments which you ask for. First, it strikes me as having behind it a certain amount of animus, and being written in a skeptical vein, which is liable in so many cases to result in the conjuring up of ghosts, and in general does not impress me at all favorably. Let me refer to a few -articular points: 1. I doubt if the German Government has undertaken as a national policy the devaluating of the German mark. This idea, or plan, being adopted as a principle of national finance as expressed in the document you sent me strikes me as a conspiracy between the government and large German manufacturers. Devalua- tion to be undertaken as hinted involves such a reconstruction of values, of wages, of taxes, of the whole internal economy of the nation, that, if undertaken at one stroke, as suggeeted, it would likely bring about a social upheavel. The relation between debtor and creditor, between employer and employe, between landlord and tenant, mould be so disturbed, and E0 muct, distress would result that I cannot be- lieve that any such scheme in the nature of a national conspiracy could have been undertaken. Ae I understand the situation in Germany, there are two points of view in regard to reparation payments held by two classes of people. One class, largely comprising the present government, is disposed to make an effort to meet he reparation demands down to the point of exhaustion. This does involve a constantly depreciating currency, and I have no doubt that there has been a lack of intelligent and energetic effort to reform government finance so as to protect the mark against decline, but I seriously doubt whether this contemplates the policy eventuating, es indicated in the paper. Another party, I have been 12 Honorable Eliot Nadsworth March '8, 'told, believes that it is a mistake for Germany to continue to undertake to make payments upon a scale and at a rate beyond her capacity, and that they would prefer to go to the extreme of having Germany subjected to military occupation rather than see the econoeic situation retch complete exhaustion. They hold the vies, I am informed, that the military occupation of Germany and the administration of its affairs by the Allied Governments would ?rove a calamity to those who attempted it, and it would be better to have thet experience and get it over with than to see Germany economically destroyed by an impossible program of reparation paynento. 9 The plan to constitute a nee state institution of issue is suite contrary to rewent developments, all of which indicate the intention of the German ]overnment to restore a reasonable degree of autonomy to the Reichstank, which was lost when the Imperial Government disappeared. Besides that, a proposal to render the paper mark of' the Reichebank valueless ano then establish a new currency, while it might relieve the German Government of the payment of its internal debt, it would, on the other hand, encounter difficulties with the Reparations Commission of a character that would be insurmountable. In point of fact I believe that the old internal debt of the Imperial Government, contracted during the war and prior thereto, bee been substantially extinguished already, with the exception of the debt of abcut 135 or 140 billion marks te the Keichebauk, and we all know that Gereangs external debt has been almost negligible in mount since the repayments were effected to Holland, Scandinavia and Switzerland sometime ago. I have no figures to support this geueral understanding, but believe it will be found tc be substantially accurate. F.. Recent advices indicate that plans have already been 2erfected, and in some instances put into effect, for abandoning the government's monopoly of the purchase and distribution of certain essentials. 4. The plan which can almost be described as a conspiracy, outlined in the document, seems to be predicated upon the belief that German citizens have vast resources accumulated abroad in foreign currencies. The amount of these resources I an confident eil7 be found to be greatly exagorated. recently seen The highest estimate I have is 90 billion paper marks, th-t is to say, an amount much exceeding #3 Honorable Eliot iadeworth *e -ball of the total note circulation of the iteichebank. March 23, 1.922. This figura strikes me ee unreasonable, especially in view of the fact that some 23 billion marks, as I recall were employed ty the German ",;overnment in one way or another in accumulating the funds with which to make the first year's payments af one billion gold mares on reparations account. its, basis In general, my impression of the Itemorandum is that has no foundation. what mould be In fact, it is simply an indication ofAthe stupidity of the German Government in , attempting a vast scheme of national bankruptcy and repudiation upon a basis which would be suite likely to bring about a optical and eocial upheave' and defeat the very object which it seeks to accomplish. The chances are that conelete knowledge of the facts would indicate that the German Government attem-ting to resist on the one head, been reparation payments by every means in her eever, and, on the other hand, to the extent Ot reparetien eayments hare seen forced the 3evernment with a certain wilful negligence, undertaken Ineens to meet the payments, which have resulted le a depreoietion of the currency, which they have viewed with a certain complacency, for reasons which are not touched upon at all in this memorandum. One can only surmise what those reasons ere, but my own surmise is that certain ambitious and selfish people in Germany have grasped the opportunity to buy up property and manufacturing plants and all sorts of fixed assets with this depreciseed currency, paying for them in such manner that they do not incur fixed intsreet bearing obligations of fixed maturity, and with the expectation that when the collapse comes, and the ultimate restoration to a sounder currency basis is effected, they will be left with these properties, measured in value of an appreciated mark, and will have vastly profited by the general lisaster to the German people. Under sue., conditions es these if the German Government relies for its support upon the so-called business interests of the country, it is relying for support upon the very people who would resist any program of sound finance which would, of course, involve taxing the paper fortunes which they are now making, practically out of existence. 4 March ?Hp 1922. In conclusion, therefore, I mould accayt the statement in this TtemoranduT vith a good deal r.f reservation. Yours sincerely, Honorable Eliot 4adsvorth, Assistant Secretary of the Treasury, Treasury- Dt?artmEnt, Axhington. D. C. ES. MM enc. is Art J. A. L. Jr. TO GOVERNOR STRONG - PERSONAL & CONFIDENTIAL Pa g e 2. of desiring to secure some sort of an interlocking arrangement with their allies which will protect Great Britain from the necessity of paying us anything which if we force her/she must do to protect her world credit. All the foregoing must be accepted with reserve. However the position irf many of the above particulars will be largely cleared up through the press before you receive this letter. The Bradbury proposal for the appointment by the Commission of a Committee of Financiers to consider the possibilities, ways and means of Germany floating an external loan (see Exhibit 3 with my letter of Larch 17th) has been presented formally to the Commission and accepted The plan has purposely been allowed "en principe" by the latter body. to leak out into the press with a'.ew to "sounding" public opinion. I personally gather from the French press that the reaction of public I don't intend to imply by this opinion is more or less favorable. that the French public's stomach is entirely ready to digest the entirt meal which must necessarily be served it by the Committee of Financiers, but the same stomach is far from feeling satisfied with the meals supplied it in the last few years by the empty utterances of Supreme Council's politicians, etc.. You will readily see from the foregoing that I am somewhat of an enthusiast on the question of a Committee of Financiers. All of the members of the Commission, excepting Dubois who is showing only slight hesitancy, agreed to immediately propose this measure to the German Government. Dubois hesitates in view of the non-reply of the German Government to the Commission's letter of Larch 21st. Obviously he is torn by two conflicting emotions, first: the somewhat technical aspect of the Germans' position of non-reply to the letter, and second: the fear that if the Committee of Financiers' plan be not immeaiately set in motion the Germans' position at Genoa will be strengthened. Others on the Commission feel that better results would be accomplished by initiating the work of the Committee of Financiers before the Germans can make any I am now inclined to reparation presentation at the Genoa Conference. believe that this proposal will be definitely agreed to and that preliminary steps for the organization of this Committee will be effected the early part of next week. As regards the Bradbury proposal for the organization of a Committee of Financiers (Exhibit 3 with my letter to you of Larch 17th), the following remarks relating to its proposed personnel may interest you. Delacroix who is proposed by Bradbury as President is an ex-Prime Linister of Belgium. While something of a "wind-bag", he is nevertheless very adroit, a man wdalf.considerable ability with a broad view, and above all an excellent He will do more or less what Bradbury wants and at the same compromiser. All around I think it is time will maintain the confidence of the French. the best selection which could be made. D'Amelio who is proposed by Bradbury as Vice-President is the Assistant Italian Delegate on the Commission. a He is quiet fellow, seldom opening his mouth and easily suppressed at any ' fp AP J . A. L. J is . TO GOVLRNOR STRONG - PERSONAL & CONF 5 Jae Page NT ILL. '4 d a pretty good all round fellow. time. He is an Italian Judge Bradbury's underlying reason n proposing d'Amelio as Vice-Pres was for the purpose of giving Italy theempty honor of being represented on the committee in the office of Vice-President, which would ipso facto eliminate the possibility of Italy's claiming any further representation on this body. Past experience in Allied financial conferences has clearly shown that Italy, while never having anything to offer, particularly money, nevertheless usually sends some wind-bag of a politician who more often than not follows the cue and casts his vote with the French. For the foregoing reasons I consider Bradbury's proposals pretty good. I enclose the following documents as being of possible interest t5' e 0 you, viz: to Document Berlin 555 -Weekly Statement of the heichsbank. 441 I.S. 623 - 7:eekly Balance Sheet of the Austro-Hungarian Bank. Faithfully yours, JAL/BD 2 incls. The Honorable Benjamin Strong, Governor Federal Reserve Bank of New York, New York City. P.S.- I do not want to imply by my references to the "ideal" letter referred to in the second paragraph, page 1 of this letter and in previous letters that the majority of the Commission were not ftlly aware of the fact that the conditions imposed were more or less ridiculous. However it is framed on strict Treaty principles and therefore in the present situation political exigencies necessitated its being forwarded to the Germans, an effort being made at the time by the more thoughtful to make it as harmless as possible. Obvio phase was not arrived at with great success. On the other hand it has the decided advantage, just because it is so ridiculous and because it is based on the strict wording of the Treaty, of forcing an earlier issue of the whole reparation question. The more thoughtful, and unquestionably Bradbury, had this phase fully in mind when the letter was sent. - C