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Paris, 1 February 1923.
18 rue de Tilsitt.

Lleraorancium for 1.:r.

I have just read 1:r. `3tron-ls con.-.ent of lovember 2
the iussian situation.
last on the memorandum which I haci ,,renared on
under what he calls the
strong that any aevelopment facilitating of German
I quite ai:ree th
"automatic plan" must almost inevitably mean thesuch paietration is highpenetration into itus sta. 1:y own opinion is thA
for two reasons:
ly desirable
of lon-:
first. The Germans, as the resultplay theexperience
direct and
in Russia, are in a better position to
know the country
active role in Russian reconstruction; theythouLh at present
z...nd the people, and have long established,
interrupted, connections there more fully developed than
those of any other _.eoi)les of Lurcoe or ienerica; and
I pre6econd. Gerr.14-n industrial penetration backed, as and
therc: is no doubt it ',zuld have to be, the.rioducts of
furnish an outlet for
Brit ish credit would
not compete
Geri-1Ln industry in a direction in which they 'oand ..:scocia..rith already established markets of the .idlied a long way .easily go
ted Powers. such a development
reparations, -.7:11e
toward putting Germaw into position to pw
injury on the export
inflicting a minimum of

at the same time
industries of -Imeri ca o r Eu2oI)e


Paris, 2 February 1923.

18 rue de Tilsitt.

Personal sad Oonfi dent Lal.

icy dear ,en:enclose Annex 1731 A, B, and C, of the Reparation
Commission concerning the we rk of the League of nations as .,eleards the
revivae of Austria and the results obtained to date. B and C reports
are, respectively, "The General Austrian Situation At The Bef4nning of
January" and "Remarks On Austrian Paper Currency'', prepared by ie. Pierre
euesney, a erench economist who until. recently has been the ,'issistant

()hi et'

of the Intellience Service o f the Rep arat ion

Joel: mission.

Special attention is invited to t hat portion of the cover-

ing letter (1=04 1733. A) of ie. 'Ielaurioe erere, Chief of the Intelligence
Service, to the Secretariat General of the Reparation Commission, as follows:

"I believe that the knowledge of these preliminary
results in regard to Austin may be of great use in
the examination of the measures adopted with a view
to the revival of Germany and to the imerovernent of
her financial s ituation."
As concerns Austria, the immediete euestion is wl-ether the
Auhr episode is not going to make iupossible the raising of the money which
ell had evidently felt uite sure of raising before the entry into the Ruhr.
It will perticularly mike it more hard for them to get any part of it in the
United States. 'de un uer st end that the plan is dependent on very c onsiderable
can financial support, and that pas t ne otiations with ereerican banks heel
indicated a willingness on the part of the latter to support the plan. It is
worth ;Mile to report that the parties concerned seemed to feel sure that the
lo an is safe un de r any and all c ircmstances. it is understood that the final and conclusive negotiations are to be carried on in London the iva ek beginning February 5 with the bank of ngland and the British Treasury. In our
judgment, if the Bank of :england gives its approval and in turn the London
banks effectively support the plan, and if there is any willingness of our
home bailks to take part our ,eoverneent oueht not to be afraid to let them do
it, though probably no t offering any positive encouragement.

ehe operation of the plan in eustria. to date, as shown in the
attached reports, places particular emphasis on the effect of the substitution of hope for despair in governmental finare e. When you think of :that :ns-

tria is and what it has one through, when you consider how inert end passive


saris, 18 rue de Tilsitt
2 February 1923.


dear Ben,

On November 2nd you wrote me a letter containing
certain comments on Dr. Hutchinson's memorandum on the .aussian situation
which I had sent you. I have not been able to reply before as I could
However he has just returned and gives
not fret hold of Dr. Hutchinson.
the enclosed specific replies to your questions.
inclined to agree with Hutchinson as I have never been one of those who
fear Germany's penetration into Russia. In my judgment the more trade
that can be encouraged even between ex-enemy Powers and Russia, the better
it is for the whole economy of the world and incidentally for 1,merica.
I enclose copy of an article which jr. Hutchinson has
prepared for publication on the Russian situation which I find most interesting.
It has not yet been published but Hutchinson has authorized me to
send you a cop'.

Jr. Hutchinson is leaving Paris within the next few
days to make a further economic study of about six months in Russia for
Hoover. When he comes out I will see that you get a copy of his report.
For certain reasons which have probably occured to you,
I have not been mailing you my weekly letter the last few weeks. However
they have all been prepared and I will send them along by the first safe
Faithfully yours,

2 encls.

The Honorable Benjamin Strong,
Governor, Federal Reserve Bank
of New York, New York City.

I perso

OU1I LW ix UMW Xr iak

now* n

,Law, 400

Nano ow as
=Ow SIMISNrealla 01
LITAAAnar alaattien MOM* NS IF ihtlF:3
nos arPAILOWes 17 a:A 99 MOM Ile



Feb. 2M, 1923,

mar (' vdsAiwaS
Pam n il, gella I I, 1141/131Lirie 17 4 la.

17. in oasts of default
larsaiw la tts iorfOseanos of
any obligation under this "art of the palliest ":reaty, the GOkaldaw
sioa will forthwith give Iv) tine of s Windt to sew ef the
inter)sted /ewers and rag oaks ouch raDasseattatioas as to tale notion to be teiosn in on:league:nos of east default as it may think

Para. 11., The aoasures mien tam Allied and Aut000loted


shall ham tins ri,iht Is trae, in ease of soluatasy default by rams asi whisk aorsaw agrees not to regard as mots of lost. sq
Laslurito 000assate ad flannelal proltibitioss est meleala ad in

Moral s

llnle nalearea as the rem pea tive ;overoillata aiq
doatelolOO to be neeeesar, in the otrounistensoo

Ms exult lessen g of these pumas et' the ?met/ haqs
new become a mattsr of international impostures

It a


be useful to attempt a Olltion.
k'renoti offloin1 Valois is to time effect tout onoe
tho l';omfilission, noting un4er ..orespit 1? of %anon II,

to 'Mash of the interested ;'oars" of Iattaitailir default

;7;ivon n4t100

on the part

of rlesassr it is open to oeoh of the ailed aolosucarts notified to
thico snob !iesangss as* *Atm in the pleaituils of Ito ova sovors34,nty,
it nay Osten:Mot to he nalassair, of whatever charpeter those meneures
um be asii even if they involve tan invasion ant ow tap st jou oither of

the Alar or of cav other -part of (boseary 4M/on hes noy (February 1923)
boon to:ten on Lola toasts, the efteots of which 14111 he natter for

la wr opiku,m, try, 1,rena4 0,7116191 vial in -urea onart,

7ee trim lasanhic of the ilea*, na of any othor doccasat, n:Li


only be aserthlatid 'ellen it is ennolierod as a whole, ilinere is no
007:nUssion has deoldod. (46*;.11122) that the weld *default"
in Isar*:..ropli 17 Inks tm owe manias as "valuator, aofeult" Ire

ara;:mpn 13,


more fruitful source of misinterpretation Ursa tat tendency to
sagject this vino end to tames ono or two passages or even words

fres a lengthy dooltsent sari

ive them their prinks facie aleafting

without regard to their general context.

ThUe in tnis case, the

French of fetal interpretation has seized on the words "respective
lovernmontel ( ;euvernements respeotife) anti. on a ;joint of oardinal

inrportann makes them beer the weight of a decision rhich has a

vital effect upon the character of the Treaty as a *role, ani has
determined events of uropean or world wide important*.

In ly opinion the swgestion of IrklividuaL, independent
end uncontrolled judgent rani action br each Ansa POWere which

these two words tarn b, therseelvee night Mesa to lavelve, is inoonsistent with the general purpo,3o of the '.'rest' as a whole asi
even with the im,Hdiate tort in union tre rrorle oonur.

anat, in relatiln to rerbarvAtiona, is tre general purpose
and nature of time Treaty?

The 1:`reaty is a oontract between Germarg

on the one hand, ate the Allied ant Allsosiatod Porers (five of whom

have the special nem of 'Prinnipalt

sail Associated lowers)

on tin other. It is not, arcept in so far as ray be 07)ot:daily
arreeeede cog. in =art I of the "'reaty (Covenant of the loaseue of
Jations), a contrast between the say a.rate Allied ant Assooiated %ewers

inter se.

last VIII of tree "reaty establishes reparation debt

owing by errunly to the

ant l'sesociated .owers jointly; ,,rtiele

232 requires a joint oomiensation for damage a mv? to the civilian
population of ths.r


sal their property as

a whole, and. Article 233 provides that the am-ant (not "arimnits") of

the oho vs demo" is to be determined aid dealt with by a joint inter-

aliied ownn item as the e.arati.xt s.oralission whiell is tne explosive
arency of all the Allied ant Assoolated Grovernissnts interested in
reparation (Nos Annex Li parse 3 and 12).

The division of this joint


debt is no sincere of Urinary but is settlod by the
sal ,,snociated rowers theraolves (Article 237).
'Me Treaty thin does not (Ave rise to s. series
of separate debts

ing by Genseny to sash Allied ',ower,

In strictness Germany twee nothing to the JrIttigh Aspire,
Ji'rause or Serbia.

t she owes is a Joint debt to

all the allied °were whose claims to reparation have
bees emitted by the reparation Commission, anti to the
rteparation Gommissi,m as their Gomm anent.

:e tales an

reralor of municipal lex, if any one :.-ocfer entitled to
reparation tried to brim; an action alone ngainot .'eerreZW,
prOOleid11141 :could have to be stayed until in some form or

other the root of the -lovers entitle' to ropsration had

been se* parties.
The reparation debt is in fact very li]co a debt
owing to a partnerships the German oblV7ation is to the

:'here is no question of sot arate dobte owing

by qoanter to so; crate partners. If thereto re 114 robot ion
a-ises as to tho reamer in Ivirich execution is to be levied
on tta property of the debtor one Yould not ox-rect to find

triet each pa Amur hes an individnel unoontroliod rift to do

rant no i)loases in the natter - oven to the length of driving
the debtor into bankruptoy, nal permanently 000nlying the
engine house of his works.

And on the true construction d

the Treaty, when alloradoe is mole for tee onereoteristios
which ,listingnish an in.leian-lent Power a versions of into r-

free an ori tiny individual s persona of
mundaipal lap - this expectation is fulfilled.


lb rurarte the shales, of a partnerships Gould awy

)ne partner, eating by himself against tno will of the others,
inane the rortaromblp property vvith the oasts of his Irdeponeat prooeedings?

Clearly not.

Ant still less aeabi he get

these oast* out of the prcrperty of the debtor favtgagord for

the joint debt, in priority to the joint debt.

And yet we

knew, hen that happeend with 11111111 t 0 the oasts 0 f the

irenoh Airy Aida went to franktert, that a alai* of this Dina
is to be sslaittelt taws the i`ronon when they tale independent

It is isised well settled in .0;fish law (art. I
soviet that aortinents1 law is to the salsa effort). that if
it is ocu-ht to ooforee a joint °lain all the parties interested

mat in ono your or another be before the 1,;ourti otherwise it
is impoesible that jug tine should be knee.
,Igain, as the debt owin.K tar ;emeany is a joint debt

the object of soy individual settee oust be to recover this
joint debt and trarefore

sans recovored would be held in

trust for toe creditors as a wholo.

it is, to may the least

of it, enotmlows that it should be in the power of ary one

of the joint oreditors, withoot authority to constitute
himself the agent of the whole by of oroditors, to deal in
the mat which ho, not they, thin-4 best with tto property

of the debtor which, on the Ireneh oonstrvotiln of 2.rtiale
343 of the .,roaty, has been mortgaged as a socurity for the
oozonon debt, or, es the 000struotion eitioh I personally


is applioeblo to the regnant of tint dal is priority to other
*lams of a similar nature.
...ring in idol twee general considerations aid
the ,loaseno)tions to wlsioh they Five rise, let is proosed to a

closer srarnillation of the lawsece of DI* la of Aosss LI.



'.'here are in roality two points, and not one only, at
issue as to the interpretation of this paragraph - points d
Utast, though not without a bowleg on each other. one point

is that already trilloated, nr.troly, mother each ind
lovormeent has a right to indspentiont action, aid the other point
is, what is the sphere of souk indeponient luigamet and mitten?
Do's it *stand to 1411 conceivable ronsuros such, for example, as
gamed laVallidge or is it limited by th, ejnadem peneris rule to

smeaseros similar to those specially mentioned in the -atlas,
namely, teoonordo and finanaial prohibitions sad raprinals '?

It will be convenient to tall, this latter point first.
be ejusdam genoris rule is one which, as I tannfor from

oonversatioos with nv colieagues, applies in continental as well

as in Owlish 1st (see for tip nglish sale the juSgoont of tir.
&rustics McCord'. in the case of the 3..1.


_.cintyre eta,

36 Timo Lsw itsports, peps 744 and 746, quoting lord Jalsbury)

as& is to the offoot that Where speoifio words wrdoh fail within

a curtain gnus poosio fmnoral words those roneral words met
be limited to that gellalle

Nev here the words 10(1*nm:do ant fi-

nanoial" in themselves svggast a fleirea.

And U this be thought

not enough, it nay be suggested that a goons which inoluies

4os:commie and financial prohibitions ad reprisals" is to be
found in that Glans of "forcible awes jaws molt of wars 'Ask

are dealt with b
his intonation .4aw

eatleite in the first chapter of Part II of

ar), the sails sissies of which, &word-

ing to esti:dot, ar© rei)risel Ii embargo and /metric blookads.
Against the argument trot tim Wont! "swab other measuroe"

raw include the military ocea'..!, ti,ht of territoiy motioer part



the Treaty - Part XIV "Guanuttees" suppLIOS a awe losive
ar lament,

article 422 provides

'As a guarantee for the arecution o f the present
situated to the
the 'Allan to
nest of the Alas, tor,ether with the bridgehamisi,
oecupled by Allied swi Ass, elated tznops for a peri
fifteen years from the Gaming into fore* of the pte

Divot/ by Gene any


his is fall wed by iatiale 429 whisk provides

successive restriction of the ow:patios "if the eonlit

the present Treaty ere faithfully (ferried out by lerveary
then oomes what is peittaps the Article that the for


pose is decisive - 1/4rtiole 430
"In case


tiring the occupation or alte

file aspiration of the tittosayeare referral to ab

the iMogaritirct Omenliesion finds that 4enesicr refus

to almerve the whole or part of her obligations un
nil! lament Treaty with mar; to reparation, the M
or put of the area, apeatied in Artiele 429 will
re-secupled imediately by the Aallied and Assoolat
This language Indicates quite clearly that the !ninthly

pation providedtor in this "art of the '2reatr is intende
enforce the ro,,arati in obligations o f

mumy and furth

tablishes that this military ooeuAti el is limited to th

or part of the 91'095 which are defined by the ,:reety, t
tO eV. GOMM% to

with certain bridgeheyle

on the left bank of the Aim t

,e hove thane the svbjecit of m

occupation dealt with in a special part of the 'frentyg o

reoonised prinsiples of oonstruction tees. special pro

dealing with a specific subject prevent the extension to

subject of genoral wards which are found in anothor .:ar

'it* calefully guarded loognage of ixtiale 43

have no meaning if it were possible for veep ens Power o

initiative, eating under a easily different dart of the

to mow* whatever part of Geirean territory it might t



-8Useoho- aovaitia - if the report of the con:mission uzder

paragraph 17 were made to her - could invade that fart of Up-

per 31leela which is still left to emery, in spite of the protests of the other A,lliess ilalgitss, acting independently, wild march
as far into ereany as she snow, ani the dritirdi Government would
be ertitlod to Seise Bremen aid rimsburg awl perhaps detach a couple

of battalions to Nardi to Berlin.

And all the tins erg German

active resisters* would be an act of German aggression. The Treaty

would true authorise general aztirohy aid chaos, aid an instrtriant

intended to promote as far as possible International co-o).eration

woad give the rein to ay oral even, form of ;.thauvinist exa era.
tion wilioh national passion might insPilee
Indeed, if regard

be had to the surrounding clauses of Part TI II, to the special
provisions of art -IV sad to We whole soaps end purpose of the

Treaty, to construe the words in dirputs as suddenly authorising
independent ani uncontrolled military action 1):7 sash separate Govormsent would be alrest es shoektny as to oons'..rue ambiguous words

oeourrine in Pi marriage settlement as containing a re tortilla. to

'ie beating art issue of the neaps* of lieveMber 23rd

1922 went so far as to nate this svagostion. It gala -

"If tin clarwan Goirerimeat does no t produce an ao-

eeytable programs the allied Powers will have nothing
to do but to help thoorsalvos to populate each for its
own part, sal dam* in order to meet the reparations

ducie tart will his to turn to eaosuat the Ionian,
'Woo which are miler her haat or within toe re oh of

hoe bar Sand%

("al lo gwavorarsai alyalisd noepporte Rana profgrairio asooptsblo, las allies nauroat qu* as fain

Tapir oaaaasoo, dams on as qui Is c onoerme.
la toms, dsvra exploiter, pour slavonir mu reparations qui but sont duos, lee riehossios al]sinules qui
sont so us sa main or polite* de sa rain").



se me p art of Via aonstitution or powers of Use commission

itoelfi no await, if the 1 anivain were dear, positive and

ctIOU so alai °anima In thn as in p set of a sent erase the

fact that sash a Roraima was f01206 in

I/ wOol6 not be

reason for not 4ving it what waali then be its plain ma Say
but vent eabi-moots wards are nnod tinno anstally, in a deposholi

o rates 's sal in a plan inure the motor of the Treaty has
already been told net to =peat to fiat arytitIss eneopt the
aonstitatios ant power' of tin leparatlen Oonalselat Users U

rarely a straw preemption a.,,linst the violent aro utvmpated
introduction of a power shish on It* ,:rhush oonstruetion would

:2;o to the root of international relatioes and of the 'aem
of the 7:roalw

It is however palsy. Ismseesea, toillaherate further
the answer to the paint as to the neabis et "the esepootive
4Verairatel ono* it is (gear that the military seaspatini
of territa ry is outside the scope of paling:41th 18, th3 roforease to the "nospoOtivo Oovernmentso becomes eamparativoly


The tonsures of econotaia reprisal, sfabarm,

eta*, install are within the so ape of this aragrh, are
ordinarar asasisal whisk a Uovonseent tars within its own
to measures
juriedlatlea ail snaisIsa of its oat laws.
sash as these It is late natural and wasonahlo that oaten
tievorsOUta within t* Unite of a joint melon to to

immeasis of tida alma, shad have as absolute riOit to cott2m
it it will do and how it will do it; on these limo we mai a
vesselana interpretation of parlerrarh 10, an interpretation a oasis tent
with the Trusty as whole and with general doctrines of law both


munioipal and intOla tie as ,nut aot loading to the astonishing

conclusions wash the fresh official insle involves.
1.:hroughout this note it has been assumed that the

objecst of paragralh 18 of Annex I i is

sours pigment of tree

reparation debt an not to punish Comer/It se an sot of verceanco

or with a view to her moral reformation, for her failure to pry.
,o are kleAling in fact with the levy of oxecution for a judment

debt mil not with the inflictial of ("baptist:rent for a crime,



111111111101111111101111.10........................N4..- wa//aa/m1./..0

west war be only a curious aositient, lint/uni,n not unlike

that of ,nrox II le is to be fazed In mainly document of
international significares, nanskr, one of the resolution of

the ..?ritiatt Imperial War (Infertile* whisk sat in I,ozr3on in 1917.

Ms resolutions, to quote only the relevant portion, ran as

aeon it 0/air
"tin imperial
to plan on record their view that our rood3ustment
(Of the oonatitutional relation of the component rsrta of
the spite,) while ttoronghly TallOOPTiliff all existing powers
of eolfgovermanh and isentlete sentrol of acrostic Waive,
should be baud you a tel tetleyaition of the minion

nation of en leperial vommonweeitn

and *holed provido effective orreagsaeste for ocatineene
cefamiltatlea in all important matters of oar mom bepOrial
oonaern ant for auk amass eeneortoi action tousled on
ionsultatioa as the ,oevonal govormats nay determine
Canute, of prcooedin a of the imperial .ar Confe rence 1917,
4.0114 ion 14 laswells ,rit to arnz. orlL . keen, is ge

Aist is lee provided for is ormaerted noti.,n based

upon Ue .1.4;oisleal of sepwato tnr et:oats-A govern:Anatol no

noi:ams Eye vernosat le to be foro4a1 Into aotio*t witlal it doss
oonoxiii;i:)4. is 'fillet tla action taken
not opprors, but tho
is a 3:errata aCttn2 pursue& in 43001i5Ort 'o;v fit' ti qi rate the
me4orilir of to gcsvernnuts


(Legal 'Jerrie*
;3 ritish Delegation)


11=11 Mak-La

In the a=roat of 1920 thy British Ievermsant mole a

ueelaratiqu that it it not /at m) to exorcise the ri,:rits Iva Joh wale
*Worrell upon It

paragrark la of Anass II by ooisin?, tte property,

of :Armee natlunals
followed by

ritioh territow,

141um ant other Allied. -,--evorel.

orttaple has sines NM

eIiie action praises'

7ttlsUiskri traave izta the i.vvystah Cavern:semi, to the effect tbai It was

not own to Et TV owe: to to 42 um:Anita Doti rn wile? this paragraph, and

tt distirocished rronea juriati, the :hate

,21011aSd Olaceet, published

a most interesting artlalo in the 'wiNaria"

tho 4th IllInaber 1920

supporting ghat woo tion ttlo

offiolal view, whioh, it is needless

to say, has start boot entirely 04 irwriiede
(Ifi the 2itti i.147


Cluvaberlfslaa. in answer to a question

in the louse of ...;.araons, deolsrad au behalf of the .4ritish covernnont
that paramph 16 was understood as cm;Serring upon the ice:; lridnal i;ovarab.

This really in
triciag the most octane view aoneoivole of the
meaning o f the liar.ttpd varegisph If treat 2ritain was wrong in swing
that eta woad not tans a partlealar form of elation it seems to fellow

that atur 'MIK V4 12.04 OA beteg to toice that &ones had the Ansa Power@

decided by a majority that this littlest.** winos ought to be talons in
othor warms a :majority of the 61 es, or et say rate of the Principal
Allies, o adAt have distated sa important step in sritfah Foreign policy.
ulon I veriest that Para, 18 was drafted by an aserlosn hard mdl
that the .Must states wen then aenseived of as parties borne by the
':reatry I mom% nee r mind fros w?rit is perhaps pre juliee against
each a oonstrnetion surely on this point it is reasonable to say that
the wand 'imslostive" must have beat intended. to safeguard tto right of
any ,locerrralnt to deollie to take tla sett, at reeemionied by the :)ora-


a r itattood ,marl ash's by a irsjorltav of the :111 as.


routs the rinitt to tab sitiea ladoposioatly, bat tie action takes
must be



mamas ofersamplate4 ir the psallimpli, via,


nal finanoial prohibitions Ai reprisals, as la general suet In.,Inatires

as it In proper for aomoreats to tale
I think that I haws seen ',foresees is the k reach prim to
this zuply of


Oltszaborlain in which


is represents' as /saving

assoptall what is new the Fvonsh o Motel view of the messing if ago


It is obvious that z

mon interpreted/Ss errs be put on





..,;0:d3T4CT1 /3 Of AMEX 12. PARAOUP113 17


or TS MUM Me Y. l5

(iionser Opinion of lienalelsr
Temps`' of 4

Cheat from

severer 1920.)


re la renenaletiou a tell* dee clones generale, du
Trait' de 'Armenia' Inv 1'w des ruissatees signstaires.

tine 100,3re divergence de is

ord re international, qui t rouv a ra

un prompt apalsament, vient de es pioduire entre los deux nations,

etroitemont males it alliees, 1'An4eterie it la iran099 a propos du
Traits de Versailles.
floe de

41,anglaterre aurait decide de rezioncer oar bens..

ltne des clauses (nnerales du :raite flu/ peons% eventueLlement,

ens /misnames Allies, de prorate centre Vialonagne, **faille.* a sea
,*tte !Lesbian


toutefols Weartnerait point du enlivenment britannique lni.estee, mats
aeralt due a 1,exotos

sale as quelloss feesti Una Inn du 3oard of

.rate; of 1Angleterre rests mitt* de ass drolta,
.uoi quill ea Bolt, Vino is ent souleve une passion chat l'examein

purteent juridique pout returnir tun solution aloes

it qui devisee,

an surplus, l'interat is leospecee
pirtie VIII du ',rate de 7essailles ayes 11/Allessos, entre en
vigneur le 10 Jenvier 193), est inbitnlea oBsperatiossit of sentient 14
articles (art. Zd1-244); ells oat OW/01110 de sept Annexes.
de l'Amtexe IL set lanai earstus

"4.2 merinos qua les i-uissanies &Moos et animates'

aurade prime. re. en OMB di Inalumnont volouttd re
tit le dolt
par l'Allenagme, et quo l'Allumesso slow/s a as As mom
(adorer ewes des antes dthoStilitest psis WSt conpreadre des
autos di proltibitions at le represailles esenamtques at finarniecao et, on general, telles autres neseres qin los 0eum
vernements respeetifs pourront orating? nose sal tees pie lea


par. 18


Il s'agit la dune (dame "oonzainettoire" destines a fortifier la

- oontre /is tontations de .ephisto, toujours i:ret a lui su -ferer Is derbad a son
gain moll. est la nature du oontrat 4'ont relovo sotto clausal
resistanoe du dobiteur

uelles obligations rospootivos etkendro-t-elle, spoolalervant den*

les rappo rts intorieure des Parties yul en cast ioulu 19insortint?
')our ressessr le Trait.. do Versailles a an fortenle juridi.ue, on
oonstators dobord

esrit d'un ocattrat oynallatanatique ocraolu

Intro dame 7,arties soulefaanti donne

rt, 1' atexte oreanoiere diob-

lirrations at rltargent, at de/nitro part nano

Gloat on deux "parts" on offet quit le pre:nebula du rrsite distribue

]es Parties on pawns°.
141, prows,* "part", snoasstes, est une o al le o ti vi to sun tint Ito*

distlasteot et occivatee do IT "'.tatio indoposdasts Como lours intorets a out oonfontitte, ito so seraptent qt. pour una unite.

3elon is

droit Oomnan OOS ereensiore sent dog oorrel stinulandi en possession

VOW tbli:stion conjoint* ou selidaira.

i.rt subtilo d.istinetion

tre is "oonjonotions at in Isolidarite% :jut mos oonsoquonoes pro-

tiosues an droit cavil (1), est une menorahs delioate dont on eat,
tot, nouroussos at affronoltio

ins 19un at l'autre earn, 1w Aroits

at derroirs dos oo-orasuoiols intro ern at erasalas diexoellont
fawn, par le droit arigladas
nArs(1111111ne promisee a its fat toft plusieurs personae eenjoisturia, encorn des ores: ere me pout pea

reehesellmir sepsasuut is debitour pour as part dais la
cream, 11101111114 Wootton se pod etre intentea qua per

nonsuch]. des scesnelers it pest is dints tout ous tars,
emit seuresties mistrals, es $ Mims qui lairs interete
respestife so silent ateelitost dletinsta." (2)
Dens yin o:sttrat - pour Is amine - "eenjoint% owe is ra its is
"ersaillqe, lee otipulsetts, fonlus OR 111411 salts person.: jurhi Iquitos*
petrient d aye a, ix /solar's:Mt pour modifier ou dosimeter tout ou partio


dupeote oommun.

Ile re pewee* le fairs quo d'asaord core lours

En debars etas principles, itesprit Gomm le texts du Trait. de

Versailles, no pOUVea oqnauire a um sutra interpretative.

Is Trait° oentient on effet deux sorter de amasses.

as we non-

siment plus partiOgiarenent lea ,:tats qui en eon ltobjet directs
_ain't on ont-11 daall la portie III par exanple pour
Za zialgigne (art. 31-30, peer 1S lauteneourg (art. 40.41), pour Is
Iebeeew3lovaquilo (Art. 41a66), peas is Pologxe (art. d7.43), pour is

his Libre de Daateig (art. 101.408), eta.
Wautres elanses au oontraire Omit (ileum port*. Marais et 'tie
scan oorites qua dare l'interat !Iolleatif dee stipules's* de "premiere
o'eeto-a-dire des 27 :tate ''oonstituant lee puisearcea allies*
Uu S nit 30ifsee%

Oteat is oar notaaront de is artie VII du Traits, "Uenstiossq, els
presentemart an oelso. (;ette derniere partie, intituis partio

ve sAtparatione", Gentle nt, woo on salt, los artiales 2:31-247, adorn.* de Opt Aflame. Elle est divisive in deux lotions (_impositions
de l' Annexe II.
440 Far.
gesieralee, Disposition" portion/ism).
anquil Is ioard of Tree aural t eu is pongee de asonoor, appartient
auX ''Dispositions fenerales% : ane ass *Dimas it lone", as wont

elusivellent lee "Gouvernesents allies et =monies,' qui parlent at
diapason an nos ds leur i,-;roupe et pour lui.

,satat aux questi4u3

nffeetant un soul de ass (ourernements, was eotion speoluio


It s'acit de la restitution - a la alines, des

rases et arakives 'to 1670 (art. 245) - aai 3o1 du

ssr. Ii)

jas, du Koran

original (art. 246) - a Pralveralte die Louvain de manneorits
ousables, eta. in remplessiont de oozes detruit0 dans leineendis a
lone par l'Allesago9 Ste.

eves oaf rasseltut personnels, Osage* stoat sentralte aSS evales

eluve r,o woe.

La Oranoe pout Weser sex &rehires allesMedsa les


IFpolar. polltiques prla en 1870 a es. :ouher, gnaw' elnIstre d' tat
(art. 245). Ls rel du Nedjas eat Libra dtabandoacor a Iles-ompereur
'111111atiss lloriglnal du Koran, enieve de Lied Ia., qui la a ete orfert

par lea tiros (Art. 2411).

Oss largos..e ant seas lierlintas* av 1;la
tarot oollaatif des " nlaaanatta alliees at assatieen%
Il en *omit tout attractant sl lttate Valles deolarait taalr pear
non mynas tells disposition du ."raito qualifleo de 4generale"

pante qu'elle a pour but Vas assurer 1 'observation par

l'adversairo, au profit due tots.
lei, too derogation suppose an sword prealeble duos co-Int art + o

T.'= doom, isolemett, no peat sten tanir a sea vast, Jerson-

wiles. 11 ria-porait, per unit decision unilateral., Vebrauler ratttorito ,les stipulations
asst pow.sulvl ravantaip di tow, La
plural Ito des creamier. lifflique ms tasty, oil a pear carallairso
tan Glair devoir, maul do no point ensaorer Varna oaaassa,


ieviondrait la valoar dtuas *peso at l'un de otrux qui Vont forme,
pour la de f'ensel de tow, prattle:salt qu'tl ri,y a plus lien 4* Von

parellle ooeurests, le eons comic= vlent a la resousso

du draft,

Jereast tattnet


The Russia of today, that is soviet Russia plus the
various associated and federated Republics, including certain
areas of doubtful allegiance in -1sia, such as Turkestan, has

an area of approximately seven million square miles, and a

population of 150,000000.
In pre-war times this same population (there has been
little change) living in this same territory, supported itself
at a certain standard of living by carrying on various industries.
Portions of the area were devoted to agriculture, others to
grazing, others to forestry, some to mining, some to manufacturing,
some to fishing, hunting, etc., etc.

-_6ach of these areas produced

a surplus of the commodities peculiar to its industry, the
agricultural region more than sufficient food for its people; the
forest, more than sufficient forest Iroducts;
materials which it could not use itself;
sufficient animal food-stuffs and hides.

the mining, raw

the pastoral, more than
The surpluses were

shipped to other sections and to foreign countries where they
were in demand.

These regions were widely separated.

The minerals of the

Urals moved 400 or 500 miles into the industrial regions about
hoscow and :Petrograd.

1000 miles or more.

The oil of the Caspian Sea area travelled
The great coal basin of the Lonetz shipped

its products to points in the centre and the extreme north.

she northern reion received food from the Volga basin and the
Ukraine, hundreds of miles away.

In addition to these surpluses in different sections of the
country itself, the countr;; as a whole produced many things in

excess of its requirements - food-stuffs and many raw materials
such as oil, hemp, flax, ti_ber, manganese, platinum;
very short on manufactured goods.

but it was

It sold its surpluses abroad

in payment for the necessary finished wares in great variety.


This vast exchange of goods food and raw materials moving
within the country toward the manufacturing centres and manufactured

oods fwom the industrial centres outwards over huge
and the exchange with the foreign countries of food

and raw materials for wares, was possible only by the maintenance of an intricate transportation system (40,opo miles of
railway with over 20,000 locomotives and 500,000 freight cars,
and many thousands of miles of well-equipped waterways), a large
circulating medium of exchange (about y6.00 per capita);

and an

elaborate organisation of credit institutions (over 28,000 banks
and branches, with deposits which averaged v22.00 per capita of
the population).

It is well-known that since the revolution of 1917, a tragic
economic disaster has overtaken the country.

Industries, the

trans-oortation system, the credit institutions, and the entire

economic structure of the country have been undermined.

The pro-

duction and exchange of goods have dropped to a small fraction of
their pre-revolution dimensions.

In recent months, it is true, since the inauguration of the
New Economic policy (NEP) there have been some signs of improvement;

and the Soviet authorities are pointing more or less boast-

fully to certain augmentations in production as proof that idassia
is on the road to recovery.

closer examination of the facts,

however, reveals but little cause for optimism.

If soviet

figures are to be relied upon, it is a fact that production has
increased in certain lines


the light of day, but the growth is insignificant in comparison
with the needs of the country.

Y. T. 0.


In 1921

Petroleum production has risen from

In 1922

4,000,000 to

















Cotton Yarn






Linen Yarn




















Pig -iron

oollen Yarn










China & Porcelain



Assuming that production for the entire year 1922 is maintained
at the same fate as for the first seven or eight months.
figures for the later months are hot yet obtainable).
Certain other less important industries also show some increase,
and there is likewise some improvement in the condition of the main
Railway lines.

The percentage of disabled itcomotives has dropped

from 6720 in the early months of 1922 to 61,6 in 6eptember (this is

mainly due, however, to an importation of 2,000 new locomotives
from Germany.

Beginnings have been made also in the re-establish-

ment of banks and credit institutions.
To form any judgment as

to whether the Russian Authorities'

optimism in considering these and certain other signs of improve-

ment as an indication that Russia has really entered a period of
economic recovery, it is necessary first to form some quantitative
estimate of her present economic position in comparison with her
pre-revolution days and, second, to consider the means at her
disposal for recuperation.



Seed cake was also shipped abroad to the extent of
approximately 650,000 tons.
To -day the flax area has fallen to less than 30iu of the

pre-war level and hemp alp has declined even more seriously. There
is no surplus

for export,

the greatly reduced production

falling short of filling the requirements of the domestic

6till other large surpluses were used for foreign purchases:
Manganese was produced to the amount of 770,000 tons per annum.
600,000 tons were exported.

The production to-day has fallen

practically to nil, although there is an accumulated supply at
the mines of probably 1,000,000 tons, which might be available
under proper economic and political conditions.

The iron-ore liro-

duction in pre-war days was 9,000,000 tons, of which 8,000,000
were consumed and 1,000,000 exported.

To-day the production

has dropped to 225,000 tons, far less than requirements for home

The petroleum production which formerly reached 9,200,000
tons, of which 8,000,000 were consumed and 1,200,000 exported,
has dropped to 4,600,000, and there is no surplus for export.
The exportable surplus of lumber and staves before the war was
nearly 6,000,000 tons.

This year there has been a small export

(300,000 to 400,000 tons) from certain northern sections, but

for the country as a whole there is a distressing shortage.

gold was formerly reduced to a quantity of 134,000 pounds,
nearly all of which went abroad.
13,000 pounds.

To-day the prwuction is about

The entire platinum output (about 11,000 pounds)

was also sold in foreign lands.

To-day the production is a little

over 400 pounds.

These pre-war surpluses, it must be remembered, were sent
abroad, partly as interest on foreign capital investments but

mainly for the purchase of manufactured goods and a few raw
materials from the outside world.

he loss in purchasing


power through the reduced production of the various items

enumerated above is in the neighborhood of 050,000,000 per

e must look

But this does not tell the whole story.

also at the manufacturing industries of Russia itself, industries which in pre-war days supplied a large part of the demand
of the home population for articles of clothing, household utensils,
factory equipment, railway equipment, etc., etc.

The basic ones,

those which give a fair measure of the whole, are mining, the
metallurgical and textile industries, and transportation.

Russia formerly produced almost enough coal for
The pre-war output was 29,200,000 tons.

her own requirements.

In addition, there was an import of 6,000,000 tons, bringing the
total annual supply up to 35,200,000 tons.

The production to-day

is 9,200,000 tons.

iussia formerly used (production minus export) 8,000,000
tons of petroleum.

The production today is 4,600,000 tons.

The Copper supply (including a small import) was 38,000
To-day it is less than 4,000.


The Lead and Zinc supply (including imports) was 80,000 tons.
Today it is 5,600.

metallurgical industry.

The basic material, a fair

measure of the condition of the whole industry, is pig-iron.
pre-war production was 4,200,000 tons.
Textile industry.

To-day it is 175,000.

The pre-war supply of raw cotton (includ-

ing a large import) was 416,000 tons.

To-day it is (home produc-

tion alone) not over 25,000 tons.

The pre-war supply of flax fibre (production less export)
was 485,000 tons.

To-day it is not over 100,000 tons.

The hemp fibre supply was formerly 327,000 tons.
now in the neighbourhood of 80,000 tons.


it is




In 1913, Russia built 609 new locomotives;

also built in 1913, 20,500 freight cars;
Banking Se Credit Institutions.

in 1921, 79.

in 1921



As we have already seen,

in pre-war days Russia had over 28,000 institutions of this sort,
including branches, with total deposits of V3,300,000,000, or
'22.00 per capita.

Since the establishment of the State Bank in

Decekber 1921 and of the Co-operative Bank in the spring of 1922,

some 200 banking and creit institutions, including branches, have
been restored;

but their total deposit, according to the latest

available data, reached only V11,000,000, or less than eight
cents per caput of the population.
Medium of Exchange.
the war amounted to about

The total currency in circulation before
'6.00 per caput of the population.

Today, in spite of stupendous issues of paper (900,000 milliards
of rubles) the total circulation, re(uced to gold, reaches only
about 75 cents per caput.

These figures - it must be remembered that with few
exceptions they are furnished by the Soviet Authorities themselves
and are tlerefore unquestionably colored with rosy exaggerations


reveal a situation whose seriousness needs but little comment.
Before the war the people of present Russia as a whole had a
11perabundant supply of food-stuffs.

They imported large

quantities of food, it is true, but ximmixx these were in the nature
of luxury goods;

and the exports exceeded imports by some
Now, in a good harvest year, they have barely

enou7h to meet their own requirements and the area under cultivation and the number of domestic animals are still declining.
Before the war they consl_med manufactured goods each year to the
value of V1,435,000,000, of which '1,250,000,000 were made at
home and

'l85,000,000 imported.

Now, their imports are negligeable

and their home production barely reaches



To come back to anything like her pre-war conditions Russia

must therefore raise her agricultural production to nearly double
its present figure (merely to meet domestic demands) and must make
provision, either by restoration of home industries or by procuring the means to purchase abroad, to increase her present supply
of manufactured goods nearly five-fold.
Can it be done?

First, can she do it with her own

resources and efforts?
The Soviet Government itself has given up all hope that
agriculture can be restored until the peasants can be assured
that needed clothing, household utensils, equipment, machinery,
hardware, can be secured in exchange for any surpluses they may
The prime cause of the decline in area cultivated is


recognised as lack of incentive on the part cf the farmers.
Even with restored incentive, however, although there might be
improvement, there is no hope of a return to normal production.
In the first place, equipment is too far depleted.

For five

years the peasants have been without a normal supply of implements,
tools and machinery, and the number of work animals has declined
by fully 505.

The pre-war supply of agricultural machinery,

etc., was about 125,000,000 per annum ('6,000,000 import and
119,000,000 home production).

Now there are no imports, and

home production is almost negligible except in such small tools
as scythes and sickles.

Russia formerly produced 667,000 ploughs.

The present output according to the latest figures, is about
The output of harrows in 1913 was 127,000;


now, 8,000;

reapers and binders 111,000, now 11,600;

threshers 110

seed-drills 68,400, now 470.

The peasants in 1913 consumed about 1410,000,000 worth of
textile manufactures.

Today the total value of the textile

output of the country does not exceed 175,000,000.


conditions apply to all other necessaries of normal life.


What is true of the agricultural classes is equally true in
the industries of mining, forestry, and transportation.


cannot operate without fuel, raw material, and machinery.
Factory operatives demand food and the normal supplies of
clothing and conveniences.

Mining, forestry, and transport-

ation similarly demand equipment, food and clothing supplies.
With the best of intentions each industry must wait for products
necessary to enable it to start.

These essential products can

be produced and hence procured only after some other industry has
made a beginning.

It is a vicious circle.

If the decay of activity were slight, there might be some
hope that the restoration of the will to work might bring back
some approach to normal;

but with industry operating today

at under 205 of pre-war capacity, and with the cultivated area
not more than 45% of normal, it is so obvious as to be admitted
even by many of the Soviet Authorities themselves, that
reconstruction from within is an impossloility.
If there is to be any salvation, it must come from without
the country, with cooperation from within;
task will be a stupendous one.

and even then the

Figures of urgently needed

assistance presented by certain Soviet authorities are fairly

They estimate that to restore agriculture and

transportation within five years will reauire a capital advance
for agriculture of

2,000,000,000, and for transportation

For mining, metallurgy, and the manufacturing

industries together, their figures reach another two to three

thousand million, making a total of, say, 0,000,000,000.
But all such estimates made by the Soviet authorities
appear to be based on what they would like to get, with little
serious thought as to ways and means or the justification for
getting it.

A saner method would be to estimate the

possibilities of assistance which might, under proper economic
and political conditions, be obtained, and then cut the garment
to suit the
Federal Reserve Bank of St. Louis


Russian foreign trade before the war (average 1909-13)
reached the following figures:-



Food & Live Animals



Raw and partly manufactured materials







The excess of Exports over Imports of V180,000,000 may be taken
as measuring roughly the service on loans and foreign investments.
If we may imagine Russian production and trade restored to
its pre-war condition, we should therefore have a surplus of
V180,000,000 which would continue to be paid for the service of
pre-war loans and investments, assuming that these pre-war debts
must be recognised before any considerable amount of new foreign
capital will go into the country.

We may assume, on the other

hand, for the sake of argument, that the war lo' :ns to Russia are

balanced by counter-claims made by Russia against the Allies
(according to Russian figures the indebtedness of Russia to the
Allies reaches approximately V10,000,000,000, while Russia's
counter-claims total double that amount).

To cover interest and

sinking fund on a new advance of V6,000,000,000 would require under
present conditions, an increased balance of export of at least
'69,000,000 per annum.

Looking again at the total of imports and exports given
above, we note an item of

'l07,000,000 for food-stuffs and

Two-thirds of this is made up of articles of quasi-

luxury character such as fruit, tea, wine, spirits, coffee, cocea


we may imagine the Russian people under the pressure of
necessity eliminating their purchases of these articles except
We may

probably tea, and reducing their demand for others.

perhaps assume a saving in this item under favourable conditions
of %75,000,000 to V80,000,000.

Of the raw and partly manufactured materials imported

(242,000,000) the chief items are raw cotton, jute, wool, silk

(100,000,000), yarns (V17,000,000), metals and ores (20,000000),
hides (V18,500,000), coal and coke (V25,000,000).

These and

other items might be dispensed with as foreign purdhases, but it
would obviously be at the expense of home manufacturers, and would
involve enlarged importation of finished products, probably at
greater cost, to fill the gap.

So far as they contribute to the

home manufacture and consumption of finished goods of the luxury
but it is

or less essential class, there might be some reductions;

hardly likely that the total importation of such goods could be
reduced below, say V200,000,000 without economic loss.

This would

effect a saving of V42,000,000 to be added to the saving on
imported food-stuffs, making a total of, say, V125,000,000.

It is

not impossible that another V25,000,000 might be saved on the
importation of manufactured luxuries, bringing the total saving
up to V150,000,000, a sum which could hardly be expected, at
present to be made the basis of loans and credits higher than,
say, V1,500,000,000.

This guess - it is obviously hardly more than that - is,
however, based on the violent assumption that the economic
activities of Russia could quickly be restored to their pre-war

How far from possibility of realisation is any such

level, is revealed by the figures and facts given in the preceding

Agriculture, industry, mining, transportation, currency,

banking credit and exchange institutions have broken down in
catastrophic fashion.

Russia has been set back in its economic


status by Many decades, end is to-day almost in tie position
of a newly discovered country devoid of manufactures, devoid of

transportation and of the barest essentials of tie complicated
system and organization of exchange which ma-es -,-.,ossible the

maintenance of a dense populati..n on a reasonably hija plane of
economic prosperity.

Speaking broadly, s2re has ,,othing but

her immense na,ral resources

if sHe is to advance in

the rlans of economic civilisation, anus t be leveloped. tkrouCh

attracting foreign. capital.

She is almost back to the

position of a century ago, except that, ur_cfortnaately, the
population developed under an economic system made necessary

by i is growing numbers is far m're dense all thus makes the
Problem far more serions than it woul(1... 71e if 1-111-!,ie were merely
a newly

isoovered land in a 'oac't\-avari stage of rievelopner.t.

The obvina!7.

Jig to do would appear to be to aarroach the

1.-)rob leri as if it r,7=^ 1.1y ("23z e rled a newly di sc ove red °our try

rich in natural reeau.rces. Things which could. be developed
quickly :70111a. be the first to claim attention, and these are
agriculture and the extractive tr ie s geae


these in aussia under present coalitions aariar2tur.e and forstr;

cote first:

they would. respond. quic7-7.est to

Tol)e r stimulus;

the physical equinrent re,laireil for their restoration is the
simplest; the retarr_s 7.'Bed not be long delayed.;

they rii,;a4-,

idven the proper political conditions, (involving a charge of
heart on the part of the gnverarent toward. foreign capital) be
exaa.nded within a few years to a productiveness even greater than

before the catastrophe.
Closely c7raiected with this development, in fact running almost

pari passu -.-rith it in importan.ce, would be the restoration of a
transportation system mi a suf-Picient sole to carrj the prvaucts
to rnalrket.

72.1.e. too miji.t core quickly, for the rd 17ray rights


way e -ist untarpaired a r the road -beds are at least in useable

condition, wnile as to waterways, the rivers and canals are as they


were, except that dredging has been neglected_ for five years or

Tyne chief need. is for rolling stock 8,211 river craft.
The mining industry in general must lag behiaxl.

In thegilitt

coal, iron and oil regions, neglect aaad misnee have reduced. toe

workings to a corslition which will requjre a long period of

rec=eratiou. Gold, platinum.., asbestos, ard a few other
minerals might be =oh more r; idly restored, but their value
was never a very large item in aus si a' s total p roduc ti on.

to manufactaring industries, it is cliffic-alt to see how

any quick recovery can be expected, except as they may possibly
be fostered by a government which mistakenly ima&dnes that the

egonomic -i)osition of the country is sufficiently strong to support

Lny capital investments that foreigners can reasonably be

expected to devote to the rehabilitation of :aus s ia will
unquestionably be inadequate, even for the pro-oer development of

agriculture, forestry alr1 transportation, and. even here the steps
must be taken gradually tentatively, just as they would be in
There is

any newly discovered country situated as Russia is,

ly to be aqr considerable inflow of capital for manufactures.
Granted. that the political aril economic policy of the

Russian Government continues to move in the direction talmr_ last
year with the inauguration of the :Taw Economic Policy, and that

the "Communist', dictators in the Soviet Administration can bringr. them-

selves to take the f final steps which w ill mark a complete return
to economic sanity and. ma,ae the countryzi

attractive for foreign

investment, the qtestion propounded in the title of this article
may be ansiered in the affirmative,
The first advances of fore lop. assistance are 1

ly to be in

forestry, agriculture a-nd transportation. The mineral industry

will be given more or less attention; but it is hardly possible
that much will be done for rxtnuTactures for a

time to come.

Even with agriculture, forestry and mineral development aryl the


accompanying partial revival of transportation, however, it is

not to be expected that the standard of of the mass of

It will be only

the Russian population can be restored rapidly.

by the strictest econory and tie cutting down of consumption

to the barest necessities that surpluses will be 1Lcely to be
produced sufficient to pat ±r the capital which must be attracted in order to make even the first steps toweaals recover].


If the development takes place along the lines indicated

the conolvsion is obtrious that for a long tire to core the
exports of Russia will be of food-stuffs aid raw materials.


imports of ca-nital ant the demands of the population to fill tire
vacuum left by the destruction of Russia's manufacturing industries
will cause her imports to be almost exclusively of manufactured

'Inat this means to the western world is also obvious.


points to increasecl supplies of food-stuffs and raw materials,
and a large new marloat for manufactured goods.

If ..tussia should

manage to mintain her manufactures at the preSent level; if the
population should. by able to economise its demands for manu-

factured. goods to so great an extent as 50;; of her nre-war consu.aption;

there would. still remaina sap of ..;500,000,000 per

annum to be filled.

In addition, if investments of foreign

capital for the rehabilitation of agriculture aitl transportation
required, this wriuld call for an adaldtional estimate of the suns
should. reach ore-quarter only of the :Russianimport of .,;300,000,000

a year for the next five years or more, giving a total
.800,000,000 a year.


Payments for the manufactures imported

for direct consumption plus payments for interest and amortisation
on old. and new loans and credits would call for aajemport of food
and raw materials running from about 4:700,000,000 for the first
year up to more than .;800,0004:000 in the fifth.



It is not beyond. tie range of possibility that, given the
essential firzl steps in the right about face in ..i-assian cavernmental policy initiated by the New LconomiC Policy, the courtry

might be able to neet these ra.-juirements.

But it is obviously

highly improbable that tie recovery can be rapid:
is too complete;

the disaster

the sums involved too ling'. i'ven in indus-

tries giving quick returns the first steps are art to be
cautious ani slow, and the development will be in clonstait
danger of being retarded. through the mistaken efforts, not only

of the Soviet Government itself, but of capital interests of
the old regime as well, to bring about a simultaneous revival of

all industries, instead of concentrating on the few most
funlame-rital ones.

Is/ Lincoln Itutchinson.

Paris, 2 'flebruary 1923.

18 rue de Tilsitt.
Personal ,a Confidenti: 1.

-ay dear Ben,

ith our letter of January 26, 1923, we forwarded
as axhibits A and B, respectively, summaries of the "French proposals for
After reciting
Re-Daration Program for the calendar years 1923 and 1924".
how this proposal had been informally transmitted to the various delegates
on the Commission on January 23; officially filed with the secretariat of
the separation Commission on January 45; and then after the Belgian and Italian protests, we stated in our letter that: "late last evening" (January
25) "the French proposal was withdrawn from the Secretariat and replaced
by a joint Franco-Belgian Note to the Commission asking the latter to record
a general report of default". As a matter of fact, the French proposal
which had been officially presented was not withdrawn, but consideration of
it was suspended under the following circumstances as shown by the records
of the 353rd meeting of the Reparation Commission held the afternoon of
January 26, 194a, viz:

"The Chairman" (-a. -aarthou) "recalled that he had in-

formeu his colleagues of his intention to lay on the table
of the Commission a draft of a moratorium in the name of
the French Delegation, and that he would circulate this
,raft to them unofficially beforehand so that they might be
able to examine it and, if necessary, canalunicate with their
That promise he had fulfilled, and the draft
had only been officially before the Commission since the preHe had, however, in agreement with the President
vious day.
of the Belgian relegation, noteu that Germany was taking
general steps to oppose the consequences which the giving
notice of the defaults, within the meaning of Par. 17, Annex
II, would entail upon her. They were at that moment confronted by a Government which was giving formal instructions that
all reparations should be refused, both to Belgium and France,
that was to say, a Government hich was deliberately avoiding
the fulfillment of its obligations towards these two Powers.
Under these circumstances the French and Belgian Delegations
had agreed to request the Commission not to examine the conditions of a moratorium which had been rendered null and void
by Germany heself, but to face the actual state of affairs
by resolving that the only logical solution was the pure and
simple reversion to the Schedule of Payments of Lay 5, 1941".



J. A. L. J r.

To: Governor iJtrong - Personal & Confidential



It showed that two distinct questions arose.
The first concerned the moratorium and the second concerned the general default by Germany towards France and BelOn the first point, Sir John Bradbury agreed with
the Franco-Belgian Yote, as he stated that the situation
was such as to render impossible any discussion on the request for a moratorium which automatically fell and left
The Chairman"
the Schedule of .tayments in operation.
(L. Barthou) "proposed_ to nroceed to a vote upon the first

The attitude, however, of the French Delegation-and
he was confident that the Belgian Jelegation would agree with
him--had a double aspect: it stated, in the first instance,
that the request for a moratorium had been renderd null and
void by the act of Germany and, in the second instance, it requested the Lommission to note the formal statement made by
the German Government on January 13, 1923, suspending all reparation both for France and Belgium and, in accordance with
the terms of Par. 17 of Annex II to Part VIII, to take note
of a general default, about which at the moment no possible
doubt could exist, as in all respects Germany was resisting
The general character of this default
her Treaty obligations.
would have the advantage of not putting the French Delegation
under the necessity of seizing the Commission of a series of
In this connection, Sir John Bradbury,
specific defaults.
The Chairmade reserves as to the interpaetation of -Par. 18.
man could only say once more in reply that Par. 17 belonged
to the Commission alone; if it declined to take note of the
default, the discussion was either brought to an end or adjourned; if it took note, it inf rmed the interested Powers
of the fact, being free either tb submit or not to submit
It was then that Par. 18 came into play.
proposals to them.
The Chairman had already expressed his unwillingness, to
discuss that point, but he did not desire to avoid expressing his opinion, which was, that in so far as Par. 17 came
within the province of the Oormissiom, to the same extent
Par. 18 was within the province of the Governmentt,.
demanding that notice of default be taken, the Belgian and
French Delegations remained -ithin the terms of Par. 17."

Sir John Bradbury replied that he:

"vas bound to confess that the method by which an unanimous
decision would be taken on one question and a majority decision on the other did not seem to him to be really practix
His suggestion was that the Commission should content itself by stating, that in the present circumstances, no useful purpose would be served by discussing the moratorium
and then that it should leave the situation to uevelop itself.
If that suggestion were not accepted, he must leave
his colleagues to take whatever steps they thought most
desirable without him".


A. L. Jr.

To Governor Strong - Personal & Confidential.



Barthou replied that:

"as Erench Delegate, it aas to his great regret, quite
impossible for him to accept Sir John Bradbury's proposal.
He was obliged formally to maintain his request 'hat note
of the default be taken".

Finally, after prolonged debate on the issues above raised, the following majority decision of the Commission was taken with Sir John Bradbury "abstainingflo
"The Reparation Commission decided:
That by its declaration of January 13 the German
Government cancelled its request of lovernber 14 for a
moratorium and that no action was required to be taken
in respect of that request, which had become null and
void as a result of the act of the German Government.
In consequence, the Schedule of Payments of Lay 5,
1921 was in operation as from January 1, 1923;
To declare, and to give notice of to each of the
Governments concerned, under Par. 17 of Annex II, Part
VIII of the Treaty of Versailles, a general default on
the part of Germany in the performance of her obligations towards France and Belgium."

This decision was formally communicated to the Allied Governments and to the
German Government January 26, 1923. A copy of the GommisLAon's notification
to the German Government is attached as Exhibit A.
As concerns the Ruhr occupation, it is interesting to note
On January 11, when the French
the recent development of Franco-Belgian policy.
aril Belgian troops entered the Iluhr it was announced that "the despatch of troops
was not a military action but only contemplated security for the Allied engineers
and other Allied experts who are being sent in to supervise mining and transporAt the same time it was announced that plans had been prepared and every
arrangement made to take over the mines and transport system if German opposition
forced such a line of action.
In our judgment, considered solely from the aspect of the
Poincare thesis, this procedure was weak in the extreme, and the lack of results to date bear this out. In other words, when Poincare had fully made up
his mind to go into the Ruhr, it would have been better for his plans to have
made the occupation military and thorough by forthwith shutting off coal shipments
to Germany, rather than to have lost tv :o or three weeks which he has lost by
following his somewhat timid policy.


Foincare is now working around to the obvious sensible policy,
he was going into the Ruhr, of encircling it as a military measure and sitting
still as possible, letting the Germans carry on their hunger bLrika as lung
they like. The French and Belgian Governments publiShed the following decision
January 31:

"The French and Belgian Governments at 6:00 o'clock, January 31, advised the German Government, through the inter-



Paris, 18 rue de Tilsitt
9 February 1923.

Ly dear Ben,

With our letter of ebruary 2, 1923, we forwarded as
to the German
Lxhibit A a copy of the notification of January 26, 1923,
Government, of the folloaing decision of the Commission of the same date, viz:
"The Reparation Commission decided:

That by its declaration of January 13 the
German Government cancelled its request of Fovember 14
for a moratorium, and that no action was required to be
taken in respect of that request which had become null
and void as the result of the act of the German GovernIn consequence the Schedule of Payments of Liar 5,
1921, was in operation as from January 1, 1920.
To declare and give notice to each of the
Governments concerned under paragraph 17, Annex II, Part
VIII, of the Treaty of Versailles a general default on
the part of Germany in the performance of her obligations
towards France and Belgium."

The German Government in a letter addressed to the Reparation Commission under
date of February 1, 1923, after acknowledging the receipt of the Reparation
Commission's communication above referred to of January 26, 1923, stated:

"a.s shown in its note of January 13, 1923, the German Government has ceases its deliveries to France and Belgium
solely on account of the occupation of the Ruhr Basin by
these tv:o Powers in contravention of the Treaty of Versailles, and solely for the duration of the state of affairs
c;eated thereby which is contradictory to the Treaty and of
its consequences. The German Government has exercised an
indubitable right in so doing. There can be no question of
The German
a default in the meaning of paragraph 17.
Government therefore enters a protest against the declaration
of such default.
"The German Government must like\Ase contradict the
assumption that its request for a moratorium has become
null and void. The Reparation Commission itself in its
Annex 1359a - 1340 - 1341)
Recision of Larch 21, 1922"
"stated that the financia.1 situation of Germanz: made it impossible for the German Government to completely fill its

J. A. L. Jr.

To Governor Strong - Personal a Confidential.



"obligations for the year 1922 under the Schedule of
Payments of Lay 5, 1921, and Article 249 of the gi2reaty
The Reparation Commission further stated
of Versailles.
expressly in its decision of August 31, 1922" (R.C.
Annex 1519) "that the Reich had lost all credit at home
and abroad and contemplated a reduction of Germany's
In the schemes laid before the Paris
foreign charges.
Conference of January 2, 1923, the principal Allied
lowers then unanimously admitted Germany's present incapacity to make payments, \Jaen they provided for an immediate moratorium of several years in addition to a reduction of Germany's total debt under the Schedule of PayLeanwhile, the financial and econlaents of Lay 5, 1921.
omic position of Germany has been further impaired by the

OCcutiOn of the Ruhr Basin, the mark has fallen to
If the Aeparation Commisl/1C,000 of its pre-war value.
sion now returns to the London Schedule of Payments the
German Government can only regard it as a contradiction
of the position previously taken by both the -reparation
Commission and the principal Allied Powers. Lioreover, the
Reparation Commission is thereby ignoring the provisithns
of the Treaty of Versailles which make the total reparation
debt of Germany dependent on her capacity to make payment,
and give her vital necessities priority over the reparation
"After the invasion of the i-uhr Basin and the beginning
of the economic and fina:Icial isolation of the Left Bank of

the Rhine and the Ruhr 4rritory from the remainder of Germany's economic. organization, the German Government is less
than ever in a position to fulfill the London Schedule of
It can discover in the Reparation Commission's dePayments.
cision of January 26 no real reply to its note of Eovember
14, 1922, and will expect an investigation of Germany's capacity to pay under article 234 of the Treaty of Versailles".
The Reparation Commission at its 556th Leeting on February
3, 1923, considered the foregoing letter of the German Government and decided;
"After having taken note of the German reply of February 1,
the Commission decided by three votes and one abstention that
this letter did not require any reply, and that the commission's
decision of January 26 was maintained with all its consequences".

The French, Italian and Belgian Delegates voted for the decision; the British
There was practically no debate within the Commission on
Delegate abstained.
the German letter preceding the vote, it being generally considered as having
jurisdical protest of record. As the
no significance other than that of
German letter of February 1st had been published by the Germans, the Commissiontdecision of February 3rd was likewise published.



J. A. L. Jr.

2o Gevernor Strong - Personal a Confidential.



inshing reserve stocks for railways, large indastry outside the Ruhr, and
The Germans stated that prior to
municipal gas, electric and water supply.
this importation their reserve stocks had been gradually consumed, leaving only
Last fall, during a Commission's hearing
some five to seven days reserve on hand.
of the Germans, the latter stated that a-1th the coal received from Great Britain
the railways had established reserve stocks for approximately forty four days,
and large industry and municipal gas, eledtrio a:d water supply for sixty days
Such reserve stocks, in our judg(all outside the Ruhr and Rhineland Areas).
ment, were not excessive, considering the dangers incident to the social situation
of Germany, and it is therefor:, hardly reasonable to assume the accumulation of
such stocks a premeditated action on the part of Germany designed to assure a
supply of coal during a period of "passive resistance" such as is now being carried
The above mentioned classes
on on account of the Allied occupation of the Ruhr.
of co, l demands in Germany include all, except requirements of the home and small
The latter two clasees represent only about 200 of the entire demand,
and due to the mildness of the winter this figure of ZCIP, is perhaps in excess of
actual demands this year. We have no information as to existing reserve stocks
for home and small industry in Non-oecupied Germany. The number of days supply
mentioned in the first classes, representing at least 8.0,, of the German requireBy cutting down train
ments, is calculatea on the basis of the normal demand.
service; by restricting the use of gas, electricity, and water; and curtailing
consumption by industry, measures ahich to a certain extent have already been
adopted in Yon-Occupied Germany, the stocks on hand can be made to cover a period
excess of that indicatea.
Due to the French and Belgians having permitted the period
from January l to February 1 to be wasted before suspending coal shipments from
the Ruhr Area into Non-Occupied Germany (and this notwithstanding the fact that
the Germans on January 1;:: suspended reparation coA. deliveries to France and
Belgium), Non-Occupied Germany actually received not only its entire quota of
Ruhr coal for the month of January but in addition a considerable quantity of
the cca1 originally ear-marked for delivery to France and Belgium on reparation
C. Conclusions.

Based on the foregoing, we are justified in assuming:

That the co :1 supply of 1:on-occupied Germany from the Ruhr
up until February 1, 1925, was above normal,


That to the foregoing supply should be added the accumulated
stocks representing from four to six weeks normal supply, and


That, therefore, up until -t least April 1, 1923, the coal
supply of Non-occupied Germany on a normal basis is assured.

In consequence, and based exclusively on the factor of
the effects of col st_rva.tion in forcing Germany to terms, the latter's "breaking
Point" on this account is not before April 1, and in all probability, by imports
Uzecho-jlorakian coal, :Lnd by clutailing consumption as
of 3ritish,

J. A. L. Jr.

'.2o Governor Strong - Personal a Confidential.



indicated, the breaking point could be postponed for a further appreciable
neriod of nooks.
now turn to the social side of the Ruhr occupation.
All reports received by the Commission i,dicate that so fz-ir as the miners are
concerned, their attitude to date is not especially resistant -- perhaps even
docile, to the Franco-Belgian operations in the Auhr. The generally accepted
estimate of the total number of miners in the huhr Area is 550,000, divided into the following broad soci_l groups, the individuals of which groups are intermingled in the various mines:

social Democrats - lot actively hostile to the Allied policy,
Christian Socialists - strongly nationalistic anu actively
hostile to the Allied policy,
Poles - Pro-Allied sentiment,
Communists - Opposed to both French and German capitalistic
interests involved in the Ruhr operation.

Our reports show
At this writing the actual production of coal is falling off.
that for the moment production has fallen to about 35p of norr.111. such falling
off is attributable to the transport disorganization described below, and the
consequent difficulties of stocking soel at pit heads which automatically reduces the quantities that can be mined.
On the other hand, the personnel of the railways, canals,
posts and telegraph, are today strongly nationalistic, and actively hostile to
The larger groups, including practically all the
the Franco-Belgian operation.
Train service is almost completely
transport personnel, are today on strike.
interrupted and sabotage on an extensive scale of te railway facilities of the
Ruhr and Rhineland is being carried out b;- this personnel. In addition to these.
distinct phases of sabotage, stocks of spare engine and oar parts in round houses
and depots, s12are /Darts of signal and other equipment maintained both in the Rhineland provinces and in the Ruhr Area during the period January 12 up until the
suspension and supervision of railway transport with lion- occupied Germany on February 1, were shipped out of the occupied areas, thus adding to the existing conCars loaded with col and other commodities and shipped into ron-occufusion.
pied Germany from the occupied areas have not been returnen, with the result that
the Ruhr and Rhineland railway oar parks have been seriously depleted. All of
the foregoing, while not irreparable in consequences, nevertheless has contributed to the development of a serious transport situation which at best and under
any and all conditions will take many weeks or perhaps months to readjust.
of these difficulties now facing the Franco-Belgians could have been obviated
had the policy adopted at the inception of the occupation of the Ruhr been less
The French and Belgians are hopeful that by replacing the higher
German graaes in the transport personnel of the occupies: areas with Frenchmen
Press reports indi:_nd Belgians th.t orderly operatIons can .e reestablished.
cate that up to 15,000 higher grade Frenchmen and Belgians are being sent to
these areas for this purpose.

Basin have gone on

To add to the difficulties, the miners of the Saar Coal
Certain portions of the French press
general strike.



J. A. L. Jr. To Governor Strong - Personal & Confidential.


the German Government desired to fill this programme of approximately 275,000
Due to the Ruhr transport strike shipments on this account
tons per month.
have been gradually falling off. Any Italian shortages must be covered by purchases f British or Czecho-Slovakian coal.
It is for France to any whether the ultimate gain is
the present loss and the additional expenditure now involved. The time will
shortly come ..hen the bill of costs will have to be faced by the French people.
Her statesmen will have difficulty in going on framing supplementary budgets to
be met out of Reparations when it becomes plain tht Reparations will not be forthThe
coming for France even on the scale possible befnn the Ruhr was occupied.
revelation of that position will be unpleasant for the French nation and may even
force a change of policy and Government. In addition, it is bound to come home to
the French nation even if the Poincare policy of forcing the Germans to "lie down"
is an accomplished fact, as we anticipate it will be.
The foregoing sums up the situation as we see it today.
our judgment, a period of fresh negotiations as between the French and Belgians
on the one hand and Germany on the other will be forced by reason of Germany's
would not ca -re to
coal shortage alone within the next four to eight weeks.
forecast at this time whether the British will then consider it an opportune
moment to join -n the discussion. It rests to be seen whether the Italians,
whose position is now particularly favorable for action as a "go-between",
The Belgians, bcing so closely tied
vill offer their advice as to the solution.
in with the French Ruhr policy, are probably eliminated from their past position
of "co-between" in Franco-German and Franco-British controversies. -.;hile there
is some change of French public opinion's past assurance tff a successful outcome
of the Ruhr incident, recent and gradually growing views expressed in the French
press indicate a certain falling off of this assurance. We, however, are very
skeptical that French opinio# will have sufficiently changed by the time the
German "breaking point" is reached to assure any real basin for a reparation
In the meantime little good and much harm would ressettlement at that time.
ult from any :Atempt to force a consideration of the whole orestion before
International Economic Conferences, public Bankers Conferences, etc. However,
in our judgment, it is interesting to note that in all probability a period
of fresh negotiations will shortly be reache.

Faithfully yours,

The Honorable Benjamin Strong
Governor, Federal Reserve
Bank of rew York,
New York City.

Gam_ CM w



16 .eebruary 1923.

Personal and Confidential

18 rue de Tilsitt.

dear ben:-

At this writing we find little to add to our last

reports c oncerning the development and outcome of the Ruhr phase of the
renaration euestion. The stroneth of the 1-erenn "e.assive resistance" to
the Frcenco-Belgian action in the Ruhr is very much greater than was anticipated by the -r'rench and Belgians. At this moment such resistance,

backed by a rapidly developing lierman patriotic sentimnt of unity, is
anoarently gaining strength. Disorders of a serious character have developed in the Ruhr area and, in our judeenent, such disorders will grow
in importance. The French and Belgians are, in effect, carrying on one
of the eyeatest economic wars of history against 6-errreeny. -he growing

patriotic sentiment on both sides of this great controversy for the time
oeing serves to strengthen the position of the leaders on the opposing
sides and makes their position difficult of assault by the more sober

In. our judgment, and for the foregoing reasons, any thoue;ot of

the ircediate fall of either Poincare or C'uno is illusionary.

The French now anaounce that the "eleve" militarized
railway personnel "which was sent into the occupied areas for a temporary period" and as "a practical method of instruction" must now be retained ueder the colors "until their place can be taken by volunteers".
These and other similar items of press news have the semi-official si6;.--

nificance of preparing the public mind, in certain eventualities, for at
least "calling to the colors" special classes of French soldiery. Every

additional pressure eLeercised by the :Franco -Bel,_:ians to force the e.'ermans

to their will results to date in the stiffening of the German attitude
with incident disorderly action on the part of the more radical German

I:otwithstendiree the critical and important nature
of the PTOWilllg resistance, we r.m. in of the oninion that GermanY will eventually be forced to terms because the French and Belgiar_s, in view of
their public opinion, must go to any extrex to force such an issue._
de then come to the e.uestion as to what will follow
this issue which we 1)redict. Obviously, reparations will suffer. The

French Government's finarc

position is giving no little concern.


exchange is weak----erobably weeker than the actual financial trade balance
of e'rence warrants for the element, but probably far from as weak as it will
finally be, due to the cost of the Ruhr occu)ation and the growing :French
budgetary deficit. For the tiee being no Geerraan Goverment can approach

a J. A. L. Jr.

To Benjamin Strong - Personal & Confidential



the J:'renoh 6overnment

for terms nd live. Similarly, Poincare, who is today
supported by tyze general but as yet not clearly
defined classes of .6Yench opinion, viz:


Those for the separation of the Ruhr and Rhineland

from Geri any; and
(b )

;'hose who feel that the occupation of the :Ruhr
the method of assurin5: reparation payments,


can not make overtures and live. A virtual invasse
is therefore
which probably the only end is the oom2lete surrender of Germany.created in
In the last -oaras-..raph

of' our letter of Pebruary 9, we
made reference to the special position of tlra Italians as "go-betweens"
pres_rit controversy. We are inforisaci that the Italians, appreciating in the
this nosition, within the last few days, throwL_;.h the intermediary of their Ambassadors in Paris and London, infornilly sounded out t reception
riven an offer on their part of their :cod offices inean endeavor would be
eera-,ns e-nd is'rellch and the 1:X.ench and British to an understanciing. to bring the
tion w...s not successful, bein7 rirobably a little too precipitate. Their acu.. Poincare
i said to have intimated that any such :action
on the part of Italy "w uld be
inimicable to .4?r_alco-Italian relations". The overtures of
sador in London, it is understood, met with no success: ho the Italian Ambasbeing inforl:ed thAt
"for the present at leLst the British Sovernment is
-eepinir out of the contdo
1;ndeavors of certain :.'rct.ips to force consideration of
up to the Lea.L;ue of -ations were fruitless. however, as ti is the controversy
particular action has been fully reported in the pros., ther.3 is ix) necesait,- for
goinc into it in detail in this letter.
Cn o'ebruary 11, the irench and Bel ia.n 2,-overnn-Lnts
com-...aanicated the follo*.dal; note to the Ca-ern-an Joverummt:


-2,.-,a7.o.3a of orjers Ivan by the jerraan
and its represt.,ntatives in I-2,e .1uhr Eas;.-:_,
'.73 the
siffictpl ties o.-;
have b,:en .1-,:steraa ically
placed in the path of the .tuhr operation by the German Joy-at, the 2rencli
BeLfia.n J-overarknts have decided as
from .2ebruar L.- 12 to no lon_er o 1.11t the
i cal rand Ut ley
fre.. the ecsu,..,is,1 tar i. oh a113 B(.,1
of the
sir.Iply another "turn of
, the is e'lis..te ef-.1'ect
This act ion clir:L;. The °frosts of t' is ch to curt --e stimulate. :2(erman
measure will soon be felt by tl'e (lerthe ii:
2t n
the 1.ievit:fsle
pat rio tic fa of
sta2-vationl In our letter
of .ifebruar,'

-referred to the Gera..-.n coal po.Atioi..




the naz.iber of


avai able.
eur ...csport, it is 1.,..L'oballe that our estLiate as to the If there of
avail ble is too con:;ervative, and that, from a coal point of view


J. A. L. Jr.


s anal end Confidential

alone , 'Ger:elle; coule hold out even

the shuttiae off of the ..lotallueeical
ducts from iron -occur fed e-ereaq,r will


d led icat ed

never, ,

other eartially finished Ruhr tiro -

.3ho rt 1,y thro w out of e ni,loyment large
con tinaente of 1 ebo r enaeeeed in the finishine. proce:eses elsewhere in ,Ierpany.

al, it


aa to the effect ef. all the foregoing on the JvIrench finan-

of interest to note the tone of certain reports in krerch

L "dsine of February le, or example, states that "deliveries from

the .euhr still L:useended. Co d (ieliveries about -,v12ic h. there have been con-

sider::,b1 e eeel icity merely con.:ist of a few trucks which are loaded and aban-

coned by

nlaway :Len.


is a roat difference between the few thou-

sere', tuns which ray thus be attained and the 10O,OOO tons which should be sent

to the l'reach ftuneces. In 'Tito of se)eeific declarations it would be foolish
to e..pee.t any imp eoveae It before a lon
.krench eete



The cense azences are that t he

ineustry will have to close (tan still more furnaces".

L'e eavre states that 3o far from the railways of the Ruhr operating
as represented, all that has been accomplished is the control of the lines around the Basin. "In the interior of the .,:uhr, the workers refuse to load the
truaks. It is possible that some day or other the Lilies will succeed in reoreanizing the Ruhr but for the moment at any rate it is only the railway lines
which encircle the district which are being utilized."
Other newspaper criticisns that are made are that "the Trench franc
has greatly depreciated". "The Trench Treasury is obliged to emit short term
bonds for 13 billion francs--a diseuised loan--that taxation is to be increased
in France end that the cost of the upkeep of the ainelend the Ruhr ferries will
amount to 1 billion francs if the occupation continues for one year and according to official statistics the cost of
it France has already incre,a9ed considerably."
The foregoing expressions only a1 ear in a relatively small
number of Prench jourrels. The eejority, for the present at least, fully sup' po rt the Trench Goverment and its policy.
De Lasteyri e, the french Fire nce iJni .ster, , announces that he

"will shortly table a bill for the openin.97 of credits in conseauence of the Ruhr

occupation". De Lasteyrie on k'ebruary 13 in the Chamber of Deputies presented a
bill authorizine the emission and renewal of short term Treasury bonds for 1923.
adopted by 512 votes to 71.
-Z. Lacotte, opposing the measu
"In the present desperate state of finance of the country, this appeal of public credit will be an abuse of confidence. The financial situation of krance
would be desperate if Germany did not eey and Gen-.1.-.,ny .-ould not pw unless
erench policy in the Ruhr was effective." In replying to t his criticism, De
Lasteyrie "deniee that his repo sal had any relation to the operations in the
resoonsibility of the financial situation rested not 1.z-)on the majority of the Chamber but upon Gerrany Vil0 had not fulfilled her engapenen.ts.
The amount to be borrowed iniaediately would be reduced to a minimum having reeard to the dearness of money". He :mould "wait until the money was obtainable


J. A. L. Jr.

:)) Benjamin Strong - I'ersorcl & Confidealial


at a low rate of interest".
'de don't attach undue importance to the foregoing but it
nevertheless constitutes a phase of the whole situation ..thich has its importance. The French Government yesterday presented a bill to i'arlia.ment
authorizing a loa of 400 million francs to Poland. The purpose of this
loan has not as yet been expl:'ined. It is generally assumed to hk-ve some
connection with l'olish military sq01;ort of France under certain eventuali-


Faithfully yours,

The Honorz.Lble Benjamin Strong,

Governor, Federal deserve Bank of New York,

New York City.


Dated Feb. 17, 1923
Reod. 1:35 p.m.

Secretary of State

90, February 17, 3 p.m.


Mscellaneous reparation receipts January 22 to February 17th
Luxemburg coal 135,155 pounds credit Belgium proceeds British reparation
recovery act January 1923

711,000 pounds retained British against army







J. A. L. Jr.

To Governor Strong. - iersonal ,




There is another group: the French industrials, though while small
most important influence on French policy. It
in number, nevertheless have
is felt the latter desires to force the German industrials, through the Ruhr
occupation, to Live them participation in Ruhr industry. Official French proposals submitted to the Commission, as well as the press, contain references to
ultimately forcing the German industrials to give French industry a "25p parIt is interesting to note the importance of the term "A 25,E participation".
ticipation in German industry", and this particularly in view of the American
idea of the limited influence such minority holdings give. pie are informed
that under the German corporate law a 25, holder, though a minority holder,
has veto power on all the broader phases of corporate action; in other words,
hile the majority holders control the general detailed administration the broader phases of the corporate constitution and its actions cannot be changed without
the agreement of the "25p holder". We are informed that this procedure was originally adopted so as to limit the field of action of large finance. Practically
however we are informed that it has worked in just the opposite direction, as
it has permitted large finance to spread its influence over a more extended area
of economic activity for by holding only 25,, of the capital of various interlocked associations, it has given a virtual control over all to the large operaIt is understood the French industrials' motive is to force the German
industrials to concede this position to the Frenchmen.

As a reflection on the possibilities of the present French fiscal
situation on the French monetary situation, it is interesting to note the continued refel.ences during the last few weeks to the possible increase of the discount rate of the Bunk of France from 5 to 5 1/2p. ''chile the discount rate
has not yet been raised, we nevertheless gather from various sources that such
a raise is being seriously considered. The question was brought to public
attention by the Government recently raising its rate of interest by 1/2p on
its borrowings on short term Treasury bills. If the Bank of France's uiSCOUnt
rate be actually raised, a new phase of the French currency position comes up.
If the French exchange continues to weaken, or even remains where it is today,
Such advance of 1rices is oocuring today
_:rites will advance to meet the spread.
with the result th;:t there is a modest business boom on in France at this wrisuch boom carries with it a demand for greater credit which will continue
for some time, and which will increase in importance if the franc continues
This will result in creating a demand for an increase in the circulato fall.
ting medium which in turn may ultimately force inflation. The Bunk of France,
which has always pursued a most conservative polity, will combat inflation, and
to this end may be tempted to exert all its influence to further increase the
If the French Governmern's budget were balanced this policy could
discount rate.
However, with the French budget out of balance, and with the grobe followed.
wing demand of the Government itself for currency to meet its obligations, an
You could not go a long time with the
interesting situation would be created.
Bank of France continually raising the discount rate and with the French Government at the same time increasing its rate of interest for borrowed money to
cover its meficits. The Government it would appear, would then be faced with
tmo alternatives:


To let the Bank of France raise its discount rate
successively, the Government at the same time paying
more&more for the money it borrows, which in turn

J. A. L. Jr.

To Governor strong - Personal a: Confidential.



would result in increasing the Government's deficit; or
(2) To let the Bank of France issue bank notes to face the
demand from the business world, in which case the full
force and consequences of unlimited inflation would be

The situation could therefore be that the fall of the franc would not be a
result of inflation, but that it would provoke the inflation which would then
present any substantial recovery in the value of the franc at the time the
operation was commenced. The above observations do not take account of possible changes in the fiscal system by which revenues might be increased by an
augmentation of taxation, or by the accelerated collection of taxes or by
foreign loans to temporarily tide over the situation.
while attaching no special importance to the foregoing at this time,
it nevertheless presents a real difficulty facing the French Government in its
present financial position. The Bank of France will combat by all its power
inflation; on the other hand, the French public in its ignorance of the real
dangers of its financial position will so.influence the politician as to make
From all indications it appears that
increased taxation extremely difficult.
the French Government will have great difficulty in raising any foreign loans as
a temporary palliative to the solution. With all these conflicting influences
it will be interesting to see the outcome.

It is interesting to bring out one phase of the present Belgian
financial situation which has just reached us and which is not generally
understood. Upon the signing of the Armistice there was approximately 6,000,000,000
German paper marks in circulation in Beigium. These Marks were taken up by the
Belgian Government at par and have since been held in the portfolio of the Belgian
Against such German marks counter-values in
Treasury as a Governmental asset.
the shape of Belgian Treasury Bills to approximately one-half the then value
of the pa,er marks were issued, and against the remaining one-half Belgian bank
notes were issued.
'The actual value of the 6,000,000,000 German pa
was at that time about 3,000,000,000 gold marks; or in other words, at that time
In the accounts of the Belgian
approximately 3,750,000,000 Belgian gold francs.
Government there was a liability of 7,500,000,000 Belgian francs against this
Today, there remains
supposed gold value asset of :i,000,000,000 gold marks.
unchanged the liability of 7,500,000,000 Belgian paper francs, while the asset
of 3,750,000,000 Belgian gold francs has practically disappeared, with the result
that the net debt of Belgium has increased by 3,750,000,000 Belgian francs.
other words, the value of cash payments and deliveries in kind on reparation account made by Germany to Belgium to date totalling approximately 1,000,000,000
gold marks just about offset Belgium's loss on account of the more or less worthless German paper marks held in her Treasury portfolio.
Faithfully yours,

1 encl.

The Honorable Benjamin Strong,
New York City.

Ir.._ .4.








4101J. A. L. Jr.

G.overnpr :Arens. - Personal & Confidential



w'eo said: -

1 i ament

If, in spite of the present law which hinders french

commerce, which hinders the operations of our stock brokers
nd which leave us in times of great speculations on the
exchange, almost without defence, if, notwithstending this

we have to fear the evasion of capital, I can no longer
underst: nd it. I orielnelly associated nersel f with the
idnister of Finance, when, in spite of the opposition of
eminent men having long practice in finale:lel euestions, he
deeeended the prorogation of this exceptional law, of this

we -time law which hinders the French to provide themselves

freely eith foreien currencies with which they can heir

themselves at times when our money undere.oes en assault
on the international rfzirket s , this law '.;hi eh lceo.tes us
without defence because de :rived of exchanee values we

cannot reply to speculations with counter speculations.
I originally associated myself with the jAnister of Finance
because I thought this law, so bad in many ways, served at
least the purpose of hindering fraudulent evasion of French
capitol. If the rinister of Pinence now thinks that it does
not even serve this purpose, whet reasons can there be for
opposing its abrogation?"

l'hese observations, coming from such authoritative French ;:kverneent

sources, have their erasing side, being diametrically opposed to the erench

thesis concerning the masures which Freeice has always pushed Germany to apply.

'de now resume our consideration of the French financial position.

The to-

tal French public debt at the nd of 1922, exclusive of sums owing. teethe :Iritish

and United States eovernment ,_ was 260,000,000,000 francs, the external debt (oth-

er than to the British and United States Goverment s) being taken at current rates of exchange. This sum of 260,000,000,000 francs includes all the floating
debt, all of the advances of the Bank of France to the State, all reconstruction
and Credit _rational Loans, the capital value of all annuities paid by the Govern ment either to railroads or to persons having suffered war damage and in general
all the debt of France exceeting the amounts owine: to the Governments of Great
Britain and the United States.

Increase in the debt will

take place:

a) to complete the reconstruction of the devastated regions, and
b) to cover the deficits in current expenditures including interest charges on debt incurred to finance reconstruction, as well
all war pensions, etc.
The reconstruction has been carried out, first by the etete directly on

its own account, and second by payments being made to persons who have suffered
war dareeeee (sinistres). The reconstruction carried out by the State on its own
account has been practically completed. This -consisted of filling in the tren-

Qhe s and shell holes, clearine the land of barbed wire, unex-oloded shells, etc.,

OJ. A. L. Jr

o: ,:iover-hor

- Personal



the rebuilding of the hic_hways, railroads and canals, the -reestablishment of the
telephone and telej;raoh services and the reconstruction of Liovernmnt buildin7s.
The total amounts already paid, or to be raid, to the sinistres can now be very
closely estimated and are known to be about 83,000,000,000 francs, of Vil lirth about 43,000,000,000 francs have been paid. There r:_.mains thus 40,000,000,000 that
francs to be paid but of this amount there is orobably 10,000,000,0GO francs
will drag alonci for laily years 901X of which will Lever be paid at all owing to
the 7rovisions of the law on war daoi-es which re,-Luires that the sinistres Lan
actually reblzil:- the property destroyed in order to receive the whole of their
The balance rerminint. to be -paid out on canital reconstrucwar dalx.L.e
tion ac.:;otuit . ;ithin the next few years amounts to about 30,000,000,000 frr:ncs
a -oeriod of from
and this can, it is estimated, be coat:lately finsnced out withinthat the 2rench
2 1/2 to 3 :;cars, or say by he end of 1925. This is assuming.
nation can fint-:nce this capital expense at the rate of 11,000,000,000 francs to
12,C0C;,0CO3OCC per year although in past years the rate has been f<reater. All
to capital outlay without countin;. interest upon loans
these fi sires refer
issued to finance the S e payments.
reThe `u lie debt ::lay therefore be oxpocea to increase on accourt
:.;ux:';:uction expense by about 30 ,(..,.C.U,C(_,C,(XC) francs in the next three years. In
annual deficits in current e:3)endit...zres both on account
of the or,ixary budsTet together with suppleLentai cre,:its, and the suocial bud :et, the 1.,-;tter L.olni;in: interest on Jredit 1,ational nd deconstruction loans
th:: expo.,s of the Li:LA:11:27 of Liberated
if those deficits lie put in at 3,,OCC, .


era co for the spacial



J.A.L.J r'


- 4. t;..'




eavaet bead is to decliee, the .rench eovernment, playing upon the fears of the

Larket that a further decline in interest yield will take rlace, offers a new
route upon a lower interest basis but guarenteeing the holder for a period of
10 years or ::ire acalaot any further conversion.
Thus it proved possible in the
last century for the french Government actually to anticipate declining interest rates and to reduce the charges on its public debt prior to the full decline
in interest yield being reflected in narket rrices.
This was only possible due
to the laxee surplus SaVilIF:' power of the French eleoele and if the econoreic situation of Prance holds up it i s entirely possible that with the completion of
:reconstruction fimanee this sale situation will be reproduced under the influence of the mass of public savings in excess of the part taken by the qovernment.
The ir,-..1ort:.-Ince of the f-.,bovf considerations rests in the fact that the
interest charges on the public debt constitute, and upon the cora)letion of the
reconstruction .eraeram will, even to a ,-_^,reater extent, constitute so large a part
of the annual budgets of the ereach 'Jovernmeut.
The charges on the existina
debt are sc.eeewhat less. than 12,500,000,000 francs not including appropriations
for amortisation of arincipel. With the increase in the debt that must necessarily take place during the next three years probably at htL:h rates of interest, it is not unlikely that the total interest charges may amount to 16,500,000,
CCC frencs for 1926. This figure will likely be roughly about 1/2 of the total
2rench bud- -et if there be allowed 4,000,000,000 francs for pensions (iev3leraling
pre-war eensions), 5,000,000,000 francs for military, naval and aviation expenditures and 6,000,000,000 frencs for civil exeenditures.

In order to carra this total burden of 32,000,000,000 ter year, it rust
be supposed th t the ordinary revenues of the Government can be increased from
the present figure of about 20,000,000,000 francs to at least 25,000,000,000
francs per annum. It is true that tie savings in interest through optional conversions of the public debt into lower interest bearing debt could begin to come
into play, and over a period of several years it is conceivable that the average
interest on the entire public debt which should amount to mere than
at the
end of 1925 could be reduced to 4jo representing a saving of nearly 4,000,000,00Q
francs per year. It is evident that there must likewise be a rigid schedule of
economies in all departments and that political conditions should be such that
the military expenditures could be kept within the appronrintions provided for
in the general budeets_,_ viz., 5,000,000,000 francs without recourse to supplemental credits such as have been necessary for the maintenance of the army of the
Levent and will be necessary for the troons in the Ruhr.

well as above oetteisticallv outlined the trench budget will not be completely balanced. ,Lscumiri revenues of 25,000.006,000 francs an average of 4%
interest on the debt, political conditions which will keen military expenditures
within 5,000,000,000 francs and a schedule of civil economies which will reduce
expenditures from the present ficure of 7,CuG,00C,C00 francs to 6,000,000,000
The possibilfrancs there will still remain a deficit of 3,000,000,000 francs.
ity of receiving something from '..eneany is undoubtedly still entertained in Goverrrent circles such receipts being considered essential to the balancing of the
If Uermany can be brought to min, an annual rola-Pent to Vrance
eorench budget.
of e200,Q00,000 per year, this at current rates of exchange :could cover the remaining deficit of 3,000,000,000 francs. This deficit of course would be aug

eJ. A. L.



Governor Strong - Person; 1 & Confidential


wanted not only if the schedule of economies and of increased revenues failed
to be carried out but also if it failed to be carried out in time to prevent
much additional borrowing after 1925.
The foree:oing in our view presents the basis of the present policy of
rench Treasury looking to the eventual rehabilitation of French finance.
EVen.accepting all points of this optimistic presentation of the French Government's financial situation and policies, there develop two most interestin
points which it is believed important to bring out:a)

The French budget carraot be balanced without substantial renaration payments by Germany to France (i.e., ,A50,000,00C per year);


lo resources whatsoever from which to meet indebtedness due the
Governments of the United States and Great Britain unless derived
from German renaration payments to .2rence in excess of 450,0(.0,
CGO per year.

In connection with (b) above, it is interesting to note that such relatively obscure references as are made to the United States debt in the French
Treasury documents show the total fil:ure at different intervals at the capital
amount, without any increase on account of accruing interest. On the other
hand, the British debt, when similarly reported at different intervals, shows
a -;radually increasini' total due to the addition of interest.
in this connection that while our French obligations are represented by Five
per cent 2rench notes, nevertheless, La.. Rathbone , when here, had some dismission with the French Treasury concerning the pernanent obligation to be handed
the American Government. ro coclusions were reached on the question of the
interest rate, and it would appear that the French use this as a reason for not
adding accrued interest to the capital amount in their reco2ds, notwithstamAng
Je report this latthe fact of our actually holding their five per cent notes.
ter phase for what it is worth.
Faithfully yours,


The Honorable Benjamin Stron::,
Governor, Federal Lleserve Baiik of :ew York,
hew YorIc City.





...,GAN JR.

Faris, 18 rue de 2ilsitt.
9 I:Arch, 1943.
Personal Z.,; Confidential

-14 dear Ben,

In previous reports concerning the Ruhr occupation we
referred to some specific instances of the indirect cost of this operation to
France and Belgium. .ie,however, omitted reference to other important items
In this letter
of indirect cost affectint the general French fin.
we intend to present come considerations and conclusions connected with the question of indirect cost.

As already reported, the ..rench Government has so far confined itself to asking Parliament for the following credits on account of the
Ruhr occupation for the months of January and February:
5,000,000 Francs for the maintenance of civilian missions,
for the maintenance of troops (35,000,000
of which was announced as being in recess
of the maintenance cost for the same number of troops on French territory), and
for transportation expenses.

The foregoing is the direct governmental contribution to cost, which we can
assume as being some 50,000,000 francs per month.
It is of interest to present some details concerning the
indirect cost to the French metallurgical industry, which is today virtually
in a period of crisis. As a preliminary, we assume an average monthly delivery
of reparation coal to France prior to the Ruhr occupation of 1,000,000 tons.
The following figures show the total receipts of German coal and coke by Prance,
Belgium, and Luxembourg, as published by the Office des Houilleres
"Before the Occupation.
Jan. 1 to 9.
Ruhr mines
air: -la- Chapelle mines

Cologne mines



of coal
of coke
of coal
of coke
of lignite


J. A. L.Jr. To Governor Strong - Fersonal



After the Occupation.
Jan. 10 to 15.

1,729 tons of coal
9,800 tors of coke
2,884 tons of lignite

Ruhr mines
Aix -la{- Chapelle mines

Cologne mines

There are no figures for January 15 to 25, but the Office des Houilleres binistrees admits the German estimate that the "Allies did not receive more than
7,500 tons of coal". cis to coke, the 6ociet6 des Cokes des Hauts-FOurneaux
received the following quantities:
"January 1 - 12
12 - 15





- 20

152,500 tons
16,700 "
4,600 "
1,394 "


Lack of coke constitutes the principal ela:.eit of the crisis now being passed
The first effect of the non-receipt.of
by the French metallurgical industry.
coke was to stop a number of French blast furnaces in blast on January 10. At
first the metallurgical works apparently did not want to put out their blast
furnaces, preferring to dEmpen them down in the hopes that deliveries wiould
The French today admit that "over one-half of their blast furnaces
are out".
It is interesting to refer to the following quotation which appeared
in the press about one week ago:

"In -Lieurthe-et-Loselle there were 45 blast furnaces in
blast on January 1.
(Longwy 4, Lacheville 3, Vi
La Ghiers 2, Hussigny 1, La Providence a Rehon 4, Saulnes
Senelle 4, Homecourt 3, Ueuve-Laison 3, Pont-&-Eousson 4).
As the total number of blast furnaces in Leurthe7et-Loselle
is 80, the activity of 45 of them represented 551. of the
normal production.
In Moselle there were 40 blast furnaces in blast on
January 1.
Then came the occupation.
In Lioselle the figure
fell from 40 on January 1 to 39 on January 15, 36 on the
20th, 4S on the 24th, 41 on the 28th.
In Leurthe-etUoselle, Znutange has damped down 4 blast
furnaces; De ';:endel has damped down 8 at Hayange and Lioyeuve
and 2 at Joeuf, so that of their total of 21 they finished
on January 25 by having 7 at work. La Providence has damped
down LongWy-Rehon, Longwy 2 at Lorit-Saint Lartin, La
Ghiers 1, Eicheville 1, Ponta Lousson 1; this last one alone
represents one-third of the total production of the foundries
at Pont-&-Mousson.
And by. the end of January the production of the French
blast furnaces which was aTout 40 to 45, of the normal at

the beginning of the month had fallen to 60 to
651, of that

J. A. L.Jr. To Governor stronE - Personal & Confidential.


In the Saar, Rochling has damped down 3 blast furnaces,
Burbach 4, and the Redange Dilling works 2.
The same situation in Luxemburg: 9 blast furnaces damped

-s the supply of German coke diminished the price in the
limited French and other foreign markets increased. On February 1 the basic
price of metallurgical coke, fixed by the Societe des Cokes des Hauts-Fourneaux,
It has been put up to 150 francs as from February 15. Instead
was 110 francs.
of the basic price of coke delivered to the works being applicable to 40 or 50/0
For the
of their capacity of colisumption, it is now applicable only to
remaining 9q,, the price is 200 francs, which gives a mean price of 195 francs.
The works are taking measures to protect themselves, and naturally at the expense of their customers. These measures are of two sorts:

Cancellation of a proportion of the contracts signed
before the crisis, and


Contracts in process of settlement all have prices
based for the future on the price of metallurgical
coke or of unrationed coke at date of supply or

;:hile under the foregoing arrangement the works have a certain protection, the
customers no longer know what their orders will cost them.

Certain difficulties on account of unemployment in the metallurical industry are also threatening. Already in many cases the working
day has been reduced to four and five hours, and there is now some talk of a
forced stoppage for one or two days per week.
;.e now turn to the ciuestion of what the monthly replacement
cost would be of approximutely 1,000,000 tons of coal heretofore received on
reparation account from Germany by France. The reparation credit figure of
price, althouL;h generally cheaper than the
orld market price, nevertheless represented some 13,000,000 gold marks per month; or, in other words, over 13,000,000
Taking the dollar at Frs. 16.50 we get a value of approximately
gold francs.
54,000,000 paper francs per month as representing the loss to France on account
of the non-receipt of reparation coal since the Ruhr occupation.
The cost per
ton based on the foregoing factors gives a figure of some 54 francs per ton as
against a figure of cost of 147 francs C.I.F. in French ports of British coal
today with the pound sterling at 77 francs. Therefore, if the entire monthly
shortage from Germany were to be made good by import of British coal it would
cost about 125,000,000 francs per month. It ap ears needless to say that as
yet the French have made no effort to entirely replace the monthly shortage in
deliveries of German coal.

In our previous letters we referred to the increased importation of some 300,000 tons of coal by France in January from Great Britain
over and above the 1,000,000 tons normal monthly supply from the same source. also referred to extraordinary French imports from Holland and Gzecgo-Slovakia.
there have been some few thousand tons of coal and coke actually
out of Germany into Fr::nce by French military transport personnel,

the amount




J. A. L. Jr.

To Governor Strong - Personal & Confidential



pany them, and at the preeent time such local verification and phjsical examination of aeports is completely
As concerns the occupied territory, the German Director

of Cont:ercial statistics in Berlin stated recently that he

could no longer vouch for the accuracy of the information
given out by his Depa,raent as some of his customs officials
had been arrested :nCt some expelled, and in general the customs system in the occupied territory was no longer under the
entire control of the ',Ierrean authorities. An endeavor had
been made to et in touch with the interallied Rhineland High
Commission to ascertain their intentions as the result of
this statement, but as yet no reply had been received."

At this point in the hearing of E. zresciani, the French

member of the Coemittee of Guarantees, L. Lauclere, interrupted, saying that it
might later prove necessary to turn over a part of the Committee's control to
the Interallied Rhineland High Commission.
Mauclere decided not to push this
question in view of the British manber's opposition as the latter was in position to force a decision up to the Commission. If before the Commission, it
would raise a question of "interpretation of the Treaty" requiring unanimity
and therefore impossible of adoption without the British vote or reference to
the Governments. On a number of different occasions the Question has arisen as
to the Commission according "mild forms of recoenition by the Reparation Co :mission of the existence of Interallied agencies established in the Ruhr since
the occupation". Such proposals have from time to time been adv . need in various forms by the French and Belgian Delegates. In each instance, however, after
Bradbury intimated the possibility of such propo sal s raising the (most ion of
"interpretation of the Treaty". the proposals have been withdrawn. Bradbury is

in a position at any time he sees fit to raise the question of "interpretation"
on account of the activities of the so-called Allied agencies in the Ruhr. So

far at least he has not felt it expedient to force the issue. However, the
and as a fly in the ointment to such Versailles i'reaty juridical purists as i.

possibility always rests as a dark cloud on the horizon over the e'ranco-Belgians

In view of all the foregoing, M. L:auclere agreed


sending M. Bres-

the occupied areas to "consult with the local Allied authorities
there as to the best mareter of securing accurate data as to the value of German
exports upon which to state a part of the Gemean account under the Schedule of
ciani into


The foregoing is reported as showing a certain ariDiguity
of the position of the Reparation Commission and the Committee of Guarantees incident to the exi sting zranco-Belgian occupation.

Difficulties have been encountered due to the e'rancolevy on exoorts and imports in occupied German territory. This has reached a somewhat acute form as concerns the activities of British merchants who
have established themselves since the Armistice in Cologne. At the present time
the British zone is capletely surrounded by the e'rench and Belgian zones of occupation with the exception of the Rhine river. To date the 2ranco-Belgians
have maintained the right of levying on goods consigned to and coming from such
British merchants. In addition, it is reported that a British steemer on the

Rhine river is being held by the french who maintain its cargo is subject to this

es J. A. L. Jr-

Governsr Strong - Personal & Confidential



tax. 10 definite information is available as to the outcome of this situation

which is causing some concern.

In this same connection the Japanese Delegation informed us
the other day that they were somewhat embarrassed by reports of Japanese importers of German goods from the occupied territory as to their position visa-vis the German authorities and the french authorities. according to the Japanese statemt, the .e.ralle0-.belgian occupation authorities enforced payment of
a 10`:: ad valorem export tax in adeition to a payment in foreign currency for
each export, corresponding in a sense to the 25 ;.? collection on the values of exports prescribed by the Schedule of Payments. In the occupied ter itories there

is not a fixed percentage applicable to all exports, but a foreign currency pay-

ment which varies according to different categories of ..goods. ',11-ien these goods
passed in the course of their shipraent out of the occupied regions into and thru
NOn-occ-apied. Geri ny to Hanturg and Bremen, the Gereans in turn demanded a


ad valorem export tax and the customary payment in currency of sound value of
The Japanese importers have naturally 'ere25`,. under the Schedule of Payments.
tested, claiming that such payment had already been made to the -French and Belgian authorities. The Germans replied that that had nothing to do with Germany,
and that Germany was forced to exact such taxes under the Schedule. Unquestionwhich
ably by this time bnnerican importers have encountered similar d iff
in all probability have already been reported to the State Department. lipwever
as the fore,,ceoine: difficulties are apt to become more and more acute and are beinn' encountered by neutral countries, particularly Holland and Switzerland, we

feel it important to bring the question to the attention of the .Department.

The foregoing views and conclusions, while perhaps superfi-

cial in certain details, nevertheless, accurately picture the financial and e-

conomic gravity of the existing s ituat ion. The r'rench and Belgian Goverlznents,
who at heart have no illusions as to the present aspects of the financial and
they no.: ins c..k.e.zeives , i'ee nevertheless being
economic position in
somewhat reluctantly pushed along by their public opinion, and still maintain
the hope that the ultimate end attained will justify and cover their economic
and financial losses of today.

trait: fully yours,

744_, a

The Honorable Benjamin Strong,
Governor, 2ederal Reserve Banc: of New York,
rew York City.


Annex 1783 a.b.

0INEX 1783 a.
PARIS, Larch 14, 1923.

From: The Corwittee of Guarantees

: The'Reperation Commission.

Issue by the German Government of an Internal Loan to be subscribed,

in foreign currencies.

The French Delegation has referred to the Ccomittee of Guarantees
the attached note relating to the issue by the Geruan Government of
an internal loan subscribable in foreign currencies.

In the course

of the discussion the French Delegation further raised -the question
of the Reichsbankls right. to issue such a loan rithout the

authorisation of the Reparation Commission.

As the yroposals of the French Delegation involve an interpretation of Article 248 and paragraph 12b of Annex II to Part VIII
of the Treaty of Versailles (on rhich the of the

Committee rere divided), the Committee

of Guarantees took the vier

that it could not arrive at a decision until the Reparation Commission
should have ruled as to the interpretation of the above texts.
The Comuittee-of Guarantees has the honour therefore to submit
these questions of interpretation to the Reparation Commission.


-1A::NT1( )783 b.






The German Government hss decided to issue a domestic
loan payable in gold.

The subscription is to open on

parch 12th next.
The French Delege,tion considers it imperative that the

Committee of Guaranteec, entrusted with ensuring the
applioation of Article 248, should at once call the attention
of the German Government to the consequences of such a

At the present rate of the nark the service of a gold
loan would constitute a heavy barden on the resources of the

amu:ag the

Ti L;

prier i'.y

The consequent e;Iponditure to be charged

buJcets could not be considered to be included
esLtimai:e or necessary expenses of current

e::penditure must all the more be subject to the

luLd duwn in Article 248 since the insertion in this

Article of the right to grant exceptions was in particular the
result of the desire to allow the German Government to issue
domcstic as well as foreign loans.
It was in fact at the request of this Government that the

Allied and Associated-Ybwers decided to complete Article 248
by this right to Grant exceptions.

The German Delegation had complained that "the establishment of a first charge would ruin the credit of the Empire and
tne States", and enquired howp.outside the Reparation Commission,
"Germany could contract further domestic or foreign loans."
The Allied and Associated Powers revised the texV-ur
Art:clle 24P, considering, they said, "that in certain special
cases there must be freedom to grsnt exceptions to the getevalprincip1e


lrid down.


nner 178:;


This ne4 provision mekrs it possible, in particulrr

to take measures to sefeguard Germany's credit as far as possible."
The German Government admitted therefore that it could not
is:Jue a loan, either domestic or foreign, without the consent of

the Reparation Commiseion and it was in view of this fact that the
right to grant exceptions in this respect to the general first
charge, was inserted in the ter_t of i_rtiele 243.

It is moreover obvious that if the Governments of the German
Empire and States had been granted unlimited freedom to incur debt
the result would have been to nullify the rights of the privileged

Furthermore, even on the impossible assumption that the German
Government should be left

in spite of Article 240, to issue

unlimited domestic or foreign Zang in gold or national curecney,,
it would be none the less true that the service of suet, loans would

be subjeot to the settlement of the credits for which this article
establishes a first charge.

The German Government would be unjustified in denying this,
inasmuch as in the same passage of the Remarks of the German
Delegation it is stated that "the service of each of those loans
;further domestic end forei6n loans), would be placed in a doubtful
situation if they were subject to an unlimited arbitrary charge ber
fore any payment could be made".
Loreover, does not paragraph 12 of ,ennex II impose on the

Reparation Commission the duty to ensure that the sums for reparatioL
which Germany is required to pay shall become a charge upon all
her revenues prior to that for the service or discharge of any
domestic loan"?


17r',3 b

Therefore, in Opinion 41S, the Members of the Logal.
Service, while divided on other points, were unaninous in finding
that "I%rtiole 242 end the corresponding articles of the Austrian

Hunccrian end Bulgarian Treaties

g , ..roquire the ex-enemy

not to pay the interest or principal of any domestic

loan in priority to on enforceable claim to a roparation payment. 6
In view of all this, and in presence of both the issue
of a now domestic loan, and the existence of claims whiCh, being
enforceable have not boon discharged, is it not the duty of the
Committeo of Guarantees at least to call the attention of the

German Government and its lenders to this unquestionable canoe,
quenco of the Treaty.
It is in fact

the Committee of Guarantees which, under

Article 7 of. the Schedule of Payments, is "'charged with the duty

of conducting on bc,half of the Camtission the examination
provided for in paragraph 12 (t') of Annex II to Part VIII.*

Finally, the Committee should remeMbor that it must,
under the sane Article;, "'secure the application of Article 248",

and, more particularly, atho application to tho service of the

Bonds provided for in Article 2 of the funds assigned as security".
Now, in viow of the fact that nono of the spocial revenues
provided for this purposo have as yet been handed over, and in
view moreover of the mandato which the Alliod and Associated
Powers have entrusted to the Reparation Commission to secure

thc execution of Article 24P, the Comittee would bo failing
in its duty if it did not take every measure to proVent the
exceptional revenues of the Reich, such Ds the proceeds of the
contemplated loan, from being excluded from the first chargo

laid dorn by this Article.


Annex 1783 b'

The French Delegation, thorofore, is of opinion that the
following statenent should be sent immediately to the Gorman

the Reparation Comission has grantod no exception


to the Garman Government under Article 248 in favour of the
geld loan which tho said Government has just deo-lied to issue,

the proceeds of this loan together Viith tho funds earmarkod
for tho service of intorest fall . ithin tho assots and rovenuns
of tho Roidh vlhich Article 248 assigns by priority to the settle-

ment of roparations and othor charges rosulting from the

Consoquently, tho Reparation Commission, acting


Articlo 248, requiros that the proceeds of this loan shall
be appliod to tho sottlement of those privileged claims,
and reserves the right, under paragraph 12b to Article
to assign to these dlains all funds earmaricod for the service
and discharge of the loan in quostion4.


Paris, 18 rue de T-ilsitt.
16 Larch 1923.

Personal & Confidential

dear Ben,

There has been some publicilV to the possibility of opening
negotiations between the Franco-Belgians and the Germans on the reparation and
It has been clear for some time that both parties
Ruhr occupation questions.
to the controversy are approaching a frame of mind where they would like to
On the other hand, in the present state of
have some direct conversation.
Poincare or Herr Cuno
affairs, it would be political suicide for either
There have been certain maneuvers to the foregoing and
to make the overture.
which are of interest: Herr Cuno, in a speech in the early days of March,
insisted upon the fact that his government had:

"elaborated new proposals for the Paris Conference of
Prime Ministers and had invited the Powers to receive
these proposals in written form".
adding that he

"had offered to negotiate with a view to bringing about
a collaboration of French and Lierman industry".
In an official note issued by the Qtzai d'Orsay (11 March 8, the French replied
to the statement of Herr Cuno in the following sense:

"At the opening of the Paris Conference L. Poincare described
the demarche taken by the German Ambassador in Paris who had
been received by the Director of Political and Commercial
Aff's at the Quai d'Orsay. Dr. Mayer declared to M. Peretti
della Rocca that he had received instructions from his government 'to inform M. Poincar6 in an official manner that the
German Government, after having examined the reparation question with the authorized representatives of the German economic interests, had drawn up a plan to settle this question.
The German Government had obtained assurances of help from the
representatives of German industry and finance for the carrying
out of the program thus elaborated, and had charged Dr. Layer
to approach M. Poincare as to the possibility of a representative of the German Government being allowed to submit this
plan at the meeting of Allied Ministers and give verbal explanations to them.
The German Government authorized Herr Bergmann
to expeound the plan before the Conference'.
It was therefore
not even a question of written proposals but simply of a demarche announcing a visit. Mr. Bonar Law was entirely in agreement
with M. Poincard in postponing to a later period the












J. A. L. Jr.

To Governor Strong - Personal & Confidential.



"from the point of view of her military obligations
and edpecially to the obstacles which have begin put,
since the occupation of the Ruhr, in the way of the
control exorcised by the Eollet Commission. It should
therefore be recalled that Article 429 of the Treaty
formally links up the evacuation of the Ahineland
territory with guarantees against an unprovoked aggresIt would not be surprision on the ',art of Germany.
sing were the French Government to recall the doctrine
::lillerand by virtue of which,
proclaimed in 1920 by
so long as Germany does not fulfil her diarmament obligations, the period after which evacuation shall be effected does not begin".
In view of all the foregoing, we would hesitate expressing
On the
the view that the opening of the period of negotiations is imminent.
other hand, there is evidently great activity in many quarters to advance the
date of this period. There are signs of a more conciliatory spVit from the
German side. A belated correction has been put forth in Jr. Cuno's Reichstag
speech, toning down a passage in the reports which made him say ";:arnings to
The phrase is
negotiate should be addressed not to Germany but to France".
This is an important
now to read, "not to Germany alone but also to France".
departure from the views heretofore expressed from Berlin and an important step
in the path to understanding.
Faithfully yours,


The Honorable Benjamin Strong,
Governor, Federal Reserve Bank of
New York, New York City.


PY - :iD



Dated -,:arch 17, 1J23

Aeceived 5c26 p.m.

:.ieoretary of 3tate,

SAahington, D. C.
1.j2 '..arch 17, 4 p.m.

B 867.

iscellaneous reparation receipts iebruary 17th to -arch

17th Luxemburg coal 2000 pounds, textile alliance dye stuffs f'4564 credit

kroceeds British reparation -ecovery action iebruary 1923

625000 pounds retained Great Britain against army costs.






A. L. Jr".

To Governor ;.;trong - Personal & Confidential.



The attitude of France which has alreaay
been announced remains absolutely unchanged. Not only
does the French Government remain decided to pay no
attention to the various "feelers" which might be made

by allied or neutral personalities, but goes further in
announcing that it would consider as unfriendly all such
offers of mediation.
Only such proposals which are made
directly by the Government of the Reich to the French
Government ':ill be examined by the latter."
On :.:arch 22 Herr Uuno, in a speech at Lunich, made the
following statements:

"I repeat what I have said at the Reichstag: ';.ith a
France which wishes peace and reconstruction, we are
able to deal, but with a France which wants the Ruhr
and the Rhine, and in addition wants the destruction
of Germany, we will never reach an agreement".
He concluded tc, asking the German people to continue their passive resistance
in the Ruhr, declaring

"that Germany has not asked any one to mediate".

The foregoing announcennts have for the time being stopped the press reports
of "an impending early settlement".
From what we gather, these press reports
to date have had very little foundation in fact, particularly as presenting
any real evidence of German weakening. From what we gather, the German people
in their present wave of patriotism are perhaps too resolute in their purpose
to fight the present situation out to its bitter and irrespective of consequences.
This is perhaps even an embarrassment for the present German Government who, while wanting the best terms possible, do not want to see real chaos
in Germany.
On the other hand, the effect of the forgoing announcements
by the outside Lireat Powers of their intention not to interfere and particularly
the British invitation "for Germany to take the initiative by directly approaching France and Belgium" must tend to seriously shale German resistance.
;:hile we would not care making the definite assertion, there
are, nevertheless, some indications that Great Britain is showing a somewhat
more conciliatory policy with regard to France. In our letter of I.:arch 16th we
referred to the visit of Lord Derby to Brussels and Governor Borman of the Bank
of "gland to Paris.
Me also referred to the rumored presence in Paris of 1.:r.
Baldwin, the Chancellor of the British Lxchequer.
This latter rumor was unfounded).
The fact that
Norman's visit became public property led to some criticism in the French press on the grounds that the visit was based on the desire
to "interfere in the Franco-German situation".
This criticism however was dissipated by the semi-official publication of the following:


J. A. L. Jr.

To Governor Strong - Personal



to date has brought France to the edge of a financial abyss. The situation
regarding the strengthening of the franc is so nebulous that we would not
care to express any opinion as to causes. The sentimental factor as concerns
It is understood that
the position of the franc is of far-reaching importance.
there were signs of a certain hesitancy on the part of the French public in subscribing to new internal loans and on this account, and as a measure of supporting confidence, the French Government has been operating to some extent in
It is also understood that the financial arrangements of
exchange markets.
large groups of Americans incident to their annual visit to France has had a
certain effect on the improvement of the franc. It goes without saying that
even a tempotary strengthening of the franc during the comparatively short period
during which American tourists are purchasing their francs carries with it a
substantial benefit to France at the expense of the tourists. The improvement of
the franc due, to a certain extent, to large purchases in America has been mystiIn this connection, Bradbury in a somewhat jocular frame of
fying to everyone.
mind remarked to us that "America has already paid Europe through her purchases
I note by lair recent
of marks a large proportion of Europe's debts to America.
heavy purchases of francs in New York that America is now contemplating paying
Europe the balance of what aairope owes her by purchasing francs".
certain American newspaper men tell us, it is apparent that Bradbury made about
the same jocular remark to them.

At the top of page 9 in our letter of Larch 16th we incorrectly typed the approximate value of restitution deliveries to France and BeLzium
at 2,700,000,000 gold marks. This figure should be corrected to read "francs"
not "gold marks".
also omitted from consideration the value of the interests
of the German Government and her nationals in public utilities and concessions
handed over to the Commission in accordance with the provisions of Article 260 of
the Treaty.
The Commission demanded all of such interests and has all of them on
hand, including many "wild cats". Germany will be credited with the proceeds,
if there are any proceeds, but the credit does not seem likely to be substantial.
There is no way of estimating it.
It cannot possibly represent the real value
of the property for neither the Commission nor the Allies can hardle or realize
In addition, all the German submarine cables have been
on it to advantage.
turned over and Germany will get credit for them. It is difficult to approximate what they are worth.
However, the security under Article 260, the cables
and various other odds and ends which might be added to the presentation, do not
constitute important factors when you are talking about billions.
It is perhaps pertinent to venture some views predicated on
the soundness of our estimate of today's situation as expressed in this letter.
If the British are able to obtain, or have obtained, some assurances of an eventual sane French line of conduct after they have forced the Germans to terms, we
feel great good would be accomplished by the British, and outsiders in general,
exercising indirect pressure in forcing Germany to make the earliest direct and
unequivocal overtures for a settlement to France. Eventually, Germany must bow
down, and every day that is lost before reaching the settlement carries with it
irretrievable economic and financial waste. French pubIt opinion demands "the
victory", and if safeguards for French future conduct exist, or are obtainable,
in our judgment, every effort should be made to force a termination of the present
Great Economic T:ar.

It Hon. Benjamin Strong,

New York City.
Federal Reserve Bank of St. Louis

Faithfully yours,
Reserve Bank of St. Louis


Do. 451,

Se/rd.-co Ju_ri

qui oxiger quo tollo rossource d6torrain5a de 11Allonagno - on
soit affoot-o a lx accruittocant
1 1 ospeo lo pro dui b

do sos obligations do "'operation - Oquivaut a lo. saisio par la
Commission dos Rtpurations do sotto rosso-c_coo. Or, ils oonsidOront
b do liAnnoxo II no
quo Li ltArtiolo 248 ni lo :paragrapho
Commission dos RODaratf.ons la drcit do saisir un
bier ou royal= ds5termin3 3u qouvorn.cont alloccnd. IrArtiolo 248

nlattribut ;!1, la Commission 1.os R6parations anoun droit roof sur
los bions gouvernemontaux al la Moll ds, of to 1)o ragx e,pho 12 b do

11Annaxo II nta.000rdo pas

la Corwission dos R6p,...rations de

droito a 11 onoontro do l'Allecagne, nabs lui oonfio seulcmont
la taoho d'examinor lo systko fi soal allerand afin do s7 assurer
(5. tout lo coins pour la pr600nto disoussion) quo los dispositions
do 1/Artiolo 248,Tui donnent a la Commission dos Bhparaticne un
droit de I-P-orlte an regard des autres or60,:soes do 11A11c4 agno,
soiont roopeotaos.
Par cvontrol. los Juristos francals of Italian ostincrat
quo la Commission dos RO2arations dui, Wu:a° part, a 5t6 eharo5o

par les Puissanoos allioos at associf3es a, assurer, par llintorAdiairo du Comit`o dos Gir.rantleo, 1' oxeloution do 11 Artiolo 246,

qui, di autro part, dolt III assurar quo " tous leo revonus do 11 Allo.spient affootes par -Driorit6 au payoment dos scer,es
"duos par ollo ,E), titre do reporations", ost on droit do doraandor
clue tols rovonus normawc ou dont olio sot quo 11.alomagne ben6ficie, par ozu4m-ao du okof. do 1, eraissi on Mtn oraprunt,

soiout affootes a 11 ac qui ttcoont c1 vaao fraotion

dott3 do

o do sa


Vappui do lr e.:ceroico do co droit do,...2c los conditions

actuallos, is Con.-Assion dos RO?arations pout so ?rCvaloir de sotto
doublo airoonstanao quo lo Gouvornsmont caloric:1nd, a.-a.Z)s wvoir

Ye. 451.



failli 4 119eaoution dOo Obligations reanitant do

iniomants, viont la so procuror dos rossolros nour4llos of
Sorvioq ou.rombours9mott do 11 oriprunt.


Sur co point lu Sorvico Juriliquu ost unaniLo a fort2ulor

11=10. suivant;
paragrapho 12 do IIAnn.,)xo

L'Articlo 12483, intLmomont

II, doit Ztro intort:. co :. 3 intordisant a 1'A1_


au3 n3 sont -.0a8 ro=plios los obligations oourantos pun lui imposo

lo Trait'o, snSoialamont on matiOro do Alparations, d'asauror,

sans l'ussontimatt do la Commission dos R6?arations,avont dIavoir
oatiefait auxditos obligations, lo sorvico ou lo romboursomont
dui amprant intioriour ou oxtOrioux non COTTOUV

pur la CoLuissicn

dos R5--)arations.

Vaoquittomont, uno aanto donn53, dos int,1;rUs, :it lc
rmboursomont d u o apital do cot omlprunt

-pur nrbfbranca


pour cotto mere awn5o, do is dotto do r5laaratioias ooLstitilarait

do la part do liLillomagno uno violatiol: du Truit.


dos Rt5aratiol:s ')out done vaiablo,nont

sTopocs.:r au sorvico ou au ramboursoL:ont, pox priority sur los

r5p=atiCES, JJ tout mprurt int6riour ou
Gouvornamont ollomand co=o aussi

5mis par lo

tout praalont uar los bions

at roscoureas du Roich gai, dostingo a couvrir lo '..-,oichs"oz.nh dos

charges Quo lui =rat lin/act:roue la garantic Vun tol omprunt,

tortorait attointc a la rfAle priorit.

IQ Service Juridiquo ost tzglcmcnt unanimo a ajout_r
quo, on application lc 1T rtiolo 240 duTrait'a dolTorsaillOs
lo Gouvornamont tillomand s'ast_orgaeo

mission "tour los relseigronp,t


fournir-ala Com-

dont cello pourra avoir tosoin




slzr la situation et lEs cperations finer cieres

do 1'

"rarPno et 3.e SOS rossertissc,nts", lo. Commission dos 116-arations

ost fanno

domandcr on ;ouvGrnomont allomand toes ecluir6isorants

jugcra utile sur 1' utilisation du produit do lc ampru.nt



Flo pourr,

(lotto ria'no occasion at on vertu du mama
taxte, lui dor:ander/02°11os conditions do rcLibaursar:...ont ultriour
--,par le -Reich la garontie do la. Roichsta:ak ^ ltoriprtuat onvisaee a
oto r)ouseLtio.




socarde cue,s i. C27 :pz.L.rait

au Sorvico Juridiquc intir2or2oni; 116a au -problOno du carootro
juridiouo do la,


cotta -.0a .aqua constitue urn organist:a prive, .2ropri5-

en taut quo tal do Fd. on ac ti f , i1 nrapparalt -pas au Sorvi co
*10 quo le. loi qui It a instit4.1.6a otiregit sa constltution

soit do 1a conpetonco do la Cor:Lnission dos Reparations: ni quo
la Cormission dos R6-oarations puisso iLtorvorir pour discutor

la 7cliaito do la earautie donned par Gotta Banquo

Orris par lo Roioh-. Souls 1e3

(%?.. un ez:prunt

alor.-,4=ds aural zat quLait'l:3

pour internr6ter 10s statuts do la. Banque at d.6cidoi si, on
issant un tel on- grunt, olio a outropasse los pouvoirs qu1 ils lui


Si, 7. a r coz:tra, la Roichsbank nfast qurlu2 orgune


si le Roioh est lo veritiablo 2?reTrietairo actual ou on
puissance do l'actif do la Banquo, son oncaisso dolt ..,Itre
o,ux "ions of rossourcos" du Roich au lens do 1'
o 248.
Des lors los observations qui .orecOdant cone ernant 1' ar_.:ploi do cos
bids of rossources au sorvico of au ror.f.Dcursor.a:Lt do 1' onprunt

onvisag'e si6tondont a lour affectation 6. is gorontio

do cc Dir.ia:ao clapru.nt

Y° 45T,

Sevi5 -it


Gett© secAnds questikn paait dons au Servico Juridique intimensnt
lige A. la selatinn quo oompmrto In problems gutil a daja Onvisage clans
sew, avis N° 2=)7

(20 kvril 1921) du maractre privO Cu public do la


Le Service Juridique nee pout a re sujet que sten eferer aux avis
divorgonts qutil a orris a cotta nemasion. (Le

llristo am6ricain absent

lms do la discussiun de cee avis, a depuis lnn donne snn adhesion a
ltavis exprimk par ses mmllegues belgo et britaniqu0).
Touteff;is, lo Service Juridique trait devcir y jeindro les Ibsen-,
vatimna mlivantes gas iui suggern la Lei, da 25 Mai

a22 Tai a mtydifie les

Statute do la Reichsbank.
Les Juristee anhricain, beige et britanrique; so permottent

dliajeutor quails stint ouo la Lei allemande &

25 Mai 1922,

plug difficilemnnt erzere quo pr6c6dernent de soutonir quo les bions
ot rnscrurcos de la Banque constituent dos tionn du Gcuvornomont alio,

Cott° lei a ete promulgu6o par lo Gmvernoment allemand pear

satisfairo a la domande, forrulOe par la Ommissinn, Quo snit assures
la completo independance do la Reichobank; et, dans son rapport du 17
_Juin 1922 ( C.G. 228 s), le Service Financier a d6clare quo la lei
avait, a cet 5gard, entieroment rompli lte"cjet quo so rropcsait la Corn -

Il convient, on vitro, din12servor quo la Ccvnissiln nta jamais
ni pretendu quo los bier s do la Banque fassont dos liens du Gouvornsment allemandi ni torte d'Otendro son pnuvlirs su coux du °omit() dos

Garantios on contr8lo des oporatinns do la Banque.

La Cemmission avant

exige quo des mcdifioations fussent appr;rtees A. la oonstitutin de la

Banque, avant tacitemont acceptO cos mmdificatinns c3mre satisfaisantos,
ot ntayant jamais scuteri lo point do vue que los biens do. la Banquo

fussont des biens





Sorieo juridiquo
droit pour soutonir quo,

Gouvoxnemant, ost maintanant

tour comptes faits, la Banque West qu'uno institution gouvornomontalo.
Lo Jurist%) italion, quoiquo maintonant son avls unterieur

on co qui concorns lo statut juridiquo

dos bions do

lu. Banque,

cotto dornibro obsorvatIon-.

Le 'Turista franais con9tato toutofois quo si la loi du
25 "J.01 1922 a soustrait la Diroetion do la Burp° au Roich et au

Chanoolier of d6c1ar5 qu'ollo

6cormais uozwrc6e oxelucivalciat

"par lo Con!..lcil dos 1-Y.xoctears°, lo tomto ncusioau



ice droito los actiornaiTos Li n'a ou pour oonsequoneo do privor
lu Roichsbunk do son caxacten3 dlinstitution publique, vOritable
oxgano do l'2tat.
IL Diy.oc.:,_on do la Bunqac continuo do s'a=orcor par l'im-

tormt:64_cf.:vo do momos nci5o a vic pox lc Reich, &et it n'est pas
sp6eliff.6 qtrils doivorl; :;tto actibnroi:roc of cars que a sotto .J:lirce-

tion los ooiont admit

tronclre uuuuno part *effective.

Il;,01,4f de la B=.2clue re canrcit Stro consid6r5 con z/3 oLnt

la propt5 ,ii dos mombres do co Conseil do Direction ni dos actionnaIcs ou poxtoaxs lo parts (Autoilseignor), foe lora quo lc
Reich pout

son g51 par in rachat obligatoiro do lours ports 4

Loalvo, lour xotlror tout droit au purtago Ovontuel
do I'aeulf.

1.c Reich concoxvo dolilo au regard do 1'oncu108o-cr do

la Eau que un droit do propri5t6, au mins on puissanco, o.uquol la

loi do 1922 n'a apnorto aucuno rantriction.

ii u

pavaat quo

la Ioi nouvelle n' a

pus, on

lIbtonduo dos pouvoirs disor6bionnaires qao lo {01c
axervait c-zr la diroction do la Banquo.

Doritic lors, on offot, d'uno part, sur la soulo roqutte

du 2oich at sans opposition do oe Ounooil do Direction prbtondument
souvor._in, Ir.:50lissiom dos -billota lo la Banque Oa -cesse do sTaccroltro,


N °451
gerviec Juridiquo

d'-utro IL.rt, la a:.nquo u accorde a un emprunt emis p...r le Reich
uno go,r-ntio (pie ne preVoient p.;.s sos otatuts ot dont it est clair

qu'olla weir:. pour consequonco du prelover, a.0 seul benefice du


uno fraction appreciallo de lloncuisse or do IL,. Banque.

apparait done au Juxisto francais que la ReiohF1'ank no

possedo pas les caract6res dlindependanco pormotthnt do lui attribier une personnalite prorrc distinete de cello do l'Etat dent elle
n'ests a son sens,qu'un dememtremcnt.

Il est vrai quo le Gouvcrnemont allemand a represente la loi
do 1922 cnmme conformement aux desir exprimd par les
yant assure,

ssanees alliees of assocides l'indepondance de la Reich6bank ot.

la Commission des Reparations n'a jamais formula, au sujet de

tc loi, de resel-vo et do critique.
Maio lo

estino q

n'appartiont qula la

nis-ion dos Re;eratia'as cl:crprotor lc silence qu'elle a observe

e sujet et do dt-3ui0.e: s' it pout Stre considrO

co me constituent

acceptation impliciile cu expresso du point devue du Gouvernommt


.L .D3 1923.

(Sigrid): Jacquos LYON.

Hugh A. FiAYNE


Massimo PILOTTI.

. Le 6ervico Juridique sc permet de referer la Commission des
Reparations a sos avis Ncs 207 ct 418.

MPY -




Dated -!:arch 26, 1923
Reed. 6:45 p.n.

3eoretary of State,
152, ':arch 26, 6 p.m.

liar n-867, omitted payment to Belgium February 24th,

420,000 French francs proceeds sales rights and interests article 260.
::.iscellaneous reparation receipts ..:arch 17th to 24th Luxemburg coal

54,649 pounds credit Belgium.




liarch 2f3, 1923.

der Colonel 1.44an:
I have for acknowledgment your two lett,rs of March 8 and g.
For your irforn,c!tion


S rings, Colorado, two

desire to say

that Mr.

whioh affected his throat.

I sent your personal

the other enclosures, as

east on account of the climate

They diagnoced his case as chronic

and felt that a change of climate would do

I felt


letter of March 6 to Wr. Strong but
that it would not

well to


Secretary to
Ur, -enj. Strong.

18 Rue de Tilstt,t,



burden hi

until he was better able to attend to
Lure very

Colonel James A. Logan, Jr.,


bin a world of good.

business affairs.

Paris, France.


weeks ago for six months, as the doctore felt

that no was making little progress in the

with any matters on

StronP, left !'or

Paris, 18 rue de Tilsitt.
29 March 1923.
Personal ,32 Confidential

My dear Ben,

The question of French Government credits for the
occupation of the Ruhr will come before the French Parliament tomorrow.
Yersterday M. Poincare was heard by the Finance Committee of the Chamber
where he made a general expose of the political and economic position of
the nuhr occupation.
He frankly admitted the difficulties enco
the minor importance of results to date. He stated that German opposition
could only be overcome "by prolonged and stable occupation" carrying with
it a program of economic blockade with stringent provisions regarding export
and import licences. :1. Poincare insisted that the large German industrials
were the "soul of the German resistance", "that they had tried on numerous
occasions to get in direct conversation with the French Government", but that
"these efforts had not resulted in any official proposals coming from the German Government itself". M. Poincare again restated his east position: "that
if unofficial proposals of the same order were suggested by Neutral or allied
Powers he would not be able to receive them ", and in addition "he knew definitely that no such proposals would be made to him". He said "the French and
Belgian Governments are in perfect accord for holding the guarantees they had
seized until payment of the debt", and that "the evacuation of theoccupied
territories will be in proportion to the pay lents made, and in particular the
evacuation of Essen will not be considered until the last payment of reparaHe said that "the railways in our hands constitute
tions has been effected".
our best guarantee". He concluded his remarks by the statement that "the occupation of the Ruhr will be long, stable and remunerative".
It is just announced that "the Interallied High Commission
in the Rhineland has ordered the seizure of all material and merchandise lying
in occupied German territory due to be delivered as reparation in kind".
decree covers all goods ordered for the reconstruction of the French devastated
regions whether from the occupied territory or not so long as the Allied authorities are certain that such goods are to be found in the occupied territory.
Another class of goods specified in the Interallied decree is that comprising
orders which have been fully paid for and executed but which have not yet been

The foregoing is a logical step under the Franco-Belgian
sanction policy and one which we have already forecasted. The Reparation
Commission has been for some time past in receipt of various orders from the
French and Belgians for deliveries in kind to be effected by Germany.
orders are being transmitted by the reparation Commission to Germany by a
majority vote, with the British Delegate abstaining. Unquestionably a large
number of these orders are presented so as to give a certain legal justification
for subsequent seizures in the occupied area. The German Government as reported
refuses to make any deliveries in kind on French or Belgian account. 71e are

400. A. L. Jr.

To Governor Strong - Personal

(!),.. Confidential.



informed that lists of inventories of raw and finished and semi-finished
material existing in the occupied area are being assembled to serve as the
basis for "orders" to be transmitted to Germany through the Commission.
our judgment due to transportation difficulties encountered since the occupation of the Ruhr which to date have not been sensibly ameliorated, the volume
of material seized and actually received in France and Belgium will not amount
to much in the immediate future. However, these "orders" will "ear-mark" important lots of the existing inventories which will have an important effect when
the final solution of the Ruhr question is reached.

The Commission's reports of the ouantiti of coal and coke
actually delivered to France and Belgium justifies an estimate of 25,000 tons
of coke and 40.000 tons of coal as being the aggregate receipts for the month
of ;.Larch.
Italy, on the other hand, will hate received about 200,000 tons of
coal for the month of March.
The French Government's official anno
of "5,000 tons of coal per day from the Ruhr" is based on the foregoing figures,
the coke being expressed in coal value and the Italian supply, to which the
Germans have never objected, being added.
During the month of February the British coal market sunulied:

France with 1,372,000 tons or, in other words, 372,000
tons over and above the average normal monthly supply
of 1,000,000 tons;


B317ium, with 424,000 tons. It will be remembered that
prior to the Ruhr occupation Belgium received its supply
from the Ruhr without the necessity of British purchases;


Italy with 675,000 tons or, in other words, approximately
175,000 tons over and above her normal monthly supply
from the Jritish market of 500,000 tons;


Germany with 1,000,100 tons, an unusual and very substantial purchase of British coal, made necessary by the c;osing
off of the Ruhr supply to Germany.


L. Jr.

To Governor Strong - Personal

515,053 000





the above the official statement
According to the presentation made in total is
769,831,000 francs;
divided into the following categories, viz: lle,,uisitions, 8,
58,611,866,000 francs.
Personal Property, 18,407,934,000 francs; and Real Property,
effected showing the
The following is the official table against the settlements
capital indemnity of war damages to December 31, 1922:






cial figure the total of the sums paid tip untL1 December
mately 48% of the damages. The payments made for damages
figure in this total at 12,903,218,000 francs; and those
Under this last
o Real Property to 20,361,958,000 francs.
0 francs have been paid on account of industrial damages and
on account of non-industrial damages.

h, as Exhibit A, are copies of Annexes 1783 a,b,c, concerning;
rticle 248 of the Treaty of Versailles to the gold loan recenrman Government. The question came before the Commission at
27th. At this meeting it was unanimously decided to address
wing terms to the German Government:

ence to the extraordinary receipts which are
y the German Government from the recent issue
the Ileparation Commission call6 the attention
nt to the provisions of Article 248 of tae




J. A. L.Jr .To Governor Strong - Personal & Confidential.



"The fact that the German Goveranent has not thought
it 1,roper to ask for an exception under that article makes
it necessary for the Commission to make an express reserve
as against subscribers to the loan no less than other parties, of its right of priority against any funds which may
be assigned by the German Government to the payment of interest or repayment of capital of the loan in question, more
particularly if the extraordinary receipt itself is not
applied to the discharge of the renaration annuities".

This letter was forwarded the same day, signed by Bradbury, and Barthou on
behalf of the Commission. It was not the intention of the Commission to
malce public the Opinion of the Jurists. However, a Paris newsnaper, in
some mysterious way, obtained a copy of the Opinion and published it in
its full text, with the result that the Commission itself was -oractically
forced to issue it as a public document.
Faithfully yours,

1 encl.

The nonorable Benjamin Strong,
Governor, Federal Reserve Bank of
New York, New York City.


Paris, 12 April 192.
18 rue de Tilsitt.

Personal & Confidential.

dear Ben:has
L4 Loucheur's visit to London the first days of
attracted much nublic attention and opened a ,;rent field of surmise in
Poin7e are informed that M. Loucheur called on
the European press.
care before leaving for London, and that the latter had full knowledge
of 14 Loucheur's intention to discuss his views on the German settlement
Question with British political leaders during his London visit. We also know that upon M. Loucheur's return from London he called on M. PoinImmecare and gave the latter an account of his London discussions.
Loucheur went
diately after the latter interview i.I. Poihcare,
to Rambouillet .:'here he saw M. Millerand, the President of the Republic.

The :..uestion remains open as to how participation, if any, M. Poin-

care had in the Loucheur visit to London, and as to the individual views
held by LE. Millerand and Poincare on the situation created by the visit.
Loucheur upon his return from London. April 7, made the
following statement:
"I wont to England without any mandate of the Government, but before my departure I talked with M. Poincare
of my intention to meet certain members of the British
Government among whom were some friends of long standing.
have seen them and have discovered from these conversations that the position of France is ..eginning to 00 better understood by English opinion. I am persuaded that an
accord is possible without sacrificing the legitimate interests of France and her Allies concerning both reparations and security. It is this personal impression that I
I will add that all
reported to LI. Poincare this morning.
with whom I have talked in England appear to understand
that France and Belgium have formally decided to carry
through to the end the operation which they have undertaken, and I hone that I have succeeded in dissipating certain objections which existed in Great Britain against the
trench policy mid those directing such -1.olicy."
77hen the first reports appeared in the French press of 71.
Loucheur's London visit, both Downing Street and the nuai d'Orsay issued
brief colliaaniclues to the effect that "1. Loucheur's visit to London, and

J. A. L. Jr. Governor Strop_


ersonal and Confidential



his talks with various British political leaders, was purely personal in character and 1.1. Loucheur had no official mandate from the French Government." It
is felt in some quarters that the mild tone of the Quai d'Orsay communieue has
some special significance. This feeling is somewhat emphasized duo to the fact
that to date no other definite Labile statement of objection has been made by
Poincare. However, within the last few days the Quai d'Orsay has been intimating that U. Poincare intends making an important declaration in his speech
The Poincare press intiwhich he eroposes making at Dunkirk Sunday, Aaril 15.
mates that this speech will contain a statement reaffirming Poincare's past Position concerning the German settlement. The Opposition press, on the other
hand, while dorecasting some mild form of reaffirmation of the past policy by
Poincare, nevertheless intimates that the tone will be mild and, in fact,
an indication of L. Poincare's leaning towards the Loucheur thesis.
Shortly after U. Loucheur's arrival in London the attached
article i6ee Exhibit A) on the "Reparation Problem. Peed of solution. Possible 3chemes" appeared in the " London Daily Telegraph" under date of April 5.
This article has attracted wide attention in the ifrench press, it being
ascumed as having been inspired by the Loucheur visit, and as containing the
skeleton of his views on the eerman settlement question. in our judgment,
Loucheur, we are inclinand from our previous personal conversations with
ed to accept this article as ,portraying, on general lines, the Loucheur scheme
of settlement. Lr. Loucheur being, however, a very adaptable character we would
not care to subscriee to the view that this particular scheme is his final and
definite one.
Loucheur's London visit has created some feeling in BelgiUM for the following reasons, as explained to us by M. Delacroix. About a
month dgo, LT. Jaspar, the Belgian Ilinister of eoreign Affairs, visited Lilian
for the purpose of meeting jignor :ussolini and, according to
using his best efforts to bring the Italians back Lit° the joint Franco-BelTheunis
gian action against Germany. before this visit was undertaken,
It was only
notified U. Poincare, asking if the latter had any objections.
after the assirances of there being no objections on the part of LI. Poincare
that I. Jaspar made the visit. The Belgians claim that ie view of the foregoing they were entitled to at least a notification from II. Poincare that U.
Loucheur contemplated making his London visit, as well as some information
as to what I. Loucheur told i.1. Poincare he proposed ooing while in London.
The first the Belgians knew of the visit eas the published press reports and
the Loucheur statement that: "Before my departure, I talked with le. Poincare
of my intention to meet certain members of the British Government." The position of the Theunis Government in Belgium is delicate; the Belgian Government
feels that U. Poincare's failure to advise M. Theunis in advance of 1. Loucheur's intentions was somewhat discourteous and, in addition, they are susAs soon as
picious that this visit, in fact, has some official significance.
Poincare telegraphed
the French had knowledge of this Belgian irritation, I.
Li. Thounis to the following effect: "Theex-Ilinister of the Briand Cabinet
was not charged with any official mission whatsoever and the French Government's reparation policy has not been changed." There was, however, so much
feeling stirred up that U. Poincare invited AL. Theunis to come to Paris to


J. A. L. Jr.

To: Governor Strong - Personal & Confidential



by the somewhat bold attitude of :. Loucheur. Already, the announcement
has been made of the followin interpellation of the Government in the Chamber of Deputies on the question: "`.Try did
Loucheur go to London, and why
did he conduct himself there as if in fact he were the rremier of France?"
This interpellation while directed against both M. Poincare and
will have the effect of widening the scope of past parliamentary deuates
concerning the German settlement rluestion and on this account has some significance.
It is apt to be embarrassing to II. Poincare, for M. Loucheur
during the interpellation will probably advance some general scheme of settlement which may in turn force M. Poincare to definitely state his plan of
settlement. It would be difficult for
Poincare to definitely state any
practical plan of settlement at this time Tithout the loss of some support
in the French Parliament. On the other hand, if he sticks to generalities
following the lines of his past thesis, and if LI. Loucheur in turn states a
plan, an internal controversy of rapidly growing importance will be started.
There are many who feel that a. Loucheur's London visit was largely
dictated as an internal French political manoeuvre designed to ultim_Ltely
give him the Premiership. L!. Loucheur's position is strengthened by the
underlying phase of his policy of effecting a Franco- British rapprochement
hic.:, though yet undefined in the public mind, is nevertheless a popular
conception. Un the other hand, those win support the past roincare thesis
widely proclaim that "the Loucheur action in going to London and advancing
plans dismetrically opposed to French public feelings and opinion can only
result in his definite elimination as a political factor in France".
Certain recent speeches of members of the French 2.1inistrY
are of some interest in the present situation. On April 3, :I. Magino, the
French ainister of War, in a speech before the national Congress of the
'nion Federale des Associations de :atiles, made the following statement:
"77e went into the -.:ahr solely to get paid, to

outain temporary possession of securities safeguarding such payments, and today we know that if we had
not gone in, Germany would have tried to obtain a
moratorium for some years, and that at the cyg2iration
of such delay vie would have found Germany armed to
the teeth ag:.inst us and saying You want money,
come ancJ tae it'."
9, M. de Lasteyrie, the French ..inister of An:,nce, in a speech
made at 2-arin durin the inauLuration of a monument to the dead soldiers of
the war stated:

"Per :an propaganda has to :en the lir._:text of the

occupation of the Naar to denounce French policy once
more as imperalistic. This is
France has never tried in her occuation of the :hihr
to follow the ends of conquest and annexatiOn. France
has never wished to take evon the smallest portion cf
German territory. She desires only one thing: to obtain reparation iayients to which she has the ri'At by
forcing Germany to hold to her eivage-lents."




19 April 19:Z.
18 rue ue Tilsitt.

Personal & Confidential.

dear Ben:-

The French and Belgian Prime Lanisters met in Faris onoril
13 and 14th, 1923, to discuss the Ruhr situation. At the conclusion of these
meetings the following commnique was issued:
"The Belgian and French Minister met again this
morning. They have prepared a common instruction to ue
addressed to their High Commissioners in the thine Territories and to General Degoutte for the working and control of the Central Accounts Office established in newlyoccupied regions, and for the special a 2lication of the
products of fines, seizures of Funds, etc.
"It has been decided that the merchandise and uifferent products seized in the occupied regions to cover
France and Belgium for the orders of the two Governments,
or persons under their jurisdiction, under the head of
payments in kind should be directly assigned to them.
The surplus of the merchandise .11(1 products seized will
be sold by the Franco-Belgian .uthorities.
The proceeds
of these sales will be paid to the pledges account of
which the credit balz:nce, after defraying the different
expenses of occuiation and administration, is to be handed over to the Reparation Comma lion.
"The two Governments have maintained the Brussels
resoiution stipulating that they would not subordinate
to mere promises on the part of Germany the evacuation
of the Ruhr and the newly-occupied territories on the
right dank of the Rhine, out that withdrawal would be
effected proportionately with the execution by Germany
of her reparation ouligations."
At the close of the first day's heating a short co :zmnique was issued to the
In this press communique it was stated: "that the French and Belgian
Governments were resolved to pursue common action in the Ruhr until Germany
had decided to laRB a direct proposition for payment of reparations".
phraseology lent itself to the interpretation that France was prepared to evacuate the Ruhr when a plan of settlement as distinct from the actual execution of obligations by Gerluny was accepted.

This st


J. A. L. Jr.

To: 3. :Strong - Personal & Confidential


Repent events which certain
people have wished to exploit as showing a divergence of opinion between the Prime ainister and myself make it more than
ever necessary for me to oe at his side on aunlay to affirm
our complete unity of views in these great interests of Prance.
You will understand, I am certain."
''presence of the Prime ;Minister.

On Sunday, April 15, -1. Poincare made the following speech
at Dunkirk:

"After having lived for four years with the single thought
of winning the war, we have today the auty of winning the peace.
The victory which Fr: nce has so dearly paid for we have sworn
to our dead shall not be lost. And oefore this monument raised to them we renew once more this solemn oath. It is because
Ger:any did not pay her debts and was doing nothing to pay them,
it is oecause we had already advanced nearly one hundred thousand million francs on their account, that in virtue of the
Treaty of Versailles, and after the decisions regularly taken
by the Reparation Commiesioe, we seized guarantees and applied
sanctions. For the last three years we had constantly exercised patience.
"Patience only Drought us disappointments and vexations.
To put up with fresh defaults on the part of Germany, to grant
her without guarantees the delays she asked for, would have
been to put ourselves at her mercy forever. We went into the
Ruhr, and the occupation of this rich mining end industrial
region has allowed us to make some instructive ooservations.
We have, in the first place, convinced ourselves that Czarmany could have aelivered to us the coal she had refused,
since she manages now to do without Ruhr coal; we have had
the proof that she could have paid us in foreien values, since
she is today employing a consideraule quantity of these values to make purchases abroad; finally, we have been able to
observe on the .pot and to unmask and dissolve the military
organizations which the Reich concealed, as it had already
done in Upper Silesia, under the inoffensive name of Schutzeoiizei; and we have thus acquired the certain assurance that
if we had granted to Germany a moratorium for two years without insisting on any guarantee, she would, at the end of that
period, have replied to our demand for payment by a refusal
and defiance. That is the deadlock to which we should have
been fatally driven uy a policy of temporizing and wealcneJs.
Guarantees that Germany had not wished to give us and that
sore of our Allies, with the greatest good faith in the world,
considered useless, we thought inaispensable. ;/hat we have
seen in the Ruhr has sho'mi us teet we were not mistaken.
These euarentees we now hold, we hold them solidly, and we
shall only withdraw from the newly occupied territories progressively and proeortionately with the payment of what is
You lay be certain that in thus asserting her
due to us.



J. A. L. Jr. To: B. Strong - Personal & Confidential



far as to encourage uy imprudent words the resistance of
the Reich.
In listening to all these impotent and futile
criticisms, I am forced to recall the passage in speech in
which Demosthenes severely denounces those bad Athenians
who trembled, sighed, and lowered their eyes to the ground
at each success of the city, and who, in the moments when
fortune seemed to smile on the enemy, promenaded the Agora
with looks of triumph. Is it possible that there are, in
France, citizens so blind? If there are really a few they
are certainly only a negligible minority, and the country,
as a whole, is resolute to complete what it has begun.
In the necessary enterprise in which she is engaged France
will hold firm, as she has done up to the Present, without violence and without provocation."

In the earlier part of his speech
Poincare referred to
the English policy in regard to Durkirk in the seventeenth and eijateenth
"'When England saw, or thouLht she saw, near her frontiers a military and maritime peril, she did not hesitate
Poincare) to take in the full exercise of her liberty the measures that she for 1,ng considered necessary
for the defence of her national security. After a war which
was carried on for the defence of our respective rights, and
which has created an indissoluble community of interests between us, can bland be astonished that we should wish, in
our turn, to protect our frontiers against further violence
and prevent a nation, whose imperialism seems incurable,
from beginning again hypocritically and in the dark to -make
Preparations for invasion? If we needed a lesson of perseverance and obstinacy we should only have to
to our
English friends for it."
On :.londay, April 16, the German Foreia Liinister Dr. von
Bosenuerg made the following speech in the Reichstag:

"Dr. von Roseneerg pointed to the need felt by the foreign administration for the confidence of the Reichstag, in
view of Germany's isolation, and he warned the parties that
anyone entrusted with the work of improving Germany's position had at once to get rid of the illusion that Germany had
any friends in the world. lie paid the usual tribute to the
Buhr population, and represented the incursion of France as
the unparalleled spectacle of a strongly armed :modern army
fi.hting against a people armed only with an idea. He described the Buhr population as bearing uncomplainingly the
terrors and sacrifices imposed u on them. He declared that
if Prance succeeded in beating these unarmed people to their
knees, which France could never do, militarism would be the
trump card in politics forever, _nd only the nunber of bayonets would decide.



J. A. L. Jr. To:

3. Strong - Personal & Confidential


"rejected or ignored. France had overrun the Ruhr, destroying coelunications, paralysed the most powerful industrial
centre, and reduced Germany's finances to confusion. He
still believed that the solution, which must one dey come,
would proceed on the basis of these propo.als.
"But While the French war of destruction continued,
who would dare to meke an estimate of Germany's capacity
to pay? Though concrete figures could no longer be given,
the Government had no intention of remaining satisfied with
a negative result. Therefore, it had had recourse to the
present proposal made by a well-known statesman (:Sr. Hughes)
for referring the problem to a committee of the highest financial authorities, independent of all political influence.
in the light of this proeosal, the Government had addressed
l-etes to all those neutral Governments whose interest it was
to see the problem settled.
Its co.rnnunieations to these
foreign Governments had led to no practical results.
"Dr. von ao.enberg next proceeded to sketch the offers
made by Germany from time to time, and the counter-demands
opesed by her creuitors, somewhat as though he were recounting a new version of the story of the Sibylline books,
In the sumer of 1919, in 2aris, Germany had offered 100,
000 million marks but the French Finence 'elinister
the claim at 375,030 million gold marks. Two years later,
in London, after a great change had occurred in German
trade and industry, the figure demended was 132,000,000,000
but to this Germany could only offer with a good conscience
50,000 million gold mares. Further, two ye:rs later, in
2aris, they had cone
to the Point of taking this 50,000
million as a basis for discussion. 3ut what had been possible in London in 1921 could not be done in Paris in 1923.
Was there any sign that -eeria had profited uy these mistakes?
Germany's trade and industry were on the decline, and would
continue to decline so long as the present conditions pre./ailed in Europe.

"From this point Dr. von ilosenbere went on to discuss
question of security, flung, as he declared, by France
into the discussion. Re crew a picture of France, armed
to the teeth, demanding security from Germany with an army of only one hundred thousand men, insufficient, he declared, even to protect her own frontiers - an entirely
misleading picture of the prevent state of German arms.

As to any quest ion of a neutralized .-ehinelend, whether
as an autono.aous erovince of Prussia, or otherwise, the
Foreign ;Minister would have nothing to do with it. No

German Government, he said, could be found that would
take a hand in such a scheme, and it was impossioee of
discussion equally with .ny project that interfered with
German sovereignty.
"answering i,i. Poincare's point, e)r. von aoseebere

said that the French Prime Minister must know that the coal


J. A. L. Jr.



strong - Personal & Confidential



"supplies for unoccupied Germany were only kept up with

great difficulty, nd that the occupied area, in which industry now lay entirely still, had been a great user of ituhr

coal. The Ger :ian Government had exported foreign currency oecause it was the duty of the Government to secure the food of
the people, -nd
Poincare's objection was nothing more than
a confirmation of the fact that the German Government had
done its duty in this respect. as for the Schutzpoli zei ,
it was a police force pure and simple, on the lines laid
down by the allies, which, in certain cases, had even rendered protection to French soldiers when they wewe in dif-

ficulties. It deserved the thanks of the country for its
self-sacrificing service.

"Dr. von Bosenoerg concluded with the expression of a
desire on the part of Germany to live as neighbors with
France, if France would recognize ,reriany's right of freedom to exist, her right of sovereignty, and would desist
from humiliating her. Otherwi_e there was only one policy-

to set their teeth and hold out to the end."

It is difficult to find in either the Poincare or Rosenber'

speeches much hope of their presenting a basis for an early settlement. It is
true that
Poincare emphatically disclaims any purpose of annexation. He,
however, decl:_red that Frame will gradually evacuate the Ruhr in the measure
that payments are received from Germany, though he made it quite plain that no
mere promise of payment would have the effect of inducing the French to relax
their hold. LI. Poincare makes no nes suggestion as to the amount Germany might
be expected to pay. Theoretically, he still holds to the formal schedule of
Payments of 1921.

It is, however, evident that, practically, he is prepared to

admit certain modifications, for, otherwise, there would be no purpose in his
having been a party to the setting up of the Pranco-3e1t4an Committee of Experts charged with drafting proposals for a new and "common plan".
has tarn pains in his speech to leave an opening for ultimate consultation
with Great Britain.
So far as .br. von hosenberg's speech is concerned, it gives
no intimation of what Germany might be prepared ultimately to pay. lie, however,
refers in outline to the plan Herr Beronann was to have presented at the J:_nuary
conferences of Prime ainisters in Paris. This plan, Dr. Rosenberg declares,
provides for total payment of 30 billion gold marks nd for an international
loan in suoport guaranteed by all the resources of German industry. (either
1. Poincare nor lierr Rose:luerg has made in their speeches any really effective
contribution to the debate, but nevertheless there are some modest changes of
direction in policy in both speeches, which give hope for the view that the
debate is being narrowed down.

It is interesting to note that during the debate in the

German Reichstag following the Rosenberg s) each, Herr Stresemann, the Geroan
Populist leader, advocated somthing anproaching the Bergmann scheme as a Oasia for further ne,,otiations. Herr Stresem-nn stated that Germany's capacity

and not allied requirements, :lust prove in the long run the standard of



J. A. L. Jr. To: 3. Strong - Personal & Confidential

Page 11.

No figures are given for this latter item. The records of the Coal 'Bureau
of the Reparation Oom:lission show an effective delivery to France and Belgium
of coal and coke from the ItUhr during the List ten days of between q and 6,000
tons per day. Reports of the same Office show that these deliveries are ueing made from pithead stocks which are not ad yet being replenished by German

Faithfully yours,


The Honorable lienj_rxdn Strong,

Governor, Federal Reserve Bank of New York,
Lew York City.


hale IT "A".

b Apr,

DAILY TeL4empe


Need of Solution
Possible Schemes

From a Di*matie Correspondent.
There is at Last ono redeeming feature about the present
the undoubted fast that it is oompelling the more
grave outlook in the .ueir
serious elenents of political opinion in all the countries affootedobbe in 'articular hero and in Freres, to realise that an surly solution must be found to
the twofold problem of Aeparution and beourity, if h eurepeur catastrophe is
Jespite the financial oddities surd hardly disguised annexationto be Avoided.
ist schemes which still appear to find favour with so many of our Paris contemporaries, the movement towards u practical solution is gracing apace in official
as well as unofficial circles in France, where appreelation is now exprosaed of
the consern so widely menifested in this (*entry for France's future security.
I have reason to believe that leading etuteemen and soldiers on the other side
of the Channel have heartily weloomod thin renewed token of our friendship for

erance, and that, in the case of the statesmen, it has ambled them to consider
the issues at stake from a broader and more business -like standpoint than hitherto, The following are lndicatiems of the trend of thought now being pursued
by the more open and abler minis is influential spheres, not excluding see, of
the highest in WIWASO.
I.- fikrtUATICCA,

Priority for the devastated recions has repeated4 been
urged by suocessive Froreh Ouvornments, Sines it is agreed oh all bards that
the total inflemetiti meet now be roduoed to a relatively modest figure, the argument is pot forward with some cogency that the bulk of the payment* and
deliveries should be devoted to the retruilding of the regions in question, /rano&
redwood and sleds= claim under this head is one for 46 milliard sole marks.
on the other hand, it is proposed that the indebtedness of
It is
the Lntente iewers to theUnited States should be transferred to Germury,
oontends't that by moans of this prom' ro the British claim Against our Allies
for an abount proportionate to the liabilities Greet britalb has contracted
towerdn America would be satisfied, albeit by the Hsieh. At the "lame time,
our total renunolation of Separations proper (in respect of pensions, is hereby
postuletel, The quention flay also b << asked whether America, eho on more than
one oocusion has declined to accept from the Allies Gorman Asprations bonds in
lieu of direct repayment of debt, would acquiesce in the transaction now suggesOne of the mowers Given is that, inane eh as the deiohes liabilities of
either category would be diseherged (so far as sash payments ass OSIMormed) by
means of a series of international loans; their commreialisation would furnish
all the requisite security, better security, indeed, thi.S the credit of ary
It would be dangerous, homier, to tank on the assumption, still
single State.
freely entertained b Frenehen, that the Mated States will at no distant date
proseed to Nodose the Prensh, and 411911 the halemse of the Altish, indebtedness, on the ground of the dames, to Ameriema trade which full repament would
rresamolotlp the Freeeeds of the series of International
loans woald be utilised eonourrently, although in varying proportions, for
reparations and debt repayments to tee United States, For it such repayments
were entirely deferred until after all the ..sparLtione claims had been satisfied, it would be impossible to reduce the cupitelised valve of the amount to
be thus repaid to some lb milliard gold marks, instead of well seer 40 milliards,


The combined joint total for -leparations and debt repsyment ender the Scheme
outlined would seem to approximate to that mentioned in the British, French,
and Italian memorand4 submitted to ti* Parte Confereece in January last, viz,,

O milliards,
:he German industrialists would be required to give substantial marmots**. while Berlin itself has already admittee, the need ter ferriage/dog interaatica01 supervielon of the Selohis finances. Germamy weal, of
operse, be granted a solostantiii nesatterium.

It is un beater matter to summarise the views which as
prevail under this head,
There -.4ould be a gra:ival but rapid franoo-BelAnn
military evaeuation of the ;uhr eat other recently occupied districts on the
right bank of the Alm, Frovided that the German :syments and deliveries showed
regularity, So special regime weal& be established on the right bank beyond the
neutral gone stipulated by the Versailles Treaty,
The %:iestisrs iihinelendo however,
would become a federal State, an the seise tooting as the iiepublio of Baden or of
:.urtemoerg, within the deich, the idea being to end the hitherto irussis administration, to which the Frvnen ascribe the teaching of hatred of Frames and
ideas of revenge.
Ale distinction between the krussian said the South Gems' one
be um illusion on the part of our Allies, but they cling td it, even is regard
to the Bavarian, now the Jupiter per emselleneel
21sellestern hineland UopUblie,
as constituted in this fashion, would be an integral part or the
politically, economically and administratively. Bat it would be demilitarised under
the supervision of the Leaeue, no German troops being either maintained or recruited there.
Finally, the Reich would. enter into a solemn mewmagrreesies
peel with the other nesters Rowers, preferably in the shape of a °regional
understanding" desirnea to wily in this inst4nce Article I of the C./Manta
In this wok:, always assnmiog the regularity of her perorate and deltverps by

Germame the Allied evocation of oven the **stern Itinsland Mehl be serried
out at earlier Asters the! these stipulated in the Treaty of Versailles.

Mere remains the quesoion of the Jerre onelave, lie mot
be to assimilate it to the proposed t=eat lawn eh ;Mite
within the NUN while perpetuating rrance's riCht to the seal 1ecally preduesd4
But its immediate eenatitution into an autonomous State under the UMW* is siveWIWI, instead of allowing the enolave's future to be decided by plebissite after
the lapse of fifteen years.

natural course would

The detf.ils of resits. scheme as that outlined.



less require the Mil earoful scrutiew and threshing eat,
But, at sog rats,
its main fe.tures, as alres4 sketched, mould perhaps warrant its earnest and
sympathetic considerstieu on this side of the Channel,

-I -I":




Paris, 20 April 1923.
13 rue de Tilsitt.

Personal & Confidential.

dear Lien:-

.1aurice Frere, the Chief of the Research and Intelligence
3ureau of the lieoaration Comaission, w_s recently asked by i. 3arthou, the
President of the Reparation Uommiosion, to prepare a note for the latter
showing to what extent and for how long the German Government would be sole
to offset the effects of the occupation of the Ruhr and continue its policy
of passive resistance. This note was handed to Li. Barthou on April 19 by
have beer informally and confidentially handed a copy of this
note by
The note is drafted in French and is a very vollimAnous
Aaile we wound not care to subscribe to all the ooinions exTressed
and the deductions drawn, we nevertheles3 feel this document of such interest to warrant our transmitting the following briefed summary of its contents.
Frere in his note treats Germl.ny today* as divided into two
distinct countries (Occupied and Unoccujed Territory) in which conditions
of existence are entirely different and in order to she's the repercussion upon the economic life of Germany as a whole he divides his gaper into two main
headings, "Private Economy" and "Public Economy".
Under these he attempts
successively to expose the damages resulting from the occupation suffered by
Unoccupied and by Occupied territory and the possibility for each of these to
adapt itself to the new order of things. The salient points of interest in
the note follow.

A. Unoccupied Territory.
The bruss,ue stoppage of Ruhr exports produced a sudden increase
coal demands in Germany, trance and Belgium, with a conse,iuent
rapid rise of prices in the production centers of England, Czecho-JlovaRia,
and ?oland, which .4)read to other markets. The Ruhr blockade has thus caused
an increase in the prices of manufactured products throughout Europe and the
question now arises as to whether German industrials, in view of present high
prices, can obtain elsewhere the products previously sup)lied them by the iiuhr.

of in



Durimg 1922 the unoccupied territories received from the Ruhr
approximately 33;7,; of their total consumption of 96,2Z6,000 tons, or approximately 34,600,000 tons. The occupation transforms this quantity into a

J. A. L. Jr. To :


.3t f-one - Personal & Oonf denti al



Frere, however, reauces to 21,000,000 tons or approxiaately
a deficit which
a monthly deficit over 1923, of 1,750,000 tons, which must be imported. He accounts for his reduction by reserve coal stocks on hand, proximity of summer
aonths, and estimated 10,:; reeuction of her 1922 totel coneumetion through rigid economy measures, etc., etc. Ali is satisfied that Germany can purchase her
deficit from Ene1and, Poland, Czecho-Slovakia, and even the United Stetes. He
argues that, should France succeed in satisfying her needs in combustibles out
of the Etihr, this will result in an seeing of the English merest and make available for shipment to Gereane, eeelish coal now doing to France. He concludes
further that by coke imports and the coking of imported coal, the unoccupied
territory can meet her ocrxs needs.
C. :Jetallurey.

eeseite the lack of dependable statistics, he deduces from
the feet that no .erious industrial troubles are announced end the Jhortege of
raw materials and half-finished articles has not been such as to shut doom industry, that her eetallureical needs are covered to date. '.;hat non-employment
i. Frere bethere has been is attributed to the stabilization of the .nark.
lieve,. that the mineral resources in unoccupied territory, the use for home
consumption of products previously exported and the importance of half-finished articles from available sources, such as England, Czecho-Slovakia, and Sweden, will prevent the Ruhr blockade from stopping industry.
In the metal industry, as in the coeeerce of combustiules,
the outstanding effect of the blockade is increased prices. He considers that
these increased Prices will in some eay prove less serious for German industrials than for their Swiss. Dutch, Belgian, French and Enelish competitors. His
conclusion is that until throughout the ehole of Europe equilibrium between supply and demand is established, German industry will eaintain a satisfactory activity; that the Rhine olockade does not promise to hit the industrials of unoccueied Germany eny harder than those of any other country which depends upon
its imports from the Ruhr; that German industry will eventually suffer from the
inevitable stabilization of the mark but teat the resulting expenditure upon
unemployaent subsidies will be more than compensated by the increased gold value Of tax returns and exports.
D. Occupied Territory.

Industry here is adapting itself to the occupation consejuences less rapidly than in unoccupied territory. The latter regions are unable to
absorb the camecity of Ruhr production. Y. Frere erophesiees considerable unemployment soon which will necessitate government aid. He compares the situation of Rhineland industrials today to those in Belgium under the German occupation, and points out that the latter had the adventage of having her credits
furnished from outside sources while those of the Rhineland are drawn from the
balance of Germany herself.
Frere points out that the personal damage
In conclusion,
to Rhineland industrials is undeniable but the resistance to the occupation is
due to the moral attitude of the population, str-nethened by government supeort,


J. A. L. J r . To: 3. Strong - 2ersonal & Confidential

Page 3

and these factors render vain Ln attempt to estimate the duration of this resistance which does not depend ueon economic factors.

ee The Economic eituution.

The preliminary consequence of the blockade was a diminution
of the country's production, felt especially in occupied territory. This aggravated an unfavor-ole trade balance since the occupied territory was ooliged
to continue ieportine foodstuffs without ability to effect counteracting exports, while the unoccupied territories must now export from abroad instead of
the Ruhr. The resulting increased deficit can be net only in one of two ways:
by direct or indirect foreign credits, or the sacrificing of a ?art of the
country's wealth. The latter method war) adopted when the mark was stabilized
by the intervention of the Reichsbark.
The duration of the present s
tion he considers impossible to foretell and it depends, in his opinion, upon
the deficits in the trade balance over the next few months and the possibility
of t_e German Goverment acquiring the foreign currency reserves held abroad by
German nationals. He repeats the common fact that the day that stabilization
becomes impossible "the flight of capital" will begin anew, and its effects will
be added to the existing need of foreign currency to eet the trade balance deficit.

I. Frere, however, is not certain that a new depreciation would
break the German resistance. He cites the successive years of depreciation which
German economy has withstood and the fact, which must not be overlooked, that
the depreciation assures to industry at least the apeearance of eroseerity. eereover, it woula be satisfying to certain categories of citizens who today are
very powerful.

There is no doubt as to the harm done to German economy by the
reduction of production due to the blockade. It dissipates her administrative
funds and an increasing quot of the reel wealth of the country, and the longer
the present situation endures the more difficult will be the restoration of Germany's credit and the establishing of a regular ,,nd favorable trade balance.
3. Financial ;situation.

A financial statement shoving clearly the assets and liaoilities of the Reich is not possible. It is known that the Government instituted
a series of measures for increasing receipts of the Reich aryl for enabling her
to meet her difficult financial situation but what the cost to German finances
of .eeting her deficit is, is not known.
The liability of the Reich results directly from two factors:
the diminution of receipts and the increase of expenditure. ii. Frere estimates
the former at aeout 20 to 25 million gold marks per month, or slightly less than
1/4 of tee total monthly revenue of the German state in 1922. He accounts for
this conclusion by deficits in the returns from taxes in general, customs duties
and the coal tax in occupied territory. The exact amount of these deficits is
difficult to calculate. He considers that in addition to the deficit in the ex

J. A.

6trong - Personal & Confidential



port tax returns in occupied territory, a further decrease of income from that
source is to be anticipated with the increase of prices as th., tendency of the
German market is to approach world market figures strengthens. Interested German
nationals are bitterly hostile to export taxes and it will not be surprising to
se them diminished and eventually abolished.
The increase of expenses is due to the :naintenance of ordinary
expenses which have ceased to be productive and to new expenses arising from the
Ruhr occupation and the resistance of the Reich. The dovernment, for inst nee,
continues to pay railway functionaries and employees in occupied territory after
she operation of the lines has ceased. A very roue estimate under this heading
is 17,700,000 gold marks. Amongst new expenses are items representing specific
allocations to certain functionaries, unemployment do es, subsidies to small
"rantiers-, indemnities for damage resulting from the occupation (requisitions,
expulsions, etc.). Others are advances to industrials in the form of provisional credits eventually to be reimbursed to the Reichsbank which seems to be charged with these operations. These advances are for financing industrials in manufacturing, for stock _aid for enabling them to continue oroduction for Which
there is no present sale.

The Reich solemnly pledged itself to pay in full the salaries of
all ..leritmen in occupied territories and guaranteed that there would be no unemployment in the Buhr, and that Ittihr employers would neither have the right to discharge help nor lower salaries. The State assumed the paying of the difference
oetween full time salaries and the amounts actually due for effeotivo work.
According to W. Frere, French estimates establish the decrease of
labor in the Ruhr at 30%, representing in the four main ltuhr industries State unemployment doles of 135 milliards paner marks per month and app-oximately 70 milliard paper :aarks per month for unemployment suesidies to their industries. The
Frere estimates at approximately 40,000,000
total amount of unemployment doles
To these amounts and under thj heading of unemployment must
gold marks per month.
be added the cost of 600 truck loads of foodstuffs paid for by the Reich and Which
daily enter the Ruhr. The credits advanced to industrials, as mentioned above,
Frere cites statistics tending to show that
are unknown in amount; however,
the credits nece.sary to proviJe for the stocks envisaged by the Reich would be
a figure sometning in excess of a trillion a year.
,;hile a part of the expenses just mentioned is in principle reimbursable, its reimbursement seems e2..tremely problematical, to se effected after
the lifting of the olockade and at a time When the du-aping on the international
market of these accumulated stocks would orovoke a decrease of prices and consequent loss.
C. Assets.

Lionentary diminution of reparation charges.

The Reich peid during the first quarter of 1922, 427,924,266 gold
She has paid during the first quarter of 1923, including all amounts entered to her credit to that period, 176,122,688 gold marks in cash and kind, in-


J. A. L. Jr. To: 3. Strong- Personal & Confidential

Page 5.

eluding reparation recovery receipts, paper marks requisitioned _nd reimbursement of n.c.I.T.a. exeanses.
This economy, .which J. Frere prefers to call
"a failure to expend", amounts to 259,601,538 gold marks, or 83,933,846 gold marks
a month.
Increase of Resources.

The Reich had realized that while the policy of inflation might
offer advantages to certain speculators, it was disastrous for the general population and financial measures designed to increase receipts were decided upon,
consisting of two phases: checidne the depreciation of the mark, end the creation of new sources of income to permit budget equilibrium without inflation.
Frere then outlines the mechanism employed for stabilizing the
mark, viz: the limiting by the Reich and other important institutions of mark
advances against foreign currencies, thus obliging holders to unload. During
the appreciation of the mark following the appearance upon the ern market of
quantities of foreign currencies, the Reich made extensive purchases. although
limiting the appreciation of the mark to a degree by her own ourcheses, she
nevertheless euilt up a reserve of foreign currencies for future use on the monIn his ()Anion, the stauilization operation can for the moment at
ey market.
lest be considered a success.

Index figures show a steady decrease of 4holesele emites since the
eeginnine of the stabilization policy, ead chile retail prices are still rising,
there ie eromdse of a favorable turn in the nee.r euture. The important result
of this decreed, of wholesale prices is the limitation of the increase of the
cost of the Reich's resistance to the occupation (salaries, food vents, subsidies, etc.).
The recent internal gold loan floated by the Lerman Lgovernment
seems to have produced about 'e25,000,000 or 100,000,000 gold mares. These receipts, added to the one milliard eold marks (metal reserve of the Reich) constitute a relatively important fund for supeorting the mark.
Gold deposits held
by Germany abroad, which since I.:ay, 1922, have amounted to 50,052,000 gold marks
gland, were incre,sed 'elarch 7, 1923, by 14,900,000 gold marks.
in the 3ank o f
The last state.aent
aril 7, 19L3, shows aounts held under this
of the Reich,
heading at 164,952,000 gold marks, Ahile being increased by a deposit of 100,
000,000 gold marks in Switzerland.

Creation of new sources of Income.

Ho estimates the expenses of the Reich during February, 1923, as
aeeroximately 2,250,000,000,000 paeer marks which, at 5,000 P.:1. for 1 G.M.
gives an aperoximate figure of 500,000,000 gold marks. His figures show a markFor one month he estimates the total expenses at 900,000 ,
ed increase in 'larch.
00u gold marks; and on the basis of February and :.:arch, he estimates the total
annual expenses of the Reich at 10 eilliards of gold marks, of which, unclear prevailine conditions, only 17 would be covered by taxes and receipts from public

J. A. L. Jr. To: 3. Strong - Personal & Confidential



jeth the adaption of taxation schedules to mark depreciation and
the increase of return resulting from mark stabilization, this figure of l7;(7)
would be increased. revertheless, an enormous effort would be necessary to balance Germany's budget by taxation. The law of larch 20, 1923, adaoting direct
taxation tariffs to currency depreciation will have a favorable effect. This
law, furthermore, provides for the total collection of direct teces for 1922,
of Which only 10% have been received. The estimate of return from these amounts due is 500 milliards of paper marks, and it is no exaggeration to estimate the receipts from direct taxation alone, for the month of April at aperoximately 700 milliards paper marks. But, admitting such a return and adding
400 milliards paper marks from puolic utilities - giving a total receipt of
1,100,000,000,000 paper marks, the total receipts of the Eeich during the month would be less than 1/3 of the sum needed by the increase of the floating debt.
definite amelioration hee taken
The question arises as to whether, until
place, the Beichsbenk can continue to maintain the mark at its present quotation.
The mark stabilization over the last two months enabled the
Government to erocure foreign currencies by inflation witeout provoking a new
The mark was stabilized about the middle of February at a rate
such that the gold. value of the money in circulation was largely inferior to the
needs of the country, end the German Government profiting by momentary restoration of internal cre:At, ivs able to increase its issue without influencing the
mark quotation. Thus, in two months, the goad value of the currency circulation
of the country increased from 579,000,000 gold marks to 1,110,000,000 gold marks
-3ithout the ?afar mark having increased in value, signifying internal loans in
This operation
the form of bank notes to the amount of 500,000,000 gold marks.
was similar to that effected by the Austrian Government immediately following the
stabilization of the crown. The stabilization of the :nark has also }emitted
the Government to renew the placing of short term treasury bonds to the public.
'ahile on February 15, treasury oonds issued amounted to 2,135,962,000,000 marks,
they represented on April 7 a sum of 6,999,115,000,000 marks, or an increase of
4,363,000,000,000 marks, while the increase of treasury bonds helu by the Reichsabsorption by the public of 1,489,000,
bank was only 2,873,000,00,000, shaein,
000,000 marks worth of oonds.
In conclusion LI. Frere states tnet in spite of eany evident symptoms of financial amelioration the situation of the country remains extremely
critical and from his point of view the future is dependent upon the length of
time during which the Government will be able, in spite of the economic deficit,
to maintain stabilization; to that extent the foreign currencies Which :Armen nationals will be obliged to seel in order to live, will compensate for the German
economic deficit; and further, for how lone the Reichsbank, without injuring the
mark, can continue to issue oenknotes.

In reality, all these possibilities depend in great measure ueon
esychological factors. They depend upon the confidence which German and foreign
capitelists will have in the result of Germany's resistance, and tn the conclusion of a definite reparation arrangement which win permit the rehabilitation
If an arrange :rent were possible today, the reform measures on the
of Germany.


September 19, 1923.

Dear Sire:

In Mr. Strong's absence, I have for acknowledgment the

English translation of the Reply of the French Government to the lOte
of the British Government of August 11, 1923 Relatin7 to Reparations,
for which please accept thanks.

We are desirous of obtaining the English translation of
Documents Relatier Aux Notes Allemandes Des 2 Mai et 5 Juin Sur Les
r.eparations, and if you have a spare copy we should greati7 appreciate
receiving it.
lours very truly,

Secretary to
Mr. Benj. Strong.

French Bureau of Information,
598 .adison Ave.,
New York, N. Y.



MISC 4. 1-120 M-1-20


Governor Strong




Mr, Bever


I am not certain whether you have received cop

Correspondence - Reply of the French


to the

Government of August 11, 1923 Relating to Reparations,

sending you a document which might have a bearing on t
May 2 and June 5 regarding reparations.

As two copies

document have been received from the French Bureau of I

retaining one for the Reparations file, and I am asking

us another copy of the Documents relating to the German
June 5.








September 20th 1923

My dear Sir:

In reply to your




recent date

I greatly regret to inform you that I have not on

hand the English translation of the documents relative
to the "Notes Allemandes des 2Mai et 5 Juin Sur les
Reparation&!, which you are desirous of obtaining.
Regretting that I cannot be of use to you
in the present matter, I remain,

Very truly yours,

George Beyer, Esq., Secretary to v;r. z.btrong,
rederal deserve Bank of New York, New York City.




J. A. L. Jr.

To: Gov erno r 'Strong - Personal & Confidential


"pay her debts we are considered as disturbers, we are blamed for our exigences, we are reproached for our importunities.
All that Germany did to ruin France is forgotten: it is the
past, and in the giddy course of things the past no longer
counts. All that Germany ha, done to dodge her obligations
is likewise forotten; it is the post also. and the past of
yesterday is itself already far away.
"It is not to neutral commiSsions, nor to international
experts, nor to an international fideicommisaary association,
nor to the League of Nations itself (whose role is great but not
in this case), that the Treaty of Versailles haa confided the
duty of fixing the German debt and of drawing up the conditions
under which it shall be paid. It is to a special commission,
called the Reparation Commission, of which Germany has expressly recognized the powers. If it is thought to relieve this
.;omission, it is without doubt because the Commission is believed to little favor new concessions. But new concessions
would be contrary to engagements entered into with us, and it
is Sufficient that we do not lend ourselves to them.
gages; we will keep them until we Shall have received satisfaction."

On the same day as the preceatn,- speech he made the folloaing speech at
3rieuilles sur U use:

'de must insist on the amount of our reparations, and we
3ut neimust also watch over the maintenance of our security.
ther in the one nor the other of these two orders of ideas must
we let go of the suostance to grasp at the shadow.
"Germany beguiles us today with words which she believes to
be tempting, and with promises from which she expects marvels.
Certain of her publicists and of her politicians h_ve tan up
an idea of which we are awana with the hope of seeing us adopt
-dhy, say they, do net the reparian States of the Rhine asit.
sociate themaelves together to guarantee between them for a determined period, the status quo in this region? ;iould not such
an accord permit the world to breathe during a certain time?
The promoters of this ingenious combination take care to add
that there are among our Allies many sensiule people who find
it perfect, and who are prepared to recomnend it to us.
"Let us thank them quickly .and in advance, but let us not
permit the friends of France to go a.tray along perilous roads.
In creating the League of Nations, the Treaty of Versailles has
provided, in principle, that all Nations forming part thereof
covenant mutually to respect each other's territory. The day
that Germany shall have at last fulfilled the obligations which
She has undertaken, she will be free to request admission to











J. A. L. Jr.To:

Governor Strong - Persnal & Confidential



A meeting was finally arranged between Mr. Baldwin ard M.
Poincare and they had a conversation together at the British Embassy_ in Paris the evening of September 19. At the close of the meeting' the following
communi .sue was issued:

"A Islet ing of the Prime Ministers of France and Great
Britain took place this afternoon, of which they took advantage to proceed to an exchange of views on the general
political situation.

"It is not to be expected that in the course of one
Poincare and Mr. Baldwin would be able to -tittle
upon any definite solution, but they were happy to establish
a common agreement of views, and to discover that on no question is there :may difference of purpose or divergence of principle which could impair the cooperation of the two countries,
upon which depends so much the settlement and the peace of
the world."
The statement in the foregoing communique to the effect that the two statesmen "are happy to establish , common agreement of views and to discover
that on no question is there any difference of purpose or divergence of
principle which would impair the cooperation of the two cr,:untriea" was
widely heralded in the French Press. The impression
Baldwin hid receded from his past position ,aid piepared to orient British
policy on lines approaching the Poincare thesis. Sir John Bradbury informed us confidentially that the British Government wag' embarrassed by
the popular impression, particularly given out through the French Press,
that any chonge in orientation of British policy had resulted from the
meeting. According t Sir John Bradbury, the Baldwin- Poincare conversation wall; confined to a most general and entirely amicable presentation of
their past divergent positions on the German question and without any commitments or even expressions if hope of any change in past orientation
of policy on either side. He said that one of Mr. Baldwin's secretaries
was responsible for the blunder in approving the text of a communique propored by the French which was subse,uently published and which, according
to Sir John Bradbury, was entirely misconstrued by the public. The first
result of the impression given out by the French Press was a marked strengthening of the French franc. However, French enthusiaam was somewhat damened by reading quotations from the 3ritish Press obviously inspired by
Downing Street and today the franc is again slipping.
Faithftlly yours,


The Honorable Benjamin Strong,
Governor, Federal Reserve Bank of hew York,
Lew York City.


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