Full text of Papers of Benjamin Strong, Jr. : Correspondence with National Banks : Officers of National Banks in Western States, 1911-1925

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EDWARD W. DECKER

PRESIDENT

Wtober 12, 1921.

Mr. Benjamin Strong,
Federal Reserve Bank,
New York, N. Y.
Dear Ben:-

I am importuned to accept the local chairmanship for the National Budget Comalttee, and notice that
I want to do my
you are connected with the enterprise.
full duty, but there are so many of these things coming
How important
along that I hesitate to take on any more.
Of course I amAreatly interested in
is this work?
national economy and tne budget system, but what I mean
is, do you feel that it is very important that educational
propaganda be worked up in favor of it so that public opinion
will have some influence on Congress?

reply, I

Thanking you for your
Very truly

am,
ours,

.04, 01 9-

October 19, 1921.

My dear Ed:

I thank you for your letter of October 12, to which an acknowledgment has

been delayed owing to absence.
For the past few years I have been deeply interested inthe work of the

National Budget Committee

for obtaining legislation from Congress directed toward the

establishment of a scientific budget system for our Government.

As the basis of this

budgct system has now been adopted by Congress, our organization is endeavoring to
crystallize public sentiment for the support of the program of government economy,
in order to insure permanent euocees for the new National Budget System.
4e are seeking to extend our work by selecting, so far as possible, bankers
to 'accept active chairmanchips in various cf the more important

carry on the work which will be

laid

cities, simply

out for them by the national committee.

planning this movement, the committee has tried to reduce to a minimum the necessary
work of the chairmen, all of whom are busy

men and volunteers.

The scope of the work

is described in the enclosed memorandum.

I am sure that you will egree with me that we must arouse public interest

and endeavor

to place public opinion behind the movement for budget reforms in the

national government, and this can only be accomplished by educational propaganda and/
other will directed efforts.
May I count on your support by accepting the chairmanship of your diitrict,

feeling assured that the

work will

With cordial regards,

be interesting and the

and renewed

thanks for writing me, I am,

Yours sinoerely,

E. W. Decker, Esq.,
President, Northwestern National Bank,

Minneapolis, Minn.
GB: MM

results gratifying to you?

November 28, 1921.

Dear Mr. Decker:

A letter just reached me from Mt. John T. Pratt

giving a brief report on the firstlap of his continental
trip in the interest of the National Budget.
I was especially

the pleasure of

delighted to learn that he had

meeting you, and that you have

accepted the

chairmanship of the Jtate of Minnesota. This is indeed good
news, and with you at the helm we can be assured of
In furthering

success

the work of the National Budget Committee in

that State.
7ith kindest regards and thanking you for your personal cooperation, believe me
Yours sincerely,

Mt. E. W. Decker,
Northwestern National 3ank,
Minneapolis, Minn.

AMP

I
,[0
I

"-VE.99.B.FORGAN,
+0 PRESIDENT.

THE

FIRST NATIONAL BANK.
CHICAGO.

Nov. 6, 1911

Benjamin

Strong, Jr., Esq.,

Bankers

Trust Company,

NOV 1 2 1911

New York
lify dear Ur. Strong:-

I have your two favors of 2nd and 3rd inst. enclosing

three ex-

tracts from your New Orleans address, all of which I have carefully read.

You will of course bearin mind that
from which you ouote,the State banks were
time Senator Aldrich's suggested plan
filiation with the

National

did not

considered because

that

seem to contemplate their af-

Reserve Association.

vised edition of his plan you
National Reserve

not

my previous estimate,

In Senator Aldrich's re-

will notice that hn

placec the capital of

Association at approximately 1300,000,000,

the

one-half of which

paid up would be t150,000,000, and it is on this that I am going to base my

estimate of the strength of the

Association and

its

earnings.

I can offer no criticism of your estimate of the

business as it

will probably be after say two years, or more, of operation, nor of your estimate of profits, they both seem reasonable to me.
In regard

to the

expenses connected with the note issue which

I placed at t2,000,000 and which you state is about double the present cost,
you will of course have to bear in mind that the

National

Reserve Association

is to deliver its circulating notes to any bank in the country free of expense;

the cost

of transportation from

time to

time will therefore be con-

B.FORGAN.

PRESIDENT
Ca:ES
161

THE

FIRST NATIONAL BANK.
CHICAGO.

Jr -

sidernble.
In regard to the contraction resulting from the payment of
f100,000,000 of lawful money to the National Reserve Association for its
paid in capital, I think the
promptly take care of this

operatione of

the

Association

itself would

contraction. That such a contraction would take

place is of course theoretically correct, but my mind always reverts to how
it would affect my own institution.
Association would be ;,1,000,000.

Our investment in the stock of the

We make loans of that amount frequently

and our reserves adjust themselves to such loans without any practical difficulty.

Of course

when $100,000,000 is

taken out of the reserve of the

banks and invested ell at one time in one new security, as will le the
case When they invest in the stock of the tesociation, the aggregate reserves
of all the banks would be contracted by that amount, necessiteting a corresponding contracticn equal in round figures to '.:;600,000,000 in their deposits,

which would
they had

have to be accomplished by a contraction of their loans, unless

surplus reserves at the

tion an immediate

time.

This would probably give

opportunity of doing business with the banks in the Shape

of rediscounts, tut I do not think they would have to do that to
like the extent of

the Associa-

the

anything

theoretical contraction shown and probably the banks

would have ample time to adjust themselves to the new conditions.

figuring on the strength of the National Reserve

Aesociation

from the standpoint of the gold and legal tender money it would receive into
its coffers

it must be borne in mind that practically all the reserve money

f--ORGAN.
,

SIDENT.

1"3

S, Jr.--Y3

THE

FIRST NATIONAL BANK.
CHICAGO.

of the country would tend

ultimately

to find its way into the Association's

vaultswAc its depositing banks would ship currency to it from time to time
these shipments would be

made up indiscriminately of gold, gold

greenbacks, silver certificates and national bank notes.

certificates,

The Association

would of course not reship gold or gold certificates when celled upon for

money, but would

ly all the gold money of the

not only that in the

reserves of

the banks but also

and its notes would gradually form

this process evolves,

serve

the

from the

substantial-

that in the pockets of

vaults of the Aseociation
of our

the lending

currency.

power of the Asso-

x-k.tY-e
The seima4tilemAt figures of 14.44

or by me doer not give a correct idea of the

Association and it

investment by the

Association should cause any

and very readily taken care of by
,

the

main body

10.101.1060.011401111111001NPlaI,

balance sheet as given by you

resulting

the

into

correspondingly increase.

loaning power of

process

country, whether coin or gold certificates,

the people,would gradually find its wey

ciation would

Through this

send out its own notes.

my belief that if tLE contraction

banks in the stock of

tempomrytrouble it

the Association

the

Netional

Re-

would be very easily

itself. In feet, its op-

o rtuni ty of cettininto tusinecs would probably come from that condition

of affUrs.

Very

truly yours,

JAMES S.FORGAN.
PRESIDENT.

THE

FIRST NATIONAL BANK,
CHICAGO.

Sept. 11, 1914

Mr. Benj. Strong, Jr.,
Bankers Trust Company
New York
Dear Mr. Strong:I have your favor of September 8th.

I presume the result of your visit to Washington
is the approval of our plan by the Federal Reserve Board, as today
we have received a telegram from Mr. Hamlin requesting us to give
a. specification of cash on hand held by the national banks and by
the state banks of Chicago. This we have done.
I suppose they have
asked for similar information from all the reserve cities through the
country as a basis for requesting them to contribute their pro rata.
of the $150,000,000 gold fund.
I have been excessively busy since I returned from
Washington endeavoring to solve all kinds of new problems that continually arise under present conditions. I asked Mr. Arnold if he
had any suggestion to make in regard to the handling of the New York
end of the matter and I enclose a letter from him on the subject. I
presume you will let the Federal Reserve Board know just how much the
New York banks will contribute to the fund so that they may apportion
the remainder of it to the banks through the country.
I have no doubt
that the New York committee in charge of the matter will evolve a
method of handling it. They should be very careful to see that there
is at least someprofit in their operations as there would undoubtedly
be a good deal of kcking if for any reason they should have to report
a loss in them.
I would like to get to New York next meek if I
possibly arrange it, which however seems doubtful, and if I dO:
will call upon you and further discuss the matter.

Very truly yours,

G1,44:i4;4;-'Z%

can

CableAddresOationalalicage

CAMITALS110,000,004)

FOREIGN EXCHANGE

sunpLus

1.0,0°09000

DEPARTMENT,

JOHN J. ARNOLD,
Manager,

CHAS.P. CLIFFORD,
Assistant Manager.
CI:LUNT:12 NUN.I.111,12

10 September 1914-

J JA
Mr James B Forgan,

Presiden t.
Dear Sir:

As I understand, the report of your Committee, made to
the Secretary of the Treasury and the Federal Reserve Board, contemplates an initial contribution of gold on the part of the
Reserve and Central Reserve Cities amounting to 425,000,000; the
same to be paid into the depository o: the Bank of England

Canada; proceeds at the agreed rate of 77sh 6 pence per ounce for
gold bars and 76 sh. 1/2 Denny per ounce for eagles to be credited

by the Bank of England. This credit to be disposed of by the New
York Committee.

Eacli bank contributing to receive a participation

deposit receipt for the amount contributed.
I understand further that the New York Committee is to
fix the price at which foreign exchange is to be bought and sold,

which I take it means that they are to fix an arbitrary rate both
for buying and selling.

This to my mind will prove a difficult pro-

blem, inasmuch as exchange rates should be based upon supply and
demand.

I do not understand that the Committee is empowered to

buy in the opeh market, either checks or cables, with which to
augment the balance with the Bank of England, but is merely to

Mr Jalk,es B Forgan - 2

dispose of the balance created as above indicated.

On this ac-

count it is my judgment that the exchange should be disposed of
at the market rate, which latter would have to be established by

the foreign exchange
of supply and demand.

dealers in

accordance

Otherwise the

with the usual laws

balance

with the Bank of

England would be likely to be subjected to terrific demands on
the part of those having commitments to make - principally the
New York banks.

Of course, the gold thus supplied, together with

the exportation of grains, will gradually offset our obligations,
and in this way also gradually reduce the rate of exchange.
If my understanding of the plan is correct then my

!judgment would be that the New York Committee open accounts with
the various banks contributing gold, Crediting each for the amount
contributed in dollars and charging them with the participation
deposit receipt when rendered, holding the receipts open in
Receipt Account, and that the gold as a total be charged by the
New York Committee to the Bank of England in pounds sterling and
dollars, and that the sale of exchange be credited to the Bank of
England in pounds sterling together with the proceeds in dollars.
This account to be charged in dollars only with the expense,

connected with the handling of the matter.

When all of the

balance

has been disposed of, then the proceeds, including profit, if any,
should be distributed pro rata to the holders of participation
deposit receipts.

This would apply only to the initial ;25,000,000 contribution.

The remainder, I understand, is to be paid for in

Mr James B ?organ

New York exchange at the time
account with the Bank
a like

only

manner as

when gold

is delivered.

The

England could in this way be handled

in that of the

initial

deposit, but of course

the profit, if any, would have to be distributed to the

various contributors.

If it Should be decided that the

New York Committee is to fix an arbitrary rate, this would not in

any way change the method of handling the transactions.

Each contributing bank
covering all of the

finally

should be given a complete statement,

transactions

with the Bank of England when

closed.

Respect u

tted:

POTTER, CHOATE & PRENTICE, NEW YORK.
TIME

PRIVATE WIRE TO

FIRST TRUST & SAVINGS BANK
191

Chicago, Ill.
BENJAMIN STRONG JR
BANK 7Pq TRUST CO

N. Y.

1 WANT TO ATTEND COMITTEE MEETING
00MPANY AT TEN

LEAVING AT B;30

04114.
OF

EQUITABLE

JL OCLOCK AND REGULAR DIRECTORS MEETING AT 12 °CLOCK.
WILL THEREFORE RATHER CROWD ME, BUT

IP YOU THINK DESIRABLE.

Tall 51,401RAITC,E

1 27 P

CAN ARRANGE IT

POTTER, CHOATE & PRENTfCE, NEW YORK.
TIME

PRIVATE WIRE TO

FIRST TRUST & SAVINGS BANK,
13ENJAMIN

191

SMWJC,

BANKERS TRUST CO N. Y.
AM EXCESSIVELY BUSY HERE. WILL, HOWEVER, ARRANGE TO

NEW YORK THURSDAY,

MEET

YOU IN

PROCEED TO WASHINGTON WITH YOU THURSDAY NIGHT AND

MEET THE FEDERAL RESERVE

BOARD FRIDAY.

MAKE ARRANGEMENTS ACCORDINGLY AND

IF THIS

LET ME KNOW.

AGREEABLE TO YOU,

BEFORE WE GO BACK TO

WASHINGTON THE NEW YORK COMMITTEE SHOULD BE APPOINTED AND IF POSSIBLE
NEW YORK BANKS CANVASSED TO ASCERTAIN HOW MUCH THEY

THE FUND THE AMOUNT OF WHICH MIGHT I THINK

JAS. B.

WILL CONTRIBUTE TO

BE REDUCED TO A10A,(400,000

FORGAN.

10 29 A

POTTER, CHOATE S.. PRENTICE, NEW YORK.
TIME

PRIVATE WIRE TO

FIRST TRUST & SAVINGS BANK,

SEP 2 2 1914
191

Chicago, Ill.
BENJAMIN STRONG

BANKERS TRUST CO

YOUR TEL&GRAM RECEIVED.

ARE ENTIATLI" SATISFACTORY
TO

BE DISTRIBUTED AMONG

THE CHANGES

TO ME ArD
THE

I wild.,

BANKS HERE AT

NOON

JAMES B. FORGAN.

a Alt

SUGGESTED

Rdit,

12 08 P

MAKE

OUR

BY
THEM

MR. WARBURG

PT THE

MEETING THIS

COPIES
AFTER-

t--4-vief<
POTTER, CHOATE & PRENTICE, NEW YORK.
TIME

PRIVATE WIRE TO

FIRST TI?UST & SAVINGS BANK,
Chicago, Ill.
BENJAMIN STRONG, JR,
BARKERS TRUST CO

HAVE

CLEARING

SIXTEEN

HOUSE

HAND

t!EP 23 isk

N. Y.
PLEDGES DULY SIGNED BY EVERY MEMBER

ASSOCIATION

FOR

THEIR

INDIVIDUAL SHARES OP

OUR

MILLION DOLLAR CONTRIBUTION TO THE ONE HUNDRED MILLION DOLLAR

GOLD FUND.

DIRECTORS RESOLUTIONS WILL BE

YOUR TELEGRAM IN TIME TO MAKE

THE CHANGES IN THE

WARBURG.

FURNISHED LATER. 7 RECEIVED

JAMES B. FORGAN.

11 07 A

REPORT SUGGESTED BY

(JAMES B.FORGAN.
PRESIDENT.

THE

FIRST NATIONAL BANK.
CHICAGO.

Sept. 24, 1914

Mr. Benj Strong, Jr.
Bankers Trust Co
New York

i 914

Dear Ur. Strong:
I have your favor of 21st inst.
A pledge signed
banks for their proportion of
towards the $100,000,000 fund
Board and will be followed by
get them in.

by all the Chicago Clearing House member
the $16,000,000 to be contributed by them
has been forwarded to the Federal Reserve
resolutions of directors as soon as we can

I can see that it will be quite a problem to decide upon
the best method for selling exchange.
Offhand there is only one idea
occurs to me. I think the Committee as soon as it gets the first $25,000,
000 in hand should ship at least $10,000,000 of it through Ottawa to the
Bank of England for their credit either with the Bank of England, if it is
willing to take the deposit subject to their draft or cable transfer, or
with some other bank selected by the Committee. Then the Committee will
be in a position to deal with applications for cable transfers as they
arise.

The situation here is being rapidly cleared up, partly by
the extension of credit in London to our large borrowers and partly
through cable transfers made against gold shipments through Ottawa. Ac
stated before I do not believe that anyone in Chicago will be an applicant to the Committee for cable transfers or drafts, as it now appears
that before the Committee gets gold in its hands andis ready for
operation the Chicago situation will have been entirely cleared up.
Confidentially, the International Harvester Co. has within the past two
or three days been able to extend its maturing obligations in London
for ninety days to the extent of A 600,000.

Very truly yours,

JAMES B.FORGAN,
PRESIDENT.

THE

FIRST NATIONAL BANK,
CHICAGO.

Sept 29, 1914

Benj. Strong, Jr., Esq.,
CA Bankers Trust company,
Sixteen Wall st,
New York.

Dear Mr. Strong:-I have been thinking over the suggestion made in your favor
of 24th inst.

I could not leave here at present even for a couple of weeks
except at great inconvenience to the many local interests which I am helping to bridge over existing conditions.
I would not like to be away at the start of the Federal reserve
banks. As soon as the Federal Reserve Board has named the Class C Directors
I presume the entire board of directors will have to organize, select officers, office quarters, etc., and I would like to have my say in connection with these appointments and other matters.
I have heard that New York has already settled who is to be
the President, general manager, governor, or whatever he may be called, of
the Federal Reserve Bank for District No. 2, and if my information is correct I congratulate them upon thedr selection and sincerely hope what I have
heard is true.
We are not so fortunate in District No. 7. We have several applicants and we have heard that the Federal Reserve Board has made
its selection in advance of any adtion by the local directors.

Very truly yours,

October 2, 191/1.
Deka' Lr. Porgan:

Your favor of the 29th ultimo was received at a tire
when 7 WPf) really too busy to clear py dusk of mail, on
scoOuntof the amount of time whioh had to be devoted to

7,orking out the detail of handling the gold fund.
Our plan for a trip to Europe has been abandoned for

the time being, as it Is possible that arrangements can be
made satisfactory to the Committee without'necesaitating

sending =Tone at this most inconvenient time, particular-

ly as Yr. Xent is still in London and so far has been able

to assist us in working out the details over there.
know exec" the my you feel about the organization
of the 7ee.oral Reserve Bank in your district, and personal-

ly I feel it would be a misfortune if you were not there
to have a hand In all of them organization matters.
The matter you refer to in the last paragraph of your

letter has been definitely settled, I understand, although
not by formal action of the New York Board. As you may

imagine, Warburg has been largely responsible for thin; and

must say that he and his associates in Washington, as well

Ilo. 2.

James B. Forgan, Esq.

10-2-14.

as the members of the Board in New York, have Shown me

the greatest consideration in every possible my.
I thank you most heartily for your congratulations,

and I must ask you to bear this confirmation in confident° for a while, until my lips are unsealed by the Nam
Yort Board.

You can readily understand that it grieves

me a lot to conclude, as I have done, that it is a matter
of duty for me to meet their wishee. I shall hole that
we will balre many opportunities to diecues the problems

that will arise together, and I would particulnrly like
to feel free to draw on you from time to time in devo/oping our plans.

I cannot help but feel that the whole system must be
organized as one system, and that there must be developed
methods of cooperation and coordination to make the system
a complete suceess.

The prospect some times appals me a

bit, but I am relying on the friendship and assistance of
many of the men we have worked with for a good many years

now in row 'York on this very natter, and

confident that

In the right spirit we will wind up with a successful eyetom.

About our gold pool, you doubtless have by nor boon
avised by lir. Wiggin of just how we have been proceeding.

In order to hasten the operations of the Committee, we

10-2-14,

Jamos B. Forgan, Esq.

shipped i2,10,000,000. of gold to Ottawa yesterday, and we

will begin to sell Londor checks at once,

rocohange

closed tonight at about 4.95k to ;1:7 for demand; 4.96:, to

for cables. If we can keep it going this vw without
losing any considerable Quantity of gold, I think that ro
may all considor that we are well repaid for the work

done to date; but of course I realize that this is a long
way from taking wax; of the future, Which still offers a
good many problems to solve if wa cannot move otir cotton.

Withindest regards, believe mo,
Very truly yours,

BS-3123

James B. Forgan, Esq.,

First 1ationa1 Bank,

Chicago, Illinois.

E S.

HIGHT, MANAGER.

f'D

(."
w.de

42/-".`

LiL
etL

G-1/ trt_

(x7'-)

-YkL

November 2, 1914.

J. B. Fora, Esq.,
do Fit Nationa.I Brit,
Chicago, .111..
ZIK.N3.r

r. Forgan,
There searts to be some reluctance in Boston and

some of the other eiti

to fu..rnich t1-ic

f,11Ctte:7".. to mirie

up the ;11.00,000,000 required for the cotton. loan. I am writing to

ask your view as to the pos.:ibility,flat. (zzgui a ,-;07.1s1ciorabie shortage

should ocaur in the argatutt to be provided, of havirz New York,
sh.ol.tat,fte, at the same time Ilwing
some understanding with the Treasury Department that either throujI
Chicago and 5t. LOUIS maw

the i'ederai Tieserve b(-.11;:in in the.oe cities or,'..11.7.'oct17 -:vith member

banks, consideration will be green t) facilitate the rnztter by
additional treasury deposits.

I am writing without yet having had opportunity to
consult ary of the bankers in New York, bit it occurs to me that
the
YoFt.. barks at this time rryittt be quite willing to take
a.4ditiena1 portion of the loan if joinef7_ by Chicago, and St.
Louis for reasonable EaTiotate, and if you. offer encourai_lement that

that suck plan would appc,al to the bankers in your city, I will
be very glad indeed to take it up hero.
Would you mind wirine me :)n Wednesday how this

Iniggestion appeals to you

Very truly yours,

POTTER, CHOATE cS., PRENTICE, NEW YORK.

PRIVATE WIRE TO

FIRST TRUST & SAVINGS BANK,
191

Chicago, Ill.

ENJ.

STRONG
GOVERNOR

27
YOUR
LLT REGARD

JR
FEDERAL RESERVE

N. Y.

PINE ST.

LETTER RECEIVED.
TO

ARE SOLICITING
DISTRICT.

EIGHT

ANY

HERE

UP TO THE

MAY POSSIBLY

MILLION

DO NOT THINK

HELP MAKE UP

BANKS

COTTON LOAN.

MILLION IN CHICAGO WrilCF

BANK,

NOT

AT ALL

ENTHUSIASTIC

PRESENT HAVE
BE

ONLY RAISED TEN

INCREASED TO TWELVE MILLION.

FROM OTRdM RESERVE CITIES

THERRPORR

SHORTAGE IN THE

CHICAGO
FUND.

CAN BE
PLEASE

SONAL AND CONFIDENTIAL.

JAMES B. FORGAN.

11 25 A

17 THIS

COUNTED UPON TO

CONSIDER THIS

PER-

COPY OF TIZalliAll.

Chicago, Ill., Sept. 10, 2915.
Joe I Forma
Biltmore Hotol I Y

On behalf of the Moods of Peace we oall your attention to an
editorial in a Chicago paper this morning Which begins nnd ends

as follows ", Caution and forothowpt are highly dosirable in
Amprioan BOMMeg Oporations with Bump° at this time when we

leuel monoy to our trade rivals to spend in our oountry

r2he

profit is not Bo groat as it 00016 nnd money loonod for tho nor-

1 enterorisee of the country is better invested from the point

of via; of the country at large"

In Addition to this quotation

we desire to say that a tremondous loan small

is plummet would

be not only tummutrn1 but uould involve our nation in the out-

come of the ruropcan war in addition to dangerously diverting the
deposits of Avoriova citizens and the motley of the American peo-

ple in the Federal reeugle banks;

Friends of Peace;

Mee, AeG Shpppard

renlirrvidEnneon

Joremioh A OLearl;

Aanal Committeommi

COPY OF Tia2Ualdl.

Ghicago, Ill., Sept. 11, 19113.

mr. James B. For.*
Biltnore

The Friends of Peace sent you an open telegram this morning

we desire to say to you privately thst perhaps the best reason
why me suSh loan as le contemlated should be mods is that the
events in Atrope Chau the Allies will be defeattY1

the half a

billion loan will be but a drop In the bucket am& will not
Change the out

the future
loan busbassi

but It will mr-ike Germany the world power of

the mew not only at IsertOrm finances but Amer..

asw is the massat for Assrissubseinese to

lay tho foundation for future'friondly mastless with Germany

we migyt add that the depositors of this country will not stand

for this loan oven tholgt :merionn securities are deposited as
Collateral

the write of 1907 desesstrated how low oven Amer-

ican securities may fell.

Friends of Pearce,
Mrs. 17116 G. Sheppard,

Fernand Hansen,

Jermaah A Cleary
National Cormitteen0a.

Eetes Park, Colo.,

October

12th, 1916.

Dear Mr. ?organ:

It was a great pleasure to receive your letter of Octoe
her 10th and 1 am glad to feel that you were agreed with the
views expressed in my letter to

r. McDougal about our foreign

arrangements.

There seem to be difficulties in the way of concluding
the tentative plan which I discussed in London and until word is
received from Washington that the arrangement is approved, I
hardly feel justified in making
the reeerve banks.

a final detailed report to all of

Let me say to 'you, confidentially however,

that the arrangement iv one which can be safely undertaken at any
time as the reserve banks will

be protected by undoubted

tees and the account will be conducted on a

gold basis.

guaran-

The pa-

pers have already beni prepared and n. scheme outlined for me:aging
the account, all of which will be
necessary approval is received

submitted just as soon as the

from Washington.

Ur. Vanderlip and Mr. Trumbull have been here with me for.
a week

and we had a delightful visit.

have discussed this matter agrees with

Ur. Vanderlip, with whom I

the views expressed jr your

letter without reservation.
hoping that you keep well and thanking you for the., kind
expressions contained in your letter, I am,

Very truly yours,
James B. mpo, Esq.,
The-TIFA' at ó'1I.

Chicago, Ill.

100

OFFICE OF
CHAI R MAN OF'TH E BOARD

THE

FIRST NATIONAL BANK
CHICAGO

October 10, 1916

Benjamin Strong, Jr., Esq., Governor,
Federal Reserve Bank of New York,
New York
N Y
Lear Mr. Strong:-

I hhve rend Mr laDougal's letter to you
and your answer of 23rd ulto.

of 20th ulto.

Mr. McDougal has asked me to write you nn expression of
opinion of the tentative plan you suggest for the Federal reserve banks
engaging in foreign exchange business.
flly

The position you take it seems to me is the only sensible
and practical one to be taken.
Under no circumstances should the Federal
reserve banks enter directly into open merket competition with their member
banks in a line of business which in normal times through keen competition
among themselves is done on a smaller margin of profit than any line of
business in which they are engaged.
The Federal reserve banks could
not undertake to do all the foreign business and should they enter into
open market competition with their member banks for a part of it they
would only be a disturbing element in the field.
They might do enough
business to enable them to quote rate e that would govern or control the
Thdr more advantageous position in regard to what their money
market.
costs them would certainly enable them to quote rates with which their memConsidering that the money they use is
ber banks could not compete.
that of their member banks this would be a most unfair and iniquitous
situation for them to create as it might compel the member banks to do the
larger part of the foreign exchange business at rates based on Federal
reserve bank quotations.
Your plan of having the Federal reserve banks buy sterling
when rates reach or fall below the gold import rate and of their accumulating balances in London to be invested in the highest grade of bills
current there until through changed international conditions it might be.
desirable for them to furnish the market with exchange to prevent the
outflow of gold from this country, appeals to me as the only feasible
way for the Federal reserve banks to enter the foreign exchange field.
Such a method of handling foreign exchange could be made profitable' to the
Federal reserve banks and would be a steadying factor in the foreign exchange market to the benefit of all interested.

http://fraser.stlouisfed.org/
Federal1\Reserve Bank of St. Louis

The Federal Reserve Bank of New York should represent all

OFFICE OF
CHAIRMAN OF THE BOARD

THE

FIRST NATIONAL BANK
CHICAGO

B Strong-112

the others wishing to participate in the business.
Each Federal reserve
bank should contribute an amount in proportion to its capital to be invested in foreign exchange.
An expert foreign exchange man should be
employed and placed in charge of the department in your New York office:
This would be much better than having the twelve banks operating independently which I du not believe they could do either to their own advantage
or to the advantage of the market.

I will await with interest your complete report for further information as to how you propose to conduct the details of the businese.
I am very glad to hear encouraging reports on the improved and
improving condition of your health and with kindest regards, I am,

Very truly yours,

,.Afte)

EMILWESEVVETTER

HENRY DEEG, Ass, CAsHIER.MGR.BoNo
GEORGE H MOCK.A,IsTANT CASHIER
ALBERT E.FRECH, ASSISTANT CASHIER.
J.W. KAISER, AuorroR

L.FWESEWETTER,
C.FWERBNocEPREstott,
FRANKL.STEKCA.ItER

The Ohio National Bank of Columbus
CAPITAL $400,000.

SU PWS$400,000.

Columbus, Ohio,
C7

Bankers Trust Co.,

New York City.

t rr2t, 19tE
1914

OCT

titEr.?,i) ro
OFFICE

Gentlemen:
,

Our Clearing House Association has been

notified that it is desirable that it contribute $500,000.
toward the gold pool of 0112.aaa,a0C..aal-aich is in some
way to assist buirff'e'rl-Iriaitions in this country by a

deposit of certain portions of that sum with the branch
Of the Bank of England in Canada. We have not yet seen
a good reason for our joining in such a movement and write
to ask you whether you have joined the movement and are going
to put up your proportionate share. If so, what are the
reasons for your action?
Our reserves in Columbus are not excessive.
On the contrary, at the last published call on Sept. 12th,
all of the banks, with possibly one exception, showed reserves decidedly below the legal requirements, and, of course,
below normal. We are paying all demands in cash here in
Columbus. We are taking no notices of any kinds. We h-lve
issued no Clearing House Certificates of any kinds. We have
taken care of the needs of our customers to the fullest extent.
Pay rolls are going in cash as usual. We, therefore, need
our funds at home and will not send them away except for
some urgent reason.

We have so far seen no reason given that

impresses us sufficiently or that is definite in its application to the question at issue. We have heard it stated that the'money so raised is to create exchange or. is to

pay same one's debts in Europe. We don't owe anything there.
If we did we would make arrangements to pay. It looks very
much to us as if this movement were disguised under another
name similar to the one which was proposed by J. P. Morgan
& Company some weeks after the war started to float a French
loan in this country. In this instance it is for the English. We do not believe that under any consideration we

O. N. B.

Oct. 2

SHEET No.

191

Bankers Trust Co.,
New York City.

should render financial assistance to any of the
If ye owe anything on the other side,
belligerents.
let those who owe, pay, upon the presentation of the
notes, in gold, if the contract so specifies, at the
point designated for payment. That, it seems to us,
is an individual matter.

There is no reason why this bank or our
Clearing House here should mix in such affairs. If the
foreign countries want our food stuffs or other products,
we shall be perfectly willing to sell them and receive
in payment gold or any obligations that are due in this
country, if they are acceptable to us, and we are satisfied that they will be paid on presentation, of any of
the securities of corporations in this country; the latter,
however, to be taken at our price.
It seems to us that this is the only logical way to work the thing out and does not call for concerted action on the part of the banking fraternities in
this country. We are not interested in transactions between Europe and their debtors onithis. side of the water,
except in so far as we might have them'among our custaners
we or might ourselves be one of such debtors. Inasmuch as
we are not in this class, neither are any of our customers,
we positively fail to see why the proposition to contribute toward a gold pool to be deposited in Canada should
have any appeal to us.

We shall be very grateful to3pu if you can
point out some specific reason wlqy we should join this movement and thank you in advance for your reply.

Very truly yours,

__-

Vice President.

The Ohio National Bank of Columbus
CAPITAL PAID IN

SURPLUS 8 PROFITS

$400,000.

500,000

Columbus, Ohio,

v4,0

oct. 8, 1914.

OCT 10 1914
REFERRED TO

OF Fl CE

Mr. Benjamin Strong, Jr., Prest.,
Bankers Trust Co.,
New York City.
Dear Sir:-

ts,";\
?

Thank you very much for your explicit
and enlightening letter of the 6th with reference
to the gold pool.. As a result we, in Columbus,
have pledged ourselves to contribute our portion.
Allow us to extend our heartiest con.-i
gratulations to the Federal Reserve Bank of New
York City, upon your selection as the Governor.
We feel that they are particularly fortunate in
obtaining your services. We realize how much of
a sacrifice you are making and sincerely admire
your patriotism in doing so.

Very truly yours,

Vice President.

MEIVED
OCT IA 1914

IIZA

TELLERS DEPT.

t_c

CAPITAL, SURPLUS AND UNDIVIDED PROFITS 530,000,000
IR)

Jill)i

$15-' loe
GEORGE M. REYNOLDS, PRESIDENT
RALPH VAN VECHTEN.
ALEX ROBERTSON,

HERMAN WALDECK,
JOHN C. CRAFT,

VICE PRESIDENT
VICE PRESIDENT
VIcE PRESIDENT
VICE PRESIDENT

JAMES R. CHAPMAN, VICE PRESIDENT
WILLIAM T. BRUCKNER, Vict PRESIDENT

NATHANIEL R. LOSCH,
JOHN R.WASHBURN,
HARVEY C. VERNON ,

CASHIER

ASST.CASHIER

Ass', CASHIER

EDWARD S. LACEY,

ASST. CASHIER

DAN NORMAN,

ASST CASHIER

Ass, CASHIER
Assr. CASHIER
WILSON W. LAMPERT, Ass r CASHIER
GEORGE A.JACKSON, ASST.CASMIER

CHAIRMAN OF ADV,SORY COMMITTEE

WOW',

GEORGE B. SMITH,
WILBER HATTERY,
H. ERSKINE SMITH,

August 21, 1914.

Benj. Strong, -Jr., Esq., President,

AUG p 4 1014
REFERREb TO

Bankers Trust Company,

OFF I CE

New York., N. Y.

Dear Sir:

In response to your telegram of even date,
we beg to confirm as follows:
"Your telegram received. Brokers mentioned
will supply information asked provided New York and
other note brokers do likewise and that they be supplied with the results when compilation is completed."

Er. Waldeck has been ill for several weeks and

absent from the office and contemplates going to Atlantic City
early next week to recuperate.
Years very truly,

Vice President.

CAPITAL, SURPLUS AND UNDIVIDED PROFITS $ 30,000,000

(0`
GEORGE M. REYNOLDS, PRESIDENT
RALPH VAN VECHTEN,
ALEX ROBERTSON,
HERMAN VVALDECK,

JOHN C. CRAFT,

VICE PRESIDENT
VICE PRESIDENT
VICE PRESIDENT
VICE PRESIDENT

NATHANIEL R. LOSCH,
JOHN R. WASH BURN.

HARVEY C. VERNON,

GEORGE B. SMITH, Ass-r CASHIER
WILBER H ATTERY,
Assr. CASHIER
H. ERSKINE SMITH, ASS, CASHIER
WILSON W. LAMPERT, ASST CASHIER

JAMES R. CHAPMAN, VICE PRESIDENT
WILLIAM T. BRUCKNER, VICE PRESIDENT

CASHIER

ASST.CASHIER
ASST CASH ER

EDWARD S. LACEY,
CHAIRMAN OF ADVISORY COM M ITTEE

DAN NORMAN,
ASST. CASHIER
GEORGE A.JACKSON, Assr, CASHIER

* August 22nd, 1914.

Benj. Strong, Jr., Esq.,
c/o Bankers Trust Company,
New York City.
Dear Sir,

Te beg to acknowledge receipt of your telegram of even
date reading as follows.
"Thanks for wire. Not important to have inrornation.
That We now have indicates considerable broadening and improvement in market.
Will ask you to thank your friends and say
information not now needed "

We have accordingly advised our friends, and they will
not now trouble to get up the information you desire.

Yours very truly,

Vice President.

A,,,4,C,t,4tete

W.7.11-100 ECKS.-6.21
1

FEDERAL RESERVE BANK
OF 'Nay., YORK

COPY TRANSLATION OF

L/1

Form 1228

arge to the account of
CLf,\S. OF SERVICE DESIRED

T,,trarn
Day Letter

VVESTE

Night Message

TEL

Night Letter

Patrons should mark an X opposite the class of service desired;

OTHERWISE THE MESSAGE
WILL BE TRANSMITTED AS A
FULL-RATE TELEGRAM

Benj. Strong. 15 Nassau St.

NEWCOMB CARLTON, PRESIDENT

Receiver's No.

WM ERWIN.

Check

Time Filed

GEORGE W. E. ATKINS, FIRST VICE-PRESIDENT

Send the following message, subject to the terms
on back hereof, which are hereby agreed to

November 17, 1221.

J. J. Rowe
Vice President, First National Bank,
Cincinnati, Ohio
My associates in the National Budget Committee are anxious to secure
the active cooperation of Mr. Charles Taft in the work of the organization
Could you assist us in persuading him that this important work deserves his
earnest consideration

The ultimate success of plans at last inaugurated for

sound government finance depends upon the continued interest of the public
which-will only be accomplished through the energetic support of men of
influence

Please wire me care of Federal Reserve Bank
Benj. Strong

ALL MESSAGES TAKEN BY THIS COMPANY ARE SUBJECT TO THE FOLLOWING TERMS:
To guard against mistakes or delays, the sender of a message should order it REPEATED, that is, telegranhed back to the originecing offee for compel' L.4 For
this, one-half the uurepeated message rate is charged in addition. Unless otherwise indicated on its face, THIS IS AN UNREPEATED MESSAGE AND F .O FOR
AS SUCH, in consideration whereof it is agreed between the sender of the message and this Company as follows:
The Company shall not be liable for mistakes or delays in the transmission or delivery, or for non-delivery, of any UNREPEATED message, beyond the amount
received for sending toe same; nor for mistakes or delays in the transmission or delivery, or for non-delivery, of any REPEATED message, beyond fifty times the
sum received for sending the same, unless specially valued; nor in any case for delays arising from unavoidable interruption in the working of its lines; nor for errors in
cipher or obscure messages.

In any event the Company shall not be liable for damages for any mistakes or delays in the transmission or delivery, or for the,non-delivery, ofthis criec. ge,
whether caused by the negligence of its servants or otherwise, beyond the sum of FIFTY DOLLARS, at which amount this message is hereby Valued, unless a greater
value is stated in writing hereon at the time the message is offered to the Company f or transmission, and an additional sum paid or agreed to be paid based on such value
equal to one-tenth of one per cent. thereof.
The Company is hereby made the agent of the sender, without liability, to forward this message over the lines of any other Company when necessary to reach
its destination.
Messages will be delivered free within one-half mile of the Company's office in towns of 5,000 population or less, and within one mile of such office in other cities
or towns. Beyond these limits the Company does not undertake to make delivery, but will, without liability, at the sender's request, ae his agent and at his expense.
endeavor to contract for him for such delivery at a reasonable price.
No responsibility attaches to this Company concerning messages until the same are accepted at one of its transmitting offices; and if a message is sent to such
office by one of the Company's messengers, he acts for that purpose as the agent of the sender.
The Company will not be liable for damages or statutory penalties in any case where the claim is not presented in writing within sixty days after the message
Is filed with the Company for transmission.
Special terms governing the transmission of messages under the classes of messages enumerated below shall apply to messages in each of such respective classes in addition
to all the foregoing terms.
No employee of the Company is authorised to vary the foregoing.

THE WESTERN UNION TELEGRAPH COMPANY
IN

NEWCOMB CARLTON, PRESIDENT

CLASSES OF SERVICE
TELEGRAMS
A full-rate expedited service.

NIGHT M ESSAGES
Accepted up to 2.00 A.M. at reduced rates to be sent during the night
and delivered not earlier than the morning of the ensuing business day.
Night Messages may at the option of the Teleg,raoh Comp my be

mailed at destination to the addressees, and the Company shall be

deemed to have discharged its obligation in such cases with respect to
delivery by mailing such Night Messages at destination,postage prepaid.

DAY LETTERS
I

A deferred day service at rates lower than the standard telegram rates as follows: One and one-half times the standard Night
Letter rate for the transmission of 50 words or less and one-fifth of
the initial rates for each additional 10 words or less.

SPECIAL TERMS APPLYING TO DAY LETTERS:

In further consideration of the reduced rate for this special "Day
Letter" service, the following special terms in addition to those enumerated above are hereby agreed to:

Day Letters may be forwarded by the Telegraph Company as a
deferred service and the transmission and delivery of such Day Letters

is, in all respects, subordinate to the priority of transmission and

delivery of regular telegrams..
Day Letters shall be written in plain English. Code language
is not permissible.
c. This Day Letter may be delivered by the Telegraph Company
by telephoning the same to the addressee, and such delivery shall be a

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

discharge of the obligation of the Telegraph Company to

D. This Day Letter is received subject to the express understanding and agreement that the Company does not undertake that a Day
Letter shall be delivered on the day of its date absolutely and at all
events; but that the Company's obligation in this respect is subject
to the condition that there shall remain sufficient time for the trans-.
mission and delivery of such Day Letter on the day of its date during
regular office hours, subject to the priority of the transmission of regular telegrams under the conditions named above.

No employee of the Company is authorized to vary the foregoing.

NIGHT LETTERS
Accepted up to 2.00 A.M. for delivery on the morning of the ensuing
business day, at rates still lower than standard night message rates, as
follows: The standard telegram rate for 10 words shall be charged for the
transmission of 50 words or less, and one-fifth of such standard telegram
rate for 10 words shall be charged for each additional 10 words or less.
SPECIAL TERMS APPLYING TO NIGHT LETTERS:

In further consideration of the reduced rate for this special "Night

Letter" service, the following special terms in addition to those
enumerated above are hereby agreed to:

Night Letters may at the option of the Telegraph Company
be mailed at destination to the addressees, and the Company shall

be deemed to have discharged its obligation in such cases with respect

to delivery by mailing such Night Letters at destination, postage
prepaid.
Night Letters shall be written in plain English. Code language
is not permissible.
No employee of the Company is authorized to vary the foreom'no.

COPY OF LETTER

November 18, 1921.

FIRST NATIMAL BANK
GINCIrTATI, 0.

Mr. Benjamin 'Strong,
Federal Reserve Bank,
New York City, N. Y.

Dear Mr. Strong:
Upon receipt of your wire to-day, as I wired you,
I called upon Mr.

P. 'Taft, and he told me that41he was much

in sympathy with the work of your Committee.

Be said he 'would

be glad to cooperate personally mid further would see that the
movement received the support of the Cincinnati Times Star.

With best wishes for the success of the work undertaken by your Committee, I am,
Yours truly,

(Signed)

J. J. Rowe,
Vice President.

November 21, 1921.

Dear Mr. Rowe:

I thank you for your letter of the 18th, and your telegram
of the 19th, advising that you called upon Mr. Taft and that he will
be pleased to cooperate personally in connection with the activities
of the National Budget Committee, and would see that the movement re-

ceived the support of the Cincinnati Times Star.

It ras most kind of you to bring the matter before Mr. Taft,
and I greatly appreciate your help.
tith cordial regards, and renewed thanks, believe me,
Yours sincerely,

John J. Rowe, Es.,
Vice President, First National Bank,
Cincinnati, Ohio.
GB: felk

t
f-

E. F. SVVIN N EY, President

H. T. ABERNATHY, Vice-President
A. C. JOBES, Vice-President.
C. G. HUTCHESON, Cashier
G. P. REICH EL, Asst. Cashier
C. W, ALLEN DOERFER, Asst. Cashier

THE FIRST NATIONAL BANK
OF KANSAS CITY, MO.
CAPITAL
SURPLUS
UNDIVIDED
PROFITS

$1.000.000.00

- $1,000,00000
S1.000.000.00

September 26, 1914.

Mr. Benjamin Strong, Jr.,
Bankers 'Trust Company,

SEr-g# 1914
New York City.
74 dear Mr, Strong:

Yours of September 23rd is received.
I had letter from Mr. Forgan yesterday saying that the
amount Kansas City would be asked to furnish pertaining
to raising the ,.100,000,010 in gold would be !;t1,000,000.

We had meeting yesterday and decided at once that we would
be more than glad to comply with the request.
I hope there will be no trouble in
consummating the deal.
It is a proposition we are not
clear upon, though, as we were under the impression when
we met yesterday that we were to simply give New York the
I
gold and get credit on their books for same at ortoP.
am afraid some of the banks here,when they find that
this is a syndicate to handle exchange, may not be so
enthusiastic about the proposition.

(7A-124._e,e4;"

/f.g.r

TO BE RELEASED AIThRNOON PAPERS JULY 11, 1925.

From a speech of M. A, Traylor, President
First National Bank of Chicago, before the
Montana Bankers Convention Glacier National
Park, to be released July 11, 1925.

Throughout the entire period of depression, which began
in 1920, the live stock industry has suffered perhaps more severely
and continuously than any other industry in the country.

A great

deal has been said about the conditions of the live stock producer
both in Congress and out.

Many reasons have been advanced for the

smash up in the industry, and even more remedies have been suggested
looking to the recovery and rehabilitation of the business..

Perhaps

allof the suggested causes were more or less correct, but personally
I think it doubtful if many of the remedies have possessed any considerable merit,

Without any fear of successful contradiction I think it may
be said with a good deal of emphasis that -the fundainental causes - first,

of the tremendous shrinkage in values which over-took live stock prices,
and second, that have since contributed to their very slow recovery - are

those with which we have been familiar throughout all our history and

which have affected every line of endeavor in exactly the same manner
when applied, as they were applied to live stock production.

The facts

simply are a case of over production, and following the war, a curtailed
demand.

As applied to cattle, which have suffered and which continue

to suffer most severely, figures indicate that for several years prior
_
to the outbreak of the world war, supplies had little more than,

equalltd the increasing demand of a growing population.

i f,

In fact the

number of cattle in the country in 1914 were less than in 1907, whereas,

due to

the demand of the world war and stimulated by a flood of easy

money for financing the industry, the number of cattle other than milk cows
in the country increased from 1914 to 1920 more than eight million head or
about 23%; whereas the population in the United States in this period increased only approximately 6 1/2%.

Since 1920 there has been a substantial.

shrinkage in the number of such cattle in the county, and yet we find in
1925 that the estimated number of cattle is approximately 18% more than in
1914, while the total population increase in the period of 1914-1925 is only
about 13%.

In view of these facts, we could have expected nothing else than that
when the war demand ceased and producers were thrown back upon the consumptive
demand largely of our own population, we would meet
as occurred in 1920.

a decline in values such

Nor is there any reason for surprise that prices have

not improved in the period subsequent to 1920, because the supply has simply
been out of proportion to our domestic demand, ancrwe have not been able to
recover any subtantial export business for beef products.

We hear a great

deal of complaint these days about the American demand and criticism in some
directions because the American people do not eat more beef, but the last
figures available indicate that we are still consuming in excess of 165
pounds per, person per year, which is no moan showing and quite the average,

and it seems to me that we may look for little relief in that direction as
;ong as our supplies continue in the quantity now available.
If we are correct in these fundamental facts then what is the
future of the industry and may we hope again to see the producers of live
stock rewarded in proportion to their investment and cost of production.

does no good to criticise the actions of those who financed the industry or
of the producers themselves in what has passed.

It may be admitted without

argument that the financing of the industry, in the period from 1914-1920
particularly, was extravagant, unsound and even reckless, but there were two

parties to the contracts for borrowed money, and the producer on his end
was equally responsible with those who financed the industry for the foolish
things done by both.

In saying this it must be kept in mind also that in

every other industry, and in every other line, borrowers and lenders were

equally unwise and unsound, and we must keep in mind also that those in other
activities suffered equally and in some instances perhaps more severely than
did the lenders and producers in the live stock industry.

That whole picture

is of the past, and just as bankers and business men in other lines of activity have had to "right about face," clean house and plan along wiser and
safer lines, so must the producer of live stock chart a new course for his
future operations.

I would not undertake to pi-ophosy as to what this new schedule will

be, but looking back over some twenty years more or less intimate contact with
the industry, it seems to me that there are a few salient facts which those
who would engage in the enterprise in the future should not overlook.

First

of all, it will never again be profitable to operate large herds of medieefft
stuff.

Most of the grazing lands in the country,

whether

rightly or not,

tre now held at too high figures to ever permit successful operation after
the old fashion, and the prohibitive cost of doing business in the old way,
with the incident death loss and other wastage suffered by the big operator,
are too tremendous to permit a continuation:

of production on that scale.

As in every other line of activity, it seems to me that the future
successful live stock producer will be that one who intensively and
4

intelligently handles a smaller herd of the higher grade stuff, where personal
attention and close application to every detail of the business will make it
possible to turn out in the shortest period of time the most desirable qualities of stuff.

I may be wrong, but it has always seemed economically un-

sound to me to continuously stock northern pastures with southern bred cattle.

The hazard involved of trancportation, acclimatization and the long period
necessary thereafter to prepare for market beef after this fashion, is in my
()Pinion too great to warrant its continuation, and my guess is that the

successful growers of live stock in Montana in the future will be those
who with care select their foundation herds, breed their own offspring,
at one

or two years old prepare this

and

young stuff, in part in the feed lots

of this state and in part for the feed lots of the central Mississippi Valley
states.

Together with this scientific production we must have intelligent

education of the value of beef as a food product and untiring effort to increase consumption in
export demand..

this

country, with a policy of broadly extending our

In this connection there has been no more important event for

the farmer and stock man of Montana since the Armistice than the recent return
of Great britain to the gold standard.

It seems a long distance from the

Montana farm to the gold vaults of the Bank of England, but as a matter of fact,
the price which the Montana farmer gets for his wheat and cattle depends not
a little on the gold in the vaults of the Bank of England.

Bet me explain,

The farmer sells his wheat to the elevator .man and yet the real

buyer, in many cases, is net the elevator man at all but an Englishman, a
-Frenchman, a German, or an Italian, whom the farmer

never sees, for about

one-third of the wheat crop is usually sold abroad, either in grain or in
flour, and it is this exportable part of the crop, varying from year to year,
which is a large factor in fixing the price of the entire crop.
Between the farmer and the unseen foreign buyer of wheat there are

many cteps, but in recent years the most important step has been that at which
the foreign buyer has to pay the American exporter,

For the international

mechanism of payment has been badly out of order because Europe was off the
gold standard,

bargained

It is just as though an English buyer drove up to your farm house,
for your wheat and drew up the contract.

But when you discussed

payment, he said: "I'm sorry I haven't any good United States money to pay you
with;

I'll have to pay you in my English paper money, which isn't worth its face

value in gold.

I don't know what it may be worth next week, but that is your

risk."

I wonder how many of you would be willing to sign contracts on this
basis.

Yet that is the way most of the world's trade has had to be carried on

since the Armistice,

In practically all countries except the United States the

local currencies have had no fixed value in gold, but have changed in value from
day to day.

Whenever one country sold anything to another country, somebody

had to take the risk of loss because the value of the money might change before
payment was nade.

Such uncertainty of payment is a deadly foe to trade, and people
were afraid to do any larger international business than they had to.

World

trade in 1920, 1921 and 1922 dropped off to a point nearly one-third less than
before the war.

Exports of -food stuffs from the United States fell from 2 1/2

billion dollars in 1919 to eight hundred millions in 19234

and the difficulties

of European buyers in making satisfactory payment for American farm products
was one of the large factors in the drop in the prices of farm products.
But now the recent action of Great Britain in declaring that it will
again redeem its paper money in gold means that British buyers of American
products can pay for them with money which has a fixed value, money which is
accepted the world over at its face value in gold.

With the return of Great

Britain to the gold standard, a majority of the countries of Europe now have

paper currencies equal to gold.
American bankers have assisted in the British return to the gold
standard by giving a $100,000,000 credit to the British government.

But more

important than this was the action of your Federal Reserve Bank and the other
eleven reserve banks in granting the request of the B ank of England for material

co-operation.

They have, as you know, placed

200,000,000 gold at the disposal

of the Bank of England for two years, to be used by it, if necessary, in maintaining the gold standard.

have no doubt that the readiness of the Reserve Banks

thus to co-operate with the Bank of England was an important influence in the
willingness of the British people to take this all important step for the
preservation of the gold standard.
This action of the Reserve Banks was a most constructive step in aid
of American farmers and producers who will benefit greatly by the removal of
this element of uncertainty from their export transactions.
If all the sins of omission and commission charged against the Federal
Reserve System by banker, business man, live stock man or political blatherskite
in the last five years were true, and practically none of them are, the service
rendered the commerce and industry of the country and of the world by the System
in connection with the restoration of the gold standard in so large a part of the
world would far outweigh any mistake that those in charge of the System may have

made; and no baner, business man or farmer should permit any self serving
declaration by favor seeking demagogue to swerve him from a determination to
see that the System is maintained and preserved for the future welfare of the
business of the country.
Not alone in connection with this matter, however, has the Federal
Reserve System been of service to our people.

Notwithstanding we hear

frequently these days expressions of dissatisfaction with business conditions,
we know very well that fundamentally conditions are very sound and that we are
actually doing a very large volume of business, no little part of which is duet
to the equalizing and stabilizing effect exercised by the Federal Reserve System
on the credits of the country.

Throughout all the stress of the last five years.

there have been no times of either stringency or plethora of bank credit,

have run

Rates

along on a rather level keel and in my judgment have had much to do with the

stable volume of business which we have enjoyed, and which ic quite contrary
4

to the old experience of the aftermath of panics, when the first effect has
been very cheap credit and secondary inflation, with its accompaniment of
tight money again and a further depression.
Whether the new method of conducting the business of the country is
to be permanent or not, one cannot very well guess; but it is very certain that
at the present time the so-called hand to mouth buying is very soundly entrenched,
that it is sane and makes for steadier and more wholesome conditions seems to me
obvious.

With greatly expanded facilities for manufacture

with the best trans-

portation system in the world, and with assured credit facilities for handling
the needs of business, it would seem unreasonable that we should in the near
future resort to the old method of speculation such as is inseparably tied up
with large future commitments in anticipation of buying demands.

If we will

preserve our transportation system in its present state of efficiency, together
with a credit structure as only the Federal Reserve System can guarantee', I feel

we need have no apprehension but on the contrary sound optimism for the future.

7/18/25,

TARIFF IN KIND:

On the plea of necessity by the War Department to accumulate

and store stocks of essential supplies of limited domestic production, such as

manganese, the proposal is being tested in official circles that a special
tariff be imposed on such commodities, payable in kind instead of in cash and
turned over to the Department.

Permission granted to the Navy, under an appro-

priation bill, to bring in emergency material duty-free is being pointed to as
a precedent by which the plan might be carried out without tinkering with the
tariff law.

So far, strenuous objection to the proposal has been voiced in the

Treasury.
GOLD:

A similar use of the tariff is being urged to stimulate gold production

by those who formerly supported the McFadden bill which would have subsidized
producers through an excise tax on gold used in the arts.

The proposal now is

to allocate a percentage of customs receipts from a specific list of commodities to a fund from which would be paid a bonus to gold producers of, say, one
cent per pennyweight for each point of the price index above the 1913 average.
It is asserted by one group of official economist

thAt a "long-view" of world

gold production forecasts a short supply to maintain the gold standard at an

increased price level like the present unless rigid economies are practised in
the use of the metal and its production is increased by the mining of low grade
ores under governmental encouragement.
There is considerable opinion to the effect that important European countries contemplating a return to a gold
basis will find it advantageous to agree with the United
States upon a common program and announce their policies
simultaneously. Otherwise, it is argued, there will be
an unfavorable reaction on the currencies of the lagging
nations which will become more and more pronounced as
the number of those adopting the gold standard increases.
TAXES:

04:

Although as yet little is being said about it publicly, much thought is

being devoted by Administration fiscal experts in the direction of reducing the
tax on corporate income.

Doubt exists as to the political expediency of recom-

mending a flat reduction from the present

laK

It would not be surprising,

"The present", said Melvin A. Traylor, preeident of the First National

Bank and the First Trust and Savings Benk, both of Chicago, "appears to be open
season for criticisms of the Federal Reserve System;

and this is to be expected,

since the charters of the regional banks have so short a time to run.

It is to

be hoped that as the discussion -,rooeeds it may clarify itself -- end especially
that t sharp line, easily discerned., mel be drawn between criticism of the system

itself end criticism of its administration under the law, which are two very difWlthout attempting in any wey to lefticipate the results of the

ferent things.

general discussion, it seems to me important that the basic, though probably un-

unllinchingly

intentional, unfairness of one criticism frequently heard should be
pointed out.

I mean criticisn leveled at the Federal Reserve Board and especial-

ly the Board of the Federal Reserve Bank of Mao-

York, for mAnteining a discount

rate so low as to lend color to the facile charge that the price the businets

pub-

lie pays for money has been lertificielly depressed'.
"The facts may not be called in question.

Money retee have been low.

To what extent, however, this condition is a reflection of the Federal Reserve re-

discount rates is another wetter, that such low rates have reduced

profits of

benkers and have bed collateral effects in other parts of he finFnciel field is
true. But we must look e little farther before we condemn. An efficient banking system must do much more thAs give effect to natural financial laws -- in fact,
one of its most important functions is to head off certain operations of natural
law.

Given a business public that eome(imes loses its heed, as every commerciel

people whose doings
wbere

a.,

power

are of record has occasionally

done, and you must have eme-

that can be exercised to mitigate the consequences which naturalt

law attaches to

hasty

and unwise actions.

Closely akin to this is the power to

strengthen by appropriate action, a place in the finencial fabric where there is
spe;ial strain.

This is what hes happened in the present instance.

The power

o control the discount rate -- without which there could be no effective central
beakino system -- is in its very nature nothing more or less than the power to

'interfere with the outworking of neturol financial low'.

"Let us take it for

granted thot there have been meniLst disadvantages resulting fromlabnormolly low'
money rotes;

what have we to set down on the credit side of the ccount?

The

most hopeful financial event since kugust 1, 1914 -- England's return to the gold
standard.

"What is the test of the mpint,enence by a netion of the gold standard?

The ability of anyone holding en obligation payable in the currency of that nation

to get gold for it.

The existence of emple gold reserves is an important factor

in such maintenance;

but still more important is 3 money merket which c.n instant-

ly commend gold from other money centres, to meet any need that may arise.

From

the dote or the establishment of the gold standard in England early in the last
century up till August, 1914, there tere,many times when the gold reserves in
London were not greet;

but the obligations of the bankers and mercivnts of other

nations were held in London in such volume that h rise in the discount rate would
instantly command gold from Perie, omsterd,m, Frankfurt, and other fin,ncial

capitals, the gold flowing freely to London bec,use the holders of it knew thet
the resources of the London markets were such that they could eomm-nd it .gain at
need.

Gold went to London in obedience to the same law that draws live stock end

iron ore to Chicago -- the law that b thing for ode naturally gravitates to the
best market.

"The restoration of the gold standard in England could only come ebout
by a restoration of London's ability to commend oold enough so that any man with

an obligation payable in London could Qom nd .;old for it.

But how was this con-

dition to be met when the one-sidedness of Omeric s international trade was continually piling up gold in New York?

Obviously the way to ttract gold to Loro"or

from New York yes to mole London a piece where gold could be more profitably emplYo'

in short, to raise the rate paid for its use above the rate paid in New York.

Ihethe-

Ute Federel Reserve Boerd or th8 Board of the Federal Reserve Bank in New

fork, in the adjuetment of the rete of the New York benk, had in mind )41y direct

eseistence to those in Nuthority in finenco in Greet Britain, I do not know, but
by estalishing e minimum rediscount rate of 3% for the New York bank, they die,

undoubtedly contribute greetly to the eolution of the task confronting the British
authorities, and without question mede It eeeier to bring the pound atoning
nearer to par, which moment eventuated in the return to the gold standard.

This

reetoretion of the gold standard bee breeed and reenforced the confidence of every
bueiness man in the world.

w;11 diecueeion as to whether the low discount rate prevailing in New

York is fa good thing in itself' is utterly ueelese end beside the point.
in finance ever etende by itself.

Money and credit ere as internetional as the

there ie just one set of levels for the whole world.

let$

Nothing

The practice& question

ed by the low discoune retee compleined of is this: Is the restoration of the
stenderd by Engiend cf enough value to us in our position both ee the greeteet

gre

creeitor nation of the world end as the greatest eroducer of some helf-dozen of the
world's principal raw materiels to be worth whatever scaling down of profits and
other incidental losses end inoonveniences we have suffered through low rates for
metier

There can be but one enever.

Our ection has meent much for Englend, but

we ourselves neve been benefiaiaries in en amount out of Al proportion to the

cost.

Te hove been strengthening the foundatione of our own houae.

The

action

the Federal .eserve officials was economic stetesmanship of the hiAest order.

7A:.11 significance may be comprehended only by the fee;

but its practical

benefits will be shared by the least and humblest of our workers, end by those de.pendent on them.'

Full text of Papers of Benjamin Strong, Jr. : Correspondence with National Banks : Officers of National Banks in Western States, 1911-1925

FRASER