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J. A. L. J r.





The Committee will be constituted as follows:

Monsieur Leon Delacroix

Belgian Delegate to the
Reparation Commission. Chairman.

Signor d'Amelio

Italian Assistant Delegate to the
Reparation Commission. Vice Chairman

A representative to be nominated by the German Government.
A British financial Liember.
A French financial Member.
An American financial Member.
Financial Liember national of a country which took no
part in the war.
The British, French and 4merican financial members will
be appointed by the Commission upon the recommendation
of the British Delegate; -French Delegate and the
American Unofficial Delegate respectively.
Financial Member national of a country which took
no part in the war will be appointed by the Commission on the joint recommendation of the Chairman of
the Committee and the German representative.
financial Members will be persons having practical
experience in regard to the placing of Government
The Secretary to the Committee will be nominated
by the Reparation Commission upon the recommendation
of the Chairman of the Committee."
The foregoing resolution has been published in its full text
in the press and it is therefore public property.
Confidentially, Boyden
in a cable to the State Department under date of April 5th transmitted
the following, viz;

Commission decided Tuesday appoint
Committee consider possibility German foreign loan.
Committee to consider probable terms, amount, security, also relations between lenders, Germany and
Commission. Committee to consult Government loan
experts all financial capitals with purpose
formulating plan for approval German Government
and Commission.

Delacroix Belgian Delegate Chairman;
d'Amelio Italian Assistant Delegate Vice-Chairman;
German representative helped will be Bergman; financial members one each British, French, American and
neutral, all to be persons having practical experience

J. A. L. Jr.



placing Government securities, appointed by
Commission on recommendation respective
national Delegates; Delacroix excellent
choice for Chairman under existing conditions.
Bradbury expects appoint Sir Robert Kindersley
Governor Hudson Bay Co. and Director Bank
England. We strongly recommend our making nomination. 4iguest Ben Strong.,
If Department objects
to my making any nomination, Commission, which of
course very desirous having American representation,
will be willing make American appointment itself
without nomination by me; in which case you can,
if desirable, suggest names for consideration.
Nomination would be distinctly finantial expert,
would not represent or express Government opinion.
This is really serious constructive
effort get reparations and all German obligations
on business basis. Effect hampered slightly ,for
present by restricting Commission on demand 2rench
Delegate to existing requirements Treaty and
Schedule of Payments, but this restriction will
disappear if Committee finds, which seems unavoidable,
that even small loans impossible while requirements
upon Germany remain unchanged. We therefore regard
project as opportunity for world financial opinion
express itself effectively with great possibility
beneficOnt result. Should hope final result to be
recognition of fact that Germany cannot pay what she
is capable of paying until total obligation brought
within limit her capacity.
I am sure this purpose
in minds all delegates except French, and even he
also certain French Government officials give hints
of possibility change French policy if supported by
assurance or hope of substantial payments oash thru
medium such loan.

This Committee project likely to be
extremely helpful in approaching deadlock between
Germans and Commission resulting from recent
Commission's decision about payments for 1922.
Germany seems sure to answer she cannot meet conditions imposed by this decision.
Cannot predict
results but would expect prompt report by Commission
to Lsovernments of uerman default terhaps without
discussion with Germans even if Germans ask for
further discussion.
If this happens France sure ask
Allies cooperate in further sanctions and may feel
compelled by public opinion to act alone if Allies


J. A. L. Jr.




French attitude L;hamber debates has
The loan
stiffened perceptibly recently.
Committee project will act as sort of safety
valve enabling discussion and time for calmer

You will note that your name appears quite prominently in
Boyden's despatch. T:e of course do not know what the attitude of the
Government will be and we don't know whether or not you would like
the job if our ouvernmeUt decides to go in and if they want you to
It however shows Boyden's and my feelings
come abroad for the purpose.
in the matter.
Since the above cable was sent the German Government has
officially nominated Bergman as the German Representative. The French
have nominated Sergent, President de la Banque de l'Union Parisienne,
at one time Premier Sous-Gouverneur de la Banque de France et ancien
Gous-Secretaire d';-tat aux Finances, as French Member. Delacroix and
Bergman have agreed to nominate _Jr. G. Vissering, President de la
It has not
Banque Neerlandaise, a Dutchman, as the neutral .iember.
as yet been ascertained whether Vissering will accept as he is said to
be in bad health, but both Delacroix and Bergman are of the opinion
that he will.
The French are very anxious now to push forward the work of
this Committee so as to have it in being before the reparation question
is brought up at Genoa. Delacroix informally expressed the same view
He told me yersterday that he, d'melio and Bergman were all representatives
of their Governments at Genoa, and would have to leave Paris within three
days making it impossible to have the first meeting here, and tentatively
In view of the present attitude of our
suggesting convening at Genoa.
Government concerning Genoa, I told Delacroix that in my personal opinion
it was an unfortunate place to hold the first meeting. I am always somewhat
suspicious and inclined to search for the ulterior motive and was therefore
I expressed this doubt quite frankly
questioned Delacroix' real motive.
and Delacroix replied that it was obviously impossible to have a meeting
in Paris before his departure for Genoa; that he had to go to Genoa
as he was the principal Belgian Delegate and that the only way he could see
to head off open discussion of the reparation question in the "Genoa Conference"
proper was to have the machinery available at Genoa for a meeting of the
Reparation Commission's Committee. This was only partially satisfactory to
I am inclined to believe the proposed meeting at Genoa is a compromise
agreement between the conflicting French and British positions. Under the
compromise, Poincare would gain his point in not having the reparation
question considered by the formal "Genoa Conference", whereas Lloyd George
would gain his by having the reparation question considered at "Genoa ", in
The possibility of good consother words a certain political "eyewash".
tructive work being accomplished by the Committee of Financiers is in my
opinion not affected one way or the other by convening at Genoa. The


J. A. L. Jr.



difficulty I foresee, which will also occur to you, is the
unquestionable fact that Ilo:c1 George will undoubtly "pull"
our foreign loan question into the Genoa Conference. Delacroix
is not above playing this same game and I politely told him so.
In reply he said that the loan question would come up at Genoa,
but if our Government saw any objection to having the Committee
of Financiers meet at Genoa, he was prepared to leave Genoa,
In my view this latter
come back to Paris to hold the meeting.
procedure would be the best and if our Government shows any
interest Boyden and I will suggest to Delacroix the latter alterHowever all of the foregoing will be cleared up at home
even before you see this letter.
In my letter to you of Larch 44th as Exhibits A and B
I transmitted a copy of "the decision" and "the formal letter of
the Reparation Commission which has been sent to the German
Those enclosures were
Government under date of Larch 21st 1922".
translations of the original French text and were faulty in some
I enclose herewith a copy of the authentic English
text which has equal force with the French text and which has also
been transmitted to the German Government, You will notice from
this new English text that there are many more "loop-holes for
escape" from the "ideal" premises of the first translation.
Faithfully yours,



1 encl.

The Honorable Benjamin Strong,
Governor, Federal Reserve Bank
of New York, 1:ew York City.



23 1922

Paris, 18 rue de Tilsitt.
7 April, 1922.


My dear Ben,

I forward herewith as of possible interest to you the
Annex 1S42a, b,- graft Law relative to the Autonomy of
the Reichsbank.
Annex 1347a, b,- Report from the Delegation of the Committee
of Guarantees at Berlin on the Draft Law
Granting Autonomy to the Reichsbank.
(This document is only interesting as
giving a short resume of the Draft Law
The recommendations of
Annex 1342 above.
the .Delegation as set forth in the document

were considered by the Commission before
the Commission's "ideal" letter of March
21st was sent to the German Government
and these recommendations were largely

Annex 1358a,b,c ,- Decisions of the Meeting of Allied Finance
Ministers of Belgium, France, Great Britain
and Italy, held in Paris on the 8th of March 1922.
(This is the EnLlish text of the document I
already sent you in French).
Document Berlin 568 - Financial Position of the Reichsbank for
Period ending March 20, 1922.
Document Berlin 573 - Reichsbank Weekly Statemeht.
The French Debt on January 1, 1922.
I. S. 629
:eekly Balance Sheet of Hungarian Bank.
I. S. 641
Weekly Balance Sheet of Austro-Hungarian Bank.
I. S. 642
Develomment of Principal Items or the Balance
I. S. 645
Sheets of 13 Viennese Banks.
Note from the Intelligence :service, Vienna
Annex 1354
Office on the Credits Granted to Austria.
"Memorandum Regarding American Visit" of
This was handed me for
Sir William Goode.
my personal information by Goode and may interest you as it containe
I have never been inclined to
references to your conversation with him.
take Goode very seriously though I personally like him very much.
Faithfully yours,
The Hon. Benjamin Strong,

New York


April 10, 12!'.

Dear Eliot:

This is to acknowledge and thank yo

for copy of

cable No. 126, dated March 18, advieinf of further
Reparation payments by the Reichebank.
Yours sincerely,

Honorable Eliot itadeworth,
Assistant Secretary of the Treasury,
Treasury DepartLent,
iashington, D. C.


April 11, 19?!.

My de 1r Lagie:

Since the recei?t of yours er 1:erch ?4, I have been called eut or town

once cr twice, lest meek in Nasbington, and only Friday was able to reed over

the encloures.

They ere m:st intcreetiac.

of the Germml Gevcrn-ent;

Now we mutt teait the attitude

I assume that it will be a viereus efrert to

resist thelf*6ecende, end that they are 171eyin4! Per a herring on the subject at

Genoa, even thcu4h it ray he behind clesed doors.
Peferrin6 ez,ain to the ropeev.1 fer a committee of exnerte to ineuire

into the 2oceibilities of Germany floating external leans, you realize, of
°cures, that this contains a poesitility of reel mood only in the event that

the echeme of payrents is reeecnetle and feasible one, end the poseibilit of
greateat good only in the event that a ocneideratie part of such loans can be
placed in the United :Antes, and poEeibly in sore oP the rout:eel markets.

Privetely ciscuesinw this matter with some of our important bankers,
I gain the impression that a loan would be possible in tbie ccuntry under the
condltiens now orevailing for a oonsiderable amount, assuming that the following
conditions could be met: (1) adecuate security and priorities mould be given.

do not mean necessarily pledges of national property, but rather priorities

over certain other claseee of payments to be made by jemmy, and some prior
claim on curbms, or 11:'

ting of that sort.

ie venerally regarded here as a feasible one.
it to

(t) that the Reparatioee pine
(3) that our government conceives

to in the interest of the citiaens of the United States.

that it be either afPirmative or passive approval.

In other words

Colonel James A. Logan, Jr.


April 11, 1922.

Do not, attach too much importance to this, however, as it was simply
a st-.1.ement by one important firm, and made quite offhand as an expression of
opinion only.

The next most important step from our stand7oint evuld be to have the

Funding Commission ratified by the Senate, and negotlatione commenced.

that IE under m-ty, I hardly can expect such progress here toward public or

private intcreft in reparation matters.

There is a gmwing sentiment that we should be officially represented
on the Re-er5tion Golmissien, and feelers are certainly teing tut out to see
whether it you'd not meet with publiu e.,)oroval.
Some one betel that you J.ght gc. to Genoa as a scout or observer, or

in some capacity.

If you do, I will to Intensely interested in he-lrin

news dispatoh from there boldly k-sorted that s prlminent

offici 1 of the Federal heserme rani wasc,:1;erating with Delscroix and
of other banks of issue in ocanection wit *. the German credit ;len.


cruet have referred to my brief oorrespondence with Hevenstein, or else came
from the inglish, aha were acquainted with the elite...knee

f it.

It is not

good na6, however, to appear in press dis;atcces, becluee, in the first place,

it is not true, and, in the second place, it mould create s ?ass impression
here of our real position.
Progress on 1718 is most encouraging.
ready for a house warming on May 71.

The contractor promises to be

Basil is busy as a hunting dog trying to

duplicate everything thrit Ias is the house, and with considerable success.

I am keen to have it finished and feel at home in fashington once more.
Please remember me to Boyden, and my beet to you.
Sincerely yours,

Colonel James A. Logan, Jr.,
18 rue de Tilsitt,
Paris, France.
ES. 164


APR 2 4








Paris, 18 rue de T.ilsitt.
14 April, 1922.


Reparation situation, Genoa
Conference, etc.

dear Ben,
:4,7 last two letters to you were dated ,L,Aril 6th and 7th.

I enclose herewith, viz:


Exhibit A - Copy of reply of the German Government dated April 10th
to the "ideal" Commission's letter of March 21st.


hxhibit B - The Reparation Commission's reply to the German letter
(Exhibit A).

The German reply was stupid; a more or less blunt refusal of
the conditions imposed in the Commission's letter, without any redeeming
features, and obviously a political maneuver to force the Commission to
immediately notify the Allied Governments of Germany's technical default
under the Treaty and thus raise the reparation question at Genoa.
Germans are unsuccessful todate in this maneuver as you will note by
the Commission's reply (Exhibit B) and there are indications that they
have had a "change of heart" as reports just received from Genoa are to
the effect that "the Germans themselves do not intend bringing up the
In my view no useful results would come from any consideration
of this question at Genoa.
It would probably lead to the withdrawal
of the French from Genoa and a smash up of the Genoa Conference.
I doubt
if Lloyd George is strong enough at this writing to carry on at Genoa
without the Frencn, though this situation might change before the
conference is over.

Poincar6 announced the other day that "if the Reparation Commission
reported Germany in default, the French Government reserved its liberty
of action".
In other words, this was a statement to the practical effedt
that Poincare was not committed to participate in any so-called "Supreme
Council" or other Interallied meetings on the reparation question.
I don't
know of course what action Poincare would take if a default was officially
reported by the Commission under his reserve as to "liberty of action".
There has been a decided stiffening in the French parliamentary attitude
which might lead to insistence for a far reaching control of German
administration or even to military pressure. I believe Poincare would
incline to the control feature and that he is too conservative to embark
on any military adventure.
I think however that Poincare's intention
or bluff, whichever you want to call it, is reflected by the German

J. A. L.Jp.




"change of heart" as to bringing up the question at Genoa.
The Germans have behaved stupidly, particularly during the
In addition to their stupid
last few weeks, and need a sharp round up.
letter (Exhibit A) they have placed every obstacle in the way of
increasing the volume of "deliveries in kind" on reparation account.
The Commission's representative sent to Berlin for the purpose of
formally exchanging the fi-al drafts of the so-called "Bemelmans
Agreement" concerning deliveries in kind returned advising that
Rathenau now took the position that "this agreement could not be put
into effect without both the approval of the Government and of the
Reichstag; that the principal members of the Government were going
to Genoa and that the Reichstag was shortly taking a vacation, and
that therefore nothing could be done until some time late in June
at the earliest". This was a complete volte-face of the German
Government as Rathenau previously stated that the agreement needed
only to be confirmed by the Government which was a mere formality.
The foregoing was in line with the German scheme of forcing the Commission
to report a default forthwith.
I do not want to convey the impression that I consider it
possible for Germany to effect deliveries in kind up to the volume
and value publically contemplated by the various agreements or that
all the agreements which have been negotiate: are perfect, as this is
On the other hand this method of reparation has
far from my view.
considerable possibilities and was advocated by the Germans through
Rathenau. Y.ost of the material to be delivered under the "Wiesbadeh",
"Bemelmans" and subsidiary agreements (now delayed pending Reichstag
approval) is really required for reconstruction purposes in war
devastated areas. Rathenau's ulterior motive in negotiating these
very liberal "delivery in kind agreements" was "a gallery play" knowin
as he did that the ultimate effect would be to automaticgllyLose
down large industries in the beneficiary countries with the result
that public clamor in the same beneficiary countries would force an
I am convinced that practically
early discontinuance of the system.
The war devasno undue burden as to volume will ever be obtained.
tated areas have not as yet been reconstructed, certain German materials
are needed for the purpose and it is up to the Germans to carry out
their agreement in good faith.
The Reparation Commission's reply (Exhibit B) occasioned
a passage of arms between our British and French friends. Dubois took
the position that he was in agreement with Bradbury and the others that

J. A. L. Jr.





the Commission should swallow its pride and not report Germany in
"default" to the Allied Governments until May 31st or the final date
set forth in the "ideal" letter of :.:arch 21st.
He refused however to
agree that there were any "loop-holes" in the March 21st letter and
that if On May 31st the exact provisions of the "ideal" letter were
not carried out Germans was ipso facto in default and the Commission
could have no other duty than to so report to the Allied Governments.
Obviously, Dubois was afraid of Llo:d George's Genoa Conference and
did not want to give the Germans excuse for calling up the reparation
question there, at the same time reserving for France "complete
liberty of action" after May 31st. 'Bradbury took the position that
there were "loop-holes" in the March 21st letter; that if on May 31st
the exact provisions of the "ideal" letter were not carried out the
Commission was still in a position to re-examine the whole question, and
therefore proposed intimating to the Germans in the Commission's reply
that the latter was willing to consider alternative proposals from the
Germans before May '.ast.
In other words the Commission and not the
French "reserved its own liberty of action" on and after May 31st.
Bradbury, as an alternative proposal, intimated that if Dubois insisted
he was reluctantly prepared to admit that Germany was in default today
and might join the Commission in forthwith making such report to the
Allied Governments.
He pointed out however that this would certainly
raise the question at Genoa and that a Supreme Council meeting probably
at Genoa would be the only solution if the French and British policies
were to be kept "on the same track". According to Bradbury, if a Supreme
Council or other form of Interallied Conference was not possible, under
French policy, to consider the situation created by the Commission's
report of default, the only result was a "very wide divergence of orientation
between British and French policies on the entire question".

All the foregoing will be cleared up in the press before you
receive this Atter. However I ventured sending you these sidelights
in some detail as they are essential to a real appreciation of the
situation as it develops. You will note from Exhbit B that Brad=
has won his general point though I feel that he may have to cone
something on "the control" feature after May 31st. The situation has
been fairly critical the last few days and I am glad that this, if only
temporary,"armistice" has been reached.
Now as regards the Committee of Financiers. Vissering has
formally accepted to become tnerentral Member. Kindersley is still
considering whether or not to accept as British Member. The frame up
today is therefore Delacroix, President; d'Amelio, Vice-President;
Sergent, French Member; Vissering, neutral Member; Bergman, German
representative, probably though not sure Kindersley, British :_ember.
The first meeting of the Committee
No American member yet appointed.
will probably be held in Paris on or about May 15th; previous talk
of holding a meeting at Genoa has been discontinued which I believe
to be most wise. While I can well appreciate the almost insurmountable
difficulties of our Government in officially appointing an American

J. A. L. Jr.



member to this Committee, I hope they wil at least indicate that
they have no objection to the Commissio itself appointing some
American financial representative and hat if so appointed the
ery possible support.
State Department will give the man
present outlook ahead is not very rosy. As a matter of fact it
is decidedly bumpy and I know o no better calming influence than
the efficient work of this Co ittee of Financiers and it deeerves
the best practical financia talent that we have in our country.
the State Department has cabled us that
you, in view of your t. ominence and close affiliation with the
I am
Government, are too fficial to send over for the purpose.
On the other
the State Department is right.
disappointed but 4
hand the Department iT)dicates that it has no objection to the Commission
itself nominating an American member, though it has not as yet definitely
I think this is a good move and I am
authorized Boyden to say so.
sure that in a few days we will receive some indication of the name
of the man whom we can hint to the Commission to designate.


In addition to Exhibits A and B, I enclose herewith copies
of the following documents, as being of possible interest to you, viz:

Paris Document 556 - The Transfer abroad of the Gold Reserve
of the Reichsbank.
Paris Document 576 - The situation of German Banks of Issue
at end of February 1922.
Paris Document 581 - The Dividends of the Reichsbank.
Paris Document 583 - Consignments of Gold sent by the Reichsbank
to the Bank of England.
Paris Document 588 - The German Exchanges at the Beginning of
April 1922.
- Weekly Balance Sheet of the Austro-Hungarian
I. S. 652
Bank on Llarch 15, 1922.
Berlin Document 594 - Financial Position of the Reich for period
Ending :arch 31st 1922.
Berlin Document 595 - Reichsbank T:eekly Statement for Week
Ending31 March 1922.
Berlin Document 598- Control of Export Bills by the Reichsbank.

Note from the Intelligence Office at Vienna
on "The Rise in Foreign Exdhange and its
Effect on Prices".
Faithfully yours,
12 incls.

The Honorable Benjamin Strong,
Governor, Federal Reserve Bank of

New York, New York City.


J. A. L. Jr.



18, rue de Tilsitt,

Paris, Aprillt, 1922.
Personal and Confidential.
Hon. Benjamin Strong,
Governor Federal Reserve Bank of :new York,
row York City.


2.1y dear Ben,

My last letter to you was dated April 14th.
You will probably feel
highly honored by receiving an additional letter from me at such an early date. 1.1y
family would feel highly flattered were I to honor them as often as I honor you.
However, I enjoy writing to you, particularly as I get some reactions through
various sources indicating some fine Italian handword on your part. All of this I
feel to tie constructive.
I have just received your good and confidential letter of March 23th.
portion of your questions, particulatly those concerning the "autonomy" of the Reichsbank have been answered by my letters which have caused yours.
I am taking up your
letter point by point and as soon as I return from Genoa I will give you a comprehensive reply.
In passing I may say that I am much impressed by the idea you give
me as to your surmise on the operations of the German industrial of the Stinnes type
(see page 2 of your letter).
I think I will able to get a line on this. There
is another phase of the same situation concerning taxation.

Under the present system the German industrial is today paging his taxes on
the mark valuation of his P 'arts and business on the basis of the leper mark valuation
of three years ago.
In other words, when collecting such taxes, no account is taken
of the tremendous inflation of the German paper currency in relation to the real value
of industrial property.
Pretty good business for the industrial.

70w as to reparation auestions.
Please attach no importance to the "pass
piarns" of the French and British delegates as described in the first part of my
letter of April 14.
This I feel was simply a display of "French nervousness" at
Lloyd George and has no other special importance.
I am not a keen admirer of Lloyd
George and his methods; considering his usefulness ended.
I have
French and their suspicions.
I am gradually becoming convinced that Poincare is
swinging to conservatism and using his nest efforts to arrive at a business settlement
of the reparation question.
This is clearly indicated from every "sane" source I hear
in France.
Poincare fully realises that the reparation question is not Possible of
settlement and liquidation by messing into it of "supreme councils" and other forms of
"wind-bag politics" and would like to get ride of his responsibility in the matter by
leaving the solution of the question to the Reparation Commission, or in other words,
to the agency established by Clemanceau's Treaty of Versailles for this purpose. I

Hon. Benjamin Strong - Personal n Confidential.



J. A. L. Jr.
believe Poincare wants an early settlement and would accept the Commission's
decisions. It is up to the Commission to ston writing "ideal" letters and other
forms of "cold storage ultimatums" to the Germans and get down to basiness.
is to the interest of our Government to help and I can see no better way at
present than (first) to use its best efforts in supporting and protecting the
Reparation Commission from political interference and (second) in so far as it may
LA, possible, aiding the work of the Commission's Committee of Financiers.

I fully agree with you as to the difficulties of floating an
international loan at this time in America. However, the following is interesting.
Jay, one of the partners of Morgan-Harjes & Co., informed me quite confidentially
the other day that the French Treasury informally asked Mbrgan's advice as to the
practicability of Germany raising a foreign loan for reparations.
Treasury indicated the possibility of the French Government agreeing to a reduction
of the reparation bill as well as other conditions necessary to Germany's securing
1, loan on a business basis.
Jay said that Morgan's were impressed with the
possibilities and I gathered that they have even gone so far as to suggest their
willingness to undertake floating suah a loan if the French and British and Geruan
Governments jointly made the request and if it were supported by the Reparation
The figure as to the amount of the loan which was discussed was
I gathered that the view was that such loan must be a- international
loan subscribed to pronortionately by the Allied and Nentral Powers and ourselves
Were the first loan of this character
and based on sound business Premises.
a success I gathered that there was reason to believe that additional loans might
be forthcoming thereafter.
I believe the foregoing to be very signifcant as
indicating not only the French change of view but also the practical business
interest in the matter.
Almost immediately after seeing Jay I lunched with Bradbury
and Sir Robert nandersly.
Kindersly is apparently not quite sure as to whether
or not he would accept the appointment as British Member on the Committee of
Financiers, but was chewing it over and obviously "feeling the bait: quite seriousIt was, however, extremely interesting to hear him talk, for his ideas and
plans ran along the identic lines with those a few hours previously told me by Jay.
I kept my mouth shut but I went away with the firm conviction that he had full
Mile I do not attach too great
knowledge of the plan discussed at Morgan's.
importance to either Jay's or landersly's conversation, it nevertheless has its
The foregoing, and particularly as
significance, which you can readily grasp.
Jay has
relating to the Jay and Idndersly conversations, is most confidential.
just returned to Paris from Few York after having spent a month or six weeks in
the Morgan New York office.
I plan staying in Genoa for four or five days before returning
This is about the maximum length of time that onD can effectively work
to Paris.
in an "informal" capacity. I will make another trip to Genoa on the same business
the early part of :lay.
Henry Fletcher has just turned up looking fat and sassy.
delighted to see him.



I am

April 1'7, 1922.

My dear Logie:

I have read yours of !:aron 31 with the closet interest once more.
It begins to look to me as though France were getting ready to withdraw from her adamant position in respect to a moratorium for the Germans,
and without necessarilycuohn,with it demands for sanctions.
That certainly
could be wise, for sanctions may involve spending core on occupation forces
than they will colloct on reparations as the result of such a policy.
I have been told that Bradbury, or Boyden, or somebody on the commission, had suggested that I should serve in some soy with the committee of
experts to examine into German foreign credits, but of course I know nothing
about it, and await information before forming any opinion.
Can you give me
any news on the subject?
As I have written you before, I believe, from this distance, that
the danger in dealin,s, with the allied debt to this country entirely independently
of the other inter-allied indebtedness and of reparation payments, lies in the
possible development oi7 sort of an economic alliance, which would bring all of
our debtors into an association of a character that might not be altog ther
agreeable or profitable for ns.
Now that the Funding Commission has been
confirmed by the Senate, I am banking upon their being able to get the real
facts and nave some constructive and helpful policy to suggest which will enable
us to escape some of the factors inherent in the position of ultimate creditor
of the rest of the world.
You probably know the old saying that "the borrower
is the servant of the lender".
That is only partly true.
When the borrower
cannot pay the lender becomes the servant of the borrower!
I am leaving for
Washington tonight and will try and have talk with some of those who will deal
with these matters, but I presume it will be quite a time before they really
get the basis of information required before any policy can be adopted.
In the meantime, I am enclosing with this, in the strictest confidence,
copy of a memorandum which I sent last week to Secretery Huptes, and copies of
which, through him, have also reached SecrMtaries Mellon and Hoover.
I think
you should reed it because it deals with what I believe are the fundamentals
in re!7ard to international loans just now from our standpoint.
All that you send me in the various enclosures with your letter are of
2reat service, and I hope you can continue to do so.
Please give my best regards to Boyden, and the same to your good self.
Faithfully yours,

James A. Logan, Laq.,
le Rue do Tilsitt,
Paris, Francs.






Dated April 18, 1922.


" 211922

Roceive4 8:16 A. 11.

Secretary of "tats,
Washincton, D. C.

164 April 18, 10 A.V.


arman Government annolnces payment 770,000 pounds,
10,000,000 French frmncs; approximate value 18,129,000 gold marks
due tpril 15th, commission decision likrch 21st our 8664 subject

BolgianFrench mgrommsnt, out B-654.

Uisoollansous receipts since

April 7th, 850 pouads prImmeds 'war material paid Sn;land account

army costs prior to Nay first.


Payments not yet confirmed.


April 21, 1922.

My dear Logic!:

I was deeply pleased that you were good enough to write ma under date
of April 6, giving the story abut the appointment of the expert committee.
Please regard this letter as ecually confidential as yours.
it had been intimated to me that the suggestion which you and Boyden
were good enough to make as a possibility, although I did nut hear it from our
friends in gashington.
The result, however, has been that Pr. Morgan has been
appointed, and i am confident that it sill be much better than to have Me serve.
fhere are a variety of reasons for this.
Une is that he is entirely non-official.
Another is that he would very truly represent the investment bankers, as distinguished from the commercial bankers.
Another is that it eculd ,ive his f'irm a more
direct picture of the situation than scold he possible were they simply negotiating
a loan in this matter..
Still another is that some embarreasmeat would to certain
to arise yore I to serve because cf the popular belief that the iederel Reserve Bank
is in some way a cart of the movernnent.
Md still another reason is tbet I believe
some of our trisnc.s in :astsine,ton feel that I hold rather positive views as to the
reparations program, and that those viess might al.pear to be representf.tive of en
official point of view, 'Lich of course mould net be the case necessarily.
I agree with all that you say, and with which I presume Lloyde% is in
accord, as to the great opportunity presested by this proeran, and most heartily
agree that it could be inadvisable to have the meetings in Genus.. I do Luke you
can avoid it.
Paris would be much better; but possibly it would be still better to
meet ri6ht in Germsaja
You are, of course, mush better judge of this than I am.

The thing that I most fear at a possible development is that the members
of the committee, especially those who are liable to be influenced by the pressure
to oullect, reparations, will be Lnskired tc rout through some sort cf a loan which
fill produce cash regardless o° Whether Germany voluntarily, or otherwise, adopts
sound financial and monetary polities.
Eeyond everything, it strikes
that the
internal economy of Germany must be im:roved, and prozreesively improved, before
the world iE justified in naking loans for the purpose of financing reparation payments.

From this point of view, I should suppose that a loan could to made an
inducement for a moratorium, or a further great reduction in cash requirements .with
any adjustment necessary in payments to be made in goods, and that the period of the
moratorium, which probably need not be very long, say, a year or two, could then
be employed under suitable etipulatione for the introduction of some pier: of internal

April 21, 1922.


Feelin6. thie as strongly as I do I can only express the hope that the
committee, and especially the political chiefs standing behind the committee, will
not be lured into an unsound schsme by the attraction of some zood American dollars,
which may not even he forthcoming, unlees the basis of the loan is edeouate reform.

I have not yet read the enclosures alth ro4r letter but vill do so and
write leter if anything occurs to Ye.

Colonel James A. Loges, Jr..
18 rue de Tilsitt,
Paris, France.



April 21, 1922.

Dear Elliot:

I thank you for copy of the cablegram received

from Paris under date of April 18 addressed to the Secretary
of State with respect to reparation payments.

I appreciate

your courtesy in keeping me advised as to these payments.
Yours sincerely,


Honorable Elliot 7adavorth,
Assistant Secfetary of the Treasury,
lashington, D. C.


Dated April 22, 1922
Received 9:59 a.m.



secretary of State
173 April 22, 3 P.I.


Payments our B-674 confirmed, also T;,25,238 April 14th
textile alliance subject Belgian-French arrangement.




April ?4, 19??.

!Ay dear Logie:

I have not yet been able to fully digest your fine letter of
vith the various enclosures, but will do so and reply to that specifically in the
course of a few days.
Meantime yours of the 15th arrives and I want to comrent a
bit on that portion of yours of the 14th and yours of the 15th, as to the cormittee
Of course, I very much
of ex?ertc to deal -vith the question of German credits.
appreciate the suggestion which you and Boyden made to the Department in regard
fine and friendly and complimentary thing for you to
to my appointment.
do, but of course you realize that it -would have given me a lot of trouble and might
have gotten me into a lut of trcuble had it passed the sieve of the Department.
The appointment of Jack Morgan is very much better. He
em very glad it did not.
stands for the American investment market as distinguished from the ban?ars, as we
do in the latter case, and he can approach the situation with more money in the
The fact is that
shoe case of the character tact Germany requires than I oould.
if I am to be of any service in the situation it will be in connection with the
avetret-WtimiokeW,N.elmagalla0OVw4Nna conference of the banks of issue, vhich matter
This is very confidential.
as you doubtless know is before us just now.
cannot yet tell what the attitude of our government will be, and shall not write
you in detail until there is morn to -write.
I have bad many talks wits the Morgans about the possibility of a German
Aorgan i8 cabling his acceptance of the appointment tc- night, and I am
If undertaken fairly
rather fully agars of his view as to getting the money here.
dc not think it could be
promptly, I think e large amount could be raised, but I
raised unless the country was satiofied, on the one hand, that reparetion exactions
did not exceed capacity to pay, and, on the other nand, that the German government
was running its affairs on m really business basis, which I sm very sure they are
net .-14oing; the only deuet in my mind being whether it is wilful and deliberate, or
ignorant and stupid.
Inculries along the line of my letter of March 28 till disclose a good
deal which eou:d not to °thorns& unuerstoud, and 1 an much impresced with your
brief comment about the tax situation.
It should be offered in Fn7,1and and Franc9,
As to the German loan.tteelf.
ihat gives a certain assurance
possibly ecme ether countries, es well as aere.
It is not, in my opinion, absolutely
that the "buck" is not being passed to us.
essential that a oonziderable seount of the proceeds, (bow much must be determined at
the time) should be allowed for actual work of reconstruction of the Germen economic
structure, rather tLan paid over in toto to the reparation beneficiaries. All of
these are my personal opinions, and I could enlarge upon them at much length, but
at tile risk of exposing possibly an undue degree of prejudice, on the one bane,
against unreasonable exactions from Germany, offset, en the other hand, by condemnaThey
ticn of the stupidity of the whole German program as to internal economy.
seem to be wretched, bad housekeepers, and I an only sorry that this is so.

April 24, 1929.


One other point bearing upon the loan has to do with the German-Russian
ie probably got garbled accounts of what has transpired; but the
impression here seems to be fairly general, certainly the press so represents it,
that Germany did a "slick" trick and that her explanations have exposed the fact
that it was disingenuous.
Possibly this is stating it too strongly, but it is
the press point of view, and that makes the public point of view.

I ar not just sure how strong be is in
Kindersley is a fine fellow.
a cold blooded business situation, and sometimes Dave thought that his heart rules
his head, but of c,:urse behind him will be Norman of the tank, who is both able
and dependable.
A little bit later, after digesting your letters more careful'y, I will
write you core fully.
I do hoi-Ai our aorrespondance at least gives you the
Yours affords
benefit of a detached point of view, which movetises ie a help.
re a great pleasure, and gives just the sort of local Dolor that we need and
cannot get except by such means.
lith teat regards to you and all our good friends in Paris,



Yours sincerely,

Colonel James A. Logan, Jr.,
le rue de Tilsitt,
Paris, France.

The President seems to have told the press after
Cabinet meeting to-day that he wants me to go to London to the ban'As
of issue conference.

oe'4 k

Paris, 18 rue de Tilsitt.
28 April, 1922,








My dear Ben,
by last letter to you was dated April 16th.

A good deal
I have just received your letter of 4ril 11th.
of water has gone under the bridge since your letter of April 11th was
written, it is therefore hardly necessary to refer to it in detail
It was extremely interesting however and I am much obliged to
I fully realize your feelings relative to the
you for sending it.
press reports from Genoa concerning your possible affiliation with the
I at once took the necessary steps to stop it from going
Genoa work.
any farther. However in the meantime American press despatches have
been referring to the possibility of your coming over in connection
with the Genoa proposals for a meeting of representatives of central
I don't know whether this is true or not and am passing the
I have had somewhat the
information on to you for what it is worth.
same experience with regard to may recent informal visit to Genoa.
The Chicago Tribune three or four days after my quiet departure from
Paris found out that I had gone and came out with a statement which
they spread broadcast to the effect that my visit to Genoa had to do
I don't know anything
with "the protection of Standard Oil interests".
The story made me mad, but it
about the Standard Oil or its interests.
It is however so foolish that I don't think much
can't be helped.
damage was done.



I enclose herewith, for your confidential information, copy of
a report of my recent visit to Genoa which I sent to the State Department.;
I also enclose copy of the final recommenI hole it will interest you.
dations of the Financial Commission which are referred to on P age 2 of
my report.


I also enclose as being of possible interest you the following, viz:
C.G. Annex 222a - Control of Foreign Currency by the Reichsbank.
Doc. Berlin 611 - Reichsbank Weekly Statement.
- Monthly balance-sheets of the Soviet 116
I.S. 667 ?
State Bank,
-Weekly Balance Sheet of the Austro-Hungarian
I.S. 676


The Honorable Benjamin Strong,
Governor, Federal Reserve Bank York city.
Federal Reserve Bank of St. Louis


- Weekly balance Sheet of the Hungarian Bank.
Faithfully yours,




Paris, 16 rue de Tilsitt.
5 lay, 1922

joN 23 \922



The Russo-German Treaty, The
Reparation Situation, Committee of
;4 dear Ben,
_.iy last letter to you was dated April 28th.

I enclose herewith, viz:

Exhibit A - Copy of the so-called Rapallo Treaty of April 16th
between the German and the Russian Soviet Government,
Exhibit B - Opinion of the i,egal 'Service of the -eparation
Commission after its examination of the Treaty of Rapallo of April
16, 1922.

Exhibit C - Copy of letter dated _ay 4, 1922, from the separation
Commission to the German Government concerning the Treaty of Rapallo of
April 16, 1920,
It will be observed from Exhibit C that the Reparation Commission
after a deliberate examination of the Rapallo Treaty has found no substanThe fact nevertheless remains that it vas
tial legal objections to it.
an extremely stupid act on the part of the Germans as its only result was in
stimulating the ever ready suspicion of under-hand action on the part of the
Germans. Effectively the Germans have gained little by this agreement with
the Soviets while on the other hand they have lost much confidence with
The incident is now closed and apparently the
both allies and neutrals.
French public as well as the French Government have accepted this deliberate
decision of the Reparation Commission vilal excellent grace, which is a good
This is all the more interesting as it was the French themselves Ala°
originally raised such a row at senoa about the affair. Poincare through
Dubois was responsible for having the Treaty passed on by the Reparation
Commission, this being in line with the Poincare policy.
In mF letter to you of Larch 24th I enclosed copies of the formal
decision and letter to the 'german Government both dated Larch 21st, 1922,
concerning a proposed partial moratorium in reparation cash payments and
the conditions under which such partial moratorium was to be accorded.
This was referred to in subsequent letters as the Commission's "ideal letter".
In my letter of April 14th I encloseu. a copy of the reply of the German
Government dated Lpril 10th to the "ideal" letter of Larch 21st, together
with the Commission's reply to the Germans dated April 13th 1922. As stated
in my April 14th letter, the German reply was stupid to the extreme and
obviously a political maneuver to force the Commission to report Germany


J. A. L. Jr.





in default under the 'Treaty and thus raise the reparation question at
The Commission however stood pat on their letter of April 13th
and refrained from playing into German hands by reporting Germany in
default. As little success attended the German efforts to raise the
reparation question at Genoa, they addressed a letter in the following
terms to the Commission under date of April 24th 1922, viz:
"In its letter of :::arch 21, 1922, to Dr. Wirth,
Chancelier of the Commonwealth, the Reparation Commission
requested the German Government to revise the estimated
expenditure of the draft budget for 1922, which was annexed
to its note of January 28, 1922 (Annex 1247), and to submit
this revised statement to the Commission within a month from
the date of notification.

I have the honour to inform you on behalf of the
German Government that the draft Commonwealth budget for
the financial year 1922 is at present before the Reichstag,
which is carefully examining it. Upon the completion of
this examination by the Reichstag, the Reparation Commission
will be informed of the result.

The foregoing was a decidedly "poor effort" and might have
precipitateu a serious situation. However the saner German elements
when they realised the situation this letter created "gained their day"
and it has now been about arranged for the Germans to withdraw this
letter and replace it b. one couched in more conciliatory terms to serve
as a basis for continuing negotiations. As a matter of fact the German
fight for this conciliatory attitude is led by Hermes, the German Finance
:.sinister, and Bergmann against Rathenau, the latter being responsible for
the German policy in general and the April 24th letter in particular.
Bergmann is now in Paris and Hermes is expected about Liay 8th.
all have confidence in both these men and believe that with them here in
direct contact with the Commission much work of a constructive character
will result.

Ve all feel more optimistic now as to the general situation than
we have felt for the last two or three months, and this particularly as
Rathenau's "vision of greatness appears to be waning".
There is no question
but that Rathenau was behind the "pro-Genoa" attitude of the Germans. 'There
he received his counsel I do not know but I presume our suspicions as to the
source will coincide.
The really important phase of the whole situation today is
that of the work of the Committee of Financiers whose meetings will start
in Paris about 1.:ay 22nd.
It is becoming more and more obvious that the
appeal of some quick hard cash is tempting to our French friends and that
the only way they see to getting this cash immediately and in any substantial sum is through the medium of a German foreign loan. France certainly


J. A. L. Jr.


needs the money and I will be glad to see her get it, provided it
sound business principles designed to effectively quiet the exist
situation of periodical financial disturbances and "cold storage
I am sure that the members of the Committee of Financiers who hav
money in their "show cases" have this point well fixed in their m
I fu
my own judgement is that success will attend their efforts,
that their operation is "loaded" but I believe they can put it ac
an explosion.

Naturally I do not know what is in the mind of any of t
of this Committee and if I did would have little competence to pa
their judgement. I liersonally know Delacroix, d'Amelio, landersle
I gather from what Bergmann
I don't know Lorgan.
and Vissering.
teered to say to me that he inclines to the view that the time is
to approach a complete settlement of the reparation question, but
would like would be a four billion gold marks loan floated vhich,
viding cash for the settlement of outstanding clearing office bal
essential German imports, some cold balances in reserve outside G
exchange operations, would also provide some five or six hundred
I ra
dollars for reparation purposes during the next four years.
from what Bergmann said that he was fearful that if a more compre
settlement of the reparation debt was engaged at this time that G
still remain saddled with a total reparation debt (of some forty
milliards of gold marks) which, in his opinion, was outside Germa
I am rather inclined to believe that holding this view he
it in the best interest of Germany to put off a definite settleme
It occurea to me that the
later date or erhaps for four years.
motive of this plan (if it actually be the German plan) is that b
off the question a more favorable general settlement would be obt
might or might not be sound - however this phase will be explored
I gathered the
Financiers who will reach their own conclusions.
from what Vissering "let drop" that he was for a much more genera
I would estimate Visse
of the re_aration question than Bergmann.
position as somewhere between that of Bergmann's and the British.
not venture a surmise as to the French position though I am satis
will be largely controlled by practical considerations.

If I personally had anything to do with the matter I wo
incline to the "general settlement ideas" always provided that su
settlement is within Germany's capacity and that at the same time
itself is forced to the immediate adoption of sound financial an
The internal German situation must be corrected before
are justified in lending money for the purpose of financing repar

I have received your personal and confidential letters
April 11th, 17th, List and 24th. All my thanks, they are fine.
I note with parti
answer them at length within a couple of days.
interest the foot note at the bottom of your letter of the 24th
the information that the President appears to have given to the p
concerning your possible visit to Europe.

It is grand news.


A. L. Jr.



I agree with you thoroughly on the 1.:organ appointment.
been over here the last week or so clearing the way.



Lamont has

I enclose herewith as being of possible interest to you
the following:
Document Paris No. 632 - Balance Sheets and Financial situation
of German Undertakings.
Taxqtion of the Profits realised by the
Document Paris 634
Purchase of Gold by the Reichsbank.
Document Paris 635
Document Berlin No

638- Financial Position of the Reich for Period
Ending 20th April 1922.

I.S. No. 687
I.S. No


- Fiduciary circulation and-Weekly Balance
Sheet of the Hungarian Bank on March 31, 1922.
- Fiduciary Issue & '::eekly Balance Sheet of
the Austro-Hungarian Bank on April 7, 1922.

Annex No. 538/13 for January 1922 - Accounting Service Report
concerning Deliveries by Gelmany and Distribution of Payments
made to the Powers.

Faithfully yours,


10 ends.

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



Paris, 18 rue de Tilsitt,
12 Lay, 1922,

z 192-2.


dear Ben,

Ly last letter to you was dated Lay 5th 1922.

Loose in


I enclose herewith copy of a letter dated Lay 9th 1922,
In my letter
from the German Government to the Reparation Commission.
to you of Lay 5th on page 2, I gave the text of the German Government's
original reply to the Commission of April 24th 1922, which was withdrawn.
The new letter is couched in very much more conciliatory terms than
the first and constitutes a fairly satisfactory basis for continuing
The German Chancellor has just telegraphed the Commission
that Hermes, the German Finance Linister, will arrive in Paris the
early part of the week beginning Lay 15th and requested that he be
"heard informally by the various Delegates". The Commission, in view
of the conciliatory terms of the new letter of Lay 9th, has indicated its
consent to this arrangement: The proposal for "informal" conferences with
the "various Delegates" rather than with "the Commission" is important
at this time in view of the internal German political situation as well as
the internal political situation of the various Allied countries. This
manner of handling will put the affair on a much sounder business basis
as it will avoid the publicity incident to "hearings before the

As indicated in previous letters, the general form of the
enclosed letter of Lay 9th was suggested ao Bergmann by certain members
The fact that it has been largely adopted and transidof the Commission.
tted may be considered as a victory for the more conservative German
element as represented by Hermes and Bergmann.
The informal conversations with Hermes during the next few
In view of past
weeks should bring out the German position clearly.
experiences the consent of the German Government to transmit the letter
of Lay 9th is open to the suspicion that it ray be simaly another
It is sher nonsense to talk either "reparation
"temporizing expedient".
payments" or "foreign loans" until the German house is put in order or,
in other words, until the Germans themselves put their finances and
Todate they have not done this,
internal economics on a sound platform.
e are hopeful that the Hermes conversations will lead to this, All
the Delegates on the Commission are unanimous as to this necessity and
I am therefore inclined to believe that Hermes will receive pretty
straight talks which I hope will lead to results with the German Government.
The patience of even the most conservative Delegates has pretty nearly

J. A. L.





reached the breaking point under the past tactics of the Germans.

My Belgian friends have intimated that the Belgian Government
has been somewhat disturbed by the world's impressions attached to the
French flirtations with the Belgians following the Russian incident at
The French were very fearful of isolation after Genoa and were
desirous of giving the impression that the Belgians were definitely lined
up.with the general French policy, not only the Russian but also the
I am informed that Theunis (the Belgian Prime
reparation policy.
Minister) after leaving Genoa stopped in Paris for an interview with
In the course of this interview he intimated to Poincare
that while Belgium fully supported the French in their position vis a
vis the Russians, he wanted to fully reserve the Belgian position on
In other words if the French contemidated forcing Germany
into default on May alst he was not prepared to say at this time what
I gathered that
the attitude ef the Belgian Government might be.
Poincare was quire reasonable in the terms of his reply. kccording to
my information, Poincar6 said that the question as to whether or not.
Germany was to be put in technical default after Lay 31st was one for
the exclusive deterimination of the Reparation Commission and that he
He further replied that if the Reparation
intended keeping his hands off.
Commission actually reported Germany in default he, Poincare, was entirely
willing to participate in a meeting of the Supreme Council to consider
either what sanctions should be taken against Germany or what other approI have
priate line of action should be adopted by the Allied Governments.
always felt that this was Poincare's real position. He has however a
There has been
very difficult Parliament and public opinion to handle.
recently some rattling of the French saber (inspired newspaper rumors
that "French General Staff planning occupation of Ruhr", "troops movelfients",
etc..) which I presume has been reported in the American press but my
best judgement is that the French will pursue a sane line of action.
You will doubtless hear rumors of some attempt to shake French
I don't attach importance to
Governmental confidence in Mr. Morgan.
these rumors and presume that you have no difficulty in guessing where
The rumors are ludicrous in view of Mr. Morgan's
they emanate.
They are however to the general
well known pro-Allied feelings.
effect that he has had a change of heart and has become pro-German.
are based on his reportea views that "a very considerable proportion of any
loan which may be floated by Germany must be applied to procurement by
Germany of foreign foodstuffs and raw materials for internal German
consumption with a consequent curtailment in the amount available for
I don't know la'. Morgan's personal views thpugh I am
convinced that they are based on sound financial and economic premises.
I am however of the personal opinion that a certain amount of any foreign
loan obtained by Germany will necessarily have to be applied to the very
I would not even refer to this rumor in this letter
purposes indicated.
except that I know that it has reached many other ears.

It is rather curious that during my recent visit to Genoa



J. A. L. Jr




J. A. L. Jr.




that it was impossible at the present and until such time as definite
arfangements have been made as regards the status of international
loans to carry out any "general settlement idea". The foregoing is
pretty wild and no importance should be attached to it.
I again
emphasize the fact that Delacroix is a very adaptable fellow.
I enclose herewith the following documents as being of
possible interest to you, viz:
Document Berlin G44 -'::eekly Statement of the Reichsbank
for Creek Ending 22nd April 1922.

Document Berlin 645 - The decent Upward Trend in the
Exchange Value of the German Lark.
Document Paris 651

- New Liabilities in Germany's commercial
Balance Sheet in Llarch 1922.

Document Berlin 655 - Devisenbeschaffungsstelle Report for the
Eonth of April 1922.

Note of April 50, 1922, from Delegation in Berlin relating
transmission to "German Cabinet of a Bill for a forced Loan".

Faithfully yours,

7,, G.

6 encls.

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


F Y.

Dated May 12, 1922.
sold 6:08 p.m.

Secretary of State,
:amhington, D. C.

198 May 12, 7 p.m.

B 688. Reparation receipts since April 28th sale war material sixteen
thousand four hundred and Seventy seven pounds; British 9rmy costs seven
hundred and ninety four thousand six eighty nine francs; French army costs
Luxemburg coal two thousand six ninety seven pounds and interest, from
reserve fund fifty two thousand six thirty French francs both Belgian subject arrangement with French treasury.





May 15, 1922.

My dear Lor-ie:

To my horror, on reading my letter of April
24, I find the followinc eentence at the foot of the
first page -

"It is not in my opinion absolutely es-

eential that a consilera^le amount of the proceeds" etc.
This was dictated, or I thought was dictated, without
the word "not" because I believe it is ersential that
this should not be simply a reparation loan, but should
be to enable Germany to get started on the road to
recovery, and if I were the bankers, I wouldn't make any
loan except it were undei conditions which assured a
sound application of the proceeds anA a sound domestic
economic policy.

I will be writing you more fully in reply to
yours of April 28 and May 5 in a day.or two.

I am

delLrhted to have all the up -to -date news, they contain.

Faithfully yours,

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




Dated May 17, 1922.
aceived 2:10 P. M.

Secretary of States

207 May 17, 5 F. M.


German Government paid Belgium, 'lay 15th., 2,70U,000

pounds sterling account Belgian Priority, enuivalent about
50,407,897.60 -old marks.

Subject payment approximately balance

37,000,000 gold marks Belgian...French agreement.



Nay 19, 19?!.

Dear Eliot:

The copies o' the two cabled dated lay 1? and 17,
aderessed to the Departaent of State, regarding Reparation
payments have been received, and I thank yot. for the infor-

'ration they contain.
Tours sincerely,

Hz,norable Eliot 4acieworth,

Assistant Secretiry of the Treasury,
Treasury Department,

asbington, D. C.



Paris, 18 rue de Tilsitt. 30-


19 Lay, 1922.





14 dear Ben,

4 last letter to you was dated Lay 12th 1922.
Hermes, the German Finance '..sinister, arrived in Paris ;,,ay 15th

and is now engaged in "informal conferences with the various Delegates
on the Commission". So far Hermes has confined his conversations to a
discussion of the German Budget situation and the co-related German
internal financial position. Neither he nor Bergmann as yet have
entered into any discussion as to the question of the German external
loan. hr. Lorgan is scheduled to arrive in Paris Lay 22nd and the first
meeting of the Committee of Financiers will be held on /AT 23rd.

in file

Hermes presented the enclosed 444W2dumidesigned to serve
as a basis for his negotiations, to the Delegates individually.
memorandum was obviously prepared in some haste as there are certain
errors in the figures given for both "revenae" and"expenditure"
I don't attach importance to these errors as they practically offset

each other in the credit and debit side. 4 general impression of
Hermes' memorandum is as follows. So far as the "Revenue" is stated it
is a conservative presentation erring slightly on the side of an underestimate. So far as the ".i.Xpenditure" is stated, the total is probably
too conservative.
The latter total is fair today but I am inclined to
believe that in Germany's finacial position essential and unforeseen
expenditures will have to be met which will raise the total
The Hermes memorandum is disappointing as practically all
"reforms" indicated result from the German "Compromis Fiscal"
other wr,rds the plan of increased taxation agreed to by the various
political parties in Gemany), the nature and effect of Which were known
and fully appreciated some months past. The only, real new item of interest
is the revenue anticipated for 1922 from the forced internal loan of.40
milliard paper marks (see Number 3 of Hermes' memorandum herewith).
is obvious that notwithstanding that Hermes states, the "Reichsbank autonomy"
contemplated by the proposed bill now before the Reichstag falls short
of assuring any real curtailment or restriction in further German
currency inflation.
The value of deliveries in kind during the calendar
year 1922 is estimated by Hermes at 51,5 milliard of paper marks which is
approximately only one half of the sum estimated (and theoretically fixed
by the Commission) for this item in the Commission'S "ideal" letter of

J. A. L. Jr.




at the German
iearch 21st 1922 (R.C. Annex 1353). Liy opinion is
estimate while differing widely from the theoretioeTigure nevertheless
represents fairly accurately the value of the effective deliveries in
kind that will ge received and can be absorbed by the Allies during
The Commission and the Governments can therefore
this calendar year.
quarrel with the Germans on the theoretical basis but have no quarrel
on the practicL1 result which is the same as they have all anticipated
for some months past.

I am now preparing a table from the data included in the
Hermes memorandum which I feel will give a clearer presentation of
the German budget situation than is to be drawn from reading the memoThis will not be finished in time to go with this letter but
will follow as soon as it has been typed. As a matter of fact even on
the Hermes basis, by different methods of figuring and follOwing an almost
similar line of reasoning different results can be arrived at which I hope
the table I ar makine will show.

The most important figure in my mind is the deficit of
12,926 milliards mentioned in the first paragraph, page 9 of the
memorandu4 If you will refer to bottom of page 8 of the attached
memorandum you will find this figure is arrived at as follows:"Thus leaving a deficit of
"151ese 95.869 milliards include
the following gold payments.. Total




It is therefore apparent that the German budget for the calendar year 1922
falls short in its paper mark expenditure cover by approximately 13 milliard
paper marks and this on the basis of internal expenditures o4 account of
deliveries in kind being only one half the figure originally fixed.
addition to this paper mark deficit there is also the deficit of 82.943
milliard paper marks on account of other Treaty charges, estimated on the
necessary for gold payments on account of
basis of 70 p.m. equal 1
a) Reparation cash payments,
b) Clearing Office operations,
c) Cost Allied Coeelissions.

Until this paper mark deficit is eliminated in one way or the
other Germany is hardly in a sound position to float an external loan
I am
and I doubt if one would be forthcoming under such conditions.
in this particular may be
however hopeful that a satisfactory solution
reached during the Hermes' negotiations.

For all the reasons stated in the foreeoing, the Hermes report
attached meof contemplated German financial reform as set forth in the
Obviously it is far from
morandum is not considered as satisfactory.

d. A. L. Jr.



meeting either the requirements of the Commission's Larch 21st (R.C.
Annex 1353) or April 13th (R.C. Annex 1390) letters to the German
Theoretically therefore, were the Germans not to change
their present position before Lay 31st and were the Commission to hold
to the basis of its letters just referred to, there is logically no other
alternative on May 51st than for the Commission to carry out its threat
of putting the Lay 5th 1921 Schedule of Payments into technical effect
and simultaneously reporting the German Government in default. M own
judgement is that the Germans will "come around" and that the Commission
will be conservative, and that therefore the results of a reported default
However it must be borne in mind that a report
need not be anticipated.
of default is a contingency but one which I consider to be remote.
The Commission's letter of Larch 21ot (R.C. Annex 1355) and
even its letter of April 13th (R.C. Annex 1390) are academically sound
I am reliably
but from a practical and realisable aspect fantastic.
informed that the French Government some time past employed the services
of the Solvay Institute and the services of some of their awn well known
economists to study the economic and financial consequences of a military
I am advised these reports clearly demonstrated
occupation of the Ruhr.
the absurdity and futility of any such undertakings from an economic and
financial point of vier, and that these reports have made a deep impression
The danger of course is the internal
on French Governmental opinion.
political aspect of dealing with a bamboozled public with a Parliamentary
attitude reflecting such public opinion.

Bradbury has shown great tact and patience during the last
There was an unofficial meeting of
months in his handling of Dubois.
the Commission on ';ednesday which discussed the Hermes memorandum. While
no definite decision was reached the impression left in the minds of all
is about as I have indicated in the foregoing letter.
During the course of the foregoing unofficial meeting, Bradbury
argued on the following general lines: That generally the Hermes report
was unsatisfactory; that admittedly the position was difficult for the
Commission in view of the public interpretation of the stand taken
by the Commission in its letters of Larch 21st (R.C. Annex 1353) and
April 13th (R.C. Anne:: 1390); that these letters had necessarily been
partially framed to meet the exigencies of the political moment; that the
requirements of the letters themselves were untenable and could not be
maintained in the face of any critical sound economic or financial opinion
in the present German financial position; that the Commission had left
loop-holes in the letters which were specifically designed to allow further
consideration of the whole question and that therefore it was incumbent
upon the Commission to review the whole situation and to come to some basis
of an agreement with the Germans which while effectively guaranteeing substantial reparation payments would nevertheless accord a business treatment
to the reparation question.

Bradbury then referred to a nersonal conversation that he had just



A. L. Jr.

20 GOVLITOR 3TROI.:, - 22.1111.3 ONILL

a eel:

2 _L_)..: .

"_1 : _



had with Hermes and Bergmann in which he told them that in his opinion
the Hermes memorandum of German financial reform was unsatisfactory to
The other Delegates, including the French,
him in its present shape.
intimated having conveyed the same view to Hermes during their individual
Today's French press reports indicate that the
conversations with him.
story Of the unsatisfactory character of the Hermes memorandum has
leaked out with the result that an incident of some importanbe has
developed. Doubtless these reports have reached the American press.
The leaking is obviously inspired by the French Government but I don't
attach any other importance to it at the present time than as being a
Hermes is undoubmean of exercising pressure on the German Government.
Being something of an optimidI am
tedly having a poor time in Paris.
of the opinion that the German Government will "come around" and that
therefore today's incident will soon be forgotten.
Bradbury at the conclusion of the unofficial meeting referred
to the question of the autnomy of the Reichsbank and the necessity of
stopping fmr4eiler German rot by curtailing further German monetary inflation.
He said that on his own responsibility he had suggested to Hermes the
wisdom of the German Government formally undertaking with te Commission
for a complete suspension of any further increase of the German floating
In other words, Germany to stop forthwith the
debt during the next year.
issue of short term notes and the printing of paper money. In Bradbury's
opinion an undertaking of this character on the part of the German Government would almost izimediately force the measures necessary to a complete
balancing of Germany's internal budgetary situation and thus clear the
ground upon which a sound foreign loan could be floated to cover German
Government gold expenditures during the period of Germany's financial
recuperation. He informed tha Delegates that he had intimated the urgency
of this measure to Hermes and that the latter was impressed and had agreed
to take the matter up at once with the German Government and that a definite
reply would be forthcoming within three or four days.
Dubois was obviously impressed with the seriousness of the
situation and also with Bradbury's remarks which appeared to have the
general approval of dal the other Delegates. Dubpis however While acquiescing in awaiting Hermes' reply did not definitely com:nlit himself to the
The meeting had to be called short as Dubois had
general Bradbury thesis.
an appointment with Poincare on the result of which conversation I have
as yet no information.

Too much importance should not be attached to any of the foregoing
as the negotiations with the Germans are only in their preliminary stage.
:any of the points presented in the foregoing letter will be cleared up
in the press even bebre you receive this letter but I am sending this gossip
as I believe it is necessary to an appreciation of the situation as

I have always felt and still continue to feel that the work

J. A. L. Jr.





of the Committee of Financiers will be the best possible tonic for the
I have no doubt that the German present attitude on
present situation.
the question of financi:d reform is largely dictated by a desire to
rc-tain "the cards in their hands" until ."the show down" comes on the loan
It is apparent that a somewhat similar attitude explains the
I personally am very hopeful of the
nresent position of the Allies.
fruitfull results of the work of the Committee of Financiers and up to
the present am not a bit pessimistic as to its outcome.
I enclose herewith Annex C.G. 228b "Autonomy of the Reichsbank".
This has been prepared by Frere, the Chief of the Commission's Research
I think you
I read it very carefully and was much interested.
It reviews the history of the Reichswill find it worthwhile to read Va.
It has been very carefully prepared
bank from its start up to date.
It brings up pretty clearly the problem
and in my mind is pretty sound.
Its concluof inflation in the German Government's present situation.
sions in this particular differ somewhat from those which may be drawn
from Bradbury's above quoted remarks at the unofficial meeting.

I also enclose I.E. 727 - Weekly Balance Sheet of the


I.S. 757 -Weekly Balance Sheet of the
Hungarian Bank.

Faithfully yours,

4 encls.

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

11-4-f 41E.`"-

Paris, 18 rue de Tilsitt. ow04)
28 Lay, 1942,




Ly dear Ben,

Ly last letter to you was dated May 19th 1924.

Hermes, the German Finance Linister, arrived in Paris on
Llay 15th and left i'aris on his return to Berlin Lay 24th. Hermes
confined his conversations to the German budget situation and the
general German financial position. Bergmann, assisted by L.elchior,
is here in Paris working with the Committee of Financiers which had
its first session Ueunesday Lay 24th. Lx. Lorgan arrived in Paris
The Hermes negoLay 23rd and joined the Committee of Financiers.
tiations "with the indiVidual Delegates" have reached a successful
conclusion so far as he and the Commission are concerned, and no
incident or "crisis" on Lay 31st is therefore to be anticipated
unless something unexpected occurs to Berlin.
I enclose herewith the following, viz:

Exhibit A - The Acmes proposal of Lay 19th 1922 (in its final

form) concerning the measures to be taken by the
German Government to curtail further GerLian mone-


terry inflation.



Exhibit B - The Hermes proposal of Lay 24th 1922 concerning the
supervision of German Governmental financial operations by the Reparation Commission and the latter's
agent, the Committee of Guarantees.
Exhibit C - The Hermes proposal of Lay 24th 1922 concerning
measures to be taken by the German Government to
prevent the exportation or "flight" of capital.
A - Hermes proposal of Lay 19th 1922 concerning the measures to be taken
by the German Government to curtail further German monetary inflation.
This constitutes the most important German financial reform
resulting from the Hermes negotiations.
It is the first step
German Government to put their financial house in order, and if faithfully applied will ultimately result in forcing an equilibrium in the
German Government's budget. Particular attention is invited to the
following quotation from the memorandum which is of special importance, viz: 20 (.70T-A.Liti Cliti. STRONG - PERSONAL & CONFILGETLLL.
A. L. Jr.
Federal Reserve Bank of St. Louis




J . A . L . J r.





C - Hermes proposal of .:ay 24th 1922 concerning measures to be taken by
the German Government to prevent the exportation or "fliPlit" of capital.

This memorandum starts in with a long explanation as to w4
the German Government was not able to present a plan for the "prohibition
of export of capital" before April 30th, or the date prior to which such
communication should have been received in accordance with the terms of
the Reparation Commission's letter of March 21st. All of this explanation
is immaterial and in consequence is omitted from the exhibit attached.
The whole question of preventing the "flight" of capital is complicated.
In the second place
In the first place most of it has already "flown".
and even during the war when an expensive system of mail and telegraph
censorship, frontier inspection, etc., was enforced, the results were not
wholly satisfactory. ';:ithout such guards at the doors, it is difficult if not practically impossible - to prevent the continued flight and no one
for an instant would or could advocate the reestablishment of such "guards"
in time of peace. As a matter of fact the "fliht of capital" is a symptom
and is not the disease, resulting largely if not wholly from the instability
in the value of the paper mark.
The only effective measure is to cure the
I am inclined to believe that all on the Commissimappreciate
this and that there will be no difficulty in agreement on the 30th of
June next to the acceptance of such partially satisfactory measures of
prevention as the German Government may be able to formulate and present
by that time,
Hermes has returned to Berlin with the three memoranda described
above and with the informal approval of their contents by the Reparation
In the natural course of events these three memoranda, to; ether
with the substantial portions of the Hermes' informal memorandum which I
sent you in my letter of .:.ay 19, 1922, will be incorporated in an official
communication from the German Government, and the latter will be communicated officially to the Reparation Commission on or about May 31st.
Reparation Commission in turn will acknowledge the receipt of the German
communication; will accept it as a substantial compliance with the requirements of its letters of March 21, 1922 (Annex 1353) and April 13, 1922
This will have the result of maintaining "the Scheme of
(Annex 1390).
Payments for 1922" no laid down as "provisional" on March 21st 192:
(see Annex 1352) during the year 1922, unless something unforeseen happens.
It also has the result of relieving the Re,aration Commission from the
necessity of carrying out its threat of reverting to the Lay 5th 1921
Schedule of Payments, with the ipso facto consequence of immediately
In other words there will be no crisis on
reporting Germany in default.
:Lay 31st.

I attach hereto as Exhibit D a "Comparative Statement of Commonwealth budget for the Fiscal Year 1922", together with an "Explanatory
This is the table which I referred to on page 2 of my letter to you
Table A of the Combative Statement is an analysis of the
of Lay 19th.
figures in the report submitted by the German Government to the Reparation

J. A. L.




Table B is an analysis
Commission on January 28th 1922 (see Annex 1247).
of figures shorn in the informal Hermes memorandum of about hay 15th 1921.,
On page 2 of the
copy of which I sent you in my letter of I..ay 19th.
"Explanatory rote" I give various hypotheses which can be dratm from figures
I prefer that these deductions be considered as
in the Hermes memorandum.
contemplative possibilities and not as accurate and sound determinations.
There are so many indeterminate factors that it is impossible to tabulate
an accurate presentation of the position. A faithful compliance by the
Germans of their engagement as per Exhibit A herewith will necessarily force
economy in expenditures and increases in receipts through taxation.
This latter result plus the proceeds of an
leads to budgetary equilibrium.
external loan based on Germany's capacity will result in a material improvement of the exchange position. Altogether this should result in materially
strengthening the German position and thus advancing the date for the "business
settlement" of the reparation question.
I feel that bcth the liearation Commission and HerrLes have followed
a business =like line of action during the negotiations which have just been
concluded. The French particularly have shown every spirit of co- operation
during these negotiations which clearly shows a desire on the part of
Poincare to arrive at a business settlement. This conduct of Foincare
fequires courage in view of the internal uninstructed political view of the
position. Unquestionably the conversation of the Committee of Financiers
with some ready money in their "show cases" has been the tonic which has
apparently carried the reparation qestion over the :Lay 31st bump. I sincerely hope that the German Government after having apparently made this first
step in the direction of a general house cleaning will carry their promises
through effectively and that it will therefore be possible for the Committee
of Financiers to find some practical means whereby a substantial loan based
on sound business principles may be made forthcoming for Germany.

The questions covered in this letter will be resolved and reported
I however believe
by cable to America even before you receive this letter.
you will find it useful to have some details of the negotiations which will
Today's press reports from Berlin indicate that
probably not be cabled.
Hermes has encountered some criticism in Berlin on account of his Paris
I have not been able to verify this and cannot therefore pass
It would be most
any judgement on their importance or possible effect.
regrettable if the German Government does not support Hermes.
I have your letter of :.:ay 15th and note your "horror" at the use
of the word "not". Curiously enough I had not noticed this error in your
letter of April 44th. Ly own opinion is in absolute accord with the "not"
eliminated and it never accured to me to even considering your "not" seriously
as I know exactly how you would feel even before I received the letter.

If you have the time, Boyden and I would be awfully glad if you
could let us have your views on the soundness of the German agreement as per
Taking everything into consideration and subject to your personal
Exhibit A.
criticism I an pretty well pleased with it.

Paris, 18 rue de Tilsitt.
2 June, 1922.



3ON 2 3 1922


Ly dear Ben,

last letter to you was dated Lay 26th 1922.
I enclose herewith the following, viz:
EXHIBIT A. - Copy of letter from the German Chancellor to the
This letter is tie result
Reparation Commission dated Lay 28th 1922.
conversations with the Reparation Commission
of the Hermes "unofficial"
in Paris during the week commencing Lay 15th which was referred to
of Lay 26th. Apparently the nersuaper
some detail in my letter to you
reports as to the question of the support or non-support of Hermes'
It will be
l'aris negotiations by the German Cabinet were inexact.
official form the agreements
noted that this letter reproduces in
reached by Hermes unofficially during his Paris conversations with the
drafted in some haste
Obviously the letter
the result that some of the minor points satisfactorily covered in
Hermes' Unofficial Lemorandum (sent you as Exhibit A with my letter
of Lay 19th) are not formally confirmed in the Chancellor's letter.
This accounts for certain reserves hich appear in the Can7isL,ion's
reply (see Exhibit B). They are relatively unimportant details but

should be formally accepted.

EXHIBIT B - Copy of letter dated Lay 31st from the Reparation
Commission to the German Chancellor, together with copy of its enclosure,
i.e. Decision Ho. 1976a of the Reparation Commission of same date.
practical effect of this communication during the calendar year 1922,
subject to the reserves indicated, is to continue the partial moratorium in accordance with the scheme of payments laid down in the Commission's
letter of Larch 21st 1922 (see Annex 1353);
` ;:e all consider the foregoing solution of this chase of the
It has prevented a
general reparation question as most satisfactory.
results and tends to clear the path
crisis which might have had serious
for the work of the Committee of Financiers. Unquestionably the fact
that the Committee of Financiers was in session during this somewhat
tense period has had everything to do with tiding over the Lay 31st

The Committee of Financiers has been in session since Lay 24th.
They have gone into the
Their conversatimis have not been made public.
situation in a most thorough and painstaking manner with the following

a.J. A. L.




general results todate, viz:

FIRST - That under the terms of their reference by
the Reparation Commission, which provide as follows:
"to consider and report to the
Commission on the conditions under
which the German Government, regard
being had to its obligations under
the Treaty of Versailles and in pl-rticular under the Schedule of Payments
of Lay 5th 1921, could raise foreign
loans to be applied to the redemption
in Part of the capitza of the repara-

tion debt, etc"
see Re)aration Commission Decision of April 4th 1922
(Annex 1359), it is impossible to raise foreign loans.
This on the broad grounds that the maintenance of such
charges as contemplated by the Treaty of Versailles and
the Schedule of Payments of Llay 5th 1921, obviously totals
an amount far exceeding Germany's capacity and therefore
gives no sound basis upon which a loan can be floated.
JECOYD - That a substantial loan, though amount not
stated, can probably be floated if the total charges upon
Germany under the Treaty be reduced to a figure within
Germany's capacity.
The Committee of Financiers will shortly report to the Commission
in the above sense and thus definitely dispose of the q,estion originally
proposed to the Committee by the Commission in the terms of reference above
Simultaneously the Committee of Financiers will indicate their
willingness to explore the field and report to the Commission in the sense
indicated in "Second" above.
e surmise that the report of the Committee


This will cause some
Considerable "flurry" in the European press and particularly in France.
After the above report is submitted the more importLzt members of the
Committee of Financiers will in all probability leave Paris for a few
.'hey will be available however to reconvene and continue their work
if the Commission determines to extend the scope of their terms of refe!Ijioommo.will be made public within the next few days.

rence in the sense indicated above.

Our judgement is that this will only be a question of a few days'
delay and that the Commission will extend their terms of reference subsThe re-examination of the question
tantially on the basis indicated.
"breaking the trail" leading to a
on the new basis should go far in
business settlement of the reparation question. ';:e feel optimistic as to




the final outcome as everything points to a desire on the part of
Poincare and the more intelligent French public opinion to reach a
business settlement. For political reasons "following this trail"
presents difficulties of moment for Poincare and much public clamor
e feel however that the intelligent element
is to be anticipated.
will be able to carry it through.
The suggestion is often made that a reduction of Germany's
Treaty obligations is not possible unless at the same time the Interallied
Practically the two matters have little connection.
Debt is reduced.
reduction of the reparation obligation to an amount that Germany can 1.1au
is no loss to any country interested and does not affect in the slightest
On the
any country's ability to pay its portion of the Interallied Debt.
contrary it will be of benefit, for Germany will not - in fact cannot pay what she is capable of paying until the total burden is brought within
}aer capacity.
This question is understood to have core up, as would quite
naturally be expedted, during the deliberations of the Committee of
It will probably come up again in a little more acute form
if the Committee of Financiers reconvenes under the forecasted extended
terms of reference. Any attempt to connect a reduction of the Interallied
Debt with the necessary reduction of Germany's Treaty obligations would
prejudice the possible success of the German loan in the United States.
Under such circumstances the loan would meet with the opposition of all
persons Who at present are opposed to a reduction of the Interallied Debt,
and would probably make it impossible for the project to receive the favorable consideration of our Government which is an essential for the
success of the loan in the United States.
Lr. :..organ is fully alive to the d.:_ngers of any effort on the

part of his colleagues to connect up the Interallied Debt question with
that of the reduction of the German bill, and has indicated quite
forcibly to his colleaLues that he will refrain from discussing or joining
In view of the firmin any opinion whatsoever upon the Interallied Debt.
ness of Lr. Liorgan's views and his potential financial position we feel
fairly confident that the Interallied Debt question will not form part
of any report submitted by the Committee of Financiers.
It is felt
however advisable to report the foregoing to the Department as stories
are bound to leak out in the press to the effect that the Committee of
Financiers "is considering the Interallied Debt question", as such
reports will be wholly unfounded in fact - at least so far as any American
"consideration" is concerned.
I enclose herewith as being of possible interest to you
the following, viz:

Document Berlin 715 - %eekly Statement of the Reichsbank
for week ending 15th Lay 1922,
Document Paris

707 - Lerman Lxchange during week ending
Lay 13th.




J. A. L. Jr.



You may perhaps be interested to know that I have at last
taken the step which I have so long contemplated of resigning from the
Army. 14 resignation is effective on July 15th.
I enclose herewith as


of possible intereso b you the






11 encls.

The hono
New York



Paris, 18 rue de Tilsitt.
9 June, 1922.


Novi 1. EDOED
301 23


113- s

Ly dear Ben,

Ey last letter to you was dated June gnu 1922.
I am enclosing herewith a copy of the "First Draft" of the
6(3°S 3 III
Einutes of the 294th ileeting of the Reparation Commission on June 6th
and 7th 1922.
The question considered was the reply to be given to the
enquiry of the Loan or Bankers Committee as to whether or not it
was at liberty under the terms of its reference (see my letter
7th) "to examine the possibilities of solutions involving modifications"
in the financi: 1 arrangements prescribed in the Treaty of Versailles
and in the Schedule of Payments of Lay 5t. 1921.
The enclosed document first sets forth the terms of the
In turn
enquiry of the Loan Committee to the Reparation Commission.
his argument
a statement by the French Delegate, Er. Dubois, giving
opposing any extension of the original terms of reference (See Annex
Then the arguments of Sir John
1359 quoted mly letter April 7th).
Bradbury, British Delegate, Earquis Salvaggo Raggi, Italien Delegate, and
Er. Delacroix, Belgian Delegate, advocating an affirmative answer to the
Then follows the proposed resolution of
enquiry of the Loan Committee.
the British Delegate designed to e::tend the scope of enquiry of the Loan
Committee. Subsequently ,s. Boyden's -personal views, and finally the
record of the vote carrying the resolution by a majority with the British,
Belgian and Italian Delegates voting in favor and the French Delegate

This document is believed to be of special interest as portraying
the constant preoccupation of the European Governments to there being a
direct relationship between a solution of the "German Indemnity" and the
It will be noted that 1:r. 3oyden fully
"Interallied Debt" questions.
protects our position in this particular in his statement in the attached
It is yet too early to dra -:. any conclusion as to the effect


Obviously :r. Poincare has bowed
the French position on this question.
This was clearly to be anticito the political exigencies of the moment.
text of
pated from his speech in the French Chamber SO 1E few days ago - tae
which has already appeared in the American press.


J. A. L. Jr.


- RaarAL









Enclosures accompanying letter of April 6



English translation of Provisional Agreement of March 21, 1922

(later made permanent) - modifying schedule of payments for 1922 as follows: -

(a) Cash payments - 720million gold marks.

Payments made in 1922 prior to March 21 - 281,948,920 mks. 49 pfennigs
Balance due in 1922

438,051,079 mks. 51


to be paid as follows: April 15
May 15
June 15
July 15
Aug. 15
Sept. 15
October 15
Nov. 15
Dec. 15

18,051,079 mks. 51 pfennigs


(b) Payments in kind equivalent to 1,450 gold marks (insofar as called
for) as follows:


To France

900 g. mks.

To the other Allies 500 g. mks.

Payments in kind to be charged with costs of Armies of Occupation,
and only the balance reckoned towards the reparation annuity.


between sums due in 1921 and 1922 and sums actually paid to remain an obligation
of Germany, with interest at 55.

Conditions precedent upon concessions granted in provisional agree-

ment Of March 21, 1922: -

(a) Measures announced in German Government's note of January 28, 1922
to be applied.

(b) Measures in program of January 26, 1922 to be applied before
April 30, 1922.
(c) Increased taxation in 1922 amounting to 60 milliards paper marks
to bo voted before Lay 31, 1922.
(d) Supervision of above measures by Reparation Commission.
(e) Reduction of expenditures by curtailing public services, subsidies, unnecessary public works, contributions, etc.

- 2 -


(f) Budget deficits to be covered by internal loans other than
Treasury Bills discounted by Reicshbank.
(g) Prevention of migration of capital.
(h) Autonomy of Reichsbank.
(i) Preparation and publication of statistics.

Letter of April 7

Annex No. 1342, a b


Draft law relative to autonomy of Reichsbank.
Provides for administration of bank by Board of Directors appointed

by agreement of President of Commonwealth, Reichstat, Board of Directors of
Reichsbank, and Central Committee.
II. Annex No. 1347, a b

Report of ComIlttee of Guarantees on I.
mean a grs;tt deal."

Proposed change "does not

"No real autonomy is granted."

Will not result in

"stoppage of the present system of financing the Reich by way of discounted
Treasury Bills."

Real financial reforms, in order of priority, must be
(a) Equilibrium in the budget.
(b) Cessation of further note issues until exchange reaches a
certain level.
(c) Payment of reparations.

III. Comments upon the "reform" of the Reichsbank from Vossiche Zeitung,
March 14, 1922.

he budgetary deficit.

Repeal of

note issue, but would simply force

t its own notes.

The proposed law

the bank, but will actually cause

has always in fact been the province

law of August 1914 is in force, the

- 3-


Bank must continue its note-issuing policy.
Annex Mo. 1358, a-g inclusive.


:greement in regard to costs of Armies of Occupation:
Total payments to be made during year beginning
May 1, 1922


220,000,000 g. m., to be divided as follows:

Belgian francs




French francs

on the basis of the existing effective strength of the Armies.

Public debt of France - January 1, 1922.

242,987,151,000 paper francs


38,650,150,000 gold francs

VI. Annex No. 1354.

Credits granted to Austria by foreign governments (See VII).
VII. Memo of Sir William Goode regarding American attitude toward Austria,
and the Austrian situation in general.
Credits granted to Austria
By Great Britain - b 2,500,000, of which 13500,000 is to repay
To be repaid out of first
earlier loan.
loan obtained by Austria "without conditions."

By Czecho-Slovakia - 500,000,000 Cz. Kr. as follows:
Postponement of unpaid
Austrian share of Inter-State
Railway traffic clearing House
To be spent in Czecho-Slovakia

214,000,000 Kr.
500,000,000 Kr.

By France

Proposed loan 55,000,000 French francs.

By Italy

To be available on June 4 - 70,000,000 lire

British loan and other interim credits probably to be used to
stabilize foreign exchange market.



Recolutions of Financial Commission and the Committee of Experts: -


Freedom of banks from political pressure.
Cooperation among central banks of issue.

Ultimate establishment of gold standard.
Budget equilibrium by reduced expenditure and in some countries
by external loans.
Determination of gold parity.

Recommendation for adoption of an International Monetary Convention, to be participated in by European countries and
the United States, suggested basis for such a Convention,
and recommendation for preliminary conference of central
banks to be called by Bank of England.
Disapproval of interrerence with freedom of exchange market
or violation of secrecy of bankers' relations with
customers in effort to prevent flightof capital.

Control of foreign currencies by Reichsbank.


to licences, etc.

May 5_,


1 922

Text of Treaty of Rapallo.

II. Opinion of Legal Service of Reparation Commission that Treaty of
Rapallo does not prejudice rights of Reparation Commission under Versailles

III. Letter of Reparation Commission to Gorman Government to the effect
that Treaty of Rapallo must not interfere with execution of Treaty of Versailles.
IV. Annex 538/13 for January 1922 - Accounting Service Report.

Capital Debt Account Eov. 11/18 - Jan. 31/22

139,525 million g. mks.

139,525 million g.mks.


ninon pz. mks.

Deliveries Nov. 11/18 to Apr. 30/21
Receipts bet. May 1/21 and Jan. 31/22
Further iems to be credited:
(Upper Silesia etc.)
Balance of debt as now disclosed



- 6



Fluctuations in the exchange value of the mark are ascribed to
"Stimmung" (a state of feeling on the part of buyers and sellers), which
is Lifluenced by (1) political factors and (2) condition in Germany itself.
Among the political factors contributing to the recent rise in the mark are
confidence in the Financial Sub-Committee, particularly Mr. Morgan, events
at Genoa and altercations between the Allied Delegations at Genoa.


influential, however, are internal conditions, such as the change in the

method of Reparation payments relieving the Government from the necessity
of going into the foreign exchange market every 10 days, and the shortage
of money (in spite of large note issues) resulting from the great advance in

May 19

I. Memo of May 5 presented by Hermes - "Execution of measures announced
in German note of January 28, 1922.

Revised Budget 1922-23
Ordinary Budget (General Administration)

Million p. mks.

Estimated Revenue (including forced loan estimates)


Estimated Expenditures


Estimated Surplus


Execution of Peace Treat
In the Ordinary Budget
In the Extraordinary Budget


Reductions due to recent
decisions of R. C. etc.

Surplus from Ordinary Budget
(as above)



(1 g. m. - 70 p. m.)

Reparation payments in. Lola included in deficit of 95,869 millions

amount to 82,943 millions only.
The above estimates, however, do not include 22,552 million marks
to cover general administration, railway and postal expenditures in the
extraordinary budget.

It is stated that a considerable portion of this

sum will not be appropriated.
II. Details of proposed forced loan.

III. Autonomy of the Reichsbank - Annex C. G. 228b.
The Banking Law of 187Yplaced the Reichsbank under the

supervision and control of the Empire.

The new law deletes the words

It transfers the directing powers of the Chancellor to the

"and control."

Board of Directors and requirYes the approval of the Board of Directors and
the Central Committee (representing the shareholders) to appointments of the
Chairman and

Directors by the President of the Com'onwealth.
The changes are more formal than actual, rather in the line

of legally recognizing existing practices, and will have no effect upon inflation.

May 26, 1922

I. Exhibit A. - Hermes proposal of May 19 (final form) in regard to
monetary inflation.

Upon condition that a foreign loan is received the German
Government agrees
(1) to consider the amount of the floating debt on March
31, 1922 as the normal maximum.
(2) to repay any future excess within three months without
resorting to fiduciary inflation, and if,necessary, by additional taxation.
II. Exhibit B. - Hermes proposal of Lay 19 (final form).
In regard to supervision of German Governmental financial
Supervision accepted.
operations by the Reparation Commission.
III. Exhibit C. In regard to prevention of flight of capital - Agreement
to take measures to prevent further flight of capital and to tax capital already

- 10 IV. Exhibit D - German Budget 1922-23

(lg. m. 2 45 p. m.)

Budget as submitted January 28, 1922 estimated deficit at
183,360 million p. me
Budget as submitted May 15, 1922 by Hermes estimated net
(1 g. m. = 70 p. m.)
deficit at 12,920 million p. m.

This result is based upon the following assumptions:
(a) That the deficit of 3,110 million paper marks on

Extraordinary Budget and 19,440 million p. m. on Commonwealth Undertakings
Budget will be covered by internal loans in addition to projected forced
loan of 40 million p. me

(b) That by reducing deliveries in kind approximately

one-half (to 51,500 million p. m.) the Treaty charge will be cut from 163,870
million p. m. to 95,860 million p. m., of which 82,940 millions will be
covered by "projected external loon," having a deficit of 12,920 million p. m.
Col. Logan points out that upon the present schedule of the
Reparation payments, without the forced internal loan of 40 million p. m.,
tne deficit would be 238,410 million p..m., and with said loan, 198,410 mill. p. m.
V. German payment balance.

Article by von Glasenapp, reprinted from Manchester Guardian
Commercial,, in which the conclusion is drawn that Germany cannot possibly
meet the Reparation payments as now assessed.
VI. Draft law - obligatory loan.
June 2

I. Formal letter of Reich embodying in general the Hermes proposals
previously reported.
II. Reply of Reparation Commission confirming provisional decision of
i.:arch 21, together with formal decision 1976 a.
III. German exchanges dUring second week of May 1922.
Great losses on security market; no desire for investment;
shortage of money; difficulty of floating stock issues to increase capital.
June 9

Report of meeting of Reparation Commission on June 6 and 7, at
which the Bankers' Committee was granted permission to examine any conditions


- 11







French papers. The two which struck us the most are the editorials in Le
Temps which pointed out that this alleged loan aaneuvLr was a boomerang for
the Americans who took part in it in as much as it evidently led to the
In addition the
conclusion that the Interallied .Jebt must be reduced.
French papers have been making an effort to distract the attention from their
isolation on the reparation principle by the claim that their desire not to
extend the mandate was based largely on the fact that they did not wish, under
present condition, to seem to be pressing the United states to reduce InteralI feel confident that there will be some effort on the part of the
lied Debts.
French to propagandize our people in this particular. Obviously such maneuver
has no foundation in fact as the French views on there being a direct relationship between the Indemnity and the Interallied Debt questions are just as firmly
fixed and have been as openly expressed as in the case of Great Britain, Belgium
and Italy.

The French papers have criticized i.r. Delacroix, the Belgian Delegate,
for joining with the majority in the Commission and also joining in the Loan
Some of the Belgian papers are saying some very severe things
Committee's report.
against him and also against the Belgian Premier Theunis who supports him.
Belgium ought to
is all purely political: "France supported Belgium at Genoa.
have supported France in the loan question. Belgium and France are Allies and
In other
if they do not speak and vote together, they will never get anything".
words they evidently think that Delacroix instead of saying what he thought ought
to have imitated Sergent and accepted the role of a political automaton.
ttacks are naturally disagreeable to Delacroix and may lead to a substantial
loss of prestige both for him and for Theunis. But making all allowances for this
I can't help thinking that Sergent
they must feel better satisfied than Sergent.
must feel a distinct loss of self respect in contemplating his participation in
I have no doubt in miz,- own mind that our French friends will endeavor
the matter.
by every aeans in their power to force Belgium back into line with them so as to
equally divide the Commission and thus arevent majority votes during the trying
approaching months.

The Committee of GuaranNow we come back to the Lay 31st decision.
tees will go to Berlin June 19th to discuss with the German Government the details
of the budget, details of their financial supervision, measures to be taken to
prevent the evasion of capital and the necessity of imposing further taxes.
The mirth- Hermes Government will in all
I am going with them as an observer.
probability be less inclined and will find it less easy now that the loan is
out of the question to give much, if any, satisfaction to the Committee.
majority of the Committee will be inclined to yield and take what they can get.
The French will be inclined to insist partly on the impossible and partly on
the useless.

Next comes the question of the continuance of German cash payments
of about 50 million gold marks per month in addition to clearing office balances.
I doubt if the Germans will be able to continue these payments more than trio
months and nothing would surprise us more than if they were able to continue
them tlibugh the year even if they do not try to stop inflation.

J. A. L. Jr.

1.20 GOVIZNO.2 62:W1J.; -




31st settlement is based on the assumpIn addition, the whole
tion that a loan will be possible, and one of 'the conditions is that if the loan
proves to be impossible, Germany shall make other propositions to the satisfacThis means all sorts of things, particularly increased
tion of the Commis ion.

in one way or the other there will -probably be a recurrence of
the "periods of crises" which have become part of our daily food and each and
all of them seem to us to strengthen the majority 9n their previous opinions
and bring out the weakness of the past policy and the weakness of the present
policy which resulted in making the loan an impossibility. Just how far this
will have to go before we make another constructive step is difficult to preIt may be that France will feel compelled to try something strenuous
though we do not think that the present Administration wants to try military
If there be no nay to convince people of their futility except by
trying them, there might even be an advantage in having them try theme

I am confidentially informed through most reliable sources that
Millerand in a recent conversation with one of the Allied Ambassadors
expressed the opinion to the effect that the present French position was
untenable and that some basis must be shortly found as a means for reconvening
the Bankers Committee, :, Poincard will leave shortly for London where he is
to have a conference with Lr. Lloyd George. L. Poincar6 has accepted an
interpellation of the Government's attitude on the reparation question and this
It will. be interesting to see
will be heard by the Chamber on June 30th.
what the French Government's attitude will be at this latter date and particuIt is worth watching as it should
larly after the Lloyd George conversation.
clear up a good deal of the present uncertainty.
I also enclose, for your information, copy of a letter which has
just been forwarded by the Commission to the German Government concerning
certain details connected with the Hermes Agreement. This letter is of interest as showing the enquiry to be carried out by the Committee of Guarantees
during its approaching visit to Berlin.
Faithfully yours,

2 (..-ncls.

The Honorable .Benjamin LitronL,

Governor, Federal reserve :bank of rev York,
New York City.

COY is


Dated June 15, 1922.
/eoeived 12:54 P.M.


Secretary of State,

242 June 15, 4 P.M.


Miscellaneous reparation receipts since Juan 2.
41,399 account Belgian priority.

,, stuffs

_.:icglaad aad Francs officially

announce to commission payment received yesterday Belgium 500,000,000

and 140,000,000 gold narks resectively pursuant &Aisle B financial agreement March 11th.

This announcomani merely ftrnal, meet f tnglish payment

made loag ago.

Details payment to 7-anee already cabled periodically as made.





Dated June 15, 1922.
Received 12:51,:t1


Secretary of Tints,

6 ashington,

241 Sums 15. 3 P.M.
Conway 11122011111110 payment Belgium June 15th ten million

Belgian tea million "'renal francs 1,500,000 pounds sterling $3,500,000

approximate value 50,1,6,604 gold marks, complying commission's decision
Marsh 21st, our B-664.


T. S. B.

Paris, 18 rue de Tilsitt
17 June, 1922.


14 1922

by dear Ben,

Loose iii Rig

I enclose herewith the following additional documents
concerning the "so-culled" Autonomy of the Reichsbank, viz;
Annex C.G. 228 c
Annex C.G. 228 d
Annex C.G. 228 f

The foregoing are largely re-hashes of documents already sent you
but in view of your special request for information on this subject
I also enclose the French text of a study
I am sending them along.
prepared for the French Delegation on the Reparation Commission by
the Bank of France on the same subject.
I expect to be in
I am leaving Paris for Berlin June 20th.
Berlin as observer with the Committee of Guarantees for about three
Basil is hen- in
weeks so you will not hear from me for some time.
It is nice to have him
Paris and living with me at 7 rue Lonsieur.
Come over and play with us. A lady friend of yours keepaasking
for information as to your whereabouts.
Good luck to you.

Faithfully yours,
4 encls.

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



Digest of memorandum prepared by Bank of France for the French
Delegation on the Reparation Commission, enclosed with Col. Logan' a letter
of June 17, 1922.

The changes introduced by the Law of May 25, 1922, are of limited

The Directorium is released from subjection to the Government,
and is formally granted the powers of direction previously vested in the
Chancellor, although in fact largely exercised by the Directorium.


change in the membership of the Directorium is made.

Nor is the Central Committee vested with any new power of importance, its additional functions being purely advisory.

Its solo

effective power lies, as previously, in its power of veto on operations
in connection with the State Treasury, which are not in accord with law.
But this power is useless unless supported by laws restraining note issue.
The present lack of

such regulation is the chief defect of the German

monetary policy.
The Law of ILarch 14, 1875, requiring that the Reichsbank circulation should be covered for a-- least one-third by coins, ingots or

Reichskassenscheine, and for the remainder by bills running not more

months and bearing two


three signatures,

fied ty the Law of August 4,1914 and )Lay 9, 1921.
two laws,

Darlehnskassenscheine are


has been entirely nulliAs a result of these

considered part of the metallic cover

ox the Reichsbank circulation; the Reichsbank is relieved of the requirement to keep in legal money a cover equal to 1/3 of the note circulation,
thus removing the limit upon note issue; and Treasury Bills, equally with
commercial bills, are allowed as reserve for that part of the note circulation not covered by the metallic reserve.

It is this dilution of the traditional cover for the Reichsbank

circulation which is responsible for the enormous inflation, and no
ttonstary progress can be made until the advances of the Reichsbank to

the State and the note circulation are limited.

Moreover, the Reichsbank's

right of emission should bo made exclusive since the same objections apply
to note issue by other institutions.


Dated June 3, 1922.
aecd. 10:04 a.m.

:secretary of :state,

Washington, D. C.

Jane 3, 11 a.m.

B - 693.

MiseellaWOMS reparation receipts since

'lay 18th postal orders balance 450 francs, Luxemburg coal

115,315 pounds, dyestuffs 5,345 dollars all Belgian subject
French-Belgian arrangement.

Belgian receipts sufficient.

Reparation to France, see my 8-654.
yet officially announced.

Reparation payment not



con - JD


Dated June 17, 1922
Recd. 12:03 P.M.

3ecretary of 3tate,

247, June 17, Noon.


v.iscellane-ms reparation reoeipts

since June 10, Luxemburg coal 132,726 pounds to Belgium.
reported our 703 confirmed.





June 20, 1922.

Dear Elliot:

The copies of the two confidential cablegram dated
June 1E, received by the Secretary of State from the
safely to
Embassy, Paris, recarding reparation payments,cane

I thank you for this information.
Yours sincerely,

Honorat7le Elliot 7LBsworth,
Treasury repartnent,
7ashington, D. C.

June ").3,


Dear Logie:

My last letter to you was dated April 21, and with shame I acknowledge
how derelict I have been in my correspondence.
But let me explain that I have
been absent, I was unfortunately laid up for a time, and I have been tremendously busy at the bank.
So much has happened since my last letter that I think
shall simply take yours up in order and comment upon the various matters that
seem to justify a word.
Yours of April 7.
I have been through the documents and let rite only
say that they give us just the information that we need in these various matters
in order to keep posted on what is happening, and it is fine of you to send
them along.
Please do not be discouraged if my acknowledgments are sometimes

Tours of

April 14.

This has


been acknowledged.

At first my reaction as te Jack Morgan's selection was not altogether
favorable, simply upon the general ground that, oc the one hand, he would be
acting in sort of a ,judicial capacity, but, on the other hand, he would have a
very important personal interest in the results o:' the ,udgment because of his
likelihood of being the issue house in this country.
Gffsetting that disadvantage, which is simply technical, was the very great advantage c f his
prestige, and of having at the meeting an able man who commanded more credit
probably in this country than any other American.
In general, let me say that I am mighty glad that he went and I hope
that you and your associates were satisfied with his performance.
He is a
splendid, straight-forward fellow, and no one can fail to
understand his
position because he never hesitates to state it frankly.
Tours of April 15.
as greatly interested in what you wrote about
taxes in the third paragraph of your letter.
It bears somewhat upon the
cuestion which I raised as to the industrial promoters DP Germany, and generally
what their scheme of financing their promotions was.
I hope that you can get
a line on that and let me know what you gather.

Tours of April 18.
The enclosures were exceedingly interesting and
:wet helpful.
As to Russia; my friend Captain Masson who has been here in
connection with the Mexican negotiations and who, as you know, is ramiliar with
Russia and speaks the language, told me that in his opinion nothing could
possibly stave off a very serious famine with an enormous loss of life during
the next twelve months.
He said there might be 10 million people or more
dying from starvation and abject poverty.
I was a good deal impressed with


Colonel Logan

June 23, 1922

what he said, and recently when in Tashington asked Hoover what his reports
He took an absolutely contrary view; said that they were going
to have a fair crop; that the organization for relief now had &halt 180
Americans in the field with some 60,000 Russians working under them; that they
were na J
feeding 7 or 8 millions and had a capacity to feed 10 or 12 millions;
and that he thought the danger was past.
This indicates the kind cf reports
about Russia which se gat and hot( difficult it is to form an opinion.
I oily
wish I knew more.
Yours of May 5.
I must admit that the Rapallo Treaty came to me as
a great shock.
It indicated an underlying atmosphere of suspicion and distrust
at Genoa, which did not indicate much hope of substantial results as to either
Russia or Germany, and possibly this incident served to prepare our winds for
the rather barren outcome.
Yours cf May 12.
Is it not a fact that the avoidance of a crisis
was. the great accomplishment in a negative way resulting from the
appointment of the bankers committee to investigate foreign loans for Germany;
a positive way vas the indication so
and that the great accomplishment in
plainly made to Serms.ny's existing creditors that people will only lend money
to a solvent borrower.
In a general way it may be said that aeople will not
lend to a borrower who is facing impending insolvency - even though the security
for the particular loan is adequate - because of the difficulties and embarrassments of collection out of the security; and that this principle applies ga,re to
nations than it does to corporations and individuals.


Tours of Nay 19.


You give me a eplendid account of the situation as
it except in general remarks et the

I shall not comment on

conclusion of this letter.

constitutes you state under "a"
Tours of Nay 26.
that the foundation
for the one thing which you and I have ocmrented upan in our correspondence.
Is the present eoverement-cr any government which gerrany is likely to have strong enough to face down the industrial profiteer 'with any such program?
Tour remarks under "c" are wholly my own view that
Isn't that the question?
the eo-callec flight of capital can only be arrested and the return flight
facilitated by measures to cure the disease which caused that result.
means reduced government expenditures, more tax revenues, a balanced budget,
itill improved position for the mark, and great6r confidence in the stability of
Mot as to Exhibit A upon which you ask some detailed comment.
,:uigraent of that program must


be based fundamentally upon the stability and

influence of tho 'resent governsent and the extent to which the people will
There is no doubt whatever that direct taxation will go a long
support it.
way towards making the program possible if the government is strong enough to
enforce it, but on the other hand even direct taxation on the scale required
presents the possibilities of further inflation, not through direct borrowings
o° the sovernsent from the Reichebank but through the borrowings of tax payers,
which would produce similar results, and a program of heavy direct taxes
coupled with reasonably long time borrowings will only be successful if it is
predicated upon the most rigorous reduction in government expenditures.


Colonel Logan

June ?3, 19'2.

Theoretically, the capacity of people to pay taxes throughout a
period of inflation is increased in proportion to the amount of the inflation.
Actually, however, with inflation proceeding at such a rate as has been the
case in Germany, the rate of taxation for the annual budget cannot overtake
Price increases, wage increases and depreciation in the exthe inflation.
ternal value of the mark will always be a lap or two ahead of the tax gatherer,
and it has seemed to me that one of the most important functions of the
Reparations Commission is to make its influence effective in the following
directions among others:


onnacessary governmental and local expenditures by
1. To reduce
the federal .overnment and states.
?. To insist upon taxation but not to a point where the budget is
immediately placed in balance, but only after a period, because the complete
balancing of budget in my opinion under present conditions ie out of the
3. Assuming that the budget cannot be balanced by taxation, the
Commission's attitude, it seems tc me, should be to insure that the type of
borrowing undertaken by the government minimizes inflation rather than increases
it Le heretofore.
4. The Commission should insist upon adequate accounting and
statistical information as to the German economic and financial situation.
5. Foreign loans should be permitted or encouraged only under conditions which promote German recovery rather than defer the day of disaster.
I az without the data to enable me to comment upon the method of
Sound opinion could only
dealing with the floating debt set out in Exhibit A.
be formed after examining in much greater detail than is possible here all of
the influences which have led to the making of the tentative budget which you
/ere good enough to send me.
I am frank to say that I am very skeptical of satisfactory results
from a forced loan or a so_called capital tax or anything in that nature.
Those who are obliged to subscribe on a large scale because of large means and
whose fortunes are represented by fixed investments, plants, real estate, etc.,
can only meet the requirements of the forced loan or capital levy by hank
It gives the government the benefit of immediate cash and makes
the tax payer or subscriber the borrower at the bank, but nevertheless results
in borrowing and inflation, and under the German banking system the inflation
I fear in further issues of currency to a large extents
would be directly represented
As to foreign loans, there is much to be said on both sides, and there
may be some points in connection with foreign borrowings which may not have
occurred to you4In addition to the comments made above it should be borne in
mind that h "o reign loan imposes upon Germany an additional difficulty in
making foreign payments of interest and sinking fund, which in the present
state of affairs can only be compensated by corresponding reductions in the
Further than that, in my
amount of payments under the Versailles Treaty.



Colonel Logan

June 23, 1922

opinion, a foreign loan will be must effective in the long run in enabling
Germany to restore production and exports and thereby increase Germany's
capacity to pay foreign debts; and the making of a foreign loan simply for
the purpose of maintaining a fixed schedule of reparation payments not only
does nut improve Germany's productive capacity, but in a measure impairs it by
the addition of a large annual foreign payment.
The great advantage to Germany, and to any other country with a large
discount on its currency, when borrowing in this market or in any market where
there is a premium vis-a-vis the mark lies in the fact that the loan is given
to Germany on a gold basis at a time when the marl.
is enormously depreciated,
ano to the extent in later years that the mark recovers in value, and progressively as the recovery takes place, a reduced number of marks are required for
the Service of the loan.
To illustrate: with francs at 50 per cent. discount,
if France borrows $1 million in this market, it will produce, roughly, 10 million
Should the franc recover to par at the maturity of the loan it would
only take 5 million francs to repay it.
Of course, this point must be
modified in cases where the intrinsic value of the depreciated currency is
adjusted to the foreign value of the currency by a readjustment in the intrinsic
value of the country's coinage.

In a general way I should say that Exhibit A indicates a desire of
the German Government - probably under pressure - tc brihg about a reform in
their fiscal affairs which may be impossible of accomplishment unlees all the
circumstances are favorable and the point upon which my doubt is the greatest
ie that having to do with public opinion in Germany and :whether the present
government is strong enough to carry out the
tax program that
seems to be required by this.
You All notice that this is recognized in the
first part of the exhibit by the stipulation that the effort cannot be carried
through unless Germany obtains reasonable assistance by foreign credits.
is really the purpose of the whole plan
as I see it here.
Certainly in a general way much progress has been made towards the
enlightenment of public opinion, and beyond that what more could have been
It is hard to say.

Yours of June 1.
The very interesting account contained in the
documents covered by your letter throws much light on what transpired. Of
course, much of it has appeared in the newspapers so far as results go, but
prodedure and discussions have been a closed book.
in connection with the discussion on which I would like to write you very
frankly, and I hope you will'take some opportunity to discuss it with Hoyden.
Please always bear in mind in connection with our correspondence that I
never have or can express anything but purely my personal views for that they
They are simply written as a friend to give you a little line on
are worth.
matters at home and further opinion which may aid in the important work you
fellows are doing.
Some years agp
other the ability of the
directly dependent upon,
collect reparations from

I formed the opinion that ultimately in some form or
Allied nations to repay our government would be
and in eons way associated with their ability to
I have never changed that view - in fact

There is onl


Colonel Logan




1919 I discussed it at great length with some of our neople who inclined
to the same view - even to the extent of considering whether a generous attitude
by this country expressed in the acceptance of some sort o° a German obligation
for a part of this debt, which might indeed result in a general readjustment all
around among the debtors and creditors, might mot be the most material contrioution that we could make toward European recovery.
This contemplated even the
possibility that the German obligations would turn out to be bad, but would
nevertheless be so distributed that the losses would be apportioned equitably
It vas in part grounded upon the belief that Germany's
among the creditors.
meet the Versailles Treaty's obligations would result in military
operations against. Germany, occupation, etc.
It was probably E. visionary plan.
At any rate it did not have a chance of success.
Since then I had occasion
to write to an English friend of mine in commenting upon what I thought was a
very unsatisfactory proposal for dealing with the Allied debts - that, in my
opinion, it would be most unfortunate for this country to be placed in the
position, either voluntarily or involuntarily, of exacting the last collar Prom
its creditors, who had been its military Allies, at the same time that. it might
be insisting upon a reduction of the amount Mich France or any other creditor
nation VIE seeking, to collect
from the enemy that caused so much destruction.
I find exactly this Mien appearing in Sir John Bradbury's statement in the
following words:

inability to

"These countries would incur e heavy responsibility at the bar
history if they were to display less consideration to their Ally than that
Ally herself was prepared to show to the beaten enemy."


vA h

Now of course one's opinions change and they change
and I have recently been coming more to the vie', and quite decidedly so, which
appears in the third paragraph on the third page .:)1) your letter of June
Public opinion in this country seems to be so definite in regard to the treatment of the Allied debt at the moment, and there is so much ignorance on the
subject, that I do indeed see danger in the association of the two questions
of reparations and Allied debts, although, as I have written you before, I have
really felt that the sensible treatment of the situation reouired a general
readjustment all around.
The fact seems to be that at the moment. 4e have a very unsatisfactory
basis of public opinion here upon which to expect any considerable results to
come from any participation by representatives, either of our government or of
business interests here, in deliberations having anything to do with the debts.
My conviction is growing that time is the principal element to be relied upon
tc work out a solution.
I an very firmly of the opinion that we should
accept the conclusion of Congress that it. desires a Commission to deal with the
Allied debt matter entirely independent of any consideration of German
renarations; that all of the nations debtor to this country should promptly
undertake negotiations with that Commissiong, and the more prompt the better;
and when those negotiations have resulted in enlightening the Commission as to
obvious duty will then be to make a report to Congress which
the facts, its
will help to form a public opinion leading toward a more constructive treatment
of the whole subject.
There is a most important election in hoveiaber with
much fear expressed that there will be a great reduction in the present.
Administration majorities.
Some go so far as to say that there will be a
Democratic majority in the thus,.
Wider these oonditions,reeponsibile
authorities, either in the Government or in Congress, cann.,,t be expected
advocate very liberal proposals in the matter of the debts at a time when the
tax bureen is so heavy and the demands for all sorts of special legislation,
including soldiers' compensation, are so insistent.


The Commission
with such men as litOles,
there is reasonable hope
and recomNendations rrom

June 28, 1922.

ap2ointed by the President iF an excellent body, and
Mellon, Hoover,
and Burton, I should think
that the country as a whole will regard the report
that Commission as muthritative and final.

This is all that I am able to write you just now, but in a few days
I hope to send another letter on sore other features of this matter, especially
that having to do with the proposed conference of cfficere of the banks of
issue in London, which is likely to be held in S,3ptember, Ipon which I an
anxious to nave an expression f your views.
:'lease accept my warmeet regards, and avtin many thanks fcr your
fine letters and enclosures.
Also dye my best tc Basil and to Boyden.
Yours E i nc e re 1 y,

Colonel James A. Logan, Jr.,
8 rue de TilFitt,
P3ris, France.

Dated June .4, 1922.
Acted. 11:23 a. n.

Secretary of State,

Washington, D. C.
256, June 24, 3 p.m.

Yiscellaneous reparation receipts sincm June

1 ?, 545 francs balance trench postal receipts 1,926,973 francs

sale war materials both to Belgium.


June 24, 4 p.m.



Page 2

A. L. Jr.

Ambassador, Rathenau, -Ind myself, and was primarily arranged through the

kindness of the Ambassador to bring Ttatherau and myself together. Rathenau

was at his best. During the course of the dinner, Rathenau said that
itinnes was in Berlin for the purpose of discussing certain phases of reparation coal deliveries with the Committee of Guarantees, and that he wish-

ed to call him on the telephone and ask him ariund after dinner, hich he

Therefore, from about 10:30 in the evening, until about 1:30 in the

morning, the' party included the Ambassador, Rathenau, itinnes, and myself.

It was one of the most interesting evening I have spnnt, and as Rathenau
was assassinated the next morning at 11:00 o'clock, or only a very few

hours after having left us, it had its tragic feature which has impressed
our talk quite indelibly on my mind.

Before 3tinnes' arrival, Rathenau referred at length to
the difficulties of the ''firth Government and the recent u. mistakeable

He said this falling off in morale, in particular, reflected itself in the opposition it
signs of ailing off in morale of the German peo,le.

created to meeting the treaty obligations.

lie said this made the situa-

tion extremely difficult and delicate for him personally.

He rehashed

much of the old stuff, laying particular emphasis on the position in which
the German people as a whole were now forced to feel them;elves placed in

relat ion to the rest of the world. According to Rathenau, this feeling
was one of being c ompletely surrounded by ehemies and creditors who re-

garded the German people as despicable and aglinst whom they were, there-

fore, at liberty to accord no respect or any consideration for feelings.
lie said there was hardly a day which passed in his office without harsh
complaints and criticisms being received from Nollet, the French Pzabassy,


Pa g e

J. A. L. Jr.
Esthonia, Latvia, Lithuania, Poland, Roumania, Etc.



concerning Germany's

failure to live up to this or that part of the Treaty.

He said the tone

of all these communications was the pin-pricking variety v.hich, if made

public to the German people, could only result in fostering the growing
German feeling of moral isolation, and thus stiffening the reactionary
element's opposition t o any Government desiring to carry out German treaty

He said that he hgd been handling all of this correspondence

personally so as to keep it from the public.

lie was quite insistent that

either the Ambassador or myself visit his office where "he would willingly
show us any single day's dossier on these matters so that we could take away an impression of his (Rathenau's) difficulties".

Needless to say,

neither of us accepted this invitation, though one could not help but feel

that there was perhaps some foundat ion in fact in RATaAU's presentation
of this phase of his difficulties.

Rathenau then referred to the question of cash pNyments,
stating that Germany had gold balances on hand with which to pay the
July 15 reparation installment.
He said there was some additional balance which might be
applicable to the August 15 installment, but this would probably be com-

pletely exhausted by August 15 in the purchase of Larks abroad necessary
in preventing a disasterious fall in exchange.

He intimated that the Ger-

man Government's expend itures on this account within the last few weeks
had been considerable.

Rathenau admitted that it was Germany's first duty

to rehabilitate its internal financial position, but emphasized that such
rehabilitation was only possible after a readjustment of the indemnity
bill to a figure within Germany's capacity, and by th, help of an outside


J. A. L. Jr.




Page 5

J. A. L. Jr.

ad interim loan or other temporary adjustment so long w Germany was

forced to technically accept the maintenance of the present indemnity

bill. He said that so long as the present bill was maintained, finarcial
and economic disturbances and labor unrest was bound to continu



no ad interim settlement could benrfit or even have any palliative effect.
He said that his public attacks on thr Goverrment were dictated from this
sole motive aril had recently ben particularly emphasized as he had had
reason to believe that the German Government was beginning to weaken be-

fore French pressure, and might be lead into accepting a compromise of this

He said, however, that if the indemnity bill was for once fixed

definitely at a figure within Germany's capacity, the internal German financial adjustments necessary would have his absolute and undivided sup-


If this goal were reached, a foreign loan floated on sound business

premises would be necessary and, according to Stinnes, could -.nd should be

forthcominr t o carry Germany's external financ ial obligations for a few

Stinnes intimated th!,t, subject to the condition he indicated, the

floating of a loan of this character would receive the support of the German industrials.

Rathenau then asked jtinnes to explain to us his personal
attacks on him (Rathenau).

Stinnes replied that he (Stinnes) would not

sign a paper "unles:_, his signature could


Stinnes said

that Rathenau by giving his approval to the Cannes and larch 21,


program of payments had done so with a full realization et the time that
it was impossible for Germany to meet the payments involved.

Rathenau' s signature could not be discounted ".
tacked him.


Therefore, Stinnes at-

Rathenau, in replying, stated that, while agreeing with


Page S

J. A. L. Jr.

jtinnes, he, nevertheless, maintained as he (Rathenau) was a member of
the Government he was forced to reconc ile the politic':1 exigencies of the

situation with business considerations, and could not, therefore, have

treated the question solely on Stinnes' "business principles", notwith-

standing his personal inclinations to the latter treatment of the question.
Stinnes again repeated that this was the only differr-nce between Rathenau
and himself.
riathenauws obviously depressed during the whole evening,

and As the Ambassador later so aptly expressed it: the situation had his
(Rathcnau's) "goat".

In the light of his -assassination the next day it


was a curious coincidence that when referring to the falling off in morale
of the German people, he specifically quoted incidents of recent assassinations and attempted assassinations of governmental officials as b-ing in-

dicative of this failing in morale. his sermon was to the general effect
that the world's pin-pricking and fault-finding with Germany was similar,

and would have a like result, to that "of a sane man taken and confined

against his will in an insane asylum during a long period with the result

that he gradually assimilates the mental taint of his assoc iates".


said that th Gernian people had now been for nearly four years (since the
Armistice) in this "insane as;-lum ", and that it was conm.encing to t ell
upon th-m.

I am no sentimental ist and fully realized at the tier, the im-

pression he was trying to make.

I must, however, confess that while not

swallowing this impression up to ioaA, I wa::, neverth-l-ss, some 50'%' im-

pressed, which is a considerable temperamental reaction on uy part these

I endeavored, end I hope with some effect, to leave Stinnes



J. A. L. Jr.


with the impression that it was a short-sighted policy on his part to allow the world to rest under the impression that he was following a "catastrophy policy", and to attain this end was even willing to "pull down the
pillars of the temple and let the roof fall on the heads of all".

I inti-

mated that his present tactics of prodding and teasing the Fr,-nch and the
other Allies by continually discrediting. Germany's financial position and

forecasting complete and quick ruin had a back-kick which was inconsistent

with his (Stinnes') desire to see a business settlement of the reparation
question reached through the medium of a foreign loan.

He might perhaps

scare the Allies by these tactics into believing that their reparation equity wos being dissipated, but these same tactics did little to reassure
the various foreign fellows who have good money available, to lend, and

whose help, according to Stinnes, was so essential to the attainment of
the definite settlement.

I suggested that the fellow with money in his

showcase to lend to Germany deserved and required serious consideration, as
he would in all probability predicate his interest in a loan transaction
on the internal German financial position being placed forthwith on a sound

Obviously no such foundation existed toda:y.

It logically fol-

lowed that if he (Stinnes) thought a foreign loan was the solution, he
would do v.ell to lend his considerable support by directly helping in the

rehabilitation of the internal German economic and financial position.
The conversation at the Embassy was naturally of a privileged character, and therefore quite personal and confidenti711.


would, therefore, naturally be embarrassing for me if any outside refererce were made to it.

The situation following Rathenou's murder is today nebulous.



A. L. Jr.

The German people at large resent the murder, with the result that there
is considerable feeling against the extreme Right which should strengthen
the hands of the Wirth Government-

It is difficult to forecast what will

happen, end whether or not the 'Virth Government will use their present po-

sition to its full advantage.

It now looks as if there will be a general

strike for twenty four hours from tomorrow noon in protest of Rathenau's

I anticipate a good deal of "manifesting" but not much serious

Faithfully yours,
29 ,

fit't -ttn

ce, -




July 12,

Dear Lo,:ie:

In my last letter I advised you that I

vas proposing shortly to write

you something of the suggested meeting of the representatives of the banks of

Nhat I am now sending you is mcst confidential, although you may have

received similar information through your own sources abroad.
It now seems that there


be about ?.0 institutions invited to send

representatives (one each) to attend the conference in London, to be held probably
early in October.
tae invited.

There is some doubt still as to just which institutions

advised you


how inadvertently the nets


sounded as to attending the meeting leaked out over here.
Norman of the


my being tentatively
Since then Governor

of England has been here, as I think I wrote you, and we have

been all over the proposed Agenda



conference not only here at the bank but


with the members of the Federal Reserve Board,A with the Secretary of the Treasury.
I have also discussed the matter quite fully with the President and with Secretary

al thou81 I have not had opportunity to talk 4th Secretary Hughes about it.
I think the attitude in gashington can be summarized by stating that,

officially, they are friendly towards private efforts by cur people to assist in
the restoration of better conditions in Europe, and that certainly one enterprise



a deep interest and from which we could not stand aloof is that

generally suggested in the proposed conference of laying cut and recommending steps
looking towards the restoration of the gold standard.


e have the great bulk of the world's gold reserve, and for us to

hold assistance in this direction would seem to be wholly unjustified.


on the

Colonel Logan


July 12, 1922.

ther hand, the conference has the possibilities of difficulty.

No one can say


before the ending just what line the discussion may take and what sort of reports

may come from it.

A representative from this bank attending such a meeting would

have to be prepared to dissent from scae part cf the report.
comes the

difficulty of

the Allied debt.

Then again there

In a general way, I gather that it will

he proposed simply to state in ummistalcable language that any efforts designed to

facilitate or hasten a return to the gold etendard in Europe will be futile unless
there is first a definite adjustment or understanding or definition or statement
of policy arrived at as to the inter-governeental


including reparations, but

This statement would undoubtedly be in general

possibly not including Puseia.

terms and not aptly to any particular country but to all.
hesitate to
Frankly, I would notftjoin in a report of this character if predicated upon

any such statement because

the gold


is futile to expect any progress towards a return to

standard by European countries until some sort of a definition of these

debts is arranged, and until we know either by studies or by experience that the
amount which they obligate themselves to pay periodically is within their means and
will not throw them back upon a policy of exceosive borrowings and consequent
inflation of credit and currency.

So much that is discouraging has developed since Norman was here in pay,

that I az vonciering


anything may

be accomplished ey

uch a conference,

except to repeat Viose oft repeated pious declarations such as emanated from
Eru 14610 and Genoa.

From Icy personal point of view, I would gain more by making

a trip through Europe and meeting these tankers privately than I could expect to
gain by attending any sucn conference.

But apparently much importance vas

attached to the ;:roposal at Genoa, and I have numen us letters from friends in




issue - such as Holland, Switzerland and elsewhere, including the

Teeple in the Reichsbank - all expressing a very strong desire that I should attend.

July 12, 1922.


I have two or three other lettere from you, including the one written
after your meeting with Rathenau


I will reply

to them in a day or

news ae to what ha-nenc on July 15.


and be granted some

and Stianes, which are intensely interesting and

ie are awaiting

I presume Germany till

sort of moratorium as tc further

with some



Again many thanks for your mighty interesting letters, and my beet
to Boyden, and

the same

to you and Basil.

Colonel James A. Lugar., Jr.,
1 El

rue de Ti] ei tt,

Paris, Frhnce.


payments until things clear

a bit.






Colonel Jaees A. Logan, JR.



cuments recuire too much study for ee to have a very settled conclusion as yet;
but my first impression is that it ap ears to be :.cre an argument of confession and
avoidance than a real justification.
As to the French'


need for reparation collections.

1e all admit it

think generally people have admitted it since the war closed; but there has

undoubtedly been tne impression that the attempt to collect more than Germany is
able to pay, b

the French Government, has been triers a political than an economic

question, and certainly much more sympathy would be
over here

felt fur the



tore the French Government squarely to adopt a progra.: and announce it -

such as yoe and I have frequently discussed in (_,t,r correspondence, namely; ascertain

what. Germany can pay, take measures to increase her capacity to ply, anti then make

her pay all that she is able to pay.
TA) or three times lately I have heard opinions confidently eepreeeed -

by private citizens to be sure - that there seers tc te no doubt, that the French

policy was now squarely settled upon the economic destruction of Germany.
kit as I recently wrote you, the solution of the problem cermet be
found in an international loan made


an insolvent borrc per where the sole

protection of the lender is some ultimate recourse to collateral.


investors don't like loans of that kind.
Yours of June 17 requires

no eoreeent,

except again to say that the

documents are most interesting.


letter of June 46 has certainly a wonderfully interesting account,

of' an unusual experience.

It gives ne a geed deal of light upon the various

rumors that we have heard, and ef' course there

circumstances of your meeting.

I wish

I right


something pathetic in the whole


had the i,rivilege of


there with you.
Some one has described the contrast between the two principal men whom
you met, very aptly by stating that one of thee was in the position of having sold

Germany short, :dine the other was long of Germany in declining market.

July 14, 19?2


ipe en to

reaction here growing out

I think the

increase sympathy

feeling of regret +hat


of Rathenau's assassination has

Gersany in their difficulties, because of keen

one of the beet

men in the '-government has been sacrificed

Then he was most needed; but nevertheless that he had undertaken an imrossible task.
His American connections
one Geroan of'


.ere of

course of such importance that he was


position who was pretty well


I am most grateful to you for sending me the account.


warmest regards to all of you,


Faithfully yours,

Colonel games A. _,e)31,n,
18 rue de Tilsitt,
Paris, ?ranee.





WIT - 1111

Dated July 17, 1922.
decd. July 18, 2:05 a.m.


Secretary of State,

Washington, D. C.
287, July 17, 5 p.m.

Gernany announces payment Belgium account 50,000,000

geld marks due July 15th, 5,000,00 Belgian francs, 1,450,000 pounds
sterling, 10,000,000 French frAmos, approrimata value 32,000,000
gold marks.

balanoe due made up by following credits between November

first and June 30th - Luxemburg coal 16,532,637 alliance dye stuffs
833,386 transfers reserve fund to schedule payments 526,211 French
postal order 368.


Total 17,892,602 gold marks.



July 24, 1922.



- 2 -

The confirmation of proposals by groups or by
single establishments to operate under this
law rests in the hands of the Praesidium of
the 3upreme Council of National Economy in
agreement with the Iraesidium of the Central
Soviet of Trade Unions (1).



Under the law the supreme Council of National
Economy has the right to determine which establishments may be united into a trust. Practically, the trusts which have thus far been formed have
been organized either through the agency of the
various former central administrative bodies which
controlled industry or through similar local bodies
in the various provinces or districts; with practically no interference on the part of the supreme
2.The administrative body (Directors) of a trust
are appointed by the Praesidium (the nine directors) of the Supreme Council of National Economy,
on recommendation of the Central :administration of
the corresponding industry and the Central Committee of the corresponding Trade Union (2).


In practice, thus far, the directors of a trust
have been appointed by the Supreme Council of
NAional Economy itself for trusts whose head,
quarters are in Moscow or in the chief cities of
the provinces and by the Supreme Council of National Economy eating through its established
subordinate organs, in the lesser communities.
The Directorates thus far appointed consist of
members recommended by the professional
union of workers in the corresponding industry
members appointed
or by its central council;
by the Cormilunist Party;
and (3) specialists.
This last group in some cases includes former
factory owners, but in general they are not made
members of the Directorate of the particular factory which they formerly owned but of another
manufacturing the same line of goods.
3. The directorate of the trust will take over the
control of all the associated establishments
and their equipment, stocks, fuel, raw material,

4. "The amount of the production of a trust is to be
transmitted into the general State fund, the ex,
,oenses of production being deducted."

The exact legal position of the trusts in regard
to property rights is admittedly hazy.

- 3 -


practice, the trusts may not sell buildings,
machinery or other equipment. On the other
hand they have control of the sale of their
products. The State, however, is regarded as
owner of the net revenues, which must be turned
into the general fund.

The administration of the trust shall prepare a
general plan of production (operations) with
all essential calculations of expenses, materials needed, etc.


In order that the factories of the trust may be
provided with needed currency, food, fuel,
raw materials, etc., the State will advance
special funds to the trust on security of a
The Trust is ampowshare in the production.
wered to accumulate such stocks of food, fuel,
raw materials, etc., as may be necessary for
the carrying on of its operations (1).



In regard to the supply of raw materials, etc.,
the trusts thus far established may be divided
some of which have full control
into two groups;
of purchase of materials, etc., and procure
them directly by independent negotiations; and
others which are still supplied partially by
the Jtate through the Central .administration
Those purchasing independently pay
of Supply.
those supplied by the
the ruling market prices;
State pay the official fixed prices, which are
usually laver than the rates in the free market.
The administration of the trust, under special
agreements between the Superior Soviet of National 1Lconomy and the People's Commissariat
of Foreign Trade, may contract abroad, against
payments either in cash or in a portion of its
products, for the purchase of such implements,
machinery, materials, fuel, clothing, etc., as
may be urgently required for the maintenance or
improvement of the technical side of its operations.


The administration of the Trust shall work out a
plan in detail, in agreement with the Trade
Unions and Sections of Labor, in the corresponding industry, concerning the hiring and discharging of labor, the conditions of work and
the rates of wages. Wages must in no case be
lower than those established by the Union for
the corresponding industry.


The directorate of a Trust will operate under the

control of the corresponding superior

authorities and is responsible for the carrying out of the plan of production, the quality
of the goods produced, the security of stocks
and the general conduct of the business. It
is responsible not only to the administrative
authorities, but also in the courts of justice.


The "control" here referrad to does not, in practice
at least, mean control of the operations of the
Trust, except in so far as the law contemplates
severe punishments for carelessness or lack of
energy in carrying on the work. The principal
form of "control" consists in the participation
in preparing a plan of production, the nomination
and the right
(as in 2 above)
of directors
of revision of plans through the respective
Trade Union Committees,

Under this law the first two trusts (the Flax Trust and
the Northern Lumber Trust) were formed within the first month.
Since then the growth has been rapid and by april, 1922, there
were no less than sixty in the larger industries (in addition
to various unimportant ones authorized by local councils of
National Economy), as follows:
of trusts



Electro -technical


Remanufacture of
timber & lumber
Food products




Number of








of workmen


At first the new system gave considerable promise of succuess.
The partial freeing of industrial enterprise from state control, giving
it greater autonomy in carrying on its operations, acted as a stimulant;
freedom of purchase of materials, etc., brought out from their hiding
places considerable quantities of raw materials and previously manufactured stocks; wages, under comparatively free negotiation between the
trusts and the unions, rose rapidly and roused labor to an increased
The improvement is clearly noticeable in the increased output of
important industries for which data is obtainable, as illustrated in
the following table:

- 5 -


:Before the Organization
of the trusts

Monthly production, in 1,000 poods.




Donetz Coal
Pig Iron
Cotton Yarn
Woolen Yarn
Linen Yarn
Baku Oil

















If published statements - official, s
are to be believed, this appearance of rel
has been increased; but except in regard
largely through the utilisation of old sto
showed signs of exhaustion early in the si
still, the progess of production has been
iness estimates of the demands of the mark
prepared under the "control", direct or in
Production has caatinued, bu
by the fall in value of the ruble, the inc
various "contributions" required by the St
as early in January there began to appear
Zhisn and the semi-official Izvestia and P
disaster. iccording to su h reports, the
unsalable goods, and even the State Sank,
place of cash in repayment of advances, ha
there is no market.

In the many conferences and discussio
the year two definite opinions have enarge
remedies to be applied, the opinions being
considerations as to whether the New Econo
party puts the blame on the lack of purcha
point out, for example, that the total ava
(the most important purchasing public) doe
while the production, even in 1921, of suc
on the peasants for their market, reached
ing causes are numerous, such as


Lack of circulating cap
varying from 260,000,
gold, have been made
The State batik, one o
foundation was to sup
able to advance only
am ount.


- 6 -

The enormous rise in prices, still further reducing the capacity of the market to purchase.


- 7-

COPY - a
Paris (via Naval Radio)
Dated July 26, 1922,
Rood. 27th, 9:45 a.m.

3soretary of Jtate,

BOO, July 26, 3 p.m.


Miscellaneous reparation receipts July 6 to 22, dyestuffs $4,644;
Luxemburg coal 150,214 pounds sterling credit Belgium proceeds Iritish
reparation recovery act month June 636,000 pounds sterling retained by
British under March 11th agreement applied army costs since







Paris, 18 rue de Tilsitt.
28 July, 1922.


My dear Ben,

The Committee of Guarantees after a month's stay in Berlin reI remained with the Committee in
turned to Paris on the 19th instant.
Berlin until July 14th when I returned to Paris. Assuming the policy of
the Department to be that subsequently outlined by it, I used Lr. Boyden's
departure for America and the consequent need for my presence in Paris as a
logical excuse for quitting the Committee before any final reports involving
possible commitments were drafted.
The situation in German;i after the "check" to the Conference of
Bankers on the Foreign Loan question developed almost exactly as me had


in tift.

I enclose herewith as Exhibit A copy of a memorandum on the German
This memorandum is only of
badget position as it appeared on July 3rd 1922.
value as illustrating certain phases of the German position described in this
letter, for due to fluctuation between gold and paper mark values essential
changes in the figures would result if an accurate forecast were attempted
It will be noted from the examination of this memorandum
at any other date.
that the very optimistic results forecasted by the German Finance Minister
Hermes when presenting his fipan,cial reform measures to the Reparation Commission last Liay (dee in this connection my letter to you of Liay 19th 1922) have
This was to be expected and indeed was more or less anticilargely vanished.
pated by Hermes who based his whole scheme of financial reform on the ability
of the German Government to obtain a foreign loan as cover for Treaty charges.
The increase in the expenditures incident to the fall in exchange, plus the
credits already applied to the "Execution of the Treaty Budget" during the past
first quarter of the German fiscal year 1922 have wiped out the anticipated
surplus from the Ordinary Budget and, in addition, have largely eaten into the
credits to be derived from the Forced Loan.
The final report of the Committee of Guarantees on the German
budgetary situation, which will be forwarded shortly, when carefully considered
and after elimination of phraseology of political coloring will boil down into

a) Substantial agreement with the German figure of
estimated receipts during its current Fiscal year;
Attention is drawn to the obvious fact that any augmentation of receipts
through increased taxation by legislative action at this time would hardly
Past experience has demonstrated
relieve the present budgetary situation.
that the actual turn in of cash under new schemes of taxation only follows


A. L. J r.




the law after many months have elapsed and, in general, the more radical
the scheme of taxation, the longer is the delay in actually gathering
the money into the cash drawer.
b) Substantial agreement with the German figure of
There will be some criticism of certain items of expenditures on the ground
of extravagance and unnecessary capital charges but the aggregate of such
of the total budgetary figure of expenditures.
items will not exceed 5
In other words, even if it were possible at this time to eliminate the five
per cent criticisable, the resulting saving would be of negligible importance
when compared with the total figure of deficit in the "Execution of the Treaty
It seems pertinent to point out that the budget figutes under study
by the Committee of Guarantees during the Berlin visit had already been enacTherefore any changes or modifications
ted into law by the German Reichstag.
would require Reichstag action with its attendent practical political diffiThis situation which made the position of the Committee of Guaranculties.
tees somewhat anomalous is to be corrected in the future by the "supervision"
measures set forth in Exhibit B herewith.
From the foregoing, and if the present reparation policy is continued,
it isciovious that the German Government must continue its present policy of
practically unlimited monetary inflation irrespective of its consequent
financial, economic and even social effects. I am no alarmist but I now feel
more inquietude over the social factor than I have at any time in the past.
Up until recently labor in Germany had not appreaiated the results and possibilities attending the spread between internal and external prices brought
The industrial always appreciated this situation
about by weakening exchange.
Labor, within the last few months, has come
and had used it to his advantage.
to a more complete understanding of this situation and are taking advantage
of it at frequent intervals by demands for increased wages. Such demands are
of course not unjustified, but, nevertheless, their frequency is bound to have
a disturbing social effect, all of which results in adding "momentum to the
snow ball rolling down the hill". Another curious phenomenon is that of the
"flight froth the mark". Few have donfidence in the value of the mark, every
one who gets marks wishes to dispose of them without delay. In certain cases
they are converted into sound values but more often than not they are unproThe turnover in the great German banks today is actually
ductively utilized.
Bank Staffs and facilities have been materially increased so
as to handle the rapidly circulating mark. There is much new construction
going on all over Germany-, brought about by this same phenomenon - a portion
of which may be based on sound economic premises, but the larger portion is
of very questionable economic value. All of this obviously tends to social
The obvious relief to be accorded in tie present German position
is a complete and immediate moratorium for Treaty charges with the hope thtt
it is not now too late to stop the continued' weakening of the mark; that
Germany makes an honest effort to at once slow upMonetary inflation, and
proceeds forthwith to placing her financialThouseAn order,
Germany can now balance her internal budgetary position (under complete


le J. A. L. Jr.




Treaty charges moratorium) or whether this goal can only be reached with
some outside aid, is open to serious question. It is equally obvious that
if France and Belgium are to receive any substantial sums of money on
account of reparation, the only source is through the medium of a foreign loan
It logically follows that if a foreign loan is the solution, the
to Germany.
fellow with money "in his show case" to lend has the determining decision and
his decision will be based on the security Germany has to offer. The present
The cumulative
allied reparation policy is dissipating Germany's security.
effect of such a policy is thoroughly appreciated by potential lenders.
possible consequences of this phase are gradually "coming home" to the Allies.
in filf.
Enclosed herewith as Exhibit B is copy of the letter from the
Committee of Guarantees to the Chanceller of the Commonwealth dated July 18th,
concerning"the supervision to be exercised by the Committee of Guarantees; on
the prevention of flight of capital and on statistics to be compiled by the
German Government" and the Chancellor's reply to the same dated July 21st
Considerable differences developed at Berlin between the British and French
Delegates as to the extent of "supervision" or "contrtle" to be exercised over
It was apparent that both were acting under divergent
German fiscal affairs.
The result was a compromise of the French and British ideas.
The question as to "the flight of capital" was disposed of without particular
The adopted measures are not unreasonable but from a practidal
point of view "the flight" will continue just so long as the value of the paper
The "statistical data" whidh has been asked for and which
mark depreciates.
the Germans have agreed to furnish will serve a most useful purpose.
The "supervision" measures which have been forced on the Germans
are technically within the Committee's powers but are nevertheless cordially
In drafting the plan of "supervision", the endeavor
resented by German opinion.
of the majority was to keep away from the assumptio# of administrative responsibility. There was some discussion with the Frenchman on this point but the
I personally feel that even this modest scheme
majority views were maintained.
of "supervision" is unsound and in view of the majority views I doubt if it
will be ever effectively applied. All Delegates recognise that a foreign loan
is necessary for Germany if the latter is to make any imnediate reparation
If they consider a foreign loan as the necessary solution, they are
following a questionable policy by exaggerating the su,ervision phase,
only shakes the confidence of lenders in the German security offered for possiIn other words, it might be difficult to get a lender to advance
ble loans.
money if told that it was necessary to keep three or four policemen with the
borrower so as to prevent his running away,
Upon my return from Berlin I called on L. Dubois, the French
President of the Reparation Commission, a personal friend of mine. At his
request I gave him my personal impressions of the German situation after
I said my views were purely personal and given as friend
visiting Berlin.
I was surpised to find that his views which he in turn prefaced
to friend.
as "personal" coincided almost entirely with my own. He said that that
morning he had been in conference with L. Poincar6 and L. de Lasteyrie. He
said that de Lasteyrie was "disturbed and excited" by the French financial


J. A. L. Jr.




The foregoing reference to my personal talk with Dubois should be
treated as confidential and in addition not taken too seriously as it was
one of a personal and privileged character. I consider it of sufficient
interest to report as it is indicative of a decided inclination on the part
of the French to a compromise necessary to a settlement of the reparation
It is also of interest as showing what may be in the back of
L. Poincare's head during his approaching visit and talks with hr. Lloyd George
in London.

I enclose herewith, as being of possible interest to you,

LS. No. 891 - Situation of the Austro-Hungarian
Bank as of June 7th 1922.
I.S. No. 901 - Review of Austria's position during
June 1922.
I.S. No. 904 - The Austrian internal loan.
I.S. No. 906 - Situation of the Hungarian National
Bank of Issue on June 50, 1922.
I.S. No. 909 Do.
on July 7th 1922.
Document Paris 800 - German exchanges during Last ';;eek of June
and First Week of July 1922.
Bei4lin 808 - Amounts Held by Reichsbank in precious metals
& bills expressed in foreign & German currencies.
Berlin 828 - Purchase of Foreign Bills by the Reichsbank.
Berlin 836 - Weekly Statement of Reichsbank ending 15th June.
Berlin 840 - Financial Position of the Reich as of June 20th.

Annex 441c bis - Control of Foreign currency by the Reichsbank.
Annex 267
- Expenditure on Public Services subventions.
Annex 271
- ;Amorandum of the German Government on the Flight
of Capital and the Return of Capital Exported.
Annex 274
- Germany's trade Balance dring the first Year of
Annex 280 bis - Supervision of currencies.
Annex 289
- Devisenbeschaffungsstelle Report for Lonth June 1922.
Faithfully yours,

le encls.

I acknowledge receipt
of your letters of June 23,
July 12, and July 14th, for
which many thanks.

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

COPY - yD



Paris via Naval Radio
Dated July 31, 1922.
Recd. Aug. 1, 1:20 p.m.

secretary of 3tate,

Washington, D. C.
306, July 31, 8 p.m.

Jisoellaneous reparation receipts since July 24th,

439 francs postal account to Belgium 421,614 francs sale war
materials he France under article 8 financial agreement account army
costs prior to May first 1921.



aH1 -HOU3E.


At the risk of saying many thing with which you are already familiar, and of appearing to "butt in," I am taking the
liberty of sending you an outline of certain convictions which
have forced themselves on me during my ten months* stay in
I fully realize that the Russian problem is a many-sided
one and that I am in a position to see only a few aspects of it:
I can speak of it only as I view it from this end.
Looking at it thus, from the inside, it appears to me that
in nearly all the official dealings with the problem there has
been a fatal failure to recognize some of its essential elements.
The governing factor in our atter6= at a solution seems to have
been a desire to punish and humiliate the gang of ruffians who
hold power in Russia today. Instead of a clear-cut, singleminded purpose to do everything possible - even to the making of
sacrifices - to get Russia started on the road to economic recovering; or, to put it in another way, the tendency has been to
identify the two things and to talk and act as though the recovery
could begin only after the downfall of the present regime.

I start with the assumption that the world needs and really
wishes for the reconstruction of Russia and the salvation of the
ziussian people. My thoughts, in bare outline, without comment
or attempts to ive supiorting arguments or evidence, are about
as follows:


The present government of Russia is a melange of
visionaries, cut-throats, assassins, thieves
and riff-raff so unspeakably unrotten that any
decent man shrinks from the thought of having
It is, however, a de
any dealings with them.
facto government and has been such for nearly
five years;
and there is no evidence that it is
likely to be overthrown.


The great mass of the Russian people are, save
for a certain loosening up of moral, economic
and political "sanctions," very much what they
were before the revolution, neither much better
nor much worse, and not differing greatly from
masses of people of similar grade of intelligence the world over.


The dogma of internationalism has taken but little hold. Even among the visionary doctrinaires
of the revolution, it yields place to nationalism whenever the two come into specific conflict,
while for the mass of the people with their
Slavic strain of mysticism, nationalism and race
consciousness are among the most powerful stentiments which inspire them,

- 2 -


The present government has, at its command a
oropaganda organization which is probably as
complete aniefficient as any that has ever
existed anywhere in the world,


Any hint of intervention in Russia by any foreign
government strengthens the hands of the present
It makes little difference whether the
interference is direct, as in the case of military invation, or indirect, as in the case of
blockade or the making of conditions preliminary
to the granting of economic assistance.
Against military invalion it rallies all classes to mmcpmmt the support of the government and
the Red Army;
in the case of blockade or the official presentation of "conditions," it furnishes
the government with readily-swallowed explanations of the economic cataclysm which has overwhelmed the country.


Reconstruction can not possibly take place from
within - the disaster has been too complete.


Reconstruction from without can not possibly come
until there is a right-about-face in Russia's
policy and a return to economic sanity.
capital or enterprise on any adequate scale is
to be expected to take a hand under present


Caueunism in Russia is already dead.
There is
still a lot of State socialism, and the pillticians still cling to their communistic
In practice, however phrases and formulas.
in the application of law - there has been
marked shifting toward the Right even in the
Short time since the A.R.A. came in. The movement is camouflaged in every possible way.
Political speeches here, addresses at Genoa or
the Hague, public comeunications to goreign
governments, repeated and defiant repudiations
of the fundamental principles on which modern
civilization rests, are largely intended for
home consumption. Then Men in the saddle are
fighting for their lives. Their retreat is being conducted behind a smoke screen.
to tear away this screen by forcing them publicly to agree to conditions which "violate the
sacred tenets of the revolution," so frequently
proclaimed during the past five years, drive them
into the position of cornered rats.

Granted the above conditions, I see only four conceivable ways
the problem:-

fo handling

- 3- be impracticable.

This, I take it, has beenUnited international financial and trade boy
demonstrated to
Also demonstrated to be
cott of Russia.

Action by the United Jtates alone, withdrawing all assistance of any kind, either direct or through intermediary nations. This
might bring results if continued for some y
for in the long run effective assistance to
Russia must come, either directly or indire
but it would be
from the United states;
at the risk of driving the cornered rats an
their Red Army to extremes of desperation
that would have disastrous consequences, no
to mention the prolonged sufferings of an
enormous and relatively innocent population


Swallow the bitter pill of recognition of th
obvious fact that the present unspeakable
group in control in Russia is the de facto
government. Yield something to our natural
and praiseworthy desire for revenge and pun
ishment against these criminals, and give
them a chance to run and yet save their fac
and their necks. The salvation of the Russian people is of far more consequence to t
world than the exposure and punishment of in
dividual malefactors.

Cut from under this de facto government all t
props on which it supports is rally-cry prop
ganda, by carefully refraining fram any
threat or act of military intervention,
blockade, boycott, or "conditions" of recog
Then let nature take its course.

I believe it is easy to guess what would happen;

The present government would celebrate a tempor


With such small added facilities as would become available with the establishment of official channels of communication, consular
offices, etc., a flood of little traders an
fly-by-night investors would pour in. They
would get concessions of one sort or another


- 4 -



- 2 -

- 3 411

The actual results of these few steps have not thus far
been encouraging. The credit operations of the State Bank
In the first three months of its
have been very limited.
operations, the bank received 295 applications for loans,
It granted 148, AL;
aggregating 11,148 milliards of rubles.
gregating 3,441 milliards of rubles. Down to March 16, 1922,
it had loaned:
TO Nationalized industries
to co-oeeratige societies
to private industries



Most of these advances appear to have been on short-term loans,
and the bank is already in serious difficulties in the matter of
It has been obliged to accept payments
repayment at maturity.
in commodities and is reported in an article in the Zhisn (an official organ) to have received, down to July 1st, commodities
valued at over 4,000 milliards, of which it has resold to the
value of 1,273 milliards.
The Superior Soviet of National Economy estimated in April
that the sums required for the restoration of the principal inThe
dustries reached a total of 450,000 milliards of rubles.
assistance rendered by the bank in this diredtion is therefore
pitifully small.

The success of the new taxation, also, has not thus far
been great. Direct taxes in 1921 yielded a monthly average
revenue of 9,847,000,000 rubles, paper; for the four months
88,367,000,000, bit the gold value of the
. January.- April, 1922,
paper ruble had sunk meantime to one-fifteenth of its 1921 average
making the relative value of the 88,367 millions for Januaryvalue;
1922, only 5,890,000,000, or only 6qJ of the 1921 receipts.
The new excise taxes (a small tax on wines existed in 1921,
but all the others have been introduced since January 1, 1922)
have, however, yielded a considerable income, the monthly average for January - April, 1922, having been 281,188,000,000, which
is equal, in terms of relative purchasing power, to 18,749,000,000
rubles of 1921. In gold, however, it amounts to only about
140,000 rubles.

The approximate gold value of the total receipts from all
forms of state taxation, except the "natural tax" from January to
192.:4 averaged only 185,000 rubles per month, and as
the monthly expenditures, according to the budget for January September, are variously estimated at from 125,000,000 to 175,000,
The present increased receipts from taxation do not furnish
much ground for optimism.
It should also be added that a number of Russian economists
believe that the limit of excise taxation has already been reached.
They base their judgment largely on the fact that in spite of

- 4 -


increased rates, the returns, which grew steadily up to March, all
show a marked increase in
Receipts in
January, 1922, were
February, 1922

but in

40 milliards

they fell to 25 milliards.

The resolutions to reduce the emission of paper have met
with an even more discouraging fate.
The first resolution was
adopted just at the end of 1921 at a time when the total of all
issues to date was 17,544 milliards of rubles. In January, 1922,
new issues amounted to 12,022 milliards, and in February
18,832 milliards, bringing the total on March 1st up to 48,398

The second more definite resolution to reduce was adopted
in March. In that month the new issues were 29,946 milliards.
In April they jumped to 45,893 milliards;
in May to 75,344; and
in June to 109,420 milliards. The "Corn Loan" is reported to
have resulted in sales to the extent of 10,000 milliards of
paper, but it does not appear to have checked emissions.
In spite of all resolutions to the contrary, the issues
since January 1st last have totalled 16-1/2 tholes the aggregate
of all previous issues.
Only in the operation of the plan to reduce the personnel
in the various State institutions has there been any marked degree of success.
If the figures given out are to be believed,
the total number of State employees early in 1922 (excluding
the Army) was 7,481,000.
By the first of May this had been reduced by some 3,000,000 persons to 4,571,000.
2ven if these
figures be accepted as accurate, however, the national treasury
does not benefit greatly, for in the interval average monthly
wages have risen 855 per cent. in paper;
increasing the outlay
in paper from 23,000 milliards a month to 116,000 milliards.
In gold value outlay, however, these figures would show some
71 million gold rubles a month early in the year
and 53 million after the reduction in personnel.

There is little prospect of any increase in receipts from
the "natural tax."
The assessments in 1921 amounted in "rye
units" to 340,000,000 poods, and it is alleged, though the figures are probably exaggerated, that some 320,000,000 were
collected. The plan proposed early this spring for the coming
year called for 380,000,000 poods;
but roused so much opposition that a reduction of ten per cent, has recently been promised, bringing the amount for this year down to 342,000,000, or
practically the same as last year.
On the whole, the situation is such that the authorities
are showing considerable alarm.
a recent session of the
All Russian Central .:!:xecutive Comnittee proposals were made


_ 5 -

and resolutions adopted for a complete r
tion. According to these resolutions, t
"natural Tax") are to be supplanted in t
time by money taxes, the chief weight of
on excises.
It the same time the tax ad
more centralized and the taxing powers o
units is to be curtailed. It is too soo
these resolutions will really be carried
any predictions as to their success, if
stated, certain Russian economists clai
excises has already reached its limit, a
this new proposal to place the chief bu
this form of revenue is preordained to f


In a previous report (July 24, 1922) some description was
given of the efforts being made to rehabilitate the industries
of Russia through the organisation of "trusts";
and mention
was made of a still more recent step in the formation of"syndicates."
The organisation of these syndicates, whose aim it is to
unify under one control the various trusts or individual enterprises operating in one branch of industry, has already made
considerable progress.
The number of trusts has grown to 356 (July 1, 1922) as

of trusts.

of separate
















Number of

Built uo by combinations within the various groups of
trusts, there were organised, to July 1st, nine syndicates, as
In textiles, salt, matches, leather, mackhorka (an
inferior tobacco) tobacco, distillery products, butter and
agricultural implements.
The movement began as a voluntary one, but is now being
furthered and in some cases prescribed by the State in its efforts to retain control of industry. The match syndicate was
organised in January last; the textile in February; the leather in March;
and the others at various intervals since.
No unified plan of organisation and activity has yet been
worked out and many d;fierences continue to exist in spite of
efforts on the part of the government to introduce uniformity.
The textile syndicate includes about 85% of the textile




The tobacco syndicate has placed chief emphasis thus
far on the monopoly of purchase of raw materials for the
Under its statutes no trust is perhaitted to purchase
It is reported that
independently, even in small quantities.
the syndicate also has in mind the development of a selling
The match syndicate, although the earliest organised,
has not as yet made much progress. Its chief aim appears to
have been the unification of the saies orFanisetion and the
regulation of prices.

As to the actual operations of the other syndicates, no
reliable information has yet been given out.
As already stated, there is a clear-cut divergence of
opinion between the government and the trusts and syndicates
The State
on the policy of these combinations in industry.
it simplifies the operation of
favors combination so far
State control; the industries themselves, on the other hand,
are endeavoring to so shape the development as to enable them
the better to maintain or increase their independence of state
The proposal (already mentioned in the report of
July 24, 1922) for the formation of a council of syndicates
was originated by the industries for the purpose of correlating the prices of those trusts which are to be united in
the methods of calculathis council of syndicates;
devising means for the realisation of these
ting prices;
regulating competition between the uniteu organisations;
correlating their credit operations; and providing for unified
representation in all State institutions.

(1) Resume from the proposed plan of the organisers.

The Supreme Council of National Economy, on the other
In a recent
hand, is seeking to strengthen State control.
conference it proposed a definite defining of cases in which
trusts may be united into syndicates, an allocation of selling
districts innong separate trusts, the regulation of conditions
of sale, the regulation cf the receipt and allocation of State
orders for goods, a partial centralisation of the sale of trust
products and of trust purchase operations, and the allocation
of purchasing districts.
The government appears to have adopted the same attitude
towards the council of syndicates as towards the syndicates and
trusts themselves, being inclined to further the development
in so far as the movement can be made to simplify the problems
but it is stubbornly resisting the movement
of State control;
towards greater autonomy and decentralisation; and apparently
registered a formal victory at a series of conferences recentAt these
ly held by the Supreme Council of National Economy.
conferences, from July 24th to 29th last, there were present
official representatives of the Supreme Council of National
Economy, the District Councils of National Economy from all


parts of the country, including the various associated autonomoue republics, of the All RussianCentral Trade Union,
and of the Central Committees of the Unions of the metallurgical, mining, chemical and textile industries.
After a review, in general favorable, of the results of
the "new economic policy during the past eight months," the
following questions were submitted for discussion:

The correlation of powers between the Supreme
Council of National Economy, the trusts and
the syndicates.


The organisstion of trade with special reference to the right of trusts to carry on commercial operations.


The method of preparation of programs of production for the coming year.


The provision of an adequate supply of funds
for industry.


The policy to be followed in the fixing of

The discussions on these five questions brought into
still clearer Licht the divergence of opinion between the two
An to the relations betgeen the Supreme Council and
the trusts and syndicates, the Council maintained that the
industries are state institutions and, as such, must be under
the control of the State organ set up for that purpose; namely, the Council itself.
It recognised, however, that there
must be a division of functions, the trusts and syhdicates
retaining "full a'itonor'y end libcrt'j of action" in all matters
pertaining to the "direct administration of their undertakings"; while the Council must control the supplying of the
trusts with money, the regulation of prices, the preparation
of pro7rems of nroduetion, end the nomination of the "responsible leaders." As to the differentiation in function between
the trust end the syndicate, the former should hsve full autonomy in connection with its "production onerations, while
the latter should "regulate the commercial functions of the
7oridence of the development of a controversy over the
control of the recently proposed council of syndicates was
also brought out by the discussion, the Supreme Council evidently endeavoring to extend its authority 'here also, while
the opposing party maintained that the Supreme Council's power
is already sufficiently guaranteed by its control over the
appointment of the aliministration of the trusts, for these
very trusts which are so far controlled by the Supreme Council, make up the syndicates, while the syndicates, in turn,
will choose the council of syndicates.

The discussion on the organisation of trade turned chiefcommercial transactions, of the trusts to carry The
ly on the question of the rightincluding retail sale. on Supreme
Council of National Economy pr000sed a limitation on these
operations, restricting them to those goods which the respective trusts themselves specialise in, and permitting retail
sale only in case it can be shown that the ordinary machinery
for such sales (private or co-operative shops) are unable to
handle the business. Even in the case of wholesale trade, it
must be carried on through the various State comeercial organs central and local - established for that purpose.
On both the above points the advocates of greater freedom of industry appear to have met with small success, if, in
On the third
fact, they did not meet with a distinct reverse.
question, however - the method of preparation of programs of
production - they won a point. Hwrstofore, in laying out a
plan for .future production, the Supreme Council has started
with en estimate of the needs of the State and of the population and has made up its program and allocation of profinction
accordingly, without taking into consideration the purchading
It has now been decided,
power (paying power) of the market.
on paper at least, that the program of production must be
based, primarily, on the ability, both of the State and of
the population, to par for the goods they receive.
If carried out, this decision will unquestionably have
far-reaching consequences, for it is virtually an abandonment
of the theorfy that industries must be run for the benefit of
the whole mass of the people; that the 6tato is responsible
for insuring sufficient production, even though the operations
of specific industries have to be carried on at e loss.
Another important step in revere a.1 of policy was proposed
by the Supreme Council of National Economy itself, in connecis
tion with question four - the financing of industry.
pointed out in the report of July, one of the chief difficulties which industry has had to face is the necessity of
supplying several of the State departments with goods gratis.
Another recent Oifficeflty has been the inability of industries to repay advances made them (reaching now, some 9-1/2
trillion rubles), for the return of which the Commissariat of
Finance has been clamoring. The new proposal is that all industries must be "taken off the State supplying budget," and
that all State departments must pay cash for the goods they
receive. For the financing of the repayment of advances, it
is proposed to form a special "Trade-Industrial Bank" with a
As an
capital equal to the total amount of these advances.
additional measure for relieving the situation, the Supreme
Council also recommends that State control shall be limited to
the fundamental industries - transportation, fuel, metallurgy
and textiles, all "secondary branches" being left to operation
It recommends., too, the closing down of
on private lease.
less efficient plants in all industries End concentration of
operations in a smaller number working to full capacity.


These proposals are, of course, only on paper as yet.
obviously constitute a
If actually carried out, they
long step back toward the original policy of the revolution
mentioned in my report of July 24th, velich contemplated
State control of only a few industries.
The divergence of opinion elready repeatedly alluded to
was perhaps nowhere more apparent than in the discussion of
One party contends
the fifth question - on price policy.
lases deperds on the
thet the prosperity of the laboring
maintenance of industry; that industry can continue to exist
only with nioh prices; end that therefore these high prices
must be maintained for both economic and political reasonsl
even If the interests of rural consumery ere neerifieed

The opponents vigorously protest thet the principal conthe :iffioultee in
sumei is the rural. nonsletion; thet
which industry is involved ere due to the low purchasing power
of the neaseontry; thrt the dorinnd of the moment is for the
production of goods which in quslity and price will suit the
requirements end the peckete of the nee.sents; and that, therefore, the read towards revival of industry lies in the direction of law prices and reduced cost of production.
J revolution edonte IT the conference on this subject
was a partial success for the low price party. It was decided that cost of production must be to en se the baoie for
prices in State industry, including insurance against the doprecietion of the ruble; that eelline prices must be high
but that the low
enough to keep industry a going concern;
purchasing power of the population must "he taken into consideration" to the extent of using every effort, including the
concentration of act!.vitl- in the hands of only the most productive concerns, to reduce costs of production.
The final resolutions of the conference, in outline (the
full text is not yet available) were introduced by the repreThey were as folsentatives of the Russian Communist Party.

The condition of the principtl Rtete industries
is very bad. This is especially true of the
industries such as fuel, metallurgy, etc., of
whose products the State is the chief consuThe direct cause of the unsatisfactory
conditions is the lack of circulating capital,
the chief consumers lacking money for tk' it
purchases. It is necessary to remove this
deficiency or the decay of such branches of
industry as the metal and metallurgical is
inevitable and an irreparable in Jury will be
inflicted on the Soviet Republic.




While recognising the extreme i
improvement in our currency, an
ing the People's Commissariat o
its initial successes in that r
conference believes that the po
public under present conditions
any shadow of dictatorship of f
Only a unity of the
industry and currency can be th
State's policy in national econ
order to accomplish this, the a
Supreme Council of national Eco
planning and control of economi
be extended.


The conference notes a real rev
It believes
during this year.
largely due to the efforts of t
many branches of industry the p
labor has reached the pre-war n
at the expehse of a partial dep
fundamental capital of our larg
Under present conditions, the o
for making needed repairs and t
funds for necessary purchases,
through the sale of our goods a
sums received in exchange must
quirements of our industry. At
the conference believes that du
few months it is necessary to c
through money emissions, for th


Bo evidence is given in support
All the data which I hav
gather on the subject indicates
very far from the truth.


Recognising the soundness of th
the conference believes that al
convert these plans,into actual
be continued energetically.


The conference believes it nece
Supreme Council of National Eco
take the following steps:



To further the "concentrati
tion and "maximum loading"
and mills;


To improve the commercial o
State industries by develop
operation and of priv to co
takings (apparently this re
trade only);



August 10,1922,


Approximately eighty-five per cent of the population
of hussia are classed as rural, and the problem of so adjusting the political and economic theories of the revolution as
to meet their interests, has, almost from the beginning, been
recognized as a vital one. -orking plans for "nationalization", "socialization", "collectivism", etc, which are acceptable to the working classes may fall far snort of satisfying
tae demands of an agricultural population, who, in Russia
as everywhere else in the orld, are characterized by a much
nigher degree of inherited individualism. The history of the
development of land policy since the revolution is theatory
of an attempt to bring into some kind of harmony the divergent
in, rests and sentiments of the industrial and the agricultural
Prior to the war, the lands of Russia were held partly
by the -mperial falaily, partly by other large landed proprietors, but mainly by the peasants themselves., either as individuals or as "collective peasant societies", an institution
which has persisted in ussia from the early :diddle Ages.
These collective societies included from ten to a hundred, or
even in some cases as many as a thousand individual farms.
land of such a canaunity coald neither be bought nor sold
the possessor of each farm being conin individual parcels
sidered to be merely a temporary holder and cultivator of his
lot. From time to time new re)artitions of the land were
Made, each member receiving a new allotment in a new place,
of smaller or larger size in case the population had meantime
increased or diminished.
In the interest of improved agricultural practice, it
was the policy of the later years of the -mpire to foster the
development of larger scale farming by modern methods;
the breaking up of these old collective societies, which were
by their very nature the least progressive of the agricultural communities, was regarded as a necessary step in this direction. it vas the object especially of a series of laws
from 1907 to 1910, known as 6tolypints bawd, to assist in this
break-up by making it possible for any progressive-minded inQ
dividual in such a group to free himself from his hereditary
bonds and get permanent individual possession of his parcel
of land with all the rights, such as the right of purchase,
sale and mortgage, which go with individual ownership. The
aggregate areas of land held under this system has not, however, in recent times, been large, and by the time of the outbreak of the war, considerable further progress had been made
under Stolypin's Laws in tne direction of breaking up such
holdings into individual lots,

In 1914 the actual distribution of agricultural lands


was aoout 9s follows:

Lands held by the Imperial Family and
others who did not till it themselves

30 per cent.

Held by inda_vidual peasant owners
and collective peasant societies

70 per cent.

The first step in the new land policy after the revolution
was a declaration in favor of the "socialization" of the land.
The basic principle of the law (February 118) was that all
private ownership of the soil was abolished and that all land
was to be given into the possession of individuals who would
actually work it personally. Tlae distribution was to be made
on the principle of "equalized land possession".
The individual possessor became an employee of the ",tate; and the produce, after the deduction of enough to meet the requirements
of the cultivator, became the property of the ,tate.
The law is a very Ion ,E and complicated one, containing
many details as to the definition of "equality of possession
and the methods of distribution by which it is to be drought

From later developments, it has become apparent that the
great mass of the peasants, only a minute faction of whom can
read or -.rite, failed entirely to grasp tile fact that this law
land as ell as that of the Imperial family
confiscated their
and other privileged classes. The thing which they did see
clearly and gladly proceeded to act upon, was that the large
estates were declared confiscated and under the law were to
be turned over to tne local authorities "to be justly distributed amongst -Lae 'People".

But there were others who wanted land too. Vet -cans
of the war, industrial workers thrown out of employment by the
decay of industries, and many others, drifted from the cities
to the country to claim a share. They were far from welcome,
yet their rights under the law wore just as clear as those of
the peasants; and their position in the political machine was
such as to make it inevitable that the government should go
as far as possible in recognizing their claims.

Evidences of serious conflict very early appeared and
were probably the main cause of a complete restatement of land
policy just one year (February 1919) after the publication
of the above "Constitutional Law of Socialization of band."
The new decree, entitled "Regulations concerning Socialist
land administration and the measures facilitating tne introduction of toe Socialist system of ilgriculture" merely gave
legal form to a system the putting into practice of which
had already been begun some months before.
It declares
definitely in savor of "large Soviet estates, rural
Federal Reserve Bank of St. Louis


_4. -

to the cessation of war, and emphasized tne fact that in
spite of the increase, the area was still 35 per cent . below
normal. The following years brought a disappointment for the
government party, for the area fell in 1920-21 to 30, 575,000
dess. and in 1921-22 to 25,661,000, or nearly to the 1918-19

There is, naturally, much controversy as to the causes
of this decline, but the prevailing opinion seems clearly to
have been that something was radically wrong with the land
or has been
In any case, the government has seen fit
forced by circumstances) to make two highly important steps
in reversal of policy.

It began a year ago by a virtual abandonment of the
principle that the entire produce of the farms belonged to
the State, when it decreed that all peasants who paid promptly
and fully the grain requisitions levied against them should
have the right to dispose of any surplus in any manner they
It has now followed this up (Spr ing 1922) by a cutchose.
ting down of the number of cc:mil-Lodi-ties subject to tax in hind
(from thirteen to four - cereals, hay, meat and butter); by

some reduction in the total quantity to be taken; and by a
clearer definition of the methods and measures of assessment
If administered in their apparently reasonand collection.
able spirit, these alt:a_tions should make considerable improvement in the position of the peasant.

Far more significant, however, is a second step recently
taken. The first open move towards it was made in "-december
last, when the iinth Congress of the 6-4oviets declare'S the necess ity for a "secure land possession conforming to local
economic conditions."

This was followed_ on 18.y 22,1922, by a restatement of
"Fundamental Law of hand Possession."

It begins with a reiteration of the inviolability of the
fundamental principle of land nationalisation and a renewed
statement that the right to land ownership pertains excluIt ruts the prohibition of Purchase
sively to the State.
or sale of land or the borrowing or lending on land mortgages.
go far there is no essential change. The important point
is the complete abandonment of the principle that "all forms
of the individual use of the land should be regarded as merely temporary and doomed to destruction" by now proclaiming
that the peasant must be left free to choose the form of land
cultivation which he regards as most suitable. Land is to be
given into perpetual hereditary possession of holders working
it by their own personal labor.

The bulk of the land is still in the hands of individual
holders. Their possession is now made "perpetual" and "hereditary",
not as individuals, it is true, but as families.



This right of Possession can be forfeited only in the following cascs:

If the entire fa dly refuses to accept the right;


If the family gives up farming;


If the family dies out through failure of heirs;


If the family emigrates;


In some cases if the family is colvicted of crime;


If the State finds it necessary to exercise the
right of .State sovereignty.

the law of 1919 definitely favored all forris of collective farming. The new law goes back to a Principle almost
identical with that of the Stolypin Laws of 1907-10 by granting facilities to individual families to escape from the
It provides
bonds if the old "collective peasant societies".
that if, at the time of a ,iewal repartition of land in such
a community, any individual7tenhes to withdraw, it may
do so, even against the will of the community, and must be
given its share of the community land in a single separate
piece which thereafter is excluded from the community land
The law goes even farther by decreeing tnat 'such a
withdrawal may take place without waiting for the next general repartition if, at any time, it is demanded by one-fifth
ofb4ho farms in any community having ndt more than 250 farms,
or/ of less than 50 farms in any community of over 250 farms.

Leasing of farms is also permitted, though the right is
In genehedged about with many provisions to prevent abuse.
ral, leasing may be permitted

If there is "temporary decay" of the farm owing
to "elementary calamities";


If there is a temporary lack of workers in the


If the lessees are in a position to work the
full Quantity of land leased, by their own labor;


if the period is short (the law limits the term
to three years, which, however, may be doubled
in unusual cases with the permission of the

Land may not be leased in any case if the possessing family
ceases to work, or emigrates, or changes its professi on.

The law of 1919 con'',;ained very definite and inelastic


provisions concerning the hiring of labor. In general, hiring was permitted only on the soviet estates, taough provision was made for temporary hiring in times of pressure of
work on the other forms of collective farms.
'2he new law is
more elastic.
It permits hiring even by a single farm,
though only as "subsidiary labor", when a family, through
lack of labor or implements, would be unable otherwise to get
essential work completed in time, and then only on condition
that all members of the family itself, as well as all the
hired laborers, take part in the work.
In addition, in those
regions where there is much land and small population, and in
the organization or reorganization of farms in uncultivated
or deserted areas, more permanent employment of aired labor
is permitted to the e::tent to which it may be r,quired by the
best agricultural practice.
In short, the law is a distinct rei,ocnition of the individualistic tendencies of the mass of the peasants, coupled
with a continued attempt to guard against any return to economic inequality in land possession.
It seeks through the limitation of lease, the requirement that land be held only by
those who actually till it, and the restrictions on the hiring
of f rm labor, to uphold the policy of the 'equalized land
Possession" enunciated in 1918. the new system of land taxation, which is highly "progressive" in character, helps toward
this same end of maintaining a "social equilibrium".

The supporters of the new law claim that it will satisfy
the individualistic sentiments of the peasant, will stimulate
his activity, and lead to restoration of` the cultivated area
and a general agricultural recovery and improvement.
Opponents contend that it still falls far snort; that there is an
inherent contradiction between the idea of social equilibrium
and the improvement of agricultural productivity;
that the
prohibit:en of purchase, sale, and mortgage, the limitations
on leasing, and the highly progressive character of the natural
tax will still stifle the activity of the strongest and most
energetic of the peasant farlilies who have in the past always
been in the vanguard of rural progress.
however, this may prove to be, there caJ. be no doubt
that the law indicates an important reversal of policy and is
evidence that the government is showing a willingness to face
facts and to break away to some extent I': an the domination of
mere phrases.

August 17, 1922.




Under the"New F]conomic Policy" many adjustments are being made in the details of the Russian tax wystem.
tries have been denationalized and leased to "private" concerns, later organized into trusts and syndicates, the policy
of regarding the total produce as the property of the State
has, of course, been abandoned.
Taxation has been
but apparently in rather opportunist fashion;
and there is
great complaint among industries as to the inequities aad excessive alloants of the burden.

There is, in addition, much confusion as to the taxing
powers of the central and local authorities;
tion of taxation to the trusts and the separate Plants organized into these trusts. Complaints appear of conflicts of interest lading to doable taxation.
The difficulty as to control and local. taxation was recently adjusted, on paper, by a decree placing at the disposal
of the local authorities a little less than one-half of the
proceeds of the tax on industry and trade and giving them the
right to tax some eighteen different articles and services, but
reserving to the central government the total procoeds of the
excise taxes.

The tax on industry and trade, one-half of which goes to
the central and one-half to the local government, consists of
on on the
two parts; a "fundamental" tax levied at a rate of
"circulating capital" and various "supplemental taxes" for education, social welfare, medical care, etc., of the ror1Qnen.
Herald of Industry and Trade) makes
A recent publication
an examination of the application of the new laws. This analysis shows that the average burden of taxation on seventeen
most important articles manufact:Ted by the trusts reaches
25-30% of their circulating capital, bearing very unevenly, however, on the various commodities. The reoort presents the fol(

107:igg table:

Lac and colors
Rubber goods
Metal mfs. and machinery

Percentage of direct taxes
to market price of




Cotton goods
Polygraphic goods
Electro-technical products

19 .38

The report goes on to summarize its corn laints,

The total tax is excessive, reaching an average
of 25-30% of circulating capital;


The taxes exceed the pre-war level;


The rate of the funda-,nental tax on trade



of circulating capital) pre-supposes profits
of 30%, while in reality no such profits

The supplementary taxes reach an average of
not less than 35% of the wages paid;


Taxes are called for et unfavorable times;


There is sometimes double taxation;



re levied or altered suddenly without
prior notification to industry or opportunity for a hearing.

Demand is made


That the supplemental taxes be thoroughly reexamined;



That the tax on trade be reduced to l
circulating capital;

That excise taxes be re-examined, and readjusted
with due consideration of prices and the possibilities of production;


That a permanent inter-departmental commission be established for tae consideration
of all new taxes.

of the



September 1, 19226


Many factors have contributed to the famine which has devastated Russia - war, political, sial and economic disorganization, droutht, etc. - and it is obviously impossible to
determine with any degree of accuracy the exact part which
each has played in bringing on tho catastrophe.

=oh of the discussion which has been carried on as to
whether the famine was an "economio'' or a "natural" famine has
been largely academic in character, with no clear definition as
to the precise meaning of those term, and with no very exact
knowledge of the facts of the case.
The main outstanding fact is that land cultivation has
declined. Within the present territory of European Russia
(excluding the Ukraine) there has been a progressive decline
since the last pre-war year, 1915-14. In that year the area
sown to cereals was 56,600,000 dessiatines; in the season just
closed, 1921-22, it was only 25,500,000, a decline of 55 per
The annual plantings have beeng

56,500,000 dens.
49,600,000, *

From 1913-14, the last pre-war year, to 1916-17, the last
pre-revolution year, the decline Wag at the rate of 8 per cent.
per annum; for the five seasons since the revolution the falling off has been at the rate of 11 per cont. per annum.
In the Ukraine aal in Siberia there has been a similar
drop, the areas planted to cereals having been as followss




10,800,000, or 54;3
of 1913-14

or 33;..;

of 1913-14.

The causes which have produced this decline must, obviously,
have been very generally operative, not only since but also before the revolution; though whatever they are their combined

-2effects nave been more marked since than before tnat event.
The deoline nes not, however been uniform throughout the
country, ior statistical purposes European. Russia is usually
divided into two groat "regions; the "Consuming Region" (that

in which agricultural production does not normally suffioo for
local needs) and the "Produoing Region" (in which there is normally a surplus).
The areas sown to cereals in the two regions

6,300 ,000

1915 -16


Percent age

of 1913-14

have been:

paoruc Iii'


pea 5 iatinea of 1913-14



From the last yr e-war year to the last pre-revolution year
the Consuming legion loot 2,600,000 doss., or 25 per cent., and.
the Procblcirts,; Regioa 7,600,000, or 20.6 per cent.: there was
no groat difference between them in this respect, But between
the last pre- revolution year and the present year the former

region lost only 1,200,000 doss., or 16 per cent. (filth a slif;ht
increase since 1918-19), while in the latter region 13,300,000
class, went out of cultivation, or 45-j per cent.
This much more rapid decline in the Producing Region calls
for some specific explanation; and the cause usually assigned
by impartial Russian observers is the heavier burden of Government requisitions in this region than in the Consuming Region,
Requisitioning was introduced by the present Government in
the season 1918-19. The amounts officially reported to hswe

been taken are:


-18G ION





Roquipsitla tioned



33, 100,000
The amounts

per doss, Requios it oned

in poods
per doss.


106, 800,000



stated are the official figures of re-

ceipts by tho authorities: Dore was also unquestionably a large amount of irregular requisitioning which 219 ve

r got into the government accounts.


The total amount collected by the governsant firm the Consinning Region for the three years plecteding the "famine rare,
averaging 2.1 poods per dessiatine of ]and cultivated; in the
producing Region, 5.9 poods. As the normal yield per dess. is
approximately the same in tie two recions (43.9 poods in the
former and 43.3 in the latter), the b orlon on the -peasants has

been nearly three tines as heavy in tho latter as in the forner.
It is ursvise to draw too definite conclusions froze Russian

statistics, but the above figures do at least support a strong
probability that a large part of the decline ill cultivated area

since 1918-19 has boon due to the uneven distribution of the
requisition burden. A requisition of 2.29 poods per dessiatine
in 1919-20 eq)parently did not strike the peasants of the Consuming Region as being excels:live, for they kept their cultivation
up to the sane level in 1920-21; but the three-fold burden of
6.29 poods per dess. in the Producing Region was almost certain-

ly a large factor in the loss of 5,000,000 dessiatince in a
single year; aril this loss in cultivation was, in turn, an extremely important- contributing cause of the famine disaster,

The famine ex orienoe rang prove to be a turning point in

the requisition poliay. It has forced the goverment, b ecauso
of the impossibility of collecting from the famine gubernias,

which are almost wholly within tho Producing Region, to lighten
the burden there gold increase it in the Clonal-min,; :iegion The
result may very possibly be ears lecoverzr in cultivated area in




4:zaiso id rue us 11Sitt.
10 August 19L4.


1dr, Won Delacroix,
Belgian Delegate,
Reparation Ccesmission.

WI dear


There is
`pith reference to our personal chat this morning.
one fundamental which every economist has explained but which is still
imperfectly understood 1);,, non-economists and not understood by the
public at large, unless, lice !vomit, they have had it rubbed into them
by seeing at close range the actual working of the indemnity peyments.

This fundamental is the difference between an individual
end a nation in respect to capacity to pay a debt, An individual those
assets exceed his debt can sell sufficient assets to pay. A nation cannot.
Germany, for instance, has as a nation capital assets which conservatively
are worth six times its debt. But the outside world will not buy these
assets because in the natur_ of things they have to stay in Germany.
outside world has bought a few of them i.e., has made some investments
inside of Germany and will buy more from time to time, but the direct sale
of assets whieh must always remain in Germany is an unimportant factor.
he suggestion of taking over such assets, which has so often been made,
is only one form of the various kinds of machinery which have been suggesThe purpose of all of this is
means for obtaining reparations.
to enable or induce the outside world to do dialtrectly whit the outside
world sill not do directly, vie, invest in (or loan against) assets which
Vast remain in Germany so as to furnish the gold (or foreign ourronoy) to
pay the indemnity.

as a

1ioughly these different kinds of machinery or methods may be
listed as follows:

1st - Bonds secured by a first mortgage on all German assets.
Substantially this is what the Allies now have with their A,
If there is any close analogy betB and U reparation bonds.
ween debt paying by an individual and debt paying by a nation,
it would be evident that these bonds are amply secured and
that all the Allies have got to do is to cash them in but
no one will buy these bonds because it is obvious that Germany
cannot get gold or foreign currency to pay them.


LOon Ailaoroix.

A transfer to the Allies of a certain percentage of
eouritiee of tierman industries.

This involves so !many

xities that one is inevitably driven to the third

.)rd A transfer of title to property and industries inside
of Germany to some Syndicate, which Syndicate Shall crlpitalize
them and issue securities :saint them, which seourities will
be accepted in payment of the indemnity and marketed.

The last sugeestion would work best for the railroads and
post-office, for the change from Government management to private
71anagemmit would tend to greater economy and efficiency, but I doubt
if any Allied Government is politically able to champion denationalisation of anything that has already been nationalised, even if they are
only attempting $p apply denationalization to Germany,
But apart from politics two fundamental difficulties remain,
Outside management, even if you preserved some German participaFirst
tion could not be efficient, particularly in Ind,Astries whioh are now
This would be
privately managed by men who have grown up with them.
true if you spook only of management in its strict sense, but it is
doubly true if you thinLof the effect that outside management and
ownership would lime onlOganisations which were being managed. You
could not practically count on loyal co-operation and efficiemq throughIf you imagine the situation reversed and Germanic
out the organisation.
taking over 1R,y way of indemnity the railroads, Post and Telegraph Office,
and coal minima and the great industries of Schneider in France, you cannot
possibly imagine anything but disorganization of the organisations, tremendous loss of efficiency combined with hostility on the part of the pUbliet,
which of itself would destroy a large part of the present value.
Second - Sven if the German properties were ttaten over, the outside world
vould not buv these eocurities any more than they will buy the present
The change in the machinery would not conceal the fact that you
which must remain in Germany and property
were asked to invest in property
%Axton would in the main produce no !mom except in the form of paper marks
which are of no value to the outsider until they are transferred into gold
or foreign currency. The present problem is mainly the problem of how
Germany will obtain gold and foreign currently to meet her outside obligations.
Any one who bought these proposed securities would find he had transfered
that problem from Germany to himself.
Stated in a nut-shell. Germany has practically used up all her
gold; she has sold paper marks to foreign speculators for foreign currency
until that narket for the paper mark is exhausted; nothing remains from
which she can get foreign currency except the balance of exports over
imports which, even taking the maximum figure of her invisible balance,
is extremely small if any. She cannot practically pay a large indemnity



Leon Delacroix.

as take actual goods Of her export balanoe
tion, - which Wight have beam and was predicted, - is
*1 result of the demsmi wpm Geran,y for 'old and foreign
alleviated, postponed somewhat, if Germany
It might have be
at the sum tuft, mere eoonomioal and more energetic, but there is
no need of searching for a far-fetched explanation like a conspiracy on
the part of Germany to debase the mark, when the reasons for the fall of
the mac age so simple and obvious. The result of the present policy
has beet to reduce already very greatly Germany's capacity to pay and
thin capacity mill disappear almost wholly if no change in policy occurs.
The whole trouble arises from the failure to listen to sound economists
who from the beginning have preached the distinction between a nation and
Iowa that, apart from its cold reserve and its
a nation could pay its foreign debt only out of
pee* imports.

pressed by your reference this morning to the lack
on the part of certain groups of the Allied public 60 elethe foregoing only covers one phase of this
Onftie principles.
I feel as do you that useful results would attain
of understanding.
en effort to educate public opinion and em writing this letter as a line of
thought along which such education might be direotoki. For reasons which
will readily occur to you I would request you treat this letter an entirely
personal and corfidential.

Faithfully yours,




A.J. 364,


AT ME MEETINGS HELD ON AUGUST 10th and 11th, 1922.

:- peletions made by the Committee from the document
as submitted to them are shewn in square brackets,
Additions by the Committee are doubly underlined.

The obligations imposed upon Germany by the Schedule of

ents of 9th May 1921 have not been fulfilled.

The cash

ents due under that Schedule were only effected in
during 1921 and the German Government has now expressed

inability to continue the reduced cash payments fixed

1922, and have in fact demanded a moratorium in respect

ll cash payments up to 31st Deoember, 1924.

The deliveries

oal and of timber required by the Alied Governments and

red by the Reparation Commission have not been effected


The German Government has, since the Armistice,

nced its Budgets by the issue of Treasury Bills and

red its payments by the increase of the fiduciary

ulation, thus depreciating the mark and destroying its

d value.

Meanwhile, it has incurred large expenditure

cially on public works Which were not urgent and on

idies, Which it has only recently taken stet's to


The f,llied Governments will only agree to the grant of

rther moratorium to the German Government if

ctive guarbntees are secured that these conditions will


These guarantees are as folloRs:-

- 1 -





The German Avernment shall continue to collect the

levy Payable in geld or foreign currencies amountiu_ to at

least al 26%

of the total value of Lierman exports.
proceeds of this levy &hall be paid int

Reionsbank standing in the name of the C

the Committee of Guarantees will

strengthen the supervision which it exer

of German exports, especially by making
territory of the Present supervision of
as it is in o oration.

This was adopted in place of the

Poincare for cons

proposed by

Committee of Experts:-


,fusion dc Eeparat

fortifier la controle (jui exeroe

Guaranties sur la, perception du p

2q4 notamment en utilisant dune

le controle existant des licenses


The produce of all German import

other than the levy shall be paid monthl

account at the Reiohabank which shall b
of the Committee of Guarantees.

The G

shall have the disposal of the suns sta

of this account so len; as the Reparatio

satisfied that the German Government fu

that have been or may be imposed upon

ration Commission.

If at any tim

is not Battelle_ that this is the case the Cormtttee of
Atarantees shall have the right to talus over tae sums
standin,: to the credit of this account and to secure the

payment to it of the produce of these duties thereafter.

The following additional para;raPh was not
adopted by the j Committee of Sxperts


The Reparation Commission shall '0(3 invitud to

consider the periaanont transfer of tao Committee of
Guarantees to 3erlin.0 -1


The German r]overnment shall carry into effect the

arrangements that have been or may be made with the
Committee of Guarantees for the supervision both
of the receipts and of the expenditure of the 3tecimt

and shall 3ive the representatives of that Committee
the fullest facilities for investigatinj and
reportin,i; on all proposals affecting either side

of the Bui3,t,

The German Government dh:,:11 before 31st Deoember, 1922


proceed to carry into effect the proposed legisla-

tion a3reell u)on with the Committee of Guarantees with a

view to preventing the export of capital and Khali Ave the
representative;' of the Committee of Guarantees the fullest

facilities for observing and reporting on the execution of
this measure.





The Reparation Commission and the Committee of

CuarLmtees shall be invited to direct their attention to the
measures to be taken to secure a real surplus of the receipts
over the exounditure of the .:erman Budget and the German

Government shall give effect to the roquirements of the

Reparation Commission with a view to securing that such
surplus saall be brou,,ht into existence at the earliest

possible moment and to the maximum amount feasible.

Gubject to the acceptance by the German Government of

these guar,ntees it will be for the Reparation Commission
to grant a moratorium in respect of all cash payments
remaining Gue from Germany on account of reparation up to
the 31st December, 1922,

- (and further the Caranission shall

as soon as possible fix the annual payments in cash in
respect of all Yeacte Treaty Charges for the succeeding
period at such an amount not eceeding 26'/0 of the value of

German exports as they may find to be proper with a view
to the early flotation of a loan by the German Gevernmunt,

the major potion of vilich lon shall be devoted to the
payment of reparation.)

In lieu of the words in square

brackets the British, JLtpanese and Belgian delegations

accepted the following text:

"The Reparation Commission will pronounce as soon as
possible on the request made by Germany for a moratorium
for the years 1923 and 1924 and will fix the payment to
oe made on account of reparations in the succeeding
period at such amount as they may find proper with a view
to the early flotation of a loan by the German Government

the major portion of whch shall be devoted to the payment

of repartion."
The Italian Delegation agreed to a proposal put



forward by the Belgian Delegation to invite the Reparation
Commission to fix the cash payments of Germany after
the 31st December, 1922, at an amount not exceeding 25%
of the valye of German exports, on the following conditions:1)

the moratorium should only be granted up
to 31st December, 1923.


deliveries in kind to the various llies
should be determined by the Reparation
Commission at their discretion.


the schedule of payment and the subsequent
decisions of the Reparation Commission
should remain in force,

The French Delegation considered 2that no moratorium
should at present be granted for the period after 31st
...::ecember, 1922;

they added the following. declaration;


French Delegation state that they are as anxious as t. e

that a loan should be issued as soon as

possible in llied and other countries, but they consider
th.l,t it is impossible to prejudice by the _rant of a

moratorium for 2 years the omeral settlement of the
question of reparation and inter-allied debt."
In regard to this declaration the J3ritish, Japanese

and Belgian delegations took the view that their proposal
did not prejudice the general ,uestion of reparation and

Of inter-govarmaltal debts, and that the issue of a
loan affordee the best if not the only mooppmak prospect of getting
any substantial payments on account of reparation."
The Committee of Gurantees shall during the perLod
of the moratorium and to the extent decided upon by the
Reparation Commission tr.21sfer each week to the German

Government the amounts stndin6 to the credit of the
account referred to in paragraph 3 so lon

as the Reparation

Commission is satisfied that the German ,government is


carrying out the reforms re luired of it.

If at any time

the .,iepration Commission is not satisfied that the German

C%mernment is fulfiliinL its obli ations the Committee of
Guarantees shall, on reoet2t of notification from the
Reparation Commission transfer to the 0anaission the sums
standing to the credit of its account and all further sums
paid to that account.

The following new paragraph was adoyted:s regards the cash payments due fran Germany under

Liestions III and IV of the Economic Clauses, the llied
overmnents propose to re .wire the
12 2,000,000 due on the 15th
that date.

aymert by Germany of the

_toast within four weeks from

.13 fran that date they propose to denounce

the ,greement of the 10th June 1921, and to take stops to

negotiate arrangements separately with the German Avernment
for the settlement of my balances due to them ,Irder the
..economic Clauses, any such arrangements 'point submitted for

the prior op :royal of the Reparation commission.

12th August 1922.





C 0 P Y.

Dated Aug. 12, I922.
Recd. 12:14 F. M.

",ecretary of State,
Washington, 'L. C.

312, Lu-ust 12, noon.

Miscellaueous reparation receipts since August 5th:

Luxemburg coal 7,292 pounds sterling crsdit Belgians.




J. A. L.Jr.

To Governor Strong - Personal & Confidential.



would be followed by social consequences of the most grave character.
also the proposa of taking over "surplus receipts" from these Mines
would aggravate social difficulties.
The French held on the other hand
that their proposal was simply a coercive measure for forcing coal and
coke deliveries up to the amounts demanded by the Reparation Commission
and that the "supervision" feature would not become effective unless
Germany deliberately defaulted in the delivery of the amounts required.
There is some feeling that the amount of coal demanded on reparation
account has been in excess of Germany's capacity to supply; that there
has been unnecessary delay in the rehabilitation of the mines in the
French devastated areas and that the very much lower price of Ruhr coal
than French coal and not the question of available supply has been a
motive for demanding coal from Germany at the present figure.
The Belgians
supported the French but the British withheld their agreement.
The result of the failure of the London Conference is to throw
the whole question back to the Reparation Commission.
In view of the
tenseness of French public opinion at this time it is particularly difficult
to find a solution.
The Belgian Government which, at the time of the Bankers Conference,
supported the moratorium ideasigainst the French is now faced with apparently
insurmountable obstacles vis a vis Belgian public opinion, as any continuation
of this past policy would lead to the isolation of Belgium from France which
might have a disastrous effect on the present very liberal Belgian Government.
There is also a decided Belgian feeling that their geographical
position forces them to join France in any measures the latter may take
against Germany for assuming radical action on the part of France and her
taking over a control of the occupiea German territory, Belgium would find
her economic position completely throttled and at the mercy of France.
Belgium considers a direct contact with Germany necessary to her economic
life and this she can only maintain by keeping control of her sector of the
occupied area, so long as France's threatening attitude is maintained. For
the foregoing reasons it is obvious that in the event of a vote being forced
by the British before the Commission on the moratorium question, the Belgians
will side with the French notwithstanding my conviction that the present
Belgian Government regards a moratorium as the only solution.
I would
scarcely venture a guess as to what the Italian position would be under
present conditions if a vote on the moratorium question were pushed in the
HaWever,j1,ssuming the Italians were lined up with the British,
theavote on the moratoeium'quistion would be a tie in which event and under
article 467 of the Versailles Treaty the French President would have an
additional and decisive vote.
IlameImans,the Assistant Belgian Delegate, who was in London
during the -Conference of the Prime Ministers acting as principal adviser to
the Belgian Prime Minister, Theunis, has just returned to Paris and tells
me that Theunis did everything possible to avoid a break-up at London.
Sir John Bradbury, the British Delegate, in subsequent conversations

J. A. L. Jr.

To Governor Strong - Personal & Confidential.



confirmed Bemelmans' statements.
Bemelmans says that 2heunis in the last
days of the confel.ence made the following offers b.S a basis of compromise:.

(a) Belgium would agree to accept German Government
six-months drafts guaranteed by the three German D Banks
instead of cash payments up to a value of 210 million
told marks.
In other words, these drafts would cover all
cash payments due by Germany on reparation account (under
the existing schedule of payments) for the months of
August, September, October and November, 1922, to the
whole amount of which Belgium is entitled under her priority".
(b) Belgium, as a second and a more important concession,
offered accepting a reduction of her priority by a total of
210 milliot gold marks provided France would forthwith
accept a moratorium for German cash payments for the months
of August, September, October and Yovember 1941,
Belgium has received todate of her 2 milliard gold mark priority
approximately 1,250 million gold marks. Under "(b)" Belgium's outstanding
balance on account of her priority would be reduced to approximately 540
million gold marks.
The "(a)" Belgian offer was opposed on the broad and very sensible
grounds that the demand for the D Bank guarantees was entirely unjistified
and would be refused. Theunis then suggested that the German Government
support the D Bank guarantees of the German drafts handed over to Belgium
by earmarking an equivalent sum of Reichsbank gold reserve; and, with a
tacit agreement on his part, thEt if it was possible to reach a final
settlement of the reparation question in November through the medium of the
Bankers Conference or otherwise, Belgium would agree to throw the German
drafts back into the general pool, or practically cancel the drafts.

Due to the acrimony of the discussion concerning Articles 7 and 8
of the enclosure (referred to above) it was impossible to reach any agreement
at London through the Belgian proposed concessions.

Bradbury tells me that he feels it would be futile at this time to
force the moratorium issue before the Reparation Commission, as the only result
would be a repetition of the London fiasco, and he therefore wishes to reach
compromise on another basis which will give a breathing space for a few
months. All were worried at PoincarOs threat of immediately convoking the
French Parliament, for if carried out it would have crystallized French
public opinion to the Poincar6 thesis.
Any precipitant action of
Commission on the moratorium issue would result in convening the French
Parliament and the effort of all on the Commission is to avoid this contingency.
The French Cabinet at its meeting on August 16 announced that "there was no
immediate necessity for convening Parliament" and the impression was given
that such step would be suspended until the action of the Reparation
Commission was clear.
I believe the saner element in the French Government
fully realizes that there is enough "political clap-trap" in the whole


J. A. L. Jr.

To Governor strong - Personal & Confidential.



(luestion in November.

The references in the foregoing letter relating to happenings
during the London Conference must be accepted with a certain reserve as
the information given on thLt subject in this letter is based on hearsay.
I am, however, personally satisfied that .my report is substantially correct.
I enclose herewith, as being of possible interest to you,

Reichsbankeekly Statemnt for week ending Ust July 1922, Document
Berlin 896.

Faithfully yours,


2 ends.

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






(From a Berlin Correspondent.)


ourze taken by French policy in regard

to Mration cases has long been causing
great anxiety in German official quarters. It
was noticed that immediately after the fixing
of the reparations demands at 132 milliards
of gold marks France began energetically to
press special claims in the Franco-German
Mixed Arbitral Tribunals under articles 296
and 297 (e) of the Versailles Treaty. These
articles deal principally with claims of
nationals of the Allied and Associated Powers
or injuries and losses, of whatever nature, to
their properties, rights, and interests within
German territory caused by special war
measures. This was not intended to cover
damage inflicted by actual warlike operations outside Germany, and oven damage

suffered in Germany is represented in the

reparations total by a sum of nearly 700

million gold marks. In pressing these additional claims despite this, and continuing to
press them yet more urgently, France is acting

with the expressed purpose of speeding up
ts which can be
continuing to

extract fro`

the fo
The tendency

pa }-meats thl'aetsc'a

sP:liselia:ittYhebf:ro:i2hasGeblelngeuin become


toriums and of,i(heinst to be talk marked
of morareparation.s.
tiction of the burden
the German Government of M. Poincar6 of
sion to the French
gives clear
view that the instaczernets.s.
for the clearinv
offices and arbitral
must be paid
irrespective the moment they fall due,

demand. If
no moratorium
agreed and
between Great
assistance to F'
in ondon will
Gernr: , since it would be of any
result of plain.
have the
office and


Allies of all effective would deprive
the other
means of puttingshe is
sure on France through
th© Reparations pres-

it would or in any othger way; in other Com_
position. plat© Germany virtually
in a worse

Typical Claims.
In these circumstances
it is worth
exiaipe the
while to
German arbitration situation of the Francoproceedings
detail what
are the Frend claims. to see in
the worst
element in these Cliints"or






is tnat no one knows what their total amotn;t
will be, hew many more claims will
preeEied on the determination f th
of first ones,
at amounts
amounts will be definitively pass
espite the nominal fixing of the burden ed
parations, Germany is still far from having
ny conception of the demands that will
actuly be made against her.
nto court up to June 1 The claims brought
illiards of francs, which, totalled over 7.6
omemthirer 50 to the pound, the franc at
makes over
of p apermarks. Jut, accordg to
it is honed
ese claims up to 50 to 60 milliards ofto raise
following instances will illustrate the
ture of the demands.
The Societe des Quais, Docks et Entre fits
Constantinople, with
ard Malesherbes, Paris,offices at 43, Bouleoriginally put
aim against the Ottoman Government in a
i f
ck dues for theme, German steamers General
si os,


eir estatitmenthi-T-elsk
-at a. on afitYfiltile'tfi411**

e war. The Ottoman Government declared
willingness to submit the legal question to

bitration and demanded a deposit of the
Then it occurred to the
ench company that the Germans had been
e actual masters of the Bosphorus, and

obable court fees.

ey accordingly entered a claim -against the
rman Reich ; for this, naturally, there was
que - n of a deposit to cover charges. The
'ompany claimed no less than
77.3 .,99 francs, or, at the present exange, about 200 milliards of paper marks-

ree times the total number of marks


n ded by the German Government on the

hole of the four years' war operations. The
otesque total was arrived at by demanding
e franc per ton for each of the first eight
atid a 10 per cent increase in the charge
per day for every further day. The
ips were held fast in Constantinople by the
ockade year after year, and so this fantastic
al emerged.
A French motorist was compelled by the

tbreak of war to leave his motor, of the

lue of 6,000 francs, in Germany.

He dc-

ailed a new motor as compensation, toether with 40,000 francs for lost oppor-







lculating that the utilisation of his motor
the war would have brought him in this
m. He was adjudged entitled to 180,000
ancs by the arbitration court.

The Case of Alsace.Lorraine.

The president of one of the arbitration

urts, Professor Mercier, of Lausanne, is of
eat assistance to France in her arbitration


He was nominated to the post at

e instance of the French Government,
hough he had declared during the war that

was impossible for him to judge impartially
tween France and Germany. M. Mercier
s ruled that though under the Peace Treaty
e nationality of Alsace-Lorraine changes as
om November 11, 1918, it must be
garded as virtually French from the day of

e outbreak of the war.

ery measure adopted by Germany in
sace-Lorraine was a measure concerning her

wn territory, butBank of St.applied to AlsaFederal Reserve if it was Louis

is S o
( b jects. With the aid of this fiction the French

Government was enabled to carry through a
wide propaganda in Alsace-Lorraine for the
presentation of claims for damages against
Germany over and above the reparation

demands, and up to the present it has
managed to bring up the number of these
claims from 711 to 7,020. Alsatians and

Lorrainers who took up 'Germain war loan now

demand their money at 1.25 mark to the

franc. The cattle which under a Federal law
were commandeered in Alsace-Lorraine, as In

the rest of Germany, the sheeps' wool, the
copper and brass must now be restored to
Alsace-Lorrainers in francs at the pre-war
rate of exchange but at present-day prices,
although at the time of confiscation they
received compensation in German currency
at the statutory assessment.
The churches of the town of Colmar are
claiming 12,000 francs as the equivalent of
lost collections, as for military reasons the
bells were not permitted to be rang during
the war. The city of Strasburg is demanding 84,200 francs because the ascent of the
sisthedral tower was forbidden during the
war, so that admission fees and postcard
sales were brought to a stop. Every sort of
claim has been pushed forward by the Freuch,

military service in Germany in the nineties
and now claimed a substantial sum as loss of
earnings in the years served.

It is mo secret that the results of the fi
claims are being awaited in France in order

to hand in further claims on the strength
addition to the 7,020 claims from of the experience gained. Special efforts are
Alsace-Lorraine there have been 1,700 out- being made to secure that industrial losses


side Alsace-Lorraine and 740 arising out of in the actual war zone and outside Germany

shall be subject to this arbitration proceduve. agreements.
ly in one instance has the French The result of this would naturally be to

Government refused to pass a claim from a swell the sums claimed very substantially,
and French experts envisage figures in the

This man
peasant of Alsace-Lorraine.
claimed. compensation from the Germans for
a watch stolen by the Allies from a son of his
who hale fought on the German side and been
capture,d. This claim was disallowed on the

ground that nothing of that sort had the Allies. On the other hand,
ch pascd on a claim from an
Alsatian who had completed his period of

neighbourhood of 50 to 60 milliards of
The German view is that damage

suffered on former enemy territory is entirely

covered by the reparations payments, and

that a payment of 40 million gold marks per
month on account of arbitration and clearinghouse claims is just as impossible as the 30
milligat gold marks of reparation payments.







C 0 F Y.



Dated Au Lust 21,1922.
het:silted lioon.

Secretory of Stets,

325. August 21, 3 F. 1.


MiA041118A001111 reparation receipts August

12th to 19th Luxemburg coal 143,607 pounds sterling credit Bslgium
reparation recovery act July.

478,000 pounds sterling retained

by British ,',overnment under March agreement against army costs.





Paris, 24 August 1922,
18 rue de Tilsitt.



Austrian Reparation Question,

1.:y dear lir. Secretary,

Due to the Austrian crisis the Reparation Commission, in particular the British Delegation, is pushing for an
The question
early adjustment of Austria's reparation position.
has not yet formally appeared before the Commission but there has
been certain informal negotiations which have been carried on which
it is believed will be of interest.
"A" and "B", for dealing
I enclose herewith two proposals
with claims against Austria for reparation and the connected question
of Relief Advances, both of which have been drawn up by the British
Delegation on the Reparation Commission.

This proposal involves three senarate
decisions by the Ilepration Commission, and a letIt assigns
ter to the Powers holding Relief Bonds.
to Austria a swa of 500 million gold crowns for reparation, in :3daition to the value of the property
already transferred by Austria; it makes the first
payment on account of the above mentioned sum payable in 1942, and the last payment in 1951; and releases the assets and revenues from the reparation charLe until 1942. On the assumption that this is done,
it is proposed that the Reparation Commission would
then write a letter on the lines of the attached
draft to the Relief Powers requesting them to suspend
until ',lay, 1942, their charge upon and control of the
assets and revenues of Austria, and to postpone until
the same date their claims for the principal and
interest of Relief Bonds.

Under this arrangement the Relief Bonds would in 1942 again
become a prior charge to the amount assigned for reparation, and no
payment for reparation could be made until the capital and interest of
all the Relief Bonds had been paid. You will observe that the sum of
500 million gold crowns bears interest from May 1921, at the rate of 5p
per annum; thus in 1942 the total amount owing for reparations would,
with accumulated interest, amount to 1 milliard gold crowns,

Secretary of estate.

Page 2,

This propoal assigns to Austria as payment
of reparation only the value of the property "which has
been transferred by Austria under the Treaty of St. Germain
to the Allied and Associated Powers or any of them for which
Austria is entitled to a credit on reparation account,
less the cost, as approved by the Reparation CCimission,
of any Allied Armies of Occupation payable by Austria
under the said Treaty".

In other words, by this decision, Austria would be deemed to have
already met the reparation debt and the charge of the Reparation Commission
in respect of such debt, and in respect of the amount "Advances to Austria"
would cease. As in proposal "A", the Reparation Commission would then write
to the Powers holding Relief Bonds informing them there was no longer reparation charge against Austria, and asking them to declare that for 20 years
their charge upon and control of the assets and revenues of Austria should
not be operative, and to postpone for the same period their claims for the
principal and interest of Relief Bonds.
Proposal "A" could, unless some unexpected difficulty arose, be
passed through the Commission with practically no delay. Some poiets
might arise, as to increasing the amount mentioned (500 million gold crowns),
and as to the control or supervision of Austria's assets and revenues during
the period of 40 years' suspension.
The Italian representatives are, I am informed, in agreement in
principle with "A", and therefore this solution could be reached quickly.
It is, of course, aparent to everyone on the Reparation Commission that
Austria is not in the least likely to be able to pay the amount assigned for
reparation, or probably anything between 1942 and 1951, the more particularly
as she would first have to pay the equivalent of some 125 to 130 million
In brief, "A" is merely "window dressing",
dollars to meet the Relief Bonds.
but has the important merit of meeting the Italian point of view, namely, that
public opinion in Italy would not permit the Government to release Austria
from all further claim for reparation, however important the aspect might
It is also probable in the
be of Italy eventually receiving any payment.
Italian mind that in the event of a possible Allied Conference in November
to discuss the whole question of interallied debts, (a "possible Allied
Conference in November" of which I hear constant reference to) their opportunity for bargaining would be considerably diminished if prior to such a
Conference they had deprived themselves of the right to claim "C" Bonds in
The same argupayment of their share of hypothecated Austrian reparation.
ments would probably influence some of the Succession States, but insofar
as the procedure within the Reparation Commission is concerned, the attitude
of the Succession States, apart from Italy, is not vital, as both the enclosed
proposals can be put into execution by a majority vote.


Secretary of State.

Page 3,

Both the British and French representatives, I am informed, are
prepared to support proposal "B", which is an expression of what they regard
as the most reasonable course for the Allied Powers to take.
This proposal,
however, at the moment, is opposed by the Italian representatives who; 'not
without some basis, point out their having with great difficulty got the Italian
Government to agree to reparation payments being postponed until 1942.
It is
atkward and perhaps impossible for them to get the Italian Government to agree
to wipe out reparations as proposed in "B ".
The French and British representatives, however, a fter hearing the Italian point of view, prepared to ask the
Reparation Commission to adopt proposal "B", and, & course, they will continue
to endeavor to obtain Italian agreement,
The British and French representatives
realize, however, that if the Italian opposition to "B" is maintained there may
be, owing to the many opportunities under the Treaty of St. Germain of raising
technical objections, prolonged delay in reaching a decision, and even the possibility of no decision at all being arrived at,
As regards the Powers holding Relief Bonds, the British and French
delegates do not anticipate scrious difficulties in obtaining their agreement
either to proposal "A" or "B". While under "B" the Reparation Commission
extinguishes its claim against Austria, it was still thought advisable in communitating with Relief Powers to adhere to the term of 20 years as their perioi
of postponement, on the ground that several Relief Powers had passed legislation limiting the suspension to 20 years, and that any alteration in this parIt was possible that some of the
ticular might involve interminable delay.
Powers holding Relief Bonds may desire some form of control or supervision of
the assets during the period of suspension, but it is hoped to obviate the
necessity for this, or, at any rate, to eliminate any provision which will prevent
Austria having a free hand to utilize her assets and revenues to the best advantage of her own reconstruction.
I am informed that the Austrian Government has been informally
approached through British channels for an expression of opinion as to whether
they desire a settlement following the "A" or "B" plan. No reply has as yet
been received.

Attention is invited to the fact that the enclosures are all in
'draft" form; that they have only been discussed informally by the various
Delegations; and that the proposed solution has in no sense of the word been
formally presented to the eom::_ission.

I am sending copy of this letter, under confidential cover, to the
American Linister in Vienna, so that he may be fully informed as to the plans
under consideration, and thus be in a position to make such comments as he
may desire to the Department.
Faithfully yours,

Secretary of State,
Washington, D.C.
U. S. A,

James A. Logan, Jr.

(legal Service,
British Dcaegation).

Proposal A





The Reparation Commission in pursuance of the provisions of articld 179 of the r.:reaty of St. Germain CO:ISO:ZING
that it is tnnecessary to assess the total amount of the damage
done th the civilian population of the Allied and Ass ciated
Powers for which Austria is liable to make compensation and that
the Austrian Government has waived the opportunity to be heard as
to the amount of the claims for such compendation STD TAEING INTO
ACOMI,.:T (pursuant to the provisions of paragraph 12 (b) of Annex II
to Part VIII of the said Treaty)
(1) the actual economic and
financial position of Austrian territory as delimited by that Treaty,
and (2) the diminution of its resources and of its capacity for payment resulting from the clauses of the same Treaty, ASSIGNS to Austria,
as the part payable by Austria of the debt referred to in Article 179
of the said Treaty, the sum of five hundred million gold crowns increase
by a sum equal to the total value of the properties transferred by
Austria, less the cost, as approved by the Reparation Commission, of
any Allied Armies of Occupation payable by Austria under the said Treaty
PROVIDED ALAYS that nothing herein contained shall operate as a release
to Germany of any oblication imposed upOn her under or in pursuance of
the Treaty of Versailles.
The above amount is exclusive of the value of restitutions effecteet or to be effected in execution of Article 184 of the
Treaty of St. Germain, and no credit will
allowed to Austria in
respect of such restitution.




The Reparation Commission has in accordance with
Article 179 of the Treaty of St. Germain fixed the time and manner
for securing and discharging; by Austria the part of the debt assigned
to her by Decision _o.
of the Reparation Coamission bearing even date
with this decision as follows, that is to say a)
The sum of five hundred million gold crowns shall be discharged
each, whereof the first
by ten equal annual installments of
shall be due and payable on the 1st day of May, 1942,and the remaining nine
respectively on the first day of May in each of the succeeding aine years ending with the year 1951, the said annual installments being calculated so-as
to comprise interest at the rate of 5 per cent per annum from the 1st Llay
1921 on the capital amount for the time being unpaid.



Proposal A

So much of the said part of the debt as is equal to the total
value of the properties transferred by Austria less the cost ayiroved
by the Reparation Commission of any Allied Armies of Occupation under
the Treaty of at. Germain shall be deemed to have been discharged on
the date when the said Treaty came into force.

The Reparation Commission reserves the right to require
Austria to issue and deposit bonds in pursuance of paragraph 12 (c) of
Annex II to Part VIII of the Treaty of St. Germain, and also to determine all questions relating to the amounts of any such bonds and the time
and mode of payment of principal and interest thereon, and the security
thereSfor, and generally all other questions relating thereto.

The Reparation Commission PURSUANT to the Ltwers
conferred upon it by Article 197 of the Treaty of St. Germain HAVING
REGARD to the date fixed by Decision No.
of even date for the first
payment in cash by Austria on account of reparation AND WITH a view
to enabling Austria to utilize her assets for her economic and financial

reconstruction =EMS the assets &id revenues of Austria as at present
existing and as the same may from time to time be composed or created, up
to the 1st Lay 1942, from the cost of reparation under the said Treaty
PROVIDED that nothing herein or in the Decisions of even date Nos.
contained shall prejudice or affect the rights of Powers which
have lent money to Austria under the terms of the document known as
"Advances to Austria" or operate to release from the charge for the cost
of reparation under the said Treaty the assets and revenues of Austria as
the sate may be constituted on the 1st May 1942.


Proposal A



(For Proposal


o 0o

I am instructed by the Reparation Commission to transmit for
the information of your Government, as holders of Austrian Relief bonds,
, fixing the amount of the
the text of three decisions taken on
Austrian reparation debt so far as it still remains to be paid at five
hundred million gold crowns; making the first instalment on account
of such debt payable on :lay 1st, 1942; and releasing the assets and
revenues of Austria until that date from the charge for reparation payThese decisions suspend until flay 1st, 1942, the operation of
any previsions of the Dote "Advances to Austria" dated Lay 20, 1920,
which might be considered to apply to the recovery of reparation payments,
The Commission, however, desires to point out that, as the third decision
expressly declares, nothing in any of these decisions affects the rights
of holders of Austrian Relief bonds, or, in particular, their priority over
the costs of reparation.
In order to enable Austria to take adequate advantage of these
decisions and to utilize her assets during a period of approximately 20
years In the test interests of financial and economic reconstruction, it
would apc)ear highly desirable and indeed absolutely necessary for the
holders of Austrian Relief Bonds to agree to suspend until Lay 1st, 1942,
their first charge upon and control of the assets and revenues of Austria,
as specified in their Bonds and in the Uote "Advances to Austria", to the
same eatent as that to which the charge for re aration payments has been
suspended, and to postpone to the same date their claims for the principal
and interest of the Relief Bonds.
The Commission understands, unofficially, as I stated in my
letter of August 4, that your Government are prepared to suspend their cla ims
under the Relief Bonds until 1942, provided, as is now assured, that the prioOn this assumption the Commission would
rity of the claims is not prejudiced.
be glad if your Government, at their earliest convenience, could notify the
Austrian Government direct of their agreement to the terms of suspension and
postponement proposed in the second paragraph of this letter.
The Commission would be grateful if you could provide them with
a copy of your Government's communication to the Austrian Government.
The decisions of the Reparation Commission, which I paow have
the honor to transmit to you and the action now suggested with regard to
Relief Bonds in no way prejudice the decisions of the Commission which I
transmitted to you on August 4.
I am, etc.,

12. 8. 22.

Proposal B.

(Draft )





The Reparation Commission in pursuance of the provisions
Germain CONSIDERING that it is
of Article 179 of the Treaty of
unnecessary to assess the total amount of the damage done to the
civilian population of the Allied and Associated Powers for which
Austria is liable to make compensation and that the Austrian Government has waived the opportunity to be heard as to the amount of the
claims for such compensation, AND TAKING INTO ACCOUNT (pursuant to
the provisions of paragraph 12 (b) of Annex II to Part VIII of the
said Treaty) (1) the actual economic and financial position of
Austrian territory as delimited by that Treaty, and (2) the diminution of its resources and of its capacity for payment resulting from
the clauses of the same Treaty.

ASSIGNS to Austria, as the part payable by Austria of the
debt referred to in Article 179 of the said Treaty a sum equal to the
Austria under
total value of the property which has been transferred
the said Treaty to the Allied and Associated Powers or any of them for
which Austria is entitled to a credit on reparation account, less the
cost, as approved by the Reparation Ctmmission, of any Allied Armies of
Occupation payable b: Austria under the said Treaty PROVIDED AlICAYS that
nothing herein containeu shall operate as a release to Germany of any obligation imposed upon her under or in pursuance of the Treaty of Versailles.


Proposal B.






I am instructed by the reparation Commission to transmit for
the information of your Government, as holders of Austrian Relief bonds,
,fixing the part of the Reparation
the text of a decision taken on
Debt to be borne by Austria. It will be seen that the amount assigned
to Austria is deemed to have been already met and, therefore, no claim
by the Commission against Austria in respect of the reparation debt
remains outstanding. An a further result of this decision, such provisions of the Note "Advances to Austria", dated Liay 20th 1920, as might be
considered to apply to the recovery of reparation payments automatically
The Commission, however, desires to point out that
cease to operate.
nothing in this decision affects the rights of holders of Austrian Relief
Bonds or releases Austria from the charges in respect of the said bonds,
In order to enable Aistria to take adequate advantage of this
decision and to utilise her assets in the best interests of financial and
economic reconstruction, it would appear desirable and necessary for the
2he Commission undersholders of Austrian Relief Bonds to take action,
tands unofficially, as I stated in my letter of j_ugust 4th, that your
Government arc prepared to suspend their claims under the Relief Bonds
for twenty years provided, as is now assured, that the priority of the
On this assumption the Commission ventures
claims is not prejudiced.
to suggest that ypur Government, at their earliest convenience notify
the Austrian Government that they agree that for twenty years their
first charge upon and control of the assets and revenues of Austria, as
specified in their bonds and in the Note "Advances to Austria" shall not
be operative and that for the same period their claims for the principal
and interest of the Relief Bonds shall be postponed.
The Commission would be grateful if you could provide them with
a copy of your Government's communication to the Austrian Government.

secretary General.



SS Mast 1922.

ILO Vito de Went.



lir Mar Ito. Seeretsurlau
Dee to Ike .ashram SSA* the hipamatless Caw

jpOrtiwaii*, the latish 9elagatlen, is paillig lir ea
early adjuslest of Aaitries reparatios positions So question
eis>diote, is

Las nal pet reirofty egfpearo& beton) the Ossaesies WO there has
hoes aerlain le,tomarl negotiation& AAA boo boss aortal en sal&

It Ls holleve4 will be of intonate

I wade* heirsiith lee pleggedas. "'de wait "lbs,
fez dealing ill th Glans seam% Anelirla Oer repasalioa Iliad the skew
nested pestion of _tatter ndwewes, th of liald lave loss drama
tap by the Briti sh Delocationvaat oup

'Lis peopled linolvas three separate

;t141111111141Ditt aid a let.
ter IS Ike Amon bebillag iii let fiends. It aselipte

Etobillibe Y Ilbr aspiration

to MOM a sun of SOO Million gold enema for rep'.

IMMO' to Ur Italia et Leo pagorty

Illreerly transfer...1A by Aultrias It Nam the Mot

of the Abele neablemet SOU per
nod the last poem* to 1111; lag Vero
Woes the asasta area sessweeo teen ibis repaivalca
elhappo ontll lOiE. Ca the assiaption ilea ilde la
leas, it is ,:,,rolosoil lost the lop eatitillft Osessioston
spopmmt on giovinumt


neelhi thus

site a letter on the lines sr tie air

IOW drat to et. =attn.!' imam them
Ames xi
to mp
fret it Aire 194E, thwOr amps apes fad
of lho au sets asst smarm of Anotria, sail

to postpone until OM we dote Uris lialt. for the
totereet of Belief Ueda.


oresageas at tin
L!onda would
ire 1944 again bosom a pater *ergo to Ow sans* soni;assi tar sew.
rat ion, aid in pagrat roe nisamstlatt egad be sails until the °apt tal
end Intermit
all w isitail Is hod lima paid. Yea 7111 *hearse
that ow ass of 900 nillilen gala Oinnaa bean Interest Cress 0,9 1921,

at the rate el SS per same thee is 1942 the total meant *An tor
zufarations asold, aessamilatol interest. 111111Miat to 1 milliard

&mid orowns.

-.sciretary of .,tats.

. tv-e 2.

rooms). assi.:eas to .ustr is a,$ papnast

et separation gala the *Us of % property teak& has
boss trawler:IA by .ustris maw the Trutt/ of ',tai Germain to the -flied as ...instated Posers or say of See
for shish ::nutria is entitled to a oratit es isparation
oseoesat, las.; he salts as orproasi b the itspeastlas

Oaselesion, of ao, 43.11**1 Aisles of Oseepatlea payahlo
W Austria Izoider the said ?ronty".

In other rants, by this dosIsioss,
would be isosi to have oleotady Jost the reposetlee debt eat die elorge
at tto asposeelions 01124aJton ixs respoint of sae dotty sat in roves*
et OW AMINO °awaits. to ..estriate wssid esole, AS la proposal "a*
the haparselea
usiold thee vette is the Mare hoileirime New.

net Brie laforateg thee Um vas no loam nporation staves
oldest ...nstrlas, mai asking IMO to Milan that her 24., peers t1-..eir
slope spat sag sontrol it Or assets ant Reverse of 'atria whould
mot be epesetitse. :ad to postpone tor Sr sae ported their ataiY s
itar as prilastral oat interest at Heller ammo.
Proposal Nil" goal d

maleaa amo issapsololl

difficulty arose, to passe! throat Its Cemalselso
see inelay. areas points at e& aeries as to tasmailisi
enwiali Itea11.3.4 Ow lion Nslot ereseels alle
40414.4111 atr allikierrides of Aastries assets MA sereeses aortae the multi if he pear;::,

?l es Italica appreseeta ti MSS use, I as 11.110.1*

silo L astessant in principle viii" "4,4. sot thsrefese this solatlea
sesta be rsashed alskly. It is, of ssurss, amen** to oiorposs is
Aereration 3orsalssisa that ...metria is met la the least likely to
be etas to pay the soissoll assagskI gbr reparation, or nrobably
Was beano. MKS and 1101, the Aare partioulerly as she would first
heit to par fie eoaivaloat of as 12b to 1344 Mil ton oollarts to most
the Mille lisats. in brief, ce." is aeraly Ideas dressier. but has
tins Isportaat merit of ses4-tinot Os Italian point of vievi, aarly, that
palls opiate* In Italy mead art poorsit the Gemeemoat is raleaee
.;seltria from all Author slain inr roparst1014 bersawe Imports* as
be of Luis oventsally roe briar any Paglinilik. It Is alse protoile is the Italics alai that is the event of a posaible
°interim's* is losallter to slisosee the whole ossetime of taterallied
debts, (a 4poestalso allied Asinfersass its :lorreshoor'' of ISM cob I 11,i)ar
esseetaut rofaisass to I their o! portualti for bavasiniaT *sad be cmallaintaly diailaktaled it prior to sash a liparawarea they bad deprived
thamselvas if Its d,tatt to o1.3.ilz '..;" Deets Se pow* of their stare

of 31;,-potbsositod devotrian roparcti as. the ars mesas to would r robably inflame SOW of the .isooession hates, bit twofer es

sede..-o ALI& the 34paration 'km:mission is osseerned, the attitude of
the Jeseeosiou tato., r3e.rt from Italy, is met vital, as both the
prcuaaaa 411,aal
put into eateOutlee by a majority vote.

Mesas tarp


begs 3.

(4)th tho

Lai hroult reprossatativos. 1 on Informvhiah is as espimesion of what
they sagzurd as the meat rez::,toaable amass for the Allied Posers to take.
7:hia z.:roposel, hi
at, at the assoostt, is o2poeed to, US ittilian reposssiatsuras ohs. set without eerie Weal point out their Assist; with peat
difficulty get the Italia* atesivesat to agree to reparation' palmate bolsi Yeellponsil until 1942. it lA allow& sod perhaps imposAble for them
to get the Italian iloweramsnt to aims to we tot toporatii:as as
ed in *dm. %a /renal& taw British roprosentatiVoto besobor, alterpamper
hearing Ss Italian point of v leer, prepared to a* the 3sparat ion 011emission
LA auoptof ootnisa, they vrill maths, to ealeavor to
, tad, proposal
obtain itallhet siameamieet.
ode are ?repaired to savport r;vosal

Ile Szttish ael immesh ampreseatativua maize,

that it the tulles tragstantos to .'1 Is asiatatinti these ow be,
owing to Sr wow opportunities

Mier Ow Treaty of bt Ammas of raising
toasted ol,jections, proleagad del a,-; iz reaohini3 a deoistata met ewes

the poosielliel of au &obi= at



411 ik1:4; arAved at.

^3 ritaves the Ness holdiam; Aeliof wends, the British


entictate ar;riouo ult:I.Jultkes is *Malaise

a4,:rofecont either to proposal *A or "JP% dine seder

oration -;o:..1.41..:14.4 autimOishos its Otalm


&alma -uatria, it was still
the ,ht advisable La ougroodattirur it diet Amore to saber° to the
tons of 20 years La Urals period of pootposounat, as the reeled that
Antra Aellaf
sawed ltsidatiss 1 Srai Lisa; thy ausitauelas
20 years, is t?lat an? alteration in this particular miebt Iarolve irr
ttialsehle delay. It was vossiblis that ear of the :oven holding

SUMO sn 7 ae al re .1)U0 P;rtz C r mantra* or ampere/sift et Se meet* &trim:
the period of ausiensieu, but It is hoped to Wrists 17o motootty tor
t;:is, or, at any rat*, to olininnte 7.1r prrrision ittleh Inn poorest -rn atria bavl3k7 r f1' higni to istAlizt :
air-atit SL'ai lwansoso to Ole nest
of het cm reootestretion.

eat latoread th:.1 the -Antrim ..evusimeiSt haz been Sie

s'oreally e:,.1:IN:1.11-0e. Ulna:4A British

ehsnnals for en eiproesion of opinion

a to whether Say Milo a settles s* Sallontor the

as yet bees emeeived.


or "e



all in "raft " AtalantatheyWelted to Se Set Sat the etsleassime ago
nA; that
have only Lan A 15.11411964 in
by the

various Dele:"ItLessa sad that the pria, °sled eaution has in no IMMO, of the
.sord bean Ion:milli prescntel to the 04bra 13310E.
I bla CO U. tat; ocvy of tab letter, under oonfidestial cover,
that he rsay be folly informed as to
Ito plows mew saasideration, and thus bo in a position to wilco such com
moots so be moor Metre to tho )2partment.

be r 1Norktan

2132.1s ter is

r;.ithful.4 yours,
3osrotor3r Ot Dist*.
:lashIngton. 7).
U. S. A.

August ?5, 1922.

Dear Logie:

Please regard this as most private and confidential.

I have received

your letter of August 11 (also yours of July ?8), and at the moment will only
comment upon that part which relates to the supposed discussion between the
British and French Governments in regard to the treatment of the debts.

I have

a strong hunch that something of that sort did take place; in fact, I have seen
half-formulated proposals which came directly from the British Government and
which indicated that at one time there was a strong disposition on the part of
the British to build up a working basis between all the debtors for rather
forcing our hand.

The scre.i)e of evidence of this that I have received from

time to time disturbed me a food deal, and through some of my banking friends
in London I tried to exert some influence against that sort of a program.


last development, however, has in my opinion teen most unfortunate from the
British point of view.

I refer, of course, to Balfour's note.

Lest you may

not get the whole text, I am sending ycu with this a copy of a statement, just

out the day before yesterday, by Secretary Mellon, which of course is a direct
answer to Mr. Ealfour's statement about the way in which these loans were made.
Nothing since the war ended has exerted so adverse an influence upon
zientiment here in regard to the debts as that of Ea lfour's note.

to have regarded it as disingenious and as being sort
of approaching our Government.


People seem

a tack-handed method

Knowing that this was coming along is the

reason why I asked you to keep me posted on anything that developed in regard
to debts that light come to your ears.

August 25, 1922

Now, most confidentially,

I want to ask you about another matter.

I have heard whisperings, principally

from journalistic

the making of a great scandal in connection with the



disclosed in

connection with

that anything of this

injury in

had heard that it would outdo

that he

the Pana.-na Canal scandal.

sort is


It would do the French tremendous

this country, and, personally, I cannot credit the story; but they

tale of it.


Yours sincerely,

Colonel James A. Logan, a-A,v
18 rue de Tilsitt,
Paris, France.



regard this a.s most confidential.

My ',vet to you and Basil.


anything that was

Can it be possible

say it is being investigated now by some newspaper men and
quite a

of the

one newspaper mitn

reconstruction funds in the devastated regions of France.

of importance told me

that there is

they nay make


Paris ,

August 1 922..

18 rue de Tilsitt.

My dear Zen:-

In my letter to you of August 18, 1922, concerning
London Conference and the mineral reparation situation, on page
one, second paragraph, the following statement appears:

"The Imo st extensive areas of 'State z'orests'
in GermEny are in Bavaria."

I found on farther examination of the rue st ion that this statement
was not altogether correct. Of the 4,25b,000 heotares of State iorests within the cclifines of Jermany, 837,000 hectares represent such
areas in Bavaria. alone. Therefore, zavaria has not the "most extensive areas". Nevertheless, the area in Zavaria, is so substantial
that the zritish objection was based on. the Eeneral promises indicated in my letter.

have not as yet received definite information as
erlin, though
the Press reports of this mierning are pessimistic of an;,r solution having
been reached. :However, this will be cleared up in the public press.
to the outcome of the Bradbury -Laucl ere negotiations in

.ifrozn preliminary reports received from Berlin it appears
that Bradbury endeavored to lit the Germans , themselves, to offer some

concession to Poincare on the question of the "supervision" of the coal
and timber deliveries. I do not know whether the AraLus refused to

compromise, or whether ...Lauclere declined to accept an offer of ce::promise. his I will clear up when I have definite information. As yet

I have nothing definite concerning the transfer of ileichsbank gold

for guaranteeing Uerrmn G-overnment drafts to be accepted by BelL;ium

under her priority on account of the August, September, October, and
i.ovember, reparation cash instalments referred to in my letter of
plan of putting
tiugust 16. I am informed, however, that the
the lenk of Eland being
this gold in the Bank of England is changed ,
substituted by the Bank of Bel,;ium in Brussels.

I am einlosin herewith as being of posbible interest to
you coy of report which I addressed to the Secretary of State on August 24, concerning the Austria,n separation 3aestion.

I am also enclosing herewith the folloin:, viz:
financial Position
10, 1922.
of the ileich for the period ending

Berlin Document No. 931.

To Belajauill StronL, Esq.

J. A. L. Jr.


Paris Document Pro. 923. Berlin Exchange ding the
week ending L.ugust 6, 1922.

Comparison of Fiscal zurden
in Germany and France.

..nnex 11o. 1284 bis.

Les Debts Interallies et deparation,with Complimentary Note.
Faithfully yours,



The Honorable ienjamin Strong,
Governor, Federal deserve Bank of grew York,
New York City.


Dated August 26, 1922.
Received 243 p.m.

jecretar of 3tate,
332-August 26, 4 p.m.

UisceilaAeous reparation receipts since August 19th

under ,rticle eight, paragraph one, Liarch financial agreement war

material credit France 425,574 francs; receipts February credit
Belgium 380 francs.



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