The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
440, J. A. L. J r. TO GOVERNOR STRONG - PERSONAL & CONFIDENTIAL Page 2 111 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. The 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. The financial Members will be persons having practical experience in regard to the placing of Government Securities. 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; "FIRST. 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. SECOND. 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. TO GOVERNOR STRONG - PERSONAL & CONFIDENTT4L. Page 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. THIRD. 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. FOURTH. 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 3 J. A. L. Jr. r2.0 GOVIAMOR STRONG - PERSONAL & CONFIDENTIAL. Page 4. 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 reflection". r,fuse. 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 me. 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 416 J. A. L. Jr. TO GOVERNOR STRONG - PERSONAL & COEFIDENTIkL . Page 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 native. 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 particulars. 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, 4rI JAL /BD 1 encl. The Honorable Benjamin Strong, Governor, Federal Reserve Bank of New York, 1:ew York City. AME,3 A. LOGAN JR. ACKNOWLEDGED 3014 23 1922 Paris, 18 rue de Tilsitt. 7 April, 1922. PLMSONAL & CONFIDENTIAL My dear Ben, I forward herewith as of possible interest to you the following:, 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 ignored. Annex 1358a,b,c ,- Decisions of the Meeting of Allied Finance Ministers of Belgium, France, Great Britain d,e,f,g. 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, JAL/BD The Hon. Benjamin Strong, New York City. 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. BS.M&I PEISC1AAL .UD 02SF:DEATIAL 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. I 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. #2 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 Until 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. transpires. If you do, I will to Intensely interested in he-lrin news dispatoh from there boldly k-sorted that s prlminent f"doers 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. This 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 10( 6,)11,"' APR 2 4 IfFtL' 1111 rG"(441 'JAMES A. LOGAN *W/ 7'4f R. Paris, 18 rue de T.ilsitt. 14 April, 1922. PEMBONAL & CONFIDENTIAL. Subject: 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: O Exhibit A - Copy of reply of the German Government dated April 10th to the "ideal" Commission's letter of March 21st. ti 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. The 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 question". 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. TO GOVERN6q STRONG - PERSONAL & CONFIDENTIAL. Page 2 "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. S TO GOVERNOR STRONG - PEMSCNAL & CONFIDENTIAL, Page 3. 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. Page 4. TO GOVERNOR STRONG - PERSON1,q, & CONFIDENT 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 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 Confidentiall 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. , 1' 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, JAL/BD 12 incls. The Honorable Benjamin Strong, Governor, Federal Reserve Bank of New York, New York City. (over) J. A. L. Jr. TO GOVERNOR STRONG - PERSCUAL & CONFIDr;NTIAL. Page 'ND JAMES A. LOGAN JR. 18, rue de Tilsitt, Paris, Aprillt, 1922. Personal and Confidential. Hon. Benjamin Strong, Governor Federal Reserve Bank of :new York, row York City. Subject:- REPARATION SITUATION AND COL ITTEE OF FL1T X-CIER6. 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. A 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 -.de 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. Page 2. 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. It 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. T 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 Commission. The figure as to the amount of the loan which was discussed was substantial. 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 ly. 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. Faithfully, (a- I am ,?b 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. 1 C lroen. Ye Paris. Dated April 18, 1922. A " 211922 Roceive4 8:16 A. 11. 1. Secretary of "tats, Washincton, D. C. 164 April 18, 10 A.V. S674. 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. Boyden. LSB Payments not yet confirmed. GeliFIDENTIAL 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 reform. April 21, 1922. #2 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. Sincerely, Colonel James A. Loges, Jr.. 18 rue de Tilsitt, Paris, France. RF..16 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, GOVERE3 SIMS Honorable Elliot 7adavorth, Assistant Secfetary of the Treasury, lashington, D. C. COPY - Green Dated April 22, 1922 Received 9:59 a.m. 411/6° ,SB secretary of State Washington. 173 April 22, 3 P.I. s-678. Payments our B-674 confirmed, also T;,25,238 April 14th textile alliance subject Belgian-French arrangement. HERRICK Boyden. lERS0NAL AND CONFIDENTIAL 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. It VW do, but of course you realize that it -would have given me a lot of trouble and might I 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. I 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 loan. 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. an April 24, 1929. 12 One other point bearing upon the loan has to do with the German-Russian Treaty. 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, I mm, 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 JAMES A. LOGAN JR. Paris, 18 rue de Tilsitt. 28 April, 1922, Psc'° 3 .01 No- `4. 3 PERSONAL & CONFIDLNTIAL 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 herein. 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 Banks. 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. e \P° Vt 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. cs:t r 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 ? =1110 State Bank, -Weekly Balance Sheet of the Austro-Hungarian I.S. 676 Bank, I.S. 685 The Honorable Benjamin Strong, Governor, Federal Reserve Bank http://fraser.stlouisfed.org/New York city. Federal Reserve Bank of St. Louis V - Weekly balance Sheet of the Hungarian Bank. Faithfully yours, Furl S JAMES A . LOGAN JR. PERSONAL & CC-:' Paris, 16 rue de Tilsitt. 5 lay, 1922 joN 23 \922 B 6 The Russo-German Treaty, The subject: Reparation Situation, Committee of Financiers. ;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° sign. 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 4110 J. A. L. Jr. 20 GOVERNOR STRONG - =SWAT., COTIBITTILL. Page 2. in default under the 'Treaty and thus raise the reparation question at Genoa. 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. Signed: FISCITLR" 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 4/ 4410 J. A. L. Jr. TO GOVETNOR STRONG - PER6o0NAL & CONFIA.NTIL.L 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 city. 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 policies. are justified in lending money for the purpose of financing repar payments. 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. J A. L. Jr. TO GOT.:3NOR STRONG - PERSONAL & CONFIDENTIAL I agree with you thoroughly on the 1.:organ appointment. been over here the last week or so clearing the way. Page 4. 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 Reichsbank. 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 694 - 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, JAL/BD 10 ends. The Honorable Benjamin Strong, Governor Federal Reserve Bank of New York New York City, JAMES A. LOGAN JR. NovA.E.0(10) ACY Paris, 18 rue de Tilsitt, 12 Lay, 1922, z 192-2. PLRSORaL & COYYIDLailaa, -147 dear Ben, Ly last letter to you was dated Lay 5th 1922. Loose in file 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 negotiations. 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 Commission". 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. TO GOVERNOR STRONG - PERSONAL & CONFIDENTIala Page 2 411 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 Genoa. 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 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 reparations. 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. They 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 reparations". 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 S TO GairMINOR STRONG - PERSON LL J. A. L. Jr & COI; ' LDIZTT Page 3. J. A. L. Jr. TO GOVERNOR STRORG - PERSCNAL Lc CONFIDENTIAL. Page 4. 1110 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. JAL/BD 6 encls. The Honorable Benjamin Strong, Governor, Federal 'Reserve Bank of New York New York City. C F Y. r'ress. Paris. 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. Boyden. WTRICK. 35 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. BS.MSB. 4 K Y. min Paris Dated May 17, 1922. aceived 2:10 P. M. Secretary of States Washington. 207 May 17, 5 F. M. B-690. 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. TP1RICK. Boyden. 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. GB.NN 10 JAMES A. LOGAN JR. %1'(1( Paris, 18 rue de Tilsitt. 30- 23 19 Lay, 1922. 4,7,A 13- 137.:111SoiLT, 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. The 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" (In 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). It 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. Page TO GOVERNOR STRONG - PEROONAL 6: corPIDITTuz. 2. 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 randum. 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 95,869 " 82.943 12.926 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 In 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. TO GOVaRNOR STRONG - PLR,' SONAL & C0117IDLTITILL. Page 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 Government. 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 Itt.1 . A. L. Jr. 20 GOVLITOR 3TROI.:, - 22.1111.3 ONILL a eel: 2 _L_)..: . "_1 : _ Page 4. 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 it as I believe it is necessary to an appreciation of the situation as develops. I have always felt and still continue to feel that the work J. A. L. Jr. Page 20 G. OVII -5 OR 3 TROI: G - ?MS MAI, &:. COU P I DETT TIAL 5 1/11 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 question. 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. Bureau. 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 ;-,ustro-Hungarian . I.S. 757 -Weekly Balance Sheet of the Hungarian Bank. Faithfully yours, G. JAI/BD 4 encls. The Honorable Benjamin Strong, Governor, Federal Reserve Bank of New York, New York City. 11-4-f 41E.`"- JAMES A. LOGAN JR. Paris, 18 rue de Tilsitt. ow04) to:0'A' 28 Lay, 1942, PERSONAL & Car T, "IL?. .1 110. 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 ti form) concerning the measures to be taken by the German Government to curtail further GerLian mone- , y terry inflation. ti a a 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: http://fraser.stlouisfed.org/ 20 (.70T-A.Liti Cliti. STRONG - PERSONAL & CONFILGETLLL. A. L. Jr. Federal Reserve Bank of St. Louis J. Page 2. J . A . L . J r. 0 GOViata OR STRONG - CONFIDIT'2IaL. Page 3. 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 disease. 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 Commission. 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. The 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 Note". 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. TO GOVERNOR STRONG - PERSONAL & CONFIDErTIL. Page 4 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 This 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 negotiations. 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. JAMES A. LOGAN JR. Paris, 18 rue de Tilsitt. 2 June, 1922. PER & CONFIDE/7 FOGLO 3ON 2 3 1922 S 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 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 Delegates. 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, The 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 bump. 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. is- TO GOVERNOR STRONG - PERSCICAL & coyFID1.1172.1.L.L. Page 2. 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 quoted. 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 ismain6a-aagootPed 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 days. 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 A. L. Jr. TO GOVITTOR STROITG - PE RS & C ONFIDWTLdi. Page 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. The 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 Financiers. 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. Page CONFIDIV2I.Z. STRONG - PERSONAL & 4. J. A. L. Jr. TO GOVIONOR STRONG - PERSONAL & CONFIDEINTLT,. Page 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. -4 I enclose herewith as following: being of possible intereso b you the 5. Par Ber Ber Par JAL/BD 11 encls. The hono Governor New York JAMES A LOGAN JR. Paris, 18 rue de Tilsitt. 9 June, 1922. iFERSONAL P,. COrFIJEYTIAL C Novi 1. EDOED 301 23 192Z 113- s Ly dear Ben, Ey last letter to you was dated June gnu 1922. file 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 against. 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 doaument. It is yet too early to dra -:. any conclusion as to the effect f 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. TO J. A. L. Jr. S TRUE - RaarAL C ONP IDITTLZ Page 2. APRIL 6 - JUNE Enclosures accompanying letter of April 6 I. 1922 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 ft 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 50,00,000 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000 60,000,000 60,000,000 (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. Difference between sums due in 1921 and 1922 and sums actually paid to remain an obligation of Germany, with interest at 55. II. 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 - Aihrw (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 I. 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- Ne Bank must continue its note-issuing policy. Annex Mo. 1358, a-g inclusive. IV. :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 102,000,000 2,000,000 h's 460,000,000 French francs on the basis of the existing effective strength of the Armies. V. Public debt of France - January 1, 1922. Internal 242,987,151,000 paper francs External 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 Total 214,000,000 Kr. 285,000,000 500,000,000 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. -5 Recolutions of Financial Commission and the Committee of Experts: - III. 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. IV. Control of foreign currencies by Reichsbank. Regulations to licences, etc. May 5_, I. 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 Treaty. 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 Debits 139,525 million g. mks. 139,525 million g.mks. Credits ninon pz. mks. 5,079 Deliveries Nov. 11/18 to Apr. 30/21 Receipts bet. May 1/21 and Jan. 31/22 20 Further iems to be credited: (Upper Silesia etc.) Balance of debt as now disclosed 134.426 139,525 - 6 -8 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. !..ore 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 prices. 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) 186,250 Estimated Expenditures 123,650 Estimated Surplus 62,600 Execution of Peace Treat In the Ordinary Budget In the Extraordinary Budget 163,159 63,310 226,469 Reductions due to recent decisions of R. C. etc. Total Surplus from Ordinary Budget (as above) Deficit 68,000 158,469 62,600 95,869 (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 If 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 exported. - 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 A 1/0 GOTLFE011 STRONG -PERSONL G CONFIDE/7E41a Page 2. 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. It 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 These 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 The 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.; - 6: CM? IDLITTIZ. Pegs 3. 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. taxes, 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 diot. 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 measures, 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 Green Paris Dated June 15, 1922. /eoeived 12:54 P.M. coNniANTIAL. Secretary of State, waehington, 242 June 15, 4 P.M. 3-704. 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. 10ydem. t44 C : Y. (lreen Paris Dated June 15, 1922. Received 12:51,:t1 CCNFIDENTIAL 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. Boyden. 9.77711ICK T. S. B. JAMES A. LOGAN JR Paris, 18 rue de Tilsitt 17 June, 1922. 311.. 14 1922 cA PERSONAL & CONFIDENTIAL 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 here. for information as to your whereabouts. Good luck to you. Faithfully yours, JAL/BD 4 encls. The Honorable Benjamin Strong, Governor, Federal Reserve Bank of New York, New York City. a. AUTONOMY OF REICESBANK 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 importance. 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. 1:0 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 three months and bearing two or three signatures, fied ty the Law of August 4,1914 and )Lay 9, 1921. two laws, Darlehnskassenscheine are than 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 411 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. PT -YD Paris Dated June 3, 1922. aecd. 10:04 a.m. :secretary of :state, Washington, D. C. 220. 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 Boyden. HEIR iCiC COAFIDENTIAL. con - JD GREFIL Nai Paris Dated June 17, 1922 Recd. 12:03 P.M. 3ecretary of 3tate, ashin,gton. 247, June 17, Noon. B-706. v.iscellane-ms reparation reoeipts since June 10, Luxemburg coal 132,726 pounds to Belgium. reported our 703 confirmed. Boyden. HEARICK WSB Payments June 20, 1922. Dear Elliot: The copies of the two confidential cablegram dated Pmerican June 1E, received by the Secretary of State from the safely to Embassy, Paris, recarding reparation payments,cane hand. I thank you for this information. Yours sincerely, Honorat7le Elliot 7LBsworth, Treasury repartnent, 7ashington, D. C. June ").3, 1912. 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 I 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 delayed. Tours of April 14. This has already 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. I 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 2 Colonel Logan June 23, 1922 what he said, and recently when in Tashington asked Hoover what his reports indicated. 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. '.'ter 31 Tours of Nay 19. to reparations. 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 This 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 Germany. Mot as to Exhibit A upon which you ask some detailed comment. ,:uigraent of that program must The 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. 3 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: ;41/11 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 question. 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 borrowings. 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. .4 ) 4 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 francs. 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 Amlikied 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 Thut 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. expected? 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 Germany. There is onl 5 Colonel Logan June Sr in 411.1 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." e vA h it Now of course one's opinions change and they change circumstances, 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. 6 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, t 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. Green Paris Dated June .4, 1922. Acted. 11:23 a. n. Secretary of State, Washington, D. C. 256, June 24, 3 p.m. b-706. Yiscellaneous reparation receipts sincm June 1 ?, 545 francs balance trench postal receipts 1,926,973 francs sale war materials both to Belgium. Boyden. June 24, 4 p.m. FOR MR. STRONG - ?7,1i3ONAL and C.."ONFID717TIAL 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 did. 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, FOR MR. STRONG - PERSONAL and CONFID7NTI4L Ilik Pa g e J. A. L. Jr. Esthonia, Latvia, Lithuania, Poland, Roumania, Etc. , 3 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 obligations. 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 FOR M. ST1ONG - MRSONAL ard CONFIYMAI J. A. L. Jr. Page 4 111. 3TRClTG - PTILIONAL and CONFID-NTIAL 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 , which 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 character. 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- port. 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 years. 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 discounted". Stinnes said that Rathenau by giving his approval to the Cannes and larch 21, 1:122., 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, Therefore, Stinnes at- Rathenau, in replying, stated that, while agreeing with FOR MR. STRONG - P7.RSOVAL and OOliFID7NTIAL 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 a 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". he 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 days. I endeavored, end I hope with some effect, to leave Stinnes FOR MR. STRONG - PMRSOTTAL and CON.,717)-NTI Page J. A. L. Jr. 7 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 foundation. 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. It would, therefore, naturally be embarrassing for me if any outside refererce were made to it. The situation following Rathenou's murder is today nebulous. Page 446 FOR UR. STRONG - PERSONAL and CONFIIMITIAL U. 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 murder. I anticipate a good deal of "manifesting" but not much serious difficulty. Faithfully yours, 29 , fit't -ttn ce, - - 8 CONFIDENTIAL 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 issue. 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 till 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 I how inadvertently the nets of sounded as to attending the meeting leaked out over here. Norman of the an 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 for the conference not only here at the bank but and 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 Hoover, 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 in which have 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. country. le 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. with- on the Colonel Logan e 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 debts, 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 it 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, ^1, that I az vonciering whether 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 the banks of issue - such as Holland, Switzerland and elsewhere, including the Teeple in the Reichsbank - all expressing a very strong desire that I should attend. No July 12, 1922. 5 I have two or three other lettere from you, including the one written after your meeting with Rathenau illuminating. I will reply to them in a day or news ae to what ha-nenc on July 15. interest and be granted some u,i; and Stianes, which are intensely interesting and two. ie are awaiting I presume Germany till sort of moratorium as tc further with some ,,-)ay !... Again many thanks for your mighty interesting letters, and my beet to Boyden, and the same to you and Basil. Yours Colonel James A. Lugar., Jr., 1 El rue de Ti] ei tt, Paris, Frhnce. art payments until things clear a bit. regards 7 sincerely, July Colonel Jaees A. Logan, JR. 2 19?2 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' and _ 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 French attitude 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 to an insolvent borrc per where the sole protection of the lender is some ultimate recourse to collateral. Private 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. ieui 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 id something pathetic in the whole have had the i,rivilege of being 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 3 411 ipe en to reaction here growing out I think the increase sympathy feeling of regret +hat with 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' ptand4ng .ere of course of such importance that he was whose position who was pretty well understood I am most grateful to you for sending me the account. Again with warmest regards to all of you, I Faithfully yours, Colonel games A. _,e)31,n, 18 rue de Tilsitt, Paris, ?ranee. ES.r Jr., &- here. WIT - 1111 Green ?aria, Dated July 17, 1922. decd. July 18, 2:05 a.m. VIIL Secretary of State, Washington, D. C. 287, July 17, 5 p.m. B-721. 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. 'rib Total 17,892,602 gold marks. Logan. 40m July 24, 1922. CONFIAMTIAL INDUSTRIES a RUSSIA. - 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). *a (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 Council, 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). (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 (1) members recommended by the professional union of workers in the corresponding industry (2) 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, etc. 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." (3). (3) The exact legal position of the trusts in regard to property rights is admittedly hazy. In - 3 - O 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. 5. The administration of the trust shall prepare a general plan of production (operations) with all essential calculations of expenses, materials needed, etc. 6. 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). (1) 7. 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. 8. 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. 9. The directorate of a Trust will operate under the (1) 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. 1 (1) 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: Number of trusts Metallurgy 7 Electro -technical 3 Textiles Chemical Mining Silicates Remanufacture of timber & lumber Food products Paper Coal 24 6 5 3 6 3 Number of factories 57 21 249 34 11 33 226 262 2 9 1 87 989 60 Number of workmen 125,000 11,000 253,000 13,000 13,000 16,000 13,000 18,000 12,000 8,000 482,000 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 productivity. The improvement is clearly noticeable in the increased output of important industries for which data is obtainable, as illustrated in the following table: - 5 - AO :Before the Organization of the trusts May-Aug. :Jan.-April 1921 1921 15,800 29,100 Monthly production, in 1,000 poods. : : : Donetz Coal Pig Iron Cotton Yarn Woolen Yarn Linen Yarn Baku Oil : s : 633 111 : 49 69 : 13,000 : : : : : : 361 41 17 10 12,800 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 authorities. 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 1. 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. 2. - 6 - The enormous rise in prices, still further reducing the capacity of the market to purchase. - 7- COPY - a GREEN Paris (via Naval Radio) Dated July 26, 1922, Rood. 27th, 9:45 a.m. 3soretary of Jtate, Washington. BOO, July 26, 3 p.m. 1726. 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 1921. Logan. MUUMUU: fin let, JAMES A. LOGAN J R Paris, 18 rue de Tilsitt. 28 July, 1922. PERSONAL & CONFIDENTIAL 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 anticipated. Loose 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 showing: 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 ileJ. A. L. J r. TO GOVERNOR STRONG - PERSONAL & CONFIDIATTLLL. Page 2, 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 expenditures; 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 Budget". 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 "kolossal". 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 unrest. 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 whe le J. A. L. Jr. G (MM. OR STRONG - PIIRSIXIAL & CONFIDINTI-L. Page 3. 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. The effect of such a policy is thoroughly appreciated by potential lenders. possible consequences of this phase are gradually "coming home" to the Allies. Lc. 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. instructions. The question as to "the flight of capital" was disposed of without particular The adopted measures are not unreasonable but from a practidal difficulties. 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 payments. This 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. TO GOVERNOR STRONG - PERSONAL & CONFIDITTLIL. Page 5. 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 question. 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, the fOliciwing,14±t: 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 Reparations. Annex 280 bis - Supervision of currencies. Annex 289 - Devisenbeschaffungsstelle Report for Lonth June 1922. Faithfully yours, JAL/BD le encls. I acknowledge receipt of your letters of June 23, July 12, and July 14th, for which many thanks. P.S. The Honorable Benjamin Strong, Governor, Federal Reserve Bank of New York New York City. COPY - yD GREEN YfiL 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. B-730. 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. iHL Logan. aH1 -HOU3E. CONFIDBITTIAL 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 Russia. 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: 1. 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. 2. 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. 3. 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 - 4I 4. 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, 5. Any hint of intervention in Russia by any foreign government strengthens the hands of the present regime. 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. 6. Reconstruction can not possibly take place from within - the disaster has been too complete. 7. Reconstruction from without can not possibly come until there is a right-about-face in Russia's policy and a return to economic sanity. No capital or enterprise on any adequate scale is to be expected to take a hand under present conditions, 8. 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. Attempts 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. 0140 This, I take it, has beenUnited international financial and trade boy demonstrated to 2. Also demonstrated to be cott of Russia. impracticable. 3. 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 4. 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 nition. Then let nature take its course. I believe it is easy to guess what would happen; (1) The present government would celebrate a tempor triumph. (2) 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 3,242 1,631 157 milliards 11 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 000. 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 - 4 increased rates, the returns, which grew steadily up to March, all show a marked increase in Receipts in January, 1922, were February, 1922 March but in 40 milliards 169 890 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 milliards. 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 improvement: 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. :it a recent session of the All Russian Central .:!:xecutive Comnittee proposals were made 4 _ 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 r 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 follows: of trusts. Number of separate establishments included 15 88 7 52 474 112 149 188 Viluihr Electric Clothing Textile Mining Polygraphic Chemical Paper Timber Silicates Metallurgy Leather Food Total 50 21 17 31 8 - 44 26 45 376 51 42 43 356 398 302 642 3,103 277 Number of workers 1,000 17.8 19.3 278.0 25.1 13.8 32.5 15.1 20.3 27.2 116.1 30.1 42.9 638.2 Built uo by combinations within the various groups of trusts, there were organised, to July 1st, nine syndicates, as follows: 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 -3- 0 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 trusts. It is reported that independently, even in small quantities. the syndicate also has in mind the development of a selling monopoly. 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 control. 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; prices; correlating their credit operations; and providing for unified (1) representation in all State institutions. Elf.' (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: 1. The correlation of powers between the Supreme Council of National Economy, the trusts and the syndicates. 2. The organisstion of trade with special reference to the right of trusts to carry on commercial operations. Z. The method of preparation of programs of production for the coming year. 4. The provision of an adequate supply of funds for industry. F. The policy to be followed in the fixing of prices. 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 parties. 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 trusts." 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 24.th, 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. A 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 thereby. 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. lows: 1. 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 mer. 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. -7eo olk 2. 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. 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. 3. 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 industries. (1) Bo evidence is given in support All the data which I hav ment. gather on the subject indicates very far from the truth. 4. Recognising the soundness of th the conference believes that al convert these plans,into actual be continued energetically. 5. The conference believes it nece Supreme Council of National Eco take the following steps: 4) E. To further the "concentrati tion and "maximum loading" and mills; b. To improve the commercial o State industries by develop operation and of priv to co takings (apparently this re trade only); CONFIDENTIAL August 10,1922, RUSSIATJ LAND POLICY. Eh 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 classes. 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; and 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 -2411 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 aoout. 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 worz.ing '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 http://fraser.stlouisfed.org/ (1) Federal Reserve Bank of St. Louis -3- _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 level. 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 policy. 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." the 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. -5- 41 This right of Possession can be forfeited only in the following cascs: a) If the entire fa dly refuses to accept the right; b) If the family gives up farming; c) If the family dies out through failure of heirs; d) If the family emigrates; e) In some cases if the family is colvicted of crime; f) 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 fund. 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 a) If there is "temporary decay" of the farm owing to "elementary calamities"; b) If there is a temporary lack of workers in the family; c) If the lessees are in a position to work the full Quantity of land leased, by their own labor; d) 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 adninistration.) 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 40- 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. C ONFI DENTIA MEMORANDUII ON TAXES ON INDUSTRY AND TRADE. 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: Commodity. Sugar Lac and colors Mine Chemicals naphtha Rubber goods Metal mfs. and machinery Cloth Percentage of direct taxes to market price of commodity. 4.02 5.38 9.40 9.32 10.00 13.30 13.50 17.60 and -2$4, Leather Cotton goods Timber Sweets Tobacco Tea Cement Polygraphic goods Electro-technical products 18.25 19 .38 20.00 22.22 22.22 24.20 45.67 62.80 72.70 The report goes on to summarize its corn laints, lows: 1. The total tax is excessive, reaching an average of 25-30% of circulating capital; 2. The taxes exceed the pre-war level; 3. The rate of the funda-,nental tax on trade ( 7, of circulating capital) pre-supposes profits of 30%, while in reality no such profits exist; 4. The supplementary taxes reach an average of not less than 35% of the wages paid; 5. Taxes are called for et unfavorable times; 6. There is sometimes double taxation; 7. Taxes re levied or altered suddenly without prior notification to industry or opportunity for a hearing. Demand is made a. b. That the supplemental taxes be thoroughly reexamined; c. and 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; d. That a permanent inter-departmental commission be established for tae consideration of all new taxes. of the fol- samamgi. September 1, 19226 D2.0LIAE OF RUSSIAN AGRICULTUR,E6 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 cent. The annual plantings have beeng 1913-14 1915-16 1916-17 1918-19 1919-20 1920-21 1921-22 56,500,000 dens. 49,600,000, * 43,000,000 45,000,000 35,500,000 30,000,000 If 25,500,000 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 Ukraine Dees. 1913-14 1915-16 1919-20 1920-21 1921-22 Siberia Does. 20,100,0000 9,300,000 7,000,000 4,500,000 3,900,000 3,100,000, 18,200,000 14,3u0,000 14,800,010 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 CONSTILIITG REGION Dessiatines 10,300,000 8,700,000 7,700,000 6,100,000 6,300 ,000 6,300,000 6,500,000 1913-14 1915 -16 1916-17 1918-19 1919-20 1920-21 1921-22 Percent age of 1913-14 100.0 85.0 74.9 59.4 60,8 60.8 Ci3.1 have been: paoruc Iii' 'LEGION Percentage pea 5 iatinea of 1913-14 36,900,000 29,300,000 24,900,000 24,800,000 19,300,000 16,000,000 100.0 92.1 79,5 67,5 67,3 53.7 43.3 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: CONS all:JIG -18G ION PRODUCING REGION Equivalent Equivalent poods Roquipsitla tioned Pooch 1913-19 1919.20 1920-21 1921-22 (1) 795,000 14,300,000 24,000,000 33, 100,000 The amounts per doss, Requios it oned cultivated Pods 0.13 2.29 3.84 5.10 in poods per doss. cultivated 106, 800,000 155,400,300 52,900,000 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. 4,29 6,27 6.35 3.31 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 1922-23. 0(,- /I/ CONFIDE:7';AL 4:zaiso id rue us 11Sitt. 10 August 19L4. il6BLKIBAL 1dr, Won Delacroix, Belgian Delegate, Reparation Ccesmission. WI dear Delacroix, 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. The 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. ted 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. k, 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 stion. .)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 bonds. 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 ;:ir 5, 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, JLIVISD a S 1:1NFIDENTIAL A.J. 364, AEPAH TION 8, REVISE BY COMMITTEE OF 4LLIED aPERT3 OF THE DOCTIuRNT DISCUSSED BY THE Al4LIED PRIME MINISTER'S 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 ull. 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 ish. 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 recur. These guarantees are as folloRs:- - 1 - a 411 3. 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. The 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:- Go ,fusion dc Eeparat fortifier la controle (jui exeroe Guaranties sur la, perception du p 2q4 notamment en utilisant dune le controle existant des licenses 4. 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 Be ration Commission. If at any tim I 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 4.(a) The Reparation Commission shall '0(3 invitud to consider the periaanont transfer of tao Committee of Guarantees to 3erlin.0 -1 5. 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, 6. The German Government dh:,:11 before 31st Deoember, 1922 forthwith 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. V 9. 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. 10. 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/ V 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. 2) deliveries in kind to the various llies should be determined by the Reparation Commission at their discretion. 3) 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; "The French Delegation state that they are as anxious as t. e other 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,/ S 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. 11. 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. oft C 0 P Y. Green Paris Dated Aug. 12, I922. Recd. 12:14 F. M. CONFIDENTIAL. ",ecretary of State, Washington, 'L. C. 312, Lu-ust 12, noon. B-736. Miscellaueous reparation receipts since August 5th: Luxemburg coal 7,292 pounds sterling crsdit Belgians. WHITYCHOUSX. Logan. 0 J. A. L.Jr. To Governor Strong - Personal & Confidential. Page 2, 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 Commission. 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. Page 3. 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. Page 5. (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, J-4B-1) 2 ends. The Honorable Benjamin Strong, Governor Federal Reserve Bank of New York, New York City. Ilk"-" THE MAN R GOARDIAN. TTTESTIA:1 !PRIVATE FRENCH CLADIS1 ON GERMANY. s( E rak NT AsTir EXAMPLES (From a Berlin Correspondent.) The 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 extracted. The tendency pa }-meats thl'aetsc'a sP:liselia:ittYhebf:ro:i2hasGeblelngeuin become nYecome n more ker..] toriums and of,i(heinst to be talk marked of morareparation.s. tiction of the burden the German Government of M. Poincar6 of Note to sion to the French gives clear view that the instaczernets.s. for the clearinv offices and arbitral must be paid tribunals irrespective the moment they fall due, ;nerd of quite demand. If admitted no moratorium agreed Erita.in and between Great assistance to F' in ondon will Gernr: , since it would be of any result of plain. have the office and arbitration which Allies of all effective would deprive ud the other means of puttingshe is sure on France through mission th© Reparations pres- it would or in any othger way; in other Com_ de .Trorcl position. plat© Germany virtually in a worse Typical Claims. Typical In these circumstances it is worth exiaipe the while to present German arbitration situation of the Francoproceedings detail what are the Frend claims. to see in the worst element in these Cliints"or 41 most a AUGUST S. 1922. is tnat no one knows what their total amotn;t will be, hew many more claims will be preeEied on the determination f th of first ones, e an at amounts amounts will be definitively pass espite the nominal fixing of the burden ed of 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 with 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 francs. following instances will illustrate the he ture of the demands. The Societe des Quais, Docks et Entre fits Constantinople, with P ard Malesherbes, Paris,offices at 43, Bouleoriginally put aim against the Ottoman Government in a i f for ck dues for theme, German steamers General si os, Ma 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 eilel '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 ex- 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- nities of earning during six years, 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 icy. 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. Consequently ery measure adopted by Germany in sace-Lorraine was a measure concerning her http://fraser.stlouisfed.org/ wn territory, butBank of St.applied to AlsaFederal Reserve if it was Louis r. . is S o I J. ( 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 I. iv. side Alsace-Lorraine and 740 arising out of in the actual war zone and outside Germany shall be subject to this arbitration proceduve. e.re-war 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 happened.ong the Allies. On the other hand, ch pascd on a claim from an the Alsatian who had completed his period of neighbourhood of 50 to 60 milliards of francs. 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. AFTER FIVE DAYS,RETURN TO FEDERAL RESERVE BANK or 15 NASSAU STREET NEW YORK,N.Y. NEW YORK C 0 F Y. mei. creep Park Dated Au Lust 21,1922. het:silted lioon. Secretory of Stets, Washington, 325. August 21, 3 F. 1. B 742. 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. Logan. fr CONFIDENT! " Paris, 24 August 1922, 18 rue de Tilsitt. Subject : 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 A. 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, B. 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. 4 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, JAL: G James A. Logan, Jr. (legal Service, British Dcaegation). Pro Proposal A AUSTRIAN (Draft) I. SHARE OF DEBT. DECISIONS OF THE REPARATIOL °OMISSION. DECISION FIXING ALDUNT OF DEBT. 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. II. DEOISLYZ SOI-MuIE OF AUSTRIAN PAY=TS. 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. S 4 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. b) 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. III. DECISIaa a:LaiTING AUSTRIAN ASSETS FROLI LIEN FOR REPARATION PAYJENTS UNTIL 1ST LAY 1$42 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 and 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. 4 Proposal A FRI:11 SIR 'iiILLIALI GOODE SUGGESTIOK FOR COVERING LETTEll FROU THE REPARITION CCUTISJION TO AIL PWERS. (For Proposal A.) 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 ments. 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., SEGRT21.RY GEE-RAL 12. 8. 22. Proposal B. AUSTRIAN (Draft ) SHARE OF DEBT DECISION OF TIL. RaPARA..:ION 00..1.1ISSION FIXING THE AMOUNT OF DEBT 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. 411 Proposal B. FROM SIR WILLIAM GOODE SUGGESTIM FOR covimin FRG RLTARATION CCULIISSION TO ALL RELIEF PLIERS. 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. 16.8.22. ite/elect-7.--, /...;:-. SS Mast 1922. ILO Vito de Went. SolliJdOes aliddlajainliailLAKUSSit. 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 Oessaliestas. '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'. 11011141111. 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 Is 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. prinsipal 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, ol.th aessamilatol interest. 111111Miat to 1 milliard &mid orowns. -.sciretary of .,tats. B. . tv-e 2. 711i 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 pesettatny 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;::, Seepeesloa ?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 aspect 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 pro- 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 -atate. 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 Wigwam, 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 *nct loreLoh their 411 ik1:4; arAved at. ^3 ritaves the Ness holdiam; Aeliof wends, the British '-s 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 the &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 has MAY as yet bees emeeived. °A" or "e plan. 1, Is 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, `.'3cc:-::4), 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. The 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. of 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 sources, expenditure 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 impending? It would do the French tremendous this country, and, personally, I cannot credit the story; but they tale of it. Please Yours sincerely, Colonel James A. Logan, a-A,v 18 rue de Tilsitt, Paris, France. enc. that regard this a.s most confidential. My ',vet to you and Basil. ES. MM 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 S JAMES A. LOGAN JR. 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 "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. Page 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, 16L,__ API J.IL/G The Honorable ienjamin Strong, Governor, Federal deserve Bank of grew York, New York City. AL Green Paris Dated August 26, 1922. Received 243 p.m. jecretar of 3tate, Washington. 332-August 26, 4 p.m. 13-746. 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. liPD i.ogan.