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Denver, Colorado, January 4, 1917. Dear Warburg: Yours of the 20th came While I was in t mountains. Unfor- tunately I caught cold While there -thich settle A n my left antrum so I have been going to the doctor's twice a day Bi returning for a very unpleasant ilri8atinc-; treatment, have had an avalanche of letters from the off cood de About the Bank of England Board has taken fins s ' be sa 'ed to consent to the appoint- informed of our policy and this is where we don't act for ourselve, es- the othe .nks as well. It would not, however, factory to have too definite an agreement as actio be con. of seeing those boys t matter, particularly as one of those class alone b family 1 am delighted that tne full everything that no en of the mail slide. r. Of course ment. tion preocc letters to write longhand end off to school, so I have le. well as to specific trans- As a practice, anker, you know that banking business cannot . ad in that , but the necessity for comIliiete information the Board can be fully met without anything quite so formal as a regulation to definitely control spocific business conducted from Washington. There will be no difficulty about this, however, for there is no desire, nor has there ever been, to be otherwise than frank with the Board in all of these matters It has never been in my mind that we should conduct extensive transactions with the Bank of England at the present time. I am only 2. ,coor To Mr. Warburillk January 4, 1917. stating personal vieww, but this is about as I felt. The first thing ask each Reserve Bank to name.a limit for its par- ,o do would be ticipation wider present conditions. We would then name a limit for t first appear 40 Our own rhare and 1 have no doubt that the tot at present to you and possibly to many to be larger that we would consider to be the ultimate it for normal under present conditione, except in emergen ies. Having th rate onl- it is quite probable that thefirs tified, but erations limit fixed, a nominal extant, the plan being to buy ose occasions Where the market really broke, and the at which we would buy exchange would be the b uld get as to the gold t in would not advocate any Ili point under present condi 1'4 operations except at levels ange below the rates at Which gold h today would probably be not could be imported without 4 above 4.76. ie r above view w Irchases of bills largely to those of American we were able origin, such as t, our exports of financed by long c modified if as I expect is possible, lls drawn and accepted in London by4acceptors covering , grain, cotton, copper and other goods Which are is. The portfolio consisting of these bills could be larger than those of purely foreign dirtgba. Now of course you know that I am pleased at the action of the Board in approving of this appointment, bet I am sure you are equally aware of the shock it gave me to learn of the announcement. The matter is being. dealt with from New York so I will not refer to it here further than to http://fraser.stlouisfed.org/ say Federal Reserve Bank of St. Louis to you privately that had I been in New York and on the job When this 3. To - ar January 4, 1917. 'aarburg. leAllitl' : ppened, --certainly would have resigned at once, but I am not aoing , to allow this to interfere with the larger consideration, Which is coneludin; the wart< which you and I really undertook in partnership and which is of vastly more importance to me than any personal consideration. 1111111411111 -Just the same it was a pretty stiff blow tha ve taken vould - 0 a rom the closest without a stiff counter for a mtnute, eve riends and .z* associates, There was no any understanding at all in re erence just before I As I stated a understanding. had no olan beyond an sailed and to the members of the character of ar- investigation of cond' and When they should be rangements Which we should undertaken. ng about You are all dead Now for the rest of your letter. rstood as was possible for language This was as c to maae it and followina o the governors, a committee was aopointedA of which Kaino and Which was to work up a re- port on tin Board. bject for submission to the governors and to the Reserve This wa done. The Bank of England plan. was the I moan that two one which you ano had originally discussed, by whic roars ago, or mor we had considered carefully the desirability of as- sociating the Rose e Banks wit,. the great central bans of Europe. This had, of course, always been in my mind as it had been in yours, but I left for Europe under the firm conviciana that no such arrangement would be possible with the Bane. of England or Banc of France on account of their hide-bound traditions and particularly on account of their unap proachability (at least according to mw information) of both Cunliffe and 4. To - Ur. January 4, 1917. rburg: Pal lain. It was, in fact, in my mind that the only way to deal with our lb ae , aa / aa a 4e. business in London and Paris would be through our own representative 'hero and I was considerably surprised on purs ig my inquiries in !ir3, London and Paris to learn that negotiations we d be welcomed by both institutions and upon terms so favorable that th could not be ignored. the censorship made The difficultyof communicatio it oractically Impossible for me vey word of th nation to the office during my stay abroad, ing the Embassy pouch, which I was aware was a very rein d nriviloge and one that I did not care to employ except in eme barrassment There was neve to you/nor any- body as a result o If will see that it contemplate in form any transactions as personally so convinced of the during the period urged ngement now rather than later that I of concl desiraba I will read my nemoranda, you d still would'urge without reservation aCting at once and not later not misue. and me in this or ia aay other matter in regard to the ma Board the bank in New York. and during the last 1 have had no secrets from the week or so I have had occasion to bitterly repent the complete and unreserved frananess with which 1 have always dealt with these matters, just as though we were one family. Don't for a minute think that I am so stupid as not to realize that the Reserve Banks aro not .tlases and that we will be quite unable to cope with the exchange situation maler present abnormal conditions; that is .5 . n. January 4, 1917. ':,arburg. elementary and really kindergarten stuff. the advantage growing out of this As I have repeatedly urged, arrangement lies in the friendly feelinE that will develop as a basis of future operatio and abnormal when the war is over conditions begin to readjust to no again. I regard arrangements of this character as nece and Germany and as one of the most Lm can take for the country's vantage, and I have that the Eeserve Systeu protection and for our o no feeling about possibl f that sort. plications or financial loss ton ut sit d tU I reserve it for discussion e for a good chat. ing its investments after the View You speak Year. it Don't lets you and your letter. me get into any di when we can You really must nce your judgment, as I am sure not let this counsel of timidi has done to some exten political com- j at all as yet. h' We have over OW l70,0 about 000 cash reserve and over .100,000,000 45 000,000 inves about ;;60,000 now so leng is he Mew York bank should run along right invested. It can afford to carry that amount oaded up with long tine government bends, as some of the other banks are and should not be, and 1 present time Ibehind/notes and only think receding at the from the strong position we have taken in market would be very poor policy indeed. the acceptance Don't for a minute think that this acceotance businees is here to stay as yet. The Whole volume of bills in today. this country, bank and trade both, cannot exceed'.200,000,000 The normal volume in London in peace times is about sterling. -A have not scratched the surface yet and for the Reserve Ban 6. . Viarburg. January 4, 1917. to permit our acceptance. rate to follow the call money rats, which is the way it would be interpreted, would be a terrible exhibition of weakness that I would certainly regret. My anxiety about a broad open market for bills is nil; that will come with a rush just as soon as the volume develops, and any day that we withdrew from the market so that rates ran up a bit, you would see t United States. You don't realize I am a distributed in very large volume to interi brokers and the reason thy the New bills se id that now bil banks by the I _s don't buy t 11 over the are being York in greater volume is because they stiok,t vastly prefer to see Now about those renown them all converted into regul , but you know as well as I that it cannot be to use the machinery that is ns are abnormal, we have o ible a. under abnormal condi- tions.. Suppose there are venty-five millions of those renewal bills in the market, whi ly would claim as 'finance paper". You real that out of 4 the Eng/ish olume of say 42,500,000,000 of bills in t in normal times, about ;1,000:000,000 are estimated to be bills of app imatola is character, such for instance as bills drawn by first rate Ne ork institutions and firms with the orivilege of 1, 2 and 3 renewals an( °cured by deposit of New Yora City revenue bills, or stock exchange collateral loans, or even in some cases commercial paper. Such bills are drawn on London from all over the world and in the case of those drawn in New York in the spring of the year When exchange is generally high in anticipation of the flood. of cotton bills, they are always reaarded in London as ,rime bills and are free:; taken by the Bank of England When bearing two good English obligations. 7. January 4, /917. To - Mr. Warburg. The Governor of the Bank of France and M. Robino, the head of their discount department, told me that the same was true of the American fiaance bills in Paris. Those bills are not even drawn directly for exports. Why, therefore, should we balk at a of bills of this character in these unusual tiu ume of say ;AO,000,000 when every effort must be made te finance our commerce. You say that 1 and the Federal Reserve Bank ew Yore ought to - have a definite policy and keep led of it. the record, which briefly i At the time I sailed for Europe the only bills of that charac couple of million, issued holdings of bills o informed you t nk you overlook I had purchased were possibly a own credit and at that time our total d eight, nine or ten million. not awn that we woeildiAleal directly with him in any bill p commit ourselves .to do more than say that ti in point of fact, all of our purchases of the the ills were made .h brokers and most of the bills were sold in ket through bro rs without reaching us. The Brom credit and the first onbright credit been a re the only ones of thig character which had then before I sailed Mr. Kent of the Bankers Trust Co. offered us some of the Bonbright bills - i think less than half a million and I told him that he overlooked my caution that we would not deal directly with the bankers wno were handling these credits, and advised them to pursue Brown's policy, so that the bills would find a normal market. Of all of this I think you are advised, except possibly this last occurrence: Which was the day before I sailed. 8. To Mr. Warburg. January 4, 1917. Since that time, While I have kept fairly closely Informed of what the Bank was doing, I have not been getting the daily reports of transactions that you get, but periodically I do get a list of What the bank holds and two or three times have been sent an analysis of the account, showing how many of the bills were issued under renewal credits. Considering the vastness of the problem of financing our exports, the high character of the acceptors, the thoroughly legitimate character of this business and the care Which has been exercised to keep the total holdings o the !New TorX bank and of the Whole system at a moderate figure, I must say that I have no criticism to make of the policy they have pursned. There was a large purchase of bills at the time of the money bulge, but s\ that struck me as being an admirable policy.and-one which wepust always pUrsua in similar situations. What i do object to and always have objected to is the policy of the New York bank i In buying their own bills instead of letting them go to the market through brokers. but i really cannot feel that these credits are in any way nsound, at any rate in the present volume, nor that our policy has been over liberal in buyinn. them. You know as well as I do that thYilvidence of distrust to Which I referred was not distrust of our judgment, whicn it strikes me becomes ap; parent whenever anything like an emergency, frac),48 the one in December, develops. You also know that there is not the slightest desire on the part of New York to run the Whole system. What part of it we have boon running has been at a personal sacrifice of earnings, of our own position in our own market and, frequently, of our own feelings and self respect, and until this recent development about renewal bills I had felt that we were pursuing a policy of liberality and disinterestedness Which was more particularly to 9. To January 4, 1917. Er. Warburg. the advantage of the Whole system than 1o ourselves, and Which was very greatly in the interest of the kind Of progress which you and your associates want the System to make. How can there be any more frans and constant exchange of views than has taken place between you and me ever gether? The most difficult questions whic cc WO g0 , to harness to- e have had to 3e, those which involved your own political views ab. t the war, we ha,: stood up squarely and faced without reservatio feeling, even on these finance n eace_ other an ,hout hard si .ss has prevailed between us - the same in the B r and, so far as I am concerned, they will continue ot justified and when it is not justified yo Don't you think yours to your own feelings, which it is sort of a one sided part of this difficulty is due tances may thoroughly justify, that dhile the war continues emd that bconsciously affect your riess a littlp? k_ you say in your letter is absolutely true and hits the enough to le you are One nail right on th ea had been in New York a lot of things might not have happened ust as they have. The intimacy of our relations and Our ability to de your Board fra1y with each other was a bond between our office and ooking over the past, I think has solved many a difficult and puzzling situation. Concluding this part of my letter, let me saf that we must both agree to avoid on the one hand an attempt to run the Reserve Bank of New York from ;SIshington and on the other hand, an attempt to run the whole system from New York. This you and I will always be able to avoid by discussion and 10. January 4, 1917. To - Mr. Warburg. exchange of views. Unfortunately, the others, either in you Board or Possibly in the New York office, don't seem to get that fact ai squarely in mind as you and i have. for the past year I notice their earnt are just about equal to ours. It is dUe to thre things: One is the unolutely unjustified fair-distribution of our purchases, Now as to Chicago. investment account in long time Uni ' States bonds third is a narrow policy in avoiding the selling Federal Reserve notes. I would not refer to this a t that I want to point out to you what you may have lost sigh or bank has been a minute and that is that the New sm from the start. 1 could point e Banks, such as the way the to similar situati exchange accounts on't think that i biamo those fel- lows as much as th y are all huaan, they are all trained they all thine that they have got to In moneyosta mita wine*. 'I frankly thine that your energetic criticism of some of our n fermances in New rk are much less justified than they would be if di. ted at some o i.e other banks. We have got a greater responsie others, but we have a closer relationship with you bility than any of the others, and what you want to accomplish in our establish- ment can be brought about across the table very easily, :bile with some of the others dligerent rethods may be justified. I really hope you study those suggestions about the amendments be that I recently sent. The most serious consideration of all will/the charge of inflation and my best suggestion is to prepare for that in advance, have all the figures ready for the congressional committees and 11. . Warburg. To January 4, 1917. be sure and point out that the change .in reserve reluiremonts will not reduce reserves, but will only change their character. I agree with you that somo of the amendments have some dangers in them but think they can be avoided with cdre. Now I know perfectly well that yen are t' York that yo- have been laid In With th 'grippe that you could are good, and spend a woe o. u o Grenade Mr. McAdoo to ces. hheld from annoying a ler coming enough to push he Board can approve. The only thin I feel that I the ban( has been the last - that is to ails of my unfortunate relations with him. o now to recall'lag told him in the ban a stearn help what you say about Starek, but of course know none . amuses eautifna hotel ndum about the new greenback plan ich I am intere if you say o the e with you; it would do us both good. and try and send it t it through, or at and I do wish is balm; and the accommodations T will nrepare a separate ost it c*s..h to go down to outside of Phoenix, Ariz. wher say t: id gone south. get out here so that w could have the word, I will arrange later thi. have eve d and I hear from New it one day that there was the road and that he appeared to be foolish sh it back, but that it was goin,; to roll over him just as sure as he did not get around and help push it on, but if he showed the right spirit and the comptrollers office was reorganized so that we had cherge of examinations ultimately, we would naturally want a good man in charge and ho Jould be the natural choice. but his behavior was convincing me that be was a poor examiner and an'impossible associate unless he changed his course, he need never anticipate having any permanent connection 12. To - Mr. Warburg. January 4, 1917. It loOlcs as though the roller had rolled. Now i don't need to sa:i that there is nothing personal in this letter. It is the same old process of grinding new bearings that at first are a little rough and don't fit. The best solution of most of them will be for me to get back on the job.. have had a nilmber of letters from yo and these have been promptly destroyed exce destroyed a recent one :lhich I had to keep until I hear from you reply to recent I will tear- it up as soon as I get your reply. Please d st Fait Hon. Paul Y. Warburg, Federal Reserve Board, %ashington, D. C. B. S. - CC. 1 ''ut amendments mments, but this. Denver, Colorado, January 5, 1917. 'ear Warburg: :;e1 seem to have difficulty in agreeing this greenback plan. I enclose a memorandum similar to the others, c. enting on the last one you sent me, which I really don't like at all. I view it will be to make the Reserve out ;453,000,000 of gold to redee - us-nts for paying amount of gr cks and to 000,000 of National Bank notes make them the instruments for with a 5% reserve for the r and the United States notes. r effect of the plan as he balance of the greenbacks not affect the consolidation of It the currency, it fai rve Banks, either pense of the opera in the ex- amine overloaded with long time government bonds, loss thereon, and I am sorry to say that I do not s face this question squarely and ask COe not t o make a it at all.. The Reserve Bath and d sound disposition of the matter, or i c.. t underst - awn too many long time government bonds already :le complacency with Which the Board views that Ver. Hon. Paul M. 7:arburg, Federal Reserve Board, ashington, D. 0'. sincerely yours, Denver, Colorado, January 9, 1917. Dear Warburg: you commenting on The various memoranda which I recently the proposed amendments to the Federal Reserve prenared rather hastily as reply to g were, as you know, been delayed for over a wee-i: by my absence in the mountains. go over them o co more and It has not been possible received by the following I want to supplement what ye comments: FEDERAL B1SE1VE BOARD RESPECTING RESERIU° 'MING SECTION 19 ion ti the four following matters? Han the B Bunks in r ttuni one creas oral Reserve 3ank, and particularly night's small co in roe country which are distant more 7 banks, ell take advantage of the proposed change e reeeirements without the reserves, a money a f them must be prepared with sufficient till times to nunication possibility of loss by reason of in- emergency demands at timenhen railroad cola- errupted or slow. Two occurrences will illustrate this point: At the time of the threatened railroad strike I am informed that the banks in the TeNas District whic were then engaged in preparations to move the cotton crops, becaee uneasy about possible interruption of railroad communication and at once began to stock up small bills. If such a situation developed at a time when from motives of economy they had permitted their till money to run down to the minimum in commliance with this revised To LI Junuary 9, 1917. . -;atrburg. reserve requirement much eebarrassment aieht have resulted, had railroad communications actually been interrupted even for a Short period. This development tooe a little different form in Col ado. Lout of the small country banks surrounding Denver keep their n Denver banks. ipal reserve accounts with The eashier of tee bank at Estes ek, data is a State bane, aseed me this summer when the striee whether I did net think it would be prudent for him to bring up from Denver rency because he feared that hi shipments of currency from respondents in this territory. 7wwi :, 075,000 throuehout a orreneondent mieht be unable to get teat to supply all of its sibly :A25,000 of of this -eor- , which ordinarily has deposits of ths of the year, runs up tes clo- posits to about e2 the Park and late rev supply of cur- the When visitors are crowding t be prepared to pay bace in cash poor people who are leaving. Developments 1 o. ina,V many diaferent forma in different sections and a ifferent seasons, which leads to the second seeeestion of means of meet this situation each of the oral Reserve Districts where distances mieht make te nieht be made to carry a supply of aederal Reserve metes in escrow at points Where there are either assay offices or 'mints, or possibly where the Federal eserve Bank would be reeresented by a director Who is an officer of an important national bank. Ue suegestion would be to establish these reservoirs wherever possible under the joint control of the Superintendent of an assay office or mint a a director of a Reserve .202/k, and if ueoessar a third nominee Who would act as a local agency board for the Reserve :lank of the district whose functions would nernally be dormant, 3. To - Mr, earburg. January 9, 1917. but in time of emergency become active. They would have no duties to perform but would nevertheless be the nucleus for u little organization in tine of trouble. To illustrate, in our dies each a fund in Buffalo under the joint control et we might establish Mr. 14040 and possibly the local reeking officer of the Treesury Departs t in the Custom service or even in the Internal Revenee semi another distant point, there is h United States assae office where t be associated with some respons serve beek of Sen Francisco could be done at Los Angeles. mint as well as rintendent would at that city, the Federal Ileing no Seattle director; the same district there is a well organized Unt could be assoc rectors. Tae seperintendent of the Lit 11, President of the Denver national Bane and .sas City iieserve aank, and in addi- tion Mr. la1one or Denver director. After inquiry, 1 believe, s City. with member made at Helena, Boise City and Salt Laze ve no doubt that every Federal aesorve District can be furnished ilities for es ,be Jailing depots of currency under this plan, so that es would fee 'omelet° assurance of being able to get @applies on ,z ee4 e4. emergeacy. In many oases currercy could be delivered even by automobile If railroad communicationems interrupted. This suggestion is somewhat in conformity with the recent unaninous recomeendation of the governors that a system of agencies for Reserve Banes be authevized as much more ocammeical and just as effective as the present provision for branches. The expense for the safe custody of notes and compensation would be negligible in comparison with the expense of a branch. I regard the Above suegestion us an essential part of the plan for readjusting reserve require- January 9, 1917, To - Er. 4arburg. The third point relates to the effect upon the reserve position of meMber banes in cities hore Pederal Reserve banks are established. They are so readily accessible to Reserve banks that they will have no fear of being unable to get supplies of currenc or all conditions reserves and a con- and It opens the door to a possible reduction in ine with the total re- stant expansion of loans at these point c.rre duction of reserve requirements at those centers feature of the plan unless it is feel is a dangerous safegmrded. her the new plan be -Which the The fourth point to c only required reserve is that - t. the 40fierve Jank, may not Gener. to 'conduct their business on a narrou ally develop a tendency stant shipment Of currency, in result eargin of till moue banks and member banks. The triton consists of the amouOt of op- elasticity tional rea Blind - be ear y lead country banks to trim their cash as optional rase close ld be =coon an increased volnee of currency shipments, possible and Which IaVIEV . 909 , either in emit or with eserve banks. 1. 1RataNT OF GRLENBeCa. Since writing you in regard to the amended plan, i notice that the conference of governors has wade a unanimous recommendatioa to the effect that any plan proposed for the retirement of greenhaeks should be smote- plished by issues of Federal Reserve notes. Further thought on this subject (!onvinces me that it eould be a serious mistaee to adopt the plan proposed and one Which unfortunately could net be reendied by later legislation without an admission to Congress that the first plan was a mistake. I think Jartuare 9, 1917. To - Mr. earburee most of tho areerents have alreade been covered in re; other two memorandums. 1 ae convinced that the net result of the proposed plan would be to put the entire trust fund or sold into c lation and to retire the balance of greenbacks by an issue of bond tired notes having only a 0.% reserve. amoum NO. 906 R4DUCTION OF Gal When I wrote you on this subject I had in ml capital and deposits before made. On looking over the Reserve Banes now have deposi all eserve Banes are figures as to ors of reserve deposits had been find that practioally all of the ng tea times the paid in capital; the outlooe for °ermines due to chase and to the inevitable the larger volume increase in hold ads, as well as gradually incteasing interest rates, ban it has been at any time. 1Wen if I doubt if on careful consideration the Board es, d feel wiiling to authorize re-payments in any specific case. Furt n ere, the amender", t is inconsistent with the proposed °Ilene() in rase requirements al a h would result in a very large increase ti deposits on further consideration, 1 eould regret to see this amendment passed. It must be borne in mind thet if opportunity is af- forded to a lot of small country banes to tees advantage of permissive provisions of the statute, they are almost certain to do it from selfish motives and the amendment would be adontod at a time when they are all come plaining about reductions in earnings due to the establishment of the Reserve System. The pressure on the Board might be severe and embarrassing, 6. January 9, 1917. - Mr. earburgs amid be avoided if the Board was not in position to exercise any discretion in the matter. moneeeenDlle NO. 907 RBTIREMENT OF NATIONAL BAN. NOTES. My -former memorandum failed to make clear the argument respect- selling at about 101-1/2, notwithstanding s are selling circulation p lieges, are difference of 1 n the return. Consequently, an increase in intere in this count ing prices of government bonds. At the pre at ear and the conversion 3's, Which have tend to brin government bonds time th Which would at basis in line with other investment so a,geeater decline in the 3's Which have no cireula 4 in the 2's which have. a special value in the This differential of 1-1/2; in favor of the 3's mieeet possibly 5;1 at a gpess, obliested to buy at leas the Res Nres in the one arala changed into a differential of 2's. With the Federal ileeerve Banns of 2's per annum at par, miabt see te position of being obliged to write off million every year in their investment accounts This would all be cured if scretion s vested in the Secretary of the Treasury to t on the conversion 3's whioh mould eonform reasonably fix a rate of in to the investment is at Which government 3's without the circulation privilege were selling. This danger would, of course, be reduced - possibly eliminated if amendment No. 912 is passed so that Reserve Banks need not buy the minim= of 425,000,000 a year, in which case the unforturnte effect of the two amend- ments would be to entirely nuilfy all provisions of the Pederal Reserve Act for prompt retirement of National Bank notes. To - Lir.Warburg. january 9, 2917. These amendments providing for prot retirement of National Bank no esmay prove to be dangerous so far as they are mandatory, but most advantageous if they are discretionary. lo one can tell what develonments are in store for us as a result of the war it prudent to ask for greater discretion in d than to ask congress to pass amendments On the Reserve Banks in this time of hope the Board may consider with this subject, rather impose heavy obligations A32ADIT GOLD COIN. The Board does not som with the great MSBS of geld muoh of Which is abraded below t section of the count dividual Who has held a east cost lation, particularly in the 'Lest, t of tolerance. The banks in this e position of an unfortunate in, in Change, -He cannot do aey- thing with it unl bor. Inqui ()sod any amendment for dealing r4 it off on some unsuspecting neigh- of oDenver disclosed the fact that they derable e conversion-in ea ;;;600.00 On gold coin Which they wished to ship gold certificates and discovered that it would unt of abraelon, and thej abandoned doing so. I an i 1zod that t Some mont: situation Is much more acute on the 2acific Coast. onferenee with Mr, ,aleurn, Assistant Secretary of the Treanury, he informed me that he had already recommended the enactment of law Which would provide that for a limited periodof time the govern- ment would receive and recoin all of this abraded coinage and absorb the abrasion loss rather than have the matter dealt with directly by the Treas- ury Department, might it not be wise to provide for the surrender of this abraded coinage through the Reserve Beaks, giving say one year in Which it L. 2o - x. arbure. January 9, 1917. might be assembled, as under such a plan the Reserve Banes could pay for the coin by issues of Pederal Reserve notes, and t have no doubt it would add from $50,000,000 to 400,000.000 to t ir gold holdings. DENOMATIOUS OF GOLD CEETIF1CA2a. The present law provides that not less t 25,..: the total amount of gold certificates in circulist of denominations of $56 and loss. This limits the discretion of the Treasury to such an extent that tary of the id 410 sold ce tificates can be y withdrawn from circulation. ard will determine to recommend to Congress that this law be vest discretion either in the Secretary of the ral Reserve Board, or both, to readjust these den t ultimately the greater part of the small den can be entirely withdrawn, but never- theless leave auth can be resumed again if the result of sold In bent reserves. should b r facilitating transfers between Reserve eanes I hope the Board will Congress to au of 00 TAXES N payable riee issues of , o1J. certificates in denominations tjnier. eLSERVE BAS. Certain of the tax provisions of the Federal-eeserve Act require that taxes paid to the sovernment shall be added to the trust fund of gold held for retirement of greenbaeks. If the groenbace amendmeet Is passed, it will leave the Federal Reserve Act without any provision for disposition of these taxes, unless, fo course, it might be held that they ee back to the Reserve Banks as a credit in the greenback operation, therek reducing the amount of government bonds provided to be isseed, it leave the law in an 9. ;arburd. To - January, 9, 1917. uncertain condition and i tae the liberty of making the following suggestions on this point: The provision for retirement of groenizi as we-1 as the general enlargement of the note issuing fenctions of th leserve Bames, relieves the government of a very considerable nresent nae and if the plan is successful, the burden of oxnense to be very large. I fully appreciate danger of a control resting in Reserve banks will to avoid any desire of t'le a result of their power to eithhold necessary appropri customed to rely. Could not th oh leeserve Banes might be act be mat by an amendment providing as to cover the cost of le- that an appropriation sues of Federal e e Reserve bailee notes, that the amount of each a carried in the Department as a sepa- rate ace aunt, as. Reserve banes to be repaid by the S now levied against -emery° Banes by Reserve the c. and of all profits hereafter to be paid to the government. In this nii properly word the f Which are t the Reset the plan foray: aperopriation would conform to Congress ehile temporarily making an advance to nevertheless saving at once a present exnenee and ul- timately mill even recover the anount of the advance. The more expense that is loaded upon the Reserve 3s, the greater 111 be the tendency to expand their loans. i notice that the gederal Reserve Bank of Dallas has increased its force from 28 emeloyes at the close of 1016 to 72 at the present time. The Federal Reserve l3an:6: of New York a year ago had about 60 employes and at present about 175. The 151&43 is true 10. To - r..1arburg. January 9, 1917. of every other Reserve 13an and results largely from the increase in ,he oollection departments Which produce no net revenue. This amend- ment is in the direction of a conservative oolic by the Reserve 3anks. A more oomPrehensive plan and in some much more attractive from the government's standpoint, would be to amount to uhich wad be charged all o, ; the Treasurer open an :e of retirement of greenbacks, issues of Federal Reserve notes and int t on bonds. issued for retirement of greenbacks. the e-,4= count might be collected from the Reserve 13' ;sited all taxes its paid to the government and such tax as was imposed on bo to retire greenbacks and on bonds held as security for Fed notes. Under this plan the tax to retir imposed on bonds is * might be considerably less than proposed and e plan could b batted to Congress as carrying its own evidence that 1 of the cost these operations would eventually be conclusion let into r ependence Of so L each secure or being so i. enactme a urge the necessity of considering the of the proposed amendments. their relation to ant that it might be inadvisable to attempt to some of them unless the others were assured of passage. Very sincerely yours, Hon. Paul M. ' arburg, Federal Reserve Bank, Washington, D. C. BVCC January 12, 1917. Dear Mr. Warbur: Governor Harding has written to Li.. Jay suggesting that the Federal Reserve Bank of New Yore should establish relations with the Bank of Spain and that we "look particularly into the Argentine situation" to determine whether it whuld be desirable for this bank to effect an arrangement with the Banco de la Nacion of Buenos Ayres. In conformity with this suggestion, I am writing to ask you, inasmuch as you visited the Argentine last year, if you will not advise as to the method of procedure and the proper pe:rson to address, together with any other suggestions concern- ing our entering into reciprocal relations With the Banco de la Awaiting your suggestions which I could then bring to the attention of o'ar directors on Tuesday next, I remain, Very truly yours, eputy Governor. Hon. Paul M. Warburg, Federal Reserve Board, Washington, D. C. RHT/VCM Denver, Colorado, January 26, 11WIT!r5 PERSONAL. 04 Dear Warburg: l. ourse 1 had read Dr. 01,7T, Many thanks for yours of t Riesser's book, but your quotation, which boars out what my last letter stated memory, simply at we are re discussing two very different things. I hope that Jay got the Annual Report in your and I am also encouraged by in good time at the amendment program will make some pro The Committee on a cry courteously asked to breach the of our close personal re- .Lations, and I have wr the matter the subject. seriously, be important will cowe out hare to see me; it will t one heart to heart talk. for us t ish suggestions, - as you know, I bout the Argon burst-up the U the same as - A.* If he considers Dutch Exchange difficulty and would gladly do and Spain. I am writing the office about the former, but o the latter, don't you think that some of these im- porters who having so much trouble should be told to up with the S. ish Ambassador, as the Reserve Banks would gladly enter- take the matter tain a suggestion from the Bank of Spain similar to the one arranged with the Bank of the Netherlands. I will get a letter off tomorrow to the of- fice which will put things in train. You don't expect me to tell you what I wrote Lawson, but I really 2. To - Mr. -.arburg. January 26, 1917. think it was unkind of him to violate a confidence the way he did by dragging your name Into it. You know, of couxse, what a close friend of mina he must be; send him out to Denver and i11 come home. Jay is better I am sure from the way he wii s me and Curtis is on his way out here to make me a visit of a few d and I will be mightly. glad to see him. It looks as though your can.- th Vpraerlip ft-fifty. enewal credits,. but then you I will take it out of his hide wilds, gives us unlimited sup- know as I do that he is one o Port and is entitled to criticise. Answering your 1 111117 ust seen Dr. Sewall tells me that I am He says that I can work toward returning in so denends on how, reservation that my ability to do lave entirely I me v. bit rainy who ho doctor is cnite willing to see with Vanderlip after the worst .of the on is over wil be a good thing, and is altogether most en- courag I am really ot hopeful of getting back in June, but have not aaid to to my asso es as it would be unwise to make any very defi- nite statem I was glad to get a letter from Ers. Warburg this morning, telling me the home news, expressing her usual behavior, but best dissatisfaction with you and your of all telling me that I am missed now and then over there in Washington. 'lease give her my love and my best to you as always. Faithfully yours, S. The last Governors' conference resulted in the appointment of To - Mr. Warburg. January 26, 1917. seventeen committees, or thereabouts, largely composed of the sane men. 4o all want to accomnlish the same objects and I propose that you soften the blow to your colleagues and indicate t no objection will arise if an informal working sub-committee of the c.nfereneo, call it if you please, a program committee, be authorized to requiring committee development. Hon. Paul M. Warburg, Federal eserve Board, Washington, D. C. 1 with these subjects Denver, Colorado, January 27, 1917. Dear rburg: I don't often exhibit plain, vnvarnished cu sity, but I have ent, announcing just received a copy of the Comptrolle Mr. Malburn's appointment as Chief of Charles Starek, removed 1 1 : ner in our Die in place have the mighty fallen, or, for my information_ ,ihy You may, if you desire, s friends of your Board t never have been tak cannot imagine my d With best re _Ion. Pa M. Warburg, rve Board federal . Washington, BS/CC entially to come of my good ed before, I certainly would romptly to get well. red by all at the office. You Denver, Colorado, February 15, 1917. I am just back from Arizona and on general principles the doctor has told me to take a day or two in bed, as the change of altitude - nearl;, a he does not want a bi a mAle - sometimes disturbs one's circu me to run aloe; risk. I will be rather ow in catching with mail on that account, but want to write you a t two matters ng to do with amendments, in the meantime deferring reply to your oral Reserve Act, of In the proposed amen 1. the effect of the languag put any attorney or counsel rohibitions, etc., as any of a member bank in the other officer of erious mistake because the busi- This strikes me a counoel as it is by its officers not be subject to the restrictions ness of the bank is not by its and bank's counsel or auld which pply td the hind that it will have ploy counties particularly impresses me f Trust Companies. attorneys and counsel in is the unfortunate effect The big trust companies em- connection not only with their bank rticularly their trust business. Such Trust Companies such business, but as t'e Guarant directors who actually conduct its business. of , Bankers, Farmers Loan, Central, etc., have counsel in a great ms,rny states and these counsel are freouently men of large affairs who have business relations with the Trust Companies that The effect of the prohibition as the amendment now reads will be simpl; to deprive the Trust Companies that may they represent. join the Federal Reserve System of freedom in employing counsel which they should enjoy without restriction. 2. February 15, 1917. To - Mr. Warburg. I hope the Board can arrange to have this changed in this respect as I do not think the counsel or attorney of a bank should be subject to the same limitatioas that apply to the officers of a bank and I doubt if the Board itself, upon consideration, would insist upon this View. matter has Another bill which you send me to do with the omitted the pr paragraph (e.) and I too e the libe about it as soon as I discovered it sten in regard but it also incl nt not s a clause to the appearing in those mended by the Reserve Board, the February It is a most extra- mmittee. assume was added eserve Board attempt to exercise ordinary provision an it, I'doubt if the effe other than to force T a: sure is not wha resignations, vich Board is after. he appointment espondent is one thing end is quite another. This provision in order to the Reserve Board would really only to make days of grace Bank to appoint cor- respondents in foreign the bus 7he of telegraphingvernor Harding the Board may r effect that printed in c. 14. ent the be conduct of effective requiring a Reserve Bank not appointment but actually to do business, which is ridiculous and absurd. I eel vere sure could possibly have fathered that neither you nor any of your associates this proposal, which would seem to be directed against the New York Reserve bank, and I am wondering whether your influence cannot be exerted to its elimination. Let me also endorse the criticism of the Advisor; counsel - poaers of an assistant Federal Reserve agent should 80 that they are only that the not be circumscribed exercised when the Reserve Agent is absent; that is 3. February 15, 1917. To ..18.r. ':iarburg. a very indefinite term. It could be made to apply to the lunch hour or even to absence from one's desk, or it might be on the other hand con- strued only to apply to abgbnces formerly granted by the Board. No such /imitation should appear in a statute and the best evidence I can give you of that is the attitude of banks general powers of attorney and by-laws which unsel towards the end rights to o porations to act in the absence of sup ceotien banks have learned as a re d cers of cor- jar officers. hink without ex- they must t of experience not oue powers can only base any dealings with the be exercised in the absen leer, because there is never oroof available to determ cc exists and the burden of who are dealing with an of- obtaining proof sh ficer of the bank who is ng 9axiy such indefinite powers.. your associates are going to I an delighted t and convince congress of the wisdom of stick it out on the n s been-pooposed what with Ge , the least Mt and convince i nese, as well to he country on the verge of a possible wai the Reserve Board can do is emen that banking situation. Best re Faithfully yours, Peders1 Reserve Board, .ashington, D. 0. BS/CC to hammer away and try this is a necessary measure give us a normal Aon. Paul 11. Warburg, try and for prepar- Denver, Colorado, February 21, 1917. Dear Warburg: Yours of January 30th should have been armoured before, but I know you understood ray neglect of correspondence jug my absenve. You will be surprised to know that while mi5.\ arizona trip did me a lot of good, nevertheless I was obliged to go to my return and have only now gotten abou again. as I can gather from Dr. Sewall, wa I got a little bro concerting. high altitude ran my two little leaks, whio al cold i ng of imorovement rathe eoessitat episode; ther dis- of Phoenix started one or that made indicates han the reverse being wa th by absolute quiet. nation as he figuring . .ened, so far back on the train, e up so that I blood p Id only cou .. the low altitude Om tells me that such e my lungs, but What expected but which started me coughing and to this immediately on Sewall it is evidence it means a stronger circulation in solute rest. 1 think he is still fact, gained able W t you tell Mrs. a discreet yet f elated very muon I lost no weight this summer. .rburg that I expect to write swer to her letter just by the her in a few days received, which I ed. About the Stakek: episode, it was mighty good of you to write me quite frankly and I think I am justified in asking you to Whisper to of your associates at that time-honored the proper opportunity that I am refraining expression - "I told you so". letter of resignation to the Bank, but I for me. appre- do not a few from using He has written a very nice think that he has any love 2. February 21, 1917. To - Hon. Paul M. Warburg. The Ilalburn appointment is a dandy. are all rejoicing and let me say that the same feeling pervades the whole New York banking atmosphere. lets worry about it. As to our correspondence about bills, don icy in If I were back home you and I could agree 'upon a guess no harm will be done in the meantime because no time, and I tters seem to be Whip- ery much control for ping along in such a way that none of the time being. Where we made the mistake in tee advancing them too soon, ere I think the open market without good cause. ablisbed last December, is probabl-, rate, which you call the private determining the policy of the at about the right level I just about the present time, bank, I would have "s and would then have made some or say around the fi -,11 advance. Id era would distinguish between the position the Net'York bank, with its immense reserve, as compared with others, with its holdi issue, wi V those banks tied up too f 0127,000,000 of gold behind its note h are not in a strong position and which have unliquid stuff. I am proud that we have sold all of our government bonds, except the One year notes, and that our decks are clear; in fact, the New York bank is in such shape that we could liquidate and convert everything into cash inside of 90 days, except the one year notes. i believe the bank's policy has been correct and that you in the bottom of your heart feel more confidence in that institution than in all the others put together. 1 3. - Hon. Paul M. Warburg. Thank you for your memorandum. February 21, 1917. I agree that some of the Banks might have been justified in reducing, but New York has done really most of the reducing, has all along been the strongest and, with one exception, has had the smallest earnings. Aiken has written me of his d ci -I am writing him a strong personal let not to com today which st him, but I fear not. If it does, 1 wil telegraph you have a talk with the officers and see if o New York. ma, influence ask you to tianal pressure wont bring him around. Best regards to you posted as to what is oi Hon. Paul M. .4E1:IF& Federal Reserve Board, dashington, D. Q. BS/CC rk too hard and keep me Denver, Colorado, February 23, 1917. Dear Warburg: No thanks for sending me that effusion of Mr. C. D. Gurley's. 1 glanced through it and passed it into the nized the style Which is distinctive, as addressed me about one or two matters -i3X-114:,- ; in fact, recog- .is fellow much the same ye y has already 1. as my address to my friend Cuss Herrington, Who is a prominent lawyer ent of t the Colorado Fuel & Iron C '0 counsel for Association. from the office that the was amazed and tro get which, had reported the Senate Committee, or the Ho proposed amendment i , o menber bank e serves after a reduction of the Reserve Banks and 2% in the amount requir 11; in the amount to be carried Here known, the wildest spe. and whee of the we are li atlon shoal:, be stre greatest expansion ever r known, both in stocks and commodities, ning cur iteserve foundation, Congress is proposing to When I d things like this, as well as Senator Thomas's proposal to issue 500 0 000 of greenbacks, and a few other similar episodes, I begin to get sick of whole game and thoroughly understand your discouragement. The country wont blow up if you take two or three weeks off and come out here to see me. I think it will do you good; it certainly would do me a lot of eood and I wish you would try and do it. If you say so, I will find some nice, warm place down in Arizona where we can meet and play golf. YivIrQ Denver, Colorado, February 23, 1917. Dear Warburg: A-letter just received from mothcr advises me that e expects to visit Washington for a short time, with my sister J , and asks me whether it is possible for sameti r them to get seats in the Senate and Ho galleries. public galleries, as you know, are rather promiscu can arrange it for and I am writ o call you up house sometime. hone you don't mi bit of bother. ely yours, Hon. Paul Pederal Rose Washington, BS/CC Toard, . C. her to say I am sure you the Treasury or at your Denver, Colorado, February 23, 1917. Pear Warburg: A 4.etter just received from moth-.r advises me that to visit Washington for a short time, with loxy sister J me whether it is possible for someti e expects and asks r them to get public galleries, as you seats in the Senate and Ho know, are rather promiscu her to say I am sure you can arrange it for the Treasury or at your Aouse sometime. I hone you doAtt mi bit of bother. ely yours, Hon. Paul i.'ederal Rose Washington, A. Denver, Colorado, February 26, 1917. Dear WaTburg: Thanks for your nice letter of the 20th. I hope the Bank of France matter does not develop another fias Please give me credit for the matter. he Bank of England have exercised traint Whic in my correspondence on this subject. I am still putting on fat anf fee ing first rate it looks Thanks for your advices about MD chance for them at this ugh there was f course, it is extended on call of the President. I could not t the suggest be amendment in Paragraph (e) of Section 14, about , had originated with the too 4 Reserve Board; it was ':ther extraordinary. It is a terrible deprivation for me to hose matters of foreign correspondents are being considered, re they can be worked out satisfactorily, willin, as I feel you should be, if yd your associa tions In amy when we come t. lly worked out. I am all against conducting these negotia- d way, with a lot left to the inngination, particularly 'eal with I am South America. in correspondence with bank on that subject now and feel sure that we all make progress and will do so as soon as negotiations is see the subject to have.ill arrangements carefully sufficien and scientif to a desiring to well considered basis for our thoroughly understood among The suggestion agree in the ourselves. to have joint control by the Reserve Agent and the 2. To - Hon- Paul M Warburg. plan bank is an excellent February 26, 1917. Unfortunately, the amendments you send me appear to suggest that the Board will appoint an Assistant Federal Reserve Agent, but nevertheless hold the Reserve Agent responsible for the perlrmance of his duties, his honesty, etc., etc. dinary plan. The Federal Reserve Agent is own assistant sele , . This is a'most extraor- if he is to be responsible for him, ati,if the Board se z Should be responsible and protect one given by the Reserve Agent. educated in matters of this Jay's jab under such Congressional co . to hold Mr. tins Starek. See what Certainly you ard, when they make such appoint- No y too well all the difficulties that you encounter in dea ress and the apparent necessity for compromises a I am ee v'"614°.f7;And 1 to the other merits as that one. banking sippo tees should be by this amendment. Mr.the hazards imposed upon so completel .. . lar to the nstance in appo would not want strength a bond = one as su;gest cond.the Board did in the firs endle Ives the 41( by s him, they . Where I think the Board could vastly s position, as I have repeatedly written you, is not to rely pon e own arguments and representations, but to get 600d behind them in advocating these amendments. d that LIr. Thralls is behind the movement to authorize exchange charges. The thole business is sickening and I can only send you sympathy but I fear little encouragement and no help. amendment through and 1 don't care much about the other points. Another letter from Aiken has given me an excuse to wire him again, also to write him. I believe if you would send him a wire, telling him Ge 3. To - Hon. Paul Li. Warburg. February 26, 1917. to pack his bag and come out here to see me, or even to meet me say in Chicago, that I could do the trick with him. Upon receipt of this letter, if you feel like giving the matter another push, send him a wire to the effect that you don't think it well to make his decision fine, in so important a matter thout first king with ma and to try and arrange to get out he then I will do fishing and believe I can land the fish. Best regards to you and Hen. Paul U. Warburg, Federal eserve Bank, Washington, D. C. Denver, Colorado, rch 4, 1917. Dear_!!Oprg: Thanks for yours of the 27th and the family. Mother already knows Mrs. glad to have a visit together, but in looking after burg and 1 kno they will be se busy days do let the Strong family be a burden or impose on you. rankly, i feel have given up hope all this wor doublv sorry that you have terrible discouragement t u or nothing. It must be a fellows Who a n the ground and ear- these things; lets hope ticularly to you Wh that better days are co I was glad to le de France matter. the de action taken by the Board in the Bancluc It ke a good deal of correspondence to get s worked out and I ils of those a learn am terribly sorry to Cann (who is the best posted man in the office in New York on foreign ving us and we are now certainly forced to go outside for a I judge w man. your postscript that from being a luke warm Republican you have become a red hot Democrat, whereas I have become a lukewarm Mugwamo. work, with a lot that recent Things go along with me as usual -- a lit of fresh air every set-back. born a red hot Republican day. entirely I have AV best to you, old man; don't Faithfully yours, Hon. Paul M. .:arburg, Federal Reserve Board, recovered from get discouraged. Denver, Colorado, ',larch 6, 1917. Dear Warburg: It is mighty good of you to find time to drop me a line now and then, for I know how buoy you hope things let up. I am glad to be wrong abou he Federal Rese Agent d not tell amendment; the copies sent me read both ways but t influence which was the last one. the the onus on the other Board as he is a great chap. 11 help. A good I and it really is important; finally abandoned he re, possibly I could land him. if I could only get Glad,to h of France memorandum. not want to butt i it had the princip as to the va I did program in New York and wrote to ask been stibmitted or not, but have V Board info I have not not yet heard. Had have preferred to discuss this with the ly but at some length, so as to get their views of underlying the scheme and, particularly, your views ous provisions for safeguarding our sonally, I think they are as complete as would like to have your own in they detail, if you interests. Per- can be made but I can find time to drop me a line. Many thanks for looking after the folks best to you. from home and my Denver, Colorado, March 6, 1917. Dear ,,arburg: I have just been studying the statement of March 3d, showing r three hundred seventeen and a half minions serve Agents, Which makes the total of t $836,000,000. What an astounding resu .- i. whole System rot Aioir, our associates at the Metropol Springs, that "the pump" result! wonderful protection I am led to 144 ire the coals by om White Sulphur It is going to which I asked them to followed up. Did the Board's hind notes could not count as original ruling that this originate from opinion an asset was it simply a bookkeeping formula developed by the Board ts? aecompliah our recognize years' work am sure we both realize. submit from the office possib less than of two and a hal and how little you and I realized When we were hauled an be a by Federal Re- If the latter, may it not still be ects by changing bookkeeping methods? I ot be justified if there is any doubt, except in an emergenc but we may have such an emergency and I am wondering whether the ea t has been so thoroughly canvassed as to lead your asso- elates to a ft conclusion. We are running on 83% reserve tucked away. in New York, with $140,000,000 of gold I feel very strongly that we should build our investment ac- count up to abt less than $50,000,000, which is justified by our position 2. To - Hon. Paul M Warburg. March 8, 1917. and Which will protect our net earnings against the depletion caused by vigorous prosecution of our Campaign to acc e gold by issues of 7ederal Reserve notes. We awe about be and a q. or millions in back difidends and are taday earning only at the rate o out 4600,000 a year, Which is less than our current d' I have arranged to meet Aiken in advise you of what transpires. Best regards, Hon. Paul M. Ahairg Federal Reserve Boa -.7ashington, D. C. Denver, Colorado, liarch 8, 1917. Dear '/...x..12.4rg: For some weeks oast I have been studying over the question of 4111M74-44,6C; our possible banking relations in the Arg being one matter in narticularly interested, and I presum: Please consider this officer The powers of the R countries are . eald like :3711 t are just now gross made. to see letter as a Preliminary inqui:y ln...eer to develop chiefly your own views, you the ground with the e Reserve Which the members oP that 1 know set ou in su of the Awderal Reserve transactions in mid and the United States Gave that Reserve Banks ma 0. it.. f the 3anco advent. conferences on da liacion Argentina. rve Banks to c 11 ections (a), 4 ) t a business in foreign and (e) of Section 14 a) and (b) simply relate to chase and sale of short obligations of ection (e) I construe as meanirk; owing described business in foreign ndents and agents. amn mutual checking accounts with such correspondents agents. se, sell and collect caemercial bills of exchange hays days to run, exclusive of days of grace, which bear two obli6ations and are payable in those foreign countries. 3. 4. *Milk Pure Purchase and sell in those foreign countries bills of exchange of the sane character which are payable in other foreign countries or in the United States. 2hese four powers, with the addition of the power to deal in gold abroad, comprise the total of our functions and 1 understand that the purpose 2. March 8, 1917. To - Hon. Paul M. Warburg. of the law was to enable the Reserve Banks to accumulate fends in foreign countries when exchanges were in our favor, invest them there in prime bills so that they might be profitably employed, and then When the counts In order to exchanges became adverse, 'liquidate the bills furnish exchange to the market and mode demands IAA. The evidence of the statute is almost conclusive in is regard beca foreign banking us ordinarily understo covers a wide f ld of activities other than those above listed,a . -e ceiving demo as you realize, in foreign countries , ening 4(4.- e nancial and travlors lel securities, fidug shipments of goods, dealcredits, executing orders 7//,/palt tug in securities, eta., etc on Which. interest is allow Before writi get an expression of your be proposed and in orde os Aires, I am anxious to s to the scope of the arrangement to me want to roughly outline mu own views, fiebjeot to modiflcati at We should an understanding that accounts are to be id, with a careful definition of the basis upon which the liquidat Sold is to be t with, as in the case of our proposals in London and Paris. 2nd. We auld agree to hold gold in pension for each other. 3rd. We should arrange for cable transfer transactions. 4th. We ehould arrange for the purchase of bills for our account which are payable in the Argentine, and make purchases in New York for account of our Argentine corresnondent, mutually guaranteeing the payment of the bills at maturity. To - Hon. Paul M. Warburg. LT:arch 3, 1917. 5th. We should arrange to handle collection items for each other. 6th. We should have an emergency arrangement which would permit the Banco de la Nacion Argentina to purchase able in this country (and a similar a aumstances caused the exchanges betwee le long bills, payat revert whenever air- he two eountrie to become so disturbed, for an reason, that our own ember banks wer unable to take all of the dollar bills drawn entine and vi ersa, such bills in both cases, of course, 7th. 10 should als OF tain)isve an arrangement e endorsed. ossibly (on thi point I an a little uncerpurchase //the similar long bills drawn in sterling and payable As to the first f sixth I have a good de bills as a /egular we wil there can be no debate. As to the ty. If we undertake to purchase long discount rates to arrive, etc., I fear Ire our own member banks out of busineas in that country. National Ci The tiwTng branches there at great expense and without hope of eubst ial profit for some years. A Boston member bank is about to do the same ing. You are aware that the purchase of American bills is mma and for long time will be, the most profitable business that they are able to conduct. We have such tremendous advantages over these member banks that I fear our entrance into the field will greatly discourage and retard, if not absolutely block, the development of a foreign banking system by American banks generally. ).ar principal advantages are: To - Ran. Paea U. arburg. Larch 8, 1917. The onoiious prestige enjoyed be a so-called Pederal or Goverment Bank over any private bank, no matter hew strond the latter may be. Our ability to avoid all 'expense of a local organization by employing correspondents as against the very heavy exhause of branches established by other American banks. rve System The enormous resonrces or th era on which MD interest is , as agains he heavy interest charges of mambo anks. 4. The more intimate relatio ip and cooperat et Governof our arran outs, which ment Departments is supp naturally are not at the disposal of m banks (uite so generally or To illustrate my poi one or two branches Hens bill buying banks in in Argentina depends upon bills. This is the net, so gather in American paeer. If that country for the a to speak, Which they we establish intimate fela would at once secure t correspondent having no less than operation end, presumably, with our 153 branches and agen chea aney and lower the excles Of the Ame v I thi foreign bills American instit h the Banco do la Nacion Argentina, we we wpuld sweep in all of this business to e branches with Which we were competing. robably every bank in the Argentine Republic which handles new established intimate working relations with varione and a great volume of bills is now coming through a, these ohannels, on which American banks are making profits to the extent that if we succeeded in gathering up such bills, we would by so much render ou own members' foreign business unprofitable. There are, however, two possibilities Which mdeht make a close working bill arrangement advisable, or necessary. me is that the Banco 5. To - Hon. Paul M. Warburg. March 8, 1917. de la Nacion Argentina, either by reason of legal restrictions or as a matter of policy, has not and will not establish connections of this character with any American bane except a Pederal Reserve Beak; and the other is as described in paragraph 6. above, where conditions caused a suspension of the normal flow of bills as when r broke out, in which case we could sten in to relieve the co The first possibility is mentio , because that eituation that existed in London with ti Bank of En matter of policy, would not ude tions such a l exactly the Which, as a i propose with any other than a Federal Res I also want to ask or two other matters. :o what extent do you think cial safeguards, either by Jay of treaty or othe gentine or other South American countries, which ''corrospondents? not apply to our more advanced European experiences in Mexico. I do not We mus consider that Argynti zil or Uruguay are necessarily comn- stability. idevertheless, believe you Lexie() as to pa cab will agree must be reco h me that 4 re are uncertainties in South America which ed and gnarded against. Another ueetion is ia regard to the gold status of the Banco de la Nacion Argenti As I understand their statement, they have a liabilities of approximately 4600,000,000 currency and an4 hold about 428,000,000 or 4t.10,000,000 In their general gold reserve. To What extent do you think that our arrangement would require special safeguard in that particular? As to point 7. above described, i am in considerable uncertainty. As you know, thronhout the ,-ast many bills, ia fact the great bulk of 6. 'larch 8, 1917. To - Hon. Paul M. Warburg. all the bills drawn, are still drawn on London in sterling, although to some extent, when the exchanges are favorable, these bills may be transmitted through New York, in order to get New York credit. the New York buyer remitting them to London for London credit. The volume of these transactione is definitely determined by the xchange figured in difficult operations to conduct. because it is almost saossiblo to quat close rates, connection with the transit time. Just these are with all of the nneertainties cf the nal s and with the confronting us of sudden sha xchange. sibility always ertheless, in normal times it might be qd us to be able to accumulate sterling through an arrang or, and i would like to have an exnression of your ity of proposing it. you discuss this when u From the above you vte* that we should not which we now enjoy, e se of the word, dinary alliance with t agree with the v ca? ther that I an stiil strongly of the cannot under the limited powers commercial banking business in the or- -- .gh any of our foreign agencies, net to rcial credits absolutely precludes that. have the Excluding c re etal banking, do you now feel that we should mane an Banco do la Nacion Argentina and to what extent to you s I have expressed as to the scope of that arrangement? I await your reply with a good deal of interest. Faithfully yours, Hon. Paul M. Warburg, Federal Reserve Board, Washington, D. C. BS CC Did -,.". Denver, Colorado, March 19, 1917. Dear Warburg: .--- letter of March 12th I am more than grateful to you for your ni. i the family comfortable and for what you and Mrs. Warburg have done to and enjoy their visit in Illr en me of Washington. tality which is characteristic of the your hospi- given me a burg family . great deal of pleasure, as it ha o write you about two or throe This is a slack mail things, but quite in confidence: 1. osed relations with the Bank I realize your o eting and dealing with those of France and the Ba on are going to be agreeably dis- oeople personally, deration lies in the fact that if'we appointed, but the se two banks, we can do no business what- arrangem don't make r in London or Paris probably for a long time. ever ei ould we get the channel lent and would be no Through no other °lute security that is offered by this arrangesary to abandon the whole scheme as impracticable. m confident that you are going to do much better at Amen the special session of Congress, but I do wish the Board would invite the cooperation and support of bankers and of the Reserve Bank Managers themselvet It will not only impress Congress, but I am confident that it will make excellent feeling in an the management of the Reserve banks themselves, which is surely a desirable purpose. Sometimes I wonder whether I am not a German. i suppose you know that my mother's family were Germans and it may be on that account that I 2. To- Hon. P. M. Warburg. March 19, 1917. have an insatiable hanker to do a job thoroughly and not by piece-work. It seems to me that we are simply flirting with this great matter and not dealing with it decisively and thoroughly. kept hammering at them I at the bank to press negotiations with McAdoo in er that we might con- trol all importedi6old at the New York bank and in rder that we may convert a good part of our reserve fund into st are so well ac- quainted with this matter that I do ed to explain tame it seems to me that the whole s in its relations with the wor and Acsay Office practice ite policy adopted upon which we Inqui Reserve Bank of New York if oan store some go fice r the Sub-Treasury. Mr. Jay wrote rathe I thought that matter and if you bave op- portunity, concerned easons, but banks should be made the sub- ject of a great deal of study and a can all count. r cretary that so far as I am personally will do eve my power, to the extent of returning to New Yo odations are made to whatever extent they re- quire t oat possible time, so that we can return some of the many I do n in accumulating gold. have shown us in the past. grasp your references to the way our policy works As you say, the operation of the exchanges should increase the amount of our gold holdings and corresnondingly increase the note issue, if the law was all right end if our currency lams were right, not but, unfortunately, the first tendency is/to increase our holdings of gold but all other kinds of currency, and our ability to convert that into gold at the present time is the direct consequence of the heavy gold imports. 3. To - Hon. P. M. laarch 19, 1917. Warburg. Don't lets any of us fool ourselves by thinking that we have yet gotten control of the movement of gold -- we are a long way from it and the amount of gold we have accumulated behind our notes has reason of these imports and by the Reserve Banks y been possible by u effect paying a premium for it by issuing their notes, that is to say new desired by member banks, without charge, is that are always r ereas or 1 the banks have to pay shipping charges from Washi You and I must not be bl situation. al underlying facts in this Je are the bonen ual conditions, and we as yet have no control and won't get it un About the inves 4. you and I fear with 000 of gold in behind its not are ame serve ins think we our s general reserve and $154,000,000 000,000 to our gold, and if the note provisions off guarantee to add $100,000,000 more to our reso that by say Juno 1st the New York bnrk would nimum $450,000,000 and maximum $550,000,000, or even Our reserve would be 90% or more of all of our liabilities. condition so strong as further The bank now holds in as at the special session, I figure it of two m.... have a gold re more. ame little over $1 .:4 n New York. and its reserve last week was over 8. If 101trve will ad ribly sorry to disagree with acco own associate round figures $220 he law is right. additions With at present and with the possibility of these to our strength, there is no excuse for our not earning our dividends and we would be derelict to our duty if we failed to do so. Furthermore, it would not weaken the bank to buy say $15,000,000 more of short bills which can now be used for security of Federal Reserve notes, 4. The supply Of bills in the market is now so as to protect our gold. sufficient so that we could accumulate them gradually without material change in rates, and it would have the added advantage of giving us more freedom to Inc& expense in our note issue and would replace which we lose by a very much larger sum of ace n. And i hope you are not feeling disturbed a of any emergency situation. If Congress eclared the reserves ted gold. 11 at the prospect tomorrow, it would not make a flurry. agree with him upon a policy you could have a quiet talk wit that. of building up our investment bonds is, of course, conservative All that you say about -ove 5. hung up with too large an and true; the Reserve hereafter our annual commitment to I hope investment in gove nts. buy governments wil e so handled t will enable t which yo to b our awn gove of the gov. Was ent's governmen Apply the doctrine in connection with foreign securities 'aent and make our investors be the ones to take and let us do the clearing and handle the securit balances we will get them at prices which verted and resold. mmediately ntleMen have p to thos y ways if be helpful in Let me suggest and urge tha t result from bond sales, then we will be doing the banking bus floss and the government will be doing the financial business on the basis that you and I have so frequently discussed., 6. My visit to Chicago was exceedingly satisfactory in every respect, excent as to Aiken's ?lams. We had a fine visit, lunch with McDougal and McKay and had a little chat with Broderick. be in Chicago, joined us for dinner. Later Palmer, Who happened to 5. ,o - Hon. P. M. Warburg. Without Karch 19, 1917. going into detail, some of Which Aiken gave me in per- serial confidence, I think the I like to come to New York; in an emergency, such instance as my in- ability to return, I think he might do so as a ma see his way to do so with the comparatively near future. He would situation is about as follows; er of duty. Re cannot prospect of my being ble to return in etire after a If I should spell at Now York, I still think it the short -0 for Aiken t be possible to come over and work with me t nod of months, and then mg place. if led serious But I doubt if he sacrifices of a to come over personal ban a ficiently serious in making certain very business character, so as and take This does pride stands in the take not mean that ergency would not be an!- rame there to j ify his pulling out and rearranging all of his domestib act, id did me good for I am feeling better at any-time since I came out here. I am also continuing to put on wsi 7. L. The expce of the last month or stion demonstrat the accuracy of the two has I believe statement I made to you sometime ago -- that there would never be any difficulty in developing a nation wide market for bills and at very acceptable rates, whenever the Reserve Banks withdrew; they are being purchased by banks all over the United being States. On the other hand, this is just the disarranged and when bankers the world about remitting bills to London; in faet over time when commerce is aVe feeling uneasiness feeling uneasiness about remitt- 6. To - Hon. P. M. March 19, 1917. _.-ourg. ing cash items to London, for us to make our inducements as strong as possible to have this business directed to this r7.advertise our rates as being the lowest in the in the world, and make the New York market so att will come willy nilly. For once in this tter ta , tive that the business the old man's ad- in the present situation which the loss of some of this business take in maintaining r Best regards Fedora Was hi BS/CC M. Warburg, eserve Board, D. C. tronger police again many t both buying There is much ile our English competitors to really think we are making a misare quite a Faith! Hon. the market a lit- , if possible. bills and holding the rates a we should as being the steadiest vice and Encourage those fellows in New York to get tie more actively and to develop a I think country. s for your letter. yours, Denver, Colorado, March 27, 1917. Dear Warburg: Replying to yours of the 19th concerning the Banco de in Nacion Argentina, I am anxious that we Should agree on the one or two important points you make and regret that it is impossible fertue to discuss matters personally instead of attemnting to deal with them by correspondence. As to item 4, your general observation as to the purposes to be accomplished by foreign relations to be established by Federal Reserve ;Lanka is quite my own view. The objects are undoubtedly:- To facilitate gold transactions. To steady exchanges so as to avoid sudden and heavy geld movements. Pacilities for this are Chiefly needed in London, to a somewhat less extent in France and Germany, and possibly in South America at times. Where I differ from you, however, is in your application of these rides to such a country as 'Argentina. If we are to accomplish anything in these two respects in the Argentine, it must be by employing our funds in the purchase of Argentine exchange When it is depressed, Which will necessitate the accumulation of considerable balances there. Othereise we will have nothing to work on When exchange turns, and the account will be no more than a complimentary relationship Which will be of no value to anybody. If, however, you desire the account to be of value, we must, according to your theory, leave idle balances without interest with the Banco de in Nacion Argentina, but according to mu theory, if we are to really do the business in a large enough way to amount to anything, we would be justified in employing such balances in buying good bills, provided our correspondent 2. To - Mon. Paul M. Warburg. would guarantee them. March 26, 1917. As a practical matter, our account with the Banco de la Nacion Argentina would accomplish nothing, either in the matter of gold transactions or in stabilizing exchange, unless it was an account of some proportions, provided, of course, we were not purchasing commercial bills on this country, to which I will refer later. On the whole, I can see no object whatever in opening an account in the Argentine =loss we are prepared to do an amount of business there commensurate in vo/uae and importance with the volume of trade between the two countries and with our asairations to be a factor in the exchange and gold markets. A nominal and complimentara account might, in fact, give rise to dissatisfaction, loading as it would to expectations of considerable business which would never materialize. a What you say, however, about the history of Argentine is exactly what I have written to my associates in New York and in an earlier letter 7 to you. Their gold reserves are nominal compared to their liabilities. Their extravagances and their less stable nolitical institutions must be taken into consideration. I would be quite willing, in the case of Ar- gmatina, in faot rather more than less well satisfied, to have an arrange- ment of this Rind based upon a treaty, along the lines suggested ba you and Professor John Bassett Mom, should that be the Reserve Board. desire of the Federal Therefore, in conclusion as to item 4, my belief is that if we are to open an account in Argentina, it should be of sufficient proportions to to aocomplis)1 the objects of the Federal Reserve Act, and such an account in went order not to be dormant, should include in its scope an arrange- for the purchase of local bills so that we might employ sufficient *Jo To - Hon. Paul M. Warburg. Aarch 27, 1917. funds te exert some influence upon exchange and gold movements, when desirable. As to No. 6, I am quite unable to grasp your own views after reading your letter. Let me refer to the various points Iv number: A conditional arrangement for the purchase of bills drawn on this country, such as was contemplated in the letter I drafted, would cover the situation described by your letter and would net do an injury to our member banks, and this is particularly true of the Argentine where, as yo e say, comnetition for American bills is now rapidly developing and where the necessity for our appearing in the market is probably lesa than anyWhere also in South Amerioi:--May you net have been misled when you say there is no market for dollar drafts in South America? A year ago I was informed that bills wore coming forward to New York on bids of rates made to SoUth American banks, within a 1/4 or 1/2 of l of our New York rate. What i suggested bet this point was to make careful inquiry among New York bankers to get their point of view in New York (and possibly Boston) so that We would not be working in the dark or at cross purposes. I was led to make that suggestion because we wore organized to assist and cooperate so as to promote the extension of the business of American banks into foreign countries and I fear that the development of competition rather tha:1 cooperation might injure them. How could we make rates there at Which bills could be actually accumulated, without either competing or making a present of a profit to our agent? They will be just as keen to make profits on this business as will the National City Bank, and, unless To - Han. Paul M. Warburg. Liaroh 27, 1917. WO MaK0 a strong effort to publicly control the rates in the Argentine for U. 3. bills by an aggressive campaign, I do not see how any good will oe accomplished. In other words, our rate would either be competitive or it woul: not. To be competitive, we woulu necessarily buy bills in some quantity and so make our rate effective, and then we would certainly hear from our own members. Your letter refers entirel-, to the business of one or two rican banks. I had in mind not only the business now being done or contemplated through American branches, but also the business of those American banns that are now 4aolinis through correspondents in the Argen- tine and gradually working up a valuable business. No ono can avoid the conclusion, after locating over the bills now coming to New York, that American institutions are doing an important and growing business there Al through the German and other South American banks, Which might be disnirbed b our anpearance in the market. Our objection to acceptors handling their own bills can hardly, any rate for the present, extend to bunks which have agencies or branches foreign countrieC so long as those banks market their bills, once they -,7eacn this country and are accepted. That is a common enough Practice every- :here and can hardly be otherwise with us just now because an institution like the National City sank Which is blazing the way abroad must naturally make the market for its own bills at the point where they orijnate. The objection to this practice really exists in this country after the bill is accepted rather than in the foreign market Where the bill is drawn. The National City Bank in fact has been distributing its own bills through the To - Hon. Paul M. Warburg. Jarch 27, 1917. City Comnany and is not particularly liable to this charge. As there will soon be two or more branches of American banks in Buenos Aires, the situation will be materially improved, unless 1. am very much mistaken. 4. What you say about drafts coming to New York with only one foreign name is not quite the case, oven at present:- unless conditions have changed since i was in New York. Most of the bills that we get al- ready bear the obligation of the Argentine drawer and the obligation of at least one barer in the Argentine, together with the endorsement of one American bank which is acting as the correspondent of the This Argentine bank. is about all the endorsements that foreign bills can be expected to accumulate before reaching the point of acceptance. A typical case in England to illustrate this would be about as follows; Take a bill drawn in Calcutta by an Indian exporter on such a firm as Predorick Huth & Co., London, covering export of jute. The bill would be drawn by the exporter to his own order and the first endorsement would be the exporter's, with immediately below that an exemplification endorsement in English. The next endorsement would be by say the Hong Kong & Shanghai Bank which had purchased the bill and which gparanteed the exemplification. The Hong aong Bank would obtain the acceptance of Huth in London and would immediately sell the bill, say to the National Discount Company. The National Discount Company, in the rare case of its discounting the bill with the Bank of England, would furnish its obligation in a general letter. 1 have soon a great mane bills in London of just this character and they are almost identical with these which are now being received in New York which would bear the following obligations, aa:, on a hide bill: 6. Hon. 7)=1 M. lOrburg. tiarch 27, 1917. The Argentine Hide exporter as drawer and endorsor. The 3ritish Bank of South America. The American acceptor (which mi,ht be a bank or hide imnorter). rho endorsement of the euaranty Trust Co. or Bank of New York. /I The broker as to st tutor:, liability. (I) (I) Were this bill drawn on the National City Bank and purchased by its -ency in .3uenos Aires, we would lose the endorsement of the South American Bank. Nor do I see how that could be controlled by our endeavoring to buy bills through the eanco de la Nacion Argentina, melees we wider-bid the National City Ban: for bills of this character, througe the Banco de la Naoion Argentina, and that is just what we ought to avoid at the present stage of development, as I view it. If your observations in South America convince you that it is necessary for Us to buy such bills down there in order to introduce dollar credits, I am convinced that a safer way for ue to introduce ourselves into the situation =hid be by first discussing the arrangement with those American banks that have displayed enough enterprise and public spirit to spend the money and take the risks of opening offices in the Argentine. You say you think it might be a welcome facility for us to be there quoting rates, etc. it will be easy to ascertain that by conferring with them. 5. I feel very sure that I am not exaggerating the ability of the Reserve System to drive our competitors out of business abroad, so far as Purchasing bills is concerned, if We develop these facilities and use them to establish lower rates than theirs. To get at the facts in this matter it would be necessary for us to investigate the elhole subject of rates, notlhose at which we could buy bills but those at which these various South 7. Ilarch 27, 1917. To - Hon. Paul L. Warburg. American banks are now buying bills. That 'I would strongly urge my associates to do at once. G. If the Banco de la Nacion Argentina agrees to buy bills for us at market rates (instead of at forward rates which we would quote), we would in effect have a branch or agency in every town and city of importance in the Argentine. There is no escaping this conclusion because our agent would be bidding for bills at market originattid in the Republic. I aa sure rates whenever bills Wat our own member banks would be greatly discouraged by any such development. As to special safegaards, I)tould be quite willing to see our Argentine arrangements based upon a treaty, if you feel willing to defer this matter until such treaty can be prepared and negotiated. You are mistaken in regard to mu anxiety in regard to the contracts with the Bank of ilaglaad and the Bank of France causing me to overlooa the treaty matter. The question was not overlooked, but, as 1 was concerned, as I explained to ybu lon so far ago, the sra;gestion as to a treaty basis for these arrangements was abanfioned as thoroughly imprac- ticable during the period of the war, my own conclusion being that a better arrangement could be negotiated at the present time rather than later, so far as terms, etc., were concerned, and that such an arrangement as we might now establish would not in any way interfere with the later negotiation of a treaty. My suggestion about the purchase of sterling bills was based upon a desire to give real life to such relations as we established the Banco de la Nacion Argentina. opportunity with It would give the South Amc:rican drawer to convert sterling bills into dollars in order to have bal- 8. L:arch 27, 1917. To - Hon. Paul M. Warburg. ances available to pay for his imports fro n thls country out of the proceeds of sales of goods in England. -As would expeet the Banco de la Nacion Argentina to endorse or gnarantoo such bill but, of course, it would involve some sneeial arrangement with the 3ank of i;ngland as to their handling. We could not expect the Bank of England to make any guarantees on such bills, and would have to rely upon the Banco de la Nacion Argentina to reimburse us in ease for an reason such bills, or their proceeds, booame unavailable to us in-Angland. I see no reason for your conclusion that nothing can be done in that connection at this time because such bills are undoubtedly being drawn in considerable itiantity, and the only real practical difficulty would be in mnohanical arrangements, such as mail time, eta., all of ,.chich would have to be studied. Now in conclusion let up say that I look at the Whole tatter in this way. he arrangement should bo tilde with the idea of doing business and not merely to have a,dormant and sterile account. To make the account active and of value in its relations to exchange rates we certainly must contemplate carrying considerable balances in the Argentine, which would be a dead locs to us unloss purchased bills there. Al are forced to purchase bills there in order to siploy our money unless we arc willing to consume our balances by buying bills drawn on New York. Should we decide to buy bills drawn on New York, we will to a greater or less extent compete with our own bins. If we deliberately intend to compete with our own banks, we Should first make an effort to enter into such arrangements with them in that regard as would avoid doing them an injury and likewise doing ourselves an injury at home. 9. To - Hon. Paul M. Warburg. March 27, 1917. The suggestion that our arrangesent might he confined to the custodianship of dold., etc., would bo found impracticable because such arrangements aro already in operation successfully with other American banks which undoubtedly give facilities which we cannot diva, such as allowing interest on balances, extending credit, opening commercial credits, buying Argentine securities, etc. 1 would 11.e exceedingly well to discuss this subject with you before final steps are taken, but mantirJe don't forget that this is a matter 5.: -rhich 1 am most interested, almost more than any other develop- meat of the Reserve System, and want to see constructive progress made. Faithfully youru, Hon. Paul M. ',:arburg, -,deral Reserve Board, ;hincton, D. C. 35/CC Denver, Colorado, March V, 1917. Dear Warburg: I have just had a delightful visit from Delano and it was hard to lat him go. _ won't recount in detail what vps did for he will be in 7hington almost as soon as this letter and tall you himself, but I am sure that the report he got fray. Dr. Sewall was satisfactory to him and hope it will be to you and the others. N\ Mother writes me of your doings and / inn so glad that she and y. Warburg have had opportunity to get better acquainted. i-'very time I hone. look at our statement from New York 1 want to go Our reserve is up to nearly 09%, for Which I am blaming you a good deal because you are the determined, consisont, irreconcilable readtionary and, if I do say it, you bave been able to buffalo those nartnors of mina in a way that you could never buffalo me were I on the job. You had better get lots of exercise and fresh air and strengthen up before I 6et hone for then you are going to be in for it. \\*Y best to the family. Please tell Mrs. Warburg writing her soon with all the latest personal news. Best regards to you olL man, Faithfully yours, Hon. Paul M. 'farburg, Federal Reserve Board, 7ashington, D. C. will be Denver, Colorado, April 9, 1917. Dear Warburg: Many thanks for sending me a copy of your address on "Government in Business", which I enjoyed reading very much indeed, but why didn't you give me advance notice that you expected to be in Chicago on the 7th, for I -mould certainly have arranged to hear you deliver have a visit with you there and the speech. The thing that delighted me most was your unqualified statement about citizenship. Your friends will be delighted, all of them, to read of your having made this plain statement Publicly and I predict that you will be more comfortable and contented in your own mind for having done so. I suppose you are all exceedingly busy, but I would like right well to have a line now and then, telling me of your plans. Best regards,' Faithfully yours, Hon. Paul M. Warburg, Federal Reserve Board, Washington, D. C. BS/CC I Denver, Colorado, April 17, 1917. Dear ,burg: Many thanks for yours of the 10th. I have not been writing you much lately because I know how busy you are and than I in considerable time on the links friends to Southern Colorado. have been putting and have made one short trio with Mother has written me of her visits with you and Mrs. V!arburg and I am delighted to feel that you know each other better and, personally, an exceedingly grateful to both of you for the many hospitable attentions which you showed mother during her visit in Washington. Of course you understand my anxiety to return. keep me nretty unhappy to rennin here very It is going to much longer and I really that the call of duty is getting too strong. think This quiet period at the bank is just the time when the last finishing touches should be put on the Organization and (those matters I regret to confess that I think the boys at the office are not at their best. A few weeks' punching thin- would do thetrick, if l could get back for the purpose, and then again I am most anxious to see Lord Cunliffe during his country. visit in this Ic I hear that your Chicago address was a great success and that you ;ere received with enthusiasm; this is most gratifying. Also i learn that the State banks and Trust companies, both in Chicago and New York, are again beginning to tae notice and we may before the year is out see the solution of that most puzzling problem well under way; let us hope so any way. 2. April 17, 1917. To - Hon. P. M. Warburg. About Argentina, we will have opportunity to discuss matters long before final arrangements are possible. Meantime a letter has gone forward Which I really think will open the door to everything that you have in mind in the way of banking arrangements and if not, let's you and I get busy when 1 return and see that everything is done. Thank you for sending me copy of Mr. Davis' letter. Mother writes no that Jimmy wants to go into the sUhmarine service. Don't let him do it. Personally, thin :c a boy of Jimmy's very unusnal ,ability can be of greater service to his country by avoiding those branches of the service that require long technical training such as the navy, and that his real place is in the infantry or possibly the artillery because there the ability to manage men is of the greatest value. Ben is in Com,. pany L. of the 2nd New Jersey Regiment, and has been mustered into the Federal service. He is now stationed at Camden, N. J. and 1 want to see him pass his evaminations and get a commission as soon as possible. Best luck to you, old man, and don't work too bard. Paithfully yours, non. Paul M. -iiarburg, Federal Reserve Board, Washington, D. C. BS/CC Denver, Colorado, April 23, 1917. Dear .Jarburg: A great many thanks to you for your newsy letter of April 20th. I am so delighted that Jimmy is In training that I really cannot express my feelings strongly enough, although I know What a very severe. shock it must have given you and Nina. About my return, I have almost decided to make a flying trip to Wew York and then return here at once, provided arrangements are made in regard to a brief meeting with Lord Cunliffe, and to have a little chat with the men at the bank. It would only take a week or ten days and as a matter of fact I am perfectly fit to come back now. What you say about the financial p1ans4e just exactly What I have been gathering out here from various reports that reach me. Both the $50,000,000 and 4290,004,000 loans were badly handled - rather on I was a cheese paring basis, than a good, broad basis of statesmanship. grievously disappointed about it. What you write about temporary borrowings is exactly my own nought and I have been writing almost daily to the boys at the bank, asking them to urge were asked. this policy of short borrowings It is the one way in which these large Government borrow- ings can be safely conducted without disturbance to The Treasury should the have bills on sale at the the money permanent loans aro placed, market. Reserve banks all the time, rates to be fixed by the Secretary from time to time Then when whenever their views to meet the market. one hand will wash the other and no 2. - Hon. April 23, 1917. P. Marburg. disturbance result, the money will be disbursed as rapidly as it is borrowed and the machinery will work smoothly. Any other course will be the height of folly and will lead to a gAstly 4 disorganization of our country's business and finance. You always amaze me in your comments about Jack Morgan. He's but just the 884/0 is a got a heart as kind as any humanbeing can have, good bit of a chip off the old block suoerficially. In any event, Jack was not to blame personally for the faux pas and as that is all past history, it should all be forgotten and everybody play the game. $ ? i do not fully agree with you about a two billion loan. are looking at that matter from the standpoint of New York. bond is absolutely unattractive to banks, institutions You A 3-1/2:: and investors in all sections of the country west of the Alleghenies, or one might say outside of New &gland and New York and Philadelphia, with the sole ex- ception possibly of Chicago, and would have to be sold purely on patriotism rather than on an invoatment basis. My feelinn go very successfully and then sell at a premium. to risk the possibility of a premium which is is that one billion would To crowd beyond that is the absolute essential of subsequent success. About the Guaranty and Bankers, I have been writing some of my friends, punching tham up a bit and hope that between your efforts and my own, Are may get action. fine, but these miserable Cain about chec district. The Whole state bank situation is coming along little country state collections and seem to banks are still raising be particularly active in 1 am afraid Thrawls is largely responsible. our Notwithstanding 0 t-4 2. To - Hon. P. M. April 23, 1917. . ,arburg. :heir activity, I have urged Mr. Treman to pursue our policy relentlessly for the time has now come to get this miserable question behind us once If you can only keep Congress in line, we can get these and for all. New York state bankers in line, I think. If I were you and your associates would put the issue squarely Uo to Congress, urge them to have enacted a law which contemplates par collections and tell them that it is a very small percentage of the banks that want to Charge exchange and legislation 'egalizing it would now make it universal instead of as in the paat, confined to those fea banks that were willing to charge all the traffic at par, and Congress Should decide and decide at once whether we are to have universal Dar collections or universal exchange charges. Once more about Jimmy, i cannot tell you how delighted I am. You and Nina have done a very wise thing, as always, and no one rejoices more than I do. Best regards to you and the family, v- \ Hon. Paul L arburg, Federal Reserve Board, Washington, D. C. BS/CC Faithfully yours, Denver, Colorado, April 22, 1917. Dear Warburg: Many thanks for sending me the printed copy of your Chicago address. I have just been going throudh it again and once more I am impressed with he skill thing. and thoroughness with Which you do that sort I cannot tell you with what extreme delight I have read the first part of it. Now that the development of the Reserve System has resolved itself to only one or two sharp and well defined problems, the rest of practically being complete, I can understand the the development work great satisfaction that you get in looking at our balance sheet. Little did any Of us realize that two and a half years could accomplish such great results. Beyond everything else now we need to have the Secretary of the Treasury show his confidence in the System by turning over to the Reserve banks as large a share of the fiscal agency business of the Gov. ernment as is possible under present conditions - our prestige will then be fixed for all times. I am still hanging on here, Playing k.olf every day, with a feeling I cantime, but really leave at any nevertheless that I should be home. will stay on awaiting word that I am really needed. I hate to miss the opportunity of having some part in our financial arrangements with the allies because the Bank of England and the Bank of Frances understandings fit into that situation so perfectly. I hope that you and your associates 2. To - Hon. Paul U. -:iarburg. April 22, 1917. will not deprive me of the opportunity of completing that important work. Best regards to you all. Faithfully yours, Hon. Paul a. Warburg, Federal :esorve Board, Washington, D. C. BS/CC Denver, Colorado, April 24, 1917. Dear Warburg: I had a talk by telephone with Mr. Jay last night and he explained to me very roughly the scheme for handling the proceeds of the short loans now being made for England. is that My understanding the money raised from each Reserve District is to be placed to the credit of the Bank of England at the respective Reserve banks. From this I gather that the Bank of England will draw on all twelve of the Reserve banks. Me principle of having the money deposited in the District where it is raised is, of course, thoraujay sound but I would greatly regret to see an arrangement made which would result in the Bank of England drawing an twelve depositaries 1..1 this country. center and, of course New York under the proposed New York is the exchange banking arrangements abroad is the place where these drafts should be cashed and the account ,' normal/7 would be ran. plan be modified so Could not this that pro-rata withdrawals would be arranged through the exchange accounts which we now carry with the other Reserve banks and as rapidly as tie Bank of England draws on the 'Federal Reserve Bank of New York, we, in turn, would appor- tion the withdrawals from the other eleven and exact a weekly settlement through the gold settlement fund? I cannot help but feel that any other arrangement indicates a certain regard for political and sectional considerations, rather than 2. To - Hon. P.M. Warburg. April 24, 1917. response to sound business judgment. If you can have the arrangement worked out roughly as I suggest, it wil/ be much more satisfactory I am sure to everybody and pave a lot of bother. Faithfully yours, Hon. Paul M. Warburg, Federal Reserve Board, Washington, D. C. BS/CC (t s, May 9, 1917. My dear Warburg: Don't think me overinsietent in certain matters which are really of great importance to us just now. I shall refer to them by subjects: nDERAL RESME_NOU5: The amendment which would permit member banks to count Federal reserve notes as part of their cash reserve, is absolutely vital to a successful handling of the bond issue. This was emphasized at a meeting of the clearing house committee yesterday which is meeting to-day ing house should be. to discuss what the attitude of the clear- I have recommended that instantly the amendment passes (if it does), the clearing house should adopt a resolution authorizing the use of Federal reserve notes in settling balances and in any event should extend the arrangement by which balances are settled on our books-. There should be no misunderstanding, however, that an arrangement for settling balances on our books will not entirely accomplish the 11111111140 seek, because it does purpose we not give us the means to Issue notes freely against gold and keep them la circulation. 11111111° This amendment is interdependent with the last named -"Er--- 5/9/17. Paul M. Warburg, Esq. and I hope that you and your associates are not going to permit any stone to remain unturned in your efforts to secure its passage. SAVINGS BARKS; I have written Governor Harding on this subject. Mr. Hine tells me that there is some uneasiness among some of the savings banks that no means exist by which their securities are available for the purpose of furnishing currency in from the offerina of the loan. district pay ai%, some 4. case heavy withdrawals result Most of the savings banks in this Those which pay 3i1 may lase deposits heavily as our campaign for selling the bone will aatend into every nook and cranny if the distrct in order to get small subacriptions. INTEREST RATES: One of our directors made a ing which strikes me as valuable. suggestion at to-day's meet- Both State and national banks throughout the upper part of New York State allow 41 on deposits of certain character. The State banks say that if the national banks will discontinue these high rates they also will discontinue. It will be mighty, dif:icula to get people of small means through- out that territory to subscribe largely to the now loan when they can get 4`', on small balances in commercial banks. is that the The suggestion Comptroller or the Pederal Reserve Board take steps to bring about a discontinuance of this practice. PUBLICITY: I am frank to say that the general feeling in this district is almost unanimously expressed in condemnation of the present program of publicity conducted in Washington. Statements 11t.ul M. Warburg, Esq.1111111111r-1111.1 5/9/17. Allirr3-11 .inreeard to the amounts of subscriptions being received are regarded 111111r as dangerous and possibly misleading and it is having a tendency to discourage people from taking an interest in the loan and, in some Gases, has caused possible subscribers to delay subscriptions which otherwise might be made. I do not feel competent to make any definite suggestion on this point; but if experienced men are of this view it seems to me that it should be regarded by the deeartment. LOANS ON GOVERNMENT BONDS.1 Mr. Kenzel hands me the enclosed nembrandum of a conversation with Mr. ickelheimer. There is much In his suggestion, but 1 would not dare recommend until the amendments relating to our Federal e, reserve note issue and geld reserve have been paesed. If they are think I would be inclined to recommend that Federal reserve passed -.banks be authorized, during the period of the war only and for a limited period after the conclusion of the war, to make loans up to _ 50% of the pee value of war loan bonds and certificates of indebtednese; but such privilege should be exercised with the utmost dis- cretion. COORDINATION OF liFb v DISTRICTS: Members of our coumittee have suggested to no- that it is hilly important in the early days of the campaign that the right kind of cooperation exist among the reserve districts, 30 as to avoid publication of ipportant decisions or news in one district in advance of another; so that effort may not be duplicated, and so that the handling of the funds resulting from the subscriptions will be worked out so as to avoid disturbance of the money market. If you desire ..1,11.11XLIMIRTF" Paul M. Warburg, Esq., 4. 5/9/17. oranda describing the points to be covered, it will be prepared and forwarded to you. SHORT LOANS; It is regarded as borrowings by the Government highly important here that all short in this market shall hereafter be ef- fected by invitations for tenders for bonds. : MONEY MARKET: Renewals to-day were mostly at 24%. This 2.4 and money later loaned is the result principally of the disbursement which we are making to the Allied Nations and I do not expect to ., , in the immediate future change payments as the one to be made to- morrow can be arranged so that the money is at once returned to the Itat if such see any Street by the Allied Governments. The fiscal agency arrangement will effect that if the representatives of Great Britain, France, Italy, etc., carry out the plan which has been Very truly discussed with them. yours, Governor. Hon. Paul M. Warburg,Vice Governor, Federal Reserve Board, Washington, D. C. BS/HAB Enc. Form 1206 SS OF SERVICE DESIRED WESTEagAA UNION s, id- AM TEL / Letter Night Message Night Letter ons should mark an X ono3 the class of service desired; HERWISE THE TELEGRAM L BE TRANSMITTED AS A FAST DAY MESSAGE. E VSTERNUNION "ri 'Ist Day Me s Receiver's No. Check WA\ Time Filed NEWCOMB CARLTON, PRESIDENT GEORGE W. E. ATKINS, VICE-PRESIDENT BELVIDERE BROOKS, VICE-PRESIDENT d the following telegram, subject to the terms n back hereof, which are hereby agreed to Denver, Colorado, May 16, 1917. s. Paul M. Warburg, 1704, 18th St., ashington, D. C. Just arrived in first rate order after a very comfortable trip. Your good care of no semis to have been effective for I never felt better. Love to you and Paul and Bettina. Benjamin Strong. Chg. Benj. Strong, 4100 Montview. ALL TELEGRAMS TAKEN BY THIS COMPANY ARE SUBJECT TO THE FOLLOWING TERMFoarison. To guard against mistakes or delays, the sender of a telegram should order it REPEATED, that is, telegraphed back to the originating office for one-half the unrepeated telegram rate is charged in addition. Unless otherwise indicated on its face, THIS IS AN UNREPEATED TELEGRAM AND 3 FOR in consideration whereof it is agreed between the sender of the telegram and this Company as follows: The Company shall not be liable for mistakes or delays in the transmission or delivery, or for non-delivery, of any UNREPEATED telegram, beyond the al received for sending the same; nor for mistakes or delays in the transmission or delivery, or for non-delivery, of any REPEATED telegram, beyond fifty times the sum re for sending the same, unless specially valued; nor in any case for delays arising from unavoidable interruption in the working of its fines; nor for errors in cipher or telegrams. In any event the Company shall not be liable for damages for any mistakes or delays in the transmission or delivery, or for the non-delivery, of this telegram, w caused by the negligence of its servants or otherwise, beyond the sum of FIFTY DOLLARS, at which amount this telegram is hereby valued, unless a greater value is sta writing hereon at the time the telegram is offered to the Company for transmission, and an additional sum paid or agreed to be paid based on such value equal to one-to one per cent. thereof. The Company is hereby made the agent of the sender, without liability, to forward this telegram over the lines of any other Company when necessary to res destination. Telegrams will be delivered free within one-half mile of the Company's office in towns of 5,000 population or less, and within one mile of such office in other ci towns. Beyond these limits the Company does not undertake to make delivery, but will, without liability, at the sender's request, as his agent and at his expense, endea contract for him for such delivery at a reasonable price. No responsibility attaches to this Company concerning telegrams until the same are accepted at one of its transmitting offices; and if a telegram is sent to such 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 teleg 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 additior the foregoing terms. No employee of the Company is authorized to vary the foregoing. THE WESTERN UNION TELEGRAPH COMP INCORPORATED NEWCOMB CARLTON, PRESIDENT CLASSES OF SERVICE FAST DAY MESSAGES A full-rate expedited service. NIGHT MESSAGES 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. DAY LETTERS A deferred day service at rates lower than the standard day message rates as follows: One and one-half times the standard Night Letter rate for the transmission of 50 words or less and one-fifth of the initial rate for each additional 10 words or less. 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 enu- merated 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 dehvery shall be a complete discharge of the obligation of the Telegraph Company to deliver. This Day Letter is received subject to the express understand- ing and agreement that the Company does not undertake that a Day 13. Letter shall be delivered on the day of its date absolutely and events; but that the Company's obligation in this respect is si to the condition that there shall remain sufficient time for the mission and delivery of such Day Letter on the day of its date ( regular office hours, subject to the priority of the transmission c ular telegrams under the conditions named above. No employee of the Company is authorized to vary the foregoing. 4I NIGHT LETTE RS Accepted up to midnight for delivery on the morning of th, ensuing business day, at rates still lower than standard night it rates, as follows: The standard day rate for 10 words shall be c, for the transmission of 50 words or less, and one-fifth of such sti day rate for 10 words shall be charged for each additional 10 wc less. 41110 SPECIAL TERMS APPLYING TO NIGHT LETTERS: In further consideration of the reduced rate for this special Letter" service, the following special terms in addition to enumerated above are hereby agreed to: Night Letters may at the option of the Telegraph Co, be mailed at destination to the addressees, and the Compan: be deemed to have discharged its obligation in such cases with to delivery by mailing such Night Letters at destination, r prepaid. Night Letters shall be written in plain English. Code la) is not permissible. No employee of the Company is authorized to vary the foregoing. o' A Denver, Colorado, May 17, 1917. Dear Warbemg: I had a fine trip west and after submitting an account of my performances to Dr. Sewall, he and I are both satisfied that no harm resulted from my visit. I put on another six pounds in the two weeks and 12077 weigh 162; this is really the barometer. I am writing particularly to thank you for everything that you did to make my trip satisfactory and particularly to make it safe - you and Nina certainly know how to do those things and I feel everlastingly grateful. Just a word about your own work. My visit to Washington opened my eyes a bit as to the many difficult and trying features in the nresent sit- uation Which at times have caused you worse thal Don't let it annoyance. influence your attitude a particle; you are doing a grand piece of work in a noble cause and later on when the dust and fog blows away, the country will wake up to the fact that you were big enough to recognize your citizenship as coming above everything. Meantime these annoyances Which are trifling in comparison with and I do hope the great end to be accomplished simply add value to your work that you will not permit yourself to be disheartened or dis- couraged In the slightest degree. I shall see you by about the first of June for I am perfectly satisfied after my short trip east that for a month at least my duty is in New York. After that I may take your suggestion and move down to the country, where I will be in striking distance of both New York and Washington. 2. To - Mr. Warburg. Liay 17, 1917. I spent Monday in Chicago, met the Liberty Loan Colimittee and the officers of the Reserve banks and tried to give the situation there a little punch. They are making good progress., displaying great energy and. I am con- vinced have a good committee. Their organization had not progressed quite as far as ours in New York, but was moving ahead rapidly. I am writing you seoarately with one or two suggestions about the great problem of clearing the loan when payments are made. With best regards, N, Faithfully yours, 4.,\' Hon. Paul M. Wasburg, Federal Reserve Board, Washington, D. C. BS OC Denver, Colorado, May 17, 1917. My dear tr1:t5i: I have been spending all of my leisure moments considering just what is going to happen in connection with clearing the payments for the big loan, and want to give you the best views that I can express right now because I think some action will be required by the Reserve Board to insure a successful operation: There would be little need for concern if payments were to be made only in installments on the schedule provided in the prospectus, but the provision for anticipating payment in full presents the possibility of a very large payment within a short period. dollars, or even more. The total might be one billion In that event considerable strain will result and I thiniethe course of development is likely to be about as follows: Preliminary to payment being made, interior banks will begin to withdraw balances from New York in preparation. Those balances now exceed $1,000,000,000 and the withdrawal may force the big New York banks to rediscount heavily with the New York Reserve bank. The adoption of the amend- ments to the Reserve Act will serve to protect our reserves to some extent, but the rediscounting may be so heavy as to force New York to put some of the load on the other Reserve banks, who will grow correspondingly strong as we grow weaker. It seems to me, therefore, necessary that arrangements be made at once by which the New York Reserve bank can rediscount upon an agreed schedule of division among the other eleven banks end at a rate to be fixed To - Hon. P. M. Warburg. May 17, 1917. now in advance and without the possibility of any demur or delay on the part of the lending banks. It seems to me the Reserve Board should anticipate this situation by sending notice to each Reserve bank and by taking appro- priate procedure to fix the rates. When the payment is made in each of the twelve districts, the strain will begin to turn the other way and as rapidly as money is moved to New York for the purpose of loans to allies and payment of existing obligations, withdrawals heavy and at the same time the from the interior Reserve banks will be member banks throughout the country will doubt- less find it necessary to rediscount heavily with their Reserve banks. We, at the same time, in New York will grow correspondingly stronger, consequently we will take up the loans made by the other Reserve banks and gradually as the strain increases as our resources grow, we should rediscount for the Reserve banks just as they did in the first instance for us. to the conclusion that the real problem other This leads me is the reserve problem of the Reserve banks themselves and instead of shifting immense masses of gold through the gold settlement fund, with a resulting distortion of our statements that will not look good, it would be much better to effect the shift between ourselves by a liberal policy of rediscounting, each bank, of course, holding the paper on pension for the bank which makes the advance. ecutive Committee of the Chicago Reserve bank I spoke of this to the Lx- and they seemed to hold much the views that I expressed and were entirely willing to do everything necessary when the time arrived. One thing that puzzles me in our situation tecting our gold reserves. out a definite is the means for pro- I-do not see how it can be done effectively understanding with member banks that they will settle with- their 3. May 17, 1917. To - Hon. P. M. 'iarburg. debits and credits on our books, in addition to the adoption of a plan by which rederal Reserve notes may be used for settlinL balances at the Clearing House, particularly in New York. To facilitate these matters I believe it would be most desirable to provide for the issue or Federal Reserve notes for use by Clearing Houses in large denominations. Could not such an act be passed by this congress? Has the Secretary of the Treasury accepted the doctrine that the government mast pay.exchange on checks drawn on country banks in payment for the new loan? I do not see any other way of handling the matter as the Hardwiok amendment stands, and the amount will be Won't you write me very large, as you realize. your views about these matters? Yours very sincerely, Hon. Paul M 7arburg, Federal Reserve Ban, Washington, D. C. BS/CC of"" Denver, Colorado, May 22, 1917. Dear Warburg: Many thanks for yours of the 18th. Of course I realize how exceedingly busy you have been and recognize your handiwork in much of the material that is now coming forward from the New York office. These are great days and I am glad that you are permitted to be on hand during the yeomans What you say about the Hardwick amendment services. is exceedingly interesting. It was a vicious, selfish and unpatriotic maneuver, to which I am sorry that Hardwick allowed hi:Jself to be persuaded, but let me once more repeat what I know you are conscious of more than any others in Washington, - that those amendments must pass if we are going to see our Ship in good shape for stormy weather. I shall be in New York on Wednesday of next week, ready for another bout of a few weeks and then hope to get away again. .without saying that I will see you in Washington. It goes Don't bother to when you are so exceedingly pressed, unless there is something write important in Which I can be of help. I am leaving in a few minutes to act as one of the committee to meet Secretary McAdoo, Who is to make an address here this afternoon and attend a dinner. He will and an enthusiastic welcome. have an immense audience I am glad to say Denver seems to be stirred up with real war entausiasm. Faithfully yours, Hon. Paul u. Warburg, Federal Reeerve Board, Washington, D. C. WESTE SERVICE DESIRED t Day Message ay Letter ilAINNI UNION TEL,- AM 11ESTERNUNION Messao .nark an X oppoof service desired; .+ISE THE TELEGRAM BE TRANSMITTED AS A FAST DAY MESSAGE. -III Receiver's No. Check Time Filed NEWCOMB CARLTON, PRESIDENT GEORGE W. E. ATKINS, VICE-PRESIDENT BELVIDERE BROOKs, VICE-PRESIDENT nd the following telegram, subject to the terms on back hereof, which are hereby agreed to Denver, Colorado, May 24, 1917. Paul M. Wqrburg, Federal 2e8erve Board, 7ashington, D. C. Many this for telegram. be too strongly emphasized stop. visit did immense good. Vital importance of passing amendments cannot Secretary's reception enthusiastic and his This and other western districts badly =cid stimulation if loan is to succeed stop. Hope Board acts favorably on sw,gestion I am making through office to establish in advance rates for discounts between Reserve banks. Reach New York Wednesday of next week and hope to see you soon. Ashes. Benjamin Best Strong. Chg. Benj. Strong, 4100 Montview. 4 ALL TELEGRAMS TAKEN BY THIS COMPANY ARE SUBJECT TO THE FOLLOWING TERM' To guard against mistakes or delays, the sender of a telegram should order it REPEATED, that is, telegraphed back to the originating office for comparison. half the unrepeated telegram rate is charged in addition. Unless otherwise indicated on its face, THIS IS AN UNREPEATED TELEGRAM AND PAID FOR .1, onsideration whereof it is agreed between the sender of the telegram and this Company as follows: The Company shall not be liable for mistakes or delays in the transmission or delivery, or for non-delivery, of any UNREPEATED te' ived for sending the same; nor for mistakes or delays in the transmission or delivery, or for non-delivery, of any REPEATED telegram, beyond L..y times 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 Tanis. 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, eg this tele, oed by the negligence of its servants or otherwise, beyond the sum of FIFTY DOLLARS, at which amount this telegram is hereby valued, unless a greater value ,ing hereon at the time the telegram is offered to the Company for transmission, and an additional sum paid or agreed to be paid based on such value equal to one-1,,. per cent. thereof. The Company is hereby made the agent of the sender, without liability, to forward this telegram over the lines of any other Company when necessary to reac ination. Telegrams will be delivered free within one-half mile of the Company's office in towns of 5,000 population or less, and within one mile of such office in other citi us. Beyond these limits the Company does not undertake to make delivery, but will, witkout liability, at the sender's request, as his agent and at his expense, endeav cract for him for such delivery at a reasonable price. No responsibility attaches to this Company concerning telegrams until the same are accepted at one of its transmitting offices; and if a telegram is sent to such 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 telegra d 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 'oregoing terms. No employee of the Company is authorized to vary the foregoing. THE WESTERN UNION TELEGRAPH COM PA N' INCORPORATED NEWCOMB CARLTON. PRESIDENT CLASSES OF SERVICE ST DAY MESSAGES A full-rate expedited service. 1 G HT MESSAGES Accepted up to 2.00 A.M. at reduced rates to be sent during the night id delivered not earlier than the morning of the ensuing business day. AY LET-CP:RS A deferred day service at rates lower than the standard day mesge rates as follows: One and one-half times the standard Night . tter rate for the transmission of 50 words or less and one-fifth of e initial rate for each additional 10 words or less. SPECIAL TERMS APPLYING TO DAY LETTERS: In further consideration of the reduced rate for this special "Day Ater" service, the following special terms in addition to those enu- Letter shall be delivered on the day of its date absolutely and at al events; but that the Company's obligation in this respect is slit jec 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 durin; regular office hours, subject to the priority of the transmission of reg ular telegrams under the conditions named above. No employee of the Company is authorized to vary the foregoing. NIGHT LITTERS Accepted up to midnight for delivery on the morning of the n ensuing business day, at rates still lower than standard night messt._ rates, as follows: The standard day rate for 10 words shall be charge for the transmission of 50 words or less, and one-fifth of such standar, day rate for 10 words shall be charged for each additional 10 words less. e rated above are hereby agreed to: A. Day Letters may be forwarded by the Telegraph Company as a SnTed service and the transmission and delivery of such Day Letters in all respects, subordinate to the priority of transmission and -ery of regular telegrams. Day Letters shall be written in plain English. Code language . permissible. . This Day Letter may be delivered by the Telegraph Company telephoning the same to the addressee, and such delivery shall be a iplete discharge of the obligation of the Telegraph Company to yen This Day Letter is received subject to the express understandnd agreement that the Company does not undertake that a Day SPECIAL TERMS APPLYING TO NIGHT LETTERS: In further consideration of the reduced rate for this special "Nigl Letter" service, the following special terms in addition to tho: enumerated above are hereby agreed to: Night Letters may at the option of the Telegraph Comr an be mailed at destination to the addressees,. and the Company E ha be deemed to have discharged its obligation m such cases with respe, to delivery by mailing such Night Letters at destination, posta4 prepaid. Night Letters shall be w-ritten in plain English. Code langua' is not permissible. No employee of the Conzpany is authorized to vary the foregoing. ZSTE essago TEL' yLMer YIESTERN UNION Mt Message d Letter .-dtrons shoule, t oppo- site the class ol esired; OTHERWISE TI-' . _EGRAM WILL BE TRANS FED AS A FAST DAY MESSAGE. Check .11 e- Time Filed NEWCOMB CARLTON, PRESIDENT GEORGE W. E. ATKINS, VICE-PRESIDENT BELVIDERE BROOKS, VICE-PRESIDENT iend the following telegram, subject to the terms on back hereof, which are hereby agreed to Denver, Colorado, 11ay 24, 1917. l'aul U. Alrburg, Federal ReOtrve Board, Washington, D. C. Telegram received. Am expecting to Go away again shortly after return and just as soon as circumstances permit and I am satisfied that clearing arrangements are completed and understood. Benjamin Strong. Chg. Benj. Strong, 4100 Yontview. ALL TELEGRAMS TAKEN BY THIS COMPANY ARE SUBJECT TO Th. FOLLOWING IV To guard against mistakes or delays, the sender of a telegram should order it REPEATED, that is, telegraphed back to the originating office for comparison. me-half the unrepeated telegram rate is charged in addition. Unless otherwise indicated on its face, THIS IS AN UNREPEATED TELEGRAM AND PAID FOR H n consideration whereof it is agreed between the sender of the telegram and this Company as follows: The Company shall not be liable for mistakes or delays in the transmission or delivery, or for non-delivery, of any UNREPEATED telegram, F 'nd ti -eived for sending the same; nor for mistakes or delays in the transmission or delivery, or for non-delivery, of any REPEATED telegram, beyond fifty ,times ..ae sun sending the same, unless specially valued; nor in any ease for delays arising from unavoidable interruption in the working of its lines; nor for cipher . ,Irams. 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, o ,,eiegram, wh iqed by the negligence of its servants or otherwise, beyond the sum of FIFTY DOLLARS, at which amount this telegram is hereby valued, unless a gr.. ling hereon at the time the telegram is offered to the Company for transmission, and an additional sum paid or agreed to be paid based on such value per cent. thorreof. The Company is hereby made the agent of the sender, without liability, to forward this telegram over the lines of any other Company when necessary to read lestination. Telegrams will be delivered free within one-half mile of the Company's office in towns of 5,000 population or less, and within one mile of such office in other citie towns. Beyond these limits the Company does not undertake to make delivery, but will, without liability, at the sender's request, as his agent and at his expense, endeavo contract for him for such delivery at a reasonable price. No responsibility attaches to this Company concerning telegrams until the same are accepted at one of its transmitting offices; and if a telegram is sent to such o 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 telegrar 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 he foregoing terms. No employee of the Company is authorized to vary the foregoing. THE WESTERN UN ION such respective classes in additio TELEGRAPH COM PAI INCORPORATED NEWCOMB CARLTON, PRESIDENT CLASSES OF SERVICE FAST DAY MESSAGES A full-rate expedited service. ° IGHT MESSAGES 1ccepted up to 2.00 A.M. at reduced rates to be sent during the night I delivered not earlier than the morning of the ensuing business day. .Y LETTERS 1 deferred day service at rates lower than the standard day mes_e rates as follows: One and one-half times the standard Night tier rate for the transmission of 50 words or less and one-fifth of he initial rate 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 enu- Letter shall be delivered on the day of its date absolutely and at events; but that the Company's obligation in this respect is subj to the condition that there shall remain sufficient time for the tra mission and delivery of such Day Letter on the day of its date dur regular office hours, subject to the priority of the transmission of x ular telegrams under the conditions named above. No employee of the Company is authorized to vary the foregoing. NIGHT LETTERS Accepted up to midnight for delivery on the morning of the ne ensuing business day, at rates still lower than standard night messa rates, as follows: The standard day rate for 10 words shall be charg, for the transmission of 50 words or less, and one-fifth of such standa day rate for 10 words shall be charged for each additional 10 words less. merated above are hereby agreed to: Day Letters may be forwarded by the Telegraph Company as a leferred service and the transmission and delivery of such Day Letters s, in all respects, subordinate to the priority of transmission a4d lelivery of regular telegrams. Day Letters shall be written in plain English. Code language ; not permissible. c. This Day Letter may be delivered by the Telegraph Company y telephoning the same to the addressee, and such delivery shall be a Dmplete discharge of the obligation of the Telegraph Company to liver. . This Day Letter is received subject to the express understand9.nd agreement that the Company does not undertake that a Day SPECIAL TERMS APPLYING TO NIGHT LETTERS: In further consideration of the reduced rate for this special "Ni Lett4r" service, the following special terms in addition to th enumerated above are hereby agreed to: Night Letters may at the option of the Telegraph Compax be mailed at destination to the addressees, and the Company sin be deemed to have discharged its obligation in such cases with respe to delivery by mailing such Night Letters at destination, posta prepaid. Night Letters shall be written in plain English. is not permissible. Code langua No employee of the Company is authorized to vary the foregoing. 1111416.'i 4wpm opt JUN -1 1917 Swam tkru47714 Owe May 31st, 1917. Dear Mr. Warburg: Mr. Jay has oho= me your official letter in regard to rate for one day loans and i am writing to inquire whether the 4 maximum limitation cannot be eliminated. Surely, with your wide oxnerionce of the money market in New York, you will appreciate that the maximum rate as determined by the tioard has no relation whatever to conditions which may have to be met and that the conditions in this matter may be ouch ac to make i' exceevingly unwise to surround our dealings with the money market in such condition. Sincerely yours, Governor. Honorable Paul W.. . iarburg, Vice aovernor, Federal Reaerve Board, Washington, D. C. BS/VGM MiSC. 34 FEDERAL RESERVE BANK OF NEW YORK 54.1 13,4.8e,n.tbyli (SEND TO FILES) BITGLETTER a I NCA-COPY OF TELEGRAM 1:P4 June ath, 1917. Hen. Paul M. Warbung, Vice Governor, Federal Reseritio Board, Washington, j. C. A ruling that discounts for member banks for of stnAe be accompanied by notes of cuatomers of state benefit given for banks must banks purchasing or carrying Liberty Bonds would seriOusly impair the ability of national banks to assist state banks and their customers for following First, Savigs banks would borrow far own account and could notreasons: furnish customers notes. Second, Trust companies frequently take general liability agreements instead of notes from customers and many may need to borrow for their own account. Third. Many state banks doubitess willing to borrow for their oan account secured by their own bonds in order to accomodate customers but will be unable to obtain curator-ars assent to repledge their notes. Stop. Hope that ruling will be broad enough B-5 include notes made by nonmember banks withoid deposit of customers. to eaa.- July 16, 1917. 14 dear Mr. Warburg: We are agein experiencing Jam domande for loane, an increase of :,12,000,000 held's' taken place to-day, as shown in the following list: AWL Bollston Spa Nat'l Mk., Borchants National Bk., Nat'l Bk. of Ogdensburg, Chrse National Bank, Location Ballston Spa, N. Y. $ New York, N. Y. Ogdensburg, N. Y. New York, N. Y. Amerloan Exchange N. B., New York, 14 Y. National City Bank, New York, N. Y. New York, N. Y. Second Nat'l Beak, Nat'l Park Bank, New York, N. Y. First National Bmek, New York, N. Y. First National Bank, First National Bank, Bundeellatel Bank, Port Jorvie Nat'l Port Jervis Nat'l Bk., Washington Co. N. B., First National Bank, Donroe National Bank, LtAkt $ 900,000 50,000 15 drys 1,000,000 50,000 10,000,000 6,000,000 15,000,000 20,000,000' 250,000 250,000 2,500,000 2,500,000 15,060,000 5,000,000 Greenwieh, r. Y. 20,000 10,060.50 Silver Creek, N. Y. 1,518.75 Dundee, N. Y. Port Jervis, N. Y. 18,000.00 Port Jervis, N. Y. 11,000.00 Granville, N. Y. 2,634.00 8,830.70 Forestville, N. Y. 24.000,90 Denroo, N. Y. IMPX0;755a.- 05$'046,040.95 10 cloys Rediscount Cell. Note Rediscounts Rediscounts Our purchases of teceptances amounted to $10,692,000, but ue had 4:47.667,000 running off our own account and 06,168,000 for other Federal reserve banks. Our balance at the clearing house this morning woo $39,508,000, with a re- sulting net credit of 10,900,000. There is a very general interest in the obmises which have been made in the New York Clearing House bark statement, and, in calling on cormorcial paper brokers to- day, 1 was asked severe' times to explain the change. The high call money rates have Trectionlly stopped the sale of commercial paper for the moment at least and the brokers are eager seekers for light as to the Why and wherefore. 'Call money opened and renewed at 6, touched 10% and closed at 6%, The major portion of the loans wore made at .6% tbsugt about $10,000,000 is reported to have loaned at the higher figures. Imikers hero ascribe the hiffri call rate to the -SERVE BANK 'KEW YORK 2 Federal 'teserve Board CeP7 to the withdremel of aevorment Iowans. :be heavy immerses in our lorn mom& shoo that they rre taking steps to hanAle the situation. M, Ve transferred alout 46,000,000 of our Geld bare to the assay office Uempoot to forsarquero durinu tho week. Verw truly yours, Assistant Federal Reserve Agent. Honorable Paul Warburg, Vice Doverner, Federal Reserve 30ard, Washington, D. C. tanitiss FEDERAL RESERVE BANK OF NEW YORK, July Dear lir. Varbtlre,I Our loan acao-zst No boon ilirdri:slose with tho rollowing bi trp-ralmitoly 4240009000 rat'l Rads fir t tat 1 onal Bonk Notional 014 Lank National Pare, Amor.,son 4soitani3 24'1 Bank Seoond national Bank, 41mir. M.Y. Somerset eannntialgua 4 4.0014000 1(...woocc. 416,006,000 20,C06,000 Z,600,000 14000,000 .2,5(.010:40 0,000,600 06,c.A.)0 Bank, aarks.r, i.r« 5,440 :440,6204000 .0 Durc;basod aseevtzzeoc, staouzating to 4;1,760000 as 419,004460 aliult our °cm other banks' mat:aqui: bills of ;At76,001. Tho call moaey 1,..4.rkot W:44 oas.:-1* t4.:-.414v, t beihg 0%, la repuirot.ionts but no tine i close LiA",. enti aad ronnwel There Tr.,s money' snowit to to Lite Ogle of an money. The optAlou hare is t=t the werst of Ulu flurry Is oror r.ald that we ray expect roalleaable aaso fca, thc, next feu dvs. paid oqrtifioutos of Indebtedness due tomday to the w:ount of 0000000 end tills, no doubt, had an luvort,'..rt pezt In bringing abut oaslor cull mow. Ger credit at the Cloarinkr, ;bus° ma 4,27,062010 spoon, 444406,1A0 not. The commercial papor Ilarkot was a little. fiwuor with aloe at 4 1/2 to b 240 but It Is tholy.Tht that the rate by to-uorrow will boon coupoll back to 4 li2 to 110.. rotes to customers are around W. Buzies -Vord trulj yours., Minnieble owe kanl,TJabarnt Wzornor, iwural Amery° Board, Assistant Federal Ra-rve Agel FEDER ' R, r1Vk A NK pr. (Governor Strong) .LLVAJAa,J WALL S'. The Federal Reserve -711 was in established. re- Ally le. 1917. Our lcy.no shoo a win of approximately C2,650,000 with the following trPnsastions: Ea" .D=4 Amoriosn Exchange National Bey*, Now York, X. Y. First National 46k, New York, Chomioal Nationnl Bank, Now York, B. Y. Immk, Lev: YorK, N. Y Nations' Pnrk fthk. VW York, 11.Y 2,500,000 Nttion1 Park 3ank, " It " Liberty rail/ Bank, " First Pet,' Bank,.i3ilver " Dundee Dundee. 3,0)0,000.00 20.000,000.00 4,0)0,000 Chrthem an Phenix National - $ 3000,000 10010,000 Crook tO Net'l Bank of Westfield, N. J. Lambertville National 'izatt, .L.cmhertville, 1z. Y. First Nat'l Sank, Irrmnwish, H. Y., 2,000,000.00 9 SOO 0-10 00 1,126,328.81 Z,500,000.cx-: ft 2,779.31 1,167.82 10,0(10.00 2,065.40 0,250006, 10111u our Our purohrses of m000ptrknoes to-day amounted to Federal motuzities wore only t206.000 for our own 8000810 nn- ,571,000 for other reserve bnaliZ. rates at The eou:sroial paper ineriot is reportel quiet with Call monoy opened enM to 5)1. mole at 6; lol 0-74 average 5V4 clone Z. debtor at the olorrinG houre to-day to the amount of ;41,830,000 This is banks' debits brought the total up to 419,A6,000 debit. vie were and our member of InAobted. probobly, In large part, a rofleation of our paymonts of eartirlantea nose ertdeli, for yesterday sad to-y, Settled 442,s00,00o. been heavy this week, our balance Thv flow of monoy fron new York has well over 100,000,000. Under due to other 7e4ern1 rosorve barilm running up to the Treasurer imetrustiota from Atlmite, we gosterda;; charged them and eradlteA Memorable mmal k4 ar to-day for 44,000,00 trrrzfer from 3nnespolis 0,000,000 amJ mndo like the transfers to be settlement in antleipation of Withholding of funds from authorized by 3enton25,0o0,000, have been mAde by the Treasurer to.imorros .J9071no,000, making 013,000,000, Riefrond, Philadelphia, Chicago, 426,000,000, statement will, therefore, Our debit on the Weekly C totel of 04.000.000. proaddy be 025,000,000 and 435,000,00040 eemOilierre between time the note of e nonnambor,bnit, to-dsy for tho first IA) discounted the %Alters Irust OmparY It was the obligation of Liberty Bonds. secured by for the Liberty National Mink. ,500,000, indorsed by Very truli inns, Assistant Polars/ Hosorve.Agent. lonerable Paul Mo Warburg, Vine .;evernor, Federal Reserve 3orrd. ':;satington, D. O. solon . Corr July 19, 1917. Dear Mt. Tiarbutg: Renewal notes were given to-day by the National Park Bank, .1'2,530,000., Chase National Bank, $10,000,000., First National sank, 010,000,0)0., and *mond National Bank, 1250,000. New loans, or rediscounts, were as follows; Herkimer National Bank, Herkimer, N. Y. Florida National Sank, Florida, N. 7. North Creek National Bank, North Creek, N. Y. Second National Bank, Elmira, N. Y. $22,350. 12,003. 8,129. 50476. 092,956. Our purchases of acceptances to-day amounted to 41,876,000., including 1550,000., which were taken late yesterday afternoon and not reported in yeotorday's letter. Commercial paper rates are for short paper at 40, at'41to with little available. ing some very cholee six months' paper at Call money opened and renewed at 6%, 5%, and brokers roport a good demand A.large member bank reports purchas- 0%, but regards this es an exoeptian. average $%, low and close 4%. rmr gross credit at the clearing bonsai,' all of this was against member banks 015,995,000., but practioally so that OUT net credit vas only 4;23000. 116 had a debit of ;29,60,000. In the gold settlement fond, having withheld from set- tlement total of $74,000,000: Transfers to Om Treasurer of the United States have been made to-40, either through the gold settlement fn d or on our books to a total of 067,000,000, which with 40,000,000. transferred in the last two days ekes a total of $97,000,000, which we have r)oeived, and item which ge expect to BANK YORK transfers being from the 486,010,000. to the British Goverment to-morrow, the per foi/owing banks: Philadelphia Cleveland Atlanta Chicago St. Louis Minneapolis Xansas Oity Dallas San Francisco 43,000,000. 22,000,000. 6,000,000. 26,100,000. 5,000,000. 4,000,000. 5,000,000. 3,000,000. 13,000,100. Loan interim certificates from the Liberty We are beginninf; to receive banks, the total thus far amounting Committee to be held in custody for our member circular letter sent out someThis is done pursuant to our . to around ;41 000,000. time ago. hundred boxes of gold to-morrow morning, The Assay Office will take two handle next week an amount approxiwe are aware, will be able to Mid, so far as hundred boxes, se that the congestion that taken this week, or five mately equaa to in our vault will soon be materially rolloved. Very truly yours, Assistant Federal Reserve Agent. Honorable Paul I. Warburg, zward, Vice Governor, Federal Leserve Atsh1ngton, D. 0. /uI August 8th, 1917. PERSONAL. Dear Warburg: Thank you for yours of the 3rd enclosing copy of your letter to Mr. Treman in regard to certain tra sections in bills which hrd becn recently effected by the Federal Reserve Bank of rew York. I agree with everything you say in your letter with only one exception. I would not only not sell bills in the market (which was done without my folio to the knowledge), other but would not even sell any of our port- reserve banks. Before leaving New York last month, I him to adopt the policy of vailing, anticipating maintaining our rates at that money would then folio would autometically liquidate itself. this development did not take place raising our rates for bills in portfolio. In his anxiety to that he has gone too sure that all phases agreement as that is the levels then ease off and that pre- our port- further urged him in case after a reasonable time to consider ordee to ensure prompt carry out this policy, I agree with you far, but once the to our policy in that with him I am understood and we will be in respect. the other reserve a mistake is because in my liquidation of our matter is discussed of the matter will be As to sales to wrote Mr. Treman urging banks, the opinion the other reason why reserve I think banks are To Mr. Warburg. 8/8/17. not liquidating fast enough. There still seems to be disposition on the part of the management of some of the reserve banks to "make money". To the extent that we are Oontributing to that de- velopment by supplying them with bills, I think we are making a mis- take and shall hope to see all twelve of the banks reduce their bills and investments to a minimum within the next 30 days Of course, we the Treasury in must not overlook the fact that _ tion of the country. We have the flow into treasury certificates might, by the other market than upon any other sec- the the rest of the country will beTreasury raises to that extent be justification liquidation by sales of bills a this view to Vr. There- hastening our similar liquidation Monday right and I ex- Treman and find that Mr. Jay agrees with it. Honorable Paul M. Warburg, Federal Reserve Board, rashington, D. C. its rate. reserve banks. Sincerely yours, BS/VCM for little in advance of We had just a word about this matter pressed greater cheapest money and that money will before gin to contribute and then only as fore, there the policy of placing certificates of indebtedness will have a effect at first upon the New York money . or 60 days. August 24, 1917. Dear Mr. -arburg: I understand from Governor Strong that you have received a telegram from rr. Jay of similar import to the one received by us. I want to report that our telegram was read to the In this connection board of directors of the bank at their meeting held last Wednesday. The directors passed a resolution expressing their opinion that in the best interests of the bank Mr. Jay aught to stay away until October 15th at the earliest, and as nuch longer as necessary. They also expressed the view that in so far as the bank was concerned, and, of course, without trespassing in any way upon the jurisdiction of the Federal Reserve ?oard, the directors felt that in behalf of the bank they would be pleased to have "r. Jay receive a leave of absence with full pay for the necessary period. Our directors, of course, realize that this matter lies within the discretion of the Federal Reserve Board and their opinion goes only to the extent of indicating the view that the bank should pay full compensation to r. Jay for whatever period the leave of absence is granted. Very truly yours, Fonorahle Paul 7arburg, Vice Governor, dera/ Reserve Board, Washington, D. C. !ox' fImPrOP +re' _41,1 WOO August 24, 1917. lkir dear Nina: This is a business letter, consequently dictated and typewritten. Some friends of mine have toll se of the emelt that Ilies Eaowlee, JoeS0liorsan's sister-in-law, is doing, and I have been a good deal attracted by the accounts of her ability and qualities as e prospective business woman. It happens that we are ead17 in need of help at the bank in various of our departments, and it might be that we can find a good position for her with a good future to it if she happened to have just the qualifications. Can you tell me tomething about her work, her capacity, her health, her education, her general point of view with regard to a woman's business °Eimer, and, more particularly then anything else, if we find a roar- 'hie position for her, hae she poise- and character to exert ar welfare, behavior and affairs generally of some two hundred or :nerd young women who are now working in this bank. I am bending a copy of this letter to"Paul, the Bold," and asking him to also write me on the subject. Sincerely yours, Governor. Ire. P. N. Warburg, Eaxteciale, New York. 10/RAT! Dictated. by /Ar. Strong iYat signed in his absence. August 2, 1917. Dear G. IC. W.: Fmclosed is A copy of a letter which I am address- ing to Nina, whic# explains itself. What can you tell me about this young lady, and would she be good material for our organization? Confidentially, I might want to train her for a rather important position, if she is equal to it, and I should want to see her and have a good frank heart-to-heart talk with her before putting her in training. Very truly yours, Honorable Pau/ IL. W-rburg, Vice Governor, FeloraI Reserve Board, Washington, D. C. BS/RAH Dictated by Mr. Strong but signed in his absence. 1 August 2Rth, 191?. PPRSOrAt. ear WArburg: Thank you for your confidential letter of the P7th regarding Miss Knowles, which T arpreciated very much. We have decided to do nothing further just nt nresent in this conne7tion, so it rill be unnecessary to carry the mstter further. Sincerely yours, Honorable Paul V. Warburg* Care Federal Reserve Board, Washington, D. C. it(11 September 15, 1917. PRIVATE AND Car Dear Warl-ierga I am obliged to send you this line for your personal use only, although it is -a matter of greet importance to all of us. Aiken has been offered the choice of the presidency of two of the largest banks in Boston. In on case I suppose he would receive a salary of possibly 00,000. or $50,000. a year; in the other case he has been offered $50,000. dnd they have expressed their willingness to pay ' ',60,000. if he feels justified in asking it. Now I ant you to consider this in contrast with the action taken by the Board in regard to the increase in his salary and similar actions in other cases. When his directors proposed to increase his salary 35,000. a year a short time ago, the Board granted it, making it effective next January. This, of course, it none of my business, but that policy, if pursued with Aiken 'and, in fact, with others in the System like Curtis, is going to result in the loss of the best men we have. I feel the same way about Mr. Jay's salary. An increase of $2,000. a year is ridiculously ingdequats. The demand for banking talent is far beyond the supply. Particularly Tith the big banks we need high priced men. ,I am going to do my best to persuade Aiken not to accept either of these offers, but just as sure as fate he and others like him are going with other banks if the Federal reserve bank positions are not made more attractive by paying adequate sal- aries. Aiken is the head of about the largest bank in New England, and his salary is only one third of thst receive" IT other bank presidents in Honorable Paul M. Warburg, 2 I. 9/15/17. eller institutions. I do not mean by this that he should receive as large salaries as they do, nor that that oston who are tile heads of , sm policy should prevail generally among the Reserve banks, but it car. tainly should be -z.leasurably nearer what bank presidents get. I am in dread all the time of the'possible los of our awn good men in New York. Aiken, I an sure, will write or sea you about this, aid tells a that he would have spoken of it in Washington yesterday had there :eein opportunity. Please do not write him or mention this until you hear from him. Yours vary truly, Honorable Paul M. Warburg, Vice Governor, Federal Reserve Board, Washington, D. C. B S/RAI-T 1111111111.11 September 22, 1917. URSONAL Dear Warburg: You wilLrecall that we wer doubtful of the wisdom of accepting the application of a certain state bank in this district for membership in the Federal Reserve System. They were, however, accepted by changing to a national bank. now enclose translations of advertisements which are appearing in some of the Jewish papers will read with interest. are in this city, whici I know you I am told that the advertisements printed in Yiddish. Very truly yours, Governor. licaorablaam2.444..bEl2Hrg Vice Governor, FederaIlicirerire Board, Washington, D. C. BS/RAR Ece. M isc. 31 FF RESERVE BANK /11 Sent by JF NEW YORK (SEND TO FILES) p.n. COPY OF TELEGRAM Ponorable Paul 1.1 zorborg Hotel Tilts Philedolphia, 11,11ted to tukiro i i lino with as on tgon;Lay time atter obt °clock 4141 wot you at Plain ai !mjn.troy . red. .T.3f1o. Boric 120 Broodway 5,"tiOt t'01 ,10 B-5 5 November 10, 1917. ilon. Paul M. 7a:rburg Federal Reserve Board IN° Washing-Lon, D. O. 'ear Warburg: LIz1,x27thanics Tor yours of the 7th. , Agri 1 am not going to72t1swer it jilut now an I ;ant to stuay the memoranda you sent me and I assume that the matter may he kept'yfaiting tl-fr!w days or will go ahead anyway. 1 am loafing here, exactly an you would advis. me to au, and while I have spent thiu morning cleaning u:.0 routine mail, I have put aside everything that needs aay continuous study, Includinr7 your letter, and will write you fully just as soon as 1 fool like soriou9 work. My game of colt has improved"and very soon am going to write that you and Bina (some down he-re and doin7 30M0 cheer me up a bit. With warmest regards to all of you, including the other Federal Reserve Boarders, I an Faithfully yours January 11th, 191P. PERSON AT AD COFFIDENTIAL My dear Warburg: 1 an exceedingly anxious not to have questions of precedent and authority come un any more than necessary, but I do feel that a serious mIstake is being made in the way some of these foreign nego- tiations nee being handled and must rely upon you to strrighten it out personally if we are to avoid the necessity of formal represen- tations on the sub'ect. VA It seems that regctiations of which I wee some time age,,formally advised were actually and finally concluded through the State Department with the Argentine aovernment, which have the effect of imposing upon this bank a possible gold liability to a meximum of $R0,000,MO. Similer negotiations are being conducted with other foreign countries. Yr. Kent and I have kept in touch with these elans as closely as possible and I understand that the Federal Reserve Board is work- ing on then with the Treasury Department officials but, of course, it would be most unfortunate to have them concluded without our Board having opeortunity to act in the matter and then have them disapproved by our Directors. In a measure, a somewhat similar situation arose with the negotiations with Baron Megata. -2- 1:11:18 Ur. Warburg. r,ur 3oard of Directors has delegated and, in fact, the by-laws rrovide,powers to the Executive Committee which meets every day, which will enable prompt action to be taker in any of these matters prior to definite understandings being arrived at, and I hope that you can arrange without possibility of misunderstanding that these negoti,rtions can be so conducted that our Di- rectors will not be entirely ignored. I have stated this to Dr. Rowe verbally as it struck me that he was assuming that nothing further was required beyond the knowledge of the 7edoral Reserve Board of what was being done and that implied that the anprovil of the Federal Reserve Bank was com- plete. Very truly yours, Governor. Honorable Pall' Warburg, Federal Reserve Board, Washington, D. C. February 15, 1918. Dear Governor -,iarburg: Replying to your favor of the 12th instant enclosing a statement of the estimates of the amount of advances expected to be made by the various reserve banks on Liberty Loan bonds, it seems to me that the assumption that these estimates were misleading is not quite justified. After the first Liberty Loan was placed the discounts and investments of this bank were reduced to considerably below 4100,000,000, at one time getting down as low as 470,000,000 in August. From that time on until large issues of certificates of indebtedness were outstanding, the bank was called upon to purchase a large amount of bills and to make a large amount of loans on Liberty Loan bonds and certificates of indebtedness and to discount large amounts of paper. On November 26th, we were advancing a total of 4308,000,0A upon the security of certificates of indebtedness and Liberty Loan bonds. The amount of these advances fluctuated between November 21st, 4 253,000,000, to a maximum November 30th, 4346,000,000, being reduced as low as 423,000,000 on December 15th and now standing at 447,0)0,000 with the addition of 442,0)0,000 of certificates actually purchased under contract of resale, which is the equivalent of a loan, making It the advances at this date in round figures 4100,000,000. should be observed, 'however, that as the amount of advances of this character de- creased, the volume of discounts on purchases of bills increased so that I think we may say that as a result of loans andadvances have been made by this bank directly on Government securities or indirectly on other securities ly around 4300,000,000, all breught which will average about by the Government's borrowings. rough- I should say that in general the estimate which was made of from 4200,000,000 to 4300,000,000 was about as close as is possible considering the enormous fluctuations in our trans- 2 Governor Terburg 2/15/18 , actions. On the date given for the actual advances, January 18th, our books show that we were lending directly 490,000,000 on the security of Liberty Loan bonds and certificates of indebtedness and had purchased under contract of resale 444,000,000, making the total on that date :J34,000,000, but, in addition to that, we had 4280,000,00 of bills discounted and acceptances purchased. Very truly yours, Governor. honorable Paul M. Warburg, Vice Governor, eederal Reserve tioard, Washington, D. O. BS/1.738 February 26, 1918. Dear Er. 7arburg: Your favor of the 20th instant is received. statement of the possible calls on the Reserve bank last Liberty Loan was a reflection of the I think Mr. Tremanfs . in connection with 'Lle estimate which I had already made in the office of i.;300,000,000., which turned out to be substantially accurate. In regard to the matter of interest rates, concerning which Governor Harding telegraphed last week, this matter had already been takun up by our clearing house committee and a discussion had started along the general ling.; of Governor Harding's telegram. I am not at all hopeful of being.rei,ched by the clearing house committee, or the members of the clearing difficulties seemSome to house or the banks of New York generally. be insuperable. of the Trust companies have always allowed higher rates than national banks, and both trust companies and natiOnal banks allow varying rates of interest on different classes of business, but the lines of dis- tinction are so indefinite as to involve a whole revision of banking methods in New York if the allowance of interest on derosits is to be governed some fixed ruling. Another difficulty would be indirect violations of the role or simply failure to observe it. of by 2xperi4nce has shown a general and indefinite character among the banks in these matters are ineffective unless penalties may be imposed upon those who violate the;. After discussing the matter with a good eany bankers, I believe the wisest course in New York would be to permit this discussion to proceed without any intervention at this time, as that might involve us in troverapl discussion and in aapartisan attitude towards one or a con- another group. Honorable Paul M. Warburg, #2 As soon as we are satisfied, as I think will be the can be reached, then possibly can be devised, will be more 2/26/18. ease, that no agreement definite our intervention with a plan, if one effective thate join the debate now. The Enclosed is a copy of a letter which I have sent to Mr. Frew, Chairman of the Clearing House Committee, and which I hope will facilitate the discussion. Very truly yours, Governor. M. 7arburg, Vice Governor, Federal Reserve Baneh Washington, D. C. Honorable Paul EE/BAH Dic y 28, 1918. r I enjoyed my visit with you Tuesday very much and only wish it could have been longer, You may get a note from 7Jean 7/eat of Princeton, asking something about my work for the Government for use in cenneotion with the conferring of a degree. Don't give me too bad a character. Do you know anything about the publication referred to in the attached letLer, I see your name mentioned. ou mind returninc_kt, with your reply. Faithfully yours, Honorable Paul M. Warburg, /nee Governor, iederal .Reserve Board, Washington, D. 0. At3B Would May 31, 1918. Dear Paul: 7 Thanks for your note of the enty-ninth. I found great difficulty in writing Dr. West because it 300M8 more than egotistical to write such a letter oneself so I had to call upon you for help. I have nut yet seen the duotor again and wild give you a report when I hear from him. My plans for the slimmer are not :et materialized. I go to Woods hole the first of next week; will come batik for Grandin's comaeneement and for the Princeton affair and then make plane'permanontly for a long summer's holiday. had a bully letter from AcAdeo this morning and am delighted that he -pproired of your letter to the President. best regards to you and the family, I am, ftithfully yours, Honorable Paul f4 Warburg, Vice Goverffur;-1106ArROWrft-Doard, Washington, D. G. 4.0.-Aunr,r1"/..aosassaueelim VEAV.....5.141 11 016111R6.651.11(4',' WESTEelk4a WESTERN UNION TEL tM4F NEWCOMB CARLTON, PRESIDENT RECEIVED AM GEORGE W. E. ATKINS, FIRST VICE-PRESIDENT A05419 Stiventat 1 4N0 SU 21 EXTRA TTr7V4.717 OV MTPITONTD Trzon' K NEW YORK NY 11A VIA LOVELAND COLO JAM BENJ STRONG JR Ai / ti-S1 ._ C / it';') / FONE YORK 1308 --7 2 MILES HIGH PROSPERITY HEALTH ARE THE FOND WISHES OF DENVER COLO AND CHEER IN 1917 THE 1 0 K W FAMILY, 1018AM 1 1916 Correspondence Hon. Paul M. and between Wasklrg H. R. Ickelheimer, Esq. in re Requirements of European discount markets with reference to minimum life of bankers' acceptances for good delivery and character Copy for Mr. / /16i1 of indorsers. January 2, 1917. Dear Henry: The discount market is developing very well in New York, except that the habit exists too much for acceptors to hold their own paper. This leads to unsound practices and I am sure you, who know European methods, will be in full sympathy with what we are trying to develop. My object in writing today is to ask you to tell me exactly what are the rules of the European discount markets with respect to the minimum length of bankers' acceptances. What I mean is this: paper, in order to be good delivery as bankers' acceptances at the rate for private discounts must not be longer than ninety days and must have at least a miniI remember that in mum maturity of a given number of days. I do not recall exactly what Germany it was forty-five days. is the minimum in France and England, but, so far as I can recall, it was about the same maturity. I have been trying to encourage a similar habit in New York, but it has been claimed by some of my critics that in England and France there does I am perfectly sure that when, in not exist any such rule. years gone by, when I still was in the exchange business, that it was the habit that when you agreed with an English discount firm to send £100,000 for discount or a million Francs to the Credit Lyonnais in Paris, the paper you sent could not be shorter than a certain number of days or you would have received a pretty lively kick. I should like to have my views confirmed and would be glad if you would write me fully about the subject, or about anything else that might be of interest. Very truly yours, (Signed) Paul M. Warburg. Henry R. Ickelheimer, Esq., Forty Nine Wall Street, New York. New York, January 4th, 1917. Dear Paul: I quite agree with you that a pernicious habit has crept into the New York market from the first of having acceptors take and hold too much of their own paper. Investigation has led me to the conclusion that this was due to ignorance in certain quarters rather than to the anxiety of being the possessors of their own acceptances. Once having become a custom others like ourselves were reluctantly forced into the unbusinesslike procedure of offering to take their own bills In foreign countries, as a refusal to do so might reflect on the strength of a firm as compared to the large banks so eager to buy their own signatures. As you and I are agreed on that there is no purpose in my taking up your time in discussing that question. The minimum length of bankers' acceptances that can be sent to London or Paris as a good delivery, except by prearrangement, is sixty days, the maximum ninety days. Occasionally if a bill has from forty five to fifty days to run they will take it at the regular rate but generally speaking the market expects a delivery with a minimum length of time of sixty days. On this point the rules governing the two markets are practically identical. Your memory with regard to sending bills to London and Paris is therefore quite correct and it is probable that what your critics may have meant was that there is no rule governing the minimum number of days excepting so far as the rate is concerned. The position you take is entirely correct. It seems to, me that possibly one of the remedies for bringing about a discontinuance of the purchase by acceptors of their own paper'would be a rule similar to that existing among the leading European banks requiring two signatures of the country where the draft is accepted. Such signatures however should not include the endorsements of foreign banks having agencies or branches in New York: in other words there should be two signatures of concerns whose capital is in this country, for we all know that agencies and branches are practically doing their business with deposits or credit and going a step further another reason would be that it would not be wise to accept as an endorsement to which one might have recourse an institution in a foreign nation that might at some future date be an ememy of the United States. Sincerely yours, Paul Warburg, Esq., Washington, D, C. (Signed) Henry R. Ickelheimer. January 5, 1917. Dear Henry: I have your letter of January fourth, and thank you very much for your prbmpt and most satisfactory reply. I should like to get your views quite clear, and would, therefore, ask you to make it quite plain to me what you mean when you speak of "two signatures" on the second page of your letter. I suppose you mean two sig- natures not includinR the acceptor. In other words, one signature - that of the drawer - and another - that of an American indorser. "Two signatures of the country where the draft is accepted", as you put it, would not do the trick in case the drawer were located in the United States. very sincerely yours, (signed) Paul M. Tarburg. Henry R. Ickelheimer, Esq., Forty Nine Wall Street, New York. January 8, 1917, Dear Paul: What I meant by two signatures calls for an endorser other than the acceptor, such endorser to be either a member bank, an insitution or private banker whose signatures are eligible. This would cover the case of the drawer being located in the United States unless it were that an eligible name drew on another eligible name in connection with a commercial transaction, as, for instance, Brown Bros. & Co. might have reQ ceived an order to ship coal for the Italian Government and as reimbursement were asked to draw on the National City Bank. Such a case of course is imaginative and you would have to deal with that as you saw fit. I understand that the Bank of England has a list of names whose endorsement they take in connection with the acceptors' but that bills drawn by one British concern on another are only taken with great reluctance. The Banque de France likewise requires two French names known to them. Trusting that I have now made myself clear as I really should have in the first instance I remain Yours very sincerely, (signed) Henry Ickelheimer. Paul Warburg, Esq Washington, D. C. EDERAL RESERVE BOARD WASHINGtON tak Dear Strong: January 19, 1917. JAN26 1917 Just by chance I ran across the enclosed excerpt from Dr. Messer's book bearing on the subject of bankers' acceptances. This bears out my statement of the other day and the statement of Mr. Ickelheimer. We are working at present on our annual report, for which the Governor will this year take the responsibility. It is coming along and I hope in a week or two we shall be through with it. Governor Harding went before the Banking & Currency Committee yesterdayxana had a session with then today, from which it looks as if our amendments had a fair chance of be- ing passed in the Huse. If they get through the House, I do not think we need expect much trouble in the Senate. However, I do not want to be -over-sanguine before we are that far. Harding and Delano went to New York day .before yesterday and came back very well pleased with what they saw in the bank, and particularly the new vaults. I think their visit has had the effect of removing whatever there may have remained of irritation or bad feeling on both sides since the last intermezzo. Jay writes me that Woodward at last has reported favorably concerning Aiken and that he is to write you to take it up with (2) I am much pleased that this matter is now in a fair way Aiken. of being disposed of. We are much importuned just now by importers - particularly from the Argentine and Spain - owing to the fact that England has put so many obstacles against our shipping gold to those countries, which is rather a high handed proceeding. It is somewhat difficult for some of our importers to understand why England should find it possible to fill us with gold - and force us, if you please, to inflate our deposit structure - while refusing to let this gold which is due us flow to Spain or the Argentine, so that they are keeping us out of those markets with the very banking strength that we are giving them with our loans. There is one company here that kicks up a pretty bad row about these things, and its president has appeared before the Committee on Banking and Currency. I do not know what the outcome will be, but hope it will not mean another row. I am doing all I can to avoid it. What did you say to Lawson? Can't you find him a job in Denver? There is a fin The investigation itself has become so ludicrous that I do not think that anybody takes it seriously any more. With all that, it is a mighty unpleasant' thing to have one's name drawn into the mire as has happened to some of my friends here. I have been thrown into this thing too, but in such a perfectly unwarranted way that I do not (3) think that anybody has had more than a smile for the thing. However, all these nuisances take up one's time and thought and that is the worst of it. In addition, as the old Latins cite, "something always sticks". Jay appears to be all right again. His voice sounds good over the telephone. I hear that Jimmie Curtis was in Washington a few days ago, though with a bandaged ankle. The peace outlook is bad again, and I am mighty sorry about it. Vanderlip was here day before yesterday, havinr, been sub- poenaed, and we had a long and quite interesting talk. expected back in a few days. He is He shot into me on account of the British treasury bills, whereupon I launched a torpedo Into his ever-growing "tummy" (he is getting terribly fat) and I think the end of the comversation was that we both were satisfied that we-me-re-TItht - nobody having changed his view. I believe, however, between you and me, that I gave him a new aspect of the case, even though he did not want to concede it. He said that the gravest blunder that we had made (he called it "phenomenal') was that we had permitted these 'renewal credits to creep into the system. You would not say that he says that because he entertains pro-German views! However, it will please you to have me say that I think that Vanderlip goes (4) too far in his views, and if we only Manage to keep this thing within reasonable limits I think no harm has been done - quite the contrary, we may have done some good. How would it be for you to write me how you are getting along with respect to your health? Vanderlip said pected to go out to California in the spring and that he hoped you would go with him. What does the doctor say? Jimmie is at present handling freight in a B & 0 freight yard, and I envy him, the opportunity of kicking things around. The "vimmens" are well and good natured as always. am I - but not always. With warmest regards, Always cordially yours, Benj. Strong, jr., Esq., 4100 Montview Boulevard, Danver, Colorado. So c? Senate Document No, 593. Gist Congress Second Session. National Monetary Commission THE GERMAN GREAT BANKS AND THEIR CONCENTRATION in connection with THE ECONOMIC DEVELOPMENT OF GERMANY. by DR. J. RIESSER. Pages 289-290-291: "The first rank in this line of investment is held by those bills that are regarded as prime discount bills throughout the German discount market. Such are the acceptances of the six foremost Berlin banks * * *. According to the regulations of the Berlin Bourse (similar ones prevail in Frankfurt-on-theMain), these prime bills (or private discounts) must be payable in Berlin or at a place where there is a branch of the Reichsbank, must be at least 5,000 marks in amount, and run not less than two months nor more than three months. Howeve and quoting actual market rates of private discount, no difference is made between sixty-day and ninety-day bills * * * The Reichsbank, however, does not buy bills in Berlin below the Reichsbank rate of discount." (The Reichsbank rate of discount is the bank rate - not the private discount rate.) COPY. Draft of letter drawn by Mr. Warburg for the F.R.B. of N.Y., addressed to Mr. Manuel M. De Ariondo, Pres., Banco de la 7,Tacion Argentina. 15/1/17. My dear Sir: Upon his return from his trip to the Argentine, Mr. Warburg informed us of the conversations thich he had had the pleasure of having with you during his stay at Buenos Aires, and we have ever since been waiting for an opportunity of entering into a correspondence with you for the purpose of establishing reciprocal relations between the Banco de la Nacion Argentina and the Federal Reserve Bank of New York. The amendments to the Federal Reserve Act passed by Our Congress in the fall of 1916 permit Federal Reserve Banks now not onlj to establish agencies in foreign countries, with the approval of the Federal Reserve Board, but also to open reciprocal accounts for those institutions that will act as agents for the Federal Reserve Banks. We are therefore now in a position to enter with you upon negotiations upon a basis of reciprocity. There would appear. to be two ways in which our banks might be useful to each other and of service to our respective countries; r One is, our placing at your disposal our discount facilities. American bankers' acceptances drawn in dollars on our national banks, trust companies, or private bankers, are being used freely nog to finance our own trade with your country and to a certain extent, our acceptances are being used also for the financing of the trade of other nations. .- should be happy to enter into an arrangement with you under which we should secure for you a discount rate good for bills on arrival of the mail, within a given time; and we should be happy to stipulate these discount rates 2. as low as possible to encourage the free use of our acceptance facilities in the Argentine. We would cable you our rate and it would remain good until countermanded. You could draw on us by the same mail lyd which would be sent these remittances to us, or we could, no doubt, arrange to remit to you against these remittances to England or France or other points where you might desire to direct remittances against your balance with us. If you should wish to draw on us by cable pending the remittances of acceptances, we could probably find some method by Which this could be done, adopting such way as would enable us in doing so to remain within the limits of the legal powers given us by Congress. The account would be free of commissions; on the other hand, we regret to say that we are unable to pay interest on balances. We should be glad to hear from you as to Whether facilities of this kind would be of service to you, and upon what conditions you would open for us an account with your bank. The other way in which our banks might be of service to each other is in dealing with gold. At the present time the remittance of gold from here to South America is rendered difficult both by extraordinarily high insurance rates and by the limited amounts that can ba.sent, in view of the insufficient number of ships sailing from here to South America, and by the limited amount of gold that can be taken by each individual steamer. It has occurred to us that we might be of great help to the importers purchasing goods in the Argentine if we could make mutually satisfactory arrange- ments by which we wuld undertake to accept gold for you (in gold certificates or in actual gold) and keen it for you ear-marked under lock and key as your property. We have made similar arrangements for another Government bank and we are charging this bank at the rate of j per annum for this service. We would undertake to safe guard this gold with the same care as our own, without being liable, however, for acts of superior force or consequences of fire or burglary. We might mention, however, that our vaults are the newest and the strongest that human ability can devise, and that they were finished only last week and are now holding hundred million dollars of lawful money. As a matter of fact, we have been waiting for the completion of these vaults of our own before writing you. The arrangements for the safeguarding of this gold as your own undoubted property could be made to suit yourself. We could, if you preferred it, put the gold under a double combination, which could be opened only by us in conjunction with another party, representing yourself - a trust company or a representative of the Argentine Government designated by you. We believe that if gold could be handled in this manner it would not only be a great help to the development of commercial transactions with your country, but in addition, it might be a profitable transaction for yourself. Because the present high charges offer so large a margin that if the gold were kept in New York until normal conditions were reestablished on the ocean and until normal freight and insurance rates were reestablished, it would ultimately be shipped at a much lower expense and you could count for yourself on the corresponding profit ultimately coming to you. If there are any other ways in which we can serve you, we should be glad to receive any suggestions from you and we assure you in advance that it would be a pleasure for us to do anything within our power to establish with you relations mutually agreeable and profitable. I beg to remain, dear sir, With assurances of high esteem, Very truly yours, Mr. Manuel M. De Iriondo, President, Banco de la Ilacion Argentina, Buenos Aires, The Argentine. FEDERAL RESERN*RD WAsHiNom2 1917 January 30, 1917. Dear Strong: I have your various letters of January 26th and 27th and am delighted to see from them that Dr. Sewall is so much pleased with your condition. That is the best news that I have received in a long while. I am inclined to think that the Starek dope acted as a stimulant in your case. That experiment proved, anyhow, that if a man is a scoundrel, you need only give him rope enough and he will hang himself. What really happened is best summed up in this: Apparently he got interested in some mining stock; that he got his financial affairs apparently balled up; that he introduced some friends to some of the National banks, which made loans in their own names., but the suspicion is that they were only dummies -'at least that he was interest in these loans. He did not attend to business, came late, and was not in a condition to attend to his job while he was there. He ap- pears physically to be in bad shape and highly nervous. I give you this story as we received it. He got a leave of absence and it was suggested to him that he would better resign, but he insisted in delaying and so finally was removed. Whether or not some of his Republican friends (2) will not try to raise a hue and cry that he was removed for political reasons or to create room for Malburn, remains to be seen. been in the papers. Some indications to that effect have We have not yet acted upon his directorship because we want to give him a chance to resign. If he does not we shall have to remove him. is a shame that that was not done a year ago. It Much good might have been done in between; but there is no good in crying over spilt milk-,-rather be glad that the end has come. I am glad to learn that you feel like coming back. But do not get it into your mind to come too soon. Get Aiken here so you will feel certain that matters are being attended to,as they should, and then take your time. Half a year more or less may make all the difference in the future. If you take your time and go easy, there is lots of fun ahead of you. I say this even though nobody wishes more than I that you could be back at your old desk.,i; As to our correspondence, I really think we ought to drop the argument, because I do not think we are getting very far with it. We are not talking about the same thing, although we appear to be very near together. (3) The difference is this: At the official bank rate every- thing is being taken that the bank takes at all; at the private bank rate the same rules apply to Government banks as to private banks. I cannot see you are drawing between transactions on the street and with the street in that respect, because when Government banks buy at the private bank rate they are dealing on the street every bit as much as every other bank. You over- look the point that I made and that is, that there were years in Europe when some of the Central banks had a private discount rate; and the minute they have that they are observing the same rules. The difference between a private bank rate and a bank rate is that the private rate is the one at which banks do not buy broadly. We are now developing the rules for the street and should not simply take the course of the least resistance and let things go at sixes and sevens. Everything you say.,about the bill brokers that melt their bills at the Bank of England, etc., is done at the bank rate, not at the private rate. You have in mind mainly the volume of bills and you do not want to do anything that interferes with the development of the bill market. fere with that a bit. But what I want to do does not interWhen thoir bills are beinc, sent for (4) discount they are ninety dayslong. The people who are affected by this are only the New York houses andthe acceptance firms who hold on to their bills and do not sell them when they begin to run down. fellows that I want to get at. It is these If there is anything that hurts our discount business, it is that the bulk of our acceptances just now is being dicounted in Europe at rates which amount to, in some cases, over six per cent, by your N'w York friends. (The -European drawer has no interest at all in our discount rates and he does not worry about it whether we make it a rule that our private discount rate shall apply to paper that has to run between forty-five and ninety days. I think it is a mistake to want to keep the private acceptance rate pegged at' one point. If you do that the dealers lose interest entirely. Our acceptance' rate has moved between 2i and 34 for cur- rent acceptances. It is just now back to 24- and 2i, even though we have not bought anything these last weeks and have consistently permitted our holdings to run down. This is a pretty large order for our poor Federal Reserve Banks at this time; but they are doing their part nobly - except your old friends at Chicago, where there is again an indication of getting nervous and buying some acceptances, at least, in order not to lose their beloved earnings. (5) You might be interested in a memorandum which I wrote today for the Board and of which I inclose a copy which please tear up with the rest cf my correspondence. I believe that very shortly we shall have an issue of short U. S. Treasury bills, and that ill both bring steadier rates and at the same time an opportunity for the Federal Reserve Banks to invest some money. I am sending you a copy of the amendments as they passed. the House Committee. The reserve requirement amendment makes Federal Reserve notes reserve money, and so you see - if the Senate will only pass the same amendment, as I hope they will - we will have won out on that point. I told you that we were moving in that direction, but you, old skeptic, did not believe me, as usual. On the other hand, I am mortified that our gold tote issue amendment was again knocked out. But having got as far as we have now, it is only a question of patience and perseverance and that will fall into 'our lap, too. Pending that, we have to go on accumulating gold through the round-about present process. Section 22, as amended by the Committee is bad. wrote Glass a stiff letter this morning about it and he came in just now and said that they would fix that up to suit the Board. That will be a great help. (6) On the whole, if we can get what is on their cards now, I think we shall be very lucky. However, I am afraid that by the time the bills go through the House and the Senate Committee and the Senate, there will be some more shaving. The foreign exchange situation is very bewildering. On the one hand England does not permit us to send gold where we want to; on the other hand, with a country like 'Spain we cannot get any cooperation because they are glad to have dollars stand at premium because they think that is good business for them. They apparently do not see that that reduces their exports. Ambassy_ We asked the Spanish to send a cable and they did not want to do it; but we have cabled through the State Department, though we have not yet 1.:eard from the other side in reply. As soon as ,I get time I shall write a chatty letter in long hand. -ct=,At 64-0 kelf With no more for today, 'I am Always si Benjamin Strong, Jr., Esq., 4100 Montview Boulevard, Denver, Colorado. *Inc. y yours, RE1-ORT - P.M.W. Jan. 29, 1917. Subject: On January 19th the Governor addressed the Federal Reserve Banks as follows: "There is general agreement that this continuous and rapid growth of deposits and loans is not without dith the present ease of money, it would apdanger. pear, therefore, in the opinion of the Board, to be a wise policy to permit the earning assets of the Federal reserve banks - which combined amount to about $206,000,000 - to be reduced by from forty to fifty millions, and thereby to absorb, temporarily at least, an equivalent amount of the newly imported gold. Of course such a policy must be carried out in a careful and tactful way, and no definite amount can be fixed at this time to which the investmants of the Federal reserve banks should be reduced. Changes in a)nditions may occur at any moment, which may render it necessary to reverse this policy, or to apply it'even more radically than is now contemplated. During the past few weeks Federal reserve banks have operated along these lines with very good results, and acceptances and rediibounts have been reduced by about 000,000 since they reached their highest point, early in December. 30 long as the present ease continues, there sholild not be any difficulty in continuing the the present policy. By permitting the open market to absorb the bankers' acceptances, the additional object is gained of training the member banks to deal in acceptances and to become accustomed to investing in them." Total Earning Assets. January 18th 26th Decrease 0192,000,000 181.000,000 11,000,000 Rediscounts and Acceptances Decrease 12,500,000 Warrants Increase 1,250,000 Since Dec. 29th Rediscounts and Acceptances Decrease 44,000,000 Of which: Nev York lost Phil a. Chicago Cleveland San Francisco Boston St.Louis New York Phila. Chicago lost Almost 20,000,000 7,000,000 5,000,000 3,000,000 3,000,000 2,000,000 2,000,000 41% (about) 44% It 36% Bills and Acceptances maturing Within next.15 days Bet. 16 & 30 days about 29,000,000 19,000,000 The question is, shall the Federal reserve banIcs continue their present policy for another week or two of letting the open market absorb the acceptances at the prevailing market rate of __%; or shall they invest their money at this 4.ow rate in order to secure earnings? - 3 - ior the sake of protecting the development of the accepting business their purchases are not required at this time. For the sake of developing an open market and the practice of member banks to invest in acceptances, it would be better that they should stay out and not depress the rate prehensive purchases on their part. or acceptances by co From the point of view of carrying into effect the policy which the Board has championed publicly, it would be consistent for the Federal Reserve Banks to do their share in preventing gold from being absorbed too rapidly or too extensively as the enlagged basis of an enlarged credit structure. It would appear that, for a week or two, the Federal 'Reserve Banks could well afford to continue their preBent policy of not following down the low money rates buying acceptances at 29 even 4%, money. and, by doing se, increasing the downward tendency of The mere fact that the banks would be withdrawing about 00,000,000 during the;next two weeks would have some effect, and, moreover, it is generally expected that time money rates will after a short while show a little stronger tendency. We ought to consider, too, that plans of the Treasury in issuing a large amount of short term notes will, in due course, have a strong effect upon the money market, and that, with the hoped for cooperation of the Secretary of the Treasury, the Federal Reserve Banks would then become important facotors as a balance wheel, Which would mean temporary large transactions for them. Incidentally, the money withdrawn could be aaployed, to a certain extent, in buying short term Government notes. or 4 It follows, therefore, that a consistent policy of Federal Reserve Banks wo ld make for a continuance for a weelvor two It is obvious, however, that of the plan at present in force. a plan of this kind, which is based upon the public interest rather than that of the stockholders, should be followed as far as possible by all banks alike. It would hardly be fair if nine or ten banks carried it out and two or three banks would continue to buy at no matter what low rates in order to keep their funds invested. It is suggested that the Governor place himself in com- munication with those banks which do not cooperate on these lines and explain to them the Board's point of view in this connection, inviting their cooperation. Respectfully submitted: (Signed) PAUL M. WAF.BURG. FEDERAL RESERVE BOARD WASHINGTON February 15, 1917. Dear Strong: The enclosed memorandum came to me from Denver. I have not read it, but it looks to me that it was written in a pretty high altitude and ought to go back to It is beyond my plane. it. Sine 4te el_.,, /d-/ / ii-be 2",2_. 42, a ,,,,,,,) *_ 6a-e,4 21--aie -, r ---W lef),1e-- 44- (0).ei I,/ it- dc,a lo2.(M z; ,/,,,,, ,z -6-t-d 4 X. Afki ce, at4,/-- Z--69'24 ./(s, c;, di,_,4.44;?, Lz--v /4,9-e-417,6,,/ za iee_ wit //oe, 4/W apz,*(i/L14,,,,taeite,k,,,rib46. ac_ .y A .4,,,, AO r -La/4-1-A v "e 42ef' ,:ett7-7 111,', / 1;.,, 4 v6_,,_(, g-LwilLA9 . e_ek,,Ly., fez-r,( sq.,Aeu_4, z Benj. Strong, Jr., 4100 Montview Boulevard, Denver, CO1 o rad 0 En0A ely, > 4? 014 7e- oe__ . -/-e ,_ 4/Ylie -er>i Cey e,r, __, l- 74,4_ L://e6_ J f f-/-4_ r zr-tc4-e:47 4.-; etit-a. 4,1-- A 14/ ..(4,__ ea_ t-f-eite-fx 0 FEDERAL RESERVE BOARD 04*SHINGTON FEB2 6 1917 February 20, 1917. Dear Strong: Mr. Jay has just left me, having come here for a short and, I hope, satisfactory discussion concerning Banque de France affairs. I was delighted to hear through him about the good news that Mr. Curtis brought back concerning your health. Those 150 pounds that you tip the scales with now look pretty good to me. Keep it up, old man! You will have to put on quite a number more before you will be able to complain about an overdose of fat. I have your letter of February fifteenth, and have read it with a great deal of attention. There was a mis- print in Section 22 of the amendment as you received it. The section now permits a reasonable fee for an attorney, at the same time permitting an attorney to borrow from his bank upon the normal terms that any other borrower may enjoy. gets the same interest. He also You may remember that, under the old section, the language was such that an attorney-director could not even receive a fee. I believe, flexible enough. The expression "reasonable" is, You certainly would not argue that he should receive an unreasonable fee. Of course, any- body can bring business to a bank and get any kind of compen (2) sation he pleases if he does not act as attorney for the bank, or if he is not a director. I do not believe that Section 22, as amended, will give us much trouble even though the language, as it now stands, is not that proposed by the Board. It has the great advantage now that it frankly permits directors to contract for loans with their own banks, a condition which hitherto, under the language of the old Act, was not provided forIbut was permitted to slip through by the Comptroller wherever he thought well of it. In country banks it was con- sidered as a pardonable thing, while with the big banks it was considered a crime. The law now creates definite and clear conditions in this respect, which is great progress. The days of grace were also omitted through oversight on the part of the4 rinter, and I think Governor Harding telegraphed you that this had been remedied some time ago. The clause requiring the Federal Reserve Bank to appoint correspondents in foreign countries was not suggested by the Board. personally I disapprove of it, but ihasmuch as the power extends only to requiring a board to appoint correspondents and the board cannot force the bank to operate after the correspondent has been appointed, I do not see that there is much harm done by it. Mr. Glass brought in this amendment at his own suggestionrand it wont take you long to guess from where the inspiration camej (3) As to the Assistant Federal Reserve Agent, I am in accord with your criticism. We hope in conference to get in an entire- ly different clause, of which I enclose a copy, which would create a joint control by the Federal Reserve Agent and the Bank and would enable us to re-shape the power of the assistant. We tried to secure the other changes that you suggest, making the bond run to the Board and the Agent responsible to the Board, but, Strange to say, the4committees did not approve of that. They wish the Federal Reserve Agent to assume full responsibility. It is easy for you, being one mile high, to take a bird's eye view and suggest what should be done, but it is a very different thing to get what you want. At present we are trying as hard as we can to put some steam behind the two committees, and behind the Rules Committee of the Housefin order to get the amendments considered and acted upon before Congress adjourns, which is less than two weeks off. The that the country bankers, under the leadership of Mr. Thralls, have gotten behind some members,and tried to tack on an amend- ment which would permit the country banks to charge 1/10th of 1% for exchange. Glass is absolutely opposed to this. So far there is some danger of a deadlock. trying to block legislation, wants such an amendment to be added, and Glass swearing by all the saints that he would rather let the amendments go to pieces than to permit such an The Ki 0 (4) The Board has taken the point of view that, while addition. it sympathizes with the Glass attitude, this exchange charge is not important enough one way or the other to block the amendments, and that, while the Board does not approve of this charge, still it would not feel that the granting of it would be fatal; but that it would be fatal, however, to lose the amendments at this juncture. I am less worried about the House than I am about the Senate. In the latter there is no leadership at all and it would take quite some strategy to get the amendments on the We are doing all we can in this respect. calendar. final work will have to be done at the conference. The If we can get the amendments through we shall have to see to it that the finishing touches are put on there, and we ought then to bring pressure to bear to get the note issue amendment through In some form which will permit the issue of notes against gold or paper.' others. I am holding my breath in this respect and in many The next fortnight will bring interesting develop- ments in many ways, and I wish sometimes that we had those two weeks behind us. However, there is nothing to do but to waitr as far as we have to and to push as far as we have to. Aiken was here for a day last week but it did not look to me as if he were reacting favorably upon the New York proposition. I am frank to say that I am much disappointed and that I still hope that somehow or other a way can be 0 (5) found to solve this problem. He said he had written you that he would let me know his final conclusions when he and heard again from you. With warmest regards and best wishes, in which family joins me, I am Always Benj. Strong, jr., Esq., 4100 Montview Boulevard, Denver, Colorado. incerely yours, the entire 2-21-17 (Suggested substitute for the last paragraph of H.R.20661) Upon the recommendation of the Federal Reserve Agent, the Federal Reserve Board shall appoint one or more assistant Federal Reserve Agents. Such assistants, who shall be persons of tested bank- ing experience, shall perform such duties asmay be assigned to them by the Federal Reserve Agent and shall also have power to perform the duties of the Federal Reserve Agent in the absence or disability of the Federal Reserve Agent. Assistant Federal Reserve Agents shall receive an annual compensation to be fixed and paid in the same manner as that of the vederal Reserve Agent and shall give such bonds as the Federal Reserve Board may require. Substitute for the last paragraph of Section 1 of House Bill 20661 Upon recommendation of the Federal Reserve Agent the Federal Reeerve Board shall reserve agents. banking appoint one or more assistant Federal Such assistants, who shall be persons of tested experience, shall perform such duties as may be assigned to them by the Federal reserve agent and in the absence or disa- bility of the Federal reserve agent may be designated by the Board as Federal reserve agent, in which case he shall be vested with all powers and shall assume all the duties of Federal reserve agent during the period designated. Assistant Federal reserve agents ale shall receive an nual compensation to be fixed and paid in the same manner as that of the Federal reserve agent and shall give the Federal Reserve Board may require. such bonds as 0 1020 BE IT ENACTED BY THE SEtATE AND HOUSE OF REPRESENTATIVES OF THE UNITED STATES OF A:ERICA IN CONGRESS ASSEMBLED, That all Federal reserve notes and all gold, gold certificates, lawful money and eligible collateral sedurity issued to or depaisited with any Federal reserve agent under the provisions of the Federal Reserve Act shall hereafter be held by such agent, under such rules and regulations as the Federal Reserve Board may prescribe, in the joint custody of himself and the Federal reserve bank to which he is accredited Such agent p.nd such Federal reserve bank shall be jointly liable for the safe-keeping of such Federal reserve notes, gold, gold certificates, lawful money, and eligible collateral security. Nothing herein contained, however, shall be construed to prohibit a Federal reserve agent from depositing gold, or gold certificates, with the Federal Reserve Board to be held by such Board subject to his order or with the Treasurer of the United States for the purposes authorized by law, 2/14/17 FEDERAL RESERVE BOARD WASHINGTON k. MAR3 1917 February 27, 1917. Dear Strong: I have your letter of February twenty-third, and notice that your mother and your sister will be coming here. It will give me the greatest pleasure to make them comfortable, not only in the gallery of the Senate, but also at my house if they will let me. I expect they will come before Congress .adjourns although it looks just now as if an extra session were mighty possible. Today is our critical day. While I am dictating these lines it is hoped that our amendments will be passed in the Senate. If they do not pass this morning, I think our chan- ces are gone unless we get an extra session, and there I believe we will have almost a harder time to get the thing diecussed than we are having now. I was glad to receive your letter of he twenty-first telling me of your trip to Arizona, but I was sorry that on your return you had some little trouble which I hope by now has been completely removed. ' We telegraphed New York yesterday that the Board approv- ed their application for establishing an agency with the Banque de France and the public announcement will be made Thursday. Jay telephoned expressing his pleasure at having the matter (2) arranged in this manner. With kindest regards, Sincer c-V 6 ct-lAte4/±244/...,/1- 4--tre4t,th,e Benj. Strong, Jr., Esq., 4100 Montview Boulevard, Denver, Colorado. 4,( FEDERAL RESERVE BOARD WASHINGTON March 2, 1917. MAR 5 1917 Dear Strong: I have your letter of February twenty-sixth and have read it with much interest. You are wrong about the Assistant Federal Reserve Agent. The amendment reads now that the Federal Reserve Agent shall appoint his assistant with the approval of the Board and that the Agent shall be responsible for his assistant. We have had no end of telegrams and letters from Mr. Perrin, who does not want this responsibility. He wants the whole responsibility of appointing the assistant thrown on the Board, so you see that the Board is subject to very divergent views eXpressed just as emphatically as your own. I have been communicating with Aiken and I hope that he will come over-here Monday or Tuesday, although he has not definitely said so. I want to try my luck with him and urge him to go out to see you. The amendments appear to have lost their chance of being passed upon. There is a complete lack of leadership 74tY12,444jee ct4, up-there. Several attempts were made to bring them up but there appears no doubt now that an extra session will be necessary because Congress cannot get through at the rate at which it is moving now, and the matters still pending (2) are of too great importance to be disPosed of in a jiffy. Ver Cera 4,1 (20 e; cue_ .,"4 dyize rret-fA,t_e_ e(422k.. . truly yours, Benj. Strong, jr., Esq., 4100 Yonttiew Boulevard, Denver, Colorado. /E-; ae_E, FEDERAL RESERVE BOARD rHINGTON Dear Strong: March 12, 1017. MAR 16 1917 Saturday (day before yesterday) your dear Mother and your sister lunched with us. We had a very good time to- gether and talked, as you may guess, quite a little about the truant in Colorado. Your Mother is looking very well and appears to be interested in everything that is going on. I secured for her two seats in the Senate gallery for today, but that august body has adjourned for today and I suppose your good Mother will have to wait for a few days. ajtJ Unfortunately, it has become necessary for the louse-to come back soon. I say "unfortunately" because it does not augur well for general conditions. On the other hand, for OUT amendments it is distinctly advantageous for we now have again a fair chance of seeing them passed in the near future. Thank you for your two letters of Marsh fourth and eighth. You want to have my judgment about the proposed contract with the Banque de France. shape and have nothing to suggest. I think it is in excellent You know my general feelings about the matter which I have not changed; that is, while I believe that the mutual gold arrangements are admir- (2) able and will probably be of benefit in the future when nor- mal conditions prevail, I do not believe that for investments in bank paper the two government banks - theirs and ours will work out to be the best instruments. to be seen after peace will have been established and after we get going. I am glad enough anyhow that the thing has sufficiently advanced to get out of the frying pan and out of your mind. I am glad that you are pleased with the growing amount of gold controlled by the system. To me it is very inter- esting to see this illustration - which for you and myself is not necessary - that we increase our gold holdings at a time of general unrest when people normally think that they should be reduced. But the fact of the matter is that if we handle our problem right there should be an increase of gold whenever there is a movement by depositors from one bank to another; that is to say, Bank A needs currency and asks for Federal Reserve notes because depositors withdraw and Bank B receives the money withdrawn and deposits the excess cash by an indirect process in the Federal Reserve System. You ask if the Board's original ruling that gold held behind notes could not count as an asset originated from an opinion of counsel. We have had no formal opinion, but in- But (3) formally I have asked and they only confirmed my own view that that could not be done. Quite recently, when the amend- ments were being discussed, there was quite a stir in Congress when some of them tried to create a big row because they claimed that the Federal Reserve Banks were doing something illegal in locking up this gold which, to their minds, ought to be in the hands of the people. They saw in this whole process a conspiracy to bring about contraction. We were glad enough to get these fellows quieted down and I would not dare to go much further without authority in law. But I am hopeful that the amendments sanctioning our note issue may now pass. Mr. Glass expressed himself the other day as much more mildly inclined toward the same and the Senate is strongly for it. Don't you fuss about your investment account. These are extraordinary times full of possibilities which nobody can foretell. Whether or not you have a few million dollars more or less invested does not frighten me one way or the other. I would not object to a $50,000,000 investment if it came to the bank as the result of a proper policy. It is difficult to make it clear, but what I mean is that it is not the investment that counts just now but the proper policy. We have during the last quarter very successfully maintained the policy that we are in the market when we are needed but that we are not in the market when we are not (4) needed. That has had the effect of smoothing over the rough places and that is the very thing we want to do. kept the rate at about 3% for acceptances. We have We have discour- aged buying warrants, which I think is correct in times like these. Inasmuch as the4banks have been going into the market pretty heavily and absorbed all the floating acceptance material, our investments have reduced a little during the last week, but you will have noticed that while our reserve position has been strengthened during that period the position of the New York Clearing House members has been weakened by $34,000,000, so you will probably see that in the coming week ' 6,44,7Ae the position will again be reversed. 76. z",,evveA4b.i: A Y14 . e .(-But, be that . ca,-(47 o w iwyt 744,4/xy. as it may, what I expect is this, that the United States Government will have to appeal to the market pretty substantial," ly in the future by an issue of one-year bonds aftd by the sale of long termbonds. lowest ebb. The Treasury is at present at its In the present banking situation some hundred millions of dollars will have to be paid in to the Treasury in payment of Government bonds or notes and no doubt it will affect the position of the member banks, particularly in New York. At the time when these payments will be made, it will be necessary for the Federal Reserve Banks to have a low rate for acceptances and a low rate for fifteen day paper so that (5) whatever goes into the Federal Reserve Banks in excess of what. the banking situation can stand will have to be returned by I have no doubt at all that way of discount transactions. that will result in very welcome and ample earnings for the New York Bank. I do not think that we want to be guilty at this time of encouraging too low rates, and it looks to me as if at present, with the 35 rate, we were occupying a pretty We are getting in and out according good strategic position. to the relation between member bank reserves and our own Furthermore, if by the banking strength just as we should. first of June our amendments should have been passed and reserve agent balances will have finally gone out of existence, and if by the end of June large demands for income tax will have to be met, you will find that there will be enough requirements to leep us busy. 7 yours, Very t 1-;)-7 a6tecC. / ;/ /2_ PVt a-6wr U. ,h;e! (zott, /46,LJ>t,/ /.,e, ail Benj. Strong, jr., Esq., 4100 Montview Boulevard, /e-t,,t_ Denver, Colorado. gljea 1)/4_ x/-, u/2'1114 kr-if 6 A/afee61"z, / 4 (64717 tat() , FEDEIRAL RESERVE BOARD WAS MAR2 7 1917 March 19, 1917. Dear Strong: I have your letter of March eighth, concerning the Banco de la Nacion Argentina, and when in New York last Thursday and Friday I had occasion to discuss its contents with Messrs. Jay, Treman, Woodward and Peabody. The points in your memorandum which need discussion are item 4, on page 2, and item 6, on page 3. As to 4: I do not think that, speaking quite gener- ally, it is advisable for Federal Reserve Banks to keep accounts in foreign countries in foreign currency and to len" buy taper payable in such foreign currency except in England and possibly France and later on Germany. To my mind, these foreizn accounts ought to be for two purposes: one, for the mutual gold, facilities that we can afford each other and about *hich I need not go into details; and, two, the protection of our gold situation by maintaining port- folios of foreign bills of strong gold countries or suCh countries as are likely to draw upon us for gold in case of adverse trade balances. But only such countries can be taken into consideration where the financial stron7th and the obligation to pay in gold is of undoubted character. While it may be necessary or advisable to keep very small accounts in foreign countries in order to accommodate our (2) customers, I do not think that we want to operate very extensively in foreign exchanges and maintain large portfolios in foreign exchanges in what I might call the minor countries. The history of Argentina is not sufficiently free from doubt as to make me think that it is nessary or advisable for us to put large amounts into Argentine cur- rency even though I am strongly convinced that Argentina will be one of the creditor countries of the future. k4t will depend, however, upon their ability to ?ti-t keep in leash their extravagances which, in the past, have been their one great danger and which, in case of continued prosperity, might easily again gain the upper hand. As to No. 8: You fear that we drive our own banks out of business by permitting the Banco de la Nacion to buy American dollar bills for us in Buenos Aires. I have given this question very careful consideration and I have reached the conclusion that such fear is unwarranted. you control the thing absolutely First of all, by the rate which you offer for prompt forward delivery to the Banco de la Nac ion. Your apprehensions would be justified only in case you would of- fer mite unreasmablyjates to your correspondent. It is, however, of the greatest importance that in foreign countries there be established a reliable dollar exchange market. I have been in South America and all over the one thing that was quoted to me as obstructing the larger development of (z) the use of American acceptances was that the market for these acceptances was nil; that if the City Bank did not buy its own acceptances other purchasers were not reliable, and, frankly, between you and me, that the discount in some cases I found rate that the City Bank offered was so high that the natural advantage which the dollar exchange ep-cot- should have/with/fa3.i acceptance discount rate as against 5 in London wasalmost completely wiped out. It has been different in Buenos Aires, where at least one of the British Banks, the British Bank of South America, is in the market buying these bills for account The Bank of New York, N. D. banks in of A.1. Furthermore, the German South America were buying our acceptances and re- mitting them to their North American correspondents. if we want to develop a real acceptance market and But if we want to get away from the rotten habit of acceptors handling their own acceptances there must be purchasers in the market. The City Bank is not likely to assist its own customers to rediscount their paper with the branch of the First national Bank of Boston, and, vice versa, the latter would not welcome the paper of its customers going to the City Bank's branch; so they both would rather be likely to buy their own acceptances, and the consequence of it is that the drafts come to New York and Boston with only one foreign name in addition to that of the acceptor, and if ever anything should happen (4) /toourAmerican accepting you do in trying to banks we would have a nice how do recover in the Argentine (and a similar condition exists with respect to our French credits!). It is a much better and healthier growth if the drawer in South America can through a broker sell his and the latter remit it to paper to the Banco de la Nacion New York. Incidentally, the broader tiax basis for the Ameri- can dol1ar exchange would help the City Bank and the First National of Boston to introduce dollar acceptances as against e-6-al St Cr 4-e-6,}6e Ed-,/aAe g o ea-4 GL.a.,,,L There are three or four banks in all these South American cities competing for Sterling paper and the acceptors rarely buy it themselves, and I am very anxious to see similar con- (1,444, ditions developed with the Argentine bank-4 .The discount of dollar acceptances is not the main revenue for these South American branches. They all get commissions and they make advances on local loans. for accepting But I am not all at all sure that it would not at times be quite a welcome facility for them that their customers would be able to dispose of the acceptance in other quarters than with the accepting banks. You appear to have in mind that this arrangement should work only as an emergency measure. It is in your hands by fixing the rate to make this arrangement an emergency one or a regular one. I would hope very much that you would make it so that, without unduly beating down the branch banks, (5) there should in effect be an active market with the Banco de la llacion. It is by far the most imortant concern of the country and it would greatly help the prestige of American banking if this bank would be as regular a buyer for dollar exchange as for Sterling. Inasmuch as we could not accept for the Banco de la Nacion it could not compete with two branch banks in the granting of commercialfacilities, and that is the one thinc:. where I think competition on our part would be justly resented. As to making the enormous resources of the Federal ne. serve System available for the competitors of these two branch banks, I think you exaggerate the point. probably limit You would the amount of acceptances that might be on the water from time to time. As to the ;.53 branches and agencies, soma of them are in wee bits of places and would not have very much of a bearing on this business, which is done priiiiarily in the few big cities of the country. The Banco de la /Taxi. n has connections with the Guaranty Trust Company and other banks and has large balances with some on which it receives interest. As to special safeguards, you know my views about these. Before I would leave large amounts of gold ear-marked in any foreign country I would want to see ratified the treaties about which I have written you quite frequently. That is (6) one of the reasons why -I regret that, in your anxiety to perfect the contracts with the Bank of England and the Banque de France, this phase of the question was completely overlooked. I do believe that we ought to have international treaties in which quite a number of nations would be the joint contractors and become the joint trustees for gold kept by one country in another. As to buying Sterling bills in South America, I doubt whether you want to do this at this time, seeing the point of view that you have taken that you would buy Sterling bills only when guaranteed by the Bank of England. ':.'hen normal conditions again prevail I think that it may be necessary for us (and at times may also suit our book) to permit the Banco de la Nacion to send us Sterling bills. I would MT ',would not sayfas a matter of principle exclude this possibility but I think nothing can be done in that connectionsat this time. I hope that I have answered all your questions. If there is anything else that you want to know, please advise me. I am delighted to hear from Aiken that you are so well and have again increased your weight. Bully news! Keep it up, old man. With kindest regards, Always ve- Benj. Strong, jr., Esq., 4100 Montview Boulevard, Denver, Colorado. r sincerely yours, fw_ajt looking c,,eut DAVIS & COUPANY, LTD. Brokers. CALLE SAN MARTIN 66 BUENOS AIRES. Argentine Republic. _rch 14th, 1917. Dear Mr. Weir lug: During a conversation I had with Senor Corneille, he brought up the question of the Federal Reserve Bank having asked the Banks of England and France to act as its Agents, in their respeative countries, and asked if it might be possible that the Banco de la Ramion be appointed in the same capacity for this country. Evidently the matter had been mentioned at a Board Meeting, and the Directors of the Banco de la Nacion seemed to hope that the same courtesy would be extended to them. If such a move should be made it would undoubtedly cause an excellent impression in this country and would no dobbt assist greatly in creating more friendly Furthermore, the Banco de la Nacion are relations. desirous of making an arrangement by which their gold reserves in. the United States could be held in custody by the Federal Reserve Bank. I am taking up this matter with you, at the indication of Senor Corneille, in view of the fact that delicacy does not permit him to do so direct. Trusting that you will do yhat you can in the matter. With kindest regards, Yours very truly, J. R. DAVIS. Paul E. Warburg, Esq., 18th Street, N. W. 1704 Washington, D. C. POSTAL TELEGRAPH ,i:nito AT MAIN OFFICE VEST CRAMMER BUILDING 4 920 17TH STREET COLO. \-Z-...ZPHONE: MAIN 4500 COMMERCIAL CABLES CLARENCE H. MACKAY, PRESIDENT. TELEGRAM ihe Postal Telegraph-Cable Company(Incorporated)transmits 04/4/7 DELIVERY 1.10. and delivers this message subject to the terms and conditions printed on the back of this blank. 16-32352 DESIGN PATENT No. 40529 , ARORH 089CH 0 49 240P GVT K WASHINGTON DC MAR 24 17 BENITkONG JR -1,11oF 4100 MONTVIEWBLVD DENVER COLO THANKS YOUR TELEGRAM THERE WONT BE ANY DIFFICULTY ARRANGING REDISCOUNTS AS SUGGESTED BY YOU BELIEVE EVERYBODY IN FAVOR OF IT DELIGHTED TO KNOW YOU ARE COMING BUT CANT YOU WAIT ANOTHER WEEK THE TRANSACTION WILL STAND IT li°1rt T AA A. - CC. ALASKA APAN PACIFIC OCEAN OKOHAWA ..*:14p 4.. . MIDWAY BERMULA ATLANTIC OCEAN 111....VINCEVT THE GREATEST TELEGRAPH Ater-ROLE SYSTEM IN THE WORLD. EXTENDS OVER TWO-THIRDS OF THE WAY AROUND THE EARTH. .THE POSTAL TELEGRAPH-CABLE COMPANY TRANSMITS'AND DELIVERS THE WITHIN TELEGRAM SUBJECT TO THE (INCORPORATED) To gnard against mistakes or comparison. 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For deliver), at a greater distance a special charge will be I. No responsibility regarding messages attaches to this Company until the same are presented message is sent to such office by one of this Company's messengers, accepted at one of its transmitting caeca; and if any instructions regarding it to the Company's agent in its said office. he acts as the agent of the senderand the purpose of delivering for e. The Company shall not be the message and any notice or liable for damages or statutory penalties in any case where the utegrain is died with the Company for transmission. claim is not presented in writing within sixty days after the -Q"..Above terms and conditions shall be binding upon the receiver as well as the sender !"s ,hIPLOYEE OF THIS of this telegram. COMPANY IS AUTHORIZED TO VARY TIIE FOREGOING. = C. ADAMS, VICE-PRESIDENT. CLARENCE H. MACKAY, PRESIDENT. EDWARD REYNOLDS. VICE-PREST. AND GENERAL MANAGER. CHARLES P. EPOCH. FASTEST TELEGRAPH SERVICE IN THE WORLD VICE-PRESIDENT. i( FEDERAL RESERVE BOARD WASHINGTON APR 5 March 29, 1217. 1917 ear Strong: I am in the throes of a speech and send you an advance copy herewith. Of course, whatever I say about the issuing of Government bonds and our entering the war is entirely tentative and I shall have to fix up this speech in that respect at the last minute to suit the occasion according to what the President will finally say on April second. Very incerely y 1/ a-A 4( 6Ipf-e, 1 Benj. Strong, jr., Esq., 4100 Montview Boulevard, Denver, Colorado. Enc. 7,g Third Drat t Mar. , 1917 GOVERNMENT ANr BUSINESS ** Aciareets by HOW. PAUL M. wARBURG before the COMMERCIAL CLUB of CHICAGO April 7, 1917. r Third Draft Mar. 27,1917 GOVERNMENT AND BUSINESS It is just about twenty-five years ago that I came to the United Statea for the firet time, and, taking things in the sequence of their true importance, I came to aee Chicago first end Nie York afterwards, in ihentally coming from Jepan. I helve since been a frequent vieitor to ttie wonderful city, and every time I came back I have admired its continued growth as one of the most important centers of this country, not only in comreerce end trade, but as a leader in civic thought. One of my vieits hare etande out eitn particular clearnese in my memo- ry. That le *ben I --me here in 1907, as a member of a coeeison delegated by a convention of Chambere of Comeeree and Boards of Trade, in order to aeeist in the formation of a Busineee Men' e League for the promotion of better understanding of finenoiel reform, a moverent et that time atill in its swaddling clothes. This eork W30 taken up by a group of your leading citizens eith that intelligence sad energy which are characteristic of your city, end if our country was able to pass through tbi last ,atekr/f41, the to meet finanoiel dieturbance three years without any phenomenal requiremente made upon us, and if today we find our- elves fully prepared to oerry still greeter burdens, these men eAy feA that they have done their full share in bringing about this happy reault. For without the comprehensive cempeign of (2) education twat preceded the enactment of the Feth:ral Reserve Act so far-reaoning a reform could not have been carried out in ,:5z,r eplet." proper time. I am particularly grateful fordikthe great privil--(a'AteeAGA,.... ege of addresing the business men of Chicago, £. It gives we a w,lcome opportunity of paying tribute to the citizens h-TrT-F27711.4 in this great or of monetary reform. Those of Us who know the Bible remember the chapter on the para4ur Tor of Babel. Tte story of the world's first skyscraper is the parable of the conoait and do-Anfall of mankind. Confident in his ability to overcome any difficulty, man undertook to build a tower that would reach the skies - and the world. fell A into general confusion, so that people ceased to be able to understand one another any longer. That is the orld' condltion today. And those of us who no their ola Greek tragedians cannot help eeling that three hundred million people, iwaividually >=fe.4-f-44.1, , i abtorringfilie maimhtnd.k114- wore driven into this world contest by powers stronger than they tnemselvesi by something even more powerful than the will of th-Jir leaders, something it/311Mt4XS akin to the Fate that the Greeks held to be superior even to the gods; by the cumulative effects and consequences of political and racial feuds of generations, of economic developments, and of orioles and mistakes, to which all nations have contributed their full share, and ror which none alone ia entirely to be held responsible. (3) The great calamity that hau befallen Europe would, indeed, a.en in 1.1j nothing but a feeling of abject deapair of tte ultimate ability of the human race to rise from ite aboriginal level, *ere it not for the confidence that out of this atruggle there will come to the world a. greater liberty to man and a loftier understanding of human rights; and furthermore for the redeeming thought that it is the profound belief in the sacred historic miseion of their respective races that makes gentle awl peaceful individuals willing, for the greater glory and advan- tage of tteir tribes, to endure and to inflict untold hardships and cruel suffering. In the latter respect our own problem and ideals differ those of Europe. The race thougat is foreign to our country as a motive for making war. The United States iz not a one race country; all the races of the world have brought to these /shores the most characteriatic that la in their attain, and merged Is it into the composite type of the citizen of the ne* *orld. Viten the United States is foraed into a war, it can never be a race war; it must be a 4l* for a principle, for liberty or for human rights. It cannot be a war by a race against a race, but a wax by people holding to one principle against people holding to another. Our greatest contribution to the world's development is that ae are giving the living proof that (4) oommon aims and ideals can be stronger than racial differences. When the die is oast there can be only one iuty for any citizen of a: y country, and that ia to stand loyally by his flag. But that luty is noubly strong with us, wev,1* any hesitation in that rlaipaot would ahake the fundamental thought of the Union - qhich Is: 'Oat its citizen muat he off the smaller racial or sectional thought, and subordinate it to the larger duty of loyalty and ,allegiance to tne United State's. That does not mean that we should oease to love the people who were near and &air to us in the old countrites where our anoestors', or even our own, cradle atood, or that we should forget tnat every one of these old races has given us some great contribution towards the higher development of our own couttry. During OUT civil war many a brave man continued to love his brother, even though he found himself forced to fiolht him on the field of battle. But this tragic conflict of affections could not shake his loyalty to the cause he had espouse. And so it must and will be oith us. When our country is forced to go to aar it haa'a right to expect and demand of all its citizens a aillingnese to serve and to suffer and to die. No matter what that may entail for any of us, about our whole-hearted and uniueationing allegiance to our flag, about our unheaitating readiness to do our duty, there cannot be any possible doubt. (5) Tai duty may be performed in many ways. It may be personal service A.ith the colors or In branones directly allied thereAith. It may be nr4anisak organizing and plaoini7 .at the nlaposal of the Government the vrious industries of the oountry or leq-the investors' prompt r sponse to offerings of loans issued in the intrest of the cause. In the particular oirumstances in which we\enter the *ar the financial aid that our country will be able to render will be one of our most important contributions, and I have no doubt that in whatever *ay our Government will finally decide to appeal to the Amerioan investor he 0111 respond it an alacrity and in a apirit that 111 astoundth grid. It is a profouni tisfaction to all of us to know that never before AAU this country financially as strong and as well prepared as. it is today. During tha last three years our gold holdings have increased by 5? from $1,900,000,0°0 to about $3,0C4,00O3000. In 'iddition, as you are well aware, W4 A4.17d im- proved Our position as against other nations 6y repurohasing our on seourities and making. foreign loans to an amount approaching $5,00,000,000. Moreover, by the establishment of our Federal Reserve System have organized this enormous strength. We have brought into effective coordination large portion of the country's banking reserves. Te have regulated and brougnt about a weneral under (6) standing of modern methode of rediscounting. We have oreated a new wide market for bankers' acceptances, ao that our member banks now have an easy meene of reoouree to the Federal neeerve Banks in ease they wish to replenish their reserves. We have ready and available a vast supply of notes of undoubted solidity which are ready to be ieeued whenever there may be demand; and, through the gold clearing fund, we have established a machinery of freest eAohange of balances between the various parts of the country. Not by any stretch of imagination could ee perceive any more the poeeibility of a gold premium beteeen the various American centers or a currency famine as in years gone by. About our power to take care of ourselves there cannot be any doubt. But in view of the unparalleled demands that may be made upon us - demands that it may be our highest national interest and duty to be able to iatiafy - ee should not omit to perfect our financial machinery to such a degree as to give it the greatest possible strength. 'or thie reason the Federal reserve Board has again recommended to Congreee amendments having for their object a still further concentration in the Federal Reserve Banks of gold held in scattered bank reserves and a more liberal substitution of Federal Reeerve notes for our present unscientific and wasteful use of our rigid 100$ gold certificate circulation The committeee on banking and currency of both houses of Congress (7) showed themselves in sympathy eete the general thoughts of the Unfortunately, however, in the general tie up of all legislative work at the end of the preceding session, Congreee was unable to pass the desired legislation. It is most essential for the best interest of the country that prompt action be taken by the present Congress and it is most desirable that public opinion assist the committeee on banking and currency in eecuing early and averable coneideration of these amendments7 1,, t , $ ec), 4 When many months ago I accepted your flattering invitation and selected "Government and Business' as the topic or my tonight's address, I did not anticipate that between then and now conditions would take so serious a turn that the relation of Government and. Business in timee of peace would nardly be of interest to my audience. But just beoauee at this present juncture a see so plainly to how great an extent a country's fate, its power of defense and offense, depends upon its railroads, its amendments proposed. shipping, its industries, and its finances, and just because we perceive so clearly how essential it is to secure consistent development and preparation in times of peace, it may be worth while to stop and analyze the gradual growth in importanoe of -far, ?wet eteet the interrelation of Government and Bueineausatftee-to.aek ourselves: "Hee government activity in business - generally Galled regula- tion - come to stay?" "Is its future scope going to increase or decrease?" "Can modern business succeed without it, and what is (8) the attitude of businase towards government and government towards busineae and *hat should it be?" Theae are large questions wtioh it would be intereeting to discuss in the light of the past, present and future, but we cannot do more tonight than dwell upon the most eesential phases of the problem. / Some of then economic changes brought about in Europe during the past century have been: The transformation of nations aa oterk ,teekee, fromA,LL_ oliticalyeenitiElliinto political and economic units; *Nur the evolution from mainly agrarian into agricultural and indusen% trial states; from decentralized, self-contained, and self-supporting individual activity, to strictly specialized vocation. This eevelopment haa brought about wholesale production - on the part of the individual and conmunit leaking upon broad national and intereational markets Ooth for the sale of emegodew excess proucts andA tha purchase of many eee-44.4 articles, of neceeeity and lueury, lemmelet for their own daily life. It has resulted in making every country devndent upon the goods of otters. When Napoleon I. overran Europe, a little over one hundred years ago, England has tne only industrial or manufaotmeing state in Europe. It %As the period of Goethe, and Germany was then a multitude of small, separate, agrarian state, A country of "poets end thinkers". When Napoleon closed the continent againet England he cut off England's trade in eueh articles as cotton And eoolen goods, steel, coal, and glass, just as Germany has been deprived (s) today of her foreign trade. But he could never have thought that, in so doing, he mightAsubjeotko famine a lerge continent which at that time was essentially agrarian and entirely self-supporting with respect to food-stuffs. Prussia's humiliating defeat at the aande of Napoleon brought forth in that country the theory of a "people in arms". Since then, universal service has gradually been adopted by all the leading nations on tae European continent, and at the same ti,e moat of them have become, to a greater or less degree, industrial 7 nations. These two evolutions have been most important faetore in the making of modern history. Industrial development enables a nation to sustain within its boundaries a larger population than it could feed from its oen agricultural produots, provided it can trade with countries that have a surplus of tnose products. Larger population and larger taxing power means, in turn, the possibility Of creating larger armies. But industrial countries are vulnerable if they can be cut off from other nations which suppl/ them with food and other raw materials essential for their daily life. Here we nave in a nutshell the European problem, as it lay at tne root of tae present oatastrophe, and we see the importance of tae part played by business in this connection. Given the wieked diviefon of Europe into two armed camps, of fairly equal (10) 44( power, it is obvious that each aide must have watched witrireatest concern any change in these three important items; popuation, wealth and ocean control. Wealth is all the more important because the efficiency of modern armies and navies is, to a much larger degree than in the past, depenient upon the i% most modern and ample equipment, a dependence which in turn re- aolv4 into a queation of financial endurance. Modern warfare has since developed the fact that defeat or victory depend upon the degree of speed and efficiency with which unheard-of quantities of ammunition and instruments of war can be supplied. And a country's ability Auicxly to organize and mo- bilize its industriee has struggle of the nations. become a most essential factor in the questions of commerce and production, have long ceased to be simply regulatThis explains why European governments in ors, and have become active promoters, of business, and at ties have even become partners in it, or themselves producers.' Not on account of the welfare of the individuals concerned, but on account of the national importance of these subjects, are vitally interested in proper tariffs and commercial treaties. Railroading and shipping are likewise subjects of the care of government - not merely because of their strategic importance, but because of the bearing that efficient transportagovernments tion has upon a country's development end its ability to compete with other nations. In railroading and shipping, therefore, we find in the world today all kinds of variations of government influence, from government suoventions and control of tariffs to joint partner- ship between private oapital and government, and complete government ownership and operation. n In a similar manner, we see governments actively promoting agriculture and new industries, we see them organizing their in- dustries into aggressive ayndicatea (and cartels), and we see a growing tendency on the part of almost all countries to control end develop their own natural resources. At present we see in Europe governments operating factories_and regulating almost every phase of demand and supply to a degree never before known. We have seen some governments at work to develop new markets by acquiring and operating new colonies. We have seensin Europe during the last twenty years a growth of control by governments of the national power to save and invest in foreign countries. Foreign loans were eirected by governments to points where they were to produce business for the lending nation, or where they were to assist politically allied countries, or where - through financial aud rendered - other countries were to be draen into closer commercial and political relations. Loans granted to China, Russia, Turkey and the Balkan States, are illustrations of such a policy. (12) We all fervently hope that the end of the war will bring aeout conditions enabling all powers to reduce armamento, thus lesaening the urgent neoeasity for governments to secure increased maxim revenues for the sake of maintaining large armies and navies. On the other hand, the debts of the leading powers of Europe have increased at auch an unparalleled rate that what seemed an an unbearable military burden in the past willA4eTersmall as comparee with the financial burden created and to be borne in the future. The consequence will be that the future busineee activities of such governments will not, in scope and intensity, be decreased but will be Increased. It will have to be tAeir concern to rebuild their country's trade, to bring it back into conformity with the normal requirements of nations at peace, to secure larger revenue fromAweakened people, to reduce to a minimum imports for the purpose of unproductive consumption, and to increase to the maximum the exporting poser of the nation. Every country in the world has learned during the last three years the necessity of developing its own resources and of becoming less dependent upon other countries for its normafrequirements. There will be a tendency, I believe, on the part of most of the leading nations, even after the establishment of peace, to keep their trade balances under government control by restricting importations, particularly of luxuries, by regulating home consumption of all kinds of articles, and by bringing about the lowest possible cost of production on the broadest possible basis of organized cooperation. I have no doubt that government monopolies will be estab- lished for the production of many important articles. Exchange of goods between countries, once the shortages of raw materials and finished products caused by the war have been met, will, to my mind, be decreased in volume, rather than increased, as compared with pre-war times. And wherever purchasing power exists there will be the keenest kind of organized competition to secure the contracts for the goods required. I have outlined these conditions at such length in order to ask the question: "In the face of the ultra organization to be ex- pected of other countries, can we afford to believe that when peace is restored we can meet this competition, or hold our own, unless we likewise systematize or organize our industrial efforts?" Wexixa Furthermore, if in Europe it is necessary to have governments take an active part in organizing industries and banking, may we expect that' it can be done without government regulation in a country that by law and sentiment much more than Europe is opposed to exclusive combinations in industries and banking? We are all in accord, I believe, in thinking that, if at all possible, the operation of industries by party governments in the United States should be avoided. Where regulation is re4uired and where regulation borders on the field of operation, it is best exercised through non-partisan government oodles. Leaving aside the councils and commissions organized for the purpose of dealing with emergency situations, we have bodies of that kind (14) in the Interstate Commerce Commission, the Federal Reserve Board, the Federal Trade Commission, the United States Shipping Board, and the Tariff Board. The task of government regulation is as complex as it is ungrateful. Those charged with It is a largely judicial function. it must heax the producer and the consumer, the shipper and the carrier, the borrower and the lender, and find a course that is fair to all, at the same time taking into consideration the larger question of the interests of the entire country in its national and international aspects. In additien, the problem of the producer and the shipper must be dealt with from thetwo-fold point of view of capital and tbor. A Foreign governments wpich own and operate coal mines are interested in eecuringU4141 resulting from a combination Arevenues of high prices for fuel and low cost of production. At the same time, however, tney have to consider the millions of citizens consuming coal, the manufacturer, who must be tle to compete in it world market, and finally tne coal miner, who is entitlel to reasonable wages. Efficient government regulition must conscien- tiously weigh all these aapects eita malice towards none. fairness towards all, with It cannot pleaee all sides; it probably will invariably displeaee some party involved in the question, or even all. or blame. But the test of its work does not lie in praise There is only one standard to be applied, and that is: "Has its work been fair, and, first of all, has it been in effect constructive?" (15) :hen by reduction of rates and increase of service, excessive dividends on watered stock are being cut, no harm is done; provided the country at large profits from such action. If, however, by going to an extreme in this direction the corporation's credit is interfered with, and its ability to grow and expand Leic isA destroyed, regulation proves itself a failure. , The carrier, by exacting extortionate rates, may hurt his own interests be- cause he is bound to weaken or even destroy the shipper, or drive him away to other lines. Conversely, the shipper, by securing excessively low rates, may destroy the railroad'a ability to serve him well, or to serve him at all. But these two conflict- ing interests, themselves often engaged in a life and death strug- reoe, gle with theire,competitors, cannot take any but a strictly selfish view and there must be a power to intervene between them, protecting them from each other, and safeguarding the public interest. Without governmental bodies of this nature, which take a judicial and at the same time -constructive point of view, the only remain- ing solution would be government ownership and operation. All this is so obvious that I feel like apologizing for taking your time in stating it: but if it is obvious that these bodies perform functions of the very highest importance in regulating transportation and finance, in developing equitable tariffs, and in seeking to develop ways and means by which our industries may organize for joint and effective competition in (16) foreign fielda, why then, ii tnie is so obvious, dose business look upon the.ork of these bodies, generally with apathy, and frequently with ill-dieguieed animosity? believe there ere four main reasons: First: We are a highly individualistic people; we cherish our personal liberty and naturally resent any kind of compulsive regulation as bothersome and unnecessary interference; Second: There is a strong believe amongst American business men that they "know better", and that any Government requirement or regulation is bound to be theoretical rather then practical; extreme and destructive rather than helpful. Third: It is natural that those should be dissatiefied whose past shtre has been larger than as due them, and has consequently been out by government interference; And, finally, it is equally natural that those ahould be dissatisfied whose share, small in the past, has been increased by the Lovernment, but who now feel resentment that they cannot have the whole. We need n t lose much time over the last two classes, but we may devote some thought to the first and second. True democracy cannot resent self-imposed regulation as an infringement on personal liberty, it would be that only if it were imposed by others. Police regulations we willingly accept as measures adopted for our own personal safety (we do not resent (17) them - except when we are caught exceeding the speed limit). Why then should we revolt against regulation that deals eith the much larger question of national protection? Putting the question in this way is to answer it: "Because, in our daily life, me value our personal interest higher than that of the country." These last months have brought us face to face with problems of extreme gravity. For us tneir redeeming feature has been that they have awakened in us the willingneee to consider our country first, and to place our personal comfort and interest where they belong - in the second row. But our lesson sould be only half learned if we did not begin to apply it in peace as well as in times of stress or war. As to the second charge that these boards are largely manned by men stronger in theory than in practice, 7 believe that in thinking of them many of you have in mind nard Shaw's earcastle remark, "He who eandoes. He who ol044 Ber ,teachea." But, gentliemen, ehen you consider the tremendous scope of influence that the Government is bound to exercise in the future business life and growth ef nations, when you bear in mind that with the rapid changes of heads of departments and in our legislative bodies, these non-partieran boards and commissions, as years go by, may become the strongest elements of economic eta- (15) bility and expert knowledge, you will agree that these government boards will not be positions for "teachere" but, indeed, for real "doers". Do not overlook, gentlemen, that these boards will have to act as buffers and balance wheels, not only between the various business interests involved, but also between emotional and changing factional government influence on the one side and the needs of quiet and steady economic evolution on the other. Cap- ital and labor, farmer and manufacturer, shipper and carrier, all have their spokesmen in Congrees, often representing as one-sided a elaes view as the classea themselves. ties to the To understand all par- controversy, to conbine the business man's point of view as well as the farmer's, with the -'ore detIached conception of a non-partisan, expert government body; to arrive at the ju- dicial and national point of view; to discover the proper middle course - that is conducive to the beat interests of the entire country; to prevent,harmful over-regulation in either direction; to overcome mutual distrust, prejudice and suspicion of all parties concerned, is a task deserving of the beat talents and the etrongeet characters of the nation. The scope of government regulation in business matters all over the world will not decrease but rather increase in the next 25 years. Modern states can no longer succeed without it. For (19) hall we or shall we not have government regulation, or promotion, in certain branches of our PetttAS business life. The problem is to find its most effW-teert, form. Unless we do, we shall fail to nold our own. gee* For us, the question is only shall it be a non-partisan, expert regulation or one changing eith changes in party government. That democracy is the ideal form of government, I do not doubt. But Europe's reoent history has borne out the experiences of 2000 years ago: that, in the hours of greatest need, democracy often is not the most efficient form of government. That is why in the old Republic of Rome, in times of war, recourse was invariably taken to temporary dictatorships, and that is why, for certain branches of government, we now see this form of administration again adopted in Europe. Democracy is government by the It is the 'moat self-respecting form of government. But, people. being the expreseiOn of the ever changing will of the masses, it us it is no longer the question of is lacking in stability of policyland continuity in office of It furthermore abhors autocratic power vested in single individuals. It believes in checking one power by the other, and each man by other men, and, therefore, vests authority in groups rather than in individuals. These are conditions which cannot be avoided. Whether democracy will prove itself capable, however, of d aling effectively, fairly and promptly with the large economic problems of the modern state will largely depend trained men. (20) upon our ability to develop to their proper degree permenent and capable expert boards and comeissions, aseuring that measure of stability and reasonable promptness in action without which healthy progrees cannot be made. But, gentlemen, in order to achieve that result, uuoh boards must find an attitude of sympathy and support on the part of the country. Business men mu3t feel towards these boards as lawyers wautd 4(.41 Just as any lawyer might be asked to give up a highly remunerative practice in order to follow a call to the Supreme Bench, oo the Government must feel that it is entitled to ea LaAf' the beat business minds and put them on a eupreme bench, if you please, of transportation, banking or trade. towards the Supreme Court. It is true that serving on these boards entails sacrifices of a material and, what is more, of a personal nature; but, if in England, France end Germany the floeer of the nation stands always ready to serve its government, ahy should our country find its citizens less realy to follow ite call? ien are willing to serve their country if they feel that the sacrifice involved is commensurate with the service to be rendered and if they can count upon the confidence, the sympathy and the support of the people they try to serve. How much has the buzineee, railroad or banking profesaion done in this respect to enhance the attract- (21) ivenesa of these government positiona? Have they tried to do everything in their power to help in the public work and to promote a sympathetic understanding on the part of the public? Or have many done the beat they could to belittle it; to lament unneceasary government interference and to look often with hardly concealed animosity upon those charged with the duty of carrying into effect the people's ooem-will? (Page I A follows) 1A. hardly ones led a of car g nte e mositx- eet p pelhose th /feo els ar ed it "t the duty Personally, I have no reason to complain, but speaking by and large about tUe general attitude of the public, I am certaiil that you will bear me out when T say that it has not been what it should be for the best interests of the country. Itoought to be clear beyond a doubt - particularly for you business men - that the more capable the men serving on these boards, the better for all concerned; that the higher the estimation the country places on the work of these boards, the more the country realises the importance of having the ablest men serve it, the greater will be the chance of securing and retaining for these boards the services of leaders in the respective professions; that the mere capable the various professions show themselves of taking a large and cooperative point of view, the greater will be the justifica- tion for the Government to fill these boards in a larger measure from their own ranks instead of seeking them elsewhere. Men who join such commissions or boards do not want foolish compliments or praise. There is but one possible compensation to which they aspire, and that is success in their work. interested in their work; if it trusts them and wishes them to prevail, their battle is half won. s IttA-414-e a sympathetic attitudeAis If the public is Intelligent understanding and rveajt4A 144, /4414- 4aisl all that they require. May I tax your patience for a few more minutes by illustrating these conditions in speaking to you of some problems of the Federal Reserve Board. 2A. have mentioned to you the important amendments we are trying to secure; amendments in the adoption of which every American citizen is interested and nobday more men. than the business For almost three years the Board has been striving towards the perfection of this greater financial mobilization. How many business men have followed the work of the Board; how many have raised a hand in its support? Row many realize that what really caused the fatal delay in acting upon this legislation, was, as we have reasons to believe, a aide issue not directly affected by the proposed amendments. It was the question of certain exchange charges, abolished by the Federal restoration of which a large number of small country banks want to see included in the proposed amendments. Tiie does not permit me to go into the merits of the case, but Reserve Act,Athe it offers a characteristic illustration of problems requiring governmental regulation. As between the shipper and the carrier, so there is in banking between the customer and the bank an old feud as to equitable charges. As in railroading, so in banking, many services are rendered without any or with inadequate compensation, while charges for other services, as a consequence, are made to pay the price for both. Exchange charges in many sections of the country became unreasonable. Regulation is never required unless there has been some abuse, and the greater the latter the stronger will be the tendency of the famous 3A. "pendulum" to swing too far in the direction of reform. The customer is entitled to the lowest possible charge for collection that business will stand, and the Federal Reserve Board, in the exercise of the duties placed upon it by the Act, will in due course reduce the charges to be made to the customer to the mintmum the traffic will bear. The Federal Aeserve System will provide the most comprehensive clearing system the country ever possessed, and as this system grows in scope it will bring about savings in time and cost of operation for the general benefit of banks and customers alike. But, as in railroading, the sound business principles must not be brushed aside or the small bank cannot live, and only the larger ones will thrive. The elements of time and space cannot beR.AJ disregarded and the business man who berates the Federal aeserve Board because a check on Galveston is not taken at par for immediate credit at Seattle is ali-unreasonable as the bank that insists upon an excessive charge. If you study our weekly statement you find an item of about 4160,000,000 representing deferred credit on checks in transit. Thisitem, as our clearing system develops, is likely to increase by more than 100%; if we give immediate credit, I believe it wpuld at once rise to at 4least four times that amount, lifti+44 would mean that we should , invests an important portion of the country's gold reserve in 421 checks in transit, in the so-called "float", strength of our system. andAundermine the ek 4A. A check is not a bank note. The latter is the binding obligation of the bank and, if issued in proper volume, it circulates for an indefinite time and can remain outstanding indefinitely without voiding the bank's obligation to pay/ The check is the drawer's (*ligation, not the bank's. The latter pays only upon presentation and only as long as the drawer's funds are suffioisat. The recourse against the indorser of a check is lost unless it is presented for payment without undue delay. Checks are, therefore, not a "circulating medium", as is claimed seoften by economic writers. Quite the contrary, a check is a "non-circulating medium" because its safe use and the law require prompt presentation and collection. It is not a means of circulation but a means of avoiding the actual use of circulation. It is an unsound idea that a check must be taken everyWhere for immediate credit at par like a bank note. The bank note, when received at par, may be put into the cash bex and paid out again at par. The check must be despatched at once on its trip to its place of payment, and the cost of collectibn cannot, therefore, be disregarded even though it should be reduced to the minimum equivalent of the interest loss involved in transit on a time basis of greatest generosity to the bank's customer. In order to carry out this par clearAgg plan, member banks, however, must agree upon presentation of checks drawn on them 5A. to remit to theqederal Reserve Bank at par. That is to say, they may, in return for checks on themsevles sent to them, either remit other checks to be credited to them at par, subject to time scheduke, or if they have no checks they may ,remit currency, charging expressage to the Federal Reserve Banks. It is on these remittances that some country banks insist they must charge a small commission of one-tenth of one per cent, and - incredible as it may sound - it is this small charge that has furnished the main cause of the antagonism of the country banks towards the Federal Reserve System. Aaether or not these charges should be permitted or refused is a matter for Congress to decide, but it does not seem reasonable that vital legislation should be withheld or delayed at this time on account of an issue which ought to be settled independently upon its own merits. I have mentioned this incident because I have been wondering at the apathy of business men in this connection, and, in a similar manner, it has been a source of surprise to me that, apparently, the businessman has net yet fully realized the fact that the entrance of the State banks and trust companies into the Federal Reserve System 4;his concern. The exchange problem, of which I have jest spoken, would not offer as much diffioulty if it were not that the member banks feel it a hardship that they should be asked to provide 6A. ( the entire system of protection for the country while the State institutions not only des do not contribute their share but, in addition, are free to make charges and to do their busineas as they please. If some of the gentlemen who are directdos --2\ or pre4J---of State banks or trust companies were asked by Itheir neighbors to join in paying for a watchman to patrol the neighborhood of their private residences, would any of them say: "Why should I? As long as you, Mr. Neighbor,pay the watchman 1 for your house I am protected anyhow withoutVaying for it." II know that a great many of the leading State bankers of ithe country are very sensitive of this slitaAer,, situation. They do not feel happy about it and have made up their minds that iit is the proper thing for them to come in. Theyeoh ratqa) I \ i ! wouldçe in the position of paying their share of the watchman's salary. They furthermore know that every depositor in a member bank contributes his share to the stronger protection and to the greater redit power of the country, and that their depositors will awaken to a realization of the importance of this condition. They know that in case of a real strain savings banks, trust companies and State bans indirectly will have to depend upon the strength of the Federal Reserve System The State banks and trust companies carry outside of the System reserves amounting to while a large portion of these ought to be added to the general reserve power of our country. 7A. iat others maintain for them. Some of them, doing a large _Lcceptanoe business, profit every day from the acceptance market created by the Federal Reserve System, a Market that has enabled the American dollar acceptance to take its place along with the Sterling, 'franc and Mark bills in all parts of the world. But 'they know that entering the system means certain sacrifices in earnings, and, may be, the loss of some interlocking directors. Yet, if that is their share of the contribution tc the rise of America's banking system and to the safety and better growth of our economic edifice they ought to be willing to pay that price. They know it and they will do it, but the trust company president thinks of his competitor - "will he come in? If he will, I will." When still a banker in New York, I once tried to get into a subway train during the rush hours. T forced my way into a crowded ear, but with another man was caught between the automatic doors Which would not close behind us. jr.,; fellow sufferer began to yell at the top of his lungs; "Isn't there anybody to push us in?" Well, a guard came and pushed us in. It locks to me as if there were enough tn the present situation to push the State banks and Trust companies in. beyond a doubt public interest must prevail over individual advantage. This is 8k. Early training in banking in Europe has inculcated in me4 aversion to banking by regulation when, by intelligent voluntary action of the banks, the same result can be achieved. But in Washington I am constantly met with the view that without compulsion it is impossible in the United States to make any headway. I am unwilling to surrender to that point of view. I still like to think of the Federal Reserve System as of a club which the strongest and best banks consider it an honor to join, and not as of a "club" to swing over the heads of the banks to coerce them into sound banking methods of cooperation. It is a most satisfactory fact that in almost every important city some leading State institutions have come in voluntarily, and I hope that on that same plan the 'ajority of the strong State institutions will soon follow. The prsent condition of having 7,500 banks carry the burden. or 27,000 is unfair both to the member banks and the best inter- ests of the country. The strong non-member banks who, knowing the facts, do not remove this 1/uppel inequality will, in time, -7oroe the Government to do its duty in adjusting the matter. ,ut if Congress finally should be forced to swing "the big stick" they will be the ones to complain most loudly about the muisance and unfairness of governmental compulsory regu- lation. 9A. In England there are 259 banks, in Canada 21. 30,000. We have about It is obvious, therefore, that leadership and direction by Government agencies is even more necessary with us than in Europe. We have adopted from Europe the principle of cooperative protection in banking and we ought to aceept from them also the loyal spirit in which they cooperate with their leaders. The people, the banks and the press are mindful of the fact that farmer and manufacturer, borrower and lender, of necessity Cannot take an unselfish point of view; that no matter how profoundly they believe to have given due regard to tne country's general interests, most of them are so busy with their own affairs that they have not even had the time to consider the problem from any but their own angle. The central bank's actions must, of course, bear careful analysis and healthy public discussion. But the first impulse abroad is to follow the men they have placed in charge, to stand by them rather than to attack them and to take it for granted tenat'Ine obvious is not lieely to have escaped their attention, and that the only object they can have in view is to be fair to all and to do the best for their country. More than in Europe is It necessary with us that our banks do not consider the Federal peserve System as an unwelcome and bothersome leash from which some day they still hope to escape. The Federal reserve Act provides for a joint administration by Government on the one hand and banking and business on the other. 9 (AA) The more the banking and businese communities realize that Government regulation in banking la indispensable and has come to stay, the more they substitute for a critical attitude a spirit of active cooperation, the more they begin to recognize their duties and privileges as half-partners in the administration, the more they make it their business to perfect the machinery which has been eetablished for their on proteotion, helping instead of hindering those who try to make it a success, the hap- pier and the safer will they be and the better it will be for the country. Let them be clear about it tnat our country sill never permit this Federal peserve System, or any other similar system, to be run by the banks alone without the check and regulation of the Government, just as little as the country would permit permit the Government to run such a system without the counter-check of the cooperation of the banking and business communities. You may say that this marriage between Government and bueinese is not wedlock based upon love at first sight. But no matter whether it was love, reason, or necessity that brought it about, there cannot be any divorce. And inasmuch as they have to live together the only wise course ie to pull together and let the beet advantage be the strong bond uniting them. 10A. And, now, coming back from this digression into my own eleld of activity, permit me in closing to recapitulate the thoughts that I have tried to convey. The modern state is an much an economic as it is a political unit. There are millions of individual enterprises apparently self-centered and independent, but, as a matter of fact, all dependent upon each other. There is not one in the conduct of which, directly or indirectly, the state is not interested. 'ere is not one Abich, by exaggerating the single and selfish point of view, wbuld not do harm to others and affect the well being of the whole. ikemirer -leenever the fair middle course, essential for the greatest prosperity and comfort of all, cannot be established and adhered to by common understanding between contending parties, Government has to step in as a regulating gactor. If this regulation is to bring about the highest result, it must not be exclusively preventive of abuses or destructive of old business practices, but itmust be, at the same time, constructive. Government must not regulate only. It must also promote. In the state of the future, particularly in hurope at the end of the war, the most efficient Government promotion of industries will be held to exist in actual government ownership and operation in many branches of business and trade. More than ever before will states become solid industrial and financial unions effectively organized for world competition lIA. driven by the necessity- of perfecting a system of greatest efficiency and economy and thrift in order to be able to meet the incredible burdens created by the war. That is the future of the world in which we shill have to maintain our own position and it requires, on our part, thorough organization and steady leadership. Under our democratic system this cannot be furnished by changing party governments, but can only be provided by fairly permanent, not-partisan and expert bodies. These bodies must combine the 4;14 judicial point of view with that of active and constructive business minds. They must be able to act as expert advisers alike to Congress and the industries concerned. They must break down suspicion and prejudice of Government against business and of business against Government. They must stand for the interest of all against the exaction of aggression of any single individual or group, be it called labor, carrier or shipper, lender or borrower, Republican or.DemocrIt. 11-4t- p. Our ability to handle effectf,e4*-the 1116gge;economic problems of the future will depend largely upon developing boards and commissions of sufficient expert knowledge and independence of character. This will be possible only if both Government and the people fully appreciate the importance of such bodies, so that the country may find its ablest s)ne willing to render 12A. public service worthy of the personal sacrifices it entails. I believe that the dark. clouds of sorrow and suffering which for three long years have shrouded the world will before long show us their "silver lining", we shall see it in the greater political liberty and safety coming to millions in Europe. We shall perceive it in the chastening that will come to some and the awakening in others to the deeper realiza- tion of the things most essential in life. To us it will bring, I believe, a keener appreciation of the individual's duty torards his muntry, not alone to his country in stress, but also to his country in its peaceful endeavors. It will develop a better understanding of our common problems, and with a proper estimation of their importance there will come a greater willingness on the part of all to serve our country either by taking a more active share in tts government or by readier and more intelligent subordination of our own work to the larger public interest. This broader conception of genuine citizenship will perceive in government regulation not unwelcome and arbitrary reetraint to be resented by liberty loving men, but self-imposed rules established for mutual advantage and protection. Aristotle, in defining the essential characteristics of liberty, said; "it is to govern and in turn to be governed" 13A. and this thought has lost nothing of its force even though 2000 years have passed since it was expressed. Liberty without government is anarchy. Government without cooperation of the governed is autocracy. To govern and in turn to be governed is ke the only form of true liberty. In this conception there is nobody governing and hobody governed. Te all govern and serve alike and together. We all serve one master; the only master that no liberty loving man need be ashamed to serve - we serve our country. FEDERAL RESERVE BOARD /U. fiCASHINGTON APRi 7 1917 April 10, 1917. Dear Strong: Things have been so intensely interesting and perplexing during these last weeks that I do not remember when I wrote you last. Since then, Delano came back and brought us the very best news about you, and I cannot tell you with what pleasure I am looking forward to the time in June when you will be back at your desk. However, do not get it in your head to come unless you are certain it is the wisest thing for-you. This is also how your Mother feels about it. was a great pleasure to see her. It She is a wonderful lady, and I now know from whom you get some of your traits. I saw your telegram to Harding. I understand, of course, that you are impatient and want to come back under the stances, but do not be foolish about that. circum- As a matter of fact, there is very little doing at the Federal Reserve Bank of New York at this time, and even we here ii? theFederal Reserve Board cannot do as much as we should like to. Most of the things are being cooked up at the Capitol and taken up with the Secretary of the Treasury. of course, we are doing everything to get in some ideas of ours, and I believe on the whole things are moving on sound lines. I just returned from Chicago, where I had some very good meetings with the Chicago bankers an ). where my speech was re (2) ceived with remarkably hearty applause. The stiff old Chicago bankers and mer,Thants really woke up and showed some enthusiasm. T think I made good headway with the State banks and trust companies. The Union Trust Company promised unqualifiedly to come in and Hulbert, of the Lierphants Trust, promised too with a very slight rese2vation(that he wanted to study the amend- ments proposed) difficulty. But I do not believe that he will find any They both expect to come in during this week. If they do, I am confident that we can also get the State Bank of Chicago, which is the most important of the State banks there. The St. Louis Union Bank came in yesterday. The Cleveland Trust Company has come in, as you know, and the People's Bank of St. Paul also. So things are moving. In New York, Jay is stirring up the trust comnanies. I do not know with what success, but I am sure that, if handled properly, they will come in on a basis of patriotic appeal. The ammdments in Congress are making some headway. Senate Committee voted to report them favorably. The I do not know what will happen in the House, but, confidentially, we have good reasons to believe that the president will place himself behind it at this time and I suppose that we will get the gold amendment through now. As to Argentina, we do not understand each other very well, (3 ) and it is about time you should come back so that we can talk over matters a little more easily. I do not think that in writing we Get very much closer to each other's thoughts. I enclose copy of a letter which I received today which shows how anxious the Argentine bank is to get into touch with the hew York Bank and that this is largely a question of gold I do not want to go reserves that they might keep with you. into a lengthy argument concerning your long letter, but I can- not understand how it can be in your mind that we should invest heavily in Argentine exchange or'-und.ertake to regulate exchanze/ between these two countries. That is much too large an order and we could not possibly go into so comprehensive a program wherever we formally open relationships with foreign government banks. Before you would kncw it you would have to do the same thing with Chile, Brazil and' od-knows-What". On the other hand, so far as our purchases of4acceptaaces are concerned, I cannot see any danger there because that is absolutely controlled through the forward rate fixed from time to time. The Banco de la Nacion has not got a large gold reserve of its on but it has the power to draw on the Caja de Conversion for a large amount of gold against the deposit of commercial paper. The New York Bank has meanwhile sent a letter to the Banco de la Hacion, but before active operations begin I expect you will be back at your desk and can have your own fun in the matter. are& cr- /2,64_4,ceteL.-/ -ery enj.otrong, jr., Eso.,,4 http://fraser.stlouisfed.org/ 4100 Montview Boulevard Federal Reserve Bank of St. Denver, Colorado. Louis . e/Yrzi/kte,-1-) ru yours, Ccee_i_tA0-1 Pra. ei/2166(m, FEDERAL RESERVE BOARD WAS April 20, 1917. APR2 3 1917 Dear Strong: Thank you for your letter of April seventeenth, which I received this minute. I can well imagine how restless you are. Nina, Aiken and I were discussing only the day before yesterday what a terrible itching you probably would have to break away from your golf links as soon as you would hear that Lord Cunliffe would be in this country. It is hard to advise you. I can understand only too well your unwillingness to stay away. On the other hand, I am profoundly convinced that it would be foolish for you to come. From all I can hear you are doing splendid- ly just now and:it would be a great wrong, I believe, to interrupt thip splendid recuperation no matter how hard it may be to renialn reasonable. Moreover, the gentleman has not arrived yet and nobody knows where he is or when he may come. I do not believe that at this moment much more can be done in the Bank of England matter, and I think that Ounliffe very likely will want to talk about general financing and, as to this, there is hardly any help necessary because I think he will get whatever he wants just as far as we can furnish it. I believe that it is generally (2) understood that our only important contribution for the moment can be a financial and economic one and we have got to do all we can and plan wisely for the financing and get all the cooperation we can. The difficulty is that there are too many cooks on the one hand and maybe too much autocracy on the other; too much consultation and deliberation where it need not be and too little where it ought to be. However, in spite of all that, I believe that things will take their usual United States course; that is to say, we shall blunder along at first but when we get to it style. do the thing in in good This has been the experience of the last few days. I think that the problem is clearing up rapidly, and personally I feel that it is getting into a shape where we can handle it. That we did today, I think, is a great step in advance. The Secretary ha now announced his plan to issue $200,000,- 000 of certificates payable July 1 on a 3% basis. We hope before we are through we shall issue about $500,000,000 of them. As the banks will subscribe for these and the pro- ceeds will be turned back to the market in order to pay for the various Government purchases, be they local or Allies, we shall anticipate any disarrangement that might follow the paying in of the instalments'because if the banks hold (3) 0500,000,000 of these certificates which they turn in in payment of the first instalment and if the depositor then withdraws a like amount for his payment for the bonds the two items will wash. I believe that if we proceeded on these lines so that for each instalment the banks will have An advance invested in these short certificates before the final payments are made there will be very little money withdrawn through the Treasury from the banks. What- ever temporary disarrangement there will be the Federal Reserve Banks may take care of by putting out money at a very low rate for fifteen days, be it 25') or 2.e. We had a long and interesting meeting with the Advisory Council. ers. I was amazed at the unpreparedness of these bank- None of them had really a definite plan in his head. Some, however, were very good because they wanted to be helpful and were intelligent in catching on. ularly pleased with 17ing and Rue. I was partic- Wing has developed from the worst member, I think, intoAthe best.," Forgan, unfortunately, was ill. ing. Morgan's attitude was most disappoint- He took the attitude of a spoiled child, being mad at the taxation scheme which he dislikes. He gave the im- pression that he did not care to play and that he did not care how the loan went so long as things were done which he considered unreasonable. They all claimed that no more than (4) one billion would go, and it was yours truly who urged strongly that a c2,000,000,000 issue should be considered, which I believe can be done provided the policy is adopted of selling short Treasury notes ahead and if the instalments are spread so as not to be more than four or five hundred millions at a time. In the end I believe that al- most all agreed with that point of view. I had a frank talk with Morgan in the afternoon in my room in which we discussed the entrance of the Guaranty Trust and the Bankers Trust and which gave me an opportunity to say some things to him which decidedly cleared the atmosphere. I had heard that he had said some pretty un- fair things about me in connection with the statement by the Board of November, and I wanted to put his mind straight. It all ended by his saying that he thought he had done me an injustice and that he was sorry for it. The nice part about Jack Morgan is that he apologizes when he finds that he is wrong and I like him for it. But it is very regrettable that he is so absolutely unbalanced and says so many silly things when he gets mad. The im- pression that he generally made at the meeting was not a favorable one. The State bank situation is excellent. Hulbert was here and said definitely that he would come in. Haxry Wheeler I told you. About The Marshall & Ilsley Bank and the German American Bank, of Milwaukee, have telegraphed (5) The that they would come in if the amendment should pass. Commercial Trust Company, Kansas City, has applied for iskt-i-eftecli-mtiryn and today we have received a confidential let- ter from St. Louis saying that the Mississippi Valley Trust Company would come in and bring with it three other State banks. That the Union Bank of St. Louis has come in I think I have written you. The Mississippi Valley Trust Company is entirely confidential. I had a letter from Lamont in which he says that the 4. Guaranty Trust and the Bankers Trust are considering en- trance, so as to the State bank situation I believe we can say that we have won. I have no doubt that the leaders will now come in thick and fast and the mob will follow. As to the amendments, they have passed the Senate Committee and we have asked the President to place himself particularly behind the gold amendment. Inasmuch as Con- gressman Hayes, who is the ranking Republican member, is for it/- T had several talks with him and I Joelave we can . i , get this thing through in conference. The difficulty now is that the exchange charge question is being drawn into the discussion and it may .be-devil the whole situation. However, I have no doubt that we shall succeed in pulling this thing off this time. So if you will do me the favor of staying away until June I think when you come back you will find a situation which will be pretty satisfactory and (e) rounded out. You will have your hands full. Thank you for what you say about Jim. News and since He is in Newport two days he is flying to beat the band. Is having a great time, but that I am relishing the He thought of having my son develop into an angel I cannot say, though under the circumstances it was the only proper thing to do. I did not but aviation for circumstances not a bad like the "Mosquito Fleet" idea the Navy, I believe, is under the plan inasmuch as quite a number of his friends have joined that particular corps he is feeling doubly satisfied to be in the swim - or I should rather say "in the fly". With cordial regards and best wishes for a good appetite and good golf, I am Always s cerely yours -OA/ Benj. Strong, jr., Esq., 4100 Montview Boulevard, Denver, Colorado. SYMBOL Blue ,effel Nite NL these three symbol, ter the check number of L,Pr ,s isaday message. Other. .haracter is indicated by the WESTE0AN4 TEL It WESTERN UNION svkyso UNION CLASS OF SERVICE SYMBOL Day Message AM appearing after the cheek. Mut Night Message NEWCOMB CARLTON, PRESIDENT Day Letter Nita Night Letter NL If none of these three symbols appears after the check number of words)this Is adaY message. Otherwise Its character Is Indicated bythe eytnbol appearing Wet the cheek. .;EIVED AT C247CH SHEET 2. TRANSACTIONS WI t RENDER EXCHANGE OMENT IMPENDING LARGE LOAN QUITE SOME TI ME BETWEEN THE TWO BANKS IMPRACTICABLE FOR ANSACTI ONS COOKS AND .COMPARATIVELY TRANSACTIONS THERE ARE MANY AS TO IM.PENDI NG LOAN YOU DOUBT WHETHER FOR EFFECTIVE ASSISTANCE FROM L I TILE CHANCE KINDEST REGARDS [SOLT WOULD JUSTIFY YOUR TRIP PAUL M WARBURG "Iv i. , to bes... ,t 4 :( .7, 7. , - FEDERAL RESERVE BOARD WAS Ilek,A1 May 14, 1917. JUN - 6 1917 Dear Mr. Jay: the Permit me to introduce bearer of these lines, Mr. William Taussig, son of my friend Professor Taussig of Harvard, now Chairman of the Tariff Board. Mr. Taussig, Jr. up to now has been in the bond business with John Muir and Co. Messrs. horever, to abandon his present position He is willing, in order to do serving the country. I have suggested to him that possibly he might render valuable service in joining one of the organizations formed by the Federal his share in serve Bantsfor the placing and Loan. handling of the Liberty After my talk with Mr. Anderson Saturday I had the feeling that possibly in New York it might be agreeable to you to secure his cooperation. With kindest regards, I am Very Pierre Jay, Esq., Federal Reserve Agent, New York, uly yours, very Re- SYMBOL SERVICE Message Letter Blue Message WESTE71A er,m' WESTERN UNION Nite TEL ',hot Letter NL If none of these three symbols appears after the check number of wordsithis is a day message. Otherw Ise its character is indicated by the NEWCOMB CARLTON, PR,51CIENT symbol appearing after the check. CLASS OF SERVICE _ iMBOL Day Message Day Letter Blue Night Message Nite Night Letter NL If none of these three symbols appears after the check number of words, this is aday message. Otherwise its character is indicated by the symbol appearing after the check. ECEIVED AT 163KS 36 GOVT K WASHINGTON DC 417P 18 BENJ STRONG 41WMONTVIEW BOULEVARD DENVER COLO KS FOR YOUR TELEGRAM GLAD TO KNOW YOU SACK SAFE AND SOUND ONFIDENT YESTERDAYS CONFERENCE WILL BRING GOOD RESULTS AM WRITING HT RN, PAUL M WARDBURG. FEDERAL RESERVE BOARD nWA S H INGTON 1 jr. MAY 2 2 1917 May 18, 1917. Dear Strong: I confirm my today's telegram. I was glad to learn you Ore back. I am sure you must have a feeling that your weeka,were well spent, and I am quite certain that the knowledge of how import- ant for the success of our work you are will give you renewed patience to hold out and get4well. I have delayed answering your letters, but I have been so confoundedly buss that it has been absolutely impossible to do so. I think the prospectus as it has now been published A is a good piece of work, and I am confident that the announcement to b'e made by the Secretary today, concerning redeposits, will be received with general satisfaction. The scheme was developed with the cooperation of a great many helpful minds and I believe that it represents the consensus of opinion. We are today offering another 200,000,000 of certificates at 31/10, at which I am con- fident they will mov . We might have placed them at 3, butAtwas felt that we should reach the little fellow and, therefore, it was a good plan to make that concession in order to bring that about. The amendments are in good shape. Confidentially, f (2) the conference has agreed on its report, including the reserve requirements without any obligatory till money involved and including the gold note issue amendment. The other phases have been satisfactorily included. However, there is a devil of a mess owing to the Hardwick amendment which the Senate tacked on and concerning which, at the last minute, the House instructed its conferees to consent to 4 the substanceof the amendment. word "in substance" saved Glass, with the This little situation because Owen our assistance, have concocted a tail that amendment which will wag the dog. however, will Congress swallow it. If and to The question is, not, there is dan- ger again that the whole blessed amendment business will hang fire on account of this exchange charge. I am con- fident we will get the amendments through in the end, but I am very much afraid that a great deal of delay will be caused again. For the time being, the Banking Committees and all Senators are flooded with telegrams protesting against the Hardwick amendment, and owing to this flood, which pleases the Conference Committee, they have not acted today and have delayed action until hope they will report. Monday, when I Ninety per cent of this amendment situation is, therefore, excellent, but ten per cent is pretty bad. The gold amendment, I am happy to say, has passed the (3) crisis. Glass is willing now to let it go through owing to heavy pressure that has been brought upon him, and asked me himself to take it up with his fellow conferees Very confidential information of the House, which I did. from behind the scenes cussed in *1-te isthat when this thing was dis- the Conference Committee practically understood what he was to vote for talking about but nobody they were going it. I have my hands very full and you for not writing must pardon me more today. It was very nice to see you here. Family sends warmest greetings. Sincer Benj. Strong, Esq., 4100 Montview Boulevard, Denver, Colorado. Come soon again! y yours, ,E otter WESTE::. . UNION 4xlaux TE L 741W AM SYMBOL 'Clue WESTERN UNION Nita .dl essage d Letter NL one of these three symbols dears after the cheek nunth, of ords 'this is a day message. Otherwise its character is indicated by the Isymbol appearing after the check. RECEIVED AT NEWCOMB CARLTON, PRESIDENT GEORGE W. E. ATKINS, FIRST VICE-PRESIDENT CLASS OF SERVICE SYMBOL. Day Message Day Letter Blue Night Message Rite Night Letter NL If none of these three symbols appears after the check number of words)this Is aday message. Otherwise its character is Indicated bythe symbol appearing after the check. 144; wklar# 44 YR 4 197) A417CH 67 GOVT WASHINGTON DC 64P 23 1213 BENJ STRONG 410, MONTVIEW BOULEVARD DENVER COLO, CONFERENCE REPORT SIGNED TONIGHT UNANIMOUSLY CARRIES ALL OMMENDATIONS OF BOARD INCLUDING GOLD AMENDMENT HARDWICK AMENDMENT !RED SO AS TO MAKE CHARGE SUBJECT 10 REGULATION OF' BOARD AND NO E TO BE MADE AGAINST FEDERAL RESERVE ,BANK THEY HOPE TO, GET IT THROUGH HOPE THEY ARE RIGHT A HAVE NE DOUBTS SO FAR GOOD BEST WISHES WARBURG. Form 1206 DESIRE' iimmgo WESTEAN, UNION Receiver's No. WENN UNION ilessage TEL.1-vt70- ..ghtLetter Patrons should mark an X opposite the class of service desired; OTHERWISE THE TELEGRAM WILL BE TRANSMITTED AS A 'AST DAY MESSAGE. Check AM Time Filed NEWCOMB CARLTON, PRESIDENT GEORGE W. E. ATKINS, VICE-PRESIDENT BELVIDERE BROOKS. VICEPRESIDENT Send the following telegram, subject to the terms On back hereof, which are hereby agreed to ashington, D. C. .ay 23, 1917. 11b Benj. Strong, Denver. 1 Conference report signed tonight unanimously carried all Hardwick amendment recommendations of Board including gold amendment. modified so as to make charge subject to regulation of Board and no charge to be made against Federal Reserve banks. through. They hope to get it I hope they are right,- I have my doubts;so far good. wishes. (Sg.) Paul M. Wa.,411QL. Best ALL TCLEGRAMS TAKEN BY THIS COMPANY ARE SUBJECT TO THE FOLLOWING TL To guard against mistakes or delays, the sender of a telegram should order it REPEATED, that is, telegraphed back to the originating office for comps ne-half the unrepeated telegram rate is charged in addition. Unless otherwise indicated on its face, THIS IS AN UNREPEATED TELEGRAM AND PAID n consideration whereof it is agreed between the sender of the telegram and this Company as follows: The Company shall not be liable for mistakes or delays in the transmission or delivery, or for non-delivery, of any UNREPEATED telegram, beyont eccived for sending the same; nor for mistakes or delays in the transmission or delivery, or for non-delivery, of any REPEATED telegram, beyond fifty times the or 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 ci2: i.er or obsc, etc grams. 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, of this telegram, whether aused by the negligence of its servants or otherwise, beyond the sum of FIFTY DOLLARS, at which amount this telegram is hereby valued, unless a greater value is stated in citing hereon at the time the telegram is offered to the Company for transmission, and an additional sum paid or agreed to be paid based on such value equal to one-tenth of ne per cent. thereof. The Company is hereby made the agent of the sender, without liability, to forward this telegram over the lines of any other Company when necessary to reach its estination. Telegrams will be delivered free within one-half mile of the Company's'office in towns of 5,000 population or less, and within one mile of such office in other cities or owns. Beyond these limits the Company does not undertake to make delivery, but will, without liability, at the sender's request, as his agent and at his expense, endeavor to ontract for him for such delivery at a reasonable price. No responsibility attaches to this Company concerning telegrams until the same are accepted at one of its transmitting offices; and if a telegram is sent to such office y 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 telegrem i led 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 additio he foregoing terms. No employee of the Company is authorized to vary the foregoing. THE WESTERN UN ION TELEGRAPH COM F INCORPORATED NEWCOMB CARLTON, PRESIDENT CLASSES OF SERVICE Letter shall be delivered on the day of its date absolutely and at al AST DAY MESSAGES events; but that the Company's obligation in this respect is subject A full-rate expedited service. to the condition that there shall remain sufficient time for the transmission and delivery of such Day Letter on the day of its date during I G HT MESSAGES regular office hours, subject to the priority of the transmission of reg Accepted up to 2.00 A.M. at red-heed rates to be sent during the night uad delivered not earlier than the morning of the ensuing business day. DAY LETTERS A deferred day service at rates lower than the standard day mes3age rates as follows: One and one-half times the standard Night Letter rate for the transmission of 50 words or less and one-fifth of the initial rate for each additional 10 words or less. 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 enu- ular telegrams under the conditions named above. No employee of the Company is authorized to vary the foregoing. NIGHT LETTERS Accepted up to midnight for delivery on the morning of the ne ensuing business day, at rates still lower than standard night mess rates, as follows: The standard day rate for 10 words shall be charge for the transmission of 50 words or less, and one-fifth of such standard' day rate for 10 words shall be charged for each additional 10 words or less. merated above are hereby agreed to: Day Letters may be forwarded by the Telegraph Company as a ieferred service and the transmission and delivery of such Day Letters is, in all resnects, subordinate to the priority of transmission and lelivery of regular telegrams. Day Letters shall be written in plain English. Code language not permissible. 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 Compan be mailed at destination to the addressees, and the Company sha c. be deemed to have discharged its obligation in such cases with respect nplete discharge of the obligation of the Telegraph Company to /en This Day Letter is received subject to the express understandand agreement that the Company does not undertake that a Day prepaid. This Day Letter may be delivered by the Telegraph Company telephoning the same to the addressee, and such delivery shall be a to delivery by mailing such Night Letters at destination, postage Night Letters shall be written in plain English. Code language is not permissible. No employee of the Company is authorized to vary the foregoing. - VITESTEOAek\ UNION ICE Dt...:-.ED t Day Message ay Letter Vit5TERN UNION 'ight Message TEL Night Letter Patrons should mark an X opposite the class of service desired; OTHERWISE THE TELEGRAM WILL BE TRANSMITTED AS A FAST DAY MESSAGE. 114:72,- Check AM Time Filed NEWCOMB CARLTON. PREsipENT BELVIDERE BROOKS, VICE-PRESIDENT GEORGE W. E. ATKINS, VICE-PRESIDENT Send the following telegram, subject to the terms on back hereof, which are hereby agreed to New York City, May 24, 1917. Benj. Strong, Denver. Thanks for MAY your 24 1917 telegram. rediscount as suggested by you. There won't be any difficulty arranging Believe everybody in favor of it. Delighted to know you are coming but can't you wait another week - the transaction will stand it. (Sg.) Warburg. ALL TELEGRAMS TAKEN BY THIS COMPANY ARE SUBJECT TO THE FOLLOWING TEAM To guard against mistakes or delays, the sender of a telegram should order it REPEATED, that is, telegraphed back to the origin.ating office for comparison. ne-half the unrepeated telegram rate is charged in addition. Unless otherwise indicated on its face, THIS IS AN UNREPEATED TELEGRAM AND PAID FOR A,_ consideration whereof it is agreed between the sender of the telegram and this Company as follows: I. The Company shall not be liable for mistakes or delays in the transmission or delivery, or for non-delivery, of any UNREPEATED telegram, beyond th, eceiveci for sending the same; nor for mistakes or delays in the transmission or delivery, or for non-delivery, of any REPEATED telegram, beyond fifty times the sum or 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 oh. *grams. 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, of this telegram, whel' 'used by the negligence of its servants or otherwise, beyond the sum of FIFTY DOLLARS, at which amount this telegram is hereby valued, unless agreater value is state,i vriting hereon at the time the telegram is offered to the Company for transmission, and an additional sum paid or agreed to be paid based on such value equal to one-tenth .ne per cent. thereof. The Company is hereby made the agent of the sender, without liability, to forward this telegram over the lines of any other Company when necessary to reach its lestination. Telegrams will be delivered free within one-half mile of the Company's office in towns of 5,000 population or less, and within one mile of such office in other cities or owns. Beyond these limits the Company does not undertake to make delivery, but will, without liability, at the sender's request, as his agent and at his expense, endeavor to :ontract for him for such delivery at a reasonable price. No responsibility attaches to this Company concerning telegrams until the same are accepted at one of its transmitting offices; and if a telegram is sent to such office ,y 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 telegram is iled 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 he foregoing terms. No employee of the Company is authorized to vary the foregoing. THE WESTERN UNION TELEGRAPH COMPANY INCORPORATED NEWCOMB CARLTON, PnEsocrwr CLASSES OF SERVICE FAST DAY MESSAGES A full-rate expedited service. NIGHT MESSAGES Accepted up to 2.00 A.M. at reduced rates to be sent during the night nd delivered not earlier than the morning of the ensuing business day. AY LE ITTERG A deferred day service at rates lower than the standard day mesage rates as follows: One and one-half times the standard Night etter rate for the transmission of 50 words or less and one-fifth of ie initial rate for each additional 10 words or less. SPECIAL TERMS APPLYING TO DAY LETTERS: In further consideration of the reduced rate for this special "Day setter" service, the following special terms in addition to those enu- 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 transmission 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 midnight for delivery on the morning of the next ensuing business day, at rates still lower than standard night message rates, as follows: The standard day rate for 10 words shall be charged for the transmission of 50 words or less, and one-fifth of such standa-rd day rate for 10 words shall be charged for each additional 10 words or less. ierated above are hereby agreed to: Day Letters may be forwarded by the Telegraph Company as a eferred service and the transmission and delivery of such Day Letters , in all respects, subordinate to the priority of transmission and Day Letters shall be written in plain English. Code language livery of regular telegrams. 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_o those enumerated above are hereby agreed to: This Day Letter may be delivered by the Telegraph Company telephoning the same to the addressee, and such delivery shall be a 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, postag This Day Letter is received subject to the express understandg and agreement that the Company does not undertake that a Day Night Letters shall be written in plain English. Code languag is not permissible. No employee of the Company is authorized to vary the foregoing. not permissible. 7. uplete discharge of the obligation of the Telegraph Company to D. prepaid. iltrotivie JUL s lett 61° lytkre,, p T-IrryFRID E R AL RESERVE BOARD WASHINGTON imp voritva June 30, 1017;"4A"eal Dear Governor Strong: Thank you for your letter of June twenty-eighth, sending me a copy of an amendment submitted by the Clearing House Committee. I do not think for a moment that Mr. Glass would stand for this kind of an amendment. I happen to know his views about the subject, having discussed with him an emergency clause on these lines. I found him very much opposed to it. I shall be glad to submit the Clearing House Comnittee's suggestion to the Board at its next meeting, which wilttake- -- place on Monday, but I am confident that the Board's opinion will be adverse. is against it. As far as my own judgment is concerned, it I agree with you that it would be unwise to permit this amendment. It would open the door wide to the use of securities as a basis for advances by Federal Reserve Banks and as a basis for note issue. It would also bring about the very thing that the Clearing House banks want; that is, we would remove the incentive for our member banks to keep invested largely in commercial and eligible paper and encourage instead investment in loans on securities. I do not for a moment deny the importance of the latter loans - particularly in New York - but the Federal Reserve System ought to find its roots primarily in commercial paper. It has been necessary for us to open the (2) doors to Government securities but we should not go any further unless it is absolutely necessary for the saving of the situa- tion, a condition which, to my mind, does not exist. A great deal of money is being redeposited by the Treasury against collateral of the kind that the Clearing House banks want to see made available. A question that goes through my mind in this connection is whether Federal Reserve the wider development of an Banks, pending acceptance market and a market for commercial paper, should not have the power to make deposits or make loans on securities up to a certain percentage of Government deposits held with them. In other words, enable the Federal Reserve Banks to do themselves what they axe now doing acting'a, arw4 for the Treasury. That is a question which I think we might well consider because it would enable the Federal Reserve Banks to exercise the banking functions which nowias a matter of sitymust be exercised by the Secretary of the Treasury. Very duly Benj. Strong, Esq., Governor, Federal Reserve Bank, New York. yours, neces- ic 0 F. 0 N TE NAY HARTSDALE, WESTCH ESTERCOIJNTy iN E Yo R AL 4,, 7). '7 67. , Qlte . e_ei,47.-( szz (m, CL&Z- Ct,t-c,-/ (e ce/be /-6--"ej ttL tui /44e_ e_e/2-Vezif,A4 &if/ /-rtiAv /64-4/ /11 d2;/-4 etee,A (2, 64e,/, ,(/ &64 /g frr. /66tsJ,- -a& )4e)-(6 Pf-w' 4eir 4,ez, i A J_.,,,,, ox4.0,),K % 4)_6-we ,d, (r.,.,_ ,Z-il 6YY.Acz,/ .z-f-,-/- 4144-4 eti /tc-i-ctit,ei -6.14__Loleciet, , (i,, 4(--c,",t,e, . A ,, 7(4-6,A4,e,i-a.a.o--,(1_ 4 de/6v P6r71- e24,(7 (-rxee7 c4A,e/(4,i; %i 6/4- --(/), 70e4 47--rt,ix ;6/2-id-it t(42(1 AeL_d 41-0 ,,ve 7-. ef-te ( a/.1 a C L -41 /7d 07-4? (;1/44 /41, /474, 4~ . (1>A/_ ,y4,7-A,, Z 4.4_ 62-e 46,-i/6-( el'a (Ae_ A'9 w-a-ye 12-2w y)-0 c a.fi-2,i -g-27)) 7)249 ")")7 7p7 7/27 /7,7 .4 y2W -7 v)-27 - ", 4 -.1"-V 447/ -17/ 7y 11-29179-2 7/1)>1 774 AA,ur go,-; et dop 4447- ( 422.6- arer,c,_ ("2:et / 6Z 4,2 f2rs 6-tt(3 67(4- orf /7t- Atew-ez(_1_ FEDERAL RESERVE BOARD WASHINGTON 4&6, Dear Governor Strong: Alagust 27, 1917. 4'7 I have your letter of August twenW-fourth, enquiring about Miss Knowles' qualifications. You met her Sunday a week ago when the whole Knowles family called at Hartsdale. She is quite a capable girl. When her a IP-a 7,414, eic,e father's financial affairs got involved4(I understand they now have been straightened out again) she took up stenography and showed quite some grit in this respect. She became secretary of some league - I forget which - and I believe did well in that capacity. Personally, I have never taken a great shine to her, though she is very popular. with the boys and Jimmie liked her quite She has been going out a lot in spite of her business well. career and I do not'know how far she expects to keep this up. If she does, I doubt that she will be capable of doing both at the same time; that is, business and society. Jimmie says she is very popular amongst girls and that she might be a good leader. Personally, I would suggest that if the girl appears of the right type to you you give her a trial and get your own experience first as to her earnestness and abilities before you pick her out for a leading position. Maybe she will make good but I think you want to form your own judgment. http://fraser.stlouisfed.org/ Benj. Federal Reserve Bank of St. Louis Very Strong, Esq., ly yours, FISH ROCK CAMP VIA SARANAC INN FRANKLIN COUNTY N EW YORK V a71 ( etvR /7-6", Aago oVe,z tie 414-t-1 la,ze We44. Apie aile 14:G6 t7avi,,, XA d,tcW d_cao, /kap 60:ie t4 -1A4 (t," d1A- euJ &Ili" e av; 42-e gi7(141-1`,rt _ .77 4_i I1f p1 74-e it,teee ye,,t7e ,/rkg,,Y Ae, e 4re eiYe7i_ rdeft-tt, 1114/er ht Gefte-..7(,(24 r-/-6 4,/ f. 4,4 ,67 rel-4-7 4 /4, igtz6, Ge. zf-tt-r- tear 1 Acv a- -'-')d)i-de, (7 /0404 fry w---t--Vehete;i - 1-(tA FL/ex et-ce r 0'1c1/1 a-e-e- htA,eit12-(;69 A erM/r 44;:c ,ettptere 4ted).? , ,L, itt~y z#4, au/kulr aurdeio 4/1/-61,, z-4 ef rrzle_f if,t04_ ateadu 4,-4 4 I A 1611-f-v4v le a 4, (fr- iit,ve 4`e#1! 1- ,7 &I y &41,a( 61Zfi 44 , 4, 4. trc/Lt4Ape )1- e-z't 4? 4-firt 7-4 66:7-ft-e-q7 (e_t ra,),dy 747 -At 4-c-orvy eii_f FISH ROCK CAMP VIA SARANAC INN FRANKLIN COUNTY NEW YORK kr, //Twit:hi_ le ilf>.;6-- 11 746frilf&_. 4 ,e& feee,,t-- fre 67-e,rkeii-i4- /it-ettt.e_e 74-e P14-144-1 14t,u44, .(evz 7-K, t-u-e-ir c-rw ex,b?-m lele,1 AJI/L-C)--e- /14,tArLkot) it/J1- tz -t 11/1110414- 1/t4-t-ei 0-10- 01/V)144- vt: riut-r-a_elety, FISH ROC ,6.c."14 Pr"re rti ,r tolh VIA'SARANAC INN FRANKLIN COUNTY 1,14 t 4 Itr'' i,j NEW YeRK -, TWO rtt 1`-, 41 3/4 74 .44 6/1-1t/2_ )4 , pw Arpttf/L 4/2)k ag/24( 4fiw,ce*J Ithva R,,,_ A_e,1_ A-0-, 4,&4 -4:46 44,,a7,47, 4. t . liff y tz.,,-6,;-7- 7 7- 1,ge/ 4 hp,tez7 1,_ a/7 _4t,o'i ,-;-_,, 4,7 - a,,,,J- 4 L/(/ LLji- slei4rY 4-ClilA &J1Lr1:7 Wit(tjetuft-e- 44eh f-4e La,,,e La, 7 le, 1-cf 4-'ef,A( /4,4, Ar P) _ eer-e, 4,4-y-1t4-79 to7t1 era-7 Aiy, FY 4%..e ae-diad.,,,,A7 /7",<_ /re-cr-4 4,..N ate 4 4.,;, ig ee/Ge 4 Ar" tt1A-e /friti,fr 41-6,Atv aziee 47 _ e`p-f/a(746ⅈv) ffr- &-e4 (7 4,47LL icait t 44. 11 7 7f A;. 6a 4C-14( -704 enzie -6 (1,1e4Ae4/16(21,, /_2 oe,fAer;-. ; fr r,tei,r 4_ 44/izial or I' -Itt 71 ,e--(fqj 4--4.; 62-4eC):-: /211..e/ii/-e - CLet-6-u-ce cci,t-te/ .27 IA ,A(244 I60/A a-46.4-L/i '14,Ze z t e t- AlLet/,1 74 , Le714,4 eh:ee /c em-r 744r. et,/ , he-ii-ke 4- ii4-16 _ e").L.-4;1.-ce,e/t 1/441,t,Z er-/.0 ,61-e e e/iva (.,e.eztee cjeyr(Y`,/ / 7-- eekt-w-, Fo COPY Fish Rock Camp Via Saranac Inn Franklin County New York Thursday, September 6th (1917) Dear Strong, Thank you for your letter with chart which was seat to me here from Washington. It rains like h.... today and I am profiting from this non-golfing condition in order to answer your question, at least superficially. I expect to be in H. Y. Monday morning next and leave by the Congressional. If you can arrange to have the morning reasonably free for MB, we can talk the matter over. I have arged Crosby repeatedly to begin issuing two or three day U.S. certificates of indebtedness to F. R. banks for short advances (instead of overdrawing) even if he paid only 2% for that. I think at times that may be helpful on the lines that Kenzel suggests, but I do not think it alone will do the trick. Banks are not sufficiently milling or able to take and put out on call these large sums. We should not try to add (as Kenzel would do) or withdraw large sums, but rather seek to return what we take as quickly as possible. The F. R. banks must take care of two things in this 3onnection (1) the temporary dislocation; and for this, let us call it, "float" the Kenzel system may help anticipando, or rediscounts and open market transactions as post- or simultaneous relief; (2) reserve-balance-basis which will be necessary in consequence of our growing credit operations; (3) in addition, the normal seasonal demand must be taken care the of by the F.R. bank, as at present. The more operation under 2 gr more difficult will it become to satisfy 1 and 3. Particularly in consequence of our continuous loss of gold! What we should do is, of course, to (1) stop that loss of gold (2) get (at the proper moment) more gold from England. Rates over there appear to ease off and there are still, I am told, $150 million American balances in London. These will be drawn unless England puts up her rates and assist's in keeping money easy here. But that is essential anyhow for her on account of her interest in the success and continuation of our Government loans. Moreover, the gold we lose we Ship to cover her debit balances in neutral countries. the gold in we can lay our hands on in the U.S. (4) Keep the (3) Get float down to the miminaiM. all I wonder whether there is not something to be said for a plan of selling the next loan outright, instead [sic.] subscription, letting everybody pay at once, if he pleases, and permit banks to pay by credit. The Government paying out whatever it withdraws. There are two problems: one, to keep the F.R. System strong in gold, and two, to reduce the nfloat.0 At present, 611 banks outside of N.Y. draw on N.Y. for their payments and pile it into their F.R. Banks, then the Government draws on N.Y., asks the other F.R. Banks ta refUnd M., then the money must travel back to the member banks in payment of goods. In other words, money Page 2 makes large round trips in order to move from the N.Y. member bank to the F. R. Bank of N. Y. and back (for account of the country bank) or in order to move from the western F.R. member bank to its F.R. Bank and back. The question is can we short-circuit at any spot and let money go direct? The difficulty is that money changes hands in the various Districts and does not return in the same quantities. But that is the problem. My feeling is we cannot much shorten the float but ought to reduce the quantity to the minimum. This is a gossipy letter and I must close it in a hurry to catch the only boat that may take this letter. I am jotting this down just to start you thinking on these lines. Will see you Monday; hope you are not overtaxing yourself. Sincerely yours, (Signed) PAUL WARBUBG See picture on back of this [below] Member bank West Member Bank, N. Y. Federal Res nre Bank of N.Y. Course of money paid to the Government in the West and paid out by Government in New York S OF SEP ViCi: ESTEagINA SYMS*OL M =ssage Day Letter Blue Night Message Nite WISURS,UNION Night Letter NL f none of these three symbols pears after the check i.number of _um TELW47:1, - ords)this Is a day message. Otherwise Its character is indicated by the symbol appearing after the check. NEWCOmlia CARLTON. PRESIDENT GEORGE W. E. ATKINS. PIRST VICE-PRESIDENT CLASS OF SERVil:',E Day Letter Night Message Night Letter If none of th,se . hrea appears aft.r the words)this is aday wise its chara4ter symbol appe ing /r/7 RECEIVED AT EX B2291) 33 3 i`. RZ PHIL1DELPHIA PEXN 1120P 29 BENJ STRONG JR 1572 FEDER1L RESERVE B1NK EQUITABLE BLDG NEWYORK N7 DINE TOGETHER mom,: EVENING EIGHT OCLOCK HAVE 70 N ON MIDNIGHT THAT EVENING PLEISE RESERVE:ME ROOM OR COMP/FITMENT ON PENNS7L7INI! OR B !ND 0 MIN. THANKS L rIRBURG HOTEL RITZ ripit,. II Barn o GT 2- 1917 tiaticu 412 WM7 SY Day Message k (nun essa ndicateil ter eis Priv FEDERAL RESERVE BOARD WASHINGTON October 15, 1917. (Confidential) Dear Governor Strong: dealing Supplementing Secretary Crosby's today's letter with Government deposits, I am writing these lines for your personal guidance and referring to your letter of October 9th to Mr. Leffingwell, concerning the acceptance of Russian bonds_ ii - )1( The view here as collateral for special government deposits: is that it would not be practicable openly to discriminate against these bonds, and that Federal Reserve Banks should deal with the matter using their discretion and protecting themselves by adopting the following policy. As to all secu- rities, except United States Government bonds, no one bank or trust company should be permitted to secure its deposits by more than a reasonable amount of any one security, particularly in the case of securities which are not selling on a conservative interest basis; the object being to have the collateral pledged by each depositary well diversified. This will enable the Federal Reserve Banks to deal with the problem cautiously. Yours very truly, Vice-Govern. Benj. Strong, Esq., Governor, Federal Reserve New York. Bank,ocT " ,,-- IECEIVOID FEDERAL RESERVE BOARD °C.T 27 1911 tl,\oit/p, WAS (1.; October 25, 191 41;1 Dear Governor Strong: a T' Lt. 'MAIL 'ELLER Please talk to me oliWIWIelephoneWboutdiear A count rates. Philadelph4 BoehOilhAve made appli- cation to increase theiirnMpday rates on Liberty Loan paper to four per cent', to go into-tfVerct on November fifteenth. The 15-day rate probably may have to be considered too. As to thai,we shall know a little bit better after next Saturday' I think/the rate for bankers acceptances ought to be moved up, also. With 90-day Government paper sell- / ing at fair per cent and probably going higher, I believe that bankers acceptances probably ought to move up to three and a half to three and three-fourths. Of course, you must not overlook that we may have to formIthe under-writing syndicate for the U. S. Cer- tifioulites of Indebtedness; but I believe that the four per cent rates for Liberty Loan 90-day varying in the half to and 15-day rates, several districts between three and one- four per cent according to requirerents, would not interfere with the larger plans before us. (2) I have no doubt but that all the districts except possibly New York will want to move up to four per cent for 90-day Liberty Loan paper, and I am rather inclined to think it will be to your best advantaq.e to loin keiftthe=lfty, or otherwise the pressure will be all on your bank, Let me know your views about this topic. Sino ely yours, 6..ca,W.A.AtI,a1AAA", Benj. Strong, Esq., Governor, Federal Reserve Bank, New York. FEDERAL RESERVE BOARD WASHINGTON November 7, 1917, Dear Strong: Just as I left the house this morning your nice letter came from Virginia Hot Springs, and Nina and I were delighted to hear from you and to know that you have safely landed and are planning for a good rest. over and play with you. I should like very much to go However, I do not see how I can get away within the next week or 89, inasmuch as I want to keep my eye closely on money conditions in conneotion with the payments on the fifteenth. We shall all miss you/tomorrow and day after tomorrow at the conference with the Governors. We have prepared quite an interesting program and quite a comprehensive one, and I believe the conference will be timely and useful. I send you heYewith a copy of the re-draft of my war loan finance scheme. You might study it while on your back, and might drop me a line as to your impressions. Something has to be done, and my own feeling is that this is the least objectionau ble form. Did I tell you that Jimmie is not flying any more? He has some defect in his eye sight which the little devil managed to conceal very successfully in order to get into the service. aviation This prevented him, however, from seeing the water (2) line when coming down and he I been managing to get through without a scratch by taking risks that he had no business to take. His lieutenant had his eyes examined again and this time he could not cheat and he was told that they could not permit him to fly any longer. However, his lieutenant gave him a most glowing recommendation and apparently they are going to hold on to him in the aviation service. He ex- pects to get his commission within a few weeks and will then be kept on some other work in the department without active flying. Jimmie is furious, but Nina is a different being since she is no longer worrying every hour of the day about happenacd what t; tm 6h,tzt , Let me hear soon how you are getting along and be wise and keep quiet. Verycerely you s, Benjamin Strong, Esq:, Virginia Hot Springs, + FEDERAL RESERVE HOARD WAS HiNGT 0 N In re International War Finance and War Industries Corporation. my dear Mr. November 5, 1017. Secretary: Since writing you on October 13th about the "National Fi- nce and War Industries Corporation", I have given the matter some further thought. Having discussed the problem informally with some bankers, I believe that the thought frightens them that if the Government once goes into the financing of railroads and industries there will be Government financing of private enterprises in perpetuity and that, for instance, railroad ownership by the Government may be the next step. On the other hand, it is clear that the powers to be vested thecharacter outlined by me are such that strict Government,control must be a prerequisite. These powers could not possibly vested in private citizens. We are conin a corporation of fronted with the same problem that faced us when dealing with the Federal Reserve Act, and I believe that our solution must be sought on similar lines. It would appear, therefore, that the simplest way would be to organize a Federal War Loan Bank, administered under your chairmanship by a board of directors consisting of the Federal Reserve Board, to which the President would add, for this purpose, four additional members. Some of the members of the Fed (2) eral Reserve Board together with these four new members (taken from the War Trade Board and similar positions) might constitute the executive committee. The corporation would have twelve branches, whioh would be located at the Federal Reserve City points, and, if possible, housed with the Federal Reserve Banks. Each branch would be un- der the management of a board consisting of the directors of the local Federal Reserve Bank, to whom again would be added four additional members, and these four members, together with some mem- bers of the regular directors of the Federal Reserve Bank, would constitute the executive committee of the branch. All applications for loans would have to come through these branches, and would be granted subject to the approval of the Board at Washington. In my earlier memorandum, I suggested the initial capital of ;:;50,000,000. I believe that was too modest. I think that a minimum of a hundred million dollars ought to be provided, with power vested in the President to increase this capital to A50,000,000. The bank would not be endowed with any note issuing power, but would be authorized to issue its obligations, having a maturity of no lass than a year and no more than five years, to the extent of eight times its capital. These obligations would be subject to full taxation. Federal Reserve Banks would be granted the power to treat these obligations in the same manner as Government bonds; that is, they would have power to rediscount (3) or member banks notes seoured 4 t-,ese o'o1igationo. The bank lauld have to liquidate within a given number of years after the conclusion of peace. The Federal War Loan Bank would normally grant loans only to member banks and mutual savings banks, but it might be wise to insert a clause similar to the open market clause of the Federal Reserve Act, providing that, with the approval of threefourths of the members of the central board, loans might be granted direct to concerns engaged in industrial business essential to the best interest of the country. All loans should be secured and no loans should be made on stocks. Provision should be made for ample margin against market value, subject to the rules and regulations of the central board. The obligations of the Federal Wax Loan Bank should either be placed on the market through bond houses and in round amounts as the business of the banks develops, in a similar manner as now done by the Farm Loan Banks, or to the borrower direct. To illus- trate, it might be practicable to issue the obligations to the olvings banks against the pledge of the collateral, thus enabling the savings bank to secure a loan from a member bank which, in turn, would he more willing to do so on account of the possibility, in case of need, of pledging this obligation as collateral for a loan to be secured from the Federal Reserve Bank. The objection will be raised that the sale of these five year obligations (for simplicity's sake I am only referring to (4) elle year though they may be iaaued also in one, two, three or four year maturities, according to the requirements of the case) would compete with the financing of the Government. The Govern- ment sells long term bonds and short term oertificates running less than a year. These obligations, as contemplated, would be something in between" and, therefore, would not compete with the bonds offered by the Government. But we must bear in mind the alternative, which would be that the Government itself would have to issue these securitiee, in which case we would still further increase the financial requirements of tne Government. Fur- thermore, it Is worth while noting that, as, for instance, in the case of a savings bank, a loan eould not amount so much to an iaeue of additional securities but in effect it would rather be a means for the savings bank to secure a guaranty for its loan from a member bank. Moreover, we may safely expect that the actual use of the War Loan Bank will probably not be a heavy one but that the mare creation of this inatrument will eliminate well grounded apprehensions which otherwise mienht easily create a panic owing to the realization on the part of the public and theibanks that there is no adequate machinery that would take oars of securities in case of an emergency. I believe that the psychological effect in this case will be a vary important one and that actual auoistance will possibly not be required to a very large extent unless the war should continue for laite a period and the Government should be forced to borrow at increasing rates, thereby further (5) endangering the position of the savings banks both as to the shrinkage in values of their securities and the increased danger of withdrawal of deposits as Government securities would in that case gain in attractiveness through the higher rate of interest. It is furtharnore moot desirable to avoid as far as practicable the dangerous practice of having the Government go too far into the business of making direct loans to industrial corporations, savings banks and banks. To a certain extent this is being done, and admirably done, today through Government deposits, but these are temporary loans for the convenience of the Government; not long term loans for the benefit of the borrower. Direct Govern- ment loans of the latter character will, sooner or later, lead to embarrassment to the Government, particularly should losses be incurred., and it is better to throw the burden of transactions of this kind on an organization similar Co that which has been created for commercial loans through the Federal Reserve System (or in the Aldrich-Vreeland-currency associations) and years gone by vest the responsibility for this in a separate corporation administered by a. group of men appointed for this purpose by the Government and sharing this responsibility, to a moderate extent, 4th the representatives of business (the Federal Reserve Dank directors). There will be criticism, of course, against that feature which would permit Federal Reserve Banks to treat these obligations as Government bonds, and the hue and cry of inflation will be raised. To a certain degree this criticism will not be :ithout Ir.) justification. But we must bear in mind that, without this priviloge, these give year obligations probably could not be placed to advantage, in which case we would again be confronted with the necessity of either having the Government itself issue these obligations or of having the Federal Reserve Banks mAce these advances direct. If the Government provided the funds direct it vA)uld issue additional bonds and these Government bonds would carry with themselves the same privileges as proposed for the obligations of the Federal War Loan Bank. In that case, therefore, "inflation's would be the same as in case of the War Loan Bank. If the Federal Reserve Banks would make advances direct, the kheels m14It work so fast that inflation to a .i.uoh greater degree might have to be apprehended. There cannot be any doubt but that during normal times a proposition as here described would have to be firmly rejected. It would be argued with force that the market should absorb the securities and that whatever banking ordit could not be provided in the natural way should not be secured by unnatural means. But we are at war, and the natural means of havinc the security market provide credits have ceased to exist. We must, therefore, take some extraordinary measures, bearing in mind that we must take recourse to such measures only to the most moderate possible degree. I believe that, ..as here proposed, we are not going too far but are doing only what the necessities of the country require and wa are doing it in the least harmful way open under the circumstances. (7) This plan would have the advantage that it would at once create confidence and that it would simplify the problem. At present there is danger that we are getting too many boards; too many groups of different people working at arm's length and at oroos purposes even though striving for the same aim. Exportation cannot be restricted without a careful consideration of the consequent necessity of paying for our importations in gold. Credits cannot be restricted broadcast without a care- ful discrimination of what industries are to be restricted and what are to be encouraged. Without restriction of our domestic consumption - that is, scientific economy on the part of indieviduals, corporations and municipalities - and a scientific, not haphazard, regulation of our foreign trdde and that of our allies, our fIncial problems may end in hopeless confusion and failure. Close cooperation between the various Government agencies is ab- solutely essential for the successful prosecution of the war. It Is much to be regretted that the Federal Reseeve Board was not invited to be represented on the War Trade Board and to strengthen on that Board the Treasury point of view. By putting representatives of the War Trade Board on the board of the Federal War Loan Bank a community of thought might be created which is most desir- able for both sides. While under the plan proposed the Government would have an efficient control over the operations of the banks, the public would at once understand that the matter is in the hands of the Federal Reserve Board and the Federal Reserve Banks, which are both PT. (8) now firmly established in the confidence of the country and are charged at present with the duty of exercising a financial control over the banking situation, and in whose hands tnie additional instrument should, therefore, naturally be placed. Moreover, by adopting the well established lines of the Federal Reserve System, the problem would be simplified for Congress and much unnecessary discussion and loss of time would be avoided. The great advantage of this plan is that whatever financial burden may fall through it on the Federal Reserve System will only come indirectly and we are creating a second line of defense around the system. Unless we provide for something of this sort, I am confident that we will be forced to amend the Federal Reserve Act so as to permit the Federal Reserve Banks to make direct advances on securities, and this step is fraught with many dangers and subject to a great many serious objections. Commissions could be created that would cooperate with the Federal War Loan Bank with a view to vetoing or permitting new issues of aeouri 1.6s in a manner outlined in my previous memorandum, directing banking so as to produce well guided economy and, incidentally, exercising a most necessary indirect control over the issues of States and munieipalities. If any further elaboration of the plan is desired, I shall be only too glad to submit further details. Respectfully, (Signed) Paul M. Warburg. Hon. 7. G. McAdoo, Secretary of the Treasury. -MISERS W. P. G. HARDING, GOVERNOR PAUL M. WARBURG, VICE GOVERNOR FREDERIC A. DELANO dcADOO - ADOLPH C. MILLER .ART OF THE TREASURY CHAIRMAN x..71.,,:sguiARLEs S. HAMLIN ON WILLIAMS FEDERAL RESERVE BOARD AOLLER OF THE CURRENCY WASHINGTON H. PARKER WILLIS. SECRETARY SHERMAN P. ALLEN, ASST. SECRETARY AND FISCAL AGENT ADDRESS REPLY TO CFEDERAL RESERVE BOARD -Ct:cr v<2 FEB 141S13 cs' tleA, February 12, 1918. L. Dear Sir: At the time of the Boarcl's last conference with the Governors, on November 10, 1917, they were asked by me to estimate What, in their opinion, would be the maximum amount of rediscounts by their respective banks of 90 day paper secured by Liberty Loan bonds or certificates of indebtedness. I give you enclosed a list of the estimates made of 90 day paper secured by Liberty Loan bonds and have added to that a co1rmu showing the borrowing on fifteen day notes secured by Liberty bonds and a certificates of indebtedness, and/further column showing the total, It would appear that the only estimate that was fairly correct was that of Governor Van Zandt. I am sanding this believing it will be of interest to you. Very Benj. Strong, Esq., Governor, Federal Reserve Bank, New York. uly yours, v 04 X-719 LOANS ON 90 DAY PAPER Secured by Li_berty Loan Bonds or Cartifi.cates of indebtedness Estimate made Actual as of by Governor January 184918 Nov, 8, 1917 (In thousands of dollars) Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco $75,000 200,000-300,000 50.000 60,000 25,000 12.000 75,000 75)000 30,000 5,000 20,000 $560,000-$660,000 Washington, D. C. February 12, 1918. N 1=ER BANKS COLLAT=AL NOTES SECURED 2Y LIBERTY S. CERTIFICATES B0NDS-4' OF INDEBTEDNESS Actual as of January 18, 1918 3,158 90,331 29 3,806 33,147 4,267 11550 5,462 4,515 877 2,208 4,082 916 453 2,047 $147,580 U. S. CERTIFICATES OF INDEBTEDNESS. Actual as of January 18, 1918 (In thousands of dollars) $36,029 67,294 16,465 9,308 6,278 5,691 1,500 210 241 TOTAL PAPER SECURED BY LIBERTY BONDS & $152,-688' 39,187 157,625 18,015 14,770 11,197 3,835 38,838 5,767 1,087 449 4,998 2,500 $300,268 E15.RAL FZ. 101 F EB 2 p.ERvE BOARD v,, vvASHINGTON iA8 REsEmi E D,VK February 20, 1918. Dear Governer Strong: I have your letter of February fifteenth, in reply to mina of the twelfth, enclosing a statement of the estimates of the amount of advances expected to be made by Federal Re- serve Banks on Liberty Loan bonds. I have read your letter with a great deal of interest and do not disagree with you as to your analysis concerning the effect of the Government's loan operations on the general investments of your bank. However, the question that was asked at the time was a very definite one, not "How much will your loans expand in consequence of the Liberty Loan operations" but "What will your bank's investment be in 90 day paper secured by Liberty Loan bonds" and, as a matter of fact, the fifteen day paper was excluded from that question. I do not think that you were present at that particular confer- ence but Mr. Treman was, and it was hie gue4s, not yours. The estimate, as I remember, was given by Mr. Treman only with all due hesitation. I should like to mention that I have not been sending this memorandum for any purpose of showing up anybody as right or wrong, but simply because I had been asked by several of the Governors concerning the result of the guesses. Mr. (2) Van Zandt was particularly insistent, and you can guess the reason why. As to the large amount of advances made by your Bank on certificates, fluctuating between Y253,00C,000 to $346,00e,000, that, as you know, really has nothing to do with the placing of the Liberty Bonds but was caused simply by the fact that banks in your district, instead of using the certificates for the purpose of paying for their subscriptions, were carrying them and a majority of them borrowing from you against the certificates. That was, as a matter of fact, a transaction which had nothing to do with the ultimate result that we were trying to establish. Since dictating the above yesterday, I have spoken to you on the telephone about the telegram that we sent concerning deposits bought by Clearing House banks. I send you herewith a copy of my testimony of Secretary McAdoo before the case you have not seen it. Senate Finance and also that Committee, in I have more interesting testimony before the House Committee which I hope to be able to send you in a few days. The latter contains some material that might go into the press and be helpful in the present controversy. Very truly yours, Benj. Strong, Esq., Governor, Federal Reserve Bank, New York. En c. (PiAated by Mr. Warburg) -/ F 1 FEDERAL RESERVE BRAIRD WASH Li I T 4.4 (Personal) 1918 TON c4,944 44 Prc- is February 23, 1918. 1:97 '<V Dear Governor Strong: In reply to your personal letter of February twentyfirst, with respect to the various amendments recommended by the Comptroller of the Currency, I may state to you what, no doubt, is known to the majority of the banks, that the fact of the Comptroller's recommending certain measures does not in any way mean that the Board is of the same view. As a matter of fact, when the Comptroller handed in his report, and when he permitted some of us to see his recommendations in advance of their loWing released for publication, he was advised that the majority of the Board was opposea to some of his recommendations, and the Comptroller himself stated that he felt, of course, that his recommendation would not be did not in any way mean that absolutely the Board free to state frankly its opposi- tion to any such amendments if the Board felt so disposed. The Governor informed the chairman of the banking and currency committees of the Congress that the Board did not consider it advisable to have the question of guaranty of deposits agitated at this time, and that, in case it should come up for serious consideration, the Board would wish to be heard. (2) It is difficult to advise the Federal Reserve Banks as to what attitude they should take towards banks which make enquiry of them with regard to these bills. I should say that they might state what I have said above, that neither the Federal ?eserve Board nor the Federal Reserve Banks are bound in their opinions by the recommendations of the Comptroller, and that the fact of the amendments having been proposed by him in no way indicates that the Board is in accord with his recommendations. Very truly yours, fa4 I ea,,_ Benj. Strong, Esq., Governor, Federal Reserve Bank, New York. lumr cillEStEJA, UNION Vir 10. rm 1201 CLASS OF S 1 NL .hree symbols ,ck (number of .egram. Other' 1)y the s charact ii appearing after the check. is ind TEL iLtiWas AM NEWCOMB CARLTON, PRESIDENT Blue Nite NL If none of these three symbols Night Letter appears after the check (number of words) this is a telegram. Other- GEORGE W. E. ATKINS, FIRST VICEPRESIDENT wise its character is indicated by the Washn D. C. Aug 10, 1918. 530PM. Benj Strong, Woods Hole, Mass. Thank you for your message I received a very grac satisfactory in its form accepting my re mos greatly relieved but I cannot but regre UUB letter yesty rement personally I with all my heart that \ the El. s sociation with you old man and my associates in this work of iam lk s as yet ours ha loyal friends and come to an end ihdeed I cannot quite realize-how my mind w 11 manage to leave the old tracks however friendships formed in t is work and the common aim will but i symbol appearing after the check.] 97 IIIP SYMBOL Day Letter XVED Al 169B 1 Night Message WESTERN UNION mite VICE Telegram Form 1201 bale W ESTEWaNA UNION Nite WESTERN UNION _OL II essage NL J of these three symbols Letter s after the check number of , this is a telegram. Other- Is character is indicated by the ,o1 apearing etc, the check. s TEL NEWCOMB CARLTON, PRESIDENT Telegram GEORGE W. E. ATKINS, FIRST VICEPRESIDENT Day Letter Blue Night Message AM 11, CLASS OF SERVICE SYMBOL Nite Night Letter NL If none of these three symbols appears after the check (number of words) this is a telegram. Otherwise its character is indicated by the symbol appearing after the check. RECEIVED AT 411) last whatever artificial barrier there may exist from now on affectionately Paul 650PM.