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September 4, 1922.





nearly three times as fast as the ruble has depreciated, and
with the
to restore business activity to its pre-war volume
pre-war credit machinery working normally) -rould require something like three times the pre-war per capita circulation.
Credit machinery has, howdver, largely broken down, and unless
it were restored, the per capita circulation recuired to bring
business back to its pre-war level would probably be even more
than three times the pre-war amount.

The business of the country has sunk to a very small
fraction of its former volume; but the rise in prices out of
all proportion to the depreciation of the currency indicates
th2t even for this small business the present volume of currency is inadequate; and makes it difficult to see how activity
can even be maintained at its present low level without enormous new issues. And when one thinks of any possible revival
of business even to one-half or one-third of its pre-war volume,
the hopelessness of bringing it about by any mere juggling with
the currency becomes overwhelmingly apparent.
To raise business to say one-third of its pre-war
level Jould probably reoaire a currency, not of ,186,000,000, but
.)500,000,000 to ::,600,000,000, and even then the condition would
not be stable unless the whole public finances of the country
were put into such a shape as to produce a balanced budget and
remove tfte necessity for further uncovered emissions to cover



September 5, 1922,




The new Russian State Bank was organized December 12,
Its original capital, wholly alb:scribed by the State,
was 2,000 milliards Soviet rubles, later increased to 5,750

Under tiro original statute the bank is prohibited, except in a few special eases, from malting long-term loans (defined as loans for longer than three months), but tim necessity for longer loans principally for agricultural purposes
has led to the rioposit with the bank by the Commissariat of
Finance (out of new emissions of paper) of a varying slam as
needed for the specific purpose of making such long -term
This am, on August 1, 1922, reached 67,726 milliards,
of which 58,842 milliards had been advanced in loans.

In addition, apparently for do purpose of increasing the
funds available to the bank for its current boatman, the Commissariat of Finance has placed with it on long term depnsit
a sum which, on August 1st, reached 74,000 milliards.
All other deposits, Including a small amount in foreign
currencies, amounted on August 1st to 19,413 milliards,
Setting aside the 67,726 milliard fund, oar-marked for
long-term loans, the bank has had for its other operations:
Its capital
Its deposits
The special deposit of the
Commissariat of Finance
a total of

5,750 milliards


The disposition of this sum is indicated in a si,atemant
of assets and liabilities of August lit, as follows:

Loans (other than the long-torm
loans from the special fungi)
Advances (deposits, advanc es of
circulating capital, etc.) to
local sections of the bank
Various properties acquired (by
direct purahasa, in rojAnsent
of loans, etc.):
Foreign coin and currency
Foreign bills of exchange
Precious stonos
Other colmoditios
It hal cash on hand

30,013 milliards







Zarly in this year a new bank °ailed the Consuming CoIt began operations in April.
operatives' Bank was organized.
Its objects were announced to be to serve the needs of the
aonsumers' co-operatives by credit and banking operations.
Its capital of 1,300,000 gold rubles was subscribed by



The State Bank
Consumers co-opsrativos
of Soviet itussia aad

allied Soviet Republics


The statement of Assets and. Liabilities as of Au;ust 1,
1922, shown that the bank has he at its disposal tho follow-

ing sums:

Soviet rubles
365 lailliards





s rands mainly as follows:

cal sections
ate "Corn Loan"


300,000 gold rubles











ad cash on

s with tae
749 milliards

f loans, advances, etc., of 2,294 adlumption that all of it has been so
assistance to the business of the
have gone very far in helping them.
nt exchange is only i459,000.

en organized a "private" bank with
No data as to its operations are at
rumor has it that its activities are


Colonel James A. Logan, Jr.


Sept. 8,


up prices and living costs vithout any corresponding increase in production of
The Treasury has an enormous refunding
benefit to the people generally.
operation to put through during the next eight or ten months, and //Idle .re
have no doubt of its complete success, it may be that the terms vill appear to
be a little disappointing from the standpoint of those who think the Government
;:hound get credit for less than it is north.
The situation is exceedingly mixed and very unAs to politics.
Meet of the progressive Republican candidates have won out in
the b :nus bill
the primary elections, and aerie of them are extreme radicals.
It is expected
has passed both Houses of Congress, and is now in conference.
to be reported out sithin the next fey fveeke, after the tariff till is reported
out by the same conference committee, and then vhen the conference bill is
I have nc doubt whatever
passed, the President is expected to veto it promptly.
There has been an outpouring of criticism of the Administration
that he will.
and the President because of his management - or as some people express it,
He would have been just
because of his interference eith the strike situation.
as severely criticised fur inaction had he done nothing, and on the whole I
believe he has acted with the most high minded purposes and sith a very sensible
There have undoubtedly teen mistakes cede all
regard for his public duties.
I think possibly the only point where criticism may be justified is in
the Attorney
the sweeping character of the injunction duet obtained by
General from the United States Supreme Court, retraining the striking railroad
The text. of the order, which of course
men from various types of activities.
is only temporary pending argument, is so sweeping as to appear to vic late the
provisions of the Constitution ac to freedcm cf speech and assembly, and the
Attorney General,(as well as the President) has been vigorously denounced for
going so far.
There is still uncertainty as to Governor Herding'e reappointment to
the Federal Reserve Board, and if the President does appoint him, there is
certain to be a good stout fight against his oonfirmetinn by a group of
senator° who charge him with all sorts of mismanagement during the deflation

A couple of eee'es age when I was in VashtnE,ton, the President
accepted an invitation from the family for a dinner warty and evening' s enterThere were just twelve there
Ne had a rand time.
tainment, at Bethesda.
including the President, Secretary Mellon, Senators Nadsworth, Curtiss and
Edge, and Speaker Gillett, Ellis Dresel, Pill Phillips, Neno, /teddy, Fill
The party did not break up until after midnight and
lilliams and myself.
all had a good time.

I finally succeeded in refurnishing the ice box, and the house is
Tell the
Pe best to you and Basil.
beginning to lock like its old self.
old scout to 'trite to se when he gets time.
Colonel James A. Logan, jr.,
is xue de Tilsitt,
Paris, France.
ES. Pe




Personal and Confidential.
Paris, 8 September 1922.
18 rue de
Subject. T h e Reparation Crisis o f August, 1922.
My dear Ben:Due to the failure of the London Conference of Prime
'Ministers to reach agreement on the reparation. question in the first
weeks of August, 1922, tie question was returned to the Reparation Commission. The formal question to be considered was the reply to be given
to the G-erman Government's written recluest of July 12, 1922, for a com-

plete moratorium of reparation cash payments. By unanimous agreement in
the Commission it was decided that Sir John Bradbury and M. Mauclere
should go to Berlin for the purpose of studying the situation on the
grounda nd uoon their return to Paris to submit such recomendations
to the Commission as in their jud'_men t would best meet the situation.
I enc lose _e th as yxhibit A copy of the 1,'ir st Draft :.:inut es of t he

c314th L:eeting of the Reparation Commission held in Paris on 4,u4-1.1at 26,

This meeting was for the purpose of hearing the report and reconLenciations of Sir John Bradbury and -1. Lauclere after their return
from Berlin. The statement os Bradbury and Maucleze as they appear



in t.9se minutes constitute their formal report.

Exhibit B herewith is a copy of the "First Draft Minutes

of the 315th 1.1eeting of the Reparation Commission on Au=just 30, 1922",
which is the record of the forma hearing of the Gerrans on their re-

quest of July 12, 1:-:22, for a moratorium. Paragraph 5 2 of this enclosure contains a record of the statement which I made at this na et in.: , the
reasons for which are explained below.


C herewith is a copy of the "First Draft" of the

Litilt-es of the 316th ideeting of the Reparation Commission held on nu b
ust 31, 1922, -,thich includes the record of the formal deoate within the
Commission on the German re :nest; the rejection of the proposal of Sir
John Bradbury for an immediate cor4Dlete cash moratorium
a majority
vote; and fInzaly the adoption by the Commission of the so-called "BelAan-1 t al ian C- onk)romise. " proposal by unanimous vote of the Commissi;n.

la 1"

Exhibit D herewith is a co,:y of the Decision No. 2119 of
the aeparatOn Com.:ission and the letter of the Commission to the German
government transmitting the Decision, dated August 31, 1922. This Decision was that referred to hereinafter as the "Belgian- Italian Compromise" resolution.

U. A. L. Jr'. Personal and Confidential. To B. Strop--.

Page 2

The situation resulting from the failure of the

Prime ilinisters Conference in Lond on in the early days of August, 1922,
was most difficult. The French people who :)e,ve been thorouOily ba,mb oo z le d, unite generally supported the Poincare thesis. I do no t an

to i.sply that certain intelligent groups of French opinion did not appreciate the real situation, but the majority was with Poincare. Poincare went to London vith a stiff back and apparently opposed to almost
a natter of fact, the breaking point of
any form of compromise.
Lloyd 6eorge and Poincare on the "control" of timber and coal deliver-

ies would not have presented the insurmountable obstacle to agreement,
had the personal relationship bet...een the two Prima lanisters been cordial, I am sati sfied that if any other two people had been ne .;otiating,
some form of compromise could have been reached acceptable for both
parties, and without particular injury to Germany. However, no compromise was reached, and Poincare on his return to Paris gave every indito o to almost arw ex.trmee to get what he
cation that he was
wanted even if, in the proces Frame was to be isolated, and even if
he had to pull clovrn the pillars supporting t he European economic an d
financial temple, and let it all fall on the heads of an 1.1ready, badly
shaken Europe. How much he was bluffing, or how resolute he was in his

attitude, I am not able to judge.
On the other hand, the British, from what I gathered
from Bradbury, fully ap p re ci at ed the weakness of Poincare 's position,
but felt that it was perhaps unavoidable to let Poincare try out his
policy in the face of their sulky disapproval in the hope that when
Poincare had one a little way on his independent policy. the French

people, feeling conseotently the weakening of tie franc, increased
taxation, etc., would rise in their wrath and oust Poinca e before too
much harm was done.

he Belgians, under Prime in/lister Theunis, followed
a conciliatory and farsighted policy throughout the London Conference

and the period wl-en the. auestion before the Reparation Commission.
In view of the divergence of public opinion in Bel,,7ium it took courage
on Theunis' part to openly oppose the 2rench thesis during the ne-otiations in the Commission. The .Prench exerted every pressure to
Belgians with them. Delacroix told me that the French Aaassador in
Brussels on two separate occasions complained of Delacroix' attitude

to Theunis in the name a the trench Government .
The Italians were apparently well rounded sp to the
British thesis from the start.
As regards my personal attitude during the negotiations

of which some erroneous reference has appeared in the ..Eurean and American Press, I have the following to say. The danger of a break between
British and French on the reparation uestion had been apparent for
months past. I fully realized that our o ve nine n t did and does not

want to Let involved in this row. I know the delicacies of our foreign debt position. I also realized that the British have and will con




J. A. L. Jr.

l'ersonal and Confidential.


Page 5

largely meeting the Prenc h point o f view. Delacroix could then submit the "Bel fan- Italian Compromise" which, following the rejection
of the Bradbury resolution, could be quite properly supported by Dubois.
Dubois said he 1.1011id KO and see Poincare at once and find out what
could be done. I spoke to Bradbury and Delacroix in a purely personal
way on the fore';oing. They agreed. The formal meeting was delayed
until about 6:00 o'clock. In the meantime Dubois telephoned back to
Bradbury his agreement to the proposed procedure , which was formally
adopted about 7:00 o'clock.

The fact of rrw having made a statement at the formal meeting of the Re.!,ration Commission. on August 30th leaked into the

Press, with the result that I was given some publicity by the 3ritish

Press and London visitors which I in no way desired. The British who
never miss the opportunity of drawing us into European questions made
some endeavor to exploit "the beneficial effects of the presence of
Amsrican unofficial observers in. European conferences". Of course,
I nz,de no reply to the Press and, after cabling the statement
I had made to Washington, left Paris, visiting sane friends in the
country. The affair -.a.t.s no w died out o f pub lic intere st .

I do not want to give any erroneous impression of

the iq)ortance I attach to the "Dubois chat" on the afternoon of August 31. I have always -remained of the impression that the :Trench in-

tended to back down at the last moment, for otherwise Dubois would not

have asked for the half hour interval between the closing of the infor-

mal conference and the formal meeting of the Go:mission, and thus change
the ordinary practice of havin._: one meeting imbnediately follow the
other. The fact that Poincare gave his approval to Mauclere accompany-

ing Bradbury on the visit to zerlin after the London Conference, clearly indicated some hesitancy on Poincare's part to percipitate action.
In addition, the adjustment of the clearing office controversy reached
during the London Conference was a.tother similar indication.

As I have written before, the August 31st, 1922,
adjustment of the reparation .1.2.estion is only a stop-gap. My personal
impression is that another crisis will develop towards the end of the

year in ;thich the interallied debt position and particularly our own
will be featured. I can not forecast that the French attitude will be
in the approachiny crisis .

The Honorable,
Benjamin. Strong,
Governor, Federal _leserve
New York City.



of New York,


Decision 2119, August 31, 1922
"Belgian - Italian Compromise"
(Letter September 8, 1922)

In reply to the German request for a moratorium for the years 1922,

1923 and 1924, the Reparation Commission, while deferring formal action upon
the moratorium until it should have completed its plans for a radical reform
of German finances, agreed to accept, in payment of the cash instalments due

August 15 and September 15, and, unless other arrangements are made, of the
other instalments due in 1922, six-months Treasury Bills of the German Government, payable in gold and secured either by a guarantee acceptable to Belgium
or by gold deposited in a foreign bank approved by Belgium.

Document 944 - The Balance Sheets
of the Great German Banks for 1921 - Press Comments
(Letter September 8, 1922)

Summary: Capital and reserves increased from 2.75 milliards in 1920 to 5
milliards in 1921.
Average dividend 12.6%.
Deposits 25 times those of 1913.

Loans to State on Treasury Bonds decreased; private loans increased.
Net profits shown on balance shoots small compared with actual profits.
Large secret reserves have been constituted by all the large banks.
The press is divided in attitude toward this practice.


bank and not re-issued to the public.
The Committee calls attention to the large appropriations for capital

expenditures for railways and canals, and for placing telephone cables under
ground, and suggests that an expert examination be made to ascertain whether
these expenditures are really necessary at this time.

In the opinion of the

Committee, State participation in industrial enterprises should be suppressed.
Another doubtful item is that of subsidies to the various States.
these are warranted could be determined only by a study of State budgets.

(; 0 F Y.

Dated Sept. 9, 1922.
"ecd. 9th, 9 a. a.

Secretary of Stag,

354, September 9, noon.

Miscellaneous reparation receipts since
September 2nd, $49,252 dye stuffs to Be lc;ium.
Logan. Sept.
9, noon.








J. A. L. Jr".

Personal Lsad Confidential. '20:

B. Streng.





J. A. L. Jr.



To L. Strong.



the Banks of Aa.gland rd Holland -Mlle no t directly guaran teein -r the German

Treasury Bills, and thus tecrnically keeping clear of the political situa-

tion, will neve:ct:I.eless find some means of financing a "German guarantee"
satisfactory to the Belgians. 4111 of this will have developed before this
letter reaches you. The situation is however more tense than I have ever
seen it and much more politics have been interjected into the reparation
question than heretofore. Obviously, a reparation solution on the basis
of the riavenstein-Schroeder :pro-position is only a stop-imp, and even if a
successful ablution is found in Loudon, further discussiona and perhaps a
further crisis is on.Ly postponed for a few months. I personally attach
considerable importance to the endeavor which is now going on between the
French and German industrial s to reach sous workable arrangement for del iv-

eri os in kind, as per the "Stinnes-Lubersac agreemmt" and the visit of the
"':.helve irerme,n industrials to the devastated rejmns" It maybe that
ey can v.ork out some business arrangements of sufficient advantago to the
French to force a more conciliator.; attitude on the part of the French 3.ove rnment to the gene ral reparation question.
Faithfully yours,

.'ho Honorable Benjamin Litr
Governor, Federal Ile serve Bank of Lew York,
Lew York City.

.LL.L; G


Dated September 16,1922.
Received 10:28 A. M.

Secretary of Stets,

362 September 16, noon.


Miscellaneous reparation receipts since leptenber 9th,
132,016 Luxemburg coal credit Belgium, postage receipts
francs credit Belgium.







A. L. Or. Personal

& uonfidential - To B. Strong.



is that the trench for political reasons and gaining our support will endeavor to limit the discussion of the debt question to the "European
position" exclusively. On the other hand, our British friends, while
ostensibly sticking to the theory that the debt question is outside the
reparation question, will, nevertheless, use every endeavor indirectly to
interject the "international position" (including the American) into the
situation. These views which I express with every reserve appear to me
to be more or less confirmed by the recent trend of discussions in the
league of i4ations at Reneva. There appears, however, some grounds for
hope of conservative French discussion and action on reparations during
the approaching critical period. This id due to the wide publicity and
support given by the French Press to the "benefits accruing to France"
resulting from the Stinnes - Lubersac agreement, and similar agreements
which are being entered into between the German and French industrials
under the provisions of the so-called loucheur - Rathenau Wiesbaden Accord.
These arrangements are being very broadly supported by the French Press and
if such support be maintained it should have a quieting effect during the
approaching critical period which might help to further the reaching of a
sensible and conservative solution.
un page four of my letter of September 15 I referred
to the complication resulting from the Lerman Government having advanced
only one million pounds sterling (five hundred thousand pounds as of
August 15 and five hundred thousand pounds as of September 15) on account
of Clearing Office Balances instead of tie two million pounds sterling to
be paid before SepAmber 15 as fixed by the Prime Ministers in London
during August. I have no definite informat on as to the French attitude
on this question; little reference has been made to it in the rress, and I
are inclined to feel that if the Germans make payments of five hundred
thousand pounds sterling each on October lb and iovember 15, the question
will die.
The Directors of the French and British clearing
offices, in pursuance of instructions received from their Governments,
appeared before the Commission a few days ago for the purpose of outlining and receiving the approval of the Commission to the bases of the
new Clearing uffice Agreements to be entered into individually by the
These two directors presented
various Clearing Offices with the Germans.
the following scheme to the reparation Commission.

"Germany to pay each month on account of all
Allied Clearing office balances Cash
59 2,000,000
The bonds to carry interest at 570 with a currency
upon the basis of the outstanding
of 4 1/2 years.
bal;:laces amouning to thirty six million pounds
sterling." an interesting figure as showing the
outstanding balances on ulearing office account
still due by Germany) "Germany will have covered

J. A. L. Jr. eersonal dc Confidential-To B. Strong.
Federal Reserve Bank of this obligation
St. Louis

in 18 months by


COrl -

Dated Sept. 23, 1922.


Recd. 300 P.1.

Secretary of State,
Washington, D.

370, September 23, 4


liscellaneous reparation receipts since September lath,
123,598 pounds sterling Luxemburg coal credit Belgium.


British reparation recovery act month kugust 637,000 pounds
sterling retained by British under terms larch 11th agreement applied
itainst army costs.


Letter of September 29, 1922

Item 2167 a - Uinutes of meotingof Reparation Commission on Sept. 26r 1922

Mr. Delacroix having declared that Belgium was satisfied
with the Reichsbank guarantee and would definitely accept the German

Treasury Bill4o be remitted to her as payment for the instalments
due up to the end of 1922, the Reparation Commission decided to transmit the notes to the Belgian Government, debiting Belgium and crediting Germany with the nominal amounts of the bills on the dates August
15 and September 15.

The Chairman on behalf of the French Government

entered a formal reserve in regard to the sufficiency of the Reichebank guarantee.

Annex k591ta. b. c. d. 3. f.

Simply formal documents in connection with transmission
of the notes.



READ AN L) 1..,;.L

J. A. L. Jr.

To Governor Strong - Personal & Confidential.



how much, if anything, Germany is to pay during 1923. On this account,
I believe it is well for you to have the foregoing information and the
attached documents.
Dubois has definitely resigned as President of the Reparation
Commission. His successor has not yet been named. I am informed that
the press reports of Jonnart being named as his successor are entirely
Jouvenal of "Le Latin" is being talked about. He has great
influence in parliamentary circles and has a position of a good deal
All reports indicate him to be
of independence on account of his paper.
a good man and well qualified for the job. Howevcr, the name of Dubois'
actual successor ,:ill probably be published in the press before this letter
reaches you. Dubois tells me he resigns because Poincard has given him
"no personal consideration" and that he "declined to be the automaton of
He is particularly bitter in that Poincard, after
Poinoarels will".
having agreed in the late afternoon of August 31 to his acceptance of the
so-called "Belgian - Italian Compromise", immediately afterwards came out
attacking him.

Bradbury has drafted, in purely tentative shape, his proposals
for the Commission's position on the reparation question for the period
after January 1, 1923. His tentative plan (which will be undoubtedly
changed) contemplates a complete moratorium of both German cash payments
and deliveries in kind for a period of two years from January 1, 1923.
It, however, provides that during this two year period Germany will effect
restricted deliveries in kind subject to reimbursement of German industrials
and coal mine owners by 5 Year German Treasury bonds given some, but as yet
undetermined, priority by the Reparation Commission over general reparation
holding that if adopted,
charges. Delacroix tells me he opposed this plan,
resist accepting 5 Year German Governthe industrials and mine owners will
ment bonds, and that practically, deliveries in kind will "peter out to zero".
Bradbury apparently suggested that his difficulty might be overcome by the
Allied recipient Governments endorsing such German bonds up to the value of
deliveries in kind received by each, which might hake them discountable
and thus overcome the prejudice of German industrial and coal mine owners
Delacroix was energetically opposed to this, maintaining that it
to them.
would be quite as simple for the Allied Governments to furnish the German
ird-7stri:ls with their own Bonds. While I have not talked to the French,
I imagine they will have the same objections, only in a more definite form,
I have not had an opportunity to talk vith Bradbury,
to the Bradbury plan.
but my gness is that it is more or less of a "ballon d'essai" designed to
explore the French and Belgian position prior to the general opening of
reparation discussion.
Delacroix is of the opinion, which I share, that the British
will not really open up the reparation question until the Asia :Inor
starsituation is cleared up. On this account, I do not anticipate the
ting of the new crisis until some time in Yovember, and it may even
held the latter part
postponed until later if the Brtssels Conference be
of Yovember or the first of December as now planned.

J. A. L. Jr.


Governor strong - Personal & Confidential.


From what I gather from Delacroix and elsewhere, and notwithstanding the fact that the Government of France has just confidentially
asked the Belgian Government to convoke a conference "on Reparations
and Interallied indebtedness", both the Belgians and French are in a
receptive mood to act so as to restrict the "Interallied indebtedness"
discussion to the Luropean phase of this question without the interjection
of the American phase. I know nothing of the policy of our Government
in this particulgr andsimply report the possibility of thus restricting
Brussels conversations to the I;uropean Interalliedbbt questions as
being of possible interest.
Bradbury told me the other day, informally, that he proposed
retiring from the Commission about November 1. I don't attach undue
importance to this as he has said it before three or four times and
then changed his opinion. He said, however, that he was thoroughly
tired out, which is undoubtedly the fact, and that both he and his family
felt it to be his duty to get out and rest. I am quite an admirer of
Bradbury and the good which he has done, and will be very sorry to s,e
On the other hand, I feel that durinc the last few months by
him go.
his appearance so much in the press in support of the British thesis he
has gained such a deep rooted antipathy of the French that it would serve
a constructive purpose to put both Dubois and Bradbury in the discard at
about the same time and to start in with a new pack.
Faithfully yours,

2 encls.

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









J. A. L. Jr.


TO Governor Strong - Personal (;: Confidential.


To date the Governments of Great Britain, France, Belgium and CzechoSlovakia have agreed to grant the foregoing guarantees. Italy has
agreed subject to certain reserves on the question of the method of
control of ,iustrian finance. Switzerland has not as yet signified its

With further .ference to my letter of September 9th,
endlosing you copy of the Committee of Guarantees report of the
I enclose
German financil position as of July 1922 (R.C. Annex 1532).
herewith as Exhibit D copy of the formal letter of transmittal of the
report by the Committee of Guarantees to the Reparation Commission
(Annex 1532 ibis), as well as a copy of the "Vote by the trench
representative on the uommittee of Guarantees" (Annex 1532 o).
Faithfully yours,


5 ends.

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




Letter of September 30, 1922



Expenditure s
The Sub-Committee
Federal Reserve Bank of St. Louis

on Expenditure and the majority of the Committee


CilleF T.

Dated September 27,1922.
Reed 3:30 P.Y.



Seeretary of State,
Washington, D. C.
374, September 27, 5 p.m.

Refe,noe our B - 764.

Commission yesterday received the

following German Gevernment treasury bills with "absolute guarantee" of

Reichsbank payable in London at Bank of Fngiand on order Basis* finance
minister via:

A 4 bills 10 million gold marks each and one bill 7 million

4 hundred thousand gold marks falling due ISth -ebruary 1923 covering Auxurt
15th reparation, installment B 4 bills 10 million gold marks each and one
bill 8 million 6 hundred thousand gold marks falling due 15th March 1923
covering September 15th reparation installment.

Upon Del acroix formal statement guarantee accept this cola-

mission transmitted bills Belgian Government.

Delacroix announced his

Iovernaent proposed discounting bills forthwith thus disposing question
referred to our B

748 August 30.

Germans will transmit later additional bills zovering October

Member necamber reparation installments.
Pm. Dubois at commissions formal session ,ileetioned sufficiency
mlishotemit guarani** being evidently suspicious possible prejudice to 1923

reparation payments on account Havenstee Bank of wmgland arrangements

declaring formally that Trench 'averment viewed leiohsbank Azarantee as
insufficient security.

While not attaching undue importnce Dubois state-

moat nevertheless suggest treasury and federal reserve be confidentially
advised Dubois position.




September 30, 1922.

My dear Logie:

Your letter of 'eeptember 15 has just reached ee, and i have one of
earlier date at ay home which was accompanied by a Tess of documents which I
have not yet finished reading, but all Gf which are most interesting.

Since your letter of the 15th a good deal has transpired and the
developments have been so rapid that your letter is out of date and I cannot
very well comment upon it.
The Belgians have not only gotten their notes
from the Germans, but according to the best information I have, they have die counted them, and I am not cure that it is a good thing at sll.
Instead of
Germany having one creditor,
party - to the Treaty of Versailles and
represented on the Reparation Commission, they have as a result of the discount
of the paper,(if it has been discounted,) probably a number of creditors, private
banks and others, some of them possibly in neutral countries, and if difficulties
are encountered by the German Government in paying the notes, then I presume the
heichsbank must meet them under the guaranty errengemente, because it is difficult
to nelieve, on the one hand, that the holders will extend them, or, on the other
hand, that the Belgian Government would be willing to take them back from the
holders and itself extend them.
However, my information in regard to the diecounting of the ?aper ray be incorrect.
I was very much impressed with the statement quoted at the foot of page
three and the top of page four of your letter.
It is sienificant as well as
I have been an optimist as to a good many things that were taking
place, particularly as to the eetent to which the world, in material matters,
was getting back to normal.
The difficulty is with these human problems of
selfishness, ambition, fear, timidity, and behind all of that, to some extent,
misguided public opinions which lead governments to pursue mistaken courses.
Over here things are rocking along,with some improvement in business,
with the strike situation pretty well cleaned up, and with en increasing interest
in the outooee of the November elections.
There have been indications recently
that the Administration has eained strength; - such, for instance, as the renomination of Hale in Maine, Calder in New York, and Frelinghuysen in New Jersey,
for the Senate, without really serious opposition, except in Maine.
Lodge had
an overwhelming victory in Massachusetts.
There also appears to be evidence
of lack of leadership and considerable dissention in the ranks of the Democratic
On the other hand, the middle Nest is filled with dissatisfactionu.
I personally believe that the tariff bill hurt the Congress and the Party
with the people, but that the President's veto of the bonus bill increased the
President's popularity very much.
His veto message eae very much mein stronger
and definite than had been expected, and it is altogether an admirable and
statesmanlike document.
Congress has adjourned at last, leaving a good deal
of untouched legislation pending, and the understanding generally is that the

Sept. 30, 1922.


the mtantime, there
President will call a special session for November 15th.
4 are two vacancies on the Federal Reserve Board which the President has not filled,
We are all anxious about
the important one, of course, being Governor Harding.
it, not that Governor Harding is the only man in the country for that job, but
because there seems to be an important principle involved in reappointing bin
just because he has been the victim of bitter political attack,and politics must
Political control would be its death blow.
be kept out of the System.


Waddy has sent out a statement of the *wets acoount which is
I had personally withheld my contribution until we knew the
deplorable facts, and 1 have now written him that I will send $2,000 if -he
needs that much, and he advises :Al that he thinks that is more than should be
my ;articipation, so I am gding to go all over matters with him when in ';'ashington
The House begins to look
two weeks hence, and I will let you know the outcome.
Won't you give his my best, and
fine, but of course it misses Basil very much.
the sane to your good self. I cnnot tell you how much I enjoy and value your
letters and how illuminating they are at a time when illumination is generally
afforded to the public through misleading and inacourate newspaper stories.

Yours sincerely,

Colonel dames A. Logan, Jr.,
18 rue de Tilsitt,
Paris, France.
3S. MM








DATE Sept. 30. 1922

rlouernor Strilng




4y. enclosing a very private

return to me after reading.


fron Colonel Logan, which please

I do not want any one else to see it.

Of course,

it exhibits the point which I have so strongly in mind, that the troubles in

1..e now with people rather than with things.




October C,11922.

Dear Logie:

heferrinw now to your letter of September 5, the documents which
accompanied it call for no comments, especially as the six months treseury
ills have been issued
to the Belgian Government end "hocked".
I think I
.rote you expressing some regret that, they bad teken this course because it
puts the control of the debt out of their own tends.
I have already answered
yeurs of the 15th of September by mine of September 10, and now have yours of
leptember 21,JWch gives me a most interesting account of the last phase of
the reparationteclearing house situation.
Frankly, I dread the prospect of more tension next year when, as you,
say, it will revert not to the 1922 compromise but to the'sohedule of payment'
basis, a situation which is so far from a feasible one, especially when combined
with the clearing office payments as to make the outlook rather hopeless for
Bradbury's program.

Won't you read the letter thet I have written to Basil which contains
something of what I would write you except that I should not repeat in this
letter, and then consider the following: The now president of the Chamber of
Commerce of the State of New York is Mr. Irving T. Bush, a very honest, hiehminded gentleman, and a successful business man.
He is, however, quite an
advertiser, likes to make speeches end appear before the public in one way or
He is promoting P. plan to rave a great international conference of
business men, unofficial in character, to deal with the whole complicated
European situation PO far as it relates to economic Tatters and effects us.
An hour's talk with him did not make clear to one exactly what his program was
designed to accomplish, end when I finally pinned him down he admitted that
the most that it could accomplish would he to have some effect upon public opinion.
Somewhat, I think, to his chagrin, I told him that the position, as
I viewed it, 'aa really rather simple.
If anything was to be accomplished towards
facilitated European reconstruction, it should he underteken only by those who
had some power of accomplishment, that is, by the governments coneorned, just as
the Disermament problem was dealt with by governments.
If ell ho had in mind
regard to educating American public
was an educational program with especial
opinion, I thought it would still be a mistake for the future an it had been in
the pest, to invite men from abroad to come over here end tell Americans what
to do, and this was especially true if he were dealing with such matters as debts,
He bee already talked
and invited the debtors to come over here for that purpose.
eith the President and Secretary Hughes about it, and I think received some
encouragement from the latter.
I am writing you all this very confidentially to
The detail
ask you to tell me frankly just how yor feel about the project.
has not been worked out.
I think he contemplates having the Chamber of Commerce
take the lead in inviting a hand picked set of specialiste, principally business
men, from each important European country, to come over here and discuss a program
which the New York Chamber of Commerce will prepare in advance.
The whole
project appears to me to be half-baked, visionary and impracticable, principally


Colonel James A. Logan, Jr.

Oct. e, 1g22, o far as the Adm

aturall;, that we are boun
for the reenons stated shove, but do not he infleenced by my rather every invitation from every
strong views,
and let me have your teen most frankly.
do so forever, and that the
hand in thee° affairs; but
which Tould practically exc
the wet important and funda
Therefore, let ewe privet()
leaving the government in p

As against my des
is that the attitude mi our
conference on the fundament
so under stipulations which
the one hand, and soul(' gi
econoty end good houaokeepI
quid pro quo.
In other wo
even though it might ultima
end another treaty fight, r
in the long run going to do

/_t least that is
England end France are goin
intrigue and chicanery
my long cherished hope that
difficulties, I would rathe
namely, "Sack the lot", whi
do some housecleaning polit
some situations that can be
otbere that can only be wor
This may
public opinion.
this country may be futile.
foundation for ultimate Eet

Pleasa do not fai
to have your views before N

My beet regards t

Colonel James A. Logan, Jr.
18 rue de Tilsitt,
Pert e, France.
3S. _,fit


Digitized J. FRASER
for A. L. Jr-.

Governor Strong - Personal & Confidential



The British Delegate



The Reparation


The British Delegate invites the urgent attention
of the Reparation Commission to the proposals contained in the
accompanying memorandum.

In view of the progressive deterioration in the German
financial situation as evidenced by the continuous decline of the

mark exchanges and the acceleration of the progress of inflation
and of general dislocation of credit in Germany, be is of opinion

that immediate action on these or similar lines is imperatively

Sir John Bradbury is aware that proposals emanating from
the French Government for the calling of an Inter-:Illied Conference
to consider the whole question of reparation and Inter-_;flied
debts are under consideration by the other lJ.lied Governments.

It is clear, however, that even if such a conference is held at the
earliest possible date - say, the and of November - thiamtm

its suc-

cess or failure will in large measure depend on the conditions actually
existing when it assembles.
If no steps are taken in the meantime to arrest the process
of financial disintegration in Germany, already well under way, there
is a danger that conditions before the Conference meets will have
become so chaotic as to have destroyed for the time being any possible
basis for fixing German liabilities on a permanent footing, - an indis-

pensable preliminary to the consideration of any consequential re-adjustments of inter-allied indebtedness.
Nhether in any case the position in the near future is
likely to be such as to allow a comprehensive treatment of reparations
and cognatre matters to be attempted with success is now open to doubt.


- 2 -


- 3 -




I am convinced that unless immediate steps are taken to improve
and stabilize the exchange value of the mark, a breakdown of the German
financial structure which will be destructive to all hopes of obtaining

reparation, either in cash or kind, for many years to came, if not for
ever is inevitable.
If action is delayed until German internal prices have adjusted
th2mselves to the present exchange of 2,000 marks to the dollar (even

if the rate goes no worse, as it almost certainly will do unless early
remedial action is taken), the dif:iculties of establishing budget equili-

brium, even if Peace Treaty payments both in cash and kind are suspended
alto,sether, will be very great.

I am definitely of opinion that if matters are allowed to drift
such entire suspension will before very long become unavoidable, and that

longer the grant of it is delayed, the longer the period of suspension

will have to be.

If it is delayed until the collapse of the Germ= foreign
exchanges is complete, I believe a orcak -up of economic and social
order in Germany will follow, anti, if this takes place, the _rocess of
rebuilding will be a very long' and painful one, involving in all probability

as an indispensable preliminary the entire remission of the reparation

If any further increase of the floating debt could be stopped,
there would at the present moment be no serious difficulty in the way
of stabilizing the exchange valve of the mark at any reasonable figure
(say, between the limits of 500 marks and 1,000 marks to the dollar)

which those responsible miht see fit to select.

A1.1 that is necessary

is that the Reichsbank should sell gold freely for paper marks at the
rate selected.

- 2 -


such a policy (always on the assumption that there will be

no further addition to the floating debt) involves no serious risk of

deplting the gold reserve.
The present circulation is, even at an exchange of 500 mars
to the dollar, quite inadequate to the needs of the country.

Oboe the

creation of new floating debt comes to an end, there are only three
ways in which additional currency can be obtained by the publics (a)

By the discounting with the Reichsbqnk of German Govern-

ment Treasury Bills now held by the .Public (amounting on 23rd

September 1922 to about 75 milliard marks),

By the withdrawal of existing deposits in the Reichsbank

(which inclusive of liabilities classified under "miscellaneous"
at the same date stood at 83 milliards).

By the creation of new credit by the Reichsbank.

The maximum amount theoretically obtainable under (a) and (b)
is 158 milliards;

in practice, it would be much less, for, thouLh no

doubt the bulk of the Treasury Bills still held by the public would
either be presentedfor discount or have to be replaced at maturity by
new Bills discounted with the Reichsbank, the deposits are not capable
of unlimited reduction.
It is certain, therefore, that recourse would have to be had
on a very considerable


to (o)*, and, as the creation of new credits

Indeed this is in fact alreddy hap oening notwithstanding the continued
extension of the floating debt, by reason of the decline in the value
of the mark having for the moment outstripped the progress of inflation.
The Reichsbqnk's holding of Bills and cheques increased between 30th
June and 23rd September from 4.8 milliards to no less than 43 milliards.

- 3 61111

by the Reichsbank is entirely optional, the controlwould then be over to -protect
the currency would be complete. The Bank of the Bank able

its gold and maintain the foreign exchanges by the time-honoured methods


though necessarily in the first instance at the cost of an acute credit

Duch a crisis has, however, to be faced in any case if serious

attempts at financial reform are to be taken in hand.
The above plan

is, however, only feasible if further inflation

can be avoided - otherwise it will merely result in the Reichsbank
gradually losing its gold without acquiring the ccntrca necessary to stop
the rot.

Unless and until the credit of the German Government is reestablished, inflation can only be stopped by covering Government outgoings by taxation.

With an exchange anywhere in the neighborhood of 500 marks

to the dollar, this condition could be secured without serious difficulty
if Peace Treaty charges were completely suspended.

I doubt, however,

whether it is possible if any appreciable provision has to be made for
reace Treaty charges in 1923, or anything more than quite a modest provision in 1924.

quite apart from payments in foreign currency, the paper mark
payments in respect of deliveries in kind, even on the scale of this year,

would make the task a difficult one, while any increase in the deliveries
in kind above the present level would almost certainly mate it impossible.

With an exchange of 1,000 marks to the dollar the task of
balancing the budget would be still more difficult but not I think hopeless
if the Peace Treaty charges could be entirely suspended.
On the other hand, a complete moratorium in respect of all Peace

Treaty obligations, both in cash and kind, not only is impossible for
political reasons, but economically might have serious consequences to the



Allied countries Is there no way out of the reparation.
principally interested in impasse ?

There is one way, and


think only one.

To the extent t

which Peace Treaty payments, either in cash or kind, are calle

in excess of the provision ,:hich can be made for them in the b

credit facilities must be provided for the German Government.
In. present circumstances, the only countries which have

inducement to provide such facilities are those receiving the


proposal is:

That all cash pa cents for Peace Treaty charges

(including costs of Armies of occupation, reparation, compositi

for restitutions, clearing of±ice balances, and miscellaneous

fling due between 1 January 1923 and. 31 1)ecember


should be met by German Treasury five-year bonds to be delivere

the "eparation Commission and distributed to the respective Gov
ments interested in the same manner as the cash would have been
cj.stributed if payment had been made in cash.

That in respect of - 11 aeliveries in kind, services

rendered, etc., within the same period f or which credit has t o

given to Germany under the kec..e Treaty the German Governilent s

be notified month by month of the amounts debited to each tllli

Government, and should be allowed to octain from each such Gove

a guarantee of German Treasury five-year bonds to the amount so
ed, less such percentage, if


as the l'e-paration Commission

from time to time decide can be met w ithout creating a del' is it
the German budget.

The bonds under paragraphs (1) and (2) would be identica
every respect.


They would be expressed in gold marks and shoul

by the agents of the German Government in the caital of


cipient or guaranteeing lower in the currency of that --ower, at the
option of the holder, either at the rate of exchange ruling at the date
of issue(which should be stated on the bond) or at that ruling at the
date of payment.*

The liability of the guarantors however should be limited to
payment in currency at the rate of exchange at the date of issue, the
holder to accept in the event of a German default such payment by the
guarantor as a full discharge, all claims against the uereean Government
in respect of the defaulted bonds to pass to tee guarantor. If instead
of claiming paTeent under the guarantee, the holder prefers to retain
the defaulted bonds as a gold claim against the German Government he should
be at liberty to do so, the guarantee thereupon lapsing.
The bonds should bear interest at a rate high 'enough, regard
being had to the credit of tae guaranteeing countries, to enable them to
be readily negotiated at par( say, 6 and even 7 per cent.) They should
their face a space for endorsement thereon of the guarantee
the recipient Government. Those under paragraph (l) would be retained
by the Governments concerned, and would be negotiable by them only under

their respective guarantees; thoe under paragraph (2) would be returned,
after the endorsement thereon of tLie guarantee of the recipient uovernment,
to the German Government, andin the event of a considerable improvement
This option would no doubt would be negotiable by that Government.
taking place in the gold value of the currency of a guaranteeing country
be very costly to the German Goverment. In all the circumstances, how-

ever, I do not think it unreasonable to ask the German Government to
take the risk in consideration fa- the guarantee. If the bonds are to be

readily nei otiable in the guaranteeing countries it is oeviously essentia:
that their value in terms of tae national currency should be assured.
If, in addition to this, they are gold bonds (even though the marginal
gold value is not guaranteed( they would have a certain element of attrac
t ivene ss ( which would be some considerable as Gera n cr uit improves) as in.
Vestments in countries oi which the exchanges are not very stable.


In order to

increase the attractiveness of the bonds to

investors it is for consideration whether tee `-tate 3anks of the res-

pective guaranteeing countries might not uneertake at any time during
the currency of the bonds to ma-e advances against tnem up to(say) 80
per cent of their guaranteed face value, receiving authority, if necessary, from their respective Governments to treat them as cover for their
note issues.

Any country called upon to guarantee bonds under paragraph (2)
should be given the oetion of retaining the bonds on payment to the
German Government of tneir face value in cash.
It should be announced that, provided that, the German Government

carry out the requirements of tne Reparation Commission in regard to

balancing the budget and reform of the finances of uermany, similar
arrangements will, to such extent as the Aeparation Commission may
think them necessary, be made for the years 1925 and 1926, and that, as

soon as the position becoms sufficiently clear, and in any case not
later than 1 July, 1926, tne Allied Governments will consider the
whole question of the aggregate liabilities of L'ermany unner the Peace

Treaty with a view to their permanent adjustment to her capacity of
payment and to their liquidation by a series of foreign loans.
Subject to the above arrangements, the reparation liabilities
of "rermany rrom 1 January 1923 would be governed by tne 64chedu1e of

l'ayments, undr which the cash liability for each year is the difference
between tie value of tile deliveries actually effected and the full annuity liability.

This would have the result of giving an inducement to

Germany to increase the deliveries in kind to the maximum possible figurE

since the guaranteed bonds representing the value of the deliveries in
kind woi:Jd be Mae .n at her diseosall while tuose representing the cash
liability would remain with the







The acceptance of the guaranteed bonds as between Allied.



prices for staple counodities, at the time the rate is fixed in order to
avoid complicating the creAt crisis which will certainly follow the
introduction of the a,rralgeraent by a fresh disturbance of internal values.
.Two or three weeks ago , a rate of 5 -0 marl m to the dollar would, I believe,

have been suita ble and practicable. Now it may be necessary to go as
high as 750 or even. 1,000.

In a very few weeks' time a very much higher

rate will almost certainly be inevitable.
1though I think it desirable that the German Goverziment should

retain the power, subject to the apprbval of the Reparation Commission,

to lower the rate (i.e. to raise the exchange value of the mark), if in
future it is thou :ht wise to do so, it will probably be found that a new

7oarity, once established, will be permanent.

it will be oznvenient,

therefore, to select a mark-pri ce for ;old which Wa.11 make the mark-do 1 la r

or walk-pound parity a round -figure.

she new Rtichsbank law should also mice suitable provisions,
in accordance with recommendations to be 1.1ade by the bornmittee above

suggested, for the control of the note issue by requiring any new eya)an-

sion to be covered in suitable proportions by Fold or approved foreigi
currencies and commercial bills. It should also prohibit any further
issues of legal tender i.oney otherwise than by the Reichsbank.
;Duch an arrangement would ,_live the best possible guarantee for

the rehabilitAtion of the L;einan budget position, since 'Germany would

know that, unless the increase of the floatini-7, debt were arrested, she

would lose her gold reserve and ith it the last barrier between herself

and final financial collapse.
if further guarantees on the part of Germany are thought to be

necessary, I driould see no serious objection to requiring the German Gov-

ernment to agree to pledge specif c state assets of a suitable character to
the service of the guarr.-nteed bonds and to invest the Reparation Commission

with powers of foreclosure in the event of default. The problem of find-



amp ing assets suitable for pledging will obviously be greatly simplified if
the mark can be stabilized.
I do not myself believe that such guarantees youlci really improve

the security, but they might have a certain political value, not only in
the eyes of public opinion in allied countries, but as indicating to the
German people that any failure on their part to carry out the new arrangement will be followed by drastic action. I have never myself opposed
the use of coercion to al.force obligations which Germany is really capable

of carrying out - indeed, in the last resort it is the only alternative but from the point of view (DT the restoration of German credit the

fact of seances of this character being; regarded as necessary is an element

of weakness rather than of strength, aid unless the political advantages
of indulging in them are thought to outweigh the financial disadvantages,

I should prefer that recourse to them should be avoided.

I muld further suggest that, in the event of the adoption of the
new plan, the Allied Governments should at the same time consider the

(luestion of the desirability of reconstructing the Reparation Commission

and transferriiv it to Berlin.
The interests of Germany and Germany's creditors are, in lily

opinion, on a long -sijited view, identi cal.

recent his tory 1-r. s, however,

shown pretty clearly that the Reparation Commission as at present constituted is too isuch disposed to sacrifice the interests of Germany, both pres-

ent and fut-,..xe, and the ultimate interests of her creditors to the immediate
necessities of the latter, ahile the German Government tends to sacrifice
the immediate interests of Germany' s creditors and the interests
of Germany herself to the pressing financial exigencies of the moment.

If German sovereigaty is to be preserved - and unless the Reparation
Commis si on is to undertake administrative responsibility for the government
of LT ennany and oe given an army to support its authority, no other basi s is

possible - very intimate co-opera tion between the German Goverment and the
Commission is indispensable.




Paris, 18 rue de Tilsitt.
14 October 1922.


dear Ben,

I enclose herewith:Copy of a confidential report made by Dr. Lincoln Hutchinson
to Hoover concerning the economic situation in Russia. It is one
of the most interesting payers I have read and if you get time to
Dr. Hutchinson
read it, I know that you will find it most illuminating.
was a Professor of Economics in one of our great 7.estern Universities He just returned after having
I think the Leland Stanford University.
remained over one year in Russia studying the situation there. This
report in a much condensed form will probably appear in some of our
American economic journals early TIELLep.r, but believing that :-cu
would li:e to have it in completedigi,FiK'I asked Hutchinson's permission
to send you a copy under personal and confidential cover, which he
willingly agree,., to.

Copy of a personal letter from :r. Alonzo Taylor to Hoover,
concerning grain requirements of Europe during this cereal year.
i2sylor was Professor of Economics at the University of Pennsylvania
but is now a member of a Food Research Committee connected with the
Leland Stanford University. heedless to say, necessity for this
increased European import of cereals will have some reflection on
exchange Lnd I therefore thought it would interest you.
Faithfully yours,

2 encls.

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

Paris, 3 October 1922.

18 rus de Tilsitt.

I want to direct your particular attention to the situation in eread grains in .eraree. I fancy it is representative of the
si tuation in other -:,urope an countries. The statements of representatives of the grain trade are to the effect that the crop is about
1,200,000 tons less than last year. The wheat is stated to be hard
and of good quality. On the basis of this statement the Government
issue d the new falling Decree, calculating that through the operations
of these milling regulations about five or six percent more flour would
oe obtained than with present practices. The grain trade estimates the
re,uired imports at from 1,500,000 to not over 2,000,000 tons during the
crop year. '.base statements cam from Proust, Siegfried, and other men,
and were made in person and not taemn from publications.

Vilgrain tells
a totally different story. tie says
that the crop is the poorest in years from the standpoint of the miller.

None of their sattr)le s have gone le s s than 16`p rater , and so me contain
18 to even 2u. One-fifth of the samples they have rejected entirely as

unfit for milling. The crop as a whole will yield much less flour than
any crop since 1916 This inferior grain is worth more to the peasant
as feed fo± animals, compared with the price of imported feed, since the
miller will bay only on sample. Under these circumstc_lnces to produce
the amount of flour available in r'rance during the last crop year will require, according to Vilgrain, nearly 6,000,000 tons of ii-ported wheat.
They would prefer Oaradian aard because it blends best with the inferior
wheat of the present French crop. There is a large potato crop in France
but Vilgrain does not believe that potatoes will be employed to stretch
flour in brea d ralking, althou,12 'undoubtedly potatoes will replace bread
in the diet of the poor because calory for calory potatoes are today in
Frame cheaper than bread.
Vilgr-ain gave me the following figures.

2 hard 1.vheat

is worth at seaboard 62 francs per quintal; the new import tax is a little over 14 francs per quintal; transport to his Paris mill is 3 francs
per quintal. lie would sell a straight flour made according to the present regulations at 106 frames per ciu.intal. There is a special tax of
1.1 percent on the turn-over of a mill, in addition to all other taxes.
This turn-over tax holds whether a mill is run at a profit or a loss.
Ths small millers of Frame
The bread is sold at 1.1 francs per

who can not buy in large amount s and ',those transportation costs are he av-

ier pay in the neighborhood of 80 francs per quintal at the mill for imported wheat. `-'his enables the peasants to hold up the local price to
eetween 75 and 80 francs per quintal.
The new milling regulation is as follows. The millers
were instructed to mill a straight flour in accordance with a sample and
to sell the output of the mill as two products, namely, straight f lour
and mill feed. The sample was prepared from a particular batch of Australian wheat. ik new sa.nlple is to be Dmpared each month. The sample



for the present month used as a basis can be duplicated by extracting a
mixture of 60 part of French wheat and 40 parts of ee:o. 2 hard wheat to
about 75 peroeet. If the miller were left to himself he would divide the

same strait flour into probably three grades: Short Patent, Long Patent, and Clear, and those three grades would be sold in the appropriate
markets at a sliding scale in prices. Under the operation of the new
Milling Decree no more flour will be produced but all the flour will be
of one grade. r. he Parisian narket able to pay a higher price for white
flour will cosplain of the gray flour, and the provincial market will complain that the price of the straieht flour is higher than the price of
clear flour. 14obody will be satisfied and no more flour will be produced.
This Bill has been passed apparently in order to please both the peasant
in the country and the aorknan in the city. I have been ahle to find no
One who oelieves that throueh the oi-)erati on of this regulation more f lour
will be produced out of the unit of wheat.

The Govenurent estimate of today gives the crop at

2,400,000 tons mailer than last year. They state the c onditi on is fair,
better in the west than in the east. They suggest that the worst wheat
has come on the maricet first and the entire crop is not to be judged by it.
' =he crop of 1921 was harvested early; this one is harvested late; that
!mans the crop of lva. had to feed the country for thirteen months; this
one will ha ve to feed the country for only eleven months if next year's
crop comes on tiee. The official estimate of import requirements is two
million to two and one-half million tons.
These are the two ades of the situation. The grain
trade la s an obvi ous intern st i in bearing the figure of import requirements.
she miller has no obvious interest in bulling this figure. The higher the
aecunt of w Teat imported the hts.her tee avere-ce price of flour and the
great er the publ is resentment again st the miller. Therefore, in setting
a high figure for import requirernnts the miller must do so out of conviction and not out of self-interest. Everyone who pleads for a low figure

is acting as a sedative on the financial situation., since everyone is fear-

ful of the outcome of a heavy import prograsnre on French finance. According to the present eren ch figures the consumption of w neat in France la st
year including crop and imports was 10,000,000 metric tons. by subtracting seed and carry-over this ]eaves a heavy consumption. This consumption

could be cut 10 to led with ease by the use of the available potato crop.
Stocks of fl our in the count ry a re probably large .

?hem is a curious situation in Italy. On the basis of
crop, stocks end imports, the consumption of wheat in Italy last year was
more than 1,000,000 tons larger than the year oefore, or during the years
prior to the war. -I-ere i s no evidence from the figures that consumption
of maize or rice was reduced. If this means that stocks have peen accumulated in Italy, these will tend to reduce the large import requirements
that are apparently imposed on her by ear present short crcp 9 It is certaiuily amazing the way in ;Bich a half million tons of wheat will disappear
or bob up in a country in these extraordinary times .
I am proceeding to Poland on Friday and when I am in

Germany I shall be able, thrcw direct contacts with wren at the top, to
determine the situation tree. I have in advance the impression, throuja



the reports that Simpson brings back from several weeks' investigation in
Lterniany, that the peasants have greatly understated the crop of wheat and

rye as one of the prelimirr,ries in their battle against the government

Apparently everyone in Europe expects the price of North
American wheat to fall to ba ow a dollar chic ago or even seauoard if peace
is restored in the Levant. One of the most prominent features of the inter-

national situation at present is the relative opulence of the agricultural
class in the food importing countries in Europe with the relative povertr
it of the agricultural class in the food exportirg countries over-seas.


Date Oct. 15, 1922.
Recd. 12:15 p.m.

:Aoretary of State,
Washington, D. C.


October 15, 10 a.m.
liscellaneous reparation receipts October 7th to 14th;

Luxemburg coal 61,460 pounds credit Belgium sale war materials 14,077

pounas credit trance proceeds British reparation recovery act September
621,00,) pounds retained British under 'Jamb 11th agreement against arly




.:axis, 18 rue de Tilsitt.
17 October 1922.

Ly dear Ben,

As was to be expected, the Bradbury plan for handling the
reparation question as from January 1, 1923, (see copy with uy letter
of October 12) did not receive an enthusiastic reception in French
circles. at the commission's unofficial meeting to consider the
Bradbury plan on October 13, Barthou confined his comments to some
He particularly emphasized lack of
detailed criticism of the plan.
accord with the plan of accepting German Government Five Year Bonds
in lie;; of cash payments, and for requiring Allied Governments recipients of deliveries in kind to guarantee similar Bonds up to the value
On the other hand Barthou
of aeliveries actually received by them.
indicated some support of Delacroix' proposal of asking the advice of
a conference of business representatives of the highest standing, free
from political control, on the question of Germany's "capacity" and the
so-called "corelated question of interallied debts". In conclusion, he
advised being engaged with the French Government in the formulation of
a counter-plan to Bradbury's which he proposed officially submitting
to the Commission on October 40, and asked for postponement of further
consideration of the question until his new plan had been submitted.
It was then agreed that the Bradbury plan and the French plan would come
up for official consideration on this latter date.
Very little of the real French position was developed; in Barthou's
conversation of October 13. Barthou is an able and clever man.
he so often reiterates those time-worn phrases of the French politician of
being in agreement "en principe" with "everyone", "Je vous dis avec toute
franchise", "honnGtement et franohement", etc., that he gives the impression
of being more of a politician than an economist.

In the course of the conversation at the unofficial meeting, which
was of the most informal charafter, 3arthou referred to the approaching
Brussels Conference and its important relation to the solution of the
reparation question. Bradbury replied that Barthou should not overlook
the fact that Great Britain had not as yet signified her willingness to
participate at Brussels, and that the question of whether she ':.ould participate remained one of extreme aoubt. Bradbury then emphasized the importance of Franco-British solidarity on the handling of the reparation question, to which Barthou expresseu concurrence. 111 of this resulted in
starting a long amicable discussion of internal politics of Great Britain
-nd France. Barthou said that much stress had been laid in the British
press on the moderate reparation theses of Briand, Loucheur, and other
out of office. The impression given by Barthou,
French political leaders,



A. L. Jr..

aoverror etror

- fersoaal 14 Confidential.



72- lirectly say s:, was that this Eritish press support
"to be's" was open to the suspicion
a's" and
of being purposely designed to unaermine 1=oincare politically.
said that he knew, and was on intimate terms with all French political
2o his knowledge, none of these gentlemen held
leaders out of office.
the moderate reparation views attributed to them by the British dress,
and even if they did and were in office, public opinion would not toleBarthou said these gentlemen viewed
rate them supporting such views.
with trepidation the commendation of the British press, feeling such
canmendation had a decided "back-kick" on their political ambitions with
French public opinion.
the a




Bradbury, in a similar vein, referred to the French press
attacks on Lloyd George. He stated that while not a follower of Lloyd
George personally, he nevertheless felt that the criticisms of Lloyd
George in the French press, as well as the tone of certain recent semiofficial statements, was leading the British public to believe that the
French were endeavoring to interfere in British domestic politics.
then discussed the British domestic political position, emphasizing the
fact that as yet Lloyd George had not indicated whether he would join up
with the Conservative, Liberal, Labor, or Coalition, factions in Great
Bradbury pointed out that according to the French public conBritain.
ception there was wide divergence of view between the different British
political parties on the treatment of the German reparation question.
He maintained that such conception was entirely erroneous, and that any
divergence of view was in form rather than substance, and that psychologically, no better campaign support could be accorded Lloyd George than
by the British public coming to a realisation that outsiders for theta
own purposes were attematine to mix in British domestic questions for the
purpose of pulling Lloyd George down.

row, while not attaching undue importance to the BradburyBarthou talk on the French and British internal political situations,
it nevertheless has some bearing on the conduct of the present reparations
and interallied indebtedness discussion between France and Great Britain.
As I see it, the stage iN now set for the opening of a serious
controversy between the British and French on the question of reparations
and interallied indebtedness. Apparently, the Asia ainor situation has
sufficien:ly cleared Ivi) so that both sides in the controversy now have
more or less free hand. what the outcome will be I would not care to
forecast. iy present impression is that there is a good chance of the
British definitely breaking with the French on this question and even
of withdrawing their representation from the separation Commission.
latter possibility has been intimated on several occasions recently.
Bradbury intimated at several recent unofficial conferences that if a
more moderate and business-like policy be not followed in handling the
reparation question, the only result would be a complete financial
collapse of Germany, and the hope'' of obtaining even "one shilling" now
or in the future from Germany on reparation account would disappear.
Under these conditions he maintained that the French thesis (without


J. A. L. Jr,.






entering into the merits cf euch a thesis) of '".:hat France cuts aawn
on German indemnita must be oomannsated for la a similar cut in French
debt obligations" vonld hnvc no lens to st-nn on. In other nerds,
reparation receits of 0 constituted nc basis for neeotiatina a trade
gainst p'rance's debt obligations -neld by outsiders.

eiens as to the foolishness
Personally, while sharie_
or the past reparation policy, and ne te tn, necessity for na,roachine the
present situation fro* its purely business angle, I nevertheless can not
force mu mind to accept as being sound his plan of receiving German Government Five Year Bonds in lieu of cash payments and guaranteeing similar Bonds
covering deliveries in kind actually effected. In my judgment, under this
procedure, little of a constructive economic nature is accomplished.
I also feel that Bradbury is too sound a man to really be the father of
the plan labeled with his name, and that more probably it was largely
elaborated in London for the purpose of drawing out the French.

Barthou has as yet given no indication of the details of the
Trench plan to be submitted October 20th. I:a guess is that the lan,
after dealing with the obvious weaknesses in Bradbury's, will contain much
detail as to the form of financial control which the French consider
necessary to institute in Germany; general agreement with the Delacroix
suggestion to set up a committee of business men to study Germany's
"capacity", with perhaps reference to the so-called "corelated interallied
debt cuestion "; the elole being designed to blaze the path for and stave
off action until the opening of the Brussels conference. Whether the
British and others will agree to this delay awaits to be seen.
Bergmann has been in Paris for the last few days trying to get
into touch with the French on the plan the latter ,ropose submitting on
the 20th. From what he tells ne his efforts to make such contact, or
even obtain a hearing, have not been successful.

Berenann does not entirely suaaort the Bradbury plan----primarily
He has an alternative
as he knows it will not be acceaten ba the French.
plan in purely tentative form ':.hick in our vim is sounder than Bradbury's.
that for the present at least no useful results would follow
any effort to fix Germany's total rearntion obligation, this in view of
the o_inion aenerally held in Euroae, of the relationship between the
He suggests the following
iniennita and internllied debt settlements.
fornnla as a basis for the rehabilitation of German finances and sound
renr_:ion _a rents dnring the ,eriod which, in his opinion, must elapse
bet/ere a iefinite and final settlenent of the reparation question can be
reechee, viz:


cas:1, ,er _nnum, as from January 1, l92n,
vnlne of her extorts over and above the figure of
lOa of t=
(no cash to be aid if total exports
4 billion cold
_re under 4 billion Lola aarhs; in other words, an automatic
and complete cash aorntorium if German exports do not reach


4 billion); 5a additional

en the value of exports between

J. A. L. Jr.


'11-o Governor :strong - Personal ca Confidential.


5 and 7 billion gold marks per annum, 5w additional on
the value of each additional billion increase in exports,
up to a total of 25fi (the percentage .figures fixed in
Simultaneously, deliveries
the Schedule of Payments).
in kind, starting with January 1, 1923, to be effected
up to a value of 1 billion gold :.:arks ler annum, with
provisions for certain increases depending on 3-erlf-nyts
economic recovery. He proposes asking the Iteparation
Commission or the Allied Goverm:.ents to accord _riority
in repayment over reparations to - German Government ;old
This loan
loan of approximately 50 million dollars.
according to Bergmann is all that is needed for his plan
and would be largely covered by natiofals from
their hidden resources if accorded the priority indicated
by the Allies and certain legal and taxation benefits by
The proceeds of this loan to be
the German Government.
devoted to internal German Government requirements and
not to reparations. He proposes using. such portion as
necessary in supporting the heichsbank in the stabilization of the mark by selling gold freely for paper marks
at a selected rate. He does not care what point isselected at which to stabilize the paper mark; in other
'dords, whether it be one, two, three, four, or five thousand
to the dollar. Under his plan of fixing the annual reparation
obligation and stabilizing exchange such renewal of confidence
will come both within and without Germany that in his opinion
the Government will be strong enough to force extensive curtailment of imports and budget expenses, place taxation on a
proper basis, and to take the other measures necessary to an
equilibrium of the budget, and thus stop all necessity of
further monetary inflation.
Vhether Bergmann's ,lan in its present or modified shape
will be heard before the 3ommission or befor_ the _roposed "Committee
of business aepresentatives", or at :he 3russels conference rests to
It al:_ears to us as being base,- on sound Irinciples.
be seen.
depends on
a practical point of view. its "workability" even if adopted
two most important and as yet unknown factors, viz: (1) Confidence
within and without Germany and (B) Actual and real French support.
Faithfully yours,

The Honorable 3enjamin Strong,

14., dr.

Governor, Federal ReJerve 3a1-2.,L of New York,

New York City.


-040111,0FY - 2D


Dated October 22nd, 1922
11.25 a.m.

Secretary of State,
Y;ashington, D.


417, October 22nd, 10 a.m.

Miscellaneous reparation receipts since October 14th:

war material four hundred eighteen pounds credit France;

Oat and

telegraph 2,056 French francs; Luxemburg coal 2,741 pounds credit




461: of (t*anb

25th October, 1922.

Lly dear Strong,

I think you would like to see the
full text of Sir John Bradburyis latest

memorandum on the Reparation question and I am
therefore sending you a print of the document
which I have just received from Paris.


Yours most sincerely,


Benjamin Strong, Esq.


ANNEXE 1614.
A. A. A.

6 Octobre 192 2.

Le Delegue britannique,
A la Commission des Reparations.

Le Delegue britannique a rhonneur d'appeler rattention instante de la Commission des
Reparations sur les propositions contenues dans le memorandum ci-joint.
En raison de l'aggravation progressive de la situation financiere de l'Allemagne dont
temoignent la baisse continue du mark et, racceleration du mouvement d'inflation et de
dislocation generale du credit en Allemagne, if estime qu'une action immediate d'apres ces
principes ou des principes analogues est imperieusement necessaire.
Sir John Bradbury est informe que des propositions emanant du Gouvernement francais
en vue de la convocation d'une Conference interalliee pour retude de toute la question des
reparations et des dettes interalliees sont soumises a l'examen des autres Gouvernements
allies. 11 est evident, toutefois , que
meme si une telle confeience a lieu A la date In plus prochaine possible, a la fin de novembre, par exemple, son succes ou son ether; dependra
dans une grande mesure des conditions qui existeront au moment ot elle se reunira.
Si aucune mesure n'est prise dans l'intervalle pour arreter ie mouvement de desintegration
finaneiere clejh bien avance en Allemagne, ii est it craindre que la situation n'ait aboUti
un tel chaos avant la reunion de is Conference,
ne subsiste pour le moment aucune
base possible pour la fixation des obligations de l'Allemagne sur un fondement permanent preliminaire indispensable de l'examen de tous reajustements subsequents des dettes interalliees.

II est permis de se demander en ce moment si , de toute maniere , la situation a des
chances d'etre telle, dans un avenir prochain, que ron puisse tenter avec succes de traiter
clans toute leur ampleur la question des reparations et Les questions de la meme faraille.

Au debut de like de la presente armee, au moment ou ie Comite des Banquiers a ete
constitue par la Commission des Reparations, Sir John Bradbury estimait que si "on avait
pu obtenir pre les Gouvernements allies consentissent unanimement a accepter en principe
tels ajustements des obligations du Traite de Paix qui pouvaient, de l'avis d'hommes rompus
a la pratique des affaires de finances, etre necessaires pour retablir le credit de l'Allemagne,
on aurait pu trouver une solution du probleme des reparations au moyen d'emprunts
retranger. Si, a la fin de Juillet, les difficultes qui se sont produites relativement a la continuation des payements en especes par l'Allemagne avaient ete promptement traitees, la
situation, bien qu'elle Mt en ce moment sensiblement plus mauvaise, aurait pu encore etre
sauvee. Mais aujourd'hui, avec le change a plus de 2,000 marks pour un dollar, it moms
qu'on ne ramene un certain degre de confiance, la possibilite d'etablir requilibre budgetaire
en Allemagne, meme si les obligations du Traite de Paix sont entiecement suspendues,
parait etre si lointaine gull est douteux que, alors meme que les Gouvernements allies
consentiraient it des reductions de leurs creances beaucoup plus grandes que les plus moderes

d'entre eux n'ont ete jusqu'A present disposes a en envisager, la negotiation d'emprunts
allemands a l'etranger soit de l'ordre des choses pratiques.

Si l'aggravation continue avec la memo vitesse pendant deux mois encore, la situation
pourra se trouver desesperee avant quo la conference ait lieu.
Si, d'autre part, tine amelioration pouvait se produire, fattnosphere serait plus engageante ; et memo si on no pouvait s'attendre a tin reglement complet dans un avenir immediat, on pourrait poser des fondations en vue d'une action utile ulterieure.
II y a toutefois pen de chances de creer une idle atmosphere, avant que 'Incertitude
actuelle, en ce qui concerne les demandes qui offrent des probabilites d'etre faites a l'Allemagne pour ses obligations du Traite de Paix en 1923 et 1 924 ait eta dissipoe.
II apparait done a Sir John Bradbury que la Commission des Reparations a le devoir
evident de s'occuper de la question de ces demandes sans plus de retard, en vue d'apporter
tout remede qui pourra etre possible. Lin tel reined°, loin de prejudicier it la solution des
problemes quo la future Conference. doit trailer, est plutot une preparation necessaire a leur


.le me perrnets d'exprimer la conviction que, faute d'adopter immediatement les mesures
necessaires afin d'ameliorer et de stabiliser ie cours du mark, nous nous trouverons dans
l'impossibilite d'empecher l'ecroulement
systeme financier de l'Allemagne, ce

qui fcrait disparaitre pour plusieurs annees sinon pour toujours tout espoir d'obtenir les
reparations soit en especes soit en nature.

2 Dans le cas ou telles mesures seraient remises jusqu'au moment oil l'equilibre s'etablira
entre les prix d'achat en Allemagne et la valeur exterieure actuelle du mark (2,000 marks
au dollar) it serait tres difficile d'equilibrer le budget, memo dans l'hypothese d'une suspension complete de toutes revendications tant en especes qu'en nature decoulant du traite, et

mime si le taux de change cesse d'empirer, hypothese presque invraisemblable, faute de
mesures d'assainissement immediates.

3. Car la cessation de tolls payements est la fin a laquelle, j'en suis persuade, aboutirait
necessairement dans un tres bref delai la politique du . laisser faire ., et pus on hesite
accorder une suspension des payements, plus etendue devra dtre la duree de cette suspension.
Si une pareille decision etait remise jusqu'au moment oil le mark s'effondrera tout a
fait, ii faudrait envisager, a mon avis, la dissolution du systeme economique et de l'ordre
social en Allemagne. Dans de pareilles circonstances, la Oche de reconstruction demanderait
une periode de travail tres &endue, des efforts penibles et, probablement, comme condition
prealable, l'annulation complete de toute revendication a titre d'indemnite.


5. Si, cependant, on arrivait a faire cesser toute augmentation de la dette flottante, ii n'y
aurait pas grande difficulte, a l'heure actuelle; a stabiliser le cours du. mark a un chifire
convenable (mettons entre 5oo et 1,000 marks au dollar), a choisir par les autorites competentes.

suffirait que la Reichsbank vende son or librement au taux prescrit contre des markspa pier.

6. Une ;politique ainsi concue ne comporte aucun danger de faire disparaitre la reserve
en or, pourvu toutefois que ('augmentation de la dette flottante soit enayee.

7. En ce moment (merne sur la base de prix interieurs correspondant au taux de change

de Soo marks au dollar) fie montant de la circulation monetaire est tres inferieur aux
besoins du pays. AussitOt enrayee ('augmentation de la dette flottante, it n'y aura que trois
moyens a la disposition des particuliers pour obtenir de nouvelles provisions tie monnaic
courante, a savoir :
a) Faire escompter par la Reichsbank les bons du Tresor. du Gouvernement allemand
detenus actuellement par des particuliers (dont le montant etait de 75 milliards de marks it
date du 2 3 Septembre 19 2 2) ;
1)) .Retirer une partie des sommes deposees It la Reichsbank (dont le montant y compris
les sommes inscrites au chapitre Divers v s'elevait It la merne date an chiffre de 83 milliards);

c) Faire creer par la Reichsbank de nouveaux credits.

8. Theoriquement on pourrait obtenir par les moyens a) et 6) un maximum de 158
; cependant en realite la somme serait bien moins elevee. Sans doute la plupart des
bons du Tresor, qui se trouvent encore entre les mains des particuliers seront ou remis pour
escompte It la Reichsbank, ou bien necessairement remplaces h la date de fecheance par des
bons nouveaux escomptes par la Reichsbank : mais les sommes se trouvant en depot ne coinporteraient pas une reduction illimitee.

9. Par consequent, ii y a lieu de croire qu'on serait force de se servir tres largement du
moyen (c) [1], et comme la Reichsbank a pleine liberte quanta la Creation de nouveaux
credits; celie-ci aurait entre ses mains le contrOle absolu de la circulation monetaire.
Dans ce cas la, la Banque se trouverait a meme de sauvegarder son or et de tnaintenir le
taux du change suivant les methodes classiques, non pas bien entendu sans soulever au
commencement une crise aigue du credit.
Mais quoiqu'il arrive on doit envisager une crise de cette nature si l'on vent entt eprendre
berieusement les reformes linancieres.

10. Une combinaison de cette nature cependant ne pourrait s'effectuer que clans le cas
ou l'augmentation de la dette flottante serait enrayee: autrement on n'aboutirait It rien sinon
ce que petit a petit la Reichsbank perde son or sans acquerir le controle necessaire pour
mettre un terme a la 'debacle financiere.

11.Jusqu'a ce que le credit du Gouvernement soit retabli, on n'arrivera It supprimer
-"Inflation qu'en prelevant sur les imptits tames toute somme It payer par l'Etat.

12. Un pareil equilihre du budget pourrait s'effectuer sans serieuse difficulte avec tin
change aux environs de 5oo marks au dollar si les revendications du chef du Traite etaient
entierement suspendues; Mais doute que cet equilibre pourrait etre realise si l'on envisage
des demandes tant soit pen considerables pour 19,23 et depassant un chillre tres modeste

pour 1924.
I3. En mettant .de cote les payements en devises etrangeres, les payements en niark,s'
papier du chef des reparations en nature, metne a 1'664e de fano& courante, rendra:ient

(I) En fait, malgre l'augmenlation continue de la dote llottante, ce resultat commence déjà a se produire parce que la baisse de la valeur du mark pour le ino;neat s'ell'ectue encore plus ;rapideinent que ne
s'accentue 'Inflation.
Pendant la periode du3o.juin an 23 septembre, le montant des traites et des cheques delenus par la
Reichsbank s'est Cleve de 4,8 milliards it 43 milliards.



assez difficile la tache d'equilibrer ie budget an moyen des impots , tache qui deviendrait
tout a fait impossible du moment oit fon provoquer' ait une .augmentation de ces prestations.
Avec un change de i.000 marks an dollar, la Cache d'equilibrer le budget serait encore
plus ardue, mais non pas, a mon avis, impossible, si les charges du Traite pouvaient etre
entierement suspendues.

14. D'un autre cate, ma moratorium conwlet s'appliquant a tout autre ,payement a faire
en vertu du Traite, tent en nature qu'en especes, est non seulement inadmissible, pour des
raisons d'ordre politique, mais est aussi de nature a avoir de graves repercussions sur la vie
economique des Puissances alliees qui possedent les principales creances sur l'Allemagne.
15. Je me demande s'il y a moyen de sortir de cet impasse P
11 n'y en a qu'un seui, a mon avis. Dans la mesure ou l'on exige, du chef des reparations,
soit en especes, soit en nature, des sommes depassant la prevision maximum qui pourrait
etre couverte par le budget du Reich, it fautt mettre A la disposition du Gouvernement allemand des facilites pour se procurer des credits.
Dans les circonstances actuelles, seules les Puissances qui recoivent des payements de
l'Allemagne ont interet a donner les facilites necessaires.

16. J'ai l'honneur, done, de soumettre la proposition suivante :
1° Pour couv rir tout payement exigible en especes d'apres le Traite (y compris -les depenses des armees d'occupation, les reparations, les forfeits de restitution, les sOldes des
offices de compensation, et les revendications de toute autre nature) venant a echeance
entre le ier Janvier 1923 et le 31 Deeembre 1924, le Gouvernement allemand remettra

la Commission des Reparations des bons du Tresor a echeance de cinq ens, qui seront
ripartis entre les Gouvernements interesses de la rneme facon qu'auraient ete repartis tous
payements effectues en especes.

2° En ce qui concerne les prestations en nature et les services rendus, etc., pendant la
meme periode pour lesquels l'Alleinagne adroit, selon le Traite, a recevoir un credit, on
notifiera cheque mois an Gonvernernent allemand le montant des sommes pour lesquelles
cheque Gouvernement sera &bite, et jusqu'a concurrence de ce montant, ie Gonvernement allemand emettra des Bons du Tresor a echeance de cinq ans pour lesquels it recevra
la garantie du Gouvernement debit& La Commission des Reparations sera Libre, toutefois,
de fixer de temps a autre un pourcentage a deduire de ce montant, representant ce qui, a
son avis, pent etre paye sans creer un deficit dans le budget allemand.

17. Les bons dont ii s'agit aux alineas (1) et (2) seront exactement identiques. Its seront
Males en marks-or, et l'agent financier du Gouvernement allemand sera tenu a rembourser
les bons dans la capitale de la Puissance qui les recoit ou qui les tnunit de sa garautie en
monnaie'legale de ce pays, soit an change de la date de l'emisSion (date qui sera inscrite sur
le bon) soit au change de la date de payement, a la volonte du detenteur (1).
(i) Sans doute le choix ainsi offert aux porteurs imposerait au Gouvernement allemand un fardeau asset
lourd dans le cas dune hausse considerable de la valeur en or de is monnaie d'un pays garant. Neanrnoins
je ne frame pas excessif d'inviter le Gouvernement allemand n en accepter le risque, etant donne gull profite de la garantie. if va de soi que, dans le but de faciliter la vente des bons sur place, it en faut assurer
la valeur en monnaie cortrante des Etats garants. Etant, en outre, retnbodrsables en or (bien quo In plusvalue'en or ne soit pas garantie)' les bons ne seront pas sans attrait pour les Acheteurs de titres clans le pays
ou le change est peu stable, attrait qui deviendra plus fort au fur et a mesure que se relevera le credit du
Gouvernement allemand.


-618. 11 faut cependant limiter strictement la responsabilite du Gouvernement qui donne
sa gararrtie aux bons : dans le cas oil le Gouvernement allemand ne ferait pas face a son
obligation, le Gouvernement garant sera tenu seulement de payer les bons en especes au

change de la date d'emission; -ce payement devrait etre accepte par le porteur comme
satisfaction complete de ses droits, et tout droit de revendication par suite de son manquement passerait au Gouvernement qui a donne la garantie. Si, au lieu de demander payement selon la garantie, le porteur preferait retenir le bon echu et non paye pour en redamer la valeur en or ulterieurement an Gouvernement allemand. ii aura le droit de le
faire, mais en ce cas, la garantie sera consideree comme epuisee.

10. L'interet des bons sera flue en tenant compte de la situation financiere des pays
garants a un chiffre assez eleve pour en permettre la vente au pair (mettons h 6 ou meme
a 7 1,,); its seront imprimes de facon a permettre aux Gouvernements d'endosser le texte de
leur garantie sur le document meme.
Les bons dont if s'agit dans ralinea (1) resteront entre les mains du Gouvernement interesse

qui n'aura le droit de les negocier qu'en leur donnant sa garantie; ceux dont it s'agit dans
l'alinea 2 seront remis, apres endossement de la garantie, au Gouvernement allemand qui
sera fibre de les negocier.

20. Afin d'accroitre l'attrait des bons pour les acheteurs de titres, la question se pose de
savoir si les Banques d'Etat ne pourraient pas s'engager a faire des avances sur hypotheque
des bons jusqu'a concurrence de 8o % de leur valeur garantie nominate. Les Gouvernements
interesses en meme temps examineraient s'ils pourraient autoriser leur banque d'Etat
admettre les bons comme garantie de leurs emissions de billets de banque.
Tout Gouvernement invite a donner sa garantie aux bons dont it s'agit dans ralinea (2)
aura le choix de retenir les bons contre payement en especes au Gouvernement allemand de
leur valeur nominate.

21 bis. It faudrait notifier que, dans la mesure approuvee par la Commission des Reparations, des arrangements de 'name nature seront faits pour les annees 1925 et 1926. pourvu
que le Gouvernement allemand donne satisfaction a la Commission des Reparations en ce qui concerne fequilibre du budget et les reformes des finances de l'Allemagne ; en outre ,
qu'aussitOt la situation suffisamment eclaircie, et en tout cas avant le let juillet 1926, les
Gouvernements allies se proposent d'examiner, dans son ensemble, la question des obliga
tions totales de l'Allemagne decoulant du Traite afin d'arriver a un reglement definitif eu
egard a la capacite de payement de l'Allemagne et au moyen d'une serie d'emprunts a contracter a fetranger.

22. Sous reserve de l'arrangement ci-dessus, les reparations a la charge de l'Allemagne,
pendant la periode posterieure au ter janvier 1923, seront determinees par l'Etat des .Payements , selon lequel l'Allemagne est tenue a payer chaque annee en especes une somme
representant la difference entre la valeur des livraisons effectuees en nature, et la somme
totale de fannuite.
Par consequent, l'Allemagne aura interet a augmenter les livraisons en nature dans toute
la mesure du possible, vu que des bons garantis jusqu,a concurrence de la valeur des livraisons en nature resteront a sa disposition, alors que les bons representant la dette en especes
resteront entre les mars des Puissances affiees.

23. Du point de vue des Tresoreries des Puissances alliees, le projet que je viens d'expo-

ser possede le merite d'alleger la situation budgetaire dans la meme mesure qu'une execution
complete de I'Etat des Payements, pourvu toutefois que les Puissances consentent a ouvrir
leur marche aux bons et A les munir de leur garantie.
23 bis. Je ne crois pas qu'on puisse attendre d'une politique alternative des resultats financiers egalement productifs.
23 ter. La politique consistant a exiger les payements de reparations et les livraisons en

nature, sans tenir compte de leurs repercussions sur le budget, a Ma eu pour effet de rendre
impossible la continuation des payements en devises et de mettre en danger les livraisons en
nature elles-memes.
Persister dans cette politique, clest inevitablement amener la fin des livraisons en nature
a tres bref delai et creer une situation dans laquelle toute mesure coercitive eventuelle com-

porterait des depenses bien plus fortes que la somme qu'on pourrait se procurer par ces

D'un autre cote, if faut bien constater les difficultes veritables des Tresoreries des Puissances alliees, resultant du fait qu'on ne peut plus croire a la realisation des esperances anterieures extravagantes quant l'envergure possible des reparations.
On apportera un certain adOucissement a ces difficultes, an lieu de les aggraver (comme
certains paraissent disposes a le soutenir), si on consent a traiter prudemment les creances
mauvaises ou clouteuseS et a reconnaitre qu'il serait tres peu sage de depenser des sommes
importances dans l'espoir fallacieux de recouvrer de mauvaises creances.

Quoi qu'il arrive, ii nous restera des difficultes redoutables; mais, soit que les Allies
insistent integralement sur leur droit vis-à-vis de l'Allemagne jusqu'a eeraser celle-ci, soit
que cheque Puissance alliee insiste sur ses propres droits vis-à-vis des autres jusqu'a &reser
le debiteur, j'appelle cela une politique de suicide.
Par consequent, je me permets de soumettre l'avis qu'afin d'amener une detente clans la
situation generale, les Puissances alliees soient invitees a prendre en consideration une revision de' arrangements interallies tels gulls existent en ce moment anx conditions suivantes :
1° Pendant la periode qui precede recheance de la derniere serie des Bons du Tresor
garantis a emettre par le Gouvernement alleinand, des temperaments seront accordes en ce
qui concerne les payements du chef des dettes interalliees.

2° Les Puissances alliees se mettront d'accord pour accepter les Bons du Tresor garantis
au lieu de payement en especes en ce qui concerne le reglement des comptes entre cites.
3° Dans le cas oiz une Puissance garante subirait une perte du fait que sa garantie deviendrait effective, les Puissances alliees s'engageraient a tenir compte de ladite somme dans i'arrangement a obtenir ulterieurement en ce qui concerne les dettes interalliees ; arrangement
qui sera conclu au moment meme du reglement definitif de la dette allemande.

24. Si mes collegues se trouvent disposes a accepter le projet que je viens d'exposer, je
proposerai a la Commission de bien vouloir raccepter en principe, sous reserve des observations du Gouvernement allemand , et de ('approbation des Puissances alliees.
Ii est evident que la combinaison sera beaucoup plus avantageuse du point de vue de ces
gouvernements qu'une simple suspension pendant cinq ans des payements a eflectuer en 1923
et en 1924 , suspension qui pourrait etre accordee par la Commission par une decision prise
it la majorite des voix.

- 8 ---Neanmoins, je trouve rapprobation prealable des gouvernements allies desirable pares
qu'il y a dans mon projet des elements nouveaux que le Traits de Versailles n'a pas envil
sages, tels par exempla que la garantie des bons par les Gouvernements allies.
25. Comme condition prealable, le Gouvernement allemand s'engagerait formellement
faire voter une loi selon laquelle la Reichsbank sera tenue de vendre son or a un prix convenu.
Ce prix sera fixe par une Commission mixte de trois membres, dont le premier sera nomme

par le Gouvernement allemand, le deuxieme par la Commission des Reparations, et le
troisieme sera choisi par les deux autres parmi les experts financiers des Etats-Unis. Cette
commission pourra abaisser le prix convenu 6 la demande du Gouvernement allemand et
avec ('approbation de la Commission des Reparations, mais le prix fixe dans les conditions
sus-mentionnees ne comportera aucune augmentation.

26. Le chiffre dont ii s'agit sera determine, dans la mesure du possible ( r), d'apres le
pouvoir d'achat interieur du mark, calcule sur le rapport entre les prix moyens des marchandises principales en Allemagne, an moment de la fixation du chiffre, et les prix
existants en Amerique, arm de ne pas compliquer par um nouvelle perturbation des valeurs
rinterieur la crise du credit a laquelle it faut s'attendre dans les conditions prescrites.
Un cours de 5oo marks au dollar it y deux ou trois semaines aurait etc, scion mon
opinion, possible et approprie.
Dans les circonstances actuelles on ne pourrait guere proposer un chiffre moires eleve que

75o ou meme r.000. Dans un tres bref delai j'estime qu'un taux beaucoup plus sieve sera
presque certainement inevitable.

27. Tout en consider ant qu'il est desirable d'accorder au Gouvernement allemand la
faculte (sous reserve de l'approbation de la Commission des Reparations), de diminuer le
prix convenu, c'est-h-dire de faire augmenter la valeur de change du mark, dans le cas
oil cette procedure iui semblerait ulterieurement avantageuse, it y a des raisons de croire
la permanence de la parite qui aura etc determinee par la Commission mixte.
ll conviendrait done de faire choix d'un chiffre coinme valeur or du. mark tel que requivalence, soit du dollar, soit de la livre sterling, soit exprimee en chiffre rond.
28. La nouvelle loi de la Reichsbank, redigee apres avis de la Commission mixte, reglera

remission de billets de telle facon que toute augmentation du montant des billets sera
garantie dans une proportion convenable par des depots d'or ou des devises etrangeres,
approuvees en partie par des effets de commerce.
En meme temps la loi interdira toute nouvelle omission de billets ayant force liberatrice
sinon par la Reichsbank elle-meme

29. J'estime qu'il n'existe aucun moyen de garantir rassainissement des finances bUdgetaires d'Allemagne plus efficace que celui que je viens d'exposer, parce que par ce systeme
nous fermis comprendre aux Allemands quo faute d'une cessation de l'augmentation de la
dette flottante ifs perdront leur reserve en or, et avec cette reserve la derniere barriere qui
les separe de la debacle financiere definitive.

30. Dans le cas ou ron estimerait necessaires des garanties supplementaires pour le
service des bons, je ne vois pas d'inconvenient serieux a ce qu'on exige de l'Allemagne une
(i ) Il ne faudrait pas suivre ce principe d'une facon trop rigide. It y a lieu d'attendre des resultats plutet
sulutaires d'une baisse des prix en marks papier, dans le cas oil la baisse se produirait avant to fixaticn pertaanente de la hausse phenomenale des prix qui vient d'avoir lieu.

hypotheque sur des biens d'Etat convenablernent choisis, que la Commission des Reparations
aura le droit de saisir au cas de manquement de la part de l'Allemagne.

Si on arrive a stabiliser la valeur du mark, la tithe de choisir des biens convenables
cette hypotheque sera evidemment beaucoup moires difficile.

31. Personnellement,.je ne crois pas que pareille hypotheque nous fournisse reellement
un accroissement .de securite, mais du point de vue politique, j'y reconnais une certaine
valeur, non seulement vis-a-vis de ('opinion publique des pays allies, mais aussi vis -a -vis des
ressortissants ailemands qui seraient avertis des mesures severes qui suivraient tout manquement au nouvel arrangement.
Pour moi-meme, je n'ai jamais ete oppose a ce qu'on prenne des mesures coercitives.alin
de faire executer par l'Allemagne ce qu'elle peut reellement executer (et je constate qu'en fin

de compte ii n'y a pas d'autre alternative) -- mais du point de vue du retablissement du
credit de l'Allemagne, le fait que des menaces de cet ordre seraient considerees comme neces-

sakes creerait pint& une atm,:sphere de defiance que de confiance; je prefererai done ne
pas me servir de cette rnethode, a moires que les resultats favorables h en esperer du point
de vue politique soient bien superieurs aux dangers en decoulant du point de vue financier.

32. Je me permettrai, dans le cas oil ce ronveau systeme serait accepte , de conseiller en
outre title les Gouvernements allies prennent en consideration le remaniement de la Commission des Reparations et son transfert a Berlin.
Les interets veritables de l'Allemagne et de ses creanciers si on les envisage sans courtevue, sont, a son avis, identiques.
Cependant des evenements qui viennent de se passer on pourrait deduire la conclusion
que d'une part la Commission des Reparations dans sa constitution actuelle se trouve trop
disposee a faire le sacrifice des interets actuels et ulterieurs de l'Allemagne et des interets
ulterieurs de ses creanciers aux besoins immediats de ceux-ci; et d'autre part que le Gouvernement allemand se trouve dispose faire le sacrifice des interets actuels de ses creanciers et
de ses propres interets ulterieurs a ses besoins financiers du moment
Si findependance de l'Allemagne comme Etat souverain doit etre maintenue - hypothese gull faut accepter si la Commission des Reparations ne prend pas la responsabilite
administrative du Gouvernement du Reich, ce qui demanderait des armees comme point
d'appui de son autorite
faut arriver a une collab
Gouvernement allemand et de la Commission des Reparations.






Once the creation of new floating debt comes to
an end, there are only three ways in which additional currency can be obtained by the
inadequate to the needs of the country.



public :

(a) By the discounting with the Reichsbank of German Government Treasury Bills now
held by the public (amounting on 23rd September 1 922 to about 75 milliard marks).
(b) By the withdrawal of existing deposits in the Reichsbank (which inclusive of liabilities classified under "miscellaneous" at the same date stood at 83 milliards).
(c) By the creation of new credit by the Reichsbank.

8. The maximum amount theoretically obtainable under (a) and (b) is 158 milliards ; in
practice, it would be much less, for, though no doubt the bulk of the Treasury Bills still
held by the public' would either be presented for discount or have to be replaced at maturity
by new Bills discounted with the Reichsliank , the deposits are not capable of unlimited

9. It is certain, therefore, that recourse would have to be had on a very considerable scale

to (c) [I], and, as the creation of new credits by the Reichsbank is entirely optional, the
control of the Bank over the currency would be complete.
The Bank would then be able to protect its gold and maintain the foreign exchanges by

the time - honoured methods - though necessarily' in the first instance at the cost of
an acute credit crisis.
Such a crisis has, however, to be faced in any case if serious attempts at financial reform
are to be taken in hand.

10. The above plan is, however, only feasible if further inflation can be avoided otherwise it will merely result in the Reichsbank gradually losing its gold without acquiring
the control necessary to stop the rot.

1.1. Unless and until the credit of the German Government is re-established, inflation
can only be stopped by covering Government out-goings by taxation.

12. With an exchange anywhere in the neighbourhood of 5oo marks to the dollar, this
condition could be secured without serious difficulty if Peace Treaty charges were completely
suspended. I doubt, however, whether it is possible if any appreciable provision has to be

made for Peace Treaty charges in 1923, or anything more than quite a modest provision
in 1924.
13. Quite apart from payments in foreign currency, the paper mark payments in respects
of deliveries in kind, even on the scale of this year, would make the task a difficult one,
t) Indeed this is in fact already happening notwithstanding the continued expansion of the floating
debt, by reason of the decline in the yak.; of the mark having for the moment outstripped the progress
of inflation.
The Ileiclisbank's holding of Bills and Cheques increased between 3oth June and 23rd September from

4.8 milliards to no less than 43 milliards.

RiPARATION! - Annexe 1614.


-5while .iny increase in the deliveries in kind abpve the present level would almost certainly
snake it impossible.
With an exchange of 1,000 marks to the dollar the task of' balancing the budget would

be still more difficult but not I think hopeless if the Peace Treaty charges could be
entirely suspended.

14. On the other hand, a complete moratorium in respect of all Peace Treaty obligations, both in cash and kind, not only is impossible for political reasons but economically
might have serious consequences to the Allied countries principally interested in reparation.

15. Is there no way out of the impasse ?
There is one way, and I think only one. To the extent to which Peace Treaty payments,
either in cash or kind, are called for in excess of the provision which can be made for them
in the budget, credit facilities must be provided for the German Government.

In present circumstances, the only countries which have any inducement to provide such
facilities are those receiving the payments.

16. My proposal is :
(1) That all cash payments for Peace Treaty charges (including costs of Armies of Occupation, reparation , compositions for restitution, clearing offices balances, and miscellaneous

obligations), falling due between t January 1 923 and 31 December t 9 24, should be met
by German Treasury five-year bonds to be delivered to the Reparation Commission and distributed to the respective Governments interested in the same manner as the cash would
have been distributed if payment had been made in cash.

(2) That in respect of all deliveries in kind, services rendered, etc., within the same
period for which credit has to be given to Germany under the Peace Treaty the German
Government should be notified month by month of the amounts debited to each Allied
Government, and should be allowed to obtain from each such Government a guarantee of
German Treasury live-year bonds to the amount so debited, less such percentage, if any, as
the Reparation Commission may from time to time decide can be met without creating a
deficit in the German Budget.

17. The bonds under paragraphs (1) and (2) could be identical in every respect. They
would be expressed in gold marks and should be payable by the agents of the German
Government in the capital of the recipient or guaranteeing Power in the currency of that
Power, at the option of the holder, either at the rate of exchange ruling at the date of issue
(which should be stated on the bond) or at that ruling at the date of payment (1).
(1) This option would no doubt in the event of a considerable improvement taking place in the gold
value of a guaranteeing country be very costly to the German Government. In all the circumstances,
however, I do not think it is unreasonable to ask the German Government to take the risk in consideration
fbr the guarantee. If the bonds are to be' readily negotiable in the guaranteeing countries it is obviously
essential that their value in terms of the national currency should be assured. If in addition to this, they
arc gold bonds (even though the marginal gold value is not guaranteed)"they would have a certain element
of attractiveness (which would become considerable as German credit improves) as investments in countries
of which the exchanges are not very stable.

REPARATIONS. - Annexe 1614.


-618. The liability of the guarantors however should be limited to payment in currency at
the rate of exchange at the date of issue, the holder to accept in the event of a German
default such payment by the guarantor as a full discharge, all claims against the German
Government in respect of the defaulted bonds to pass to the guarantor. if instead of
claiming payment under the guarantee, the holder prefers to retain the defaulted bond as a
gold claim against the German Government he should be at liberty to do so, the guarantee
thereupon lapsing.

19 The bonds should bear interest at a rate high enough, regard being had to the
credit of the guaranteeing countries, to enable them to be readily negotiated at par (say,
6 or even 7 7.). They should have on their face a space for endorsement thereon of the
guarantee of the recipient Government.
Those under paragraph (1) would be retained by the Governments concerned, and would
be negotiable by them only under their respective guarantees; those under paragraph (2)
would be returned, after the endorsement thereon of the guarantee of the recipient Government, to the German Government, and would be negotiable by that Government.

20. In order to increase the attractiveness of the bonds to investors it is for consideration
whether the State Banks of the respective guaranteeing countries might not undertake at any
time during the currency of the bonds to make advances against them up to (say) 8o %,

of their guaranteed face value, receiving authority, if necessary from their respective
Governments to treat them as cover for their note issues.
21. Any country called upon to guarantee bonds under paragraph (2) should be given the
option of retaining the bonds on payment to the German Government of their face value
in cash.
21 bis. It should be announced that, provided that the German Government carry out

the requirementss of the Reparation Commission in regard to balancing the budget and
reform of the finances of Germany, similar arrangements will, to such extent as the Reparation Commission may think them necessary, be made for the years 1925 and 1926, and
that, as soon as the position becomes sufficiently clear, and in any case not later than
July 1926, the Allied Governments will consider the whole question of the aggregate
liabilities of Germany under the Peace Treaty with a view to their permanent adjustment
to her capacity of payment and to their liquidation by a series of foreign loans.

22. Subject to the above arrangements, the reparation liabilities of Germany from i January 1923 would be governed by the Schedule of Payments, under which the cash liability
for each year is the difference between the value of the deliveries actuallly effected and the
full annuity liability.
This would have the result of giving an inducement to Germany to increase the deliveries
in kind to the maximum possible figure, since the guaranteed bonds representing the value
of the deliveries in kind would be placed at her disposal, while those representing the cash
liability would remain with the Allied Powers.

23. From the point of view of the Treasuries of the Allied Powers the plan has the ad-



vantage of providing the same measure of budget relief as would have been derived from a
complete execution of the Schedule of Payments provided they are prepared to guarantee,
and to find a market for, the German bonds.
23 bis. No alternative policy seems likely to secure anything like so satisfactory a financial result.

23 ter. The policy of insisting on reparation payments and deliveries in kind without
regard to their effect on the budget has already made the continuance of payments in foreign
currencies impossible and jeopardized the deliveries.

To continue it will soon make the cessation of even the deliveries in kind inevitable and
will create conditions in which measures of coercion, if applied, will not even cover their
own cost.

On the other hand the difficulties in which the Treasuries of the Allied Powers find
themselves by reason of the disappointment, now inevitable, of the extravagant hopes formerly entertained in regard to the possibilities of reparation payments are very real difficulties.

They will indeed be mitigated - not aggravated as some seem inclined to contend
by a prudent handling of bad and doubtful assets and a recognition of the unwisdom of
throwing good money after bad , but even so they will remain serious, and just as it would
be suicidal for the Allies to press their claims against Germany to the breaking point of
the latter, so it would be suicidal for the creditor Allies to press interallied claims to the
breaking point of the debtor.

It is suggested therefore that in order to ease the general situation the Allied Governments should be invited to reconsider the existing inter-Allied financial arrangements with
a view to :

(1) The grant of indulgence in respect of Inter-Allied War Indebtedness during the period
up to the maturity of the last issued German guaranteed bonds.

(2) The acceptance of the guaranteed bonds as between Allied Governments in lieu of
cash for the purpose of adjustment of accounts.

(3) The taking into account of any losses incurred by the guaranteeing Governments
by reason of their. guarantee becoming operative in the ultimate arrangements for dealing
with Inter-Allied indebtedness, which should be made at the same time as the German
Wily is permanently adjusted.
24. If the above plan commends itself to my colleagues, I would suggest that the COrri
mission should pass a resolution approving it in principle subject to the observations of the
German Government and the approval of the Apied Governments.
The approval of the Allied Governments is, I think, desirable before the plan is adopted

because, though more favourable to them than a simple postponement for five -years
of the payments falling, due in 1923 and 1921r (which..would be Within. the competence of a
majority decision of the Reparation Commission), it undoubtedly involves new elements.,


such as the guarantee of the bonds by the Allied Governments. which arc not contemplated
by the Treaty of Versailles.

25. Its adoption should be made conditional on the German Government undertaking to
impose by; law upon the Reichsbank the obligation to sell gold at a.fixed price - the figure
to be determined by a mixed Commission of three, one member to be appointed by the
German Government, one by the Reparation Commission, and the third to be an American
financial expert agreed by the other two ; the price, once fixed, to be incapable of increase,
but to be subject to diminution on the demand of the German Government with the approval
of the Reparation Commission.

26. The figure should have regard to the internal purchasing power of the mark (1), as
determined by a comparison of average German and American prices for staple commodities, at the time the rate is fixed in order to avoid complicating the credit crisis which will
certainly follow the introduction of the arrangement by a fresh disturbance of internal values.

Two or three weeks ago, a rate of 5oo marks to the dollar would, I believe, have been
suitable and practicable.
Now it may be necessary to go as high as 75o or even i,000.
a very- much higher rate will almost certainly be inevitable.

In a very few weeks time

27. Although I think it desirable that the German Government should retain the power,
subject to the approval of the Reparation Commission, to lower the rate (i. e. to raise the
exchange value of the mark), if in future it is thought wise to do so, it will probably be found
that a new parity, once established, will he permanent.
It will be convenient, therefore to select a mark-price for gold which will make the mark dollar or mark-pound parity a round figure.

28. The new Reichsbank law should also make suitable provisions, in accordance with
recommendations to be made by the Committee above suggested, for the control of the note

issue by requiring any new expansion to be covered in suitable proportions by gold or
approved foreign currencies and commercial bills.

It should also prohibit any further issues of legal tender money otherwise than by the
Re ichsba n k.

29. Such an arrangement would give the best possible guarantee fir the rehabilitation of
the German Budget position, since Germany would know that, unless the increase of .the
floating debt were arrested, she would lose her gold reserve and with it the last harrier
between herself and final financial collapse.

30. if further guarantees on the part of Germany are thought to be necessary, I should se,
no serious objection to requiring the German Government to agree to pledge specific State
(i) Some elasticity may be desirable in applying, this principle. A fall in paper mark rites if it comes
before the recent catastrophic rise has become stereotyped would probably be sahitary rather than otherwise.

assets of a suitable character to the service of the guaranteed bonds and to invest the Reparation Commission with powers of foreclosure in the event of default.
The problem of finding assets suitable for pledging will obviously be greatly simplified
the mark can be stabilised.

31. I do not myself believe that such guarantees would really improve the security, but
they might have a certain political value, not. only in the eyes of public opinion in Allied
countries, but as indicating to the German people that any failure on their part to carry out
the new arrangement will be followed by drastic action
I have never myself opposed the use of coercion to enforce obligations which Germany is

really capable of carrying out - indeed, in the last resort it is the only alternative -- but
from the point of view of the restoration .of German credit the fact of menaces of this character being regarded as necessary is an element of weakness rather than of strength, and
unless the political advantages of indulging in them are thought to cutweigh the financial..
disadvantages, I should prefer that recourse to them should be avoided.

32. I would further suggest that, in the'event of the adoption of the new plan, the Allied'
Governments should at the same time consider the question of the desirability of reconstructing the Reparation Commission and transferring it to Berlin.
The interests of Germany and Germany's creditors are, in my opinion, on a long-sighted
view, identical.

Recent history has, however, shown pretty clearly that the Reparation Commission as at
present constituted is too much disposed to sacrifice the interests of Germany, bolh present.
and future, and the ultimate interests of her creditors to the immediate necessities of the
latter, while the German Government tends to sacrifice the immediate interests of Germany's_
creditors and the ultimate interests of Germany herself to the pressing financial exigencies
of the moment.
If German sovereignty is to be preserved - and unless the Reparation Commission is to
undertake administrative responsibility for the Government of Germany and be given an

army to support its authority, no other basis is possible - very intimate co operation
between the German Government and the Commission is indispensable.

Paris, 18 rue de Tilsitt.
27 Octobe: 1922.

Ly dear Bean ,

In my letter of October 12th concerning the general
reparation situation I forwarded a cog; of the Bradbury plan for
handling the reparation question as from January 1, 1925. a;nclosed
her,with is a translation of the aarthou, or French plan.



The fll of the Lloyd George I.iinistry has had its effect on
the deliberations of the Commission. Bonar Law's policy concerning reparations is not clear. The recent fall in value of the French franc we
feel is affecting the French attitude. Whether the resulting change in
attitude, which is more of tone than substance, is temporary or permanent
rests to be seen.

fne enclosed French note was handed to the Commission two days
after the f 11 of the Lloyd George lainista, and according to Barthog
it was a substitute for one originally prepared which had been drafted
in "more specific terms". Barthou privately said that the French had
made the substitution when they received news of the fall of the Lloyd
George Liinistra, as "they did not want to embarrass the new British
The French aaaarently felt that the presentation of a note
on reparations "in specific terms" coincident with the coming into office
of the new British ainistry was unwise as it might result in committing
such Linistry to a rear .tio# policy antagonistic to the French, and
perhaps even serve as political capital for Lloyd George, whom they cordially dislike.

Bradbury, in the unofficial discussions, has been pressing for an
early decision on the reparation policy to be followed by the Commission as
from January 1, 1923. He maintained the Reparation Commission had power
under artier; 4a4 to deal with the question, and that it was important,
in view of the present German financial position, that the question be
disposed of at the earliest possible moment. he said that there was no
question in the minas of any DclegaLte on the Commission of placing the
amount Germany should pay during coming years at any figure below Germany's
On this account the interallied debt question had no relation to
the problem in hand, and there was no necessity for awaiting a possible
Brussels Conference (to participate in which the British Government had not
as yet signified its consent) where it was proposed to consider and endeavor
to reach a solution of the reparation ad interallied debt questions simultaneously. He then said that past decisions of the Supreme Council on
reparation questions had not given happy results, and in particular pointed
to the schedule of Payments of 'Aitay 5, 1921, as an instrument arrived at by
political compromise with an entire disregard to economic ana financial

J. A. L. Jr.

To Jovernor 'Strong - Personal (a Confidential.



principles, which had been forced upon the Commission after the Supreme
He maintained that ft was clearly the
Council meeting of 1921.
luty of the Commission to handle and dispose of the reparation question.



Bradbury said the questions now before the Commission were,
viz: First - Stabilization of the mark; Second - Balancing of the budget;
Third - Form of "controror "supervision". He maintained that all were
in agreement on the first t.o points. He pointed out that there was no
such thing as a stable currency without a balanced budget, and that no
budget is possible without a currency which is, at least, relatively
The balancing of the budget could only be accomplished by the
elimination of expenditure which is avoidable or which can be postponed,
and by the increase of xaceipts calculated on the basis of a stable
Payments on account of reparation and all other treaty charges
should be gradually incorporated in the budget, as and when they can be
introauced without upsetting the balance, on the unaerstandint that that
part of the payments not thus provided for will be paid from the proceeds
of paler mark loans for the deliveries in kind and the proceeds of loans in
foreign currency for the payment of cash, so soon as confidence, restored
by the balancing of the budget and the stabilization of the mark shall have
permitted such loans to be issued.
In Bradbury's view there could be no
difference in opinion on such fundamental principles.

As to the third point; Form of "control" or."supervision", Bradbury
held that the French proposal ignored the history of this question.
pointed out that, while the Treaty showed the intention to control, nevertheless, Clemenceau's letter of June 16, 1919, as President of the Conference
of Peace, to the "ermans gave the engagement of the Allied Govcamments as
to how the Treaty was to be interpreted in this specific particular by the
This letter was part of the contract. Under the foregoing the
Commission had no power to exercise control of the German budget.
said that the next stage of the history of this uestion dated from the
decision of the Supreme Council of May 5, 1921, carrying with it the Sched ale of Payments and the ultimatum.
It was debatable according to Bradburthe acceptance by Germany of the conditions of the ultimatum
modified the original arrangement. However, assuming itclid, Article 7 of
the Scheaule of Payments provides for a Committee of Guarantees with eduties of a limited nature. The more general duties are identical to a
the Reparation Commission has under the original treaty or contract, and
thel%fore subject to the same restrictions. Such restrictions specifically
state that the Reparation Commission is not authorize_ to interfere in
German administration. The final stage dated4rom the Rel.ration Commission's
decision of Liarch 41, 1922, grlating a partial moratorium to Germany for the
calendar year 1922.
The Commission at the time had the strong impression
that its powers of supervision were not sufficient to assure proper management
of German finances and the Commission therefore made the granting of a moratorium conditional on agreement to an extension of supervision (perhaps legally
Germany then, in exchange, agreed to impose new taxes and also
to grant certain specific rights of criticism and supervision over questions
of currency inflation and exportation of capital. Bradbury pointed out that
the Committee of Guarantees had just completed
the installation of its mac



J. A. L. Jr-.


2o Governor strong - Personal 6; Confidential.

nery of "supervision" under the Commission's decision of -.Larch
1922, but that its effect could hot yet be determined.

Bradbury, on the foregoing basis, argued that the Commission
was without legal authority to install the measures of control contemplated
by the French memorandum without agreement of the German Government.
maintained that this was the legal position of the question, but admitted
that it was perhaps possible for the Commission to make its control more
stringent in exchange for another moratorium, or for other concessions, on
In other words, it could
the general lines of the .arch 21, 1924 decision.
only be done contractually. He said that on many previous occ asions he
had e;:pressed his opinion that the only result of forcing more control on
the Teparation Commission the Government of Germany
Germany would be to
and require an army for its support.
Bradbury then turned to the question of the French plan fur
making their control effective. He said their plan suggests that if
Germany refuses to take any measures demanded, the Commission shall
report "default". He pointed out that such a refusal under the contractual
agreement did not necessarily. involve "a default" under the Treaty, and
that on prely legal grounds the only remedy would be to withdraw the
He argued that the French plan if accepted was a confession
that the Versailles Treaty had broken down, and therefore the separation
Commission should abdicate in favor of the Governments who should themselves
take control of German finances.
In his judgment under such circumstances
it would be necessary for the Allied Governments to proceed forthwith to
the negotiation of a new Treaty.
Bradbury then referred to the financial side of the French plan,
stating that it was difficult to imagine how the stabilization of the mark
could await a balancing of the budget. According to the French plan, the
three directions to be given the German Government were:
Immediate reduction in expenditure;

Immediate increase in receipts; and
Forthwith stop borrowing.

The German Government is now borrowing 3 billion marks
day (inflation of
currency). How can it stop at once? In Bradbury's judgnient, the day
following the receipt of any such directions from the Separation Commission,
the German Government vould either resign or violate them. Bradbury sai.A.
that the French reply to his argument vo old be that it wa not expected
that these instructions would be put in farce on any giver day. This,
howevLr, would merely show that the real intention should be studied and
In Bradbury's judgment, the chance would be that notwithst,nding
whatever delay might be allowed, these conditions would render execution
impossible on whatever day fixed.


Bradbury then turned to the 'French proposal for the Committee

J. A. L.On.

Govcrnor Strong - lersonal





J. A. L. Jr.

To Governor Strong - Personal e Confidential.


aloud, Poincare had terminated the London Conference befog: any technical
commitment of the British Government to participate in the Brussels Conference.
Barthou was evidently impressed and expressed agreement "en Principe"
with most of 'chat Bradbury had said, though making the usual reserves as to
ahile not saying so directly, we gathered that he was in accord
with the Bradvury thesis concerning the stabilization of the mark, the balancing of the budget with the incident necessity of bringing reparation and
other Treaty charges into the compass. of e balanced budget.
He tentatively
suggested payments on reparation and Treaty account being augmented by inter.nal and external loans outside the Budget. ',;hen pressed, he however admitted
that practically the internal and external loan phase could be considered as
being involved in a balancing of the budget - receipts from the loans appearing on the credit side of the budget with interest and amortization charges
appearing on the debit side.
He maintained the French position as to the
necessity of stringent financial control. He was obviously embarrassed le)
Bre.diury's suggestion of reference of the French and British plans to the
Committee of Bankers for advice and recommendation.
On the foregoing account he expressed himself as in agreement with
Bradbury's suggestion for the Commission Of Reparations to go to Berlin to
study the entire question on the ground.
The Commission is leaving :aria
October 29th for Berlin, for as yet -n uneeteneined visit but one rhice it is
believed will last about ten days. We are very hopeful of some constructive
r sults from this visit and this particularly in view of the more moderate
tone of the controversy between the French and British views.
Delacroix did not participate actively- in the recent discussions.
However from what he did say during the disdussions and from what he said
privately outside, it is euite apparent that the Belgian Government fully
supports the general line of the British plan though not supporting :11 its
Bradbury in this latter connection expressed himself as not being
wedded to all the details of his original plan and prepared to support any
sound change which might be proposed; he particularly referring to the
Hirsch plan of an internal gold loan in Germany to be used in supporting the
He said thze he had not studied the Hirsch plan in detail but that it
had impressed him as having certain merits and that something ,,long its lines
should be studied be the Commission during their approaching visit to Berlin.
The Italians may be counted upon to support the British plan.
Faithfully ;yours,


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




jrMr. Snyder


2, 1922


Governor Strong

With this I an sending you three very interesting and illuminating
communications from Colonel Logan, which are strictly personal and oonfidential
and which 1 will ask you to return after reading.
Some comments may occur to you in this connection so I an also sending
you a copy of my last letter to Loga


which please return with the papers.





Colonel James A. Logan, Jr.

November 2, 1922.

November 4



*feat the hepublican candidate, and that Carmi Thompson who is the Ohio member
of the Republican National Committee and who is running for Governor would he
This in the President's own State.
Wsoundly defeated.
It is rather significant, horever, that when Thompson published the
it is worth.
list of contributors to his campaign account, some smart fellow added them all up
by classes and disclosed the fact that 70 per cent. of the fund came from coal
oper:.torc and miners,(Thompson himself being interested in the coal busines9and
Of course, it is a very unfair conthat Ohio was paying $11.00 a ton for coal.
clusion to draw, but it undoubtedly hurt his campaign.
against the Republican Party on the ground that the new tariff imposes tax in
living coats upon the American people of somewhere between *5 to 14 billion.
The whole Cabinet just now seems to be out campaigning, and Mr. Hughes is dealing
some shout blows in New England and New York.
The results in New York State are
uncertain, but the trend just nov: seems to be in the direction of a Democratic
Governor - Al Smith; but probably the reelection of the Republican Senator Calder.
The situation in other parts of the country is exceedingly uncertain, but I think
the Democrats are bound to male large gains in the House with the possibility of
some gains in the Senate.
I only hope that it is not. R landslide leaving the
President with a minority in Congress, but that is far from being impossible.

Please give Basil my best regards, and the same to you,
Yours sincerely,

Colonel James A. Logan, jr.,
18 rue de Tilsitt,
Paris, France.
Federal Reserve Bank of St. Louis





Governor Strong_



November 6,


German Situation

Lire_ Snyder

As you know, I got the impression a year ago last summer, in
Germany, that industrial conditions in that country were steadily improving; and nothing I have seen since has changed this view.
be true,

If this

then Germany's difficulties are almost purely governmental and

currency difficulties, and little more.

Of course I believe that the total amount aesessed against
Germany by the London Protocol was absurd, and a flat violation of a
definite agreement at the Armistice, not to include pensions in the reparations demand.

But, on the other hand, I don't believe that the amount

asked of Germany, as an annual payment now, was at all beyond her capacity
to pay.

I cannot get away from the impression that the whole present situation was more or less permitted by a set of crafty and customarily dis-

honest and bungling politicians, aided and abetted by a just revolt on the
part of the German people against the outrageous reparations assessment.
Now, if these are anywhere near the facts, is not the Reparations
Commission, including your friend, going at the matter in the wrong way,

and is not the real remedy in such a matter as this "pitiless publicity,"-with accurate facts and figures?


Paris, 18 rue de Tilsitt
13 November 1922.


LIy dear Ben,

The Reparation Commission arrived in Berlin on October
31, 1922 and left Berlin for -Faris November 10, 1922. During this
period the Commission witnessed the fall of the mark from four
thousand to the dollar to eight to nine thousand, and the German
floating debt gradually passing from four milliards per day to six
milliards per day.
Very little in a tangible way was accomplished in Berlin
other ise than a certain education of Barthou to a realization of the
seriousness of the situation and its possible consequences. Mile not
committing himself, Barthou nevertheless did not hesitate to express
himself as tieing seriously concerned with what he had seen and desirous
of returning to Paris at the earliest possible moment to put the situation as he saw it to Poindare. Barthou's attitude had an interesting
reflection on the attitude and expressions of his French assistants.
Heretofore, these Assistants have been most circumspect in all their
personal conversations concerning reparation matters. During the
latter fart of the visit and on the train returning to Paris their whole
tone had changed, and in personal conversations they freely admitted and
discussed the necessity for a change in French policy as the only means
of preventing not only the financial and social collapse of Germany, but
also perhaps the financial collapse of France. One of Barthou's principal assistants said that Barthou was so stirred that if Poincare did not
adopt a more reasonable policy a split between the two could be expected.
Too much importance should not be attached to these personal conversations
with French subordinates. -owever, they were impressive and have some
significance as showing a change in point of 'PION which they would not
express had not some intimation been received op{ a similar change of feeling of the head of the French Delegation.
have not been long enclgli back in Paris to get the real "feel"
of French opinion. There is to be an official meeting of the Commission
this afternoon, a summary of which will be forwarded by separate letter
This letter
which should give some indication of present French opinion.
refers only to happenings in Berlin.

The Reparation Commission upon its arrival in ierlin called on
Chancellor Wirth. It had been agreed between the Delegates that this call
would be a formal one at which no discussions of detail would take place.


.1. A. L. Jr.

To Governor Strong - Personal & Confidential.



Barthou opened the meeting ey informing the Chancellor that the
Reparation Commission had come to Berlin for the purpose of infonning
itself on questions concerning the stabilization of the mark, budgetary
balance and the Floating Deut. He asked for the co-operation of the
German Government and concluded by stating that the Commission when it
had completed its incuiry would return to Paris for the purpose of
considering its findings. Wirth in reply, after formally welcoming
the Commission stated that every possible step would be taken by the
German Government to expedite the work of the Commission. He then in
general terms, reading from a carefully written document, pointed out
the precariousness of the present Gorman situation not only from its
financial and economic aspects but also from the social point of view.
He said that the German Government was very much concerned and on its
own initiative had invited foreign economic and financial experts to
meet in Berlin for the purpose of advising the German Government in
the present situation. He said the Committee of foreign experts included
Keynes, Cassel, Jenks, Dubois the Stiss Banker, Brand the London banker,
Vissering the Governor of the Bank of Holland, and Kamenka the Russian
banker and economist. Wirth said that, while this Committee had no relation to the Rep4ration Commission, the German Government stood ready to
place the recommendations received from this Committee at the disposal
(In this connection see Exhibit A. Address of Chancellor
of the Commission.
Wirth to the Committee of Germany's foreign experts). After the foregoing
formalities had terminated it was arranged that the Commission would meet
Hermes the same day for the purpose of commencing its detail inquiry.
At the first meeting with Hermes the German budgetary situation
was discussed in the light of the situation created by the fall of the mark.
Hermes outlined the situation of the Budget for the German fiscal year 1922
(april 1, 1922 to Liarch 31, 1923). As preface to his remarks, he said that
his domments, outlined below, were based on figures of actual paper mark
values up to September 1. 1922, but as from September 1, 1922 to the close
of the fiscal year his comments were based on 3,000 paper marks to the dollar,
It appears needless
or approximately 700 Paper marks to one gold mark.
to point out how questionable this latter basis is in the present situation.
Hermes comments on the Budget for the current fiscal year were divided into
three parts: First - Ordinary, Second - Railways and Posts, Third - Execution of the Treaty.
As to Ordinary.- The depreciation of the mark itself without any
increase in taxation will automatically increase paper receipts from 115
billions as originally estimated to 336 billions paper marks. Such increase in receipts, according to Hermes, will approximately cover all expenditures but will leave no surplus.
As to Railways and Posts.- Posts. A new tariff has been adopted
but the effect is not yet felt. The deficit as at present estimated Will
reach 33 billions paper marks. Hermes said he was struggling with the
Post Office Department to raise Posts and Telegraphs rates so as to cover
the entire expenditure, and was hopeful of results. Railways. Bo far as
ordinary operating expenses were concerned, during the first three months

J. A. L. Jr.

To Governor StronL; -Personal & yonfidential


of the fiscal year the Railways had accumulated a surplas of 2.5 billions
paper marks. Up to September 1, receipts had exceeded operating costs but
not at the same rate as during the first three months.
Hermes hoped that
with the increased tariffs proposed receipts would cover operating costs.
He however pointed out that the capital expenditures (not included in the
ordinary operating expenses) which had previously been estimated at 17
billion paper marks would fall short of meeting actual charges on this
account, which he now estimated as being at a minimum 27 billions paper
In other words a forecasted and uncovered deficit of 27 billions
paper marks.

As to Execution of the Treaty. - It had been assumed that a
surplus of 16.5 billions paper marks in the Ordinary budget would be available for Treaty charges.
Such surplus had however entirely disappeared
and therefore Treaty charges could only be covered by further inflation
plus receipts from the Forced Moo= estimated at 45 billions paper marks.
Therefore, according to Hermes, there is an anticipated deficit in this
The latter figure
part of the general budget of 316 billion paper marks.
included all Treaty charges up until December 31st 1922, plus cover for
the redemption of the six months German Treasury Bills held by Belgium
falling due before March 31st 1923, but included no allowance for reparation
or other Treaty charges during the period January 1, 1923 - March 31, 1923.
Hermes concluded his comments on the budget for the Geralan fiscal
year 1922 by drawing attention to the total budgetary deficit under the two
headings Doing 376 milliard paper marks (calculated only on the basis of
3,000 marks to the dollar), maintaining that such deficit could only be covered for the reasons hereinafter set forth by an at least corresponding increaHe also Pointed out that his figures took no account
se in the Floating Debt.
',if the shortage of the German cereal supply and the consequent problem now
facing the German Government of covering its cereal reLadrements, estiaated
at 2 million tons, dariria this cereal year. He stated that the necessity of
the purchase of such cereals plus the expense on account of Possible food
subsidies would necessarily throw out the iaudgetary figures he had given and
"gravel,:" increase the deficit.

The figures given by Hermes above are open to criticism and question.
Certain items of expenditure should be eliminated or aostponed. Certain increases in rates of taxation should also be made. The Hermes figures are now ueing
studied in detail by the experts of the Committee of Guarantees whose report
will follow when completed. However there is a general feeling in which we
share that the Hermes figures of budgetary receipts, even with the factor
employed, are too optimistic and that this more than offsets over-estimates
In other words in our judgment, under present conditions
in expenditure.
and with the detailed figures indicated open to question, Hermes figures
nevertheless fairly accurately portray the present budgetary position of

Attached herewith as Exhibit B are copies of certain memoranda
handed to the Commission by the German Government on November 4th concerning


J. A. L. Jr.

To Governor strong - Personal %,!: Confidential.



certain details of the uudgetary situation for the fiscal year 1922.

Hermes was asked to submit a rough estimate for the Budget for
the German fiscal year 1523 (April 1. 1923 to 'larch 31. 1:324). Hermes
in reply Quite reasonably maintained that it was impossible to make any
estimate so long as the mark was not stabilized., and so long as treaty
charges during the year leilained unfixed. He. however presented a memorandum budget estimate (See Exhibit C) based on 3.000 paper marks to the
dollar so far as external expenditures and receipts were conaerned. and on
700 paper marks to the gold mark ao far as expenditures and receipts were alone
The figures of
controlled by the internal purchasing power of the mark.
receipts and expenditures of August 1922, were used as the factor for determiFor the practical
ning receipts and expenditures during the fiscal year 1923.
reasons indicated by Hermes no importance can be attached to the figures appearing on this German memorandum budget. It is, however, interesting as approximating the theoretical aspect of the situation resulting from an execution of
the Treaty running the figure of deficit into the trillions (one thousand of
billions) of paper marks even under the entirely unfounded premises of 3,000
parer marks to the dollar.

2t the next meeting with Hermes on November 1 the question of the
Floating Debt was considered (See Exhibit D submitted by the German Government
to the Commission on licateriabik, 1922). Referring to an inquiry at the previous
meeting as to why Germany had increased its floating deut beyond the normal
maximum contrary to the decision of the Reparation Commission of Maroh 21,
1922, Hermes stated that from "larch 31, 1922 to June 1, 1922, the floating
debt had actually been reduced from 125 billion$ to 99.9 billion marks, with
the result that on June 30 the agreed "normal maximum" was only exceeded by
1.625 billion marks. He said that the German Government had hoped to cover
this excess by issuing long term Treasury bonds that were to be placed on the
German market. Unfortunately, in the beginning of July considerable stringency
developed in the money market concurrently with a further slump of the mark
with the result that nearly 26 milliards tg* Treasury bonds in the possession
of the public returned to the ReLchsbank during the period iiarch 31 to July 31.
This showed clearly that it would be useless to look for cover for the excess
through issuing new long term Treasury bonds. In consequence of further serious
depreciation of the mark the situation developed unfavorably so that the "normal
maximum" was exceeded on July 31 by over 8 billion marks, on August 31 by over
21 billion marks, and on September 30 by over 123 billion marks. Under the
terms of the lilar-;h 21 decision it was technically incumbent on the German Govern
ment by September 30th to retire the eaness ot 123 billion marks of its floating debt. The German Government had based its consent to keep its floating
on the predebt under the figure of the "normal maximum" (See R.O. Lnnex 1462
The foreign loan had failed,
sumption that a foreign loan would be forthcoming.
and the German Government under the altered conditions was therefore not in a
position to either retire the excess or to "propose other measures to the
Reparation Commission". Hermes admitted that it was the duty of the German
Government to eliminate deficits in the Railway and Postal Services, but due
to the continued fall in the mark it was impossible to fix tariffs to cover
such deficits. Due to the slump of the mark it was also impossible to float


J. A. L. Jr.

To Governor Strong - Personal & Confidential.


an internal loan and, in his judgment, no such loan could be floated
until the mark was stabilized. He felt that by checking the deficits
in the Railway and Postal Services, some relief would be given to the
position of the floating debt. It was, however, "the considered opinion
of the German Government" that if a foreign loan were not possible escape
from complete financial collapse in Germany was difficult, if not impossible,
to prevent. At this moment Bradbury peinted out that even under the most
favorable conditions it was extremely doubtful whether the German Government
could float a foreign loan. Bradbury therefore asked Hermes if he intended
to imply that in the event of failure of zaach loan it was "the considered
opinion of the German Government" that a financial collapse followed. Hermes
calionly replied that both he and the German Government, from purely patriotic
motives, would never fold their arms and accept a financial collapse without
a fight.
At the succeeding meeting, November 2, the question of the stabilization of the Mark was considered (See Exhibit E submitted by the Geran
Governlent to the Commission on November 4, 1922). Hermes said that the
German Government held that the stabilization of the mark was the problem
requiring iniediate attention. The balancing of the budget was entirely
dependent on the stabilization of the math Vilth the mark at 4,000 to the
dollar (which it had reached that day) it would scarcely be possible under
any conditions to have budgetary receipts equal expenditure.
A small gold
loan floated by the German Government alone would not be sufficient to stabilize the mark and would do more harm than good.
A large loan was required.
If it were possible to stabilize the mark at some reasonable figure it would
be possible to balance the budget within a relatively short time, but even
under such conditions the German Government would not be in the immediate
future be able to make any cash payments on account of treaty charges, and
even a programme for the most limited volume of deliveries in kind if at
all possible would have to be carried by internal loans.
Hermes maintained
that the questions of reduction in government expenses and increase of
revenue had little to do with the question of the stabilization of the mark.
He said that without the mark stabilized, endeavoring th raise taxes or
resort to "forced loans" only leads to encouraging the export of capital with
its resulting loss to the German financial position and those having acuity
in reparations.
The foregoing, together with statements incorporated in the varioas
memoranda above referred to and filed as Exhibits herewith, fairly sammarizes
the position with the German Govern lent and the scope of the Commission's
inquiry up until about November 5th.
The Commission then taking advantage of a statement made by Hermes
that "the German Government intended submitting concrete and precise proposals" nressed for the same (See Exhibit F. Copy of letter from the Reparation
In the same
Commission to the German Government dated November 6, 1922).
letter the Commission formally noted the engagements given orally by Hermes
fissuring the "unfettered supervision by the Committee of Grantees of the
finances and exports of Germany". The Committee of Guarantees had encounte


J. A. L. Jr.


U. A. L. U.


To Governor Strong - Personal w Confidential.


mission which came to make an enquiry will examine on its return to Paris
the proposals which you have put before it, or such farther proposals as you
may think it necessary to submit on the comprehensive questions that it has
discussed with your Government" (See Exhibit I. Letter from Reparation
Commission to German Government dated ITovember 9, 1922). The Commission
while leaving Berlin nevertheless adopted Ljr. Boyden's suggestion by adding
the words underlined.
Just before the Commission left Berlin on Uovember lo the German
Government transmitted reports which it had received from its Committee of
Foreign Experts, viz: Exhibit J. Report signed by idessrs. Keynes, Jenks,
Cassel and Brand. - Exhibit K. Report signed by Liessrs. Visserinj, Dubois,
The two reports while not dissinilar in substance nevertheless
and Kamenka.
vary in particulars. The "Keynes, Jenks, Cassel and Brand report" holds in
effect that the mark may be stabilized at a figure somewhere approaching its
actual internal purchasing power, and the budget balanced without recourse
The "Vissering, Dubois and Kamenka report"
to a foreign loan or support.
holds in effect on the contrary, that the mark must be very considerably
raised in value over its actual internal purchasing power and that a bubstantial foreign loan or support is necessary.

The foregoing, with the Exhibits, summarizes the Commission's
It can be seen that, while the German Government was
fully alive to the seriousness of the situation, its policy was vaccilating
and undetermined and that the Government was therefore wholly unprepared to
submit or support any definite plan. It was currently reported, and readily
apparent, that Chancellor Wirth's political existence was precarious; that
there was great dissention within the German Cabinet, and no real leadership.
The Commission was impressed with the resulting general air of helplessness,
and we all felt that no real progress could be made until the Ger.lan internal
political situation was cleared.
Faithfully yours,



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


.earis, 16 November 1922.

18 rue de Tilsitt

personal and Confidential.
its dear Ben:Our last letter of November 13 summarized reparation hap penings during the recent visit of the Separation Commission to Berlin.
Since its return from Berlin two unofficial reparation meetings have been
held: one on November 13 and one on November 15. Little, however, was accomplished for the following general reasons: =first . - In view of impending elections in Great Britain no future Eritish policy could be forecast.'rench desire no t to prejudice their possible position
ed; aecond. with a new and as yet unelected Lritish :.anistry; Third. - The impending
and actual fall of the Wirth Goverrn-Pnt leaving the jernan political situation clouded. ..irnere was, however, some general discussion on the question of control and on the reports of the German ,:eovernmentts Colamittee of
zilaJerts (See annexes J and E, with our letter of November 13), and on the
proposal of the German Government to the Commission of November 14, 1922,
(See Exhibit herewith).

So far as the control or supervision phase was concerned,
Barthou's attitude was most conciliatory. He said he appreciated fully the
position of the Commission and its reasons for not desiring to have the Committee of Guarantees sit permanently in Berlin. On the other hand, he suggested that the Delegation of the Committee of Guara.ntees now in Berlin needed more support than it was receiving at the present time . He suggested as
a compromise tat the various members of the Committee of Guarantees, in ro-

tation, (say for a period of one to two months) sit in. Berlin so that the

Comission be always represented there by not only a member of the Committee
of Guarantees, but also by an assistant Delegate of the Commission. Bradbury

then suggested it was too early as yet to nni'ce ark definite decision on this
point, and proposed that if the Commission or the Governaents reached a decision on the vliole reparation auestion within a comparatively short period,
the atiole Committee of Guarantees should go to Berlin and stay there from
four to six weeks, putting in actual and practical working order the system
of supervision agreed upon last July. 'While no definite decision ViE. s reachto aced, Barthou seemed to be in accord with 3radburj's views and
cept his arrangement.
On November 14 the Corni ssion received from the Germn Govern-

ment the "concrete and precise" plan which it had invited in its letter of

November 8 to the German Goverment when leaving Berlin (See Exhibit I, with
our letter of November 13). This letter (see Exhibit J'1, herewith), together
with the report of the GermnGovernment's Committee of Ex_erts, was discussed during the unofficial meetings but no action was taken and we contemplate

J. A. L. Jr. To:


Strong - Personal and Confidential.



that none will be until the end of this week or the ea rly part of next.
Bradbury in commenting on the situation stated that the Commission.

could not as yet appreciate the political effect that the fall of the German

Government would have on the new German proposal, and therefore it was necessary to await some confirmation of this proposal from the new German Government, When formed, before taking definite action. As regards the substance

of the proposal, Bradbury was not in accord with all its details, and in particular the ,proposed plan for the stabilization of the mark which practical-

ly follows the suggestion in the Vissering-Dubois-Nerrenka report (See Exhibit K, with our letter of i.ovenber 13). Bradbury felt that the Keynes-JenksCassel-Brand report (See Exhibit J, with our letter of Noverrber 13) had more
points of merit. He felt that the Vissering-Dubois-Kamenka report was not
thoroughly understandable, lacking preciseness, and that the hope expressed
in it of raising the mark to the value indicated under existing conditions

was fantastic and, in his judgment, money advanced under such a plan would
be lost. In other words, in Bradbury's view, the ileichsbark would lose the

one-half o f its metal reserve it put up, and the Bankers to protect themselves would necessarily have to take over practically all available reparation assets, thus leaving nothing for -reparations when the affair finally
broke down. He, therefore, felt that the German Government should be invited to submit a new plan or modify the present one. Barthou admitted that

the new ..T e r man proposal contained a "concrete and precise" plan, but request-

ed the permission of his colleagues to refrain from discussion on it at
the present time. He said that Poincare contervlated making an important
declaration in the Trench Parliament on 2riday, November 17, that Poincare,
himself, was not quite sure what position he would take and therefore believed better results would be obtained by not attempting discussion until
after Poincare is policy had been outlined. li;radbury then said hiw own po-

sition vis-a-vis the new British Government which would come into office
after the British elections was uncertain, that he proposed going to London
the night of November 15 to get in touch with the new Government, returning
to Paris .1:'riday, the 17th, \lien he would be in a better position to speak,
and, therefore, was in agreement with Barthou to postpone further considera-

tion of the Question until the latter part of this \seek, or the early part
of next.

Delacroix, supported by Salvago-Iiaggi, maintained that the Commission now having the "concrete and precise" German proposal, were in a po-

sition to seek a solution of the question, and pressed for early reference
to the Committee of Bankers.

Some refernce having been made to the Brussels Conference by
Barthou, :Dradbury pointed out again that the British Government had not as

yet definitely expressed its agreement to participate in such a conference
and that obviously no definite decision could be reached on this point until
after the elections. He argued that any possibility of settlement of the Ger-

man problem is dependent on expeditious handling, and was of the view that
the Commission., after the Poincare speech and immediately upon his return
from London, should proceed to an examination of the v.hole question in an
endeavor to reach a decision, and not to depend on the auestion being dis


J. A. L. Jr.



Page 4.

Strong. - :ersonal and Confidential.

man proposals. However, it was too good an opportunity to be lost and holding the view that the "missionary effect" would serve a useful purpose in
strengthening barthouts hand in the latter's endeavor to deal with the reparation Question on business lines, he forwarded it as originally drafted.
Faithfully yours,


The Honorable Benjamin Strong,
Governor, iederal -Reserve Bank of iew Yor:z,
York City.







D5ted Novembr 18, 1122
:recd. 3147 p.m.

Secretary of ,state,

4ashineton, D. G.
471, November 18,

6 p.m.

Receipts sin3s = 5ovember 10th German treasury bills 58,494,196

gold marks Latemburg coal 17,657 pounds sterling.

All credit Belgium.

These German bills plus 1,5.2,004 gold manc credited to Germany for
Luxopoburg coal and textile alliance.

Dyes delivered in September and

)otober compose total 63 million told marks due Germany to Belgium
:iovember fifteenth.

British Government reports 678,00;) pounds sterling

receipts reparation recovery act for October retained account British army



November 20, 1922.

Dear Logie:

I have read your letter of October 27, with a good deal of interest,
as it is the first indication of what may transpire an a result of the turning
cut of Lloyd George.
Your description of 3ra.dbury's argument impresses me very much, but
there is one point that I do not understand
his advancing - considering the
solidity of his argument in other respects.
On ?age two of your letter I
understand you to quote him as stating that payments to be made by Germany, not
otherwise provided for in the budget, will be paid for from the proceeds of
paper mark loans to enable the making of deliveries in kind.
I have paraphrased
your language so as to Live you my understanding of it.
Surely, payments of
that character would involve disturbance of the budget just as much as payments
of any other character.
as this a concession to the French point of view?
Another point which puzzles me a bit is 'Itadbury's argument aE to the status of
Clemenceau's letter of June 18, 1919, and the status of the decision of May 5,
1921, establishing the schedule of payments.
I cannot believe personally that
Germany is bound ay decisions which are imposed upon her which depart in the
slightest particular from the Treaty of Versailles, except they should be, on
the one hand, concessions .to Germany, or, on the other hand, imposed upon her
by military force-, and I have all along assumed that the real underlying question
was whether the Treaty of Versailles did not impose a i.:ayErent upon Germany of
some 80 billion marks or thereabouts for disability pensions, which violated in
spirit the terms of the Armistice.
This all leads me to the view expressed by
r3radbury which you have underlined on page three.
After all, much of %hat is
attempted with Germany hasmilitary rather than treaty or contractual support.

If the conclusions we are to draw here from the new Prime kinister's
pre-election statements are at all accurate, it would look to me as though
any move by France or any move by the Allies in support of any decision by
the Reparations Commission, which involve anything in the nature of en extension of military occupation, would be scrupulously avoided by the new British
Government, possibly even resisted, and be made the excuse for allowing France
This is all surmise, but I can well understand how tempting
to go it alone.
it would be to a new Government in England to take just that position and
relieve itself of possiole involvement in the consequences of further sanctions
in that direction.
I have just returned from Princeton after witnessing a great Foot Sall
trikaph, and had an opportunity for quite a meeting with some of the Professors
They are very keen to get as complete a set of
in the courses in economics.
They would be willing
the documents of the Reparations Commission as possible.
to lock them up under any seal of confidence that seems necessary and for any
How do you feel about the possibility of
period of years that is necessary.
their getting just such a collection as that, the cost of which of course I would
be very glad to pay?

November 20, 1922.


There is not much news here except the reassembling of Congress
which only occurs to_day, so I have not got the hang of what is going on.

I will write you after my next Washington.

Colonel limes A. Logan, Jr.,
18 rue de Tiloitt,
Paris, France.
9S. ZP,

very sincerely,


Faris, 18 rue de Tilsitt,
24 November 1922.



"rly dear Ben,

Due to the prolonged stay of air John Bradbury in London, the
lack of definition of British policy, and the unsettled condition of
the German political situation incident to forming the Gum
there has been little progress in reparation matters within the Commission
itself during the last seven days.
Outside the Commission, there have been happenings of importance
in reparation matters the consequences of which cannot be forecasted, but
which for the present at least throw a pessimistic blanket over the whole
situation. These haopehings are largely the results of the activities of
certain foreign bankers in their endeavor to force an early consideration
of the German plan of rovember 14th 1922 for the stabilization of the mark.
(See Exhibit A, our letter of November 16th 1922).
Upon conclusion of the work of Germany's Jommittee of Experts
in Berlin, approximately the same date as the conclusion of the Reparation
Commission's Berlin sittings (November 10th 1922), Messrs. Dubois, Vissering,
Cassel, and Jenks (all of Germany's Committee of Exports) came to Paris.
Dubois and Vissering came for the purpose of endeavoring to influence the
French and Poincare to accept the German plan in the hope that the French
Government, and consequently the Commission, would forthwith invite the reconvening of the Reparation Commission's "Bankers Committee" (including
Mr. Morgan) to take up the practical application of the plan. The other
two gentlemen of the German Experts' Committee while happening in Paris
for personal convenience, nevertheless held themselves ready to be of
assistance if their services were demanded.
During the stay of the Commission in Berlin, 'Jr. Morgan
was visiting Rome. It was reported he contemplated being in Paris last
week for a few days before sailing for America, and on this account Dubois
and Vissering hoped that they could so influence Poincare as to

4100. A. L. Jr.

To Governor Strong - Personal cl uonfidential.



enable a reconvening of the Bankers Committee before Mr. Morgan's sailin,.
It developed on the other hand that Mr. Morgan, while in Rome at
the time, had not conteplated making any extended visit in Paris, and as a
matter of fact passed rapidly through Paris to London while all were in
It also developed that Mr. Morgan did not contemplate returning to
Paris before his departure from England for America today.
Dubois and Vissering have both given me the following account
of their efforts with Poincare which, from other sources, I gather to be substantially correct. It will be remembered that daring the summer months Poincare, when being interpellated in the French Parliament on the general question
of the failure of French agreement to the Bankers Committee's recommendations,
and in particular to Mr. Morgan's participation in such recommendations, made
the general ungracious and entirely unwarranted statement to the effect that
"Don't worry about the Bankers Committee, or Mr. Morgan, as there will never
In substance, he
be any question as to bankers ueing here any time wewant".
subsequently made the same statement and used :Jr. Morgan's name. The impression
that these statements made was that Mr. Mbran's only interest in the reparation
Those of
settlement was that of the money-lender, and with no higher motives.
willing to participate
us who know Mr. Morgan and know his real motives for being
in the thankless task of trying to bring reason into the minds of European public
opinion, felt Poincare's aspersions not only unjustifiable but difficult to

According to Dubois, about November 15th he prevailed upon Poincare
to agree to send an invitation to Mr. Morgan for a personal conversation in
Paris. At the time he thought he invitation would be one of a fairly formal
character which would Pave the way for PA.ncare's "amende honorable" and understanding between the two. He, therefore, was surprised to find on November 17
that only a verbal and quite informal invitation had been extended. He asked
the reason for this and was informed that Poincare, realizing the offense he
had given Mr. Morgan, did not want to be put in the position of having his invitation refused, and was feeling out the situation.efore exthding a formal invitation.
Dubois became active with the result that a formal invitation was immediately,
though somewhat tardily,despatched .y the French Minister of Finance de Lasteyrie.
Mr. Morgan replied to the effect that his plans were all made to sail to America
Novemuer 24th and that the only time he could be in Paris would be 22nd,
and while desirous of being of every assLtance possible in the situation, he
nevertheless felt that before coming to raris he should have some assurances that
Poiticare accepted the general Ptincivaes laid down by the Reparation Commission
Bankers Committee's report of last June, together with a definite assurance of
a substantial period of moratorium being accorded Germany, as a preliminary
condition to the visit. To this message Poincare replied, expressing regret,
"that an important French Cabinet meeting on Wednesday November 22 would prevent
his receiving Mr. Mbrgan that day". Thus the efforts of Dubois and Vissering
wholly failed, and these gentlemen are all leaving raris today returning to their
Vissering with whom we have talked,since the Morgan incident, is
very pessimistic as to the outcome of the present European situation, and

440.J. A. L. Jr.

To Governor Strong - Personal d; Confidential.

Page 3.

forecasted serious social disorder in Germany, and general European exchange
panics within a short period of time. He said the Dutch position was particularly difficult and Holland was already experiencing difficulty in handling
the Germans coming from Germany to Holland for the purpose of escaping the
impending social disturbances and lack of food in Germany. He said his Government was now seriously considering measures for prevenging this influx of
Germans into Holland. He was however hoieful that the situation would clear
He felt that little could be expected from Poincare, but from the inforup.
mation he had gathered he felt the days of Poincare's political life were
numbered; expressing the hope that they would be short as possible; and that
a better situation would develop after Poincare was succeeded by a more conservative and practical French statesman. When considering Vissering views, the
special position of Holland and the latter's large holdings of "dumped" German
marks must be considered.
Dubois, with whom we have talked since the Llorgan incident, was
also pessimistic. He anticipates serious social disorder in Germany shortly,
and was fearful of the effects of such social disorder on the internal labor
situation in Switzerland, it being very sensitive to such disorders in Germany.
He pointed to the very grave social tines in Switzerland during the last German
revolution which, in his opinion, were apt to re-occur. He said that he had
done every thing he possibly could to bring reason to the French and particularly
Poincare, but had failed. His only hope was that Poincare's days of political
life were numbered. He said that from the information he had he would not be
surprised to see the fall of the Poincare Government elen before Christmaw, but
at the latest by next 'larch, and that while little of a constructive nature
could be accomplished in the meantime, he nevertheless felt that, as did Vissering,
better days would follow the new French Znistry.

As regards the probability, or possibility, of the fall of the Poincare
Government, we would not care to venture any forecast, though the rumor is rife
in support of both vissering and Dubois' view. This view is more or less confirmed by the growing independent attitude of certain French political leaders since
Poincare received the so-called "vote of confidence" after his speech in the
Chamber on November 17. Apparently this vote was scarcely a bonafide expression
of confidence. Parliament was very late in session and all were desirous of
adjourning, The actual vote as recorded was on a resolution for adjournment with
the added proviso for a reconsideration of the questions at issue within a Period
of amonth. On this vote, Poincare recorded a very substantial majority which
Poincare's antagonists maintain would not have been possible had not the adjournment and reconsideration features been attached to the resolution as Passed.
Bergmann who is here in Paris and with whom we have just talked,
is auite pessimistic, though his views as to the imediate possible results outside of Germany are not nearly as pessimistic as the views exioressed by Dubois
and Vissering. He attached no special importance to recent rioting in various
German cities which have ueen given so much prominence in the British press.

A. L. Jr. To Govermr Strong - Personal & Confidential
Pegs 4
He did not bel ieve that a general L;urop ean exchange collapse was imminent.

In the foregoing particularly his views were somewhat reassuring. On the
other -nand he held that it -,culd be a great mistake to hold the Brussels Conference unless some definite and practical plan with which all the Lilies
were in accord had been worked -up by experts beforehand. He said that if the
Brussels Conference was held without this preliminary it could only result in
the inainediate sacrifice of Chancellor Curio on the altar of Allied public opinion, which would be a most regrettable and backward step. He maintained Curio's
ideas were liberal and the latter wanted to work out a solution of this problem

in concert with the Allies. If he were sacrificed at the very start of his
task, it would be difficult to find anyone aith Curio's ability and views to take
over the German helm. He was at a loss to know that was the next step to be

tarn by the German Government aside from the confirmation by Curio of the German
plan for the staailization of the mark, :submitted by Wirth to the Commi s.don on
liovernoer 14, which he said was now an accomplished fact. As to social difficulties in Germany he did not, for the present, anticipate serious consequences un-

less the mark fell to some 20,000 to the dollar, wilau, in his opinion, it would
be a practical impossibility for the German Government to feed its population.
Theunis the Belgian Prime Lanister, and Jaspar the Belgian Minister
of Zoreian Affairs, were in Paris yesterday in consultation with Foincare concerning the holding of the proposed Brussels Conference. They are apparently
concerned and in the then unsettled situation, they Questioned the wisdom of

holding such conference. The french having no reasonable pro,ara.mme it was dif-

ficult for then to see any real basis for the conference and that there was
every chance that the results might even be harmful generally and particularly

embarrassing to Belgium. Under these circumstances they were not overly anxious
to push for the Conference. Bona r Law had made no commitment at all as to

Britain's participation in the Brussels Conference, and as yet there was no indication of his policy. Theunis had suggested his going to London the early
discussing the Brus sel s
part of next week to see Bonar Law for the pump o 33 of discus
He received a reply in effect thL:t Bonar Law, while glad
Conference situation.
to see him, was nevertheless "very much engrossed in the organization of his
new Linistry and with affairs relating to the Lausanne Conference, and as yet
had had no time to study in detail the :-1..Estions relating to the Brussels Conference or form any opinion ". Wherefore, if Theunis came, "their conversations
would necessarily be restricted to a most general discussion in which no ques-

tion of detail or cormitment of policy could be involved". Theunis was a good
deal njstified by this reply. Very little resulted from Theunis' conversation
with Poincare in view of the Bonar Law attitude and this notwithstanding Poincare ' s desire for the Conference. The clue st ion of whether or no t there will be
a Brussels Conference, and its: scope if held, therefore, remains entirely un-


It has just developed that there is reason to believe that within
a very few days there will be a joint meeting of the French, Italian, Belgian
and British Governnnnts. From that I gather this meeting will be mall in-

cluding only Poincare, Liussolini, Theunis and either Bonar Law or Curzon.
At this meeting the effort will be made to reach a decision as to future policy; whether or not the Brussels Conference is to cc held, etc. In the meantime, and pending the outcome of this meeting, -m contemplate little will be
done in the Commis sioli.

All.. A. L. Jr.


To Governor Strong - Personal & Confidential.


Bradbury has just returned from London after his prolonged stay
t_le length of which stay was undoubtedly dictated by the desire of Bonar
Law nJt to precipitate a consideration of this reparation question until
after the Turkish question at Lausanne was on its way to settlement. From
what we gather it api)ears from Bradbury's discussions with the new British
Government that there wi_l be no radical charge in the British position on
reparation Questions though there may be a change in methods of handling.
In addition to the German November 14th plan for the stabilization of the mark, there are two other quite important questions now before
the Commission, viz: Germany's failure to fully meet demands for coal and
demands for timber deliveries. The latter cuestions are technically in such
position that there would be much difficulty for the Commission, if pressed
by the French, to obviate a "report of formal default to the Allied GovernI understand that by arrangement between the British and French
Delegations, and pending the outcome of the proposed meeting between the
different Governments, the British will not push for an immediate consideration of the German plan for the stabilization of the mark provided the French
do not push for a formal report of default on account of coal and timber
Faithfully yours,



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





Paris, 18 rue ue Tilsitt.
27 November 1922.

Liy dear Ben,

I enclose herewith copy of reports dated August 24, 1922,
and November 25, 1922, concerning the Austrian reparation question
which I feel you may find of interest.

Why don't you come over and make us a visit some time after
the first of the year? We would all like to see you. I had hoped
to get home for Xmas this year, but cannot get away. I may be able
to get over in the spring. Bill .;;illiams left us a few days ago
for a trip to Berlin. He will be back in Paris on December 10th and
contemplates sailing home shortly thereafter. He is a bit lonely
over here and is either missing Constance or Connie, I don't know
which and I don't think he does. Basil is leaving tomorrow for
a trip in the Balkans and Constantinople to be gone some two or three
Basil and myself plan spending Xmas week at Gstaad in Switweeks.
zerland with Joe and Alice Grew, their kids, Warren and Irene Robbins,
their kids, Henry and Beatrice Fletcher - sans famille, and two
I know we will
indiscriminate beautiful ladies not as yet selected.
have a grand time.
A :.terry Christmas and a Happy New Year to you.

Faithfully yours,

2 encls.

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




Paris, 25 November 1922
18 rue axe Tilsitt.



Austrian Reparation ',,Jiestion

dear Mr. Secretary,

Under date of August 24, 1922, we reported certain
informal negotiations carried on in the Commission relative to a settlement of Austrian reparation questions. Under date of October 4, 122,
Filet: 46;3.00 R 29/130, the Department acknowledged receipt of our
letter, at the same time enclosing copy of letter dated September 21,
1922, addressed by the secretary of the Treasury to The Secretary of
State, in which the views of the Treasury Department were outlined.
The informal plans under discussion have encountered some
difficulty due to the Italian attitude, and on this account, %.e deem
it advisable to report the situation as we see its development to

On July 21st the Reparation Commission agreed to release for
20 years the revenues of the Forests and Domains, salt :dines, and
Customs so far as they were required as security for a new Bank of
Issue, and subject to the terms of the Law for the Bank of Issue proving
satisfactory to the Commission.
On the same date the Commission decided
that it was prepared in principle to liberate the revenues from the
Customs and Tobacco Monopoly as security for a foreign loan subject to
acuroval by the Commission of the terms of the loan.
On August 4th the Commission approved the Austrian Law for the
Bank of Issue and definitely released the assets for that purpose for
20 years.

For both these decisions the aprroval of the Powers not repre}
sented on the Commission including America, but holding Relief Bonds
was necessary.
This was requested and obtained by the Reparation


Federal Reserve Bank of St. Louis

of State.

Page 2.
Federal Reserve BankThe Secretary
of St. Louis

of State.

Page S.
To: The secretary of estate.
Federal Reserve Bank of St. Louis

Page 4.


Paris, 28 Eovember 1922.

18 rue de Tilsitt.

Personal and Confidential
Loose in

Lby dear Ben:-

I enclose herewith as being of special interest in today's

situation copy of a memorandum showing 1up 3tinnes' persorA. views con -

cerning German rehabilitation and reparation possibilities. I also en-

close copy Of Berlin Document ITo 1315, which cives the speech made by
Stinnes on november 9 before the Iiational Economic Board. The first of

these documents is quite confidential; the second, or speech, has been
puolished in the tierman press, and is therefore not confidential.

I am personally not a tremendous admirer of Stinnes, feeling that his guiding purposes are more often selfish than patriotic.
In. addition, I think his scheme and certain parts of his speech are both
unsound and impractical. However, they throw an interesting sidelicht
on the situation and on this account I feel they will interest you.
Faithfully yours ,

The Honorable Benjamin Strong,
.overnor, Federal deserve Bank of New York,
Mew York City.

6°47 1 C.,




CAA. -Me



favored nation clause, and this will be granted only when the German workman
is paid in gold.

Stabilization of the mark at too high a rate would be too high a
gift to foreigners who bought marks at cheap prices, to the working classes
and to officials with fixed salaries, and would entail enormous losses of capital
and bitter wage contests.

German Government should tell the people that they must work overtime
until a favorable trade balance is established and funds obtained to cover loans
and reparations requirements.

The devastated regions must be reconstructed.

The Commonwealth must be properly managed as a commercial undertaking.
Present State of Production in Germany
Annex 1667 b

Currency conditions have led to intensive exportation of goods and

investment of profits abroad, conversion into paper marks being made only when
the funds are needed.

Stabilization or appreciation of the mark would result

in the return of exported currency.
It is difficult to judge the real condition of6erman'companies, but

it is probable that most of them have suffered considerable losses, which have
been concealed by the existing inflation.
Letter of December 8


Suuestions concerning the_Renarations roblem
la Et aA long discussion of the general situation, the most interesting
part of which is a series of schedules indicating how the German indemnity
might be covered by international loans to be issued serially over a period
of years, annual payments to cover interest and amortization.

Complete can-

cellation of Inter-Allied debts is also recommended.
Balance of German Accounts
Annex 1623
Commercial Balance
While the commer1(9a1 balance has for two years shown a considerable


deficit, conditions have steadily improved and an equilibrium may be anticipated
in the near future.
representing Germany's balance:
The following table is

Surplus from exports (million gold
marks) Assets
if deliveries in kind
Value are exports
of not effected

Value of imports
Cost of Armies of



Exports by foreigners


Amounts spent by foreigners


Cost of Commissions


Amounts spent by
Armies of Occupation







Credit Balance



Taking in consideration reparations payments, the accounts for 1923 might
stand as follows:
(million gold marks)


Value of imports

Value of exports

Costs of the Armies of

Hidden exports
Sums expended by foreigners)

he troops)


Proceeds of the Recovery Act


Transportation of deliveries
in kind



Clearing offices

Reimbursement of bonds
handed over to Belgium




e largely to it of confidence.



ancing of the budget can be realized only

Germany's recovery and the consequent cessation

of the flight of capital.

Economic Effects of Deliveries in Kind

No. Gar 5/2D

Deliveries in kind and cash payments have absolutely identical
effects upon Germany's economic system.

Paris, 29 November 1922.
Conments on Toledo epeeoh o f Secretary Hoover .

ith the general proposition I am in entire agreement.


feel that the ueoollectible fraction of bre is set a little lay; 10 waald be
nearer my estimate. Hoover's views are supported by the analysis of our internetional aocount recently put together by dilliams, of which the latest
formulation is in the Tenth Special Lumber of the Manchester euardian Commercial eu plement. '41.111ans brings clearly to view the factors through

whioh an export exoess of nerohandise trade of practically 10 billion Dollars during the last four calendar years h s been -Aped out. I think Hoover
valid amplify a future aceiresa by laying stress on the fact that January,
1923, will see the United zitates practically relieved o f unfunded corner() lel
baareee due to us. ,1.3 a nation of traders, therefore, -se face the .sorld next
year without frozen credits or unliquidated aoeounts, a. d are in pol.tion to
make contra eta and commitments that ..vere not eossible so lore as ye had a
heavy unfunded comeercial bal 0108 duo to us.

I think more attention should bo relict to tho low state of political authority in Eerope. A certain country 'atilt today, in the opinion of
its everts, be in position to pay interest; but political authority is at so
los an ebb that any Cabinet attempting; to arrerge the blue-et on that basis,
secure the necessary revenue and curtail unessential expenditure, world et) to
the wall. This is due to the decedence of political conscience, and to the
exaggeration of bloc politic3. I think the present history of .urope illus-

trates that \vhen a nation commits political suicide it does so ta,rourh the mul-

tiplioity of political blocs.

The 3tatement that the interests due us represent in different
countries rm.) 2 to 12 of goverment income rests on a faith in the official
statements of eovernment tempo that I am not able to share. Budget ince= in
1-urope is a hodm-podge of direct, indirect and excise taxes; enneeolies; capital levies; internal loam; Treasury notes; paper reeney; and whatnots :lse.
ehenover a group of experts has attempted to analyse orjectively the national
income of any one of the states, analysis has been found impossible. The
experienoe of the recent Oasaission3 in Berlin, &tressed in the staple statement that the statistics and estimates were untrustworthy, holds for the majority of european countries. I have been unable to find eny Fre no n .4)o
can tell we that the national income of 2ranoe is. It seems to rat that a better p0 Ation is to say that no discussion of cancellation, postponement of interest or rate of payment can be undertaken until the interest and amortization charges are placed in an Ordinary Budget. Alen this has been done, our
Treasury will be in position to analyse the various items of income and ontfp
on the Ordinary budget and ele will be in position to determine shat peroontaee
of this national income is represented in our interest charges. nut tho present confusion between Ordinary end extraordinary Budgets, and the masking of
items of income and 011470, make hazardous any statement comparing the interest
duo us with the governmental income of the country in emst ion.

I venture to suggest that the illustration of our loaning

money to a foreign country, enabling that actuary to mice purchases in .jurope
zalci placing aurope in position to semi that money back to us in payment of 1-.:tt-

ropean interest, be amplified to include the possibility of quite the opposite
transaction. ror example, our losns to argentine have enabled her to sell

vie at to .urope on credit. no one can ssaestion that the volume of Gerrran tinports of argentine wheat last year were facilitated by amerionn loans to Ar-


he point in connection
neat and of great importance. One must
some of the tropical products oorse into
products. Thus tropical vegetabl e oil s

vegetable oils in the United States.

-,vith tropical products is very pertinot, however, overlook the fact that
in tens ive competition with doer st is
compete fiercely with animal fats and

I venture to suae;ost that one course of future payment of probably great irportarne hats been omitted, narsely, irports of petroleum. ,.e have
been a petroleum importing nation for Saversl years and with the exhaustion of
the mexico fields must look further abroad for increasins: .1ue.ntities. 'shether
these come from Canada, asia a:inor the ilast Indies or WI-erenot, imports of tetroleum will form an important item of payannt in our intoriastional account.
Of the pre-war investments of :urope abroad, estimated at 30
billion Dollars, apparently about h,lf remain. But this half is almost, entirely in Great Britain. It is necessary to view surope as separate from Great
one laoxi and fassia on
has never, of courses
been any ,Inost ion of British power to pay. hen Great Britain pays us 250 million Dollars a year, it means that she reduces new foreign investment by that
amount. It also probably means that le export this capital to foreign fields,
and the final transact Jon represents a transfer to us of British foroifai investments in that velure.

It is true that industrial and agricultural productivity in
aurope depords for restoration to the pre-war level on pea.ce in the political
and military sense and on that fluidity of comTercial intercourse that goes
with a normal peace. It is, however, neoessary to point out that with the present attitude of labor and capital on the Continent, productivity would not be
restored even thou peace, thus defined, were accomplished. Until a mid Ileof-the-road agreement is reached between labor snd capital in Germany, no restoration of .:.;uropean productivity is possible. One does not need to go to the

extreme position of Stinnes-t/nt stabilization of the msrk, cessation ..f in-

flation, a foreign loan, alai a complete moratorium on reparation payments , would
do Germany no .sood because in the eight hour day her workmen do only six hours

work--in order to evaluate the lowproduotivity that has followed the political and social upheaval of the revolution in Central ourope. The Diets hold
to less extent in neutral countries; they hold least of all in Prance, where
labor is efilo Lent and thrift unimzairod.

einally, it is necessary to lay stress on the fact that thrift

nas practically disappeared from countries having a sopulation of 100 million
people in Gentral and -astern Satrap°. This is the result of the axperienee that

money saved clop:seciates every day. It must therefore be spent for articles that
can be consumed or hoarded. ihether taxis psycholotat will disappear and the nor -

nal psycholo y of thrift retur ahen stabilization of currencies is aocompli3hed,

remains to bo 30021 Certairiy "blowing nonoy in'' will not be transformed

Into 'laying monoy up" in a day. <JX1 it !mist be reoalled that several millions young ING 'kers, the youths of from 17 to 23 years, have never knovn






7iiy dear Logic!):

Since writing you on November 20, I have been studying over yours of
October 27, iovember 13, 16, and 17. It's as interesting a batch of reports
as I have bad from you, and contain so much material for consideration that I
am a bit at a loss to know whether to write you at some length along the line

of some philosophical reflections or to wait until matters develop a little
more definitely.
Of one thing I am confident, and that is, there will be

some oretty definite developments in the near future in view of what appears
to be ?oincare's attitude aefore the French Legislature, on the one hand, in
his public statements and debates, and in what appears to be his private
attitude with regard to the German situation and reparations generally. Of
course, I an reading much between the lines, but. I should suppose that toayman
who is a student and who has intelligence of a high order, as I understand he
has, is bound in due time to encounter embarrassment when his own associates
;ive him convincing reports on such a matter as this and when he ubtless
develops a certain conviction himself which tecause of public opinion or because
of political considerations, he is not only unable to be guided by ttormoseopeo.,
44413otogto, but is unable even to voice then.
No one really can get away with

such a situation, and I would surmise that the British policy ofetrancluititf

would gradually lead Poincere into a position of isolation where be must choose
between the occupation of the fai_hr, on the one hand, and a moratorium as to
reparation payments, on the other hand.
It is absolutely certain from what I
read in the papers you rend me that there will he no payments of important. by
Germany, and it looks equally certain that there will be no iitinctione with
British authority.
Doubtless you Set my point as to the impasse which is
pound to develop for Poincare.
This is looking at matters from a distance
without all of the mental entanglements of local atmosphere.
None of the material produced by the Germans in support of their
contentions about the budget is convincing to ae that the budget difficulties
could not have been dealt with sometiae ago , and even can be dealt with now
if they have got. the courage to do what is required. The Fasci sti vernment
in Italy seems to have the courage, and if they can hold public confidence,
I will be surprised if you do not see some astonishing reeults there.

have read the draft of 3oyden's letter with a great deal of interest

It seems to be an attempt to find a method of developing a state of
mind in Germany for the porpose of diving the French Governvr.ent sufficient

courage to face their iolople with some sort of a moratorium proposal preparatory
to not only letting up on treaty payments, but possibly in time actually revising
some of the terms of the Treaty of Versailles. It is what you oight describe
as an extra legal approach to the subject. I A) not see any expressions is
his letter which violate the provisions of seawczal:coaf---the treaty as to what the
Reparations Commission should or should not do. But, on the other hand, there

seems to be no warrant of law in the treaty to justify the Reparations Commission
to call on the German Government to make a declaration of good intentions. Nhat
interested me in BoydenIs draft is the confidence which it furnishes of a
recognition by a conservative and thoughtful fellow, fairly well posted on the


Colonel Janes A. Logan, Jr.

December 1, 1922.



that Germany may have give; some justification in France for distrust of her warlike spirit or at any rate that the French have that distrust
whether justified by anything that Germany has done or not.
Finally, in regard to Bergmann's memorandum, I think the proposal
for e. foreign loan, coupled with the lies, of 501 million gold marks cf the

Peichebankts reserve should be looked u:nn in this way:

Plha: The budget can not be maintained in balance eermanently
so long as the mark continues further depreciation.
(.iE03rqD; The mark will continue further depreciation so long as the
budget is not balanced.

The budget might he balanced without a foreign loan if the
German Governeent had the courage tc cut to the bone.
FOURTH; In the absence of that coutra7e, a foreign loan may De
essential in order to arrest the depreciation in the mark and enable the
German Government to get a balanced budget, even though they have not the
courage to do it without a foreign loan.

FIFTH: Under these conitione, a foreign loan might De essential,
but should not he permitted except coupled with a plan, and adequate pledges,
that the budget will be readjusted in any event.
The point I make is this:
think Berginann's
argument about the
possibilities of stabilizing the mark are absolutely sound.
fund of the
size proposed would be effective for stabilization purposes, Out it you'd
only be effective permanently provided further depreciation of the earl( was
not brought about by further currency issues.

Unless pledgee respecting the budget can be eade sufficiently
definite and convincing to restore confidence at home and abroad, and unless
the projected program of Dudget balancing can be made actual and real, then
mark stabilization as proposed by a. loan and the use of eold will simply be
throwing away resources.
I tim not sure but what it would be safer to
attempt this prograa uTon a definite basis of retionieTwith foreign supervision
of the application of the proceods of any loan and of the rteichsbank's gold,
so that none of the funds could be used to make up budget deficiencies beyond
a certain stipulated amount to be used periodically and no more.
Failure to
carry out such a erogrem Ehould invoive actual defaults.
Defaults are matters of sentiment and degree, in a sense, an not
For instance, an arosolute
failure to pay interest and principal of the government debt would be the
worst kind of a default.
Cn the other hand, taxation of the interest of the
debt - as was done by Austria at one time after the war with Prussia, as I
recall - would not necessarily have so bad an effect.
the former expresses
a complete failure and breakdown; the latter is simply a confiscatory tax,
and all taxes are confiscatory anyway.
as serious as eentirreet, sometimes cakes them.

On the whole, my thought is that the best
course for Germany - had
they the strength to carry it out - would be to balance
the budget first and
stabilize the mark afterwards.
If that is not possible; in other words, if
it would involve serious social and political
consecuences, then the balancing






the budget would need to be predicated upon a loan and the use of gold,
ilkas proposed; but as I say, all interested parties should be protected by some
absolute control, even to the point of rationing


i will try and write you something further next week about this if
I have opportunity, and in order to do so will need to go over the paper&
once more.
With best regards to you and Boyden and Basil, I am,
Yours sincerely,

colonel James A. Logan, Jr.,
18 Rue de Tilsitt,
Paris, France.

JAMES A. i.-.GAN J R.
Paris, 16 rue de Tilsitt.
1 .'Jecember 1922


dear Ben,

I have just handed a letter of introduction to you
to Doctor ..lonzo Taylor who has been in Europe for the last three
months studying conditions. Taylor is a keen and able fellow and
I believe you will find it interesting to talk with him.

Confidentially, Hoover sent me a copy of his Toledo speech
I enclose herewith copy of a memorandum
and asked for comments,
which Dr. Taylor, who is an old friend of Hoover's, prepared and which
I don';jalow the internal
has certain points which may interest you.
if I were in
reasons which prompted Hoover to make his speech
his place I would have kept quiet and let Lellon do the talking.
In addition I have a hunch that any position taken at present will be
changed by new developments and the less talking indulged in at
present will be found least embarrassing in the future. While neitner
you nor I have exchanged views on this qaestion, I am pretty well
satisfied that our minds run in the same line.
Faithfully yours,
1 encl.

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





18 rue de Tilsitt.

Per so rza and Confidential.
dear Ben:-

There has peen no discussion within the Commission during the last week on the general reparation question or the programme for the

period following January 1, 1923, -.inch must be established before that date.
the :luestion has resolved itself into one of a purely political character anti
for the moment is being handed directly by the interested Goven.ments.

official note
Ger.rzn doverrrent (Cano's) in
handed to the Reparation Commis sion confirmed the pro:,o sal submitted by the
with our letter of Noveniber 16,
girth Gov e rnmnt hov emb er 14 ( See 2..7thiLit
1922) in the follo.,vinL; terms, viz: "In his speech on rovember 24 the Chan-

cellor" (nerr Cuno) "introduced the new Cabinet to the _Reichstag. 1-1e declared in the name of the German Government that the latter adopted without

reservation the views laid down in the note of roventer 14, and that it is
firmly resolved to abide by it a s well as to carry through the pro T,Yrne provided for in the said note. The Gerunn Government definitely reiterates to
the ileparat ion Commission by the se presents this declaration. The German
Government caLsi daring the econimical and financial situation of Germany asks
the Rep aration Comreiss ion at the same time to indicate its agreement to the
proy)o sal put forward in ...,12e note of November 14 with the least possible delay." The Cormfission has as ye t taken no acti on on titi. s renlue st and, in our
judgment, no action will be taken until after the conversations between the
Prime hinisters which it is now understood will be meld in Londcn. shortly.

Outside of the Commission the re has s been political activity on. the reparation Liz stion as between dovernments, though the situation remains nebulous due to the apparent desire of Sonar Law to delay any
announcement of Britishpolicy until after the situation at Lausanne is clarified. .2here are some that suspect Bomar Law's desire for delay has its in-

ception in the hoe that such delay will brinfj to a head the fallin' off of

confidence in Poi ncare in the 2renc h Parliament.

The Paris press on 1:overnaer 28 published a statement, obviously inspired by the -.0'rench Government, to the following effect:

"?or years there :nave been hopes that international acreellaents
vx.)uld put at end to the insufferaL,le state of affairs existing in
E'urope and that unity not only among the .;.Hies in Europe but also
the helpful coordination of l'unerican finance would result in serm:,aAy at least being put in a position to pay and then being forced
to pay


A. L.

aenjarain Strong - Personal and Confident.ial
".2hese hopes are dying out.

Page 2.

It would appear that the Decem-

ber conference which it is proposed to hold in Brussels will be the
last .e'rench attempt to arrive at a settlement by the aid of her 6.1lies and without undertaking any violent remedies of her own. The
zrench Governrx-nt is reaCy to consider favorably any plan which
without depriving Prance of the pledges for leer sec city (the occupation of the left bank of the Ridne, and the clause giving drance
the rieht to use military force to coerce Germany) will give her
reasonable prospect of being, paid something like one-helf of
Germany owes her on p:43e r for reparations.
"To secure such payments at least t; conditions must ne ful-

filled, and, unfortunately for e'rance, even her presnt leaders see
very little prospect of these being secured in. the near future. It

is known that Gerrxeny can not at present pay any azch sum or any
sum per annum which would be regarded as a satisfactory instalment.
"kiermaziy and al so Branca must, therefore, appeal to vorid el/ranee to come to their aid. World finance uould have to float such
loan as would not only stabilize file eark and help to set Germany
on her fee t, but would also provide the fir st annuities of Gernany
debt Allah that country can not be e: :pected to pay probably for a

periled of at least five years.

"The second condition which is inextricably involved with the
first and which at present seems eeeally remote from realization is

the total cancellation of all inter-Lllied war debts.
"Therefore it is possible to state on the very highest authority

that the erench ideal programme for the solution of the reparation
problem eould certainly take the folloeine shape:
control of e-erean finance, ac(a) .. severe inter
co:ilea:sled by an international loan, -.A. ch would be div ided
between Gerrnaw and Erance.

The sines allocated to Germany

would, -under .alied supervision, be used to stabilize the
enrk and to purchase such raw materials glad foodstuffs as

are necessary to enable Germany to pay her way.
(b) The elaintenance of all .orench riehts and privileges.
aaLainst Germany including the occupation of Gernan territory. The period of fifteen years for the occupat ion of
the Rhineland WOuld not count during the five years o f moratorium that it eould probab 3,y be found necessary to ;,ran t
to Germany.
(c) The continuation dur ing the moratorium of Ger :ran pay-

ments in kind destined for the devastated regions or, accord ing, to arrangements arrived at by the 2rench Government, for
important money-producing works in France, such as canals, electric power stations end railroads.
(d) The c*-acellation of all moneys owed by Zrance to her

allies for the purchase of ear stores, Prance in her turn agreeine tO cancel all such debts which she is owed by other
flied Powers."

Then followed the intiaeation of certain coercive measures
which 2 rance proposed taking "in the event of the Brussel s Conference being

J. A. L. Jr.

Benjamin Strong - Perscual and Oc.)mfidontial



"cancelled, orif the results of this Conference were not considered sufficiently satisfactory by the 2re rch Government, or main if the Brussels Conference
gave a mandate to z'rance to seize auarantees from Gerniaiv". 'Lie measures inti-

mated were:


The seizure forthwith by 2rasice of the entire civil

and e c onomic administration of that par t of the Rhineland
which is now het d by .hi'rance and from which all the Gerrran

civil authorities would be e4)elled.

:.:ensures which might be delayed if there were any

sins o f a possibility of a satisfacto ry solution, viz :

the occupation of about two-thirds of the Ruhr Basin. This

area vc uld include L'ssen and Loc hum.

The occupation would

be so devised that the 2re rch Government would be able to
obtain at once the uaratiti es of coal and smelting coke
,C.ich are claims d ao so lut ely necessary for Prance
ndust rie s.

The fore oink is a sumnary of reports appearing in practically all of the -Luropean press tNoveMber 28) following a fleeting in the .lysee Palace of Poincare, certain other members of the ?reach rdnistry, Barthou, Ilarshal

i'och , and Tirard , the lire nc h High Commissioner of the Rhineland. It appears that
on the evening of November 27 a group of 2rench newspaper correspondents called
on Poincare ard asked him for confirmation or dental of the report. ;le are in.forned that Poincare did not make any denial aril even confirmed the report as

being in substance an accurate presentation of his policy and purposes. ',./ithin

a few hours after publication, its effect was felt in the Paris Bourse, the franc
weakening not only in its relation to the dollar but also in its relation to the
pound. Simultaneously the German -lark. took a decided fall. These tvc results
apparently not anticipated and on the other hand not overly serious resulted in
the hasty calling together at the irolich 'oreign Office of the representatives
of the press, where a half hearted denial of the authenticity of the report was
authoritatively issued. The "denial" was to the effect "that the reports as published in the press of happenings in the Elyse° Palace on Novenioer 27 were filled with nany inexactitudes". The majority of the press, particularly after
Poincare 's previous oonfirniation of the report, declined to accept the "denial"
as beirg bona fide, and \thile some published it, they did so with every
Our judgment is th-t the report was desiamed to serve the purposes of a sort of .ererch "Balfour Note", Me latter was issued by the British

without the 'Knowledge of the french imzediately preceding the august, 1922, Conference of Prime Liinisters in London) and based on:
- 41 desire to definitely limit the premises and scope of the London taiversations of the Prime Tanis-

ters; Second - a desire to frighten German industrials with interests in the

Rhineland and Ruhr and thus assure the maximum of their support to any reparation
plan %hich inicp.t be developed; and Third - To force Bonar Law to an a6:reement

for an immediate consideration of the uestions either at London or a t Brussels.

Poincare is undoubtedly suspicious of Borax Law's ilatory tactics which may be

.ki.sastrous to Poinca re's political future and


J. A. L. Jr.Tos

Benjamin Strong - Personal and Confidential



It has just been announced that Bonar Law agrees to meeting
Poincare in. London to discuss the Tuestions of whether a Brussels Conference will
be held, and its programme if held. '.2hc:unis Las accepted. It is not yet known

if laissolini will attend. Poincare at first proposed to hold this meeting in
Paris the end of this '.veak. however, Bonar Law advised that it would not be possible for him to come to Paris until somewhere about December 15,
that "in
view of the french definite statement of position as indicated by the. semi-ofYicial press reports of november 28, he cculd see little purpose of such a meeting". Poincare countered by offering to ay to Loudon for the meeting the early
part of next week (commencing December 4). It is now understood that the meeting
will be :_eld about Decanter 10.
A now come to the question of li-et'aer Poincare is bluffing.
Obviously the r-rench position is honey-combed short-sighted politics, unsound economics, unrealities of all kinds, and is fundLnentally weak. Our judgment is that .'rance is certainly threa tening and actually preparing measures along the line indicated if no agt-eement is reached vith Great Britain at London
or elsewhere. Their attitude, ;Mile interpretated by some as intended merely
to bring pressure on other Powers, particularly Great Britain, and making all
possible allowances for such thou ht, is nevertheless not safe to rely on. Our

judonent is that Poincare is pretty determined to stend or fall by this policy.
The hopeful sign is that there is grave doubt as to whether he will succeed in
standing, but from a practical political point cif view his policy, like our old
"bloody shirt" politics, seems to be his only hope. 'irnether any agreement be-

tween 'raticie and .L'ne...:nd is possible appears likely to be determined by the approaching meeting of the i'rime Linisters in London. In our view and if it be
found that they agree on fixing a definite date for the Brussels Conference,
there is every prospect o f some sort of workable arrang.-2-a.-.:at tel...t-g reached.

On the other Land, and in the event of a failure of the London conversations, the policy which will actually be followed by trance depends
upon the support Poincare receives in the 2re2:012 Parliament. Rumors arc rife
a.n.t navaing in. 2rance to the effect that the Poinca re Government is about to fall.
however, in view of the general uncertainty of the situation we would not care
definitely subscribing to any much forecast.
The Belgians are gravely concerme by the present situation
according to Delaoroix and Bei:fill-x.3as, for if Poincare adopts his proposed policy
and forces coercive measures against Germany, Belgium, for internal political

reasons and as a measure of national economic safety against Dance, is practically forced to follow.
Bradbury, .;hen questioned informally, was ,_cite emphatic in
his denouncement of Poincare and his policies. In hid judgment, the conversations of the Prime Ministers in London will result as follows: Poincare will arrive in London with a programme following the lines of the inspired press reports.
ocording to Bradbury, Bonar Law's attitude will be that the British Government,
considering this program.-ie entirely unlikely of assuring any results, will neither accept it nor agree to participate in any of the proposed coercive measures.

J. A. L. Jr.

201 Benjamin Strong - Personal and Con_idential

Page 5.

La..v would decline to join in any Brussels Conference. This
.,ill either force - oincare to agree to considerinc; some z..lternative plan for
Jonse.:_uently, BO 21.'_

handling reparations gr, if unwilling to do so, to return to Paris and face the
situation alone and unsupported by the British before the wench Parliament.

In our judsmant, in the event of failure, of agreemait in London, and in the event of Poincare's policy being subse_T!uently supported by the
.L'ench Par lie:tent, Poincare will imnediately proceed with coercive measures which
can only be fruitless and even danLserous for the :'rench and .x;urepe generally.

A130 the resalts of Poincare's proposed line of action, if carried out, will
ranee certain important comuarci:l and financial priori ties in Germany
\,inich 11,L.y affect ..merican interests, for .i''rance, in the position which she
would then have (and possibly assisted by other nations), will virtually be
receiver of an ilLerican debtor with control of tariffs and trade activities
Of an important Ithaerican consulxr.
-2aith.fully yours,

The honorable Benjamin strong,
Governor, .2ederal Reserve Bank of New York,

1:ew York City.


Paris, 8 December 1922.

18 rue de Tilsitt.
4 dear Ben:I enclose :erewith copy of a study which has just been

lirepared by A:curiae ifrere, a very sound economist who is (Lie of the
...tep a rat ion Commission's Intelligence and :le search Division. It p re.cla-its a corcprehensive study of the reparation problem Iran the purely
objective and inter-:ailed point of view.

Part II, relating to the reparation

stion., -with its

-iscussions and proposals -.1hile is erhaps somewhat academic appears to

be based on sound premises, and it is well worth reading.

Part III, deal inz with the inter Allied debts, i s a re-

.ash of the many old xluropean arsurcents in support of the cancellation theory. Having a co;olete European slant in its treatment of the
cue stion it scarcely presents any real new contribution.
the the orie s and proposals contained in this do cument w ill
undoubtedly be under discussion during the meeting of the Prime Linistors, and also at the Brussels Conference, if hel:i , and I am therefore
sanding it to you as it occurs to me you Lt. y be interested to look it

The one merit of Part III, coin erning the inter-Allied debt ruestio:a, is that it gives in comprehensive form the general position of our
'European friends who are partisan to the cancellation theory.

faithfully yours,

The Honorable Benjamin Strorg,

dovernor, Federal ieserve Bank
of i;ew York,
New York City.

el s.

Paris, 18 rue de Tilsitt.
8 December 1922

Liy dear Ben,

There has been no discussion in the Commission during the last
The question is held in abeyance
week on the reparation programme f r 1923.
pending the outcome of the Prime Linisters' Yieeting in London, which begins
tomorrow December 9, 1922.
The German financial position continues to weaken from day to day.
In this connection the following figures are believed to be of interest as
portraying certain important indications of the present downward trend of

Floating Jeht.

Actual figures of discounted bills and increases as of the
dates indicated:


August 1922
September 1922
October 1922
November 1922

miscounted Bills;


331.3 billion


119.5 billion





Paper Currency Issue including Reichsbank Notes and Darlenkassenscheine.

Actual figures of total and increase as of the various dates


August 1922
September 1922
October 1922
November 1922



257.5 billion


172.7 billion


Notwithstanding the tremendous figure of paper currency issue as of November 23, 1922, and disregarding certain financial, economic and social
factors, it is interesting to note:


That the actual gold value of the entire issue

(The "Total" as of today has reached approximately 770 billion)


J. A. L. Jr.

To Governor Strong - Personal & Confidential.



would prevent German financial and economic rehabilitation.
It has now passed the fo::egoing phase and today
te lack of confidence rests on the question of whether
even with a sound Allied policy it is possible to prevent the catastrophe. Confidence is essential if any
outside or even real internal financial support is to
be expected.
The aacumulative depreciation constitutes a practically insurmountable obstacle to balancing the "Ordinary
Budget", it being impossible to increase taxation and public service charges fast enough to cover the growing Government expenditures on account of depreciation.

If it be impossible even to balance the "Ordinary
Budget", it makes all hope of bringing reparation and other
treaty charges within the compass of another and additional
balanced budget fantastic.
The social and economic effects of the constantly depreciating
value of the mark lead to:
Constant and disturbing changes in ownerships of
real values;
Wiping out the life-time savings and fixed income
values of important classes of German society;

Disburbances both within and without Germany incident to the spread between internal and external prices;
Social unrest incident to the efforts on the part of
Labor, partipally justified and partially unsound, to force
wages up with the spread between internal and external
prices, etc.

Had Germany followed a sounder financial policy from the time of the
Armistice to date, the impending crisis could have been postponed.
under the unsound policy which has been followed by the Allies the crisis would
only have been postponed a few months.
The Allied policy has, however, Liven
very little incentive to the Germl,ns to adopt and apply sound principles.
has encouraged extravagance in Government administration and encouraged the
export of capital.
It is not too late for the Allies to change their policy.
It is their duty to bring such pressure on Germany as will force sound administration on the part of that Government.
However, if the Allies continue their
present policy it can only give encouragement to such decline in public morals
and morale in Germany as will shake the very foundation upon which Government,
as we understand it, not only in Germany but -rrobably elsewhere in Lurope, is

Interest in the reparation question now centers in the meeting of the

J. A. L. Jr.

To Governor Strong - Personal & Confidential.


Prime Linisters in London. All are watching the political maneuvers
of Poincare and sonar Law preceding the meeting. So far as we can
gather neither of the gentlemen know exactly what is in the mind of
the other.
Rumors and reports of conversations from the Q.uai d'Orsay, some
obviously inspired, serve to confirm our previous reports of the present
decided stand of Poincar6. 1:.hat may be considered as the definite French platform, but which is not announced as constituting "a plan", is generally reported as follows:
1st.- No moratorium for Germany without surrender to the
allies of specific pledges, such as mines and forests;
2nd,- Germany indemnity to be only reduced on parallel lines
with the reduction of French and oher Allied debts;

3rd,- A revision of the percentages of German payments allocated ,to the Allied countries. At present France is entitled
She feels she ought to have more, especially if there is
to 52,j.
In other
an abandonment of a large part of the total credits.

words, this means that not only should England forego her credits
to France, but should release to the trench the thole, or a portion, of her share in German payments;
4th.- '+,,hen the voluntary default of Germany is clearly established, or the deliberate refusal of Germany to pay or to effect financial reforms at home, it is to be punished b: the application of sanctions, such as the deepening and prolongation of
Allied occupation, the drawing of the customs cordon around the
Ruhr, and the taking over of the general economic and administrative organization of the Rhineland.
The foregoing is approximately in line with the inspired report of the Elysee
Palace decision reported in the French press on November 28, and referred to
in our letter of December 1, with perhaps more emphasis on the "specific pledge"

On the other hand, Bonar Law has preserved an attitude of great
This attireticence as regard to his position during the approaching meeting.
tude has undoubtedly been disturbing to Poincare who, while not sanguine as to
the favorable outcothe of the meeting, and While apparently not anxious to lay
any concrete plan on the table at Londoh, is nevertheless desirous of the
London meeting constituting a real stepping-stone leading to the ''russels
Conference which latter Conference they sincerely hope will be held.
more general the conversation is at London, if it leads to a Brussels Conference, the more satisfied i'oincare will be. However, Poincare must reluctantly accept the fact taat the determination of ahether the Brussels Conference
is to be held rests in the hands of Bonar Law ; Poincare not only wishes to
push the reparation question but also the Allied debt question with it before
the aroposed Brussels Conference.
It is aplarent that 2oincare, in accordance

J. A. L. Jr.

To Governor Strong - Personal oa Confidential.


with his previously announced position of there being a difference between
the American foreign debt and the debt as between the Allies proper, would
prefer to limit the debt discussion to his thesis.
It is equally obvious
that the British, who fully appreciate the harmful effect on American opinion
of the "Balfour Note" on their position vis a vis America, are not anxious
to alone take the initiative in the reopening of the question on the basis
Bonar Law's recent parliamentary reference to the effect
of the Balfour Note.
that his Government "was not bound by the terms of the Balfour Note" only
constituted a half-hearted reserve as to future policy concerning the debt
question, which can therefore be assumed as "window-trimming" for American
On the other hand, if Poincare were to force the issue on
public opinion.
the debt question So insistently that Bonar Law could also "tag" him with
the responsibility for the reopening of the American phase of the question
Poincare, on the other hand, we feel
there are some who feel he would do so.
is fully alive to this possibility.
The outcome of the London meeting will be largely reported in the
press even before this letter reaches America, and therefore no useful purpose
appears to be served by attempting to forecast possible happenings.

Chancellor Cuno's press statement in Berlin on December 3, in
which he made a strong appeal for international trust in Germany's endeavor to
find a solution of the present world crisis, and for "open man-to-man dealings"
on the question, and the statement "it is imperative that we come to a clear
understanding with France", and "through ultimatums and threats France can obtain
nothing", and "we have obstacles to overcome which grow more and more gigantic
from lay to day" while making some impression outside of France, has not made
much impression on the French Government or French public. Nevertheless, in our
judgment, Cuno's statement was sound and a most useful purpose was accomplished by the statement itself.
From many eourees, including Ambassador Houghtoh,
we get the distinct impression of an honest desire on the part of Cuno to make
every concession possible to reach agreement with the French. We know that he
has been advised to submit new reparation proposals, including further and as
yet unconsidered concessions to the *ench.
Today's papers indicate that such
proposals have been formulated and that they will be presented to the Allied
Governments today. As yet we have no authentic indication of the details of the
new proposals.
As to Poincare's internal political position: the situation still
remains nebulous.
The fundamental weakness of Poincare's political position
is based more on his internal policies than on his handling of external questions, including the Gerlan reparation question. There is, however, a considerable and growing feeling that an unfavorable outcome of the London meeting
may be the "final straw which breaks the camel's back" insofar as Poincare's
tenure of political office is concerned.
However, we would still not care to
subscribe to tle view that Poincare's tenure of office will be terminated shortly and before real and lasting harm is done.
Faithfully yours,
The honorable Benjamin Strong,
Liovernor, Federal Reserve Bank,
 New York city.

44-4,- dr,

J. A. L. Jr.

P. S.


To Governor ''trong - Personal 6; Confidential.


The recent "Stettin, Passau and Ingolstadt Incident" where certain
Allied Lilitary Control officers were threatened and insulted by
the German crowd, all of which lead the Council of Altbassadors to
transmit a virtual ultimatum to the German Government on November
29, 1922, presents points of interest from its purely financial
This ultimatum, in addition to its demands for formal apology, requires the payment of a fine to the Allies of 1,000,000
gold marks by .Jecember 10, 1922, or in default of such payment by
the date indicated, the Mies propose taking the same sum out of
resources of the Bavarian Government now held in the Saar or RhineThe fine appears justified in itself.
land provinces.
hand, when Germany ownes billions that she can not pay, you do not
really get any more by imposing a fine than you would get anyway
in some other form. Also, the effect of the fine is to reduce
Germany's resources by ;6250,000, all of which goesto the Allies.



J. A. L. :r.


Dated December 9, 1922
Received 9:34 a.m.

Ieoretary of State,

512 December 9, 10 a.m.


;.iscellaneous reparation receipts November 18 to December 7,
dye- Stuffs 55,507, post and telegraph 255 francs credit Belgium.


A. L. Jr-.

To Governor Strong - Personal & Confidential.


"as partial cover for her American debt and at same
time cancelling all European ihterallied indebtedness
to her except so much as necessary over and above her
reparation credit to meet American bill.
Bradbury confidentially said British estimate
total reparation bill under Bonar Law's basis maximum
capacity approximately forty billion gold marks, 22p of
which is eight billion eight hundred million gold marks
or approximately two billion two hundred million dollars
which under proposed basis adjustment assuming British
indebtedness to ,,merica at approximately four billion
dollars would reduce all European interallied indebtedness
to Great Britain to approximately one billion eight hundred
million dollars.
Bonar Law also intimated willingness discuss
acceptance from any European Allies additional proportion
their distributive share German reparations in liquiaation
their debt to Great Britain, Bonar Law stated America not
involved in foregoing arrangement as Great Britain plans
continuing payment our debt simply using German and Allies
obligations as outside cover. .owever in event America
granting concessions to Great Britain on account latter's
debt he expressed willingness to credit Allies with any
resulting benefits.
Lussolini at this point intimated that Italy
forced to consider entire question from its practical aspects
and therefore Italian sympathy might have to be transferred
from France to Great Britain if latter in position to ameliorate conditions Italian debt.
FOURTH. Poincar6 then intimated Bonar Law's plan not
satisfactory and France in consequence nrobably forced act
Bonar Law in replying and after expressing sympathy
for France said the only alternative course would be for
Great Britain to simultaneously press France and other European Allies for payment debts.

At this point Conference reached deadlock.
However Bonar Law's plan which was only roughly outlined obviously needed further consideration. Poincare forced to be
in Paris this week to answer important interpellations in
French Parliament where atmosphere would be improved if no
definite break with Great Britain had occurred. Bonar Law
desired postpone any chance rupture until conclusion Lausanne
Therefore agreed that BOnar Law's outlined plan
would be put in definite shape and transmitted to various
Governments for study so that it could be considered January 2


J. A. L. Jr.

To Governor Strong - Personal 6.: Confidential.


"to which date meeting of Prime ilinisters adjourned.

Bradbury stated all deliberations London
calm, business-like and amicable. Poincare evidently
embarrassed by Bonar Law's urbanity and firmness.
Bradbury states Bonar Law probably forced to take some
exception press reports of Poincareis yersterday and today
utterances concerning happenings in London in British
Parliament Thursday to which Poincare may reply in French
Parliament Friday during his interpellation"

Faithfully yours,



Letter of December 13._1922
Cable report of London Conference of Premiers held December 9, 1922.
Letter of December 14


More detailed report of above Conference.

The following propositions

were made:

1. By M. Ppincare:

As condition of any reduction from Schedule of Payments of
May 5, 1921, (132 billion gold marks) British Government to
accept practically the entire French Share of German "C" Bonds,
to forego her "22%" share of reparations and cancel the French
debt to Great Britain.
2. By Mr. Bonar Law:

Great Britain to receive 22% of reparations when a figure
within Germany's capacity had been fixed and accepted, such
share to be reserved as partial cover for her American debt,
and all Allied indebtedness to her to be cancelled except that
portion necessary to meet her obligations to America.
This proposition was worked out concretely by Sir John Bradbury

40 billion g. m.
8.8 "
4.0 billion
$2.2 billion

British share 22%
British debt to United States
British share of reparations 8.8 billion g. m. or
Remainder to be prorated among Great Britain's
European debtors


$ 1.8 billion

This would reduce the debts to Groat Britain by over one-half.
3. Exhibit "A"
but not discussed:

The German proposition, presented by the British

Stabilization of marts and payment of reparation obligations
"of the coming years" by means of two loans:

1. An internal loan of 3 milliard gold marks, half for
stabilization and half for reparations.
2. A foreign loan of 3 milliard gold market particularly for
Bonds to be guaranteed by customs receipts.
Moratorium for two years from all cash payments and all deliveries
in kind which cannot be paid for out of the Budgetary surplus.
An additional year to be granted for each milliard of gold marks
paid to the Reparation Commission from the proceeds of the internal


Letter of December 22, 1922

Exhibit D
Germany and France.
The Financial Situation:
memorandum by Professor Jenks for the French Foreign Office.
Influential Germans state that while they expect to pay, they cannot
themselves until definite
pay the amount asked, and are unwilling to commit
...,hat France desires to
terms of payment are settled.
The German belief
France disavows such a desire, but
crush German industry creates hostility.
Germany asserts France has no grounds for
demands security against attack.
fear, provided she is willing for German industry to develop.

France needs and should receive as large reparations as Germany
Her present policy of meeting budget deficits by borrowing is
can pay.
The budget can be balanced
dangerous and cannot be continued indefini rely.
in only the following ways:
(a) By large German reparations.
from two to five years.

This is probably possible after

(b) By reduction of Governmental expenses.
possible here.

Not much saving is

(c) By increased taxation, particularly on agriculture.

While not one of the above would suffice alone, W a combination
of the three might be effective, and with foreign aid would be practicable.
Professor Jenks suggests: (a) Final settlement of reparations terms.

(b) International financial syndicate for loan to Germany to be
used largely for reparations payments, to tide France over a moratorium
during which Germany is getting into condition to continue her payments.
(c) Moral and financial support for France from the international
financial syndicate, to enable her to put her finances permanently in order.
This requires (1) stabilization of the franc on a gold basis, probably at
40 to 50 centimes gold and (2) increased taxation.


America would probably help, provided the outcome promises to be
It would be unwise for France or others:

(a) to suggest at this time cancellation or reduction of debts due
to the United States oe (b) to ask the American Government to make a loan
to France or Germany.
It would be wise for France to:

(a) make clear that she wants a final settlement with Germany on
fair terms, (b) grant Germany special discounts for prompt payments, (c)
agree to gradual withdrawal of troops in proportion to Germany' s payments,
If France
(d) increase her own taxes to help herself balance her budget,
would adopt some such policy, Americans will be glad to help.
Letter of December 23_,


Amended estimate of volume of currency now required in Germany.
to letter of December 8, 1922.


Paris, 18 rue de i2ilsitt.
14 -'ecember 1922.

-4 dear Ben,

There has been no discussion within the Commission during the
last week on the reparation arogramae for 1925. The question still rests
in suspense pending the decisio# of the Governments. The Prime ainisters
met in London December 9, 1922.
The meetings were adjourned De
reopen January 2, 1923.
Sir John Bradbury who was in London during the meeting of the
Prime ainisters as one of -r. Bonar Law's principal advisers has given us
confidentially and quite informally an account of happenings in London.
have already cabled a brief of Sir John's account to Washington.
Since cabling we have received certain additional information which is contained in
the following more detailed account.
Poincare at the opening of the meeting restatea his old thesis
concerning reparations; the precarious situation of irance's finances and the
necessity of rebuilding the devastated areas; the dishonest efforts of the
Germans to avoid payment; the necessity of bringing pressure to bear on German
industrials so as to make cash forthcoming; etc; and finally the necessity on
all the foregoing accounts of seizing and holding guarantees to assure eventual
payments, particularly in the event of any further moratorium in reparation payments being accorded. At the same time he advanced his ideas as to the co-relation
existing between the settlement of auropean Inter-Allied indebtedness and reparations.
understand he did not touch on the question of the American war debt
vis -a -vis its European debtors. As a primary condition to any reduction of the
total bill of damages as fixed by the Schedule of Payments of Lay 5, 1921 (i.e.
132 billion gold marks, represented by 12 billion A Bonds, 38 billion B Bonds,
and 82 billion C Bonds), he proposed that the British Goverbment accept practically the entire Trench share of C Bonds (52a of the 82 billion C bonds less
such aartion of the C bonds as represents Germany's Treaty liability for the
reparations totals of the Lx-Enemy Powers associated with her in the Great War)
which in accordance with figures of present value, following PoincarOs discount
formula, approximately tallied with the French debt to Great Britain. With
such chimeric factors of relative values, it apaears a pure waste of time to
further elucidate the arithmetic process employed by L. Poincare in arriving at
Poincare then intimated that he would expect
his foregoing conclusion.
In other words
Great Britain to forego her "2/u share" in future reparations.
and as a preliminary to any businesslike consideration of the reparation question, i:.. Poincare demanded that ureat Britain it not only cancel France's debt
obligations t her, but also renounce all participation in future reparation
benefits. he finally pushed for immediate consideration of the reparation and
European Inter Allied debt question before a Brussels Conference, stating, in


J. A. L. Jr.

To Governor Strong - Personal


Page 2.

general terms, that the French Government could not agree to any further
postponements of reparation payments unless security was actually in the
hands of the Allies and in the event of failure of Allied agreement he
reserved complete liberty of action for France.
Bonar Law replied by calmly stating, in effect, that the very
definite debt and reparation settlement plan exposed by Li, Poincare was
inacceptable, and that on this account he could see no useful purpose in
referring the matter to a Brussels Conference. Mr. Bonar Law went on to sly
that Great Britain, in order to pay her American debt, was forced to find some
cover either through reparations or debt settlements. Mr. Bonar Law then said,
in effect, that while having every sympathy with the unquestionable equitable
rights of France to complete reparations, Great Britain was nevertheless not
prepared to participate with France in applying any sanctions or other coerThe
cive measures against Germany on the basis of M. Poincare's thesis.
latter, in his opinion, obviously constituted a demand on Germany for the impossible, which would not only be fruitless of all benefits but even dangerous
of consequences.
Signor Mussolini at this point made a statement expressing "sincere
and cordial sympathy" with the Poincari thesis, with, however, the important
qualification that so far as Italy was concerned, it was not prepared to
become involved or participate in any coercive measures taken under it.

Mr. Bonar Law then made a statement to the effect that Great Britain
was prepared under certain conditions to join France in the enforcement of
appropriate sanctions against Germany in the event of the latter's default in
making reparations. His conditions were that a competent, expert body first
determine the maximum figure of reparations that Germany could pay, and that
this fiitire be unanimously accepted. On such a basis, he promised "shoulderto-shoulder" support with France in the event of German default, for under suth
conditions a default could only be 'koluntary and wilfull", in which event extreme measures were appropriate and necessary.
Subject to the foregoing, and with great caution and reserve,
Mr. Bonar Law then outlined his basis for adjustment of the Muropean InterHis outlined plan was on the following
Allied debt vis-a-vis Great Britain.
general lines:

1st.- Great 1ritain to receive 220 of reparations forthcoming from Germany under his reserve of fixing the
In this contotal bill within Germany's capacity.
nection, he said txreat Britain was willing to even
'discuss according certain priorities or aid to the
other Allies in actually realizing on their percentage share of reparations before demanding her 22p.
2nd.- Great Britain to lay aside her reparation share as
partial cover for her American debt, simultaneously
cancelling all liuropean Inter-Allied indebtedness
to her, except so much as necessary over and above



J. A. L. J^.

To Governor strong - Personal & Confidential.



her 22a, reparation share cover as necessary to meet
the American bill.

Sir John Bradbury confidentially said that the present British estimate of the
total reparation bill under Lr. Bonar Law's thesis of fixing such bill at the
aaximum capacity of Germany was approximately 40 billion gold marks. The British
share, or 22a, of this figure is 8.8 billion gold marks, or approximately 2.2
Under Tar. Bonar Law's proposed method of auropean Inter-Allied
billion dollars.
indebtedness adjustment, and assuming the British war indebtedness to America at
4 billion dollars, the total sum due Great Britain from all her European debtors
after the proposed adjustment would be reduced to 1.8 billion dollars prorated
In other words, and assuming France, Italy and Belgium, as the
amongst them.
principal beneficiaries under the Bonar Law plan, their respeotive debts to
Great Britain would be reduced by over one-half.
i.r, Bonar Law also intimated the willinaness of his Government to
discuss acceptance from any of the European Allies of portions of their newly
adjusted distributive share in German reparations in further partial or perhaps
even complete liquidation of their individual debts to Great Britain. LT, Bonar
Law finally suggested that in the event of Great Britain securing any as yet
unexpected beneficiary treatment on account of her debt to America, his Government was prepared to grant the allies their proportionate share in such benefits.

lar Bonar Law pointed out that America was not involved in the
foregoing arrangement as Great Dritain contemplated continuing liquidating her
American debt simply using the German reparation and Allied obligations as outIn other words, this plan constitutes the Bonar
side cover for such payments.
Law Government departure from the previous British Government position vis a vis
Great britain's ianerican debt as set forth in the Balfour note.
Signor -ussolini at this point stated, in effect, that Italy was
forced to consider the question from its practical aspects, and that he was
in consequence very much impressed by Mr. Bonar Law's outlined plan. On this account, and with great regret, he might find it necessary at most any moment to
transfer his heretofore expressed "Italian sympathy" for the French thesis to
the British thesis, provided Great Britain became actually in position to ameliorate the Italian debt position along the lines indicated. This essentially
practical statement caused some amusement.
The proceedings during the meetings were marked ba great calmness,
and particularly by the urbanity and extreme courteousness of Lr. Bonar Law
From what we gather, this atmosphere so difin his handling of L. Poincare.
ferent from the atmosphere previously encountered in meetings between the British
and French, was somewhat embarrass:Ing to -A61:Poincare. Mr. Bonar Law's attitude,
while polite and courteous, was nevertheless unmistakably tenacious and firm.
I. Poincare who has been doing so much threatening preceding the meeting was apparently somewhat nonplused by the situation as he found it, as there existed no
basis in the attitude of anyone for a quarrel attractive to publicopinion.

Poincare finally intimated that the Bonar Law plan was not satisfactory, and that France in consequence would probably be forced to act alone,

J. A. L.Jr.

To Governor Strong - Personal 6c Confidential.


Bonar Law, after expressing every sympathy for France, stated, in
effect, that the only alternative course for Great Britain under such
circumstances would be for the latter to simultaneously press France and the
other European Allies to commence payment on their debts to Great Britain,
as such payments were essential to Great Britain to meeting her American
At this point the Conference reached a deadlock which might have
been a definite rupture of negotiations. Such result was not desired by
Poincar6 or Mr. Bonar Law.
L. Poincare was forced to return to
Paris to answer interpellations in the French Parliament on December 15,
where the atmosphere would be improved if no rupture with Great Britain
had occured.
Bonar Las:, on the other hand, desired to postpone all
chance of rupture until after the conclusion of the Lausanne Conference.
As the Bonar Law plan which was only roughly outlined during the meeting
presented so many new features requiring detailed elaboration and study,
unanimous agreement was readily reached for the adjournment of the meetings
of the Prime Ministers to January 2, 1923, in Paris. Therefore, on January
2, 1923, the questions as originally posed in London on December 9 concerning
reparations and European Inter Allied indebtedness, together with the question
as to whether or not a Brussels Conference will be held, its scope, etc.,
arise in their original form.
We enclose as Exhibit A copy of-a communication from the German
Government prepared for the Prime ...iinisters' meeting of December 9 in London.
This document was presented to the meeting by the British, but in deference
to Ii. Poincare's attitude, it was not discussed in any detail notwithstanding
the desire on the part of the others for such discussion. It was not "thrown
out of the window" as alleged by the French Press.

The period of moratorium accorded Germany by the Reparatior Commission's
decision of March 21, 1922, expires January 1, 1923. Automatically, full pay ! :rents as provided in the Schedule of Payments of May 5, 1921, become obligatory
on Germany as for the year 1925.
The first payment due is 500 million gold
marks on January 15, 1923 ("1st auarterly Instalment of the fixed Annuity").
Whether agreement will be reacher. in Paris, or elsewhere, before January 15,
or whether France will breaa: with Great Britain and adopt an isolated policy
against Germany, remains to be seen.
The reported utterances of L. Poincare in the French press since the
London meeting, while still excessive in tone, nevertheless show some calming
of attitude.
This is particularly brought out by semi-official announcements
from the Quai d'Ursay to the effect that, "while
Poincare steadfastly stands
by his thesis of the necessity for seizure of important German security, he
has nevertheless not uefinitely determined whether a seizure or occupation
of the Ruhr is the nest under the circumstances". Partisans of the French
uovernment have made the attempt to _ive the public the impression that Mr.
Bonar Law actually agreed to the cancellation of the French debt "with no
strings tied to it"; that he porhaps "tacitly accepted the Poincar6 thesis
of guarantees"; that "anyhow British opposition to the French plan if carried

J. A. L. Jr.

To Governor 6trong - Personal & Confidential.



out would be passive and not positive", etc., whereas, the conditions of
-r. Bonar Law's outlined offer and statement of "support" included distinct reserves based on the future conduct of France's handling of Germany.
_r. Bonar Law is to day presenting his Government's position to the British
Following our information, he will take this occasion to publicParliament.
ly, though tactfully, correct these obviously false impressions. We are somewhat fearful that the present "calming of attitude" of 11. Poincare is dictated
by a desire to eliminate certain acute phases of the reparation question from
tomorrow's interpellation in the French Parliament, and therefore that it
does not necessarily imply any real chAnge of the "bloody shirt" policy of
handling Germany.

While French opinion is becoming educated to the realities of
the German situation, and the dangers incident to isolation and precipitate
action, it has not as yet become so deeply affected as to tie the hands of
Poincare before real damage is done. As stated before,
political weakness and vulnerability to attack today is primarily based on
parliamentary opposition to his internal political policies which are entirely
disconnected with external questions. The speech of 11. Clemenceau just
before sailing from America in which he took up the cudgels against L. Poincar6
in his demand to the French people for "Allied accord and agreement"; "the
futility and dangers of a Ruhr occupation"; etc., will have its effect on
French opinion, particularly as coming from one who had heretofore been represented in French public opinion as the antithesis of just such points of view.
however, 11. Clemenceau's influence in French parliamentary circles at the
moment is of questionable importance.
We have seen So many of these crises resolved, as it were by miraculous intervention, that we are far from predicting that Poincare will
take forcible measures, but if he does not, he must make a complete and ignominious "back-down". Under such circumstances one who "guesses" that Poincard
is going to back down takes a chance.
We are also impressed with the fact
tions of the past have taken the form of some
present crisis the foolish compromise and the
will be equally harmful. Any solution, to be
It must meet all the real needs of

that the miraculous intervenIn the
foolish compromise.
foolish militaristic perversity
useful, must be radical and
the situation.

Faithfully yours,
1 encl.

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

d/rait- °XI"




The accompanying tote is v basis for finding a clear solution
of the conomic and financial problems necessary to the salvation of
Germany and Lurope.
The present is not the moment for taking half measures. A definitive solution of the reparation problem must be found.
The German Government has resolvea to enter on this road. Up till now

there has been no time to send a definitive study; but in view of the
fact that the moratorium is about to end, it is our duty to make proposals.
This is why the annexed proposals are made to prepar( the ray,
Dr, Bergmann is in London to give all the necessary explanations.
German Government expresses its hope that these proposals will be a
suitable basis for pourparlers.

The German Government considers that a solution is urgent and
desires to collaborate pith all its power in seeking for one.
It considers
that to first thing to do is to bring about the stabilization of the mark
d an arrangement for the reparation indemnities for the coming years.
end the Government makes the following proposals:(1) 6 abilization of the mark, The German Government recalls the Lote
of ChancelloraVeirth, which Chancellor Cumo adopted in its general lines in
the speech made by him on entering on his duties. ',line awaiting the grant
of a foreign credit for stabilization, the German Government wishes to begin
the stabilization by its own efforts; only it cannot contemplate this unless
there are suitable arrangements for the payment of the coming reparations aid
unless it can pursue trade freely.
aeparatio0s, To replace the obligations of the coming years by a gold
loan to be issued in Gcrmary and abroad.
The tots 1 of the foreign loan will
serve for reparations, and one-half at least of the internal loan will be devoted to the stabilization of the mark,
The Government is ready to enter at
once into negotiations to put its ideas in practice.
The Government will grant
exemptions of taxes to those who subscribe to this loan, alth the object of
bri aging about a return of capital which has escaped to foreign countries; this
loan should be admitted to international markets; one-half of the loan will be
devoted to the deparation Commission and the other half, ei,L, one and a half
milliards of gold marks (4175,00a000), will be employed for stabilization
Of the mark,
At the seine time,that it issued this loan the Government would issue
abroad a loan of e.e. three milliard gold marks (11.154,o00,000, particularly
for reparations.
It undertakes to make the payment of the interest and of tale
amortization of these obligations.
Bit means of the issue of these two loans
the German Government asks to be freed from all payments imposed by the Treaty
of Versailles for two years, and also from all the deliveries in kind whieh
cannot be paid by the surplus of the Budget.
The internal loan would lead to the hope that the Budget might be
balanced, and consequently to payment in rind, The German Government would
ask that for each milliard of gold marks paid to the leparation Commission on
the produce of the internal loan thorn shonld be a new year of moratorium,
The gold bonds transmitted to the Reparetion Commisebn
would be auaranteed by the 1:-..;ripts of the ee-1,-ae. '-4 1-rnild rank before

all thv cbliaatians of Gemara resulting from the Treaty,


Dated December 22, 1922
Rood. 6L36 p.m.


Gecretar:,, of jtate,
Washinc ton, J.


538, December 22, 6 p.m.
B 613.

Commission received German treasury bills credit Belgium

52 million gold marks payable June 15th, 1923, compliance Commission
decision 31st August.

Difference this sum and 60 million due December

15th covered ty other credits.
BO YD:21




ti R.

Paris, 22 Decenber 1922.

18 rue de Tilsitt

Persenal and Confidential.
12y dear Bens-

There has been no discussion within the °omission during the
last week on the reparation programa for 1923. lie are infor123d by Sir John
Bradbury that there was a gentl emn' s under standing at the clove of the London

meting (December 12, 1922) between Li. Poincare and Ex..: Boilar Law to the effect

that their respective Delegates on the Commission would avoid all discussions
on controversial subjects whi ch might lead to divi sion %.1. thin the Omni ss ion
until a.fter the next meeting of the Prim Lanisters in Paris on Jaluary 2, 1923.

aside from the all-important Question of fixing the reparation

programme for 1923 there are two other inportan t and montroversial ,luestions
p end ing , viz :

Action: by the Comiss ion on;

Gerl:lany's failure to completely meet demands


eerIzny's failuit to meet demands for timber

for coal chwinv the year 1922; and
dur in ;4

the year 1922.

as previously reported , these two ,:ruestions are in such position that it pushed must lead the Separation Corsnission to formally report in: to the Allied 'Joy ern:outs these failures of Germany as "defaults" under Par. 17, ',Annex II, Part
VIII, of the Treaty. LI. Poincare has consistently held that Prance, or any of
the other Allies, in the event of a foriael report of "default" has complete and
individual right to determine and carry out the 'measures necessary in the cireurnstences".

On the other hand, tie British thesis in the past has been that

"measures" ta-Aen under Par . 18, Annex II, Part VIII, reciuize agreement of the
Allies before becoming operative . In. our om judL;ment the legal. premises of the
uest ion are debataa e but not of much practical importance in view of M. Point

care's very defini to stand.

Sir John Bradbury tells us that he has just received a message

frau Li. Barthou to the effect that Prance may be forced to push the ,,Luest ions of

failure to meet the °omission's deroands for coke and timber at a for-

mal Reparation Commission meeting before Deoenber 31, 1922. Sir John is distu ed by this message not knowing; its significance , s.rti cular 4r as
Barthou in-

dicate, his pushing of the cluestion was on the initiative of Li. Poincaro, and
ti_erefore from its superficial aspect opposed to the gentleLen's understand. ng

S J. A. L. Jr.

uovernor Strong - Personz..1 and Confidential



LI. Delacroix is more surprised fn.= Sir John and has been trying to
find out from the 2re rch lAtiat it means , but so far -,without results. Vie, on the
oth hand, are not particularly disturbed for even if the COMIllission be forced
by Li. Barthou to MVO rt a "default", the Commission has the opnortunit y of taic ing
advantage of tar. 17, annex II, cart VIII, of the Treaty which prov ides that the
in London.

Commission -.then so reporting to the interested Powers "may make such reccumendations as to the action to be taken in consei.uence of such default as it rcklr think
necessary". Ls a condition to ag-r4ena1 t to reporting a "default", M. Barthou may

well be forced to join in the '!recommendations" which would leave little but a
technical. in position for Li. Poinca;re. The facts are that at the time the

demands were made on Gerzaw for b cnlp coal and timber the COM:J.S s LAI it sbl f was
convinced that the German Goverment was not in a po sit inn to meet the dein; -iris

and th, t a technical reToort of "default" was the only possible outcome.


sac h circumstances what harm oan there now be by so reporting and incl. Ind Ia"; in

the "reccrapenciations" the history of the incidents?

lio-..vever, the somewhat precipitate .D.einh act ion in pushing for a "default" before the January 2 meeting is somewhat disconcertirk; in that this action almo st immediately followed a confidential conversation between Lord Derby
amounted in the French
of the present Brit ish Linistrzi- and IL. Poincare which
pre ss as "satisfact ory". she zuest ion no-.v r a iced i is whet the co nversat io n was
"sati sfactory" aril if not what does tido new rre2ch act ion portend? 4;.ccorciing to
Potn care was not only for the purpo se
Sir John Bradb ur y, Lo rd Derby s v is it to
of exploring t he field with a view to finding a basis for conciliation of r'raia coBritish views befoi the January 2 meeting, but also for the purpose of correcting
been :Treading r .arding his personal
certain impressions which M. Poincare
Poincare was r.,:ported as stating
conversations with 1,:r Bonar Law in London.
concerning his conversat ions -it h Lir. Sonar Law that the latter had intimated that
as the Brit ish r,rliament would not be in session daring i he period of the app-.
machine -earls conversations of the Prime Ministers he intended accord. ng 11. Poincare the L;reatest possible liberty in handling the German situation, so that French action might be a "fait accoutpli" before embarrassing quest inns could be mised in the British Parlik...ment. Sir John Bradbury said tlat Mr. Boner Law was diswithout founda,ion in ±hot.
turbed by this story which

Decerber 15, fin. Foincare in a long speech defined his atOn Pride
titude dnring Parliamentary interpellatinns on the conduct ca affairs b;,.- his Ministry. As a result Poincare received a vote of confidence of 485 votes arninst

66---in other words, a most sati seaot or y Lajo rity. LI. Po incare s speech was ina rkedly more moderate in tone in the treatment of the German cluestion than iiiny heretofore made by him. He \\us eulej.stic in his tribute to the conciliatorzT attitude
of the new British Jeverment; pronounced in his criticism of the attitude of the
Lierrpans and the German, Government; and laid particular emphasis on the relation
advances, t o Attire rep aration payo f interallied debts , irir1 uding ALierica
stated in effect that r'rance .s willing to hand over her German repaments. He
ration C bonds in settlement o. f er indebtedness to i-reat Britain and the United
aftermath to such adjustment all
Alt the smile time he sugested as
indennity by cancelling German
join in oaasidering a reduction of the Ger=
Bonds then held by each. He went on to say that after s uch sacrifice by Prance in
surrenderinc: its 0 Bonds in settlement o f its debts, Prance could make no further
reduction of the sum then1 eft due her by Germany, or grant concessions concern



J. A. L. Jr.
woul d


Governor Strong - Persorrl and Confidential



iority in payment accorded by the A. and B CI-err:am Ileparation bonds she
viossia. hold. He Sa id that , zYance needing money w ithout delay, it was

in the interests of not only the Gernans but of the entire world to see that


maw' s debt as represented by the A and B reparation bonds be covered as soon as
possible by loans both within aaad without Gerhary. He supported the views in the
sy L:essrs. .irand, Cassel, Jenks. and
G-e2.-lians' Experts Committee's report
Keynes, to the effect that the is A may be stabilized by Gerran jevernment action
alone and without recourse to outside loans for the purpose. 1-I.e advocated the
jue,Pui ate institution of a stona. iii9.ncial control of Germany. lie int imated ,
without details, that important concessions c oncer fling reparations m d interal lied debts had been made by the new British Government and that these would be
further discussed in Paris on January 2. He finally concluded with a general

statement to the effect that "we sincerely desire the joint seloport of our Allies

in any measures to be undertaken, and vve are doing everything possible to obtain .
such support. We would feel great ret-;ret if forced to take measures, independent
of our Allies, but in any event, the would never do anything that was not in the
y forced to instal engineers and customs agents
comeon inteVei-eIf we are
in various parts of Garl.-aw, 2rance will always reserve places for en:.;ineers
es. ,iranee spontaneou sly ask s for part is ipat
and customs agents of her
by her friends in any measure in . :hich she is forced to take the initiative .

x'rance insists tlat she is not guided by air military motives , or by cry motives
or desigms fo r gaining additional territory."
The foregoing are the aselient points of Li. l'oincare's speech. It is
of interest to refer to so much of his statemint as deals with "engineers and
custom agents" instead of past references to "military occupation". Obviously,
tie use of the terms "engineers and customs agents" is calmer in tone than "military occupati_n". Hover, it is difficult to understand exactly \that the term
ineers and customs agents" really means, and Wirether in certain contingc ncies
it might not lead to military support which in the end is "military occupati n".

ad previously

l'oincare received a unanimous vote of coafidence in the ire nch
Senate on the 21st instant .;hen answering the interpellations of the Senate on

stion of repabankers. "It
of the :Repa-

ds and ruined
alk of a moraGermaw profit

erefore it is

tiermaay might
s on my loans



will permit it to
r Law Governrning inter-Al, he stated "Vie
are divergeno discord. We

J. A. L. Jr


Goverao Stae no, - Per nal and Coaildent ial



will keep strong the ties that bind us -ahich are not only those of brothers in
arms but tho es which are born of the sane faith, liberty and justice."

Delacroix, while info_ ally discussing, the illoortance to be attached
to the great vote of 0311f ideuce Li. Poincare received in. the rye ezmh aarliameat,
expressed the opinion that it had no sianificance, other tan the desire on the
part of parliamantary leaders to give Li. 1-oincare free hand in the negotiations
opening on January 2 in Paris. He pointed out that Li. Poincare in this particular vote of confidence was supported b; French political leaders whose opposition
to h. personally and to the latter Is policies was a well establi shed fact .
In L. Delacroix' judament, the calming tone of L. lincare's speech and particularly that po rt ion substituting "engineers and cue toms agents " for "military occuaation" indicated that a temporary as between Li. Poincare and the other
parliamentary leaders aad preceded the meeting of the French l'enliament While
we would not definitely eubscrLe to Delacroix' views they are nevertheless of
interest as corning froi ono ,.vho has had so much iuropean parliamentary experience.


There are :sang reports being circulated in the French press to the effect
that a bas; s of compromise lady be reached o.n January 2 providing for a two-year
moratorium to Gerile.ny, on the condition that the German Government: (a) sulaAt
its finances to Allied control and institute such reforms as Allied experts deem
indispensabl e; (b ) rai se a forced internal go 1 d loan to be applied to the stab ilizat ion of the mark; and (c) consent to the Allies taking over state mines and
forests in the occupied territory, as well as he customs lace ipts as guarantees.
These reports intimate tint zranee is willina bo aaive immediate occupation of the
auhr on condition. that Great Britain consents to its seizure in the event of Germany failing to conply with the foregoing conditiOns of ataoratoriare. The repo rts
Jaoincare while perhaps
int imate tint a 'minor difficulty.' to be overcome is that
agreeing to a moratorium for cas hp ayments, is anxious that aernany should be obliged to cant inue payments in kind. The Brit ish have heretofore felt that the
moratorium should be co mplet , whereas the French, while probably will in.; to consent to a scaling down of deliveries in kind, are nevertheless insistent that Germany maintain substantial, deliveries. Obviously this reported plan of compromise
is also predicated on an ad jastment of interallied debts. It is not as yet clear
whether the Fre rah are prepared to accept the Boner Law's debt adjustment plan
with the conditions as outlined during the recent lonaan conversations of Prime
lanisters l See our letter of December 14, 1922)
In connect ion with the general nanst pen of "Ta.kin over State Lines and
arat ion i yment s " , at fel-Ai° n
e'o rest s in the Occupied Territory as Guarantees for
is invited to Exhibit A herewith. This Inemorandttm is a confidential one handed to
us by the German Government's representative in Paris, and purports to show the
political rather than the financial aims of the proposed taking; over of State
mines and forests in the Occupied Territora. It is obviously biased and was uneuestion.ably handed us forpropagauua purpose. However, it has special points
o f interest on \Ifni c h aoefount

ve traa =It it.

I., copy of a. speech made by Dr. Heraes, the
We also enclose as
German Finance Laid ster , on December 7, concerning the Gereao. Budget and ,:-teparations. In our judament, his speech is of particular interest as pOrtrayinc the
'difficulties of the German Governaent vis-a-vis its budgetary position.

J. A. L. J r




Enclosed as exhibit C is a copy of the ',Italian J.-overment 's
t ion all d Debt :r'1 sites as presented to the Allied

Ministers in Londe

9, 1922" as printed in the public press. his plan is interesting to u:;
ing Signor Lussolini's attitude conoerning Europe's debt to America, an
views as to the oor-nection of this cirest ion with that of -reparations.
noted that this plan follows in its broad lines the original Poincare
would not venture an expression of opinion as to whether this is the present
titude of the Italian government . It may be that this manoranA=.1 was the e:.
sion of Italy's "sincere and cordial -rmi..),y with the loincare thesis" at

beginning of the London calference on. December 9 (See page 2, our letter of _
ember 14, 1922). On the other :Lian' , it may have been put aside when Signor L'.ussalini , after having listened to . Bon ar Law' s proposals in London, indicated
the possibility of a transfer of "Italian sympathy" from 'Prance to :._ireat Britain
(See p an7e 3 o f our sarae letter) .

...;:aclosed as Lxhibit D is a, confidential memorandum prepared by Profes'ffice on the "Pinancial Situauor Jenks for Li. Seydoux of the 1.rench

:landed us quite informlCopy of this memo
ly by Professor Jerics. It has points of interest as showing the difficulties of
the Prenah -c.-adgeta,ry oo d.tion and the connection of the latter with the reparation clue stion. fee .i..rench for woo a reasons are no little concerned with their
budgetary difficulties, and the very serious condition of aflai xs tomrds which
their public finance is headed. 'While as yet there is no real indication of falling off in confidence on the part of the r'renchpeople in their Goverment's fiscal admini stra.tion, there are neverthel ess ind ications of uneas iness. They are
still dreaming, but uneasily, that interallied indebtedness will be cancelled,
that some means will be found for the stabilization of the value of the franc,
tion: ,iealaany and .1..r...nce".

and t hat through some development of "international economic s olidarity" some
so3a3me the details of which are not clear will be fc..und by which the relation
of the frarn, dollar and pound, will be pelted. All the foregoing without the

aeces >i ty o f higher taxation, sacrifice of political po si bons and views , etc .,
In ce..tain qua,rters there are indications of plans L eing formulated for the export o f capital, i.e., particularly the des ire of convert in frame holdings into
pounds ana dollars. Lone of these sins are as yet in axe way alarming.
tney all ::aVe a certain importance and significance in relation to present r'rench

lee wildest reports as to "the innerican Government's interest in the
reparation .irestion", the possibility of "ignerican bankers granting the most fantastic( loans to Gemal-v", etc., appeared in the American-European press about
Decer.iier 15. :hese reports were at once taken Up by the European pres_; and widely heralded zo 2 several days. The absurdity and nonsense of it all did not make
itself felt abroad until about the 20th, when the fallaay of the reports was finally realized by the public. We are informed by American newspaper men that L.
Poincare sent f or than and in e ffeot declared that "krance would not aoce-pt any
new plan inv olv ing the evacuation o f the Rhineland in the near future , no r any
change in the p rovisions of the Versailles Treaty which calls for at least 15 years
of occupation". 'When speaking of the reported Atserica,n plan for a loan to German-

y, he is reported to have said, in effect:

"Yale plan reported in the Paris pres.: appears to come
from Geraany to r'rance v is Lew York. Leither the ?renoh


J. A. L. Jr.


Governor Strong - ersonal and Confidential

Pag 6.

"Eebassy at Washington nor the .iimricen Embassy
at Paris knows anything ab out ':he propo sal s."

leader is considered as being a quasi governmental utterance
cone out under the heading "rot ."e'reat Conferenoe" -eith the statement tint:

The "Temps" who

new flock of .emerican. projects
slighted upon
the somber pond of t:re reparations problem. In vain
has the learned correspondent of the London Lbrning Post
cabled from ashington that all these news reports are

"They continue to recount in all seriousness that the
government of the united States is going to propose to
remake the Treaty of Versailles , t o evacuate terri to ries
On the Rhine, to seuuce the German debt, and to take from
the lullies the lien they possess on the resoe-ces of the
jerlinn state, in consideration for which the .;Hies will
be asked not to demand a. remission of their debts to the
United States, and the Liisricau bar.ker3 will te=e one or
two little loans to Germany.
"The :.reduct of these loans i is to be held sacred above
everything el se for the purchase of various F-'oo ds in kierica,
to the end that the Ameri can elector s s hall be content . These.
inventions would be more suitable to the days of Lardi Gras
an tho se whi ch precede Christmas. They would exc ite then

a fresh 7.3s.Setz,r, even if some of their implications did not
leave a bitter taste.
"The United States did not ratify the Treaty of Versailles,
and it was in oppodtien to that treaty that the President was
elected. The United States signed a separate petece with Ger£t does not wish to abandon its credits to the Allies.


".le do not pass juci_;ment .1.4Ton this policy; we relate it
eerely. But we state at the alme time that the present Government of the United States can not change its pulioy without
disavowing its own course, and exposing itself to serious em-

barrassment at 'name.

"If the Government participated in a conference on re-oarations,

the Allies could not ask it to sign the political clauses of the

Versailles Treaty, to ratify the r'ranc o-rzler loci Pact, nor to
abandon its war loans. 'Aiat role then would the emerican delegates be forced to play?
"l:ot being in a situation to bring forth any nay policy,
they could do no more than patronize the prcurams of bankers
and priVa':0 enterprise The adversaries of the admini strat ion

would accuse them quickly Of beaming involved in entanf:_lersents

and sacrificing the general interest of the people to particular ones. .

n too many conferences. The b're h public

If it were prQ o sed to enlarge the forthcoming

might finish by wishing .t ie:t there were no

until 'after she had acted.,

C+0 V..

2X) r Str an s

i'ersond. and Confidential


Zrie result of all the f or (coin:7 was a strengthening in the Gernan Lark, the
ireilch Ira , and other continental cur2c,nci , winch strength rapidly eva: orated when the fallacy of the r ipo its vas appreciated

The Hono ra11 e re Wallin St r on;,
Lrovern) r o f the red er a.1 reserve Bari= of -iloew York,

lbw York City.



23 Deco Mber 122.

18 rue de Tilsit-b.
1,:y dear zens-

I wish to 1efer to riv letter of December 8, 1i.;22,
Paragraph III, Page 2; in which I presented certain calculations as to the

aLproximate currency needs of Germny based on figures of the pre-war currency issue. I now find that the pre-war basic figures which I used were
incorrect as they only included tteichsbank 1,10 te s and Darle nka s se nsche


The other nobs issues, plus the gold and silver coin in circulation, give
a total of the monetary circulation of Gerrrairj preceding the aar of about

5,500,000,000 rfark.s at par, equivalent to approximately 41,375,000,000.

Paragraph III, as mouified, should therefore read as follows:

This amount at apwoul d be
he internal purtwice its e xcl,ange

" III. Just preceding the Great Jar Germany actually
had for day-to-day needs a total monetary circulation (not

in clud in metal ore serve s against note i s sues) of ab out
5 ,500 9000 ,000 marks at par, equivalent to

e currency reduirerxnts as result, of loss of territory,

and commerce is :generally accepted outside of Germany as being 12io which would reduce the f iLure of to
requi remants on a pre -:gar basis to say 4,500,000,000 gold

alf to get an idea of
We arrive, thsrefo re ,
per marks that Geriness needs.
cademic in that it
conomic and social
actual deficiency
irculating medium
ed at a rather de f erae and industry.
t in spite of the
ndoubted fact that
ck of circulating

erve to further eLphasise

y yours,

R.C.Minutes No. 343

26.12.22 - 2306.

2306. - DEiIVERIJi OF TILIBM IN 1922 (Annex 1666 gh),
The CHAIRMAN, on behalf of the French Delegation,


requested the Commission to note officially a default by Germany.
Sir John BRADBURY understood that the Chairman


was referring to the report (annex 1665 b) which had been
signed by the French ,Member of the idanagin Bo .2,rd of the
Sir John BRADBU' did not ciuite understand why

. KO

the Prerath Government's demand had t.;ken this form.


Services of the Commission were primarily interallied,

although it was true that the Delegations had a call on a

certain portion of the t i e of the ::embers of the services.
He supposed that the document in question had been signed


Boris, acting primarily as an official of the French


It appeared to him very strange that the

question should have been raised. primarily, not in the

Commission itself, but in a sense behind its back, in one of

its services.

The CI-L.P.:a:1.Z ex,-)ressed his surprise at the lston-

islunent shown by Sir John Bradbury,

On frequent occasions

he had anoken to the Commission of Germany 's default in the

execution of the deliveries of timber and had announced that

ho reserved. the right of having the matter shortly placed on
the Commission's ;::;end.a.

He had therefore the right to be

surprised that this question of procedure should be raised

at that meetin.

In point of fact, if Sir John Bradbury had

co WA dared the procedure adopted ty


French Delegation

irregular, he might have drawn attention to it a month

earlier. The Commission would then have considered the
procedure; either it would have regarded itself properly
inferred o f the questi on

or the Chairman would have brow ht

it before i t. He therefore did. no t accept the expressions
employed by Sir John Bradbury since he was convinced that

he had acted throuchout the affair as was always his custom

with irreproachable loyalty.

In any case, ard whether the re

',zero or were not any difficulty in regard to Irocedeam, he
now, as heal of the French Delegation brought o fficially
before the Commission the quastion of Germany's default.

Sir John 3::',AD311111 did not in the least dispute the

Frenoh Delegate's right to raise the vestion in the Commission.
ale Chairman had. on several occasions referred to his intention

to raise the qinstion, aril on sash of those occasions Sir John
BRADBURY had not only atnitted. the Fremh Goverrment's right

to bring it befo re the Commission, but had sat d that it was a
-oart of a larger crkestion of very great importance for France;

indeed, it was largely owing to his r3 resentations teat the
present meeting had been held somewhat eLrlier than mid at have

othemise been the case.

The grounds of his objection he would

explain later; mearahile, he a,cce,fted the situation that the
French Delegate had at that meeting rat sea the qtestion whetA3r

or not rl errnaiv had carried out her obligations for 1922.


The CHAIllia noted in consequence that as

Sir John Bradbury himself admitted, he had on several
occasions brolght the question before the Commission

o 'ficially and unofficially. The Commission had moreover
given a _wring to the German Government in the first
place an the programme of timber deliveries for 1922 and the

programme of coal deliveries for the current quarter, and

subsequently in a special hearing on the question of default.
These were the facts o f the case aid. :ferr Fischer, when

interrogated at the first hearing on the question of timber,
had replied that he had no manlate to give an answer concerning

the deficits in the deliveries for 1222.


hearing took place on the special question of the deficits.

It was therefore of no object to argia further on the
regularity of the procedure which could not be caned
in question and the CHAIRMAN noted, in agreement with Sir

John Bradbury, that the Commission was not regularly informed

of te question o f default.
Sir John BRADBIJIt pointed out that in all rfnestions


of judicial procedure the element of form was of exceptional

importance and for that reason he had raised it on that

de agroed that the German Delegation had. been

given a 'fearing on the unsatisfactory execution of the timber

deliveries for 1922,

It had not, however, been heard on

tthe question whether the unsatisfactory execution of those

deliveries constituted a failure by Germany to carry out her
Treaty obligations.

.,henever in the course of the meetin5-13

on the subject Sir John BAADBUHY had heard the word "manciuementit

he had always protested against its use on that occasion.


Commission was in possession of suffic cent evidence to
pronounce on the German Government's culnability in the

matter withoulT its being incessary to hear the Gentians
again on the question whether the German Goverment was

guilty of a default as contemplated by paragraph 17 of Annex


Ho was perfectly ready to address his mind to the

question on t're formal demand which reached the Commission

that day.

Ate MIAMIAN was pleased to note this agreement

for he would have protested had Sir John Bradbury invited
the Commission to g'ilre a fresh hearing to the German


Turning to the substance of the cluestion the

CHAIRMAN recalled the figures.

french order, dated

March 31st 1922, included a supply of 55,000 cubic metres

of sawn tinter which Germany undertook to deliver before Sept,
30th 1922,

On November 30th the French Services had

received 31,440 cubio Metros, and as accurate a calculation
as possible for the period from December lst to December

15th justified an estimate of 35,000 cubic metres for the

total deliveries up to Dec. 15th.

In the case of the

telegraph poles, Germany should have delivered 200,000 by
November 30;

the deliveries up to that date tanounted to

58,352, or 65,000 by December 15th.

Mese wore the facts

of the case as shown by definite fi;,uxes.

Without reoognis-

the discussions which had taken place in the S.14R,IC,
a v1 the Commission the CIDaillid.LN stated definitely that them

had been no force nnjeure to explain or justify the situation,
For this reason ho ap pc aled to the terns of paragra,hs 17
and 18 of Annex II ard recliEstod the Commission to note
Germany's default.



Sir John 131-1AD31511Y accepted the Chairman's fi,;ures which

agreed substantially, if not exactly, with those in his

The qtestion, however, arose wuet,Lor the dellw

in executing the deliveries of timber in accorclarne with tne
orders of the Commission constituted. a default as contemplated
by paragraph III 17 of Annasc II.

Germany ts obli;.;ations to male

deliveries in kind during 1922 flowed primarily from the
Treaty and. the Schedule of Payments, but these obli;:ations

hail been precisely defined and conditioned by the
Con-missionts decision of Liarch 21st 1922.

Iv that decision

..-ennany was required to male deliveries in kind;


equivalent in goods of 1,450,000,000 gold. marks, of which

950,000,000 shall be delivered to Franco and 500,000,000

to the other Allies in so far as France or the other
Allied Powers, or their respective Nationals, may call for
sucit deliveries under the procedure of the Treaty or any
procedure svproved by the reparation Coramission."


seemed probable that the figures of 500,000,000 for the
deliveries to the Powers other than Frame would be
approximately reached.

In any case thd question whether

or not there was any failure in the deliveries to these
Powers was one which could not be determined for seine days

at least. As regards France, it was quite clear that the
deliveries b :r Germany would not attain the figure o f

The obligation upon Germany to deliver goods

to the value fixed was not, however, a definite ones


was only reLuired to deliver goods to that value, "in so

far as France or the other Allied Powers, or the it

respective nationals, may call for such deliveries".


orders for coal and timer placed by Fraxed. for 1922 amounted
to 240,000,000 gold. marks:

France was further debited with


12,000,000 in respect of rivereraft deliveries and with
1,000,000 in respect of Armistice deliveries; in other words
the deliveries to France and the debits against her amounted
to 253,000,000 and 607,000,000 were left available for orders

primarily intended for the restoration of devastated areas.
According to the best information in his possessibn orders

under this latter head had been placed to a value of
42,500,000 gold reatics.

Of these 42 1/2 millions, 10,000,000

were in respect of work to be done on mercantile shi Ting in

the future, so that the amount likely to be debited against
Frame in respect of 1922 only amounted to 33,000,000.

Judged therefore by the orders actually passed by France
rather less than 5=,; of the 600,000,000 available had been

The fact that Sir John BRADBUIff wished to bring

out was that the fact that the deliveries by Germany fell
far short of the amounts fixed in the Commission's decision
of March 21st was largely (11.13 to the French Government's

failure for one reason or another to pass orders.


fact that such sexal orders had been passed under this
heading was not an e-:cuse for, but rather an aggravation of
the fact that r.'rezmany had not carried out the other orders.

ileither the coal nor tinter deliveries had in fact reached
the figure fixed in the Commission's prograreles.

Sir John BRAD3UFT understood, thoude the

decunents were not very clear on the point, that the
French orders contained in the Commission's order for




One serious difficulty in the way of Germany's

execution of the deliveries was that the svecifiCations in
regard to the telegraph poles (the item in which the shortage
was most serious) were not deposited until very late, aril when

deposited, were fo r particularly large poles and presented

considerable difficulties of execution.

Sir John BilltiC3ITRY

had considered with very great care the reasons advanced by
the Ge rman Government for the shortage in the del ive rie s and

the allegations contained in id, Boris' letter to the S.R.R.K.
(Annex 1665 b).

He had fbund that there was a considerable

amount of agreement between the Gomm Delegation and the French

Government as to the reasons for the delays.

Thus bl. Boris

letter contained the following statenents
"The .P.reneth Delegation merely states that, as shown by all the

investigations made aid, in particular, by the last conversations
with the Heads of the Allied Services for Reception, the

stagnation of the operations must be attributed mainly to the
inadequate prices in pace r rairics offered to the sirepliers by
the German Government which realises a considerable

efit on the

deliveries affected, and .ust be held. absolutely responsible for
the non-errecution of the tenders."
1:11ius, according to both statements, the fundamental

reason for the shortage in deliveries was the depreciation of the
manic with, according to the French Goverment, the aggravated

fact that the German Government had_ not adjusted its prices, as

it should.

his luestion had been discussed very carefully

with the German Delegation, aid Sir John Bradbury had himself
-1-,resseti the German representative very hard on the qtestion,

since he was anxious that the Commission should be in ;possession

of the real facts as to the extent to which the ,3errnan Government

had tried to cope with the/real economic and financial difficulties


resulting from the currency disturbance. He had been anxious

to ascertain whether tin same difficulties had attended. the
sua)lies to the German Government as the supplies for
reparation purposes, and whether the German Government had

pursued. the same policy in regard to its own contractors as
that which it had adopted. in dealing with the contractors who

delivered timber for reparation purposes.

iihe German Delegate

had been unable to give the desired information before the
COIMUSSialt but had promised to do so later, and certain

documents had in fact been received. which, if they did not

entirely clear up the situation, throw some lid xt upon it.


vaile it quite clear that the German Government had met with

some difficulty in obtaining its own supplies and that there
had been a considerable shortage on saw contracts for the
supplies of timber to the German State Ilailoays.

The in-

sufficierny, as compared with the contractual amounts, in

these contracts was certainly proportionally smaller than in the

case of deliveries for reparation orders.

It should., however,

be noted that the orders for the German Goverrezeut's reo,uire-

ments had been placed at longer notice and. in their case
the mechantdal difficulties were, loss.

liris was a partial but

not oornilete explanation of the difference in the insufficiencies
of execution in the two cases/

On the other question as to the similarity or the difference
between the procedure adopted by the Reichskommissar in the case

of reparation deliveries and that adopted by the German Government

Departments in the case of deliveries for their own requirements,

them was a little further information which threw a very
interesting light on the problem.

It appeared that the policy





pursued by the German Government DeparLments had been to
increase their contractual prices by comparatively small
amounts as soon as the effects of the depreciation of the
mark became felt..

It seemed, though the documents supplied

by the German Government did not indicate this with absolute
clearness, that the Government Departments had begun this
process before it was adopted by the Reichskommissar.

For a

certain time, therefore, the Government Departments were

making concessions to their own contractors whicn the heichskommissar refused to make to the contractors for reparation
d liveries.

On theother hand, at a certain date, about the

beginning of August, the Reichskamnissar made a very large

concession to the contractors for reparation deliveries and
placed the prices on a gold basis, whilst the Government
Departments had only made comparatively small concessions on the
paper mark prices.
As Sir John BR1A)BURY understood the position, the


Reichskommissar, as judged by the sta,:idard of the German

Government Departments, was guilty of culpable negligence in
so far as he had shown a lack of proper zeal, in failing to

tae the necessary steps at the proper time to maintain
sufficient supplies for reparation deliveries.

Then he did

act, however, he had to some extent made up for his previous
shortcomings and had made more extensive concessions than the
Government Departments.

The measure of the German Government's

responsibility for the shortage in deliveries was therefore the
culpable negligence of the Reichskammissar in not increasing
his prices when they should have been increased.
however some mitigating circumstances;

There were

owing to the currency

depreciation, the Government's financial mismanagement and the

uncertainty as to the course to be adopted by the Allied Powers and
the Reparation Commission ( in Sir Joha Bradbury's opinion the great-




R.C. Minutes No.343.

element of difficulty, the internal condition of Germany was
such as to make the execution of any commercial undertaking
very difficult.

Assuming a certain degree of culpable negligence on the


part of the German Government, what was the proper remedy or
sanction to apply ?

Gey any's obligations in respect of

deliveries in kind for 1922 were determined by the Commission's
letter of March 21st, inwhich was to be found the following
clausei, inserted, Sir John Bradbury believed, at the request
of the French Delegate:

"If the Reparation Commission finds,

in the course of the year 1922, that deliveries in kind called
for by France

within the liAts of the figures given ab ove

have not been effected by reason of obstruction on the part of
the German Government or on the part of its organisations, or
by reason of a breach of the procedure of its Treaties, or of

the procedure approved by the Repar .tion Commission, additional
equivalent cash pa,rments shall be exacted from Germany at

end of 1922 in replacement of the delivery not effected."

Sir John BRADBURY'S mind the sanction thus provided for t

the place of any other procedure which might otherwise ha

been adopted by the Commission, since generalia snecialib
non derogant.

He did not, however, base his argument exclusivel
the decision of March 21st.

In the demands for the deli

of timber, conditions were included providing for penalti
for a failure to execute deliveries by the dye dates.


original protocol it was stated that the Commission woul
fix penalties for the non-delivery by the dates fixed of


R.C.Minutes No. 343.

telegraph poles and sawn timber.

At a later sta

nch Delegate, the Commission did,

the reqcest of the

in fact, fix penalties for non-delivery of the latter.

Throughout the negotiations it had been perfectly clear
that the Commission treated timber deliveries as something
in the nature of commercial contracts of which time was
not the essence.

In regard to the sawn timber, justice

should now be done on the lines of the penalties fired
by the Commission and the actual shortage in deliveries.

The Commission had stated that at some subsequent date it
would fix penalties for the non-delivery of telegraph poles,
this it should now do.

At no stage in the negotiations

until October 20th when


S.R.R.K and never officially until that day, had any
suggestion been made that the failure to execute deliveries
of timber constituted a voluntary default by Germany in the
execution of her obligations under the Treaty.

It had been seated in circles outside the Commission


that Germany had consistently and wilfully evaded her
obligations under the Treat,;. of Versailles.

leged that the

It had been al-

power given to the Commission from time to

time to examine Germany's taxation with a view to seeing that
it was at least as heavy as that imposed on any Allied power
signatory to the Treaty, meant that the German Government

without waiting the result of any examination or demand
from the Commission, should impose heavier taxation on its

It had been said that the failure to take this

step constituted a voluntary default in her Treaty obligations.

R.C.Minutes No.343.


It had further been stated by the French Prime Minister in a

speech in the Sente only two days previously that the terms
of Article 248 forbidding Germany to export gold up to May 1st
1921 operated to prevent Germany allowing her nationals to

employ paper marks for the purchase of foreign currencies and
that the failure to prevent this vas a failure to execute that

Members of the Commission had heard statements that

the Commission, an organisation set up by the Treaty, to judge

as fttrly as it could having regard to its composition between
the Allied Governments and their ex-enemies, had shown undue
partiality to the German Government.

It had been reproached

for having made no report to the Alliud Governments such as that
now proposed since May, 1921;
to remedy


it was to be given an opportunity

failure at that meeting,

The CHAIRMAN noted that in these circumstances he was


at liberty to refer to the statements of the British Prime Ministers and might discuss them in the Commission,
John BRADBURY agreed.


Certain of the eounts which

might have b en expected had probably from motives of prudence,
been eliminated from the indictment.

Sir John BRADBURY would

have liked to have ob tamed the opinion of

the 140E11 Service

on the counts to which he alluded but the prosecution had relied
on certain failures which in view of the volume of the financial

obliations under the Treaty wore almost microscopic.

It might

be supposed that the diminution iu the charge would have been
compensated by its judicial impregnability, but he considered that
he had successfully disposed of the indictment from the juridical.



R.C.Minutes No. 343.

point of view.

The fact was this trumpery accusation

was only before the Commission at the moment as a preparation for an offensive in other fields.

Since in the tenth

year of the war Troy fell to the strategy of the wooden
horse, history recorded no similar use of timber.
present situation was somewhat dl.fferont;

But the

it was the fifth

year of the Peace and the city .vcler attack was not Troy
but Essen.


The CHAIRMAN wished first of all to deal with certain


R.C.Minutes No.343

statements and certain insinuations made in the course of
his speech by Sir John BRADBURY on points which were outside the competence of the Commiseion.

In the first

place, as sir John Bradbury had involved the Frenah
Premier in the question by quoting certain of his statements
before the Senate, the CHAIRMAN had pointed out that he

was thus given the right to adopt the sane course in
regard to the :british Prime thinister.

He would not nuke

use of this right, although Sir John Bradbury had recognised

the Commission must in point of fact not exist in an

atmosphere of politics but in an atmosphere of law and

Moreover, by quoting certain passages from

the speeches of Mr. Lloyd George and Mr. Bonar Law, he
would run the risk of interfering in British politics;
it was neither his role nor his intention to do so.
L. Poincare, the head of the French Government, Was

responsible to the wench Parliament and not to the Reparation

The CHAIRMAN gad, in the second place, referred

to certain insinuations, and it should be quite clear that

he did not use this expression in any sense which could
offend the British ieelersate.

Once he had said this however,

he must recall Sir John Bradburyt statement that, in
demanding that the Commission should take note of the default
by Germany, the French Government was preparing to taloa up a
certain position.

Sir John Bradbury had subsequently

rendered his insinuations very- definite by an express

reference to Essen.

This was a matter for discussion between

the Heads of the Government and did not concern the

Politics must remain outside Its ,cope.



R.C.Minutes No.343

John Bradbury had moreover recognised this so clearly that
he had been careful,

ith as much good-humour as wit, to

delete the gravity which this phrase might have had by
rendering it clear that no more importance should be
attached to it than he himself attached.
It was within the competence of the Lommission to decide


whether Germany had been guilty of default within the terms
of paragraph 17 of Annex

The CEAIRMAN would not call

Sir Jobh Bradbury's figures in question any more than Sir John
Bradbury had called Uls in qlestion.

Between them, however,

there was this difference thet the figures he had quoted
directly concerned the question, whilst those given by Sir

John Bradbury, however intresting they might be, only had a
distant connection with it.

Sir Soh

Bradbury had moreover

recognised that France had made very slight


conferred upon her by the decision of Ilarch 21,1922, and that

that circumstance, far from lessening Germany's culpability,
only aggravated it.

The less that was demanded in fact the

better right there was to dsmand e. proper delivery of what was

This being the case, by what- right were the French

orders passed

Sir John Bradbury had expressed the opinion

that they were passed under Annex IV, and the CHAIRNAN expressed
bis agreement and pointed out that Annex IV afforded him
stronger arguments then .paragraphs 19 and 19 (2) of Annex 71,

in virtue ofwhioh, however, h

would have been in a position

to maintain the rights of thu French Government.

Annex IV,

in point of fact, gave the Governments the right to demand
deliveries in kind and tof 6(1,1eGt the application by the

Cormission of paragraph 17 when Germany did not carry out
her obligations.

It vas further under Annex IV that the

Commission had passed the orders for timber.

Germany had


R ,C .iiiinutos No.343.



pr-omised. to execute them and had not kept her promise. When

considering the circumstances of this fact Sir John Bradbury
had rightly recalled that in January 1922 whilst making an
offer of delivery it entered expreoc reserves as to the
possibility of executind it completely. This was true,
but it, was also :rue, 9. s the :1.Ft ..R.K.Is report showed, that

the quantitios ordered were far below those requested by the
Allied aovernments and were, moreover, for a total much
less than those proposed by the Germns on January 21st 1921.
If the note fr an the member of the S .R .K. to which
Sir John Bradbury ba juat referred, was short, the reason
was that it merely noted incontrovertible facts which
emerged from all the reports preparAti by the S.13 .K. and

which la was useless further toins-ist upon.

Sir john Bradbury had laid much stress on t ize consequence
of the depreciation of the mark. The question was whether
the LI erman Government could appeal to them as a case of
force majeure The CAA IRMAN would not insist on the reply to that question which was given not or the E'rencia
Gdvernment nor by the French Delegation but by the
"The b.R.R.K. caamerely repeat that the principal cause of

the present situation is the fact that the German Government

has not itself taken definite action to enable the execution
of the necessary felling and to work and deliver the timber
to the Allies." In o-der to draw 4 comparison air jolui
Bradbury had asked the German Delegation to inform tho
Commission whether there had been delays in the deliveries to

the Germ Government/and, in particular, to the
railways of the Reich. The C HA MIIIA N did not think that
the Commission could give the same value to the reply from the



Je.C.Minutes No.343

(*Orman Delegation in eegerd to the railways as -it John

The GliAIRI4AN admitted the figure 57% as the

coefficient of satisfaction for the raileays as he had no
ream of chec!ring that iigures

On the other hand, the

coefficient of satisfaction in the case of Belgium was

49% and 54% in the case of Italy if tne quantities received

in Germany were taken, and fell to 34 in the case of Belgiu
and 20.5% in the case of Italy if the quantities which had
passed the frcatier were tauen.

Sir John Bradbury had,

however, made an otservetion in this connection, the
imeortanco of

cuald estape no ones attention.


point noted in c onnoction wits. thy: railways alone did not

suffice, as was pointed out in the report from the S.R.R.K.,

and the Gomm reply was insufficient.
zeal or culpable negligence.

It showed a lack of

Sir John Bradbury had

moreover found extenuating circumstances in connection with
this negligence, but in all the financial difficulties of
Gereany even the ezperts chosen by the German Uov,rnment
itself had noted the insuffieiency of the measures taken by
that Government in carrying out tfte unanimous decision of

the Comeieeien for the amelioration of the financial situation, and the CHAIRIV\N did :lot think that any extenuating

circumstances could effece this clear negligence.



R.C.Aaeutes No.343.

Sir John Bradbury, in order that there should be


no misunderstanding, pointed out that he had stated that
the German Government had only seown culpable negligence
in respect of the definite period between the time when
the mark began to depreciate and the time when the
Reichstommissar placed tree erices on a gold basis.


had no exact information but this period only seemed to
have lasted a few weeks'.

The CHAIRMAN had no bettor inforration on this point


than air John Bradbury, for the Gepman Government had
shown no particular zeal in giving the Commission

It was possnle that, what Sir John Aradbury

said was correct;

it was none the less true that there

had been culpable negligence.

They were agreed on the

facts and the figures, but Sir John Bredbury interpreted
these to mean that there was only a "microscopic''

This vies not the CF SIR



had to deliver 53,000 cubic metres of sawn wood by
September 30th;

months late.

she had delivered 35,000 cubic metres three

She should have delivered 200,000 tele.

graph poles, the reception of which should have been
completed by eovember 30th;
by December 15th,

she had delivered 65,000

There was here a considereble and

unenieble difference.

Since Ae72elet 28th the Commission

baq earned the Germar Government formally;

it had

"deewn its se: ices attention tb the absolute necessity

The Coeission could not censtder this
warning" as of no importance, bueGermany had taken
no notice of it.

The truth of the 1/letter wes that she had

not been willing to increase her output.

This was a





fact to which the eebarressment and hesitation of her
representetives bore notice, and had been noted, not by
the Yrench Delecation, but by the b.R.R.K.

The Commission no




had before it three propoeals:

ereae proposal to extend until epril lit the period

far eelivery;

Sir John Ilradburyls proposal to apply

certain sanctions welch b.- considered had been defined
by the 'dommissionte decision of narch 21st 1922;


the CHAIR: ANIS proposal simply to apply the Treaty, of

which the Commieulan wet the instrument and which it
had the duty to execute.

The Commission had air nay

had an experience of what occurred

ae extensian was

in September Gereaay had promised that all the

deliveries of sawn timber would be completed by the end
of the year.

iloeeover, in the ease

4f the 130,000 poles

still to be delivered, a eelay of three months coeld not
be accorrlId ie view of the difficulties of creosoting
in the etntar.

Finally, the Gerean request would result

in nothie6 less than compromini4g the eeecutiun of the

gogram°, to

which zhe wiehed to cearge all the

deelveries thee adjourned, in order to make a profit for
both years.


therefore hoped that the

Commizsion had made up its mind on the quest ian



further adjournment and that it eonsidered this unacceptable.
He would next consider eir John Bradbury's proposal,
based on the letter of -erch 21st 1922, which raised a
very sLmple question of law.

According to elr john

Bradbary the particular, in the present case, this letter,

was the exception to the general, in other words, the

Had the Commission boon seized spontaneously

withGereany's default, the CeAIRWT might, with certain


R .0 .Minutes No .343

reserves, have accepted Sir John Bradbury's hypothesis.
Llut this was not the case; the Commission had before it
an official demand from the French Government. In these
circurestaelces, it was impossible for a letter of the
Commission to have the effect of caecelling the Treaty.
This rerained, The orders had been --)assed in virtue of
Annex IV, and the 3anctions in case of the noti-exece.tion
of that Annex were specified in paratyaph 17 of 1-nnee: II.
This was the jeridical situation, and the Commis:, ion could

not reply to
French Govornment b-: s ebst it ut ing for
the Treaty, which it was requested to apply, the letter
of March 21st.

No one woeld

Did her

deny that Germany hac, not made

effort which it was incumbent upon her to make.

failiare to do so constitute a defeeelt ? The CHAIRMAN
replied ;post definitely in the off irmat ive :sad invited
the (;orrirnission to state that Germany was guilty of a
default witbin the meaning of paragraph 179 it would
be for the Governments to act on that notification as
they considered proper.

Were the C orfira 18 s

oil to refuse

to follow the suggestion of the Freech. Delebate, it
would Att. entirely within its rights. IF le noted the
default, parazraph 17 authorised it to indicate what
in its opinion would be an adequate sanction, without
howover pe7anting it the right to place any eestaele in
the way of any other sanctions which the Governments
night decide to apply.

The ClIeIhmAN, however, would

not for the moment deal with that question, iliOil should
not be c onfused rite the one to which he had fLriet



Fi .0 .1,1inutes = o.343.




John manna forced to mall) two
observations as the result of the CleC2r.:,:.:.:1/3 oonclading
In the first place tAe Chairman Imo..:, treated
the,tor of March 21st with oomparStively little conremarks.

siderations as parhape ho wLs entitled. to do, since he
was not t that date a member of the ,..:arrtissioa, The
a ionateries to tbst let,ter eoald hot h-mt,Jver treat it in
1u the exece.t.ien of its toms the Corsnis141)e eFe.:-,e way.
alma's geed fait*. as a a it titation L4.-ids 1.n any cases the
good faith tif its clznateries we.s lavelved,.. Any deoLei on

it terms zollid be inti; 1 Walt ing to the repudiation
consistent t7ith. aif Job.r. ErM.ZBUII reraining a r'.amber of the


The C iiA IR MAN s ta to d t I lat frau the Element when

he had entered the Commission he had considered himself

bound by all the decisions taken before his arrival.

Sir Joh-i MIL.D:1.31EX elx,,oz:wyed to t hie weond point

Ii the C3zRIUSUi0t1 declared
&omen"' te be In default within the terms of p:tra_raph 17
of Annex II, thou6h rot aliced to do so, the C:erluissica

was perhepe mere IL;Jerttait.

-131,:.;.ilt make certain recoawndations as to the action to be
taken by the 1-11ied rewere r7hother it. made

time or not pai"agraph 18 defined that action. ThoChairman had entered a roaorve az to any rights which the
Pre :).:11 Government mi6ht poesess under that Para ph, and
lx.liore the Com;-:iisaion decided to to :0 a note of any defaalt

it should consider wint rights could thus be reserved.


interpretation of parazraph 13 depended on the Geary:I:lesion




2306 _

had received a mandate by the contract of the

Allied Powers with Gorlany to interpret the portion of
the tireaty in which it figured.

Very grave diificulties

bad arisen in cennection with the interpretation of this
pararTaph and certain Powers nad maintained that the
words "And in general such otner measures which the

respective Governments may determine to be necessary in
tbe circumstances", were to be read absolutely at large
as enabling any Allied Power, notwithataeding the definite
orovision in other portions of the Treaty limiting the
extent of tile occupied territories, to extend the area of

This aas a matter of vittel importance for the

of .-urope, which could only be decided by a unanimous

decision of the eoerlission.

The Commiseion could not allow

the question to escape out of le control until it had
definitely laid corn, as It alone coulg, the proper and
authoritative interpretation of that paragraph.
Before replyine, to sir john 3radbury, the CHAIRMAN


asked whether his observations constituted a proposal.

Sir John BleeDBMY cilel not yet know what view the


Cammission would take in regard to the French Government's
deg and. that it should no ,e a default under paragraph 17 of

Annex 11.

Until a decision had been reached on that

qeestion, or at any rate until the proposals in their
entirety were before the Commission it w ould be difficult
to formvlate any proposal'.




- 25 -

Lo, 343
cont blued.


,,tates wh

suftered from w
ferrod the _old.

a,-)er :narks, the

It was to this th
they i:ed shovel

Of this wet, to b
cubic 7ietras of t

of the erun tol

67,000 cuLdo me

resolution adopt

that the jizi.,.:41C

oumstanoes Julti
lerians had neve
tory. ,part, the

I. IY..L,taltOIX wou

lic) °Anion if in

he had not deoLl r

the question of t
dreamt of reoudia

,I-lather this decisi

froaty and the re

inscrieed in it.
vided for certain

wry domived it
faot and to orin,

2artiaulirly whon

ovorn vnta concer

27 -


R.0.111107EIS Bo. 343


AL;nor d'Ai3ra0 thou ht that it would be best

first of :.a 1 to confine tne 1:A3ue,3ion to the ,iu est ion

of f .ot and to aijourn till later the kuestion whether

the ri..hts of the vrern-.Ents to impose sanctions were
to )O conciliated with the sanctions :rovided for in the
deo Ision of lIaroh -let. On the tuerstion of fact,

of the deliveries, it would
concernin: the inn of is
e Nossible to re .ch an a. roe:lent in rt.i;_xd to the
second question, It was for the -0.71 is..ion to stk,.,est
sanctions to the ,ovoralents. .,o a sanction Ins provided
for in t.e iettQr of 2Zarch 41st, Jis;nor D'Ai.dia.10 asked.
=ririether it should not oo int this out to the .e yarn-en ts
le evir: tiers free to decide whether they were Lund ay
that sane ti on.

Jir John .3rado ry would have no objection to deoldik;
that the .erlan ,overn :eat .t.L4d not orarrieu out the

deliveries of timser ac irez*,oriaed in the
orders. This was a self-evident feet which was already

ad-litted, but a redolution by the

lesion to that

oftent sould not cam it one step towards a solution
of the

lem at lesae.

It was a possiole course. -mod

indeed one which he would advocate leraonall:/, to t


a revolution to this of oct and thon )roceed to alsouss
).that should ue done in the oirotrntz.ncoe,

out it would

not mirk any ev_,ross towanis a solution of the question
ilhether or not there had .;e/n a default in the execution
of the 2reJ.Ly of -,ersailies. .e saw little Avantsk.e
in se-->sr.,tin,, the :lecislon and tuou,,nt it nest ...11.t the
,Uostion should ue -rut ,suite Jriefly as to whether or not


iiinutes No. 343



notes that ;Air luny has_not executed

" (1)

" in their entirety the osiers ,lassed Wider .nheic. IV

" Part VIII of the 2roaty of Versailles, for deliveries
" of timJer to 2rcAnoe auxin, 1922."
Sir John :3radoury,


Louis 3kItITIOU, 3101Dr WALVALIO

and :. Dril.aULOIS voted in favour of this .)ropoeal, whiGh,
was in Gonne:Nonce ado ;Led unaniAousiv
The ;;IIAL:LIAN that


ut to the vote the second !Yroposal:

his non-execution constitutes a default oz. Gerlanv
ons w_i thin the Afit Jain , of )ara,r Loh 17

"In her 00
"of ..uncts II,"

U. Louis 3Al2it510U,

cl.,A:.1.:7.10 and

voted for ;his :roposal. :air John 3radbruy voted a._:;ainiit
:...1iLA:selatiaWa3 thus ado trild by a !saJority.

AgAtor d'AltiLLIO propose_. to reoall to the ,ove aliments

oonoerned the teats of the lett r of liroh 41st.



votod in f r,,r our of this iroposal

arid 11. D.:LAC :OLT

it John irtab-ury

abstained frora votin,, a.s laa was wholly unw


assoolate himself in any way with the decision just tf_wcen.

It ya.3 in oonsalu4noo dooidea bi a -.oritzt. tjah
Sri tish Delet,at_e_aostainin : from votilt,I. to r0041 to the
lovfoln aunts agncerneak that SA its
the_ -Ilsrrsente to ae rude by .Arraang durin, tho

cur -ant ;gear. the (1.1.21ssion had made the follow:


If the :enaration .;ornmiaiion finds. in the cour..e of

" the year 1922, that deliveries in icind olled for by




i;o. 343


3.0.--linutes no. 343
26.12.22 - 2,506

- 32 -

234 of the ,:rerity to djust the build= on the ',erman
etch :,ocordia; to its ca.lacity of ,:iyment; the seaond

was in the inter 3t of tlie allied two b to watch over
the manner in which the burden was borne and ,I,ersany's

obit :lions faiftiLed.

.he >erforms.nce of the first

duty, as his collea,ues we-3 well aware, had aeon surrounded
in reply
.Ath :bony alfficuitiec. On .0 ust 31st,

to the lerTyln evern left's )11i° Lion for a :oratorium

in res2ect of cash ayments. the omlission titicid)J. to
deforitu decision until the .,;eraTiission 1)Ad com:)letod

its scheme for the racLio4 reform of .;orma pualio finance,
Inc lud


the .)al::no in of the bud ;et;

( b) in the

ovont of the .;ove rnAInts re 're 3 anted on the relar:lion

re._uotion of ler.

";'orrlission ,.vine; their .)rior cAisent ',,hereto,

mzyts o ei,..n oblii;ations in so f::r as mijit
necess;.kry for the restoration of her credit. in proposin:

this r000iution Which was ultimately carried unanimously,
Delaoroix had employed the fol/owinj lan6uades


request to that effect (that the k;ommiesion should oe enLrauted with the examination of the ;.enerr.1 sitaation in
.sier:lany) was laoroover addr,ssed to the

in the text of the roposal


Delaoroix was

re Illy to andertake, if their deliberation* were not to
take place very shortly, to !:)1341.0 an of:icial and very clear

request at the -iroper tile that the task should L.e cQnforred
on the .,oreaie.iion of 7113.41n6 41 enquiries under that he: AI
' the neses...,:.,ry

._rticie 234, ::l000rdin_; to so!se

int)rpreta. ions, did not hfiord it. :hub the Lelo2ates
would have laboured not on4.3? In the interests of the

30=2118: on itself, out cap° in ;hose of the economic res-


toration of the world."



A.0.1.11nutes No. 343

26.12.22 -


.t th-,t date the :17 sterlin,

was worth 7,000 marks.

i'or certain reasons no .3roposa2, for any modifica-


tion in Germany's obli.:;a7.ions was suomitted until October

4th when _dr John Bradoury hinself submitted a -)lan.

Fit that date the


sterlin : was worth 9,500 rurks.

plan did not oomaend itself to his collea-ues, and 14, days
kiter the :'roach .L,eleLisato submitted another who le, when
the i. ate .11.n_ was worth 12,600Q mi,rics.

in this latter

plan an objeoLionhwas raised to anythin, in the, ni.turo of
a moratorium unacoola x)nied uy seou ities, and the ouserva-

tion was nvAdo th-t it was in-)ossiole to say how f:.r
Gerlanyts burdens could

:3,djusted without considerinc

how far the lilos were in a .osition to bear the Ourdens re -)

Belated by their mutur,1 indeotedness

It was

therefore considered better that the request should
not ue dealt with until the Jaeation had ueen discussed
by the = allied :lovers.


2.1-le words eraeloyed were the follow -

afraaration Uostaisoion woul.. desire to do nothin.

which mi,,ht interfere with the work of this conference,

delay its o;)enin,;, or co .1,romise its stooes.."


Bradbury had acquiesced in this view a.,thouji he had


Own stron 2y

of the ()Anion that the duty of adjustin6

Gerlany's ourden to her ca )acity to 'lake a.y.lent was
incum.Jent upon the L;oalission and should oe Jo rno by the

"omrisbion itself.


R. C. .:_inutes Le. 343

Whilst the Commission's duties under



L34 ::ore thus in suspense, it was very diffioult for

it to carry out ito other duty of watching over the
manner in which Germany carried out her obligations.
The situation in Germany was generally recognised riot

only by every member of the Commission but by many Allied
statesmen as very serious, so serious indeed, that the
performance of any of her duties under the Treaty became
a matter of great difficulty if not almost 1.poesible.
For instance, LAr John BRADBURY believed, though he
spoke subject to correction, thzA the value in German
currency of the coal deliveries specified in the
Commission's programme was greater than the whole revenue
of the Teich.

The CITAIRUAN would not embark upon any discussion


of this point, but he reserved I-;e right of demonstrating

later that if Germany were willing to employ in the payment
of reparation the revenues of all the 6tates which went to
make up the -Teich, She would be in a position to bear the

burden of reparations easily.




';;ir John BI;i:IBURY pointed out that he was merely


giving an illustration of the present situation.

It was

true that there wore other ;erman states besides the
but he thought it was none the less a fact that the value
of the coal deliveries demanded exceeded the total revenues
of the Central German Government.

An emerioan observer hA said that for the moment


Germany was like a machine, the motive power of which had
disappeared but which continued to run on its momentum.
It uses a matter only of months or even weeks before the
machine stopped.

This view might be right or wrong, but,

in view of the present situation in :;ermany, it-appeared
to Sir JOH11 B2ADBURY as approaching an absurdity for the

Commission to take a decision in regard to Germany's
performance of certain particular obligations without
regard to the generel situation and the very important
interallied conference which was shortly to take place.
wtts, moreover, not sure that such a deoision by the

Commission satisfied the conditions laid down in the

]rench Deleete's memorandum.

It could not delay the

opening of the Interallied Conference as it had already

been opened in London; he only wished that he cold hope
it would not compromise the success of that Conference.

The CHAIRUAD observed that the decision was now taken


and while Sir John Bradbury might have considered it
regrettable before it was teken, he had said that he
would bow before ',ha opinion of his colleagues.

The CEAIBMAS proeoued that the commiosion should
consider the draft of the letter to the 'iowers concerned,


prepared by the .seneral

;1.C.Linutes 1 o.343.
36.12. LL


Sir John BRALBURY did not wish to criticise a letter
to which he was not a party, but he considered it might be
deeir,:ble to State that the default notified to the lowers
was voluntary.

the point would be met if the Commission

took a formal interpretation on paragraph 17.
The Co mission proceeded to a formal interpretation


of the '2reaty on this point.


should be addressed.

('eo ,,uestion L306a below).

asked to which .owers the letter
On the three previous odeasions on

which Germany had been reported in default under the :treaty

of Versailles, the Commiesion had not always adopted the
'same course.

:)10i the occasion o

the notification of a

default in coal deliveries, a letter was addressed to
Great Britain, 24ance, Italy and Belgium.

On the oc-

casion of the notifioation of Liermany's defAilt in reepeot

of gold payments in Lay 19.1, notifioation was sent to the
3overnments of all the l'owers that had a right to

'aien the Commiesion diecussed the question

of the notification of a default by Eungary the question
had arisen whether this notification should be addrosood
to the principal lowers or to those which ought to have
received the deliveries which were in arrears.

it had

in effect been decided that the default should be
notified to all the mowers represented on the Commission
When it dealt with Rungarian affairs.



It was decided on the rresent ocoL..sion to understand


by the phrase "intereeted POwers" in Tara ;rash 17 of
Annex II. 4reat Britain. 1-ranee, ItL.1J and

A copy of the letter addressed to these four Governmento
would be despatched to the Government of the United .Jtatoe
of 4,1ericia.



J Cit-,TLI-a enquired whether 'the .sierman

Government should be notified and, if so, whether it was
to receive a copy of a letter addressed to the ,alied


or whether a special letter Should be drfted for the

Sir John BRADBURY pointed out that there was no obligation


upon the Commission to notify the German Government but on
all previous similar occasions, both under the Treaty of
Veroaillee and that of Trianon, a notification had been
sent to the lecoant Government.

This course bad obvious

advantlajes, since the object of the notification was the

transfer of responsibility in the matter from the Commission
to the Allied


As the Commission had disinterested

itself in the matter the German ,'overnment ought to know

to whom it should rake any representation.

4.:e to the

disadvantage of letting Germany know that the decision had
been taken by a majority, he pointed out that it would
in any case be Impossible to keep this

fot secret for

24 hours.

To CRAIRUAB thought that it was for the _tilled


governments to make this communication to the 3orman
:lovernment, and that the Commission was not bound to assume

-38R.C. :,1.inutes -o. 343

responsibility Thich did riot below-



He put to the

vote this question of the communication to the German

Sir John Bradbury voted in favor of this communica-



i.Louia 2arthou, 6iEnor dIAAiaLIC and u.. DEIJACROIS

voted auainst.

AIL.DELA(ROIX thoucht that it should be left to the


General Secretariat by way of courtesy to make a verbal
communication to the German Delegation.

_:117F)C II

The Reparation Commission in theexercise of its


powers of interpretation under paragraph 12 of Annex II
Part VIII of the Treaty of VersailleoL_decided that the
word "default" in pararraph 17 of the said Annex had the
oaiue meaning as the expression "voluntary default" in
oararraph 18 of the same Annex.

Sir John Bradbury, M. Louis Earthou, Signor


and hi. Delaeroix voted in favor of this interpretation.

26.12 22





DEIACROIX had, since the last meeting, had a


conversation with Ax John Bradbury and had communicated
to him certain figures which tended to show that his
interpretation could only cause a relatively small
difference, amounting at most to a million and
marks gold.

a quarter

Since then, the last figures which L.

DELACROIX. had received showed that this difference no

longer existed or was at any rate hypothetic.

therefore requested


it John Bradbury to accept the simple

interpretation of the arrangement.
Sir John



observed that if the figures were

s to agree with the principle which he had laid down

his difficulty wouledsappear.

Ee would have no objection

to approving the agreement with the proviso that its effect

chold not be to all w -Algium to escape a debit for the
current year in respect of any ordinary reparation

DELACROLY. asked that the Belgian Delegation should


.e credited in case any further alight difference e.lasted,

taking into account the fact that it alone had negotiated
an agreement of this nature at the request of the %;ommission.


The CEAIIMIAll put to the vote the adoption of the

Belgian-German Contract agreements,


voted for the adoption.

Sir John Bradbury voted against.


26.12.22 2307-2310.


for 1 22

the new arrangement between the Bel,zian and German
Govornmcnt3 in rog_ard to the Belgian Contract- agrounente

contained in .;-.nnex 1605, as a apeoial exce-tion to
Decisione 1927 and 2071.

,,ue sti on raisod by this arrangement would bo
re-exl_mined when the a.rran,Toments for the deliveries in
kind during 1923 had been made.



19 (L1 Ga ,,,Ide-4= II.

SWAB 1.111:aeR

The question was adjourned for a fortnight.








The draft letter to the Krie;;Hastonkommissioni,-nnex
1679o) ti. =s approved.

B and C

"0 '211.r.-.

1265 j.k.1..m.(1) and iii)


Sir John B.IIALBUIZY still entertained some misgiving in

regard to the text of the bonds.

It had ultimately boon

decided that there was no claim againat the German Government
in reaL eet of these Bonds or the interest- bearing coupons,
except through t},e 1:operation nnuities.
2.1.erefore while

it was, in a sense, true that the iionds represented a charge
on all the revenues and assets of Germany, they in fact


R. Claim:des 110. 3443.
26/12.L2 23102311.

only represented a charge .egeinst that portion of the assets

and revenues assigned as a guarantee under the Ichedule of

s these documents purported to be negotiable

instruments, any holder should not obtain the impression
that he had larger remedies was in fact the case.
;:ir John BRADBURY had made this criticism himself, after

seeing the text prepared by the Legal .ervice and the
Finance Service.

Once hving submitted a report, the

Services felt some delicacy in re-opening the question,
but Sir John BRADBURY considered that it would be quite
possible to refer the question back for the further

examination which seemed to him neoessar.
It was decided that the 13ritish ijelegate would submit

the draft of a further modification to the Finance service
through the intermediary of the British ..lember of the
1,:anagiteg Board.

The Finance :service Could proparc a report v,hich

wolild be placed on the agenda of the Commission.




Te Lij



The GUIeEL Si,0:.2;dY enquired whether the Commission
wished to deal with this question under the Treaty of
Versailles or that of St. Germain.

he would have imagined

that there was no doubt that it fell under the former Treaty
but it had already eassed through the .euetrian .cation.
it John BRAliBURY did not think there was any


inconsistency in the reference of the question to the A=ustria:.


26.1;. z.2


6ection zinc' its settlement unc'or the Treat-s;- of Versailles.

The :uestion affected the Feneral economy of Austria and the
opinion of the imstrian ,,ection was useful, but the only

point at issue was a demand for German coal, which must
be dealt with under the ',:reaty of


she dvlft reply (4nnex 1659 d) was adopted subject to


the .;erb-Oroat-61ovene .Delegat e ' a ai,firoval.


leeting rose at 5.10 p.m.

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