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llaimm'uer 20, 1923.

Y:y dear :Ir. Gerhardus:

Suppleuenting m' letter of C ctober 17, the fellewinG are the

dates of the letters which Covorncr Ctrong receive(t from Colonel Logan
since :'arch 1, 1923. I hope they tally with your reccrd.

ilarch 1, 1923

2, 1923
8, 1923





July 13,


29, 1923

9, 1923
16, 1923


8, 1923
14, 1923

23, 1923
29, 1923



12, 1923
19, 1923
20, 1923


26, 1923
27, 1923

17, 1923

Sept. 7, 1923


11, 1923
31, 1923

14, 1923
2b, 1923

Very truly ymrs,

flecroti,ry to Governor Strong.

74r. A. J. Gerhardus,

SoOrotkiry to Colonel Jas. ti. Logan, Jr.,
15 Rue de Tilsitt,
Paris, France.


Jenuery 11, 19P4.

Dear Logie:

This i6 a very confidential reply to yours of the 28th of December.
Some parts of rur inquiry I eh ell not attempt to ansrer ?or I could
only do so eatisfectorily verbally, and anvwey I prefer not to enewer them
without having the opportunity to see you or to diecuee the matter with some one
in whom I had complete confidence.

The men you mention kes some personal means of his oen, shich I believe
are in such shape thst they do not pioduco him a very large income.
I;e has one
denendent daughter; his other two deughtere are married.
His present salary
I believe is 4:30,000 e yetre
Ha has had e wide experience, end I think is
intellectually equipped for a job of that sort.
He is exceedingly cereful
about money - he kind of a man rho sill never spend a cent unnecosetrily or
He speaks no foreign /angusgee;
he never went to college - is
alto ether self-educated; has Jot a perfectly astonishing memory; is en
omnivorous reader, and exceedingly well posted on modern hisLory.
7e is
reserved, somewhat inclined tc be impulsive, and as is often the csoe with such
men, at ether times morose.
He is not tactful and is not t
In other words, he
you rould describe ae popular in a personal or social way.
lecke personal magnetism.
I cannot go much further in this in enumerating hie euelificationn or
He end I have been aesociated no for a good many years.

I have formed a high respect for his &Ants in many ways, but pessonelie dm not
This is not at all s satisfactory reply to sends
get alone well with him.
but in e very general Ivey I would incline to the view that rll of hi_e qualifications are satisfactory, except some of those personal characteristics which
If you know of anyone here who is
sometimes give rise to a little friction.
going over iscPiris to whom I could talk unreservedly, I would try to give you
a little more color and atmosphere of the man than is possible in a letter.
Some day when I get my job finished up here, I am soini to be interested
in looking into come of these European metters, so you muet hang on long enough
I wish
for me to come over and be sort of a silent pertner behind the scenes.
tremendously that it were possible for me to get over while the Commission is at
work end make some little contribution or be of some help.
I have the beginning of e long letter sketched to you which I hope to
With every good wish, I sm,
sane' off sometime today or tomorrow.

Yours sincerely,

January 12, lV24.

My dear Logie:

In your last letter of December 14 you said you woulu like to have
1mv reaction and advice" in regard to the two proposed committees just
appointed by the Eeparatiozx Commission.

This suggests a wide range of theoretical and practical discussion,
in fact, exactly what 1 had hoped to talk over with you had we not been disappointeu in your Christmas trip home.

Just Before Owen Young wiled, I had a few words with him about the
work of his committee, told him that I would write you, as you had askew me
to do, ono would suggest that you show him my letter.

Jo this is the letter.

It has, of course, become obvious that the oalancing of the German
budget depenus upon the arrest of further inflation of the currency and its
further depreciation.

On the other hand, the arrest of further inflation

and depreciation in turn depends upon and cannot be accomplished without a
ualancing of the oudget.

Thera seems to be a hopeless impasse without the

aid of some outside intervention to stay these compensating and uisasteruus
It is foremost in rrl, mind to express a very urgent warning against

attempts to find a magic remedy for this situation which will work overnight
and accomplish all the results desired without any intervening period,-and
quite a long one - of gradual improvement, but unavoidauly accompanied
good seal of distress,

by a

Any very sudueo change in the monetar;, situation in


January 12, 1924.


Germany which would considerably enhance the purchasing power of the paper murk
would cause about as much social and political dissatisfaction as has been caused
by the process of depreciation.
The occurrences of the past nine years must have caused some impairment
not only in the morale but in the morals of the German people.
amounting to confiscation, a legalized form of robbery, has taken property away
from large classes of people and impoverished them and at the same time others
have been enriched.

It has left the State bankrupt.

Any sudden change now in

the other direction would only rereat that operation as to other classes but in
a different way and only intensify dissatisfaction and social unrest.
On the other hand, the public generally has been inclined to greatly

exagerate the significance of inflation considered alone of itself as distinguished from those indirect results of inflation which impair the ability or

willingness of people to work and produce.
Currency*, bank credit, government bonds, taxes, and the like, are

simply bookkeeping instruments, after all.

They produce nothin,,; they have no

intrinsic value as food, clothing or shelter; and what really counts for the

welfare and contentment of people is the property which they own and use - the
real estate, homes, factories, transportation and communication lines, and
stores of goods, and their ability to work with these instruments and enjoy
the fruits of their work.

Distinguishing, therefore, between the property of a nation, and its

bookkeeping system, it may be said that so long as people are willing to work
and produce, the value of a nation's property does not become impaired by
changes in its bookkeeping instruments, but that changes in bookkeeping instruments, if not too extreme, simply effect a redistribution of the ownership and
enjoyment of property and goods, so that some classes of people become impoverished and others enriched in such an unjust and unwholesome fashion as to




Januar, 12,

oause discontent.

for the

second, locating hi

AS to the

mind especialls tha

almost any given co

power (but that con

trouble) consider t
so far as currency

As to the
numbers, including

all clerks in the G

common understandin

when means of readj
not suffer as much
he is.

An illustra

would be roughly as

The emplo

the clerks in store

rency depreciation

to fix their own no

which will insure t

ponds to a true wag

is the major influe

influence of the fe

January 12, 1924.



greater number of workers will always be able to impose their will upon the
employer minority in such a matter as this.

On the other hand, when deflation

occurs and the buying power of money increases, the wage earner, who looks back
upon an earlier period of suffering due to insufficient food, clothing, etc.
uecomes very reluctant to accept a readjustment of his nominal wages downward,
even by the same method of adjustment, and a period of deflation leaves the
employer no less at the mercy of the wage earner, than he was in the later
stages of the period of inflation.

to the producer and trader.

This class would mainly include all

farmers, all manufacturers, all of those who buy goods for resale.

Leaving out

of consideration for the moment the status of debts (and the unequal degree of
depreciation of currency which had occurred when different debts were contracted)
the situation as to this class depends verj much upon the character of the production or trade in which each is engaged.

While the farmer is cultivating his

land, paying labor, buying his fertilizer and supplies, and making an investment,
so to speak, in a crop, the currency may indeed be rapidly depreciated, but

nevertheless its valulpwhen produced automatically readjusts to the depreciation
in the currency.

If he has owes a mortgage payable in a fixed sum of money, he

has the advantage of getting out of debt at small cost.

On the whole, his posi-

tion is capable of readjustment without very great hardship during the period of
depreciation of the currency.

Nor indeed will he suffer very seriously

time if he has sufficient capital to conduct his business without remaining in
daut at the time when deflation takes place.

Than indeed he may find

with a crop on his hands which will repay to him but a fraction of what his outlay
has been and make it impossible for him to pay what he owes.
The case of the trader is at the other extreme of this class.


various devices for buying and selling which I understand have now developed
in Germany enable those Who neither make long commitments to buy nor accept


January 12, 1924.

long time obligations for what they sell to survive the period of inflation and
should probably enable him to survive a period of moderate deflation without
very great loss,

But again he must be out of debt:

The manufacturer who owns plants and is engaged in processes of manufacture which take considerable time, especially those requiring raw materials
from abroad, suffers in varying degree during periods of inflation and deflation

both, and the extent to which he is affected depends almost entirely upon the
skill with which he is able to adjust contracts for purchase against contracts
for sale, so that constantly shifting amounts of wages and other outlays, expresses in paper money can be compensated out of the readjustment of the prices
paid for raw materials or received for finished goods.

The longer the time re-

quired for his processes, the more difficulty he encounters in adjusting his
prices and costs.
It is, however, the capital operations of proprietors who have exploited the investing classes in Germany which have indeed probably been an
important cause of distress and complaint.

An extreme illustration of the

opportunity afforded to the exploiter would be about as follows:

Assume that not long after the Armistice a man of means purchaseu a
manufacturing plant from, say, 1,000 stockholders who had previously owned it,
at a total purchase price of one billion marks, at that time the equivalent of,
say, Z50 millions gold, and either gave the sellers or the banks notes payable
in five years.

Assume that this exploiter had kept the plant in operation and

was able to buy domestic material, pay wages and the cost of upkeep of the

Assume that he was also able to export enough of his product tu pur-

chase raw materials required from abroad, and still accumulate a profit in

bank in New York of 0500,00 - or $100,000 a year, - he could today repay the
billion marks purchase price by the use of an infinitesimal part of the X500,000

of profit and have a plant intrinsically worth 00 millions, gold, free of all

January 12, 124.




The 1,00J people from whom he had purchased the property would in-

deed have been impoverished (unless they had had the foresight to at once invest

in other fixed property, in Mich case those from whom they in turn purchased
might have been impoverished.)

This is an extreme illustration of the method ey which the shift in
the ownership of real px operty takes place during the course of inflation to

the advantage of the profiteer and to the disadvantage of the small investor

whose living cost becomes iisupportable.

On the other hand, if the transaction

were conducted by the use of money borrowed for a long period on mortgage, a
period of deflation would likely bankrupt the owner and cause a transfer of
ownership of the property to a new C18.816 of people, namely, the investors who

owned the bonds.

It is indeed with this class of people - the exploiting

manufacturer, and the like - who control the ownership or use of the great bulk
of-the industrial properties of Germany, where the influence of debt upon ownership becomes so important in periods of inflation and deflation that the opportunity for exploitation is the greatest, and where changes in the purchasing
power of the currency are used as or become the means of deflauding people out
of their property.
Leaving out of consideration the use of credit, it is probauly true that
the processes of manufacture and the distribution of manufactured goods could take
place with reasonably good results and without unbearable hardship to the proprietors or the public if the employment of credit did not afford the opportunity for
this species of exploitation.

As to the investor.

The picture is clear enough.

All of those

the fee to lands which they have leases to tenants for long terms for fixed sums
in a currency of a high purchasing power; all of those who have loaned money

payable, principal aid interest, in fixed sums; and all of those who own bonds
and other investments, payable in fixed sums, principal and interest; are more or



January 12, 1924,
less impoverished duri


respective obligations
tent at slight cost.
they had no control.

by a form of taxation

or else they have been

credit, because they c
living costs.

The lesson t

is a fairly simple one

changes in the purchasi

in number but having s

acquiring real propert

rainy causes au much s

morale of the nation b

tive, and finally, tru

influence upon the gov

which arise, are mainly

the snowball of inflat

the Treasury is faced.
possibly weekly.


increase daily.

The b

period of time, and in

currency and the conseq

deficit constantly gro

taxes collected as dis

The Government resorts

which constantly depre


January 12, 1e24.

IPaccruing to the Government out of the purchasing power of new issues of paper money

is constantly decreasing and the condition of the budget as to the actual value of
the revenues constantly becomes worse.
No scheme for progressive increases of taxation seems feasible nor indeed does it seem possible to create machinery which would be sufficiently effi-

cient and fair in operation, by which proBTessive increases in tax payments
could be nicely adjusted to the progressive depreciation in the purchasing power
of the currency which is being inflated as fast as the Germany paper murk has

A great variety of suggestions are made from time to time as to the

means for stopping this vicious circle of budget deficit and currency depreciation.

Having in mind always, that change causes distress, those that are worthy

of any consideration at all can probably be divided into five classes:
(1) Dtclaring the existing paper currency valueless and issuing a new

The readjustments which would oe imposed by any such course would probably

be unsupportable because of the distress which would result and in any event,
under present conditions in Germany a renetition of the experience of the past
could be expected to start anew unless more fundamental remeeies were applied.
(2) Substantially the same thing in a different form is contained in
the suggestion that from time to time a certain number of ciphers should be
struck off the existing paper money.

This alone would effect no real change so

far as the fundamental difficulty is concerned and the cements under (1) would
equally apply.

(3) The negotiation of a large fereiei loan out of which the budget deficits for one or possibly two years could be met, thereby enabling tax collections
to overtake currency depreciation and remove the budget deficit as a cause of further inflation.
the Germans.

This was the proposal brought to this country two years ago by

It contains many elements of danger if undertaken as the sole remedy

January 12, 1924.


litfor further depreciation and budget deficits.

if it became effective at all it

would probably be too effective, and might indeed bring on at once an automatic
period of deflation of prices in Germany which would be calamitous to all who
owed money and had contracts for the purchase of things.

It would likewise re-

quire a sudden readjustment of wages which would be difficult to bring about.


would be only temporary, and probably foreign loans in sufficient amounts could
not be had without other important reforms accomplished or pledged.
(4) The proposal to establish a new currency with various devices for
limiting its issue and stabilizing its value, which might in the course of the
long future be ecpacted to supersede the present depreciated paper money.
indeed is what is attempted with the so-called rentenmark.


The obvious danger

here lies in the probable i.oarding of any such cullescy in case its stabilizatiun

was successful; in fact its aotual export abroad.

It contains a further diffi-

culty in the case of the rentanmark, as I understand that the issue is still subject to control by the state and is liable to be inflated by the estate in order

to meet budget deficits whenever the paper mark becomes no longer available ur
effective for that purpose.

This is now imminent.

(5) The fifth proposal, and the one which it seems to me contains more

hope of success than any of the others, is to combine the creation of a new and
stable currency to circulate alongside of the present depreciated paper mark,
supplemented by foreign loans the proceeds of which would se used only for the
two purposes of balancing the budget and for the maintenance of a gold exchange
standard directed solely to stabilizing the new currency.

There are some obvious

dangers in this proposal, the first and most likely one being that success in
negotiating a foreign loan and in issuing and maintaining a new and stable currency might also result in too sudden an appreciation in the buying power of
the paper mark.

This situation would have to be met by a niceregulation of the

degree of inflation of the payer mark still permitted during the period when the

January 12, 1924,


0 .

Government budget was being balanced.

The advantage of a dual currency, one main-

tained at a stable value by the gold exchange standard, and the existing debased
paper currency, lies in the fact that it would afford a period of a year or two,
or even three, during which a ,T.adual balancing of the budget would graduall;, arrest

the inflation of the paper mark, and would enable all classes of the lerman people
to gradually readjust wages, prices and debts to an ultimately stabilized value between these two currencies and possibly at the end of a period of three years,
through a reorganization of the Reichsbank, a readjustment of the old paper currency
to a saner relation to a stable currency could be effected.
If, as seems to be the case at present, the existing paper mark has become

valueless, it might be desirable as a part of the program of currency stabilization
to restore some part of its value by striking off some ciphers so as to give it the

mechanical facility which it has now lost.
But if any such plan as this is attempted, it would not command the confidence of the world nor would it possibly be capable of resisting the influence
of the German Government and the vicissitudes of the next few years unless the
absolute control and management of the stabilized currency were in the hands of
disinterested parties.
There is an old axiom that a nation which has a persistent adverse
balance of foreign payments can never have a ztable currency, while a nation
which has a favorable bal:ince of foreign payments can have any kind of a currency
that it wants.

This is peculiarly applicable to Germany's situation because

while the budget deficit, as in the past, has been an important cause for currency

inflation, even a new and stale currency could not be expected to retain its
stability and purchasing power or even to remain in circulation if Germany suffered

a long period of persistent adverso trade balance and foreign payments, which
would lay the foundation for a bank inflation at home just as budget deficits
have done in the past,

To fortify, therefore, the stability of any new c



January 12, 1924.

January 12, 1924,


from a people is by making that tax a bearable tax, neither 60 burdensome in amount nor
so exacting and inquisitorial in character as to imke people rebel against payment,
The real way to get those balances - and in my opinion the only way to get
them in large amount - is to perform such a capital operation upon Germany's monetary
system and budget that it will revive confidence in currency stability and hope for
its future improvement and so encourage German citizens to have confidence in the
future of the country and to be willing to convert foreign currency and assets into
German investments and property,
Were I in any way associated with this work, I think I would be governed
by certain simple and absolutely fundamental considerations,, which I would name in
the following order:

.'.void any radical Change which would bring about a sudden change in

the status of debts and level of prices.

Create a new and stable currency to circulate alongside of the old

one, and rely upon the manipulation of the old one to maintain a stable relation
between the two, and upon a gold exchange standard to maintain the stability of
the new one.

Design any pro7ram along linos which would encourage the German

people to work and develop their own business and trade.

Falw upon the hope engendered in the German people by the re-

form: accomplished .o encourage them to bring home foreign assets.

Accomplish a balancing of the budget and a stabilization of the

new currency by the service of a foreign loan, until domestic taxes do so.
Just how this is all to be done in detail is the problem with which you
gentlemen are now confronted, and I wish you every success.
Yours sincerely,

Colonel James A. Logan, Jr.,
18 Rue de Tilsitt,

Paris, France.


June 10, 1924.

Deur Logie:

Since returning I have been making weekly trips to Washington end
have found it exceedingly difficult indeed to write you a decent letter, but
I am taking the op:ortunity to send this, by Eesil, ehe sails Saturday.

till be interested in the enclosed word picture of your 7r;ny


I am encloaing for your very confidential eerueal and then for
destruction site tete letter, 1 ecie of e ccamunlece ehich I (Ent. to
Secretary Mellon a couple of weeks ago, which explains itself.
This ie
along the line of ow dieeuseion is Perie.
I wen` e copy of it to
Secretary Hughes and handed him yeelf the memorandum which Frasier prepared
analyzing our poeition eite regard to Celi%n
pia t`_
he said and
has written me, I gather that he has been impressed by the importance of the
sitar talking tug tit;1.1or; over very fully with C.;r1 Young,
we had arranged a meeting
Reghen,_ Mellon and Hoover for lest week,
but Young wtib leie ep bite e cold, and now the Ceneention intervenes, so
that the meeting is delayed until at least a week hence.
Young aereee
with me that we ere heist the
natien!I inlicy in revre to debts
and monetary effeire, and he and I are hoping to put up a good stiff argument
for something along that line.
My pereorrl imeicesion i2
all that
can be done before fall must be in the nature of some private unofficial
telke with the Lritieh
Noting of tl,.ft eherneter cou1d
be undertaken with any of the nations which have not funded their debts to
us without, of course, haeing mectinee cf tee 7undine Coaniseion, which
will not be poseible this eummer alter the adjournment of Oongrees.
I am sorry to say that there has been 6 little cold water thrown
ueon the prospective German loan.
This I think is partly due to the delay
and heeitttion which appears to have arisen abroad which is ettributed to
election and politics, and partly to some r-tcr naturL1 misunderetendine of
the true meaning of the plan.
Mr. Young end I hare been doing our best to
make the provisions of the plan clear tc GOMft of the tankers, especially to
the Moreene, but of COU186 my orn discussions have been tcedemic and quite
Probably you have learned that some very strong representetIone
have beet, wade to Secretary iluellee about your taking the Feparation Agent'e
job, and 1 am ounfideneially informed that Dawes has written an especially
strong letter to Jusserand.
Also 1 learn that the %glitch have probably

No. 2.

Colonel Junes A. Logan, Jr.

June 10, 1924.

accepted the notion that an American will ee neceesary in that position. On
the other hand, I have heard the view expressed tlit it is the key to the
isuccess of the plan h8 well as the insurance of the security for the loan,
and on that account there may be a desire among: the bankers to have some
internationally known and outstanding figure, especially some one very well
known in this country,apeointed to the job.
Crocker dropped in while I was
dictating this letter elle said he thought Yount felt that the organization
to put through the plan should be developed as a whole and not piece -meal,
so that the selection of personnel might have reeved to general questions
of harmony and cooperation between the various elements in the organization.
Just how this fits your own view I cannot say, but 1 should suppose that the
very last decision to be made would be as to the Repuratiou Agent and that
it could not ;)e. made until negotiations for the loan had made progress.
We have such
exceedingly mixed political situation here just
now that I can see the possibility of a good deal of hesitation in tackling
some of tress knotty problems until after the netional election, end or course
if we should then have a democratic President, we might experience further
It was rather herd luck upon you sne upon the Commission that
there should have teen a ;hole flock of elections coming along just ES the
plan *c


The country i, in a ouriout frame of mind.
I have not been
in the seat to hear how people talk there, my beet opinion is thee they are
anxious, to hey° e roe/ leeeer eho hes definite vice e upon ^ll these matte's
and ;ho is not afraid either to state them or to work for their accomplishment, Aid this, xeelly ie Coolidee'e beee chence beceuse he neeme to 1-.e that
type of men.
from this point of view, therefore, it has seemed to me that irrespective of Lee elecAen end of eolitical conditions, tae wisest move
could be for this, administration to make clear to the country what its policy
was in reeard to debts and eeeerel monetery reconstruction, and it is zomewhat upon that hypothesis ta:..t Young and I will endeavor to cct oux
own vi eke as cicelly as eoeeible befere Hughes, Yellen and Hoover.
le are enterine upon a period of very -rest es se in monee and some
little business reaction, the letter probably exaggerated a bit by the precis,
but nevertheless definite enough to cause e feeling of conservatism and
hesitation in making commitmente.

Basil will elaborate upon the above end give you the benefit of h
chat which we propose to have Friday afternoon before he sails.
My very best to you, old man, and success to all your efforts.
Faithfully yours,

Colonel Jame A. Logan, Jr.,
Rue More:dee:,

Paris, France.




Colonel James A. Loran, Jr.

June 30, 1924.

join the League or not.
This is a Jidiculous sidestepping of the real issue
and probably by a method which is unconstitutional and certainly is contrary
Ak the spirit of our Constitution end of any representative form of government.
ITie consensus of opinion now lb that neither McAdoo nor Smith can he nominated
and the likeliest of the candidetee whose nemee are already before the Convention are Ralston, Glass and Davie.
There is still e possibility that nominetione might be thrown open 6grilin and some very dark horse whose name has not
yet been sugFested at all be sugoested as a compromise. It looks as though
they will be here the better pert of this week, and the balloting begins this
morning, all of which will be deoined b/ the time this letter reaches you.

One word about the Berlin job.
The most discreet inquiries that
I have teen able to melee indicate that a view is held in various quarters that
a loan is going to be difficult to place here, but that it can be placed, and
to overcome the difficulty as to the integrity of the security there is e
definite consensus of view that the reparation agent should ce some outstanding American well known both as 5. banker end business man and in a sense
representative of the lenders.
My belief is that the views of those who
have t7ot to reire the money will prevail, whatever they may be, so far as any
move is made on tide aide, but that the decision will rest with the governments
abroad where it really should rest. It is difficult for me to advise you what
to do.
On the whole, I am inclined to think that the banking view is most
likely to prevail, and therefore a cheerful compliance is indicated.
seems little more that I can do on this side.
I very much doubt the wi
of your diepleyinia any eotivity in your own behalf abroad, but you are a
better judge of that than I am.

I NM glad you like the thinas for the apartment. I wish I could oe
there with you to help you use them end wear them out. dill you tell 3asil
that I have discovered that the book preservation businees which Emery establised (of which I spoke to him) is being continued by come other pecple, that the
work they do ie very satisfactory, and I found they are _,oink; beck to the
original plea of heving the house book preserved in its present form under
i hope it suits him.
transparent lsaves and rebound.
My vsry heat regarde to you, olo man, ano the same to any of my
friends whom you may see.
Tours sincerely,

Colonel James A. Loean, Jr.,
18 Rue de Tilsitt,
Paris, France.


July 11, 19P4.

Dear Lojiel

I ve so
to 5eve your lettsr of June 27, W`olch makes so many
things clear.
Natters seem to he moving, ispidly, and the fact that Young
has been called :broad 14-sin in connection with the lest stages of developing the plan is to me rather encouraging.
Unfortunately, on account of so,
ateence and hie, I massed having a. meeting. ii th hie before he sailed, but
he left word that he would like to hear froe me
ith any
I have token the liberty of sending him s cable as per enclosed copy. Just
now I can only comment on two or three points in your le,,ter.
First, it seems to me that the plan of having an Americon a
member of the Reparation Commission may be open to some question, and I am
wondering just what the explanation is and how it oil] work cut. The
newspaper commente and your own statement leave we a little confused as
to j,,st what is intended.
Ae t.n the agent general, who I undez4tand to
to be the transfer agent, I had reeervations myself in regard to Dwight,
Ertly because of the association of his nme *1th the monfl intro -cet,**
and pertly because I have felt that the job required a person of a judicial
temperament more then Dwight possesses.
He is so enthueiaetie and rather
motional th-t, I wonder et times rhether he has exactly the poise required
for what is really a judicial position.
But I am vory fon(' of Lim L.nd
haTe - tremendous retard for his unusual ability.
No* my own explanation in that mttter is this:
The bankers sho
are to asndle the loan here are certainly entitled to meke e &,,egoution ac
t) who 1111 oor)112y that Important poet.
I could not possibly oppose their'
selection, nor in fact would my influence amount to auythini if I did.
qut T. do feel that from the lenders point of view such an appointment would
add a good deal to the strength of the bankers 4n offering the loan to the
public, and I am frank to say that to have a parson in a position to pass
upon and make recommendations - or possibly even to oecide that is or lc
not a mlterial default by Germany - would also add to the strength of the
loan in thie country.
The rather sharp swing to the left in inoland rnd
France, of course, has cot to be regarded, and whether they would resent
the appointment of a Nall Street banker is a question on mulch your opinion
le much superior to mine.
As I advised Basil, it seems to we that the
recommendation having been made - if it has been mace - by our bankers,
the real decision would now rest abroad, where it would be impossible for
me to do anything beyond what I have done.
think Dwight *oule probaLly
meke a very good job of anything that he undertook, and his integrity and
fair mindedness are so well known that the appointment would appeal to
Americen it vectors.
This in a rambling way is about what is going through
my mind since receiving your letter.


July 11, in4.

Ao. 2.

The fact must aot be overlooked that the fate of the plan rests
10almoet as much with the control which may be exercised by the Commissioner
as it does with the skill displayed by the transfer agent. The German
ourrenoy can be imperiled by bad general bank management, over extension of
credit, eto., just as much as it can be imperiled by attempts to make transfers in excess of capacity;
so that I am just as much interested in a way in
seeing a good Commissioner as I am in seeing a good transfer agent.
I do hope that the meetings in London are not confused by a etaoussion of what might appear to be a controversy in the matter of dollars
The fact is that there is no ground for controversy whatever.
versus pounds.
The German currency has got to be established on a gold basis which is a
stable value and not on s sterling value which is a fluctuating value. On
the other hand, no discrimination should be attempted against the London
market or against sterling because in point of fact Germany must depend to a
very considerable extent upon sterling credits to furnish the fluid capital
which will be urgently required for the reconstruction of their industrial
and commercial system and for the support of their banking generally.
answer to the whole controversy is that the British should promptly take
steps to restore the pound to par and resume gold atyments.
That step
again cannot be safely taken so long as the whole subject of inter-allied
debts is left in .Atte of uncertainty and remains a menace to the world's
Therefore, the fate of sterling, in a measure rests with us.
If we are ',Wing to develop progreeBively a policy of effecting definite
adjustment of debts on the basis of capacity of the various nations to pay
war debts and the British will join in such a program, it seems to me
that the future of the pound will be assured.
Without this debt adjustment
I would consider it a hazardous undertaking for Great Britain to undertake
to pay gold.
The letter which I sent to you with my last, and what Young
will tell you of our meeting in Washington will make clear just the way
I feel about that, and bomewhat the extent to which I have been discouraged
by the attitude which oar government nas heretofore assumed.
I hope you have a most successful meeting in London.
With best regards to you and to Basil, I am,
Yours sincerely,

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



Paris, 3 :ay 1923.
18 rue de Tilsitt.

Personal & Confidential.
Lly dear Ben:-

The present indications are that
Poincare will reject
the German Government's reparation settlement offer received by the variThe Germans must have
ous Governments late yesterday: afternooneellav 2.
known thet the tone alone of the offer would make it inacoeptaule to
Poincare. Our prima facie judgment is that the offer was largely drafted
for internal German consumption and for its possiule effects on public
opinion in Greet Britein and the United States. The offer, however, has
the advantage of somewhat narrowing the field of debate and from this aspect serves as a stepping stone to the eventual solution.

Tae opoosing sides in the German settlement Question during
the last two weeks hove been continuing their debate in various speeches
made by their representatives.
In our last letter we g
Poincare's Dunkirk speech of April 15; the reply of the German Foreiga
.linister in the Reichstag on April 16; 1116 the suosequent speeches of Herr
Streeemann and Herr -;lueller.
In the presentation of the situation as it
hag developed to date it is believed to be of interest to give some extracts from later speeches made by the opposite-camps.
The speech of Dr. Breitcneie of the German United Socialist
Party before the Reichstag on April 17 attracted special attention in France.
In the course of this speech Dr. 3reitcneid stated that:
"notwithstanding the divergence of views which exist between
Eerr von Rosenberg and us we use:lend thet a definite offer of
settlement oe presented to the Entente. The Riot accuses us
of a desire to stab the Country in its back, but we must say
here th.-t the miners of the Ruhr Who are on the firing line
also demand tint the Cauinet .:nakes :positive offer. In addition, we are not tooes of the present ministers, and we would
be entirely willing to see our country eoverned by others. 3y
prolonged resistance our situation will not be ameliorated.
Our duty is to search for a rapid solution of the euhr adventure, end we eay (money that the post path to such an enu is
an offer from our Government. Look at the
Bank of the ilmpire; regard the scale of existing unemployment;
You say
also read the reports of the irence situation today.

situation of th


J. A. L. Jr.

To: 3. Strong - Personal & Confidential



"that you wish an early settlement, therefore, we demand an early
We have hardly any friends left in the world, and
neither England nor the United States will intervene. Unhappily, we are not able to consider the speech of Herr von RosenIn contradiction with his other declaraberg as a proposal.
tions, Herr von Rosenberg has spoken of an inquiry into our capacity of payment through the medium of a committee of international experts. Such solution may well be more onerous to us
than a direct offer. They say that France desires the caniete
destruction of Germany; I believe as a matter of fact that there
are in France people Alio would prefer annexation to reparations;
I ignore him, out there are also
I. Poincare is one of them.
French people who do not share such views. There exists a plan
of reparations but not one of annexation of MIA. aarthou and Delacroix which totals 35 or 36 billion gold marks payment after
I do not say that this plan
deduction of the British demands.
Our ability to pay
is acceptable, but it is a definite one.
depends on the total figure of an international loan and we are
ready to turn o er immediately to France the larger portion of
any such loan. On the other hand, we are ready to enter into
a pact of peace for a long period of time .nd we are willing
to accept the demilitarization of the Rhineland and Westphalia.
We desire to arrive finally at an accord with France. This is
the only key to European peace. Professor Hoetzsch has asked
Being Gernans it does not necessarily
us if we are Germans.
follow that we must be ultra-nationalistic, out that we must
serve our country."

The speech of Lord Curzon in the House of Lords on
The proposal made
April 20 attracted a_great deal of attention in Eurcype.
fresh offer was generally rJgarded
in his speech th t Germany should make
as a certain evidence of Great Britain's de)arture from her previous attitude
of detachment and neutrality in the Franco-German controversy. 3y pointing
out the "great responsicility incurred if the op2ortunity is lost" it had much
to do with forcing the Cuno 'Government to make the offer of settlement of

:lay 2.

The Curzon invitation to the Germans coincided with the
continued demands of certain groups of the German Socialists that the German
Government should maia a definite offer that would remove "the burdens of the
occupation from the shoulders of the Ruhr workmen who are now standing on the
firing line of the controversy". It ap2ears that on A2ril 2L Gerrun Union
leaaers went in demutation to :;hancellor juno and Herr von Rosenberg. The
official report stated that "the economic position was discussed". However,
it is significant that the Socialist Democratic Parliarrentary News Service-- an agency likely to be well informed on the subject---stited the discussion
took somewhat the following form:
"The representatives of the Trade Unions discussed both
the internal and external situation :vi th the chancellor and the
The Trade Union leaders unanimously gave
Foreign -linisters.

J. A. L. Jr.

To: B. Strong - Personal & Confidential



"their opinion that passive resistance in the Ruhr must be continued until a successful conclusion is reached of the present
conflict. At the same time the desire was expressed that the
Government should leave nothing undone tint would bring it nearer te the goal of its defensive action, namely, the liberation
of the Ruhr from the French end troops. The Trade Union
representatives further informed the Uhaneellor and Foreign Minister that they were in agreement with the socialist Party; that
the moment had come where the Government must m:. tee a definite
offer to the Entente Powers."

The French attached great imeortance to the Breitcheid speech and the reported
attitude of the Trade Union leaders. They assumed that all these indicated
growing internal dissention within Germany which would eventually force the
Cuno surrender. On the other hand, it would appear from the German offer of
:day 2 that Herr Cuno has drafted his offer in the endea-vor to appease these
very same German elements.
Consideriiv the controversy as to Whether Herr Bergmann actually offered or submitted a definite reparation settlement proposition at the
time of the meeting of the Prime Ministers in Paris the first days of January,.
1923,, an official communique appeared in Germany "in reply to reports from
;1r:each sources that Germany had had numerous occasions to present written propositions but that it had never made them". The German communique states:
"The French communieue omits to say that the reply to our
conversation on the Franco-German economic collaproposal of
boration stated the impossibility of direct or indirect negotiations with German industrials during the Anglo-French exchange
of views on the reparation problem. The possibility of a written proposal has thereoy entirely disappeared. After the clos7_

ing of the Paris Conference such a proposition would he had
no ch nce of success. Herr Bergmann had Drought to Paris a written plan and he was charged to explain it orally. Furthermore,
a plan completely eiaborating our reparation offer, and Which
covered the propiem as a whole, had been prepared at Berlin uo
to the 3rd, and not up to the 4th, of January. This plan was
telegraphed to the German Ambassador in Paris and also to Herr
Bergmann. Unfortunately, no op,ortunity wee given either to the
Emhaesauor or Herr Bereelenn to present this plan either orally
or in writing."
Both the German and French positions on this are disingenuous. The facts as
confidentially told uo at the tine by Herr Bergmann are the following. Herr
Bergmann cane to Paris from 3erlin a day or two before the meeting of the Prins
On cage 5
Ministers carrying with him a definite reparation settlement offer.
of our letter of January 5, 1923, we gave an outline of this German offer as
According to Herr Bergmann, it had
given to ue by Herr 3ergmann at the time.
been agreed before leaving Berlin that no mention was to be made of a "written"
German offer, out he was to seek a hearing before the Prime Ministers where he
was authorized to expose the German scheme verbally. Upon Herr Bergmann's ar-

J. A. L. Jr.


To: 3. strong - Personal & Confidential



public speech of Herr Cuno lade the
rival in Paris he found press reports of
day after his departure from Berlin, in which Herr Cuno presented practically
the entire German scheme, and at the came time made a statement that "Herr
Bere,marm was the messenger carrying the formal German' offer to Paris". Herr
Bergmann at once telephoned Berlin suggesting that in view of the Cuno speech
the German plan oe officially communicated to the French Government through
the medium of the German Ambassador in Paris, with request that it be formally considered by the Prime Ainisters. The German Government followed this advice, and in fact the German Ambassador "offered" to present "a German plan"
to the French Government. The French Government declined to receive the plan,
ostensibly on the grounds that it was part of the manoeuvre of the German industrials who for some deys oefore had been pressing Ad. Poincare to give them
a hearing on the "question of a general solution". M. Folmar° had replied
to the industrials that "he would talk to them when he got to Lssen, but not
The French have made it appear in the press that the offer carried
by Herr Bergaann and the request for a hearing by the German industrials were
part-end-parcel of the same German plan. On the other hand, we feel that the
French at the time had full knowledge of the fact that these two approaches
were separate and distinct, and that the German Am assador had actually offered to suiwit a formal German Government proposal. It results from the foregoing that while in fact a German plan was "offered", it was nevertheless not
This is all somewhat ancient history out had a oeartng of impor"submi tted ".
tance, for an examination of the German j..nuary 4 plan and the 4erman May 2
offer shows that the May 2 offer is based almost entirely on the January 4
plan, although it does contain additional elaboration And details concerning
the security phase.
u. Poincare on April 22 made an important speech at Void.
In this speech he underlined the words "Reparation and Security" as the sole
French aims, not only in the Ruhr but in all French dealings with Gereany.
Though he made no mention of Lord Curzon's April 20 speech, it was undoubtedinly in his mind as he gave historic, military and political reasons for t e
He said:
exorable ...laintenance of the (Present French policy.
",ea went into the Ruhr because Germany was deliberately :voiding the terms of the Peace Treaty. Herr von Rosenberg now says that
an offer to pay 30,000,000,000 gold marks was made to us in January,
It is not true, and Lhe whole story was invented as an after1923.
"But even if it had been true, what would the offer have meant?
Germany, after having promised us in :day, le21, to pay 132,000,000,000
so ae not to see the Ruhr occupied would offered the
gold marks
e_lies less thane quarter of that sum two years later in order once
more to buy off the menace that was impenaing.
"and in return for this gracious concession on her part, we
would nave to grant her a three or four years' moratorium without any
guarantee whatsoever. How could we put any trust in a promise made
in 1923 when the solemn engagement taken by Germany just 18 months
oefore h.d been violated.
",,hen we entered the Kuhr we did so in a peaceable manner.
hoped that the mineowners and the workers would cooperate with us.





J. A. L. Jr.

To: B. Strong - Personal e Conf identia1



ed to reduce her forces in occupation of the right benk of the Rhine to "1 to
2 thousand soldiers and a few engineers in Essen". On the other hand, the occupation of the left bank of the Rhine to be continued under the terms of the
Treaty of Versailles, the prescribed successive withdrawis being effected as
provided for in the Treaty and as reparation payments were mode under the foregoing plan. According to M. Loucheur, M. Poincare agreed to reduce the occupation troops to a minimum on the left as well as on the right bank of the
Rhine at a very early date end that probably France would ask for no future
payment on account of such army costs, )rovided .;eraany lived up to the terms
of the new agreement and energetically started putting her financial house in

M. Loucheur expected a reasonaoly early settlement, and
hoped th.t the United States, after such adjustment of Franco-Belgian and German
differences, wouee actively participate and help in the all-important financial
and economic reconstruction eeriod which would follow.

As to settlement of France's debt to America, M. Loucheur
volunteered the statement that it was the duty of France to lieuidate this bill
provided the United States considered it in its interest to collect. He pointed out the difficulties of the French financial situation .nd its reiations to
the payment. He seid he hoped the United States would agree to forego the demand for interest on account of the French debt and that agreement would be reached for the payment of the capital sums annually, and on a gradually increasing scale, over a period of 40 to 50 years.
Loucheur is a pretty adaptable fellow, and to change
his mind. ':;e have no other confirmation than his own that his portrayal of the
In addition, M. Loucheur has
views at present held by M. Poincare are accurate.
every arnoition to succeed L. Poincare as Prime Minister of France and therefore,
while the views as stated are of interest, they eust oe accepted with considerable reserve.

On Page 5 of this letter we referred to certain aifferences
of opinion between the French and Belgi-me as to the terms of the reply to be
In our letter of April 19 we
sent in response to the German offer of May 2.
referred to a Committee of Experts including :I. 3arthou and M. Delacroix creatIt will
ed at the meeting of Premiers Poincare and Theunis in Paris, April 14.
be remembered that this Committee of Lxperts"wes charged with studying the various schemes for settlement already put forward and to formulate a common plan".
In personal conversation with I. Delacroix on :lay 1, he confidentially informed us of certain difficulties he was encountering in eorking
out "the common plan". Franco-Belgian junior assistants had been working on
this for two weeks and While they had made some progress, any definite conclusions were delayed due to a ten-day vacation which :1. Barthou had teeen. Ho
said that he and M. Barthou had never had a meeting on this subject ard that,
Bartnou had been putting him off. On i.Ly 1 he went
while he had insisted,
Barthou's office and insisted on a meeting forthwith. 1. Barthou had
Poincare to ask for instrucrelied that he had gone that morning to see
tions and that ii. Poincare hed replied that he had "none to give him", and M.

J. A. L. Jr.

To: Bs Strong - Personal & Confidential


3arthou declined to join with
Deiacroix in for
Aoincare's instructions.
7.1. Delacroix maintained that
til he had received
Poincare's was a preach of the understanding reached
this attitude of
14 between MM. Poincare and Theunis.
He said that he had telephone
Theunis about the matter that day, that the latter was angry and had asked
Delacroix to come at once to Brussels for consultation.
de have no further
information on this subject, out we feel that this situation has had no little
to do with the Franco-3clgian difference of opinion as to the terms of reply
to the German offer of May 2.
Faithfully yours,


The Honorable Benjamin Strong,
Governor, Feder,1 Reserve Bank
of New York,
New York City.

Paris, 11 Llay 19L3.
18 rue de Tilsitt.

Personal & Confidential.

deer Ben:.;(9 enclose the Reparation Coamission's official copy of
the Gernan note of *lay 21:33chioit_ALL) which was addressed by ;ernany to
the United States, :3e1ium France, Great 3ritain_, Italy and Japan, to-

zether with the translation of the Franco-Belgian reply_ixhioit 3) of
..iay 6 in which France and 3el:Jum "refused such a oargain" as presented
in thg_Gernan :jay 2 note.

On ilday 8 Lord Curzon, in the 3ritish House of Lords, and
Baldwin. the Chancellor of the Zxcheuer, in the British House of
Commons, made the fo.lowing identical statements:

"The Gerlan note, which has already appeared in the
)ress, was handed oy the German :.lioassador to the Foreign
Secretary on the afternoon of May 2. It was a note addressed not merely to the French and 3e1;,ian Governaants, but
to the principal rallied 2owers.
.lajesty's Government
"ns such it was the view of his
that the best and most natural course of procedure would
ue to return a concerted reply from the Governments of

Great Britain, France, Italy nd Belgium-the more so as
the German note was in response to a suggestion which had
oeen made to them publicly and officially by the Foreign
...anister of the British Govern lent, and as the problem involved, viz., that of Reparations, is one in which the
lied Powers, ..nd not France ..nd Belgium alone, are deeply
"Lor, in the opinion of his '..:aesty's Governient, need

any insuperaole difficulty have been experienced in drawing
up a collective reply, reserving for separate treatment oy
the French and Belgian ;overmaents, if they so desired, the
ciuestions arising directly out of the recent occupation of
GeraLm territory by their militery forces.
lajesty's Government had reason to oelieve that
these views were shared by sole of their ...lies, and they
were quite prep.-red to 'like proposals to this effect, havine; aire.dy coAlunicated their general idea to the .Allied
Govermaents, when they were officially inforaed that the
French and Belgian Governments had already drawn up a joint
reply from the:asolves alone, the text of which was comlunicated to his .Iajesty's Government on Saturday after

J. A. L. Jr.

20: Governor strong - Personal & Confidential



"noon, with the intimation that it would se presented
twenty-four hours l_ter to the Geri n eenuassadors at
Paris and 3russeis.
"His Jajesty's Government regretted what appeared
to then to be the unnecessary precipitancy of this step,
as well as the loss of the opportunity, which in their
opinion had ueen eres-nted, of once more testifying per
a joint communication to the solidarity of the allied
"They do not, however, feel dispensed from the oulig,tion of stating their own views in reply to the German note, end this they eropose, with the least possible
delay, to do. There is reason to believe thet the Italian Government, whose attitude is in general accord with
that of his ',ajesty's Government, contemplate e similar
procedure. eis soon as the 3ritish reply has oeen comeraniceted to the jerman Government it will be puulished."
These declarations of the British Government received the general assent of
all parties in the eritish Parliament. There appeared little evidence of dissent from any quarter, and the ex)ressions of aeproval were manifest when the
3ritish Government mede references to the "unnecessary precipitancy" of the
French reply, declarea the intention "to stete their own views", end that "the
Italian Government was in general accord with the 3ritish" and would likewise
state their views. The tone of the statee,nt, without being sharp, is elanifestiy designed to convey the impression that the 3ritish Government consider
that the French Government had behaved in a manner which could not be justified, especially as the German note h_d been issued in response to a oublic
speech by Lord Curzon and dealt with the uestion of reparations--a participetion in which the 3ritish have a share. Up to this writing, no indication
has been given out as to the line which the 3ritish Government will take in
It is reported that the British stetement
making their own reply to eermany.
has already peen transmitted to the French and Belgian Governments, and that
it will be issued .A.thin the next twenty-four hours. The statements in the
3ritish Parli.ment were largely concerned with setting forth and .maintaining
the 3ritish view that the = erreen note oueht to have received "a concerted reply" which would have testified to the solidarity of the Allies.
The French have been concerned regarding the change of the
3ritish attitude since the first Lord Curzon soeech in the 3ritish House of
Lords on April 20, in which he pointed out to Germany "the greet responsibility the latter incurred if the opportunity of maktng an innediete offer was
The French are particularly disturbed by the Curzon-3aldwin
neglected ".
state pent in Parliement on ..:ay 8, carrying with it the indication of airect
Italian sueport to the 3ritish thesis. The French await with anxiety the formal text of the -3ritish and Italian replies to Germany. :Zuch deeends, of
course, on the ereciee terms which will be employed in the 3ritish and Italian notes. In the meentime erectically all the French are loudly erocieiming
the justice and equity of their position vis-a-vis isrmny. However, there
is a feeling that the 3ritish and Italian replies to Germany will De dististeful, and that France, for political reasons, must take up the firmest possi-

J. A. L.Jr .To: Gove-nor Etrong - Personal & Confidential





J. A. L. Jr.

To: Benjamin Strong - Personal & Confidential




so fav
of fo
and fi
on acc
tic te
of Eur
said t
a man
and th

ly fol
on the
tate s
not re
in min
ity of
and Be
a pape
and Br

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with L

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from P
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ed in


A. L. dr.

To: eenjanain strong - Personal & Confidential



views point to the danger of th_s scheme simply creating a vicious circle.
The Belgians, however, reply by pointing out that during the early period
of last year when the budget was balanced, there was little reliance on receipts from these sources -- less than 225 million sold marks being the total budgetary receipts on this account. Under the Belgian plan, a number of
international Consortiums would be created for the sale and exploitation of
the various monopolies and the profits to the Allies would be substantial.
The Belgians claim that nearly two billion gold marks could be raised each
year on profits while another half billion could be obtained from deliveries
of coal. The Belgians offer counter-suggestions that there should be participation by the allies to the extent of 25` o in German industrial concerns.
Sir John Bradbury, with whom we have been talking, expressed much the same ooinion as to the views held by Li. Poincare as those
expressed to us by L. Delacroix (see first page this letter). Naturally, in
Our conversation with Sir John Bradbury we made no mention of the Delacroix
conversation. Sir John maintained that the British Government could not accept the complete sacrifice of both European debts and participation in fuPoincare was endeavoring t o force down the
ture reparation payments "which
British throat as a preliminary to any sane settlement of the outstanding
problem". He maintained that the British must with one or other of the resources mentioned obtain cover for the payments to be made to America under
the .angl,.-iimerican debt settlement plan. He felt that very little in. a constructive way was possible of aoco:nplishment until the fall of L. Poincare,
and was far from sanguine that the forecasted Uerman proposal would serve as
So far as the
much of a stepping stone in the direction of a final solution.
its showing
Belgian plan was concerned, Sir John Bradbury while pleased
some divergence of views between Belgium and erance was nevertheless critical
of its workability under the operations of the broader economic laws, pointing out that there was "only one hatch of the German ship" through which the
reparation payments could be drawn out, and that the =wit to be taken through
such "hatch", particularly so far as gold ,-,ayments were concerned, was limited
by the simple formula of the active f inarnial balance of Germany measured by
the Bold value of exports plus the invisible balance less th ,;old value of
Delaeroix, in a Jubeeauent conversation to that already
informed us that M. Theunis ro)osed u.on receipt of the forecasted
collaboration of both the
German prcaosal to insist with the French upon
British and Italians with the French and Belgians in the reply to be made to
If the German proposal gave any possible basis for
the German Government.
Delacroix maintained that L. Theunis would
a meeting around "a green table"
He said that Li. Theunis, if not in agreement with the
force the meeting.
r-ench as to the terns of the reply, might possibly join with the British and
Italians in their reply to Germany and thus completely isolate Li. Poincare.
tie, however, question whether Li. Theunis, notwithstanding his desire, can on
account of the present political situation break away definitely from the


Llay 30

iea important statement was issued from the rinai d'Orsay
to the effect "that France, in undertaking the Ruhr opera-

J. A. L. Jr.

To: Benjamin Strong * Personal & Confid, ntial

Federal Reserve Bank of St. Louis




To: Benjamin Strong - i) 6; Confidential

J. A. L. Jr.







J. A. L.Jr.


20 governor Strong - Personal & Confidential.



L. Poincare's papers openly forecasting rejection of the plan by
Poincare, on the general grounds of its being insufficient, and on the specifix grounds that it does not tarry with it the obligation to forthwith cease
"passive resistance".
its contents:

The French have been laying the greatest possible stress on thir thesis
of complete capitulation by Germany. Now that this principle has been accepted
during the Brussels conversations of June 6, by the Belgians, and made the subject
of an authoritative announcement it appears that the question is up to Great
The announcement would
Britain as to whether it can support this French demand.
appear to bar the way to consideration of any offer however good it might be unless
It is
and until the Germans consent to the resumption of normal work in the Ruhr.
generally understood that the task of defining what "cessation of passive resistance"
is is now the subject of consideration by the Franco-Belgian authorities in the
Generally speaking it :nub be taken that the withdrawal of orders emanating
from Berlin and the co-operation of the local authorities would be regarded as
fulfilling the essential conditions. It is taken for granted that there will be
some difficulty in eradicating local opposition on the part of the German workers
The question now arises as to whether the Belgians and French can
in the Ruhr.
prevail tpon the British Government to associate itself with them in the reply to
The abstention of the British, it is held, will only prolong the strife
since in any case the French mean to stay quiet uninfluenced by the British view
It is held here that adherence to the request fer cessation of
in this respect.
resistance would not imply a general acceptance of the French policy of January 11
but only recognition that the surest and speediest way of escape from the deadlock
is for the Allies jointly to insist on Germany's submission. It is felt that
against the united Allies Germany aeuld be unable to continue and would make proThe whole question
posals that would be really acceptable before it is too late.
therefore appears to resolve itself into one as to whether any formula can be reached by which Great Britain can hasten the conclusion of French action by ranging
herself on the side of France for this purpose without surrendering her individual
opinion on the expediency of the steps taken in January, and without sacrificing any
more than she may deem expedient of her equity not only in reparations but in her
French and Belgian debts.

Delacroix yersterday informally stated that the only chance he saw
of any immediate forward step_ in the present situation (so long as a. Poincare
remained in power) was the hope of agreement on a joint reply, or at least identical replies being sent by the British, Italian, French aro. Belgian Governments
If such were possible the grounds would be laid for
to the new German proposals.
conference were the ahole question could be thrashed out around "the
green table". La Delacroix confidentially ventured the prediction that if an
arratgement of this kind were not possible, and if _i. Poincare went along on his
present path carrying U, Theunis with him, both the present French and Belgian
In. L. Delacroix' view the
Governments would fall at a comparatively early date.
saner elements (particularly business and financial) in both France and Belgium
The fall
were becoming restive under the uncertainties of the present situation.
be on internal issues
of the Governments, under yi. Delacroix' prediction, would
rather than on the German issue, but the underlying cause would be the general
dissatisfaction of the people with the donduct of the German negotiations.


J. A. L.Jr.

To Governor Strong - Personal z



In connection with the foregoin predictions of
Delacroix, it is of
interest to refer to certain recent hauenings in the French Parliament which
carry some significance. Last week the French Senate Commission on Foreign
Affairs passed a resolution in effect as follows.
In the judgment of the Commission of Foreign Affairs, the
following steps should be taken by the French Government:
(1) An immediate agreement with Belgium on the
common plan of settlement desire._ by Belgium and
(2) Such common plan to be immediately submitted to
the British Government and if possible the assent of
the British be secured to such common plan, and
(6) That the general situation required an early
settlement of the uerman question.
The French Senate carries little political weight in France, and therefore the
importance of this Commission's report should not be exaggerated. However, it
is of interest as it is the first time that any parliamentary Commission has
ventured suggestions to the Government carrying with them some criticism of
the Government's German policy. A much more important recent incident was in
connection with a speech of ie. Herriot, the French Socialist Leader and parliamentary opponent of L. Poincare in the Chamber of Deputies. After L. Herriot
had made a speech criticising the Government on certain internal issues the
question arose as to whether or not the Chamber would approve this speech being
printed by the Government and posted on Government bulletin boards throughout
The Government opposed this procedure, but the printing and posting of
the speech was approved by a majority vote in the Chamber. The Government in
this instance did not force a vote of confi-ence. These two incidents, together
with certain other minor parliamentary incidents to which it is scexcely necessary to refer in this letter, are held to be indications of a considerable loss
of strength to L. Poincare in the French Parliament. Ostensibly the Herriot
incident was based on an internal question.
However, it is not difficult to see
that an internal issue of this kind would not be forced in these critical days by
the Opposition unless it had some bearing on the external conduct of affairs.
At this writing the situation is too nebulous and there are too many
undetermined factors upon which to venture any considered opinion as to the
immediate outcome of the situation. However, the evident desire of Great Britain
to re-enter the field, the somewhat more conciliatory attitude of the Cuno Government, the cooling off of Franco-Belgian relations, and certain signs of falling
off in confidence in L. Poincare in French Parliamentar: circles, can conservatively be taken as indications that a critical period in the negotiations preceding the eventual settlement is rapidly approaching.

Faithfully yours,

The Honorable Benjamin Strong,
New York City.


J. A. L. ere To Benjamin Strong - Personal & Confidential

"I recall these not with any desire of reo-,,ening





reduction of the German debt to 50 billion
A. L. Jr. To: Benjamin Strong That the be followed at once and the sane time by
- Personal
gold marks must & Confidential

the cancellation of Inter:1110d Debts, and that the diverse receipts from Germany must render a sum of at least one
billion gold marks per year in the immediate future and up
to such time as Germany could meet normal payment s.

(B) That it would also carry with it the obligation on
the part of Germany to definitely accept control by the Lilies of the German railways on the left bark of the Rhine as
well as control of the railways on the 50 kilometer strip
along the right bark of the Rhine.

The note finally concluded by the statement that preliminary to any neg
tions whatsoever with the uernans, the German Government A:nild have to

the necessary measures to stop passive resistance in the occupied terr

On June 11 the French press came out with the follo
statement reported as representing the semi-official views of the Britis
ernment on the question at issue, viz:

"The British Government is of the opinion that it is
not possible to accept the demands of the 'French Goverment
which proposes as a preliminary condition to interallied
conversations the cessation of passive resistance by Germany in the Ruhr .

"It is of the opinion that no German Government is capable to execute this condition and that the greatest danger
of it would be conarunistic reaction. It is very desirous
to prevent any rupture with France, and it is of the opinion that negotiations between Lilies should be held on the
basis of the U'ernun memorandum notwithstanding that it recognizes that the figures are not acceptable and below those
proposed by ;oar

Bonar Law in January.

"It suggests therefore an amendment of the German plan
and to have Germany recognize the figures of the Bonar Law
project. The British Goverment is convinced that the German
Government mould be prepared to meet such solution.

"If the r'rench Government considers that it must maintain
its present point of view the British Government suggests an
enquiry by a conference of allied experts into the general
situation of Germany to determine the figures upon teliCh to
base the payment of reparations by Germany and finally to
study the complete problem of the European situation.
"In case thesd experts reach agreement the British Goverment is prepared to make representations to the German
Government to the end that the latter forthwith cease passive resistance in the Ruhr."



A. L. Jr.

To Benjamin Strong - Personal & Confidential



The publication of the foregoing caused considerable dismay in Paris. The day
following. June 12, the British Government by zri official corm-mini, us issued
from Downing Street denied the authenticity of the statement, claiming it did
not represent the views of the British Government and that the British Cabinet
had not as yet acted on the question. This British denial has not been accepted in all quarters. There are those who feel that it was an afterthour-ht
brought about by the disturbance it occasioned in Paris, and the possible consequence of this "slamming the door" in the face of French public opinion.
The foregoing formal British denial was follosed by an
official statement to the effect that the British Government was still studying
the question, and as a preliminary to any definite action pro-posed apprca ching
the French Government through diplomatic channels for the purpose of informing
This was taken in France as a hopeful sign,
itself on the French point of view.
for it is generally regarded that a British rupture would be disastrous and that
there must, therefore, be no haste and no definite decision before there has
been the fullest exchange of views. France feels Great Britain does not want
to allow negotiations to come to aa end before there is a real understanding,
and this feeling is emphasized by the British intimation of its readiness to reexamine the whale problem. Obviously a reply to the German Government can not
In addition,
De sent without some kind of an examination of the whole problem.
it is recognized that the French Government took the initiative -- though very
clumsily --of appealing to Great Britain to assert her solidarity with them.
This in itself was a concession and under existing circumstances must oe regarded as such.

The French press attemt to draw various distinctions between what the French Government really intended and the desires which have been
As an example, it is declared that while France has said
attributed to it.
that the passive resistance of Germany must cease before there are conversations
with Germany, she has never indicated that there must be no conversations between
the Allies before Germany chooses to surrender. It is asserted that precisely
by negotiations between the Lilies and their results that the surrender of Germany may be brou lit about. It is pointed out that it would oe absurd to make
the relations of France and England depend on the relations of 'ranee and Germany. h.s for the idea of a committee of Allied experts , the French press points
out it must not be confused with the idea of a committee of international experts. If France is opposed to international deliberations she is not opposed
to interallied deliberations. One gets the impression from the charging tone
of the French press that there is perhaps some glimmer of hope of a reparation
settlement. There is unmistakable relief at the British Government 's denial
of the June 11th statement quoted above. It is a pretty good sign that this socalled decision did not brimg about a wider separation between France and England.

It is rather curious the importance attached in the French
press to the possibilities of a so-called "truce" or "armistice" in the .auhr.
The "Temps" in particular comments on the proposal in a recent leading editorial.
It admits that Herr Curio has not as yet shoasa any real desire to stop the strife,
nevertheless, the "Temps" asserts that"France is sufficiently strong to be modThe "Temps" adds that "when the military forces entered the Ruhr it





Paris, 15 June 1923.

18 rue de Tilsitt.
Personal & Confidential.

My dear Ben:-

On the third page of our letter of May 31, 1923, we
referred to a proposed Belgian reparat ion plan which was submitted
by the Belgian Government to the French Goverment preceding the
Brussels conversation between
Theunis and
Poincare of June 6,

On Page Three of our letter of June 6, 1923, we made
reference to the fact that, after agreement with M., M.
Theunis handed tie British Government a copy of the same Belgian
reparation plan. In this same letter we stated:
"Sir John Bradbury, 7,ith wham we have suusequently

spoken on this subject, said that even this concession might be embarrassing to the British, as the
Belgian plan, in his judgment, 'was so full of holes'
that the British Government for political reasons
would not care to actually pass on the plz,n, but
would sirply ac'aiowlede its receipt axed refrain
from being drawn into discussion of its merits at
this time."
The Belgian Delegation on the Hep::_ration Commission

has just handed us a copy of the above referred to
plan which we enclose herewith for your information.

Fait hfully yours ,


Ends. 1.
The Honorable Benjamin Strong,
iovernor, Federal Reserve Bank of New York,
rew York City.



JUL 1 6 1923

rt R.





J. A. L. Jr.

To Governor Strong - Personal 6. Confidential.


"As concerns the attitude of Italy in the discussions
between France and Laugland on the question of the Ruhr, the
Italian Government does not accept the plan exposed in the
last German note and confirms the position taken by Italy at
the London conference and maintained b;,- her since.
The Italian
position has been definitely fixed and presents the key to the
particular situations which develop from day to day".
While the foregoing is somewhat ambiguous, it is clear that it intends to
present the Italian position that the debt and reparation settlement Questions
are indivisible to the acceptance of any plan by Italy.
Do far as the German position is concerned, it is interesting to
refer to the following speech of herr Guno thade at Koenigsberg on June 25:
"The Chancellor declared that he could say from his
awn experience that the spirit of resistance and the will to
resist were still as firm among the population of the Ruhr
as ever, and that this gave him the conviction and the hope
that the entire people of Germany would show themselves as
unbreakable in political and economic matters as the people
of the Ruhr and the Rhine. 'Nothing, said Dr. Cuno, had been
left undone to find a reasonable, supportable and final solution of the Reparations problem. Foreign press comeent admitted
that great progress had been made, although France was not
ready for negotiations, and was still demanding the abandonment
of passive resistance, which had not been created by the order
of the Government, but by the will of the people, Yo Government order could end this, and, moreover, no German Government
could wish to end it too previously so long as its abandonment
did not show a certain path to a solution of justice and equity.
' : :e shall reach this goal the sooner (concluded the

Chancellor) the stronger our oeople in occupied territory
show themselves, and the stronger the united will of the people
of unoccupied Germany proves to be.

According to the newspapers here dr. Cuno's speech contained the following passage, which is not included in the official version:
The Government of the Reich has not e.cted with indifference and light-heartedly in the Auhr question.
It followed
no other path than that of replying "Fro" to the arrogance of
the enemy and the arbitrariness of
Poincare and his supporters in the matter of this unjust occupation of Germany. But
this "no" shall be maintained so long as it is indispensable
in the interest of free economic development and in the interest
of the independence and sovereignty of Germany".

J. A. L.Jr.

To Governor Strong - Personal & Confidential.



The foregoing speech and one immediately preceding it in the same tone
by Herr Uuno at Berlin arouseu bitter recriminations in the French press.
the German position is obviously weakening from day to day, these
German utterances give little grounds for consolation to those hoping for an
The German note issue has now reaearly settlement of the ituhr controversy.
ched 13 trillion paper marks and is growing by leaps and bounds. However, as
we explained in previous letters, German economy has more or less adjusted
itself to falls in exchange, and we would therefore not care to forecast
when the breaking point will be reached, if no Franco-British agreement is
possible and the present Poincar6 policy continued.
On June 27, Pope Pius XI wrote a letter to Cardinal Gasparri in
which he states "once and for all" the attitude of the Vatican towards the
The note begins by recalling the Pope's note to the
reparation problem.
Powers at the conference of Genoa in which he "pleaded for sincere efforts
for the pacification of Europe ". He points out "that since that date far
from improving the European situation has gone from bad to worse in such a
The note contiway as to cause the gravest preoccupation for the future".
nues as follows:
"His Holiness intends to avail himself of every opporTherefore,
tunity of alleviating the sufferings of humanity.
while the towers are preparing new proposals and initiating
further diplomatic discussions Lc) find an amicable solution
to the Central European question, he once more feels it hiS
duty to speak with the disinterested and impartial voice of
In view of the grave responsibilities
a universal father.
of those in whose hands lie the destinies of the peoples, the
Pope entreats them to examine once more the many questions, and
particularly that of reparations, 'with that Christian spirit
which does not separate the principles of justice from those of
that social charity upon which depends the perfection of civil

%hen the debtor gives proof of his sincere desire to
arrive at a fair and definite agreement, invoking an impartial judgment on the limits of his capacity to pay, justice
and social C'iarity as well as the persJnal interests of the
creditors demand that he shall not be forced to pay more than
he can without entirely ezhausting his resources of producEqually though it be just that the creditors shall
have guarantees in accordance with the amount of their debts,
we put it to them', says the Pope, 'to consider whether it be
necessary to maintain territorial occupation which imposes
severe sacrifices on the occupying nation and occupied territories alike, or whether it would not be better to substitute,
though gradually, other mee suitable and certainly less
odious guarantees'.
"His Holiness proceeds to say that were these peaceful
criteria attempted by both sides the bitterness engendered by
the occupation would cease with the final abandonment of the

J. A. L. Jr.

To Governor Strong - Personal e' Confidential.



"occupation itself, and it would ther finally be possible
to reach a really peaceful condition of affairs, to arrive
at which no sacrifice should be considered too great.
inestimable effect of such a solution can be readhed only
by the grace of God Himself, and His Holiness concludes by
once more exhorting the Catholic peoples openly to pray
that such grace may be granted".
This Vatican note has caused comment in Belgium and France by reason of its
political color, and because it reopens to a certain extent the dormant
"church and state" question/ The German press warmly endorses the Vatican
Its political reaction in
action; the anti-clerical French press attacks it.
Poincare's leanings
France has been to emphasize the allegation here of
toward the extreme Right, where clerical feeling is strong. The French
Opposition hqs tqken qdvqntqge of this by filing interpellqtions in the
French Pqrliqment, Nising "the auestion of the import of the French
The anti-clerical
Government's diplom4tic relation with the Vatican".
elements in the French Parliament opposed diplomatic relationship with
the Vatican; they now allge that this Vatican note was inspired by the
Germans; and propose, by their interpellations to embarrass
internal position.
Herriot, the French Socialist . -eader
'tie dined last night with
He was outspoken in his condemnation of Li. Peincare,
Herriot is a man of importance in French political
and his policies.
and ...Ivor of 1; on

life, and there is a strong possibility of his succeeding to the Government
after the elections next Spring; He is an interesting man, and one whom
It is of interest to report that
1.1.. Boyden terms "a conservative radical".
Herriot has accepted an invitation of the Brooklyn Chamber of Commerce
to visit ,imerica, and proposes sailing about the middle of July.
During the conversation last night he exposed
visited Russia last fall.
original views concerning the Russian situation vhich were extremely interesting.
Faithfully yours,


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



Paris, 16 rue de Tilsitt.
16 July, 1923.

Personal w Confidential

14 dear Ben,

The Vatican's note which in our letter of June 29th we said
had been made the subject of interpellations in the Trench Parliament occupied
the attention of the Press for some days. Importance was attached to the
French Ambassador Jonnart's "hour's conversation" with the Pope on June.30th
followed by Cardinal Gasparri's statement described as "tending to clear away
misunderstadings as to the motives and purposes of the Papal letter".
Cardinal Gasparri's statement maintains the right of Germany,
the debtor, to ask for impartial judgment as to the limits of her capacity,
however, at the same time, making it obligatory upon Germany to ,resent the real
facts and submit to every means of control. The statement Loes on to say that
it is incumbent upon Germany to pay, reparations for the damages done up to the
limit of her capacity.
It is however incumbent upon the debtors to limit their
demands by Germany's capacity.
It concludes:
"In fact the creditors have not made such demands but
deny the sincerity of Liermant and consider that the reparation figures actually demanded in no way exceed Germany's
capacity for payment and that therefore there is no need
of judgment or control.

Such are the points which will be examined during the
ensuing diplomatic conversations in which the Holy See
neither can nor desires to meddle.
It admits that it
hopes the Powers will succeed in fixing the amount of the
German debt.
As to guarantees the Holy See recognises the right of
the creditors to tae guaielatees proportionate to the
importance of their credit.
The holy See entrusts the
creditors themselves with the task of examining whether
for the safety of their credits it is absolutely necessary to maintain territorial occupations which entail for
the occupyinE; Powers and for the populations considerable
sacrifices and if it would not be advisable Trogres3ively
to substitute other guarantees equally effective."
Cardinal Gasparri in presenting this note added comments "tending to demonstrate that the letter of the Pope was based upon the hypothesis of a debtor
endeavoring to faithfully discharhe his duty but if this hypothesis should
have to be rejeote_ the bearing of the Pontifical letter would become completely


J. A. L. Jr.


Governor Strong - Personal & Confidential,



J. A. L. Jr..

To Governor Strong - Personal & Confidential,



project based on decree of August 10, 1923, and under law of
August 10, 1920. Expenditures a consequence of the seizure of
gages approved ba Parliament. Expenditures constitute reimbur"They are destined to c_vor the costs of an occusable advances.
pation made b, three of the allied powers in the interest of all the
But before entering into details of figures he wishes to go
back to the past and justify "not for the Senate, whose sentiment is
fixed in this regard, but for foreign opinion, for the temporal powers
and if necessary, for the spiritual powers", the measures taken and the
rd a failing
additional measures proposed to be taken if necessary
and recalcitrant debtor
The Treaty of Versailles empowered the Reparation Commission to
The list was
fix before :,:ay 1, 1921, the amount of the German debt.
In addition, Germany was to guaas large and complete as possible.
rantee her debt by delivering to the Allies bearer bonds to the amount
This sum represented to the authors
of 100 milliards of gold marks.
of the Treaty a minimum fixed before any evaluation. The first instalment ras payable before :Lay, 1, 1921. From the day of the Treaty
the bad faith of Germany was made apparent to the Commission and to
the creditor nations,
These latter, in April 1920, at the time of the Conference of
San Remo issued a statement setting forth that German: had not fulfilled her engagements, in the destruction of material of war, in
the reduction of her military effectives, in the furnishing of c_al,
in reparations, nor in the costs of the armies of occupation; that
the Allies are unanimous in declaring that they will not tolerate a
continuation of these infractions, and that "they are resolved to
have recourse to all measures necessary, even if these include the
This declaration
occupation of a new portion of German territory".
bore the signatures, among others, of Lloyd George and Yitti,
Germany alleging that
In July, 1920, a new conference at Spa.
she was unable to pay for mining coal for delivery to the Allies, it
was decided at the instance of certain of the Allied powers present,
that those who were to receive coal would themselves make advances to
These advances amounted to 392 millions of gold marks, the
greater part of which was made by France.

Germany was obliged during the following six months, to furnish
two millions of tons of coal per month, failing which the Allies would
occupy "a new portion of German territory, the region of the Ruhr or
Before this menace Germany carried on until the date set,
any other".
November 15th, but immediately after recommenced her resistance.
The Allies announced
A new conference at Paris in January 1921.
that if Germany did not chance her attitude they would take sanctions:
"prolongation of the period of occupation of the left bank of the Rhine,
occupation of the Ruhr, seizure of revenues of the left bank, special
customs regime, or any other necessary measures".


A. L. Jr. To Governor Strong - Personal a Confidential.


Page 5.

The Reparation Uommissin then went to Berlin itself. Germany
made it known to the Commission that she would be unable to meet
the payments falling due to 1922, and let it be known that a moraOn the 2nd of December, 1921, the Repatorium would be necessary.
ration Commission addressed to Germany a solemn summons to pay.
The 14th of December the German Government replied by an
The Reparation Commission protesofficial request for a moratorium.
ted, but stopped there, because a new conference, initiated by Lloyd
George, was to take place at Cannes. Germany resumed her hopes.
The conference convened, but was bruskly terminated by the return
The Reparation Commission then took temporary
of Briand to Paris.
The Allied
measures, and invited Germany to make firm proposals.
Gevernments having given full liberty to the Reparation Commission,
the Commission accorded on the 22nd of Larch, 1922, a partial moratorium to Germany.

Germany was to pay annually 720 millions of cold marks in specie,
July, 1922, Gorman::
and 1,450 millions of gold marks in kind. nevertheless, the 12th of insisted on o

The French Government saw its
I advised Lir. Lloyd George of thi
explained to him that it was neces
I was unable to convince him,

rothing, nevertheless, was mo
than the thesis of France. Germa
order in her finances. She had f

She had inaugurated without c
for which she paid in increasing w
German industry had a re-b
all the old foreign markets and
securities which she put cn deposi

during, this time England exp
France spent milliards on milliard

Again, if Germany had furnish
she was obligated! But she did n
which she had signed relative to t

Also, the Reparation Commiss
partial defaults in the execution
reported a general default by a ma
sion gave us under the very terms
all measures rendered necessary by
having the right to consider them

J. A. L. Jr.

To Governor Strong - Personal a Confidential.



Therefore, the 11th of January we entered the Ruhr.
';:e entered the Buhr because we esteemed that auarantees must be
taken against the voluntary insolvency of our debtor, and because the
Treaty authorizes us to do so.
'ably have we occupied the Ruhr rather than Franckfort or the valley
of the Lain? I want to say why, with a view of showing how false are
the accusations of militarism and imperialism brought against prance.

If we were imperialists we would have occupied the valley of the
aain which, separating Bavaria from Prussia and Saxony, cuts Germany
in two. e have not done this because our only object was to exercise
upon our debtors an efficacious pressure.
The Ruhr, which furnishes to Germany 60 piJr cent of her coal and
80 aeacent of her iron ore, is her stronLbox. We have taken the key,
"You will give us a part of your riches or
and we have said to her:
we will prevent you from profiting from them".

The basin of the Ruhr is a territory of untold riches. It supports
an extremely dense population which exceeds 'ix millions of inhabitants;
it is also the corner of the world where there are the most factories,
the most canals, the most railroads. Very well, we occupy this region,
so difficult and so populous, which includes a length of 96 kilometres,
with an army of 50,000 men only.
ae have even occupied it at first with fewer effectives.
our army has entered only to protest our engineers, our customs offiIts presence in the Ruhr is at the same
cials, and our foresters.
time a protection and a symbol, the symbol of our inalterable will to
be paid our due and that by all methods, by force if need be.

So it was not with our military that the Germans first had business.
Our engineers, our customs officials and our foresters presented themselves in the Ruhr, and in accordance with our formal instructions, they
communicated to the Germans the following proposals: "Nothing will be
changed in the economic life of the occupied territory. An allied
mission will watch the operations of the Kohlensyndikat, the production
of the factories and the collection of the coal tax (Kohlensteuer);
Allied customs officials will collaborate with the German customs officials to assure the collection of taxes in force, and our foresters will
supervise the exploitation of the forests in order that deliveries of timber shall be made in conformity with the Treaty".
It was thus a peaceful collaboration that we offered the Germans.
have been a number of times criticized for this attitude as a sign of weakI believe that we were right to act in this manner, to show to the
eyes of the world the extent to which our intentions are peaceful.



J. A. L. Jr.

To Governor Strong - Personal




J. A. L.

Governor Strong - Personal & Confidential.



J. A. L. Jr.

To Governor Strong
Federal Reserve Bank ofawaits her salvation.
she St. Louis

Personal & Confidential.



J. A. L. Jr.

To Governor Strong - Personal & Confidential.



J. A. L. Jr.

To Governor strong - Personal & Confidential.



%:e have from time to time referred to the importance
attached by the French to Germany's enforcing measures to prevent the "flight
The British have consistently held that under existing conditions
of capital".
efficacious measures for the prevention of such flight of capital are fallacious.
A humorous touch was added to the discussion when at a recent meeting of the
Committee of Guarantees, the British member remarked that in reality any future
consideration of ways and means to the end desired by the French was sheer waste
of time because the I.A.R.H.C. by reason of losses in Allied financial houses had
rescinded in the occupied territory all German measures for the prevention of the
flight of capital. As a result of this any German desiring to deal in foreign
currencies or export his capital had no more difficulty than dealing through
In fact, General J)egoutte published an order to
finandial houses in Cologne.
the effect ahta the German Government ordinances of 1.ay 8th, June 17th and June
and for the curtailing of currency speculation are inapplicable in the Ruhr occupied zone. Art. 2 of his decree reads: "Consequently foreign currency
This ordinance in
commerce in the Ruhr occupied territory is unrestricted".
view of the attitude of the French Delegation toward the flight of capital and
their repeated insistance that Germany should take measures against it is somewhat
:Unclosed as Exhibit A is copy of the speech of -r, Baldwin
in the House of Commons on July 12th. ';.e consider it conciliatory in tone.
speech contains no precise proposals nor new statements, except he announcement
of the British draft reply to the German note of June 7th and the statement
that it was pr:mature to discuss the nature of this reply now but that it would
be submitted to the Allies for their consideration and remarks with the least
possible delay. Prefaced by a statement of the British Government's desire for
the continuance of good will between rations, the speech appears to be me.cely
a repetition of the statement of the British position and a mere reference to
'Joints which
Poincare, with the support of his Parliament, has repeatedly
declared to be inacceptable. 1,.r. Baldwin, however, does say that the peace of
Europe depends upon the solution of three great questions, i.e., Reparations,
Interallied Debts, and Securities.
It is impossible at this writing to make
any estimate of the effect of the speech on public opinion on the Continent.

The foregoing letter is merely a resume of the more important developments of the situation since our last letter.
Faithfully yours,

1 encl.

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

:earls, 18 rue de -ilsitt.
26 July, 192's.

Personal & Confidential

subject: Hungarian Reparations, Financial
Rehabilitation, Loans, etc.

dear Ben,

During the past few months the .European press has
contained references to the "Financial Rehabilitation of Hungary",
"Thivers of Reparation Liens", "Long and Short Term Loans", etc.
It is believed that a useful purpose may be served by reporting the
The data used
past history and present position of these questions.
is largely based on information furnished informally by Sir
Goode who is now in the employ of the Hungarian Government as an Adviser
in these negotiations.

Mile the financial and economic position of Hungary
is fundamentally sounder than that of Austria a year ago, nevertheless
the political factors which have a controlling influence on rehabilitation
The Czecho-Slovakian, S. H. S., and
present more serious difficulties.
Roumanian Governments, as well known, are suspicious of the aims of the
The somewhat militant attitude of the Hungarians,
Hungarian Government.
the fact of holding to the old terminology of "Kingdom of Hungary" with
the head of the Government a "Regent", and the incident possibility of
a "Hapsburg" being placed on the throne, all tends to inflame the feelings
of the Little Entente. As will be noted from this report the British,
backed by the Italians, support the policy of prompt financial support
Incidentally, the british advance the League of Nations'
for Hungary.
control principle as in the case of Austria. :he French, for the present,
Ostensibly, the French attitude
support the thesis of the Little Entente.
is dictated by a policy of currying favor with the Little Entente. However,
back of this it is generally felt that France has no desire to see the League
of Nations' action further extended by its interjection into the Hungarian
situation on account of the somewhat logical grounds it might create for
interjecting the League of Lations into the German reparation question.
It is the apparent desire of Count Bethlen, the Prime
:.sinister of Hungary, to effect more cordial relationships with the Little
Entente and at the same time prevent any further decay of the economic
and financi-1 fabric of his country. The Hungarians have seen the practical working out of the policy of conciliation as followed by Austria.
The more conservative elements led by Count Bethlen have "taken a leaf from
the Austrian book" with the desire of attaining the same goal.

J. A. L.Jr.

To Governor jtrong - Personal & Confidential.



In January of this year the Hungarian Korona stood at
approximately 2,150 to the dollar as compared with 658 to the dollar in
The fiduciary circulation in January 1923, was 79.6 milliard
January 1922.
paper Korona as compared with 27.9 milliard paper Korona in January 1922.
Hungarian exchange would undoubtedly have reached a much lower quotation in
sympathy rith German, Austrian and Polish exchanges, except for the extremely
arbitrary restrictions imposed last year by the Government such as a rigid
Devizen Zentrale, heavy export duties on food products, prohibitions of
These restrictions, while temporarily preventing a catastroimports, etc.
phic depreciation in exchange, created an entirely artificial situation which
seriously affected the agricultural and industrial life of the country.
Exports became exhausted and in consequence the Jevizen Zentrale ceased to
obtain the foreign currencies on which its existence depended. Such foreign
currencies as came into the country were then - and are now - severely rationed
among the fundamental industries.
The Hungarian Government found itself faced with a Budget
The principal items of expenditure were the upkeep
deficit of 17,200,000.
of State administration (g45,100,000); State Railway deficit (g11,346,000),
and interest on debts (approximately g4,650,000). As in the case of other
countries with depreciating currencies the taxation, though frequently raised,
had not been able to keep pace with the ever increasing expenditure in local
The deficit in running expenses was being met by the issue of more
In addition, there was an adverse Trade Balance of over 40 per cent.
paper money.

As regards reparations, a special Committee of the Reparation
Commission had been sent in 1922 to Budapest and had reported that Hungary
should be able to pay a moderate amount in reparation. The Committee's report
was sunerficial and far from convincing in its conclusions.
The Reparation
Commission itself, therefore, took no action on this report and the Hungarian
Government were entirely in the dark as to what was likely to happen.

At the end of February the Director Lieneral of the Central
Institute of Hungarian Banks visited London.
There, at the req
Hungarian Government, he endeavored to raise a short term loan of a6out
1a2,000,000, offering as security the total export of Hungarian flour over two
or three years': Negotiations were formally confined to the Bank of England
and the group responsible for the Austrian loan (Rothschilds, Baring, Schrbder,
The Hungarian Government were anxious to do what they could for themetc.).
selves without apLaaling for help to the League of Nations and other outside

The London bankers took the view, that while the security
was fairly sound, they were not prepared to make any loans to Hungary on account
of the uncertainty of her political and reparation position.
They felt that
Hungary would require a large long term loan in order to get on her feet, and
that it would be useless to give her a short term loan for immediate expenditure
until she was in a position to discuss a long term loan.
In other words, they
were notirepared to touch Hungary until the Reparation Commission had taken
satisfactory aotion as to freeing the assets - as in the case of i,ustria - which
They also took the posiwould be required as security for any long term loan.


J. A. L. Jr.

To Governor Strong - Personal & Confidential.

Page S.

tion that loans for Hungary could only be obtained through the intervention,
and expended under the sapervision, of the Finance Committee of the League
The British Treasury and the Bank of alngland strongly supported
of Nations.
this attitude, promising assistance both as regards the reparation difficulty,
and as regards obtaining loans eventually through the League.
The net conclusion of the London enquiries of the Hungarian financial representative was that
it was impossible to float any Hungarian loan without the suspension of reparation liens, then only through the League, and probably only by obtaining the
guarantees of foreign Governments, as in the case of the Austrian loan.
On April 22, the Hungarian ..sinister in Paris askeu the
Reparation Commission to give a hearing to Count Bethlen, Prime Minister, and
Dr. de Kallay, Finance Minister of Hungary. In this rote the Minister formally
applied for the suspension of liens on certain Hungarian assets and revenues
required as security for a long and a short term loan, described the grave financial position of Hungary, and outlined the Governments own plan of reconstruction, including economies in Administration, reduction by 30 per cent of
state employees, creation of a Bank of Issue, increase of taxation, and abolition
of Devizen Zentrale and other artificial restrictions.

On May 4 Count Bethlen and Dr. de Kallay appeared before a
joint meeting of the Commission and the Hungarian Section.
(count Bethlen's
speech is attached).
A complete analysis of Hungarian Government revenue and
expenditure (covering 67 printed rages) was subrilitted by the Finance Minister,
who applied for the right to raise a short term loan of 40 to 50 million gold
crowns and a long term loan of 550 to 650 million gold crowns.
The Commission
was as4ed to agree in principle to raise temporarily the reparation charge on
the Customs and Tobacco Monopoly revenues and such other revenues as might be
needed as security for the short and long term loans and for the capital of a
Bank of Issue, the Hungarian Government to submit to the Commission definitive
proposals at a later date before the Commission definitively granted the postponement of the reparation charges.
The Finance Minister stated that without the
possibility of obtaining a long term loan he saw no hope of obtaining a short
term loan. With the two loans he would be able to stop the note press, stabilize the currency and, within five years from the issue of Vie loan, balance
the Hungarian Budget and assure the service of the long term loan.
The Commission were asked, in the event of their granting the
Hungarian request, to take such action as might be necessary to obtain the
acquiescence of the Powers holding :`relief Bonds in the suspension of their prior
liens on Hungarian revenues.
Count Bethlen stated that "if the Commission so desired the
hungarian Government would be glad to avail themselves of the advice and assistance of the Finance Committee of the League of Nations in respect of the financial proposals for reconstruction and in regard to the negotiations for a long
term loan".

On May 11 the Hungarian Section considered two proposals
arising out of this application.
The Italian Delegation, supported by the British,
proposed : -

J. A

L. Jr.

To Governor Strong - Personal 6: Confidential.



That in principle the Commission should agree to raise for
20 years the reparation charge on revenues needed as security for
the loans, these loans to be negotiated and supervised by the
Finance Council of the League. Hungary to execute with the utmost
regularity current deliveries of livestock and coal; to conclude
the restitution forfaits as quickly as possible, and to perform
promptly and willingly all the provisions of the Peace Treaty other
than those which contain financial obligations.
The French, supported by the representatives of the
Succession States, proposed:-

Hot t oppose in principle" the Hungarian request, but that the
charge should only be temporarily raised for "absolutely definite loan
schemes which the Hungarian Government might submit for the approval
of the Reparation Commission and a fixed part of which Yould be assigned
to reparation"; necessary guarantees and facilities for supervision
being given to the Commission. A Mission to be sent to Hungary immediately to examine the financial and economic situation of the country.
Hungary to be required to execute with the utmost regularity payment
of the costs of the Armies of Occupation, current deliveries of livestock and coal, to conclude the restitution forfaits as quickly as possible
and to execute promptly and willingly all the provisions of the Treaty
other than those containing financial obligations; the Reparation Commission when subsequently deciding upon concrete proposals submitted for
loans to take into account the manner in which Hungary had discharged
her obligations.
The Italian proposal was defeated by 5 votes to 4 - the
French, Polish, Serb-Croat-Slovene, and Czecho-Slovak Delegations voting.
The Roumanian
againsiit. The French proposal was carried by the same votes.
The Greek delegate was
delegate was without instructions and did not vote.
On Mtivi 23rd the Reparation Commission by the casting vote
of the Chairman, a. Barthou, accepted the foregoing French proposal.
Common Delegate, M. Iirozowski, on behalf of the Roumanian, Serb-Croat-Slovene
and Uzecho-Slovak Governments, put on record the following "observations":-

1) A great part of the loan to be applied to reparations.
Guarantees that Hungary will respect the military clauses
of the Treaty: notably disarmament.

A loyal attitude to the Treaty by Hungary in regard to her
neighbors, notably those of the Little Entente. Hungary to abstain
in the future from all unfriendly acts, such as irredentist tropaganda, illegal and unjustifiable arrests of Little Entente subjects
and their detention in Concentration Camps; provocation t frontier
conflicts, etc.






J. A. L. Jr.

Page O.

*majority of interests. 7.-.1deavors have no less been made
during the past four .Tears to unseat this Commission to re-olace
it by international finance committees, which is to say, to endeavor to marshall ana.inst us interests opposed to ours. The
Treaty prescribed the conditions under which the Commission
should fix the Certmn debt. 41 rratence was made of respecting
these conditions, but the debt was hardly fixed when there was imposed upon us in one of those Supreme Councils where we have always

left behind a few of our rights, a Schedule of Pryrents that the

Commission reluctantly ratified and which reduces the amount of
our credit in undetermined proportions. lye then accepted this
schedule of pwrents as an international convention, as an engagement of honor entered into with us.
A few months hardly passed that tie evaluations upon which the
Allies had agreed were thrown into question. .4s certain of our
friends seamed to have no other thow,ht than to lighter_ the German
debt, and as they were themselves our creditors, we said to them:
"There are three cate-?o rle s in the Schedule of Payments. leave us

our Part in the first two. -;:e will =Ice use of the third arvinst

Ciernany only iu the rae as are that our creditors ask us to pay our
debts". :le were found too exigeant. rie were reproached. with not
scaring aernany, and with exposing her to a disaster of which all
the other peoples would submit the reaction.
4..-11 nevertheless has not Gemara* been so well spared during

three whole years that she has been permitted to default in all her

obligations, ald we have been compelled to pqr, ourselves, from.
our resources one hundred milliards which she owes and which she has
not mid. Has she not bean tolerated to reconstitute her merchant
marine, to develon her canals and her railroads, to enrich her great
industries at the expense of her creditors? xi eo,ual firmness on
the part of all the allies would have without doubt triumlihed over
her uersistent bad. faith. But Germany has naturally speculated on
the divergences of views which she has alto2sther created. She
thought herself encouraged in the attitude she had taken, and the
moment arrived. when we had no other recourse than that of coercion
and the taking of gages.

It has not been because of us that the necessary measures should
not have been tan in common by all the allies If it had been thus,

all the chances are that Germany would have giver_ in imerliately. 7,re
have had to act alone with the active co-oteration of Belolum and
with the partial collaboration of Italy. Instead of lending herself
to the exploitation of the gages, Germany has orgmigad. resistance
and has forced us to accentuate our pressure. we thus responsible
for the unrest which results? And is it not from those Who violate
treaties, aril. not fraca those who claim their observance, that an
account ina; 11111S t be asked fo r the even is rendered inevi tab le by tie

disre2:ard of rioht?






J. A. L. Jr.


-,ally from Great Britain, 3e1 Pium, Holland arri the United States. (In 1....:Ner bhe
-eceived fran the U.S. 102,200 tons of coal and 76,700 tons of co-h) The co:ce
191,400 tons
leceirts from Gorr Eny in -1:".4r and Jar 1923 vrore 173,900 tons
'We have no figures irre.diately available as to French
dixtion, but it is obvious that
Trocaueris fiLrare of 511,000 tons :per month
over and above French production is nearly dol)le the reality, unless imports
from T la i1 and the United States have been enomously increased since June 1st.

France has been increasing her inlorts of coal to a 1:3rTe extent (particularly
fran England rrY1 the United States). The firnlres on the follaiing table show
these increases:
aril, other coals into Geri-L.2v,
Importations of
rance, Italy and Belgium.
(In thousalds of t ans -- Coke in terms of coal.)







English Total_






2,-^lish Total


.1.ngust 1922 1,104.5






238.3 x








276.4 x


2,224.8 1,007,6




298.4 x



1,539.7 1,209.3


593.6 x

517,4 x



1,170.9 1,327.4


551.9 x

577.6 x



1,505.9 1,3D5.6


542.1 x

426.9 x



2,035.7 1,360.4


675.3 x

424.5 x



3,371.3 1,812.1


788.2 x

610.9 x


1,915.2 x

1,750.0 x


654.1 x

699.3 x


1,900.0 71

1, 850.0 x


686.6 x

708.3 x

x Estimated figures based on British exnort renorts.

X .Ica reparation deliveries are included in the total irmorts. In the case of France
most of the ircroorts other than those from Great Britain came from the Saar
aTrl from BeliAurn.

* German imports include deliveries from Polish Urner Silesia.

There will be noted a rather striking increase in the

French ant Belgian imports from Great Britain for the three months nrec,.eding
the :Iuhr occupation.




Pegs 9.

J. A. L. Jr.

in a position to stop "passive resistance" it eras clearly their duty to do it
and. not incnnthent upon them to attach terms to that act.
The fact that the
British proPosal contained no direct reference to interallied. debts except
providing that such questions could be taken up at a later date was displeasing
to LI. Poincare and also to the Italians.

Tne French reply to the British note is understood to be
conciliatory in tone.
It is understood to express courteous agreement with
the British views as to "the necessity o f economic stabilization", "normal trade
relations" etc. On specific points it expresses disagreement anti on other
points rerpests additional information.
In other wards, the French reply is
obviously framed to prevent any runtnre of -Franco-British relations and to keep
the Tuestion in negotiation nntil France coins her Victory by forcing Germany
on its own initiative to give up passive :resistance.
The Belgian reply on the main Points, it is understood, will
not vary much from the French reply, viz. no conversation with Germany until
passive resistance ceases and evacuation of the Ruhr only as German payments are
made, it is asserted there is no divergence between the French and Belgian notes.
Belgium, however, is understood to be ready to make concessions on the border question of reparations. Belgium claims that her position is different from France's
"in that she is not burdened with debts to Great Britain and the United states"
refo re not concerned like tbe French to keep the C bonds as an effective
part of Germany's liability until it is known precisely how much -.7111 be demanded
411toPether Belainm has no reason to object to the nomination of a
from France.
commission of exrerts and to a certain extent is committed to technical measures
of control of German finances and a system of economic cuarantees which were sent
The position of 3elaium is most difficult. From all sides we
to the sillies.
gather that the Theunis Government feels forced to follow the French 1 M, but
is using all its influence to prevent any Franco-British rupture. we nneerstand
that LI. Theunis is continuing to exercise every pressure to bring about a meeting
between lir. Boldwin and Li. Poincare. Li. Tnennis has proposed that such meeting
be confined to 11. Poincare a na. Mr. Baldwin, feeling that by eliminating himself
from the neeting it would furnish an excuse for eliminating LI. I.nasolini, whose
presence at such a meeting in the present extremely delicate position, he considers harmful.
Faithfully yours,

The Honorable
Benjamin Strong
Governor federal Reserve
Lew York City.


of 11.7.


A. L. Jr.


To: Benjamin Strong - Personal & Confidential



Annex "G" - The Italian Note of August 2, 1923, addressed
by the Italian Ambassador in London to the
British Government, outlining the attitude
of the Italian Government to the proposed British reply to the German Government (Annex "D").
Annex "H" - The Japanese Note dated Au gust 3, 1923, addressed
by the Japanese Ambassador in L ondon to the British Government, outlining the attitude of the
Japanese Government to the proposed British reply to the German Government (Annex "D").
Annex "I" - The British Note of August 11, 1923, addressed by
the British Government to the French and Belgian
Ambassadors in London, being the expression of
the British Government's disaprointment at the
replies of the French and Belgian Governments,
(Annexes "E" and "F").
The British Government has just issued a White Book and
the French Government a Yellow Book, which give the full text of the German
note of Jame 7. 1923, and all the correspondence between the Allies up to and
including August 3. 1923; in other words, all of the annexes enclosed except
Annex "I". As soon as copies of the White and Yellow B ooks are secured they
will be forwarded.
The Cuno Government in Germany fell on August 11, 1923 and
The advent of the Stresemann
vas :-Aacceeded by the Stresemann Government.
Government has occasioned some optimism in Germany. However, all reports

confirm the fact that the internal situation in Germany is critical, and how
long the spirit of optimism can last remains to be seen. Rumors are rife of
an early attempt being made to separate the Rhineland Provinces from the
German State. On August 14, 1923, Dr. Stres mann made a speech to the following effect in the German Reichstag:

"Having paid a tribute to the work of his predecessor, Dr. Cuno, the Chancellor went on to emphasize the
Parliamentary character of the new Cabinet. There were,
he said, strained relations at home and abroa, and new
decisions would have to be taken. There was need for the
union of all constitutional parties, and he appealed for
that support independently of the party aspects of the
new Government. He warned foreign nations not to assume
that the present change of Cabinet was a sign of weakness.
Just as the new Cabinet had been given the broadest Parliamentary basis of any so far, it should be the strongest
in opposition to any idea of the violation of Germany.
Its success would depend upon the cooperation of the whole
country and while it was not unappreciative of local
particularism, fusion into unity was never more necessary
than now.

.J. A. L. or, To: Benjamin Strong - Personal & Confidential


"In a warning passage directed to the Communist benches, Dr. Stresemann declared that those who imagined that
the present dircumstances gave them the right to combine
for the purpose of undermining the constitution would find
themselves confronted by the inflexible will of the GovernThe Government
ment to oppose violence with all its might.
had the means and fully intended to use them. It relied
upon public opinion to support it in maintaining public
order and security, since in a democratic age fights could
In parenthesis, the Chanonly be won by public opinion.
cellor extended the same idea to the Ruhr. Hitherto, he
said, the entire public opinion of Germany had ranged itself
with one accord against the violation of German rights on
the Ruhr and Rhine. Had France and Belgium the support of
their public opinion to the same degree?
"Dr. Stresemann next went on to refer to the British
reply to France. How deep the sense of the injustice done
to Germany must be, he declared, when the British Note to
France brought this injustice publicly before the eyes of
the world in spite of the close relations of the Allies to
The eassive resistance of the German populaone another.
tion had its de pest roots in the ccoasciousnes.:, of its just
rights, which were now unequivocally recognized by the British Government. And though a solution of the Ruhr and
Rhine question was not to be immediately anticipated as the
result of these observations of the British Government, they
might assume that this manifestation of the British view
-::ould not remain without echo in France and Belgium.

"The Goverment, for its part, was quite willing that
the le:aliy or illegality of the Ruhr occupation should be
submitted to an International Arbitration Court, and did not
doubt that any impartial decision would give back to Germany
the control of the Ruhr area. They desired only to return
to work in the Ruhr, but work and freedom were synonymous
On the day on which control over the Ruhr were reterms.
stored to them all parties would strive to put an end to the
paralysis of this vital nerve of German industry.
"Here Dr. Stresemann reiterated the ccmditions laid
down on former occasions on which Germany would abandon
passive resistance - the return of control to German hands,
the restoration of Treaty conditions on the Rhine, the
release of prisoners, and the reptriation of fugitives.
The restoration of normal conditions was also, he added,




A. L. Jr. To: Benjamin Strong - Personal & Confidential


"a necessary preliminary to the resumption of deliveries
in kind.
"Nevertheless, there could be no greater mistake
than to take the British Note as an excuse for political
They did not and could not know what political
consequences would ensue from this Note, or how and when
they would be visible.
Political activity was demanded
of them, but the best foreign political activity that
they could develop was order in the conditions at home.
"Turning to home affairs, Dr. Stresemann outlined
the measures of taxation and loans for the purpose of
reorganizing German finance, anA exhorted the country
to do its utmost to make the gold loan a success so that
the progress of inflation might be stopped. It was
the only menns by which this could be achieved. He also
foreshadowed measures for hastening the dispatch of food
supplies to the larger towns, and appealed to the agrarians to increase production. While he was far from
regarding the food question only from the point of the
consumer, he declared war on all those who should jeopardize the feeding of the people and the restoration of
healthy economic conditions.
"In an interesting passage Dr. Stresemann touched
upon the demands of the workers for "real wages" with
which he expressed sympathy in view of the present developments. But he uttered a warning to those who
thought that they could take the flourishing and prosperous Germany of pre-war days as their basis for calculating wages now. If industrial wages were over-strained
there was a danger of Germany being unable to compete in
the world markets, and therewith would disappear the favorable trade balance upon which dekhaded Germany's ability to meet her international obligations and maintain
stable economic conditions.
"This passage brought forth a great storm of protest
from the Communists, which Dr. Stresemann mockingly ascribed to their disappointment at the failure of their
proposed general strike.
In conclusion, he said that it
would be the task of the Reichsbank to support the Government in its economic and financial measures, a remark
that was taken in a good many quarters to foreshadow a
change in the personnel of the Bank."

During the last two weeks the fall in value of the French
Considerable evidence has exand Belgian francs has been most marked.
isted of exports of capital from Belgium, due to lack of confidence in the


J. A. L. Jr.

To: Benjamin Strong - Personal & Confidential



Belgian franc which resulted in the adoption of stringent regulations in
Belgium concerning the control of foreign exchange transactions. In addition, the Belgian Government appealed to the French Government for supL'ort
for the Belgian franc.
It is understood that certain measures have
taken by French banks to this end, but we have no detailed information as
to the character of siport given.
The most extraordinary articles, which
are not distinguished by any love for Great Britain, have appeared in the
French Press. It is stated that British machinations in some way account
for the depreciation of both the Fr nch and Belgian francs, It is pointed
out that when II. Poincare took office the franc stood at 52 to the pound;
it is now about 83. A decided anti-British feeling is to be felt everywhere in France.
It is reported that both the French and Belgians intend
replying to the British Note of August 11, 1923 (See :annex "I"). It is
stated that the replies will be separate and that they will be despatdhd
within the next few days. The nature of these replies can be easily forecasted, and will, in our judgment, contribute little towards the desired
They, however, will have the advantage of continuing the negotiations and thus prevent any immediate darger of a rupture in negotiations.

Faithfully yours,

Encls. 9.

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

Paris, 18 rue de Tilsitt.
7 September 1923.

Personal & Confidential

uy dear Ben,
Theunis, the Belgian Prime 7-inister, has been
using every effort to bring about a meeting between L:r. Baldwin, who is
now at J,ix-les-Bains, and -, Poincare. The French tell us that L. Poincare
expresses every willingness to meet s. Baldwin and to talk over asolution
based on the premises of the past French position. Sir John Bradbury tells
Baldwin considers it useless to have any conversations without
us that
some intimation from i.. Poincare that the latter is prepared to modify his
past position. Under these circumstances all are extremely doubtful of any
meeting at this time.

In the meantime the program of the Stresemann Government
for stabilizing the mark has evaporated. The mark today is about 40,000,000
to the dollar; in other words, a fall of about 37,000,000 marks since Herr
In a speech on August
Stresemann took the Government over from Herr Steno.
31 before the German Gongress of Industry and Commerce, herr 3tresemann made
the following reference to the internal and external policy of the Reich, viz:

"In the first place he protested against the accusation
that Germany has herself brought about her monetary collapse.
He would regard the statesman who deliberatedly adopted such
a policy as the agent of a crime against his country.
The Government of the Reich would not hesitate to seize
The Chancellor was
the very substance of German wealth.
confident that the industrial circles, whose representatives
were listening to him at that moment, would give their assistance at this juncture not merely under constraint, but in
the conviction that such a measure was inevitable.
The Chancellor believed, moreover, that no reform of
German finance could be carried through until external
The French Premier had maintained
problems had been solved.
that the occupation of the Ruhr was;a necessary means to
compel Germany to execute her obligations, which she had
On the questions of law and equity raised
hitherto evaded.
in this connection, the German people, strong in its good
faith, was ready to submit to the decision of an impartial
As to the deliveries so far effected, Germany
had recently had the satisfaction of noting that their
total amount had been estimated, after an impartial examina-


J. A. L.

To Governor '"trong - Personal & Confidential.


"was an overestimate of Germany's economic strength,
and, that moreover, the alleged high profits of Germany, as represented by the ditidends paid by our
joint stock companies, were absurdly low - to take
an example, the dividends in the last financial year
of the Deutsche Bank did not amount to the price of a
tram fare in Berlin. Admitting that there were possibilities for the future development of German industry and he did not dispute it - it was necessary for the
Allies, after accepting the principles of the German
i.lemorandum, to examine, conjointly with Germany, a way
to make this last remaining resource the pivot of the
guarantees for the German reparation debt.
The present Government adhered to the offers made
the preceding Government. For the freedom of Germ n
soil, the safeguarding of her sovereignty, and the consolidation of her position, the Government would not consider it too great a sacrifice to offer, as a productive
pledge for the execution of Germany's obligations, a part
If the French Governof the economic wealth of Germany.
ment would sincerely renounce its idea of obtaining concrete pledges as guarantee for the German deliveries, after
a moratorium, it would certainly be able to find a basis of
understanding with the German Government.

But no distinction must be maintained between te Rhine
and Ruhr on the one part and the Reich on the other part.
The seizure as pledge, even though temporary, of the Ruhr
territory and the taking over of the railways in Rhineland
and of private property and mines on the Rhine and the Ruhr,
upon which documents 23 and 25 of the Yellow Book relied
could not be regarded by Germany as a possible basis for
the solution of the reparation question.
This particular way of solving the reparation problem
raised all the political difficulties as to international
relations with which the occupation of the Buhr and the
Rhineland question was fraught.
In Germany, there could be no international settlement
of the Rhineland question. The Rhinelanders had, within
the framework of the Reich constitution, the right to choose
in what form they elected to live within the Reich, and up
to the present, to go by the statements of the German elements
in Rhineland as a whole, they did not desire to modify in any
way their traditional loyalty to the Reich and Prussia.
The measure of Germany's economic productive capacity
might be a matter for negotiations and compromise, but the
question of the G
erman Rhineland was no matter for compromise,

J. A. L.Jr.

To Governor Strong - Personal & Confidential.

Pa ge


"but a vital question: for every German worthy
of the name and for every German party, it consists
of preserving a Reich united within its frontiers.
He noted with satisfaction the french Premier's
assurance, in the Locuments published by this Government, that he was not pursuing any political motive,
and had no ulterior aims of annexation. This statement,
however, was not consistent with the solutions proposed,
sos long as the Rhine and Ruhr were, economically and politically, under an exceptional regime, and so long as a
barrier was thus opposed to any practical solution which
Germany might accept.
If the political motives contained by implication in
the notes of the drench Government were to disappear before
a mobilisation of economic rsources, in which the Reich
would join with all its industrial strength, the way would
then be clear for the practical solution to which the
French Premier referred in his speech at Charleville.
For the German Government to build on the disunion of
the Allies woilld be policy of "muddle-through".
confined herself to hoping that by means of discussions
among the Allies, and also between the Allies and Germany,
it would be possible to reconcile the just demands of the
creditor states with such possibilities of economic expansion as would ensure to Germany that very right to existence which the French Premier claimed for France.
The Chancellor concluded by pointing out the necessity
for solidarity between the nations.
In the domain of politics, social and ethical, the wax and the revolutions arising
out of it have caused serious internal disorders in all the
The influences which were at work among the populations were fermented by the state of insecurity against
which the entire world was struggling.
If the nations could
meet in a common aim, that aim should be to preserve the world
from further convulsions and to bring about a state of internationsl co-operatiOn and goodwill.

He was proud to assert that the German people wer, filled
with a profound desire for peace, order and liberty.
are now doing their utmost to realise this desire. He hoped
for a response to their appeal to those statesmen more powerful than themselves, upon whom they called to restore the old
order or things.
For the solution of the pressing questions
now at issue did not, in the long run, concern Gernany alo @e.
The security of the general kultur of the nations was at st4ke,
and in its final choice of a solution Europe would show whether
it had decided for peace, progress and civilization, or for ruin
and chaos".





J. A. L. Jr.

To: Governer Strong - Personal & Oonfidential


M. Barthou in a subsequent confidential conversation confileed
T. Barthou, however, hoped
Delacroix had stated.
the main lines of chat
that the situation would ye clarified after the Stresemann speech of 3eptember 12 (see below), which had not at the time been made, and the expected
reply to Herr Stresemarm's speech -ey U. Poincare at Boulogne on September 13.
Ln..,incare in the epoech which he made :et 1-enloi,re on
ies a matter of fact,
Septenber 13 omitted all reference to the Stresenann :..3;.eeech of September 12.

Barthou now tells us that while M. Poincare was far from willing to accept the Stresereax:a thesis as outlined in Herr Stresemann's talks with the
French ;Ambassador and eubseLiuently in his Septeenner12 speech, he , H. Poincare, purpose 3y refrained in the Boulo&:ne speech from a public rejection
of it as he felt that Herr Stresemarm was trying to approach the French
point of view, and that a curt rejection at this time ould only serve to
Barthou stated
embarrasz Herr Stresemann'e efforts for a settlement .

in his opinion the Reparation Couniss ion would be c;aled upon

71 thin

He was worried at out
the next few weeks to elaborate a reparation plan.
the internal German political situation. There are many rumors, and apparently some grounds for the uelief, that the Stresemann uovernment will be
short-lived. It is impossible at this moment to make any forecast as to who
will take over the Government in the event Herr Stresemarr_ falls and the
form of the new Government. On the foregoing account L. Barthou (and probPoincare) is anxious that sore basis of conversation be found withably
out delay so that the position of the Stresemann Goverment can -oe 1rotected. The French Press in the last few days evidently under the inspiration
of the alai d'Orsay, are referring to the 'Toincare victory" as evidenced by
the "great concessions" and ":eath to surrender" evidenced by the recent Stresenann "concessions to the .French point of view". This inspired newspaper
conteent is evidently designed to prepare public opinion to face some new
French Government tactics if po se ibl e developments in the situation require
a charge from past tactics.


Sir John Bradbury in a recent confidential conversation exth both the Germs and Francopressed himself as being out of patieme
Belgianpositions. In his judgment "Herr Streseneam is much more of a
politician than statesman", and that "the Streseirann effort today is to
effect a Franco-German line-up against the British reparation interests, as
well as against all outstanding interellied indebtedness". Basing his arguments on economic principles, he ridiculed the practical reparation payment
value of the German 30 per cent. offer of participation in their industry.
He also ridiculed any other form of reparation payments that the German
Goverment would be able 'to effect in the le mediate future. Ho restated
his hope that the British Government while the position of sympathetically app roving all efforts at direct Franco-German negotiations and aereerents would nevertheless hold to the past thesis: that in the end Germany can
only be protected from financial and economic chaos by the active intervention of London and New York banks in support of a stabilized C-er=e currency
in his opinion, neither supand in L. lo an for bete nc ing the G-erexa. budget.
port nor the bon would be forthcoming unless based on the soundest and
In his judgment, France would finally be forced
most business-like premises.

a J. A. L. Jr.


Governor Strong - Personal & Confidential



to ...own this basis, and then progress could be made. He was, however,
extremely pessimistic of the ability of the present German Goveinment to
hold out and was fearful of the social and economic conse uences which
might fallow if the extremely radical Germaa elements were to take over
power in Gera on Herr Streseraann's

is concerns the meeting between Mr. Baldwin and r. Poincare which is now scheduled for September 20th or 21st in Paris, Sir
John Bradbury stated that this meeting was in no sense of the word "official",
that there were no corenitments on either side to discuss ark of the outstandIng questions, and that the meeting would be, therefore, purely "social"
in character. It is assumed that these responsible for arranging the meeting
compromised on the "social" form in the hope that by bringing the two Prime
Linisters together on this basis there might be a chance of some cunstructive
results, notwithstanding the tenacity with e:hich each holds to his past posi-

tion, as reported on the first page of our letter of September 7th.

n'ne following is a su2riary of a speech made by M. Poincare
on September 9th, 19:x. This speech followed the conversations of the French
nmbaslador in Berlin with Herr Stresemam as reported on the first page of

this letter.

"There appear to be abroad, and even in France, people

who find a little wearisome, the repetition of these discourses of which the object never varies and of which the
conclusions remain uncharfnea.ble. I shall be entirely ready
to change the the when France shall have definitely triumphed. Until then neither riJicule nor menace will keep me from

rallying all ncal citizens around the French flag".

Then turning to Germany, he recalled that more than

four years had elapsed since the sinning of the peace and
that France was still waiting for Genaazer to pay whet she
owes. Gereiany had forced France to seize gages, and after
France had entered the Ruhr Germany took an attitude fatal
to her own interests. Instead o f co-operating with the

has spent lamense sums to o iganize a resist-nce which she believed would discourage France,
but which resistance Froace has little by little overcome,
and whi ch now benins t o fall o f itself . :lien Mr v on Resumer
or the Finance Minister of the Reich Mr. Hilferdine affirms
that Gerenny cannot recover financially until after the end
French in the :Zuhr , Ger sn

of the straggle in the Ruhr, tae can reply that if that is so,

they are the master of such recovery. They have only to stop
throwing millia.rds of marks into the :Zuhr to encourage the
workers in idleness; they have only to leave the population
free to follow their own inclinations; the population only
desire to work and to reach an understanding with us.

4 J. A. L. Jr.

To; Governor Strong M. Personal & Confidential
- Poincare then stated.
"I understand quite well that tho new Chancellor,
Stresemann, now offers us other gages than the Ruhr
and the railroads of the occupied regions . 1-eit we like
better the bird in the hand thal the ones in the bush.
The guarantees mentioned do, not add awthing to the general mortgage given by the Treaty of Versailles to the
.;flies on all the property o f the German s tates.

;le pre-

fer the positive sureties that we have in hand to these
theoretical riLhts, however extensive they may be. -de
will not let E;le of these sureties aea.inst general gages
which may be excellent on paper but the prod act of which
would elude us. Tie want realities and we will not leave
until paid."
"aside from this Herr Stresemarn declares with in7i etonce that a close collaboration between the complbmentary
industries o f Germany and o f rranee would be an e xcel lent

preface to the settlement of reparations and of a definite
b, ourselves, would [3:- y (is it not so, ?IV
peace code.
friends ?) that the Chancellor puts the cart before the horse
.already, during the month of December last, Lir. Cum made me
the offer through his .:nbas7:ador, of conversations with German industrials with the view of preparing agreements with
French industrial s, and it is true that German producing
coal and we producing iron ore, the industries of the two
countries will one day find it advantageous to reach aiereements. But the French cit izens who are the most interested
these proposed economic conventions, have understood that be
fore they can be prppared it is necessary to permit the (Joyern:Tent of the Republic to obtain in the reparation problem,
certitudes and results. The quest ion which do:dna-Cos all
others, that which requires our greatest care, is in effect
that of the recovery of our devastated regions. When we
shall see that Germany is sincerely resolved to settle that,
and to give us as security something other than promises,
we will see with open mind the possibility of concluding
economic treaties. But let Gerraaw commence by changing
her conduct and by showing at last her good faith. Let
her renounce equivocations and evasions. Let her decide
once for all to make serious efforts and to put herself in
position to pay her debts."

"Up to the present we do not notice that her intentions
have been very sensibly modified. The tone has changed, and
after all that is some progress. gut the song i s almost the
same. If the German Government would re-read the correspond
ence of Thiers with Saint-Vallier and Eanteuffel it would
better understand how a nation which has the firm intention


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


"cannot be arrested, the recovery of the finances
of the Reich can not take place. It is for this reason
that the new German Cabinet has taken up the task of
solving the question of the Ruhr. It is clear that
this solution cannot be obtained simply by the continuation of passive resistance. In addition, my predecessor, Dr. Cuno as he stated a number of times, never
said that our nefotiations on the question of reparations
should not con once u til after the evacuation o f the territories newly occupied. The passive resistance had only

for its object the liberation of the territory o f the teaLr.
The decisive point for Gertew is the question of the

sovereignty of the Rhineland and the recovery of freedom
in the territories of the Ruhr. ',7e are prepared for that,
to furnish substantial guarantees. The President of the
French Council recently declared that he preferred the
positive gages that ?ranee holds to rights more extensive
but theoretical. He added that the guarantees that I propose form part of the mortgage provided for by the Treaty

of Versailles.

/row, that which I propose includes the immediate par-

ticipat ion of private property in these Guarantees, and in
conse_uence exceeds the provi sions of the Treaty of Versailles.
.tllso, a mortgage on private property constiLutes a gage which
may be realized upon, shile the -uarantees provided by the
Treaty of Versailles do not. The creditors of the Reich,
I believe, may deem themselves sati sfied if first lien mortgages on the property of the Yedera-ted States and on private

property, mortgages c overins object s of real value cap able
of being rapidly mobilized, are delivered to a consortium of

these creditors.

In this marzier, irrance would be in a position to obtain

This is certainly not a
-,boretical right' nor a 'general guarantee', but a real and
.sabstantial gage. I repeat that these gages permit France to
obtain a rapid realization, and it may therefore be supposed

important payments immediately.

that the exigencies of France concerning the evacuation of
the Ruhr are satisfied.

To be able to realize this plan Ger..amy must neces .arily
be put in possession a f the Ruhr, and her sovereignty over the
a'ineland clearly re-established. If we obtain the guaranty
that the ter itory of the Ruhr will be evacuated and the Rhine-

land re-established in its old rights, the ,uest ion of passive
resistrnee will be solved.

If we are guaranteed that anyone born in the Rhineland will
have the right to return, then the pos-ibility of working and
the joy of working will be returned to us.



A. L. .Jr



Governor Strong - Personal & Confidential

"I hope in the pos ibility of such a settlement.

2r: .nce has rep oated a number of times through the President of the Council that she does not propose any annexation and that she does nl.t think of remaining in the Ruhr.
2aagland has certainly the sane viewpoint, Belgium will
welcome the return to normal conditions, and we are

convinced that Italy will supi:ort the sane view.

For us it is a qu..estion of ascertaining if the German

economic situation can support the charges which would
result from such an accord. I understarri how critical the

present period is for our finances and our corz:erce, but
I can state with satisfaction that the pers onalitie s
guiding our economic life have offered me their coll:'oration in the plan which I have just traced and have bound
themselves 'o continue their aid to effect the desired

2:..ithfully yours,


Honorable Benjamin Stron,,
7overnor, Federal Reserve bank of New York,
Lew York City.



-arcs, 25 ept. 1923.
Dear ::_r Beyer: -

In looking thru our files it has been noted that/
11, 31st,
:_o acknowledgment has been received o.f letters dated
June 8, July 13, 27th, ;.:.nd --ugust 17.

as all of these letters have no

ed by you, will you kindly forvard an aciadowle

vonience ro tbat our files will be corni-)lete":

yo u.



Paris, 14 December 193.
18 rue de Tilsitt.

Personal & Confidential.

dear 3en:-

I enclose copy of the confidential Report of the Financial
Committee of the League of Nations entitled the 'Reconstruction of '1unThe Report feel nlay be fairly sound; however, there are
gary" which I appears to interest you.
some outstanding phases of the question .;:hich do not appear in the Report, but which are of decided interest from the investment phase.
4-4 40eAng,dr
The French today, more or less in support of the Little Entente, are trying to insist that the principle of reparation payments be
maintained during the period of the amortization of the proposed loan by
the payment of small annual amounts on account of reparations. The drench,
undoubtedly, have also in mind some fear of the repercussion of the Hungarian arrangement without reparations On any possible plan of German setIn my juda3ment, there is no connection, and even if there were,
insofar as Hungary is concerned, the banking world would not be justified
in putting up one cent on a loan for Hungarian reconstruction if in turn
one cent of such loan were to be p, -id out in meeting any Trianon Treaty

It would be too ridicul(,us.

I am very much pleased with our Government's agreem-nt to
"acquiesce in the acceptance by American nationals of invitations extended by the Reparation Commission to participate in the work of the two proI have great hopes that this will be a real construcposed conmittees".
tive act, and I would like to have your reaction and advice.
A :lorry Christmas and A Happy New Year to you.
Faitl4fully yours,

dal s.

The Hon. Benjamin 3trOng,
Governor, Federal Reserve Bank of New York,
15 Nassau Street,
New York City.


JAN1 1 19/4

Paris, 28 December l9L3.
ld rue de Tilsitt.

Personal and Confidential.

My dear Ben:As you probaoly know, ooth the Reparation Commission and the
League of Nations have been working on a scheme of reconstruction for i:ungary based on the general lines of the scheme of reconstruction now in force
in Austria, which involves a very considerable loan, as well as the accextance by Hungary of an outside financial controler, or practically, financial dictator, responsible to the Reparation Commission, the League of Eations, and the pond holders of the proposed luan.
Jue to Central European prejudices against Hungary, the plan
to date has net with considerable opposition, and there still remain many
details to be arranged uefore the plan is really on a business uusis. The
arrangement of these uetaiis will perhaps take some weeks, or even months- there is even some lixelihood that before anything definite is done the German situation must be cle,red up.
however, as a preliminary to all of this, there seems to be a
desire from all quarters to select an American to fill the office of financial dictator in Hungary when the plan is finally consummated. In general,
his functions will be similar to those now being exercised by Dr. 7immermann
in Austria.
Zimmermann is a pig, two-fisted fellow, a Dutchman, who was at
one time the .layor, or really the iusiness ..Tanager, of Rotterdam. From all
the reports that I get he is doing a good job.
I have ueen receiving a number of informal inquiries as to a
suitable American for Hungary. Obviously, I don't want to appear in the
matter officially, or even semi-officially, for it is not my direct concern.
On the other hand, such friends of mine as Count aethJ.en, the Prime linister
of Hungary, Sir ,!,rthur Salter, Chief of the iLconomic Section of the I,eague
of Nations, and :Ir. Niemeyer of the British Treasury, have asxed my personal advice.
I gather from all that their selection is centering on the name
of Harding, now Governor of the Federal Reserve Bank of Boston. Confidentially, I also gather that Harding has been approached indirectly, and that
he has shown decided signs of nibbling at the bait.
I don't know Harding,
but from his reputation he certainly must have all the technical equipment
necessary to do a good job. In addition however to technical equipment,
there must be mixed with this the ualities of a two-fisted man, and aoove
all, a fellow who will exercise his two-fisted qualities in a tactful and
diplomatic way. Has Harding these qualities?
If this .juestion is embarrassing to you, uon't answer the letter, and I will unuerstand. On the other

J. A. L. Jr. To: .,iovernor Strong - 2ersonal& Confidential



hand, if he has these qualities, let me know.
I will not use your name.

Unaer any ana all circumstances

The position, if ever created, will De a most conspicuous
one, _nd there is every chance for the fellow ':.ho gets it making a great international name for himself. .Thile I know nothing about the salary, I presume
it would be somewhat in the neighborhood of that given to Zimmermann, which is
equivalent to about ;18,000 per annum cash, plus a furnished palace to live in,
and, I guess, servants, automobiles, nd most of the upkeep of the palace. All
the latter, if translated into dollars, plus the basic salary, would make an
effective and substantial total. The foregoing is, however, only a guess on
my part as to this phase.
I don't know how Harding is liked himself, and therefore nave no means of judging how important a factor this last phase would be
to him.
hoping you have had the .:,erriest of Christmases, and that
you will have the Hap,Jiest of Lew Years, I remain,


The Honorable 3enjamin Strong,
Jovernor, iederal iieserve Ban.,. of New York,

bow York City.


JUN 3 0 1924

18, rue de Tilsitt,



Pari s.


June 12, 1924.

Dear Ben:The house is not the same without you.
I miss you very much indeed.
However, those wonderful pre2ents which you gave me are all on display and
they make a beautiful showing. You were a brick to me - bless your heart.
Last week I made a running
I have been on the go pretty much since you left.
visit in Rome.
visit to Berlin and next week I am off for a short

Basil Miles has written me about all your kindnesses concerning the
I don't know whether I will gat it or not, but the in"Agent General', job.
I am for the best man, and if another
dications so far look fairly hopeful.
fellow is offered the job and accepts it,he will have my backing to the limit
in putting the Plan across.
The following may interest you concerning the present status of
the Plan:

Due to the political situation here, we have not been able to make
The organization committees are all set up. Schacht and
very fast progress.
The Railway Committee's
Kindersley on the Bank Committee ha-e about finished.
No fifth member has been appointed and I
work is going along splendidly.
doubt if one will be required, though there is a chance that sore minor divergence of views and detail as between the Gelman and Allies representatives
may have to be arbitrated, in which case a fifth member will be brought in
not making
for this specific purpose. The Industrial Debenture Committee is
great pity that Pirelli would not serve on this
very rapid progress. It is a
but, in my judgment, one
Committee. 10 fifth member has yet been appointed
this wore: some "guts", as neither the
will have to be appointed shortly to ,Five
French nor Italian member has a poker heated to the necessary temperature.
I was informally approached with a view to suggesting a fifth member.
and who rrece"ed Boyden in my present job,
Rathbone, who was over in Earo-e
had all the necessary background and punch for the job. I informally approached
There was
him but for personal reasons he felt that he could not touch it.
recommend, so for
no cne else here immediately available that I would care to
If, when you get this letter, you
the present I have let the matter drop.
this job, cable
think of any good sound American here in Europe who could do
him drawn in.
me his name and if it is not too late I will try to have
I have
I enclose copy of a ,personal and confidential letter" which
also a letter
just sent to Barthou concerning a recent visit I made to Berlin,
drafted in an enon the same subject to Bradbury. Somewhat similar letters,
of the Italians and Belgians
deavor to appeal to the particular psychology





fJ. A. L. Jr-.

from what I g%Ither as to the present "feel'. of the American markets on the
foreign loan question, there is scre cause for concern.

I also anticipate that some time in the course of the foregoing
events there will be a meeting of the finance ministers to consider the
question of the division between the Allies, and other allotments, of the
This meeting will not of course concern the
annual German payments.
Report itself, nor the Germans. However, it promises to b. a fairly acrimonious party and one in which our claims position may have to come to
Confidentially, I am pleased th t Secretary Hughes will in all
the front.
probability be in Europe at this time, and therefore immediately available
for giving instructions as to the attitude to be taken.

With renewed expressions of my keen appreciation for your many
pers-nal kindnesses to me, your charming Sifts, and with affectionate regards, I remain,

Age.- C








Honorable Benlamin F. Strong,
Governor of the Federal Reserve Bank of New York,
New York City.
Etats-Unis d'Amerique.



18, rue de Tilsitt, Paris,
June 6, 1924.

My dear Sir John:
I was sorry to find up .n my return from Berl '_n that you had
already left for London. My Berlln visit of two days (June 3rd and 4th)
was interesting.
The first day it looked as if the Nationalists were
going to force themselves into the Ministry and with the condition that
Stresemann would have to go. Stresemann, at noon on June 3d, told me
personally that he probably would have to get out of the Cabinet that
evening. However, it later developed that Marx had decided to get
along without the Nationalists and that therefore Stresemann and practically the entire old Cabinet was to be retained.
In addition to
Stresemann I also saw Marx, Luther and Schacht.

Marx said that the Experts' Report would be accepted by
Germany at a very early date and that the two-thirds vote was practically
At the same time, however, he intimated that if the necessary
two-thirds vote of the Reichsta:- was not obtained, President Ebert would
dissolve the present Reichstag and call for new elections. He said the
present Parliament, with its strength in the Nationalists on the right
and the Communists on the extreme left,"was the German reacti::n to the
past Poincare policy," and that it was not representative of the present
feeling of the German people. He felt re-elections would not be necessary
to obtain the two - thirds majority, provided the new French Government
would come out 7Ath some definite statement following the general lines
of Herriot's written and verbal statements in France since the elections.
A large element of the Nation list representation in the Reichstag would
vote for the report, considering the views of the larger industrial and
agricultural people that the adoption of the Experts' Report was essential
to Germany's salvation.
Stresemann rehearsed all of what Marx had said, but in much
more detail.
I asked him if he would informally and cofl'identially plane
on paper a brief indication of the kind of support the present German
Govern lent needed to secure the two-thirds vote necessary for putting
the Experts' Report in effect. The enclosed Exhibit A is this memorandum,
which was handed me by the German Under Secretary of State for Foreign
Stresemann stressed the first point on the enclosed exhibit, viz:
"Amnesty for German political prisoners".
He stated that his position
would be difficult and critical if at the tine of the presentation of the
new laws to the Reichstag this question was posed by the Rationalist floor
leaders; but, if before such time, Herriot were to come out voluntarily
with the statement that he proposed to tale some satisfactory steps in
the direotion indicated, even if the release of most of the prisoners
conditions n the German acceptance of the plan and
its actual going into




liteffect on or before a certain given date, his (Stresemann's) hands wo ld be
so strengthened a. to assure the adoption of the plan by the R.:Achstag,
I did not see the encloser° until after my last talk with Stresemann, and
the various points which are enumerated were referred to in the most general
way by Stresemann in his conversation with me.
However, fran my readin
this memorandum, I was, aul I think you likewise will be struck by the
general reasonableness of the Strevemann position. Strosemaim fully realizes
the uselessness of the German Government formally at-aching aey "conditions"
Whatsoever to the German acceptance of the Experts' plan. The memorandum
has been drawn simply to show certain phases which, if originated and handled
initially by the Allies, would have the r of strengthening the hands
of the present Garman Government to such an extent as to -Tactically assure
the early approval of the Experts' plan by the Reichstag.
To sum up briefly,
Stresemann, as also earx, clearly convinced me that eelle they were favoreble
to the plan of the Experts Committees Report, and while they were willing
to stand or fall by it, they nevertheless were not overly -sanguine of successful

melts without some support being voluntarily advanoed by the Allies along the
lines indicated in Exhibit 4.
As to the question of the e.I.C.U.M. agreements, Stresemann, Luther
and Schacht referred to the difficulties at present being encountered by the
Germue Government in financing past deliveries, azd also to the practical
impossibility of financing these deliveries far azy extended period after June
15th. Exhibit B is a confidential memorandum on this subject which Schact
sent to me after our informal talk.
Elzhibit C is a memorandum on the amo subject which was sent to me
just before I left by the Gorman Under Secretary of St ate for Foreign Affairs.
From What I gathered fro.: Luther and Schacht t Is sebject is one which is
now being treat d at length ith London. You are, therefore, probably better
informed on this phase than in I. However, the enclosed emoranda may bring
out certain points Which will interest you.

I had a very pleasant lunch with Lord d'Abernon who asked to be
In his view, it was of the most urgent importrenembered most k'indly to you.
Awe that the principal allied government s, with a minimum delay, come oat with
some formal agreement or pact unequivocally accepting the Report of the expert
Committees as the adopted settlement of the roparatioa question. Be thought
a French Government under Herriot, and the German Government would sign such
a pact. An unequleocal acceptance, with the French a party to it, would, in
his judgment, allay the present German suspicion of the French attitude as
intepreted by it from Foincare's somewhat nebulous reply to the Reparation
This vague response which so far, officially at least, continues
Commis: eze
as the formal leen& view, is affording very powerful ammenition to the
opeonents of the Goverment. Lord d'Abernon was insistent on the necessity
of speed in reaching en interaliied conclusion on the foregoing line. The remarks
of Lord d'Abernon were given to me for confidential communication to you, and I
feel that my statement of What he said for you is correctly set down in this
However, it was a personel


and confidential communication from him to you, and as he has
taken the sane question up through his regular channels with
your Government,
I would be gratified if you would consider this message
as quite confidential.
I saw Fischer with Luther during our talk, and it deve,loped that
there was perhaps some thought on the part of the German Government of
transmitting forthwith and formally to the Reparations Commission the
of laws and decrees. Knowing yolr views on the inexpediency
of too much
precipitation in formal submission, I volunteered the suggestion
(which was
accepted) that the best ends would bo served were the German
Government to
let you and myself look at these drafts, with an opportunity
for informal
comment, before a definite decision concerning formal presentation
was taken.
From what I gathered, we will have this chance probably the early
part of
the next week, after yen* return from London.

Aside from the foregoing point I was naturally most careful at
all times to maintain an attitude of non-commital
reserve on all the various
questions of politics, economics and policy mentioned by the Germans,
and I
avoided being drawn into any discussion of, or expression of
opinion upon
the various matters referred to in the exhibits or during the
The information above is sent in conformity with your request that
I advise you what I gleaned in Berlin.
I would have cabled but the date
is too voluminous.

With kindest regards to Lady Bradbury, believe me, with warm
personal regards,
Very sincerely yours,

Sir John Bradbury.
Hotel Astoria.

Pari s.





It ens then t, for *senile. that it would be partioularly helpful
if the Allies were themselves to ammeence uneeuiveeally th*t they aooepted the
Plan, as a definite adjustment of the repareticn problem, contingent, of coursn,
upae Germany doing likewise* It wee pointed out that the Allies had not yet
unanimoesly taken a definite eteed ends in pertieullv, it as felt that the
reply of M. Poincere to tee esparltion Commission ropmented no definite commitment on Ise putt of France, but rather postponed a decision awaiting further
develoements. Certain moat published uttnrenses sod letters of n. Harriet

made an
heprevion and, is my judgment, bed emelt to do with the prevention of the Pan-Osomanist element from participating in the present Govern ment. nOlriner, this latter Germenelenent points to the fact that A. Rierriot's
views to date are simply those of a Trench eitisen, and that from the official
point of view . the eositinn of the Pesach Ooverement remains based on X. ?Gincare's formal letter to the Reparation Gotmleeton. Inaamuch as Prams is the
principal repar,tion creditor, the Oernens look with greet interest and anxiety
upon the attitude of your country, and the foot that it has not yet been made
officially precise is affording, according to my Garman ieformante, considerable
strength to the opposition.

In continuing their expression of vises as to the steps whisk might
be taken by the Allies twelfth voted enlitate - if not assure the adoption of
the Seports' Plan, the Gernans claim that certain aspects of the aftermath of
the Rehr ocoupstionnelll playa large part in Oman politiaal thought and
afford the strangest support for the opposition. It was intimated that the
fornd.ation of that opposition could be largely destroyed were the Allies to
indloate that (Oontingent upon the ?leafs adoption) certain measures of amelioration would be forthwith tans* with respect to these causes of demo disoontent,
It was pointed out that tbsre was over 600 prisoners ossfined beams°
of offenses in the oeompled area, etiolkolfenses, free the Germs* viewpoint,
were deemed political, and that there were approximately 140,000 persons expelled tree the ample& inres for realms ebiek, agate from the German viewpoint,
were deemed primarily political. 4:wording to my Interments, these lentils, in
German public opinion, were of paramount importanos, and the interpollations in
the Reichstag en this subjeot without sans previous conciliatory Allied assurance col/owning an adjustment of these points wonld plows the German Government
in a most critical positien. On the other hand, if the Allies ooqld, prior to
the tine of the presentation of the laws to the Reichstag, give sore assurance
for some degree of amnesty for %bees prisoeers end allow the re-entry of expelled
persons in the interest of restoring the economic unity of the Reich - if and
in Germany adopted the Plan - the Osman (-filets's felt that it would completely mndernine the opposition's position. It was suggested that under the modified
regime contemplated by tie Experts' Plsn for the eoonneic restoration and independenoe of the oecupied areas, a step of this sort world enhance the productivite of the Rich, and to no wey injure the Alain,. It lens suggested that
strong support would ho given the German Government virtually assuring the passane of the laws if the Adios Were to predicate these acts aigrette upon an
unsgeivoell teeeetance of the Experts' ernntorts before the lapse of a certain
dewier of weeks.

- 5

The Germans also emphasized the desirability from the German viewpoint, of some form of annourneeent coneerning the militai evacmation of the
Ruhr at cone fixed and oartain date aeon eartain fixed and clear eonaitions.
U. Herriotts recent letter to e. Blum WAS taken so most reaesnring in this
particular. However, the opposition again alleged that this
was simply the exchange of letters botween the ohlefe of two Prowl political
parties which in iteolf did not neoessarily oommit the French Government.
Finally, these Germans said that the promise of the restoration
of the Rhinelano Agreement at a given date (also oontingent upon the German
Goverment's faithful adoption of the Plan) 1114C a measure which would stlieulate the Reichistees aceeptanee of the Plan.
What I gathered tram the oonvelleations and what I again feel ahead
be emphasized, was net that thee' Gernane were putting the euggesticre above
outlined as sOonditiens" preeedent to their apooptanoe, but only that they
telt that they needed the pepper% of the Alliec in getting. the Plea adopted
by the German legislative body, and that measures on the general tines suggested (or so muesli in this direction as appeared practical) mould be of ineelculable benefit in the adoption of the Plena and its faithful exonuti:na
Their general position %ma that insofar as there was indefinitenest: on the
part of the Allies with reapeet to their attitude gad motion on the Plan, it
was correspondingly difficult to secure definiteness from Germany. :be Allies,
they thought, letald readily tale definite litanies sentiment upon Germany's
fell approoal of the Plan, perhaps eoholonine, at reasoneble early dates,
their oeneeseions and sot of erase atter the Pisa was accepted and when it
was Laing put into execution. They Omagh% too that if these euggesticne
emanated officially from aereany that they might be eonsidered ey Allied
opinion as evidences of evasion, ar be regarded as attempts to impose
In other %verde, I gathered that the German government posttion
before the Reiehsteg, so far as the Plan is coessorned, would be almost unassailable if they could take away the fire of the oppoeitien by replying that
the aceeptance of the Plan would fort:math, or shortly thereafter, eliminate
the meeditions upon ceilidh the opposition, or in other cords the Pan-German
element, bases Its arguments for apposing the Plan.

The rain difriculties of the Oerrian position are those indicated
I may say in pass ins that emealerable referents* was made in the conversatioas to the financial and economic diffloulties of the oeatinuatien of

Li. ise U. g asraement

In aapneotion with the views oxeressea to me by the Germans, I
naturally maintained an attitude of nonecommittal reserve on all the points
mentioned, and I avoided being drawn into disousyion of or any expressions
of opinion pen the matters referred to.
'Ay endeavor in t is personal sr
unofficial letter to you is simply to preeent to you a purely objective platers
Of what I gathered to be the opinions and views of the pre:iota German Government
after listening to its leadors in Berlin.


With germ personal regarast believe me,

Tory anoorely yoJrs,


:Amateur Louis Barthout
Presidont of tbe RoparationNessisslan,
Hotel Astoria,

Peri e.





The More


-ilitary evacuation.

iiecently Occupied Territory.

The restoration of the status sub 3.) entails further
that the territories occupied over and above what is stipulated in the Treaty of Versailles, namely,
a) the Buhr district,

the bridgeheads of litsseldorf-Huhrort and Duisburg,


the spaces between the bridgeheads of Coblenoe
and Cologne as well between Coblence and Lainz,
the harbours of Karlsruhe, Lannheim,

'esel and Ammerich,
further Offenburg and Appenweier, be evaouate,t by
the armies of Occupation.

For this evacuation a clear and unequivocal period should
be fixed.





German industry suffers from an enormous lack of capital.
This lack of capital cannot be aided by the Reichsbank, which
cannot increase its paper mark circulation without danger to the
currency and also not through foreign credits because only a
limited portion of industry is in position to pay back foreign
credits in foreign money.

The worst sufferer from the lack of capital

is the industry in the Ruhr district because it is burdened in addition by the i.Acum agreements.

The extension of

he iiiioum agreements on April 15th was

possible only because the railways bought and paid for in advance
from the mines anthracite coal foe' future delivery.

This was an

amount of fifty million gold ,:arks which made possible the extension
of the ::_icum agreements for two months.

miners' strike.

Leanwhile we have had the

Its settlement was possibly only through financial

sacrifices which industry again oannot bear out of its own resources.
It has therefore taker up for this purpose v.ith certain public and

semi-public treasuries credits which amount to about the same sum as the
advances from the railways.

Thus the fluid capital of the railways as

well as that of the treasuries mentioned has been exhausted.

There are

nowhere existent any means of financing the Laoum agreements beyond June

Thus June 15th is a oritical point in the coming negotiations.

In my personal view there are only two possibilities to continue beyond
this, date:


either France renounces the Lioum deliveries for a short

transitional period until the execution of the Dawes report by all
parties, or

Germany receives an advance for the same period out of

the two hundred million dollars loan.





F7titi or

By the agreements of the 11.I.O.U.M.

with the Bergbaulicher Verein

Branca and Belgium have since the end of the passive resistance secured for
themselves unpaid coal deliveries from the Ruhr district under the title of

They were originally concluded until the 15th of April.

since at that date


the Exeerts Report, though published, had not yet been

put into execution, the coal industry was forced to sign the agreement for
They have since been carried out

another 2 months up to the 15th of June.

at great cost to the industry and with severe danger to its very existence.

To day again the situation is much the same as ad April 15th, since
the date of the practical execution of the Sxperts Reparation Scheme is
still uncertain.

It must be feared, and there are in fact clear indications,

that the M.I.C.U.M. on the 15th of June will ask for another extension.


the coal industry, after these prolonged deliveries at a rate of 1,7 million
tons a month unpaid for, is no longer in a position to finance further deliveries, credits in Germany being exhausted and foreign credits not available.
The German Government again, as the .4perts have clearly expressed in their
report, is not in a position to make any reparation payments v:ithout endan-

gering their Budget and the stability of the exchange.
On the other hand it cannot be contemplated, that France on June 15th

will rennunce their Coal deliveries altogether. We must, therefore, look for
some means to finance such deliveries.

The only way, we can see, is to base

any further deliveries in one form or another on the Reparation fund, which
will be available for the first year under the General Reparation Scheme.

Now the Experts plan proposes to raise on reparation account for the
first year - principally for deliveries in kind 1 milliard gold marks, i.e.
800 million G.:41.

out of the foreign loan

200 million G.U. out of the German railways.

Inquiries in London have clearly shown, that foreign financiers would
not agree to spend part of this foreign money in advances for coal deliveries

under the ;AG= agreements for french benefit outside the general reparation


But the

same objection, obviously, does not apply to the

contribution of the German railways, since this money is coming from
German sources.

Here, therefore, a solution offers itself and there

are evidently two ways open to use this fund for the purpose in view:

If the Allied Governments would give their consent, that

any outlay for further deliveries until the General Reparation Scheme
is definitely put into practice will be refunded out of these 200 million

G.M. which user the Scheme eventually will be contributed by the
German railways, it would probably be possible to finance advances to
the coal industry by bonds or bills secured on this 200 millions fund.
But it is evident that these amounts will then have to be deducted later
from the Reparation deliveries of the first year.
The alternative would be, that the Lerman Government itself,
realising that the Llicum agreements can no longer be carried out by the

Ruhr industry max without endangering their very existence, would make a
great effort and take on themselves the execution of the General .Lxperts

Scheme before all other details have been arranged and accepted by all parties
and propose to start the payment of the railway contribution at a rate of
200 millions a year on June 15th, the amounts to be used for the payments
of further coal deliveries in accordance with the programme of the Reparation

Such proposal in fact does not mean antyhing less but a practical
acceptance of the 1 xperts joheme by Germany.

eor carr:Ang out the financial

obligations under the Scheme must be considered a much more complete form
of acceptance, than merely working out and passing the necessary laws in

Thus this last proposal mould offer at the same time a quick solution
of the General Reparation question, it being understood that the German

practical acceptance would make the whole jaheme in its entity

valid and binding on all parties pending agreement on details and the definite acceptance of the necessary laws in Parliament.






J. A. L. Jr.

To Honorable Benjamin Strong.



be decided upon, and the other countries by their diplomatic representatives
residing in London.
The British Government to issue the invitations; an invitation to
be extended to the United States to be represented in some capacity as "they
are anxious to have such representations. It is believed it will be influential in the deliberations".

As you Mow, our Government has accepted the invitation, and we are
assisted by your humble servant.
It promises
to be represented by Bella_
to be a most interesting affair and I am delighted that I have a front seat.
Bradbury, in confi'ential conversaticiawithin the last few days concerning the set-up of personnel for the -!ontroas colAemplated by the,e,:tol

Report, stated that the present British attitude on this question was as

Agent General to be an American. He intimated that Dwight Morrow
was being pushed by the City, and that he had given intimations of
his willingness to accept if the job was offered to him. Now, at the risk of
it being mistakenly thought that my conclusions are influenced by personal
motives, I nevertheless venture the view tha' the appointment of any eminent
ban'_-er, and especially one from all Street, is not the be:-t choice for this
post, in consideration of the present political psychology in Euro-e with its
strong socialistic and anti-capital!stic trend. There is already considerfole
attack, only partly veiled, on the Experts' Plan upon the general grounds that
it represents the capitalistic diet ticn of Wall Str,-,et and London City.
my judgoent, such critic ism would b: crystallized and confirmed by a banker's
appointment from England or America. It will be remembered that Poincare, who
still remains a strong lender of the French minority, was particularly outspoken
about such influences. And what would Herrict's position be in the event of
The same situation holds in Belgium and Germany, and
an attack on this line?
to a somewhat less extent in Italy. Only yesterday both Barthou and Delacroix
volunteered the view that they hoped the banking people of America and London
would not insist as a quid pro quo for the loan on the appointment of a banker
They said there is a growing irrit_tion in both countries
as Agent General.
to the manoeuvres of the City and Wall Street, altdch they maintain are unwisely
directed at too much interference in Governmental affairs. I full- appreciate
He is a personal friend
Dwight's special and undoubted e,ui-,cent for the job.
I understand
of mine and for that reason I would like to see him get the job.
that the argument advaneed for his being amointed is the effect that such
This argument,
in America.
an appointment -:ould have on the lc n flotation
of fact the Alerican
we both know, is only partially founded, for as a matter
investor bases his decision almost entirely on the name of the issuing houses,
The issuing hopsos of course have a resand not on the name of ,individuals.
ponsibility to the purchaser, but this responsibility can be protected by
sound security .and the appointment of the banking representatives to positions
strictly charged with the handling of the securities such as trusteeships, etc.
The latter positions, are in my judgment, the appropriate ones for the bankers.

J. A. L. Jr.


To Honorable Benjamin Strong.

I feel that the interjection of the banker into
the purpose of giving the necessary advertising
counterbalances the future political and social
The Plan will be difficult enough
of this nature.


the post of Agent General for
to sell the loan, hardly
trouble incident to such an
to work out without any handi-

The Bank Commissioner to be a Dutchman or other neutral. According
to Bradbury, his Government first d-sired this appointment for a British
national, but in view of the controversy in the American and British press
ccncernIng a dollar or sterling basis for the new bank, London City consider:d
the appointment of a neutaal as better tactics.

Railway Commissioner to be a Frenchman.

Practically all trusteeships contemplated by the Plan to be -xxasol(d)
idatcd in a Joint Trusteeship, one a Belgian and -re an Italian, thus providing
representation for nationals of these latter Powers.
Bradbury, in
fidence, intimated that such Joint Trusteeship would probably be further extended to include one American, the necessity for such appointment being developed
at the time the for ign loan was floated, and to meet the wishes at that time
of the money lenders.

Commissioner for control of revenues to be of British nationality.

Now I do not want you to get the impression that I am opposed from
any personal motives to the appointment of Dwight laorrow. As I said 1)cforo,
I am a Personal friend of Dwight's and a great admirer of his attainments.
However, for the reasons stated, I feel his aprointnent would be most shortsighted policy for the banking fraternity as it would be', in
my judgment, would bring them out in the limelight as a target for future
criticism by the Continental politicians -- in other words, in a position which
in my judgment, they would not want and which -mad give them serious difficulties in the future. I am also inclined to feel that it would seriously jeopardize the constructive results we all want to see reached.
I will
I have put the matter up suite honestly, as I see it, to Wa_hira:ton.
keep my mouth shut from now on and will loyally do whatever I am told to do
and in adc7itien, under every and all circumstances, my back.and full strength
is at the wheel directed 'o pushing the whole plan forward.
If Dwight, or
any other banker, is appointed, he need have no doubt as to my loyal cooperation in the great responsibilities with which he will be faced.
iiany thanks for your good letter of June 10th and for the extremely
With affectionate regards,
intere:ting enclosure which I have destroyed.
I remain,

Faithfully yours,

Honorable Benjamin Strong,
Governor of Federal Reserve Bank of New York,
New York City,
Etats-Unis d'Amerique.

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