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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. jU210 ilarch 1, 1923 ft 2, 1923 8, 1923 lb, April " !'a,7 1923 July 13, 1923 29, 1923 9, 1923 16, 1923 tf 8, 1923 14, 1923 23, 1923 29, 1923 'I " 12, 1923 19, 1923 20, 1923 Aug. 26, 1923 27, 1923 17, 1923 Sept. 7, 1923 " " 3, 1923 11, 1923 31, 1923 14, 1923 2b, 1923 1.1;3 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. CONFIDENTIAL 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 wastefully. 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 disqualifications. 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 developments. 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 illl January 12, 1924. 2. 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 Depr 3. Januar, 12, 41 oause discontent. problems: 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. 4. 111111 10 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. 1.s 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 7141-fr) 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. The 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 5. 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 property, 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. 6, IP encumbrance. 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 7, January 12, 1924, less impoverished duri lip 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. The 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 8. 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 been. 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 one. 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. 9, 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. It 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. This 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, 10. S 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 11. January 12, 1924. January 12, 1924, 12. 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: (1) .'.void any radical Change which would bring about a sudden change in the status of debts and level of prices. (2) 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. (3) Design any pro7ram along linos which would encourage the German people to work and develop their own business and trade. (4) Falw upon the hope engendered in the German people by the re- form: accomplished .o encourage them to bring home foreign assets. (5) 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. 'on 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. Y,-2 till be interested in the enclosed word picture of your 7r;ny attainmenta. 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 ergemente. 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 dettL. 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 unofficial. 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 delays. 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 evolved. 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. BS.MM encs. 2 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. There 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. BS.M! PERSONAL AND COIFFIL'111D 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 1.11,1 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. I 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. III 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. The 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 currencies. 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. ono. JAMES A. LOGAN OR 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 I J. A. L. Jr. To: 3. Strong - Personal & Confidential Page 2. "that you wish an early settlement, therefore, we demand an early We have hardly any friends left in the world, and solution. 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 '2 :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 Page 3. "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 Be14.an 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. a To: 3. strong - Personal & Confidential Page 4. 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 before". 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. thought. "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 h.ve 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. We ",,hen we entered the Kuhr we did so in a peaceable manner. hoped that the mineowners and the workers would cooperate with us. I J. A. L. Jr. To: B. Strong - Personal e Conf identia1 Page 8. 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 order. 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 ..pt 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 to 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 Page 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, JAL/AJG The Honorable Benjamin Strong, Governor, Feder,1 Reserve Bank of New York, New York City. JAMES A. LOGAN JR. 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 concerned. "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 Page 2. "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 entente. "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 Page 3. J. A. L. Jr. To: Benjamin Strong - Personal & Confidential Page I 2. presen so fav of fo Poi and fi on acc tic te orders fearfu Accord people of Eur elemen said t reache a man and th contin Poinca ly fol on the tate s not re would in min itary ity of German and Be a pape and Br their meetin to be these Theuni with L German gim pl Poinca to mee from P the pr cuss t date. ed in Poinca A. L. dr. To: eenjanain strong - Personal & Confidential Page 4. 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 importations. Delaeroix, in a Jubeeauent conversation to that already informed us that M. Theunis ro)osed u.on receipt of the forecasted oted 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 French. yesterday 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. http://fraser.stlouisfed.org/ To: Benjamin Strong * Personal & Confid, ntial Federal Reserve Bank of St. Louis Page 5 og To: Benjamin Strong - i)erson.al 6; Confidential J. A. L. Jr. Page 6, JAMES A. LOGAN JR. J. A. L.Jr. 40, 20 governor Strong - Personal & Confidential. Page 4. 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 Ruhr. 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 Germany. 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 holding 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. 1! 4011 J. A. L.Jr. To Governor Strong - Personal z Confidential. Page 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 France. (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 France. 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. JAL/BH 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 Page 2. Pa 41 reduction of the German debt to 50 billion (A) 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." . 411, A. L. Jr. To Benjamin Strong - Personal & Confidential Page 4. 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 erate". JAMES A. LOGAN Ja. 116 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, 1923. On Page Three of our letter of June 6, 1923, we made reference to the fact that, after agreement with M. Poin.care, 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 , J.A.LAJG Ends. 1. The Honorable Benjamin Strong, iovernor, Federal Reserve Bank of New York, rew York City. reparation ICT<NOWL.EDOED JUL 1 6 1923 JAMES A. LOGAN JR. rt R. I. J. A. L. Jr. To Governor Strong - Personal 6. Confidential. Page "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 ae..in 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". I. J. A. L.Jr. To Governor Strong - Personal & Confidential. Page 7,, 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 accord. %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 tivity. 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. Page 8 "occupation itself, and it would ther finally be possible to reach a really peaceful condition of affairs, to arrive The 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 Poincare's 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 Herriot 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, 4 JAL/BH The Honorable Benjamin Strong, Governor, Federal Reserve Bank of New York, Few York City. l'aftl .`." JAMES A. LOGAN JR 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 modified". J. A. L. Jr. To Governor Strong - Personal & Confidential, Page 2, J. A. L. Jr.. To Governor Strong - Personal & Confidential, Page J. 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 allies". 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 Germany. 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. a 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 money. 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 I. J. A. L. Jr. To Governor Strong - Personal a Confidential. Page 6. 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. Because 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". I 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 ness. eyes of the world the extent to which our intentions are peaceful. J. A. L. Jr. To Governor Strong - Personal Confidential. Page 9. J. A. L. To Jr. Governor Strong - Personal & Confidential. Page 10. J. A. L. Jr. To Governor Strong http://fraser.stlouisfed.org/ Federal Reserve Bank ofawaits her salvation. she St. Louis Personal & Confidential. Pag 11. J. A. L. Jr. To Governor Strong - Personal & Confidential. Page 12. J. A. L. Jr. IS To Governor strong - Personal & Confidential. Page 13. %: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 anomalous. :Unclosed as Exhibit A is copy of the speech of -r, Baldwin The 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, JAL/BH 1 encl. The Honorable Benjamin Strong, Governor, Federal Reserve Bank of New York New York City. JAMES A. LOGAN JR. :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. Page 2. 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 currency. 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 sources. 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. 4 410 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 : - oi J. A L. Jr. To Governor Strong - Personal 6: Confidential. Page 4. 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. absent. On Mtivi 23rd the Reparation Commission by the casting vote The 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. 2) 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. 3) 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. ..re 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? Page J. A. L. Jr. 7, -,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 nroresnectively, '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.) Lionth lgllsh Total Coal. Irz.ports gLiQg dish English Total_ Coal Imports * Coal X Total Imports 2,-^lish Total Coal X .1.ngust 1922 1,104.5 2,018.1 869.4 1,477.6 435.6 458.8 238.3 x Sertember 1,128.1 2,107.6 895.9 1,622.2 466.0 485.4 276.4 x October 2,224.8 1,007,6 1,096.1 1,625.6 523.4 551.4 298.4 x ovember 702.3 1,539.7 1,209.3 1,925.0 593.6 x 517,4 x ecember 442.7 1,170.9 1,327.4 2,055.5 551.9 x 577.6 x nu8r:J*1923 645.4 1,505.9 1,3D5.6 1,920.6 542.1 x 426.9 x ebrrs,ry 1,222.5 2,035.7 1,360.4 1,923.4 675.3 x 424.5 x arch 2,266.4 3,371.3 1,812.1 2,150.7 788.2 x 610.9 x pril 1,915.2 x 1,750.0 x 2,107.0 654.1 x 699.3 x y 1,900.0 71 1, 850.0 x 2,416,0 686.6 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. Lq-)orts 4 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 ani 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, J2JIDS The Honorable Benjamin Strong Governor federal Reserve Lew York City. :::an11,.: of 11.7. A. L. Jr. a To: Benjamin Strong - Personal & Confidential Page 2. 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 Page "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, 3. .41 J. A. L. Jr. To: Benjamin Strong - Personal & Confidential Page "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 lethargy. 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 4. J. A. L. Jr. To: Benjamin Strong - Personal & Confidential Page 5. 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 settlement. They, however, will have the advantage of continuing the negotiations and thus prevent any immediate darger of a rupture in negotiations. Faithfully yours, JAL/AJG Encls. 9. The Honorable Benjamin Strong, Governor, Fcderal Reserve Bank of New York, New York City. JAMES A. LOGAN JR. 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 tribunal. had recently had the satisfaction of noting that their total amount had been estimated, after an impartial examina- U. J. A. L. To Governor '"trong - Personal & Confidential. Page "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. b:; 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 4. "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". Germany 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 nations. 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. They 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". JAMES A. LOGAN JR. J. A. L. Jr. To: Governer Strong - Personal & Oonfidential Page 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 . that 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. r. 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 tald.ng 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. 2o; Governor Strong - Personal & Confidential Pag 3, 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. P 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. Gove....sr Strong - Personal & Confidential Page "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. 6. a U A. L. .Jr lb . 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 payments." 2:..ithfully yours, Away The Honorable Benjamin Stron,, 7overnor, Federal Reserve bank of New York, Lew York City. Page JAMES A. LOGAN JR 0 -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": I yo u. JAMES A. LOGAN JR 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 -0.44 rad...0 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, tlement. 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 charges. 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, JAL/AJG dal s. The Hon. Benjamin 3trOng, Governor, Federal Reserve Bank of New York, 15 Nassau Street, New York City. ACKNOWIEDOED JAMES A. LOGAN JR. 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 Page 2. 1/1 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, Yours, JAI,/,JG The Honorable 3enjamin Strong, Jovernor, iederal iieserve Ban.,. of New York, bow York City. JAMES A. LOGAN 0R. ACKNOWLEDGED JUN 3 0 1924 18, rue de Tilsitt, F/ R Pari s. PERSOITAL 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. Albert 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 Page S Page 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, Yours, Age.- C Awl e, et"-, laac-04 _ t6etr derts C- Honorable Benlamin F. Strong, Governor of the Federal Reserve Bank of New York, New York City. Etats-Unis d'Amerique. fr`-etir-skr-. 3 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 assured. 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 Affairs. 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 was conditions n the German acceptance of the plan and its actual going into I 1 2 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 s.lt 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 letter. 3 and confidential communication from him to you, and as he has undoubtedly 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 drafts 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 conversation. 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. 7 P. 2 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 oorrespondenoe 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 eemalitionsq. 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 atove. I may say in pass ins that emealerable referents* was made in the conversatioas to the financial and economic diffloulties of the oeatinuatien of the 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. 4 With germ personal regarast believe me, Tory anoorely yoJrs, J.>7./..P1) :Amateur Louis Barthout Presidont of tbe RoparationNessisslan, Hotel Astoria, Peri e. rtHIBIT LIAINF;nENT AL -2- The More 4.) -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, b) the bridgeheads of litsseldorf-Huhrort and Duisburg, c) 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. n EXHIBIT B. Translation 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 15th. 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: (1) either France renounces the Lioum deliveries for a short transitional period until the execution of the Dawes report by all parties, or (2) Germany receives an advance for the same period out of the two hundred million dollars loan. -2- EXHIBIT C F7titi or By the agreements of the 11.I.O.U.M. with the Bergbaulicher Verein 41 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 reparation. They were originally concluded until the 15th of April. since at that date But 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. But 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 scheme. -2- 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: 1.) 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 Commission. 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 Parliament. Thus this last proposal mould offer at the same time a quick solution of the General Reparation question, it being understood that the German Government's 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. 000 JAMES A. LOGAN OR. ACKNOWLEDGED 111 J. A. L. Jr. To Honorable Benjamin Strong. Pag 2 be decided upon, and the other countries by their diplomatic representatives residing in London. The British Government to issue the invitations; an invitation to (8) 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 ra.az,e,:tol Report, stated that the present British attitude on this question was as follows: Agent General to be an American. He intimated that Dwight Morrow 1. was being pushed by the City, and that he had given certn.in 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 In 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. Peg. 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 appointment. The Plan will be difficult enough of this nature. cap 3- the post of Agent General for to sell the loan, hardly trouble incident to such an to work out without any handi- (b) 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. (c) 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. (e) 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 miscorstrued.an(', 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. Confidentially, 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.