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Paris, 26th August 1924.

Summery of the London Agreement.

In the ;-rotocol and :annexes I to III of the London Agreement the

Allied Governments, the heparation Commission and the German Government confirmed their acceptance of the Experts' elan and adopted a program for putting
it into full effect by the end of October, enumerating the steps to be taken
in restoring German economic and fiscal unity.

They elaborated certain

provisions of the Plan, particularly with reference to deliveries in kind.


Experts having emphasized the necessity of expending almost exclusively within
Ger:may the sums available for Treaty payments during the next two years, deliveries
in kind are expected to constitute a considerabl: part of the payments to the Alli
under the early annuities.

rrovision was made in the Agreement for a special Al

German comaittee to work out a practical system of placing and executing girders an

to consider the practical spplication of the principle that these d(liveries show'
not be of an anti-economic character.

It was further agreed, under conditions

designed to saferunrd the meinienence of German economic and social life, that
deliveries of coal, coal-derivatives, dyeituffs, etc., should be continued after the
specific Treaty obligations respecting delivery of these commodities had been fulfilled.

:iachinery was provided for arbitration of disputes which might arise over.

certain questions concerning doliverles in kind end the transfer of funds in the
also of complaints reearding defects in the/working of

s to collection of payments and control of securities

utes ccncerninr the interpretation of the Plan or of the

ed in pursuance of it.

- 2

mongst themselves the Allied Governments in 1%rticle 1 of A-nex TV
adopted an amendment do the Treaty prrreiding that when the I:operation Commission
is deliberating on filly point relating to the :xperts' leport, a citizen of the

United States shall take part in the discussions and shell vote as a fifth
member of the Commission on full equality with the other members.


member is to be vppointed by unanimous vote of the Lepe-ation Commission, or
feilirg unanimity, by the ?resident of the 'Permanent Court of International
Justice, and the appointment is to lapse if the. United States should be

officially represented on the heperation Commission.

The Allied Governments

further dealt with the matter of decisions Ly the Commission granting or rejecting applications to declere Germany in default under the !operation clauses of
the Treaty or under the Experts' Plan.

They agreed by amendment to the Treaty

that any such decision by a majority might be appealed by any member who participated in the vote to a permanent arbitrel commission of three impartial and
independent persona, chose decision shall be final.

president of which is to be vn American, will be nppointed by unanimous vote of
the Lepsration Commissar., or feiling unanimitylty the President of the Permanent
Court of International Justice.

The Governments further agreed that sanctions

will not be imposed under Article 18 of Lnnex II to i'art VIII (Reparation) of
the Treaty,

(which refers to "voluntary defeult by Germany") unless a default

has teen established -ithin the meaning of Section III of Part I of the Fxperte'
Feport (which refers to "flagrant failure to fulfill the conditions accepted
by common agreement ").

In article 2 the isllied Governments dedlare that in

this case,

"acting with the consciousness of joint trIsteeship for
the financiel interests of themselves and of the persons
who advance money upon the linos of the said plan, they
will confer at once on the nature of the sanctions to IA,
applied and on the method of their rapid and effective

In irticle 3 they
"declare that in case sanctions have to be imposed
in consequence of a default by GerTrny they will
safeguard any specific securities which my be
pledged to the service of the loan."
and that

"they consider the service of the loan as entitled
to absolute priority Rs regards any resources of
Germany so far PS such resources may have been
subjected to a general charge in favour of the said
loan and also as regards any resources that may
arise as a result of the imposition of sanctions."
In Article 4 they agree that

"Any dispute between the signatory Governments
arising out of Articke 2 or 3 of the present
Agreement shall, if it cannot be settled by
negotiation, be submitted to the Permanent "oust
of international Justice."

- 4 II.

More Letailed eunestry of Important epecifio =rovisions
of the London Agreement.

The Special Com:n ttee on deliveries in kind will determine satisfactory

methods of placing orders end securing deliveries which shall adhere, so far as
possible, to ordinary commercial usage;

will exwrine "the best means of applying

the. provisions of the experts' eeport relative to the limitation of deliveries to

those which are not of an anti-economic character", snd will recommend "the measures
to be taken against any persons who, may infringe the prohibition against reexportation of deliveries".

the Committee will consist of three members of

Allied nationalities and three Cermens.

In case of differences it will co-opt

an additional member of neutral nationality, to be chosen by agreement or in
default of agreement, by the heparation Commission.

The decisions of this

Committee are subject to approval of the Reparation Commission and of the Transfer
Committee insofar as the latter is concerned end are not to be modified without
the consent of Gereany.

Lha programs of deliveries are to be ltid down by the

Reparation Commission after opnsultation with the Transfer Cortnitties.

Under the reparation clauses of the Treaty C rmony eccore'ed options

for delivery of certein euantities of specified commodities, including coal and
coke, up to 1930, sulphate of nmeonia up to January 1923, deeetuffs and chemical
drugs up to January 1925.

The Agreement provides that deliveries cf these

comnodities in particular end of others mentioned in the Treaty shell continue
after the fulfillment of the Treaty obligations.

The eeriods for which the

deliveries will run are to be eetermined by the zpecial go:I.-Litton oh deliveries

in kind which ilimy also exclude ce tain proeunts if they are indisp,nsable for the

protection of the Cermen netionel esonomy.

The programs of delivery, after

consultation with the Transfer Committe,: are to he laid down by unanimous vote

the German Government.
of the heporetion Commission in agreement with


the German Government the
unanimity of heparation Commission or agreement with
programs of deliveries are to be prescribed by an arbitral

between the
commission is to be appointed in edvance by agreement



of agreement
Commission acting unanimously and the German Government or in default
by the President of the lermenent Court of International

The Chairman

shell be sn American.
ty the
All programs for deliveries in kind, whether laid down

be fixed "with due
Leperetion Commission or by the i,rbitral Commission, shell
position of her
regard to the por,sibilities of production in Germany, to the
far as is
supplies of raw materials and to her domestic requirements in so
life and also with due
necessary for the maintenance of her social and economic
regard to the limitations set out in the ixpertst :report."

The amounts of

prescribed in the
deliveries in kind are automatically limited by the annuities
Lxpertst elan, which embrace all amounts for which Germany is liable to

:Powers for costs arising out of the


They are further subject to the limits

of the German
fixed by the Transfer Committee with a view to the maintenance

Under the Plan the Transfer Committee ley on the instructions of the
heparation Commission and at the request of creditor states by debiting their
reparation accounts transfer marks to private individuals for the puroose of
making purchases in Germany.

The Agreement provides that differences of opinion

letween the Irausfer Committee and the Ceram Government regarding classes of
property in 4hich these investments may be made and regarding measures to ensure
that investments shall not be temporary shell be referred to en arbitrator chosen
by agreement or, failing agreement, by the ?resident of the Permanent Court of
International Justice.

If desired by the German Government this arbitrator

shall be a national of a country not interested in Cermen reparation payments.

Pm shall rive consideration to the principles enunciated by the Plan, namely that
the investment must not 1:n of a temporary character and that "the German Govern-

ment is required to have due regard to the necessity for meking mnximum payments
to its creditors, but is also entitled to have regard to maintaining its control
of its own internal economy."
the 1.greem-nt provides that the question of the existence of "concerted

financial manoeuvers" for the purpose of preventing transfers of funds outside of
Germany (J.nnex 6 of the Plan

shell be referred to an Arbitrator in case the

Iransfer Goalmittes in equall7 iivided.

qe shall he a financial expert chosen by

agree ,:nt of the N-aittee or felling errenment b
Court of Into:net/0nel Justice.

the President of the ?ereenent

On all other questions if the Transfer Committee

is equally divides' the Chirmen shall have r casting vote,
Then the 'Illistributed funde in the lehnde of the Arent General reach

the limit contempleted by the plan a deoleion of a minority of the Transfer
Committee that certain measures to defeat concerted financial manoeuvers should
not be taken or that such meromuvers have not taken pleas may be appealed by a
member of the minority to an Arbitral Tribunal of three financial experts, the
chairmen of which shall be an imerican.

This Tribunal will be selected in the

se:re manner as the Lrbitrator referred to in the previous paragraph.

Any complaints by an interested government (Allied or German) regarding
defects in the technical 1,orking of the Plan, no far Ps relates to the collection

of Gorman payments or the control of securities therefor, may be addressed to the
peppration Commissebon which will obtain the advice of a committee consisting of

the Agent General, the Trustee or Trustees and the three Commissioners.

If the

!leparation Commission is not unanimous in its findings or if its decision is not

accepted by the German rovernment any ar the parties interested may submit the
question to en arbitral committee of 3 persons chosen by agreement between the
Reparation Commission acting unanimously and the German government -or

'n default


of such sgreerment by the :'resident


of the

Court of International


&abject to powers of interpretation conferred on the heparation
Commission by rare. 12 to .t,nnex II of tart VIII of the Treaty,


arising between the Reparation Commission and the Carman government regarding
the interpretation of the elan or the German legislation enacted in execution
of it shall be submitted for decision to three arbitrators appointed for five

one by the Leparation Lom.:-ission,

one by the Gerraen government .0 the

third by agree:lent, or failing, thet, by the iresident of the Court of International Out: Line.

..ending decision the arbitrators rraty order any sppropriete

provisional measures to avoid interruption


the working of the plan end


safeguard the rights of tho parties.


MITIA Re ser D





Complete Official English Text
with Annexes





'N. C


..vona ea..45.......M9.3.4,0.10r


On account of the one milliard gold marks which according
to the schedule of payment of May 5, 1921, Germany has to pay
until August 31, 1921, there have been paid so far 300 million
There remain to be paid, therefore, within six weeks
gold marks.
Part of this latter sum has been provided
700 million gold marks.
for thru credit operations and otherwise by the German Government,
but in any event Germany will have to buy in the open market until
August 31 an amount of foreign exchange which may safely be estimated
at between 400 and 500 million gold marks.

The purchases of foreign exchange so fax made by Germany have
had a disturbing effect not only on the rate of exchange of the
Reichsmark but on the exchange markets thruout.
Since the beginning
of those purchases the U. S. Dollars have risen remarkably to the
detriment of all European exchanges.
That phenomen
attributed to the request of the separation Commission that all
It has to be
payments by Germany should be made in U. 6. Dollars.
stated, however, that the rise of the dollar has continued altho some
time ago the Reparation Commission did no longer ask for U. S. Dollars
but for payments in the currencies of the allied countries and tho the
German Government, of course, has ceased to purchase American money.
It is interesting and somewhat strange to see that in a general way
the rates of exchange of the other European countries do follow the
movements of the Reichsmark in respect to the U. J. Dollar.
Nay to the middle of July the Pound Sterling has fallen from about
clA to 0.65 (cable rate) whereas the Dutch Guilder in the same time
weakened from about 35 cents to about 32 cents.
When quite lately the
mark rose in New York from 1,28 to 1,35 there was a corresponding
improvement of the other European rates as against the U. S. Dollar.
There is no other satisfactory explanation to be found for the
disturbing and disquieting state of affairs except the powerful
Such speculation is actively going on
influence of speculation.
thruout Germany and perhaps likewise in other countries.
knows that the German Government is in dire need of foreign exchange
and has to face other sanctions if it does not succeed in finding the
full billion goldmarks until 31st of August.
Hothing is easier than
to speculate on such a basis on the back of the German Government.
Every speculator, therefore, is selling Reichsmarks and buying foreign
For even tho it has been made
exchange, by preference U. 3. Dollars.
public that the Reparation Commission does for the present not want the
payment of U. S. Dollars, the currency of the United States is generally
known as the standard currency, equivalent to gold and which regulates
all payments in so-called gold marks.
It is clear that the more
Reichsmarks are sold by speculation and the longer the rise of the
dollar continues, the less it will by possible for the German Joxternment
to buy foreign exchange.
It is not only a question of buying at
higher prices and paying for the 1 milliard goldmarks, perhaps 20
milliards instead of 15 milliards paper marks.
That would be serious
But the essential point is that the continuous rise of foreign
exchange in Germany as compared with the Reichsmark induces everybody
to hold back in offering foreign exchange closing thereby practically
the exchange market to the German Government.
It is a well known fact
that foreign exchange as well as other goods will be freely offered
only at falling prices.
It is clear, therefore, that the more foreign
rises, the smaller will be the amount the German Government is able to buy.
If that situation does not change, a crisis will be inevitable by August 31
not only for the Reichsmark, but for the exchange market in general.
It is
hard to foresee the consequences of excited speculation a few weeks hence.


The German Government is in a "corner" formed by
unscrupulous speculation.
It is necessary to break that
corner, but the German Government is powerless so long as the
critical date of August 31st remains in force.
otherwise invulnerable, can be caught only if the absolute
necessity to pay the full billion on August 31st is done away with,
but in that case the speculation which is by far overdone and does
not at all correspond with the underlying economic conditions is
bound to break down.
One might object that an extension of the
payment, say of three months, i.e. until November 30th, would not
essentially change the situation and would only postpone the critical
date by three months.
But such a view would not be justified.
The amount which the German Government may not be able to meet on
August 31st, may be at the utmost 500 million gold marks. Now, long
experience has shown that it is easy for the German Government to
collect in ordinary times 150 million gold marks foreign exchange a
That would make 450 million in three months.
But the heavy
shock speculation in foreign exchange must receive if it be made known
that Germany is left another three months for paying the remainder of
her present debt will at once flood the exchange markets in Germany
,pith enormous offerings of foreign exchange and will bring about a
corresponding rise of the Reichsmark in other countries.
The consequence
of the granting of the extension, therefore, will be this, that the
German Government will be enabled to pay the full milliard by August 31st.
In other words, the only practical way of enabling the German Government
to fulfill its obligation on August 31st All be to grant her an extension
of the same obligation for three months.
The German Government, however, cannot possibly come forward with
the demand of such an extension of time.
That cannot be done for
political reasons, but there should be no objection to the Committee of
Guarantees making such a suggestion to the Reparation Commission and to
the Allied Governments.
The Committee of Guarantees has just completed
a thoro study of Germany's economic and financial situation.
It ought
to be fully aware of the facts elucidated above and it should plead for
the extension of three months, not in order to grant Germany a favor, but
to meet the necessities of the circumstances in order to safeguard the
interests of everybody concerned.

July 15, 1921.


July 20, 1921.

Recent Conversations between French
Minister of Reconstruction Loucheur and German
Minister of Reparations Rathenau,

-:-:-:-:-:-:-:-:-:The French newspapers, for some weeks past, have been
referring to conversations between Loucheur and Rathenau on Reparations
The first public reference was to a meeting of these two
The public reports were somewhat
gentlemen in June 1921 at Tiesbaden.
This led to a suspicion that the conversations were perhaps
overstepping the bonds of purely Franco-German negotiations, perhaps
trespassing on the functions of the Reparation Commission in its obligations to all of the Allied Powers collectively under the Treaty of
It was accordingly suggested that Loucheur be asked to appear
informally before the Reparation Commission and to give a general outline
of what had taken place during the various conversations. It was felt
that the best interests of all would be conserved if Loucheur were to
give a fratile outline of what had transpired so as to disprove the rimy
wild rumors which were floating about.
Loucheur consented and came to an informal meeting with the
Reparation Commission. He laid special stress on the fact that his
conversationswith Rathenau had taken place on the latter's instigation
and that these dealt exclusively with the question of " Deliveries in
Kind" to France under the Schedule of Payments. Loucheur asserted that
France could get along very well without these deliveries but realized
that they were necessary if Germany was to carry out her indemnity
The conversations were therefore based on the theory that
France ought to make every effort in the common interest,even at some
This statement may be
sacrifice, to accomplish the desired result.
accepted with some reserves, but it is an excellent and safe position
for Loucheur to take for the Allies are properly anxious for France to

help Germany pin kind so that France will have a distinct advantage
in discussions if she takes the position that she is being pushed further
than her real interest would lead her.

The deliveries contemplated by Loucheur and Rathenau in their
Loucheur had in mind the sum of 10 milliards
discussions were large.
of gold marks as representing the deliveries in kind to be effected
over a period of perhaps three years. But unless some change in the
indemnity arrangements is made, deliveries in such volume mean that
France will have annually a large balance to pay to Germany or the
Allies for the total annual payment by Germany on indennity may be
of this
reckoned at 3 milliards, three hundred million, and France's
would amount to something like 1 milliard seven hundred million gold
In the conversationsAvith Rathenau, Loucheur had set the
limits of France's annual burden even below this 1 milliard seven hundred
million. His limit was'a one milliard of gold marks; the difference between
these two figures resulting from the fact that the French Government
wanted the amount of this differenle,to meet Govermaental obligations,
Assuming, therefore, that France took from Germany deliveries amounting
to three milliards annually, France would credit on reparations one
milliard, but the credit for the balance would have to be postponed in
Loucheur had talked with Rathenau on the theory of making
some way.


the settlement by instalments over a period of ten years.

One detail of the proposition was that the deliveries should
be made by some Syndicate of German private interests to some Syndicate
if French private interests, the general purpose being to avoid the
necessity of the French Government incurring the indebtedness direct
and also probably to avoid conflict with the Schedule of Payments.
This is simply a detail, for it was clearly contemplated that the German
Lroverenentshould finally assume the obligation to furnish, and that the
French Government should finally assume the obligation of the payment or

hile other details were involved the foregoing brings out
the important point against which criticism was directed. The first
criticism was that the arrangement would impose an additional economic
burden on Germany as a nation. She would be obliged to pay the total
annuity called for by the Schedule of Pgyments and,in addition, would
have to furnish to France an long credit the balance of the deliveries
in kind above the 1 milliard.
Loucheur replied that this criticism was well founded; but
that as France could not possibly take laree deliveries in kind in
any other way, the arrangement really alleviated her burden because sooner
or later she would have to pay cash if these deliveries were not made.
The second criticism was that the arrangement would give France
She would have received a very large value in addia certain priority.
If thereafter Germany made
tion to her 52i. of the annual indemnity.
default in the annual payment fixed by the Schedule, Brame would be so
much ahead of the other Allies.
The informal discussion between the Reparation Commission
and Loucheur was frank but harmonious. Leueheur's statement evidently
allayed some of the suspicions in spite of the criticisms which were
Everybody expressed sympathy with the general purpose of the
There was a general recognition of the financial difficulty
involved for France if, without some such arrangement, she accepted
deliveries in excess of her percentage of Germany's annual payment.
It was interesting to note the clear recognition by everybOcly
present that Germany could not meet her annual payments unless large
deliveries in kind were arranged.Beyond this was evident real doubt
whether Germany could meet her payments even with the aid of such
In other words, in speaking of Germany's possible
deliveries in kind.
default, the Delegates of the heparation Commission did not pretend to
be dealing with something; theoretical, but with something which was more
than a mere possibility.

NO solution was reached but the subject was clarified ana the
eatter left for further consideration by all, with, however, a definite
understanding that this problem which involved a chaage in the Schedule
of Payments should be brought by the France Government to the attention
of the other Governments concerned for discussion at the next meeting
of the Supreme Council.


JUNE 1921.

The following is a summary of Herr Berg man's remarks during
an informal conversation with 1,1r. Bamelmans and myself in Berlin,

concerning German first annual payments under the Schedule of Payments.
I understand that these views have been informally presented by Bergman
to the British and French on the Reparation Commission and are now under

Bamelmans advised me of having reported the matter to

)elacroix who is inclined to be favorably disposed and has referred the
matter to his Government.

The following is a summary of Bergman's remarks,


Bergma n referred to Germany's difficulty
in meeting the first few annual payments under the
Schedule of Payments.

For the purpose of determining

what Germany had to pay within the next few years, he
took the figure of 5 milliard gold marks as representing
the value of German exports, and thus the "index" figure
referred to in Article 4 of the Schedule.

26i. of this

or 1,500 million constituted the "variable" annuity

which added to the "fixed" annuities of 2 milliards
would give a total annual payment of '.'i,500 million gold

Bergman was firmly of the opinion that the "export
index" which had been selected as "a measure" of Germany's
economic recovery was the worst that could be found.


practical result was to automatically restrict exports and
even to foroe the Berman Government to actually take
measures to cut them down.

Bergmants argument was that

the Allied Governments should provisionally suspend the
application of the index scheme Lind admit a total
annual payment from Germany of 5,500 million gold marks



for a period of five years.

If this were possible

1-q3rgman's vier was that the German Government could

cover such 5 years' payments by means of an internal gold
loan in Germany together with other reasonably assured

He expressed himself as convinced that many

Germans still held foreign values of Laportanoe now concealed.

4lese values had disappeared uuring the period

from the signing of the ';2reaty in July 1919 until the begin-

ning of 1920.

As evidenoe of such disappearances, Bergman

stated that in July 1919 the value of the German mark in
Holland was 20 oents but by July 1920 it had fallen to 2-1/2

According to Bergman, who has been in close touch

with banking and investment activities, the only explanation
for so great a fall was the mass purchases of foreign money
and other foreign values by German nationals desiring to

internal financial

difficulties or even from a revolution which at that time
was feared.

Bergman felt that it would now be possible for the
German Government to raise en internal loan of from 5 to 6
billion gold marks were it possible for the Government to
exempt such loan from past and future taxes and at the same
time grant amnisty to its nationals who, contrary to German
laws, had so disposed of their German ma rks.

Bergmanalso believed that by definitely fixing the
annuities for a period of b years a certain economic stabilit* would ensue and it would be possible for the German
Government to arrange through neutrals for

a loan in the

neighborhood of 2 milliard of gold marks.

The two foregoing loans, according to Berman, should
therefore yield between 7 and 8 billion gold marks.


addlyd to the value of "deliveries in kind" to the Allies
e2-0-4 r , r
e, 4
during the next 5 year" would amply protect the service of
Us bonds for the period in question.




Bamelmans at this time interrupted Bergman
stating that he did not believe the Allies could be
prevailed upon to consider a project of this kind at the

very moment of the acceptance by Germany of the Ultimatum
and the going into effect of the Schedule of Payments which
contemplated an increasing annual scale of payments by
Germany under the "variable".

On the other hand, Bathelmans

expressed the Vifar that a plan such as that proposed might

be acceptable were it possible for an additional annual
increment of say 100 million gold marks, being added to
the 3,300 million assumed as basis for the first year.
Bergman opposed the idea of the addition of this
annual increment but as counter-proposal suggested that
instead of fixing the total annuities for 5 years, 3 years

be accepted, and, in the meantime, the adoption of some
ether basis of index considered to meet German paaments
after the expiration of 3 years,

The foregoing conversation should not be tahen too seriously.
The partisan position of Bergman has not been lost sight of and the
optimistic "yield" from the proposed loans has not been overlooked.


the other hand we all know that fergmants relations with the present Lerman
Government are of the strongest possible character and that, therefore, he

would not have made these statements - whioh he knew perfectly well both
Bamelmans and myself would report - had he not a certain justification in
believing that some such solution as that proposed was under consideration
by the German Government,

James A. Logan, Jr,

r!/;t M rue de Tillatt
ad August, lta,

at:troller-General Y.nuolert,
?resident, 3,--tmittee or oaarantees,
natal Astoria, -4rin.

4, dear Controller-flenerals
It 20,..'78 altar thai Germany will ow:plate the ono milliard payment by :sagast
Do; bt as to this point aild the inAe,hoo of toe

vacation season hire led to an interval of inactivity.
I take it for
ouno to life and prooeed to
granted treat t.e Cornaittee Will iiklw
carry into praotioal ffsot the deeisions as to the sedrity to be obtained fry m Gertaaay and as to tae supervielon to be exorcised over Clerw
many's finanees and onstme, also that the ..;onnittee will shortly hold
another nonfereuoe with the crerman Government in Jerlin.
But I wish to sugiopst Ono nolo:Jolt/ of ac naidering °finale
broader lines of policy. The apeointment of this Committee as a sp,Atial
instrument of the 1operation Commissi.A:i for deelizi.; with the leleanity
ea the bonde, 1n1 with 3erman ft:manna& in their relation to the indeeanity and Vile bonds emphasises: greatly tne reskens ibility of the R. 0.

Vow mcre than before the 71:%ere zhom -e represent and world opinion will
naturally and rightly look te the :.41:uration Cemmisvion amiki the 0oNmittee
of a:ars:it:see to influence the *curse of sweats vitals the Ixesoribed
limits, to point out emoo..1ree -11.10esary YJ xaacth
warn of DA:Nadine ;starter, to raae judgment on Germany's efforts and their
IDIOUCSS or failure, Oar 'Jeoril. thould ;IOW be or more lenitive and constructive klAr30,011 than befits,.
I b neve this is not only a duty, but an
oportanity beta for the .:xamis.lon 444 tk,

In elaboration of the for:Acing, lmt me seggost two lines ot

I believe that it is utter4 kmposeiblo for 3ermaay to
pay the army ooAs, the old ring i.f,u e balaacee, the es:re:nee of tile various oomniesions and the reparation annuities, unless; sone working ache ,s
for large deliveries in kind is arranged. I Inl.lievo a.L: that it is nooks:teary zA:,c i.rIctleablu to use tert:An labor in the devastted regions.
.part ron tile advantage to rolAratioas I regard these UFO things
as of extreme importance for other reascea.
:"first, the.; halp to :1-evont
art:Mr:I.:J.1 distortion of tae ectonomad lit:: or
countries in dbloh the
devastation was greatest. It would, for instanos, Us a permanent Injury

to rranoe to divert fram natural and pernaneot Moe a 'env coroeatage of
her industrial effort to meet the needs of resonstruotion.
-*pond, saeh
arranf.amr;ntL for the use of Gereaa material* end labor uoold Antal:to
the Aanger now fearod by all eoantrivs, viz: ti:.1 Garmany'J amporte, stipar
lated 17 till) neoessity of meeting the iadennliy, and by her deprooiating
eao4ango and oonsequent low labor oess, will 4surganiae the markets and
indwztrt.le r-f n11 other oenntri:.m.

So tar as we are all in agreemeet en the foregoing, I "believe the
Ocesaission and the Committee should make every effort to 1ring about such
a Should emphasize their necessity, perhaps publiely. but
should use air Inflienoe to preeent the
oerteinly to oar govermeentc.
less imi;ortant disadvantaf-!es and cliff/mattes frmi obstrueting the greet
advantages Aaid we should urg6 speeds already fear =oaths of the first
year of the ebednie et vlaymantt nave passed.
ith or ericio:A snail arranr,ements. Gamey mow summed
in nesting; her obligations. But sepses as doe' not what le then the
position of the '7orTri20102 and of the .0enOttoc. 'As all know enough and

her pezeimistio opinions enough to realise that this contingeney cannot
be considered to ,uicily or ton carA1111). In my judguant tau answer is
)hint be la rositIon to sag that with the :Lid
of the most comp&teat economic) and financial advloe it has followed Intimately the detalle of the Germ4n effort* that it L--.Le studied oarefully
the praetleel methods of acoomplishing resulte. that it has segveted to
the lilies anti tit '";tmmnuy
over, ;cecible mans of inprevint; the
The Commission and the Oommittee ought. it Germany ever derialto, to be la positiz.n
3aj IO tag aw.h:ritativolg hocese it
knows better at least than serene else, what are the reasons fur the
failure. The 1,77ertInt .nostica - not only for Gemini, or for
recce, ttt
for the world, will at that moment be e les Gernany really tried to Val:41
her obligation*? ':hero aro plenty of joernalitte, roliticiaus, And perti-

sAns in Germany and elseehers whet* loud vociferation of opinion can be
foretald tedey. BrA the ',110FtIcn rich rill then to t1-7
iuestion in the .vrld ought to be answered by the best aatherity in the
world. Vhe Commission and the lommitlec ooOt to to in i:ok:it:on to speak
Ath that authority.
I request that the sanitary general of the Csimmittee have this
n!;lish and oireulated as a reallar Annex.
1 llso request that it be entered en the Ag,,nda for coneideretion at the
next meeting of t.
.oimeittee of quaranteee.
letter reprodueed in -1.(Aush and,3117 yo ors,

(9IrLned) Ja!ata

unofficial liepreeentAlve
of the United Statue with the .-.7cmmittee

of Guarautoos.

18 rue de Tilsitt, Paris.
September 2, 1921.

Ilemorandum for -inute service:

The United States Unofficial Delegate requests the insertion
in ::inutes 18 (Committee of Guarantees) of his remarks made during the

meeting, and which are hereunder given.

Note from the Unofficial hepresentative of the United states
(Annex C.G. 67).

Logan, after briefly summarizing his views as set forth
in Annex C. G. 67, made the following additional remarks:
His object in presenting the note was first to stimulate some
action which might result in materially increasing the deliveries in
kind to be made by Germany on reparation account and, secondly, to
cause the Committee to frankly and immediately face any possibility
of Germany's default in the Schedule of Payments and take action in consideration of such a possibility.
In justification of the first point of his. note, he said that
the necessity for angrenting deliveries in kind at an early date to
the highest possible value has been clearly demonstrated by the difficulties experienced by Germany in securing the foreign values essential
to the payment of thefirst milliard, which was finally accomplished
only uy the withdrawal of some 80,000,000 of metallic gold from the remaining reserves of Germany. He further observed that measures thus
far taken by the Committee produced only paper marks and that these
paper marks must remain unconvertible into foreign currencies under
prospective conditions of Germany's foreign trade, and that this demonstrated necessity of relying in large measure upon deliveries in kind
if the reparation debt is to be paid.

Upon the second point lir. Logan pointed out that public opinion, as reflected by the Press, in uneasy and skeptical with regard to
Germany's actual ability to meet theterms of the Schedule of Payments.
In his opinion it was the dalty of the Committee to qualify itself at
the earliest possible date as a body of experts on the economic and
financial condition, actual and potential, of Germany, particularly
with regard to the ability to meet the terms of payment.
The Committee
should be in a position to reassure the Government and eventually the
public upon this point and consequently upon the security of the bonds.
It was its duty to advise the Reparation Commission forthwith whenever
reasonable doubt existed as to Germany's ability to carry out the program.
He stated that he ventured no expression of personal opinion as to Germany's
ability to meet her obligations but that he wished only to urge the
Committee forthwith to inform itself and reassure the Reparation
Re further stated
Commission upon this question.











(Decision of Committee as recorded by Secretary General.)
"Li.. Logan stated that ix' while the decision taken was
perhaps a step in the rirht direction, he nevertheless considered it
as insufficient and requested to be recorded accordingly."

For t :e General Secretary.



September 191a.

Wit WU ill TRUATiatT Or CUR raw= WAR LOANS
OillefliCT1011 7 ITU T1 ammo MARMON SHITLIRINiT.

2he Germen Lep,,r,,tion imbt to the Allies and the Tietto
of the Allies to the Ltited dtetes result in forming a sort of violous
financial and economic ovals from rhioh both America fted &woke suffer,
2he Gomm Aeparatioe Bill rdi fixed by the ^flied bill of
damnges is really conservative, particularly wheal 'we (molder that the
amount billion gold marke - not only inoludes the total Allied
7teparation claims ago net Germany but also the total claims against Austria,

iunigtry and Rultocrin.

Under the turns of the 'haesty of Yereilliell, Germany

assumes responsibility for the payment of dumages occasioned by her Allies
(balm the .L .r, As proportion of the totL1 claim proimrly chargouble to
Austria qnd Runge* has not been definitely fixed - BulcAriate debt is
fixed by the Avaty of Uuuilly at i.teto.

billion gold rarke payable by (lemon
the debts of her Allies,


million t;olu franca.

tit the

I believe about le million ropmecut

qux Allied friends, partitstlerky the French, need oash to meet
In ary event, they will always prefer ()ash as distinculehed
from *deliveries in kind" in order to protect their on industries from
competition and eventually, if they are to meet tee it oblir.tion to
the Milted :Antes,


Nevertheless durowny in her isuradnt economic situation cannot Jew
cash (foreim exohange) to my great amount in the ne:4, future, oorl,wiv
onn meet her obliaution molder fleparation Series "A" Bonds, will hove
difficulty for ,.. few years in meeting her entire oblition under hepartion
dories "B" bonds but ultimately will meet those,
he value of Aely,rAion
Juries nC" bonus is most desidedly coefitiolable and their ultimate amortisation therefore vroblevittiO, (14e Amnon t).
If her entire ix1A-mtion
oblitions are to be met, they a:.n be met only byvopening to her the rairkets
of the world and aftecting in kind the products of her indaattles.

:Jur Milli.

lbe position of the United Staters is much the ar.,,e.
loqns represent largely the v_ilu© of Amerlean svpi lies purchvseti daring the
,.or in ,...Series =Agent to Lurope,
Ate United dtottes is in need of cash
to retire as Iv.rp,e hn amount as possible of its national loans, so as to

reame taxation, revertheless, we too, vhile admittlw tigt our loans to
the .Ulles represent our exports, desire onsh in return, and :re lmith to
allow our debtors to pry off thEfir indebtedvess by their
that is, by "deliveries in kind%
iburopey n politioal leaders NAP nervous


to us,

vild Voreed to extreme

lines of of:Wm* thrott/h the selgovees of palls oyit.iw, Aismw of these
political loaders realize the tallow of their position ant admit it in
personal conversation but declure that they are raced with sn Impossible

Ads results in foolistiweeeneudo emotions ", thousands of
mammon*, troops being milialmieed in Oemsem, actually enting up
Ueparation money. and the NM theetwee out of useful empleyment at home,
la, this results in keeping the pot boiling in :xtroi.e end if some
adjustment is not offootegire, and not only lAtrove, are vould like to follow a policy
e bound to suffer.
formula hsa boor developed the :p
of proteoting us from the verking

I note that it 2> ;s be -.n sugeesteet in !merle& that our Lilted

creditors raiso money to meet their ,emericon oulieetions by collecting
and trensferrieg to us norican evel other Consign securities tow held*
Lf thoughtfully coesideree the politice.1 :out financial
their mitienuls.
eifficulties not ottly to the ;Alice but to ourselven would shoe.. how
frultleso ,kny return from wuuh v onaw.;.vor ou14.4. be. for of the Allied
Governments are etronr enough to el-force such e mOunnre Old even with
their best endeavor the return from each sou roes would be veeligible when
compared Tith their total indebtedness,
us in ()nob witein nay
Uwe attempt to faros our Alius to
reasonable future tins, they must t;e: this cash from Germany, in the other
hand if Germany is to pap such tech to the Allies it roust be taken from
monies ace:mini, thbugh either eireot or inuireot tribute tram the United.
States, neutrel or Allied 'ewers. ',(3 are, therefore, in the position
today of contributive substeJitial sums of move; to be plied in the
Service of the bonds rand without exel reatitine benefits to oureelyee.

Jo loee as we have no direct interest in Germue ReperLiion
bends our influence in amelioreting the meesures taken by the ;alien to
It meet to
enforce Osman I-Away:nes is b000min6 weaker and cooker,
admitted thet there is a erowine tendency on the pert of all our Allied
creditors to reeerd with lose elet lose seriousness the °laic:Aloes of our
I would not owoel the Alien' debt to us, nor, on the other
locale to them.
I would, Weever,
hand, could I exiact them to oLncel Uermany's debt to them,
endeavor to letteile the situation rwimaftele with the idea of Stiffening our
time, meinteinieg our speolal position
forei,/, loen position one, et tire: e
of politioel, finereial end OuOnOmits influence.

eopulek argument against our acemetaeou of lioperetion
bonds from the ,'.111od Goverrelente in settlement of leemo hun been tVIt
this would onbroil ue in etzropetul politics b.: involvieei us in miIitery
and other coercive measures &Against tiormary in enforoinv reepeents.
ultimate means of eolleoting a debt, whether it be a debt oFed by Germaey
Aliso are
by the Allies to us, is force.
to the Allies or a dent or
reluctantly becoming convirued that force is fruitless of results with
fer as the situation between
Germeny and both we um the fAlles is
vouLL not pursue euoh a line of action.
than and ourselves is concerned thp;,t
In accordance with my viee there, is, therefore, little it zaf ditforenoe
,lies, settlement to us nnU the Reparation
in the position beteeen the
settlement eith the rallies ami neither one nor the utoer hue uoro or less
elerieets of eventuel diffioulty.
I believe, an the other haed, zkett if we exchanged approximately
tee of the demand notes of each of the principal Allied Goverements we now
hole for t correspoudine equity in their share of Gormr.n Reparetion bonds,
we v,oulu be in e bettor position finercially and politioally to exercise
our influenoe, reettirine a bustresa-like treatment of tho general finanoiel
situation and thus hasten the return to eeeeter pelitie1 and economic
1 eoulu not tees more than be, of emah of their astugi ohliGsstability.
flans to us in Gorman paper as I believe it would be dosireble to have their
Uirect ublietttion to us and the einunt of uerman paper reoeivea throegh theia
oropoes1 I e. r see se advettejt me every disedvueUmder u
equal in amount,
toge is saltine the Allies to emrentee the German pvicr ttemeforre4 to us
I roughly emtimute the :tnount of erne x eseer to be receiunder this 'ahem..
ved by us under this plea at e billion eoliars (or 20 billion 6o1d morko) ,

It would be advisable to ask the eritish ned rrerch voverreeets,
men ti: king over any Germen paper from the, to herdle their It-ellen 44
in this plan.
Deleian lame on the seee line es thet erepoeed or
This proposal le suite in line vith the freeuent



tn. .c

CI, position of "according xactIr the same

trt,Iwt to on of the

flies as the l&tter :4ccorde

to iorn;:inyw,

tto durinc, nt!Goti,,tions, we could Osinv,nd

twree(Aa.ts lockinc to the roauctiou of Amiss of
vocu,ction, -yrohibition of economic sm,ctions etc,
general solution
Fill it vlidch rirc no essential to $
of the ;Tohlem,
.clio!th.- Alf! Imlue Of .:.eries " " teem

Ear ie a "Ii" bones would be

considerab4 Rtrens.thoned with resultinc benefits to
the Jailed .corero,


Accompanyirlz "Comraits on Treatment of our Prilniza_ 'jar Loans in Connection with the Lier,arx.
e follOzinc awane c t i on the "Se,hedile of Payments" hereto
ReParati i Settlement"

alligueuagjrag B


(All figures approximate and expressed in dollars - 4 gold marks assumed for convenience as equalling 1 dollar.
000,000,'s omitted).


Present Position

Foxeign Loans and Series "B" bonds

Foreign Loan s











Position of loans and "B" bonds
after re- adjustinuit as proposed

accordance with % Agreement in
Spa Protocol


B ritish


Distribution of "B" bonds in

Proposed. Re-Adjustmait

in Column. II






gent by

"B" bonds
Pos it ion and

.Amo wit

United States



Great Britain

























5. H. S.


































































482 5:7,














71 -2a





41 2g61

1 00













Leto (1)




500 nxillion dollars.




Italy's equity in "B" bonds is %;950, which is shown on this table as divided

Agreement as to % to be accorded Roumania,


Schedule of PC.yinaits fixes "B"or 9 billion
issile 38 billion go ld marks bone

71 ga





equally between U.S. and G.B.








and other smaller Powers not
yet determined - 6 1/20 however reserved by Sia Protocol to meet such claims.






v 9500


The Reparation Commission decided to grant to the German Government
postponement of the instalments due on the 15th of January and


the 15th of February, 1922 (in su far as they are not covered by cash payments
already made or which may be made, and by deliveries in kind and receipts
under the reparation Revovery Acts, received or ..pith may be received up to
the respective due dates) subject to the following conditions:

a) During the period of provisional postponement the German Government

shall pay, in approved forein currencies, the amount of

millions of gold

marks every ten days, the first payment being upon the 18th of January, 1924.
b) The German Government shall, within a period of 15 days, submit
to the Commission a scheme of budget and currency reform, with appropriate
guaranties, as well as a complete programme of cash paymdnts and deliveries in
kind for the year 1922.

c) The period of provisional postponement shall end as soon as the
Commission or the Allied Governments have taken a decision with regard to tie
scheme and programme indicated in paragraph b.

except and so far as may be otherwise provided in this decision, the
difference between the amounts actually paid during the period of the provisional
postponement and the sums due during the s..e period under the Schedule of Payments shall become due and payable within 15 days from the decision of the
Reparation Commission cr of the Allied Governments, as the case may be.
:Then the scheme and programme referred to above have been received by

the separation Commission, they will be immediately transmitted by the Commission
to the Allied Governments, who -ill thus be in a position either to deal with the
matter themselves

r to refer it bacl: to the Commission to be dealt with by

the latter.

Cannes, January




YR01;, 3IR qILLI,141 GOODE.




On the asenmption that Ell the Powers having liens on
Austrian assets will, in the near future, agree to Postponement,
discussions have been taking plsce in Vienna and elsewhere as to the
loan or loans to Pe raised on the security of these assets.

The majority of the soundest financial authorities in
London and Vienna appesr to favour a relatively modest public lean,
not to exceed five

million sterling, to be raised trough British and

iimericen issuing houses, possibly with the oo-operttion of other

'ropetn groups.

The revenue from the 1.ustrien Customs would be the

security for interest and smortisation.

Lo difficulty would be

experienced in arranging for a reoeivership, on behalf of the lenders,
of the Justeme revenue or for such other reasonable supervision of
Austria's firu noes as the lenders might consider vital to their

interests, though in this connection the co-operation lf the League
of Nations would probably be necessary and useful.

The value of the

Customs receipts would, under normal conditions, justify the issue of
a larger loan than is suggested, but such well-informed authorities
as the Governor of the Bank of England and Ur. Keynes stres:ay urge
that the first loan should not exceed five million sterling.

It has

therefore been suggested that a further issue might later be made
against the stuns security as and when, in the judgment of Trustees,

the Customs receipts cover, say by four times, the additional interest
and amortisation, with option to Austria to redeem the first loan
within, say, two years.

(There are those who

elieve, notably Dr.

Rosenberg, of the Anglo-Austrian Bank End recently iinancial Ldviser
to the

;,ustrian Government, that 10 million sterling will

sufficient to put Austria on her feet.



At a later date, thpt is to saw, when it has become
possible to judge the effects of Austria's present internal policy
and of the loans, it is Proposed to found a new Bank of Issue.


is reasonable to suppose that the groups undertaking the issue of
the first Austrian loan mizht obtain, if they desired, the first
opportunity to take part in this Bank, which should be lucrative.
In the League of Nations' proposals last year it was
suggewted that s Bank of Issue for stabilising the currency, with
a capital of 100 million French francs and the exclusive privilege
of issuing notes in :ustria for 25 years, should be the first step
in financial reconstruction.

since then, however, I think it has

generally come to be admitted that it would be inadvisable to
constitute the new Bank of Issue at the outset.

It was also pro-

posed by the League of t'Aions thnt foreign credits should be
obtained not merely against the security of the Customs, but also
against the Tobacco "onoplly, the State forests, with the additional
security of a first mortgage against all private real estate in
Austria representing 4 per cent of its pre-war value.

This plan

naturally envisaged a loan much larger than five million sterling.
London bankers, however, are, so far as I have been able to ascertain,
almost unanimous in the belief that Austria's first issue should be
made against one specific security and that the temptation to raise
a larger loan against a conglomeration of assets should be resisted

in favour of a modest loan against a form of security with JIM which
international bankers and publics are familiar.

This question of a swan as opposed to a large loan raises
the important point of repayment of the present and promised interim
loans from lovernments.

3reat Britain has just given a credit of

two million sterling on the understanding that it shall be paid
back in one, or at the most, two years.

The French and Italian

Government credits, if they materialise, are likely to be on similar







Aotual Receipts
in 7%Iper Kronen
(in millions)




Equivalent if
duties on cold
parity basis
(in millions)

Rate fixed by lUnistarial

.t which paper

Kronen are accepted for
Customs Sold dntico.




too' amber





X 6 (since 26.9.19)


X 20 (since 23.6.20)
Y. 25 (since 6.8.20)

1 33 1/2 (sine. 26.10.20)



X 40 (since 1.12.20)









E0 (since 1.1.21)
X 70 (since 1.1.21)

X V) (sine 11.4.21)
100 (VO) (since 1.5.21)x
X 120 (150) (siLue 26.a.131)x
160 (200) (since 23.9.21)'

X 300 (lance P7.11.21)x x






Al 000"

ebruar7, 1922, the rate hes been increased to 600.

tirj, 19Z, the autq,1 gold parity "me 1:'.7o tim,7:4;

per Krone.

uree of the second column do not always represent tn.

otient of sal; :.11 1 b; column 7.

In Vile

.';econd Jolnmn

rtain reductions are made as not all .roods tre cAnrged with

71,D fall multiple of the third colurun,

licher ..ultiple for luxurie4.
zx tuanries paying tall loge.' multiple s,fter
exchange rate.





klaionia-Dult ItZ.LlaaDING AL:illjAN VI SI?

Ps t ponement of Lions.


F 101ji.:.'


Lodge Resolution.

The :Ado, Resolution, as passed by the

enate (for teat see -nnex A)

authorises the Secretary of the Treasury to extend for a period not to exceed
25 years the time of payment of the arincipal and interest of the Austrian (loot

of 44,055,708.92 providing he satisfies himself that "substantially all" those
other creditor nations mentioned in the Resolution have "substantially" taken action
Similar to that outlined in the Lod,;(i Resolution.

The Aesolution does not waive interest.

the interest accrues.

The Resolution includes no undertakin:, to postpone a possible claim

by the United States for reparation.

I discussed this point both at the State

Department and at the Treasury and came to the conclusion that it had no practical

or other importance as, if the existin; priorities re retained, no payments on
account of reparation can be made to any country until the 20 years postponement
of relief loans has expired.

Departmental views in ,;ashin,;ton as to what procedure should be taken
after the Lod.") .resolution had been passed both by the Senate and the House, were

The Treasury seemed somewhat inclined to think that the United States

oou/d not move until ,ustria had ,riven an assurance that all the other Powers
had substantially a_;reed u?on unoonditional postponement for 20 years.

I pointed

out that in any event those assurances must first ue ,riven to the Reparation
0ommission who -lone

.re entitled to release iustrian assets.

rafter conversations

with various officials in the State Department, all of whom showed the kindliest

anxiety to expedite matters, I advised Ir. Proohnik, the Austrian ahare d'Affaires at Waehin:Aon, to write to the Secretary of State as soon as the Doke
resolution had Passed the House and request ear17 action by the Secretary of the

I also advised :r. Proohnik to submit a list of those lowers that had

already a .reed to postpone and to communicate the conditions of such postponement



what the wishes of tae United 6tates were likely to Os re,;ardina a joint or other

Trusteeship for the suspended lien interest and the new loans.

I was told that no

opinion Whatever could be expressed until the question was raised in more practical

while no definite objection was expressed in Departmental circles to a

Trustee bean; nominated by the League of aations, it was pointed out that it was
quite impossible at the moment to say ahother or not the United .;tates would be
agreeable to such a proposal.

It was stk;i:ested

oy a Senator who is in oloso touch

with the administration and by several others that the possibility of any

In views as to Trusteeship might be obviated if the Trustee were appointed

by the : eparation Commission, in consultation with tae new immotazi lenders, and not

by the League of Nations.

It was emphasised that, in any oventaaustria's assets

at the one of 205efirs would legally revert to the Aeparat ion Commission and that

Trustee nominated by the League of L-tioas wealth do facto, only be Trustee on behalf of the Reparation Commission.

I recommend the suaaestivi for careful considera-


It was, of course, recoanised that tho United Jtates could, if it 90

desired, appoint its own Trustee for its own suspended interest, for instance, the
American ;.,linister in Vienna, but it was generally felt that a multiplication of

Trustees would be unfortunate, particularly if new loans were to be partly subscribed
by the american publics.

Lae proposal to float such loans in the United states had

the complete approval of the .ashin,ton administration.




loraan's attitude,

Discuseions reaarding the new loan are epitomized by my oablealess

i7th and :.;arch 22nd (Annexes 3 and U).

Mere is no dauot in ',Ioraaa's mind

as to their ability to sell half of a five million sterling loan for austria in the
United States if they think it aise to do so.

It was new and actually startling to

them that Austria was in a position to :1164As an appeal to the public except ad


Morgans, if they pursue the project, will desire to satisfy them-

selves by investigation on the spot as to austria's ability eventually to beoome

!lor,ans did not feel that matters were sufficiently far advanced

to eicouss details as to the term or interest and sinking fund of the loan.
re;sards the Trusteaship, ,qiderson, of 2organs, offhand expressed the view that

the appointment by the Lea,ue of 1:ations of a Trustee who would also be the

nominee of the lenders would to acceotaele.

3ut the moint Mal; not

one into

Mr. Lamont was of the ooinion that nothing more could be done until

he arrived in Paris on ;.pril 15.

I areed.

Rumours that the ,:ustriam -cvern-

ment were conducting other negotiations in London, of which I had not been
notified, made it impossible for me to take any other course.

If those rumours

are confirmed Moryans, quite properly, will have nothinj more to do with any
,lustrien loan.

Need of ProPlv4anda.

3Dth in New York and 'ashixigton I was advised by old friends uncon,

netted with and even opposed to :organs that it was of the Jreatest importance
to seoure :organ's influence for Austria's first attempt to establish credit in

There Austria is regarded as a hopeless derelict.

only news that appears in

?ractioally the

metric:Ian newspapers about :--ustria refers to American

relief work or to the hopeless condition of t e country.

The report of the

Finance Committee, on the strength of which the Senate unanimously approved the
Lodge iiesolution, was based on a plea to avert starvation in Austria which ..vas

described as being worse than ever.

To correct such impressions suffi

raise a loan, the biggest financial guns must obviously es brought into action.
a co- operating force I have arranged with friends - editors of ]e ading news

papers and those vko influence publicity - for the truth to be told to the
iimerican public as to

ustria's self-help proiramne and the steps she is taking

to put her finanoial house in order.

Hoover's Amerioan

I have nlso asked the mana;ers of Mr.

administration to make as much as possible of the fact

that ionerican relief in Austria ceases on June 1st of this year.

This 1-.111

visualise to the = merican public, perhaps better than anything else, that Lustria

is no longer to be regarded as a destitute country.
iislations with Other iankers.
In my interviews with various bankers other than :.:or gans, for

instance with Mr. Kahn and the other partners of Kann, Loeb and Company.

I said

that the conversations I had had in New York, although resultin; in nothing



definite, had i-one sufficiently far to preclude me from disarming, at any rate
for the present, the question of an Austrian loan.

ty position with the ,.hieranty

Trust Company was slijItly different, as the question of a loan hsd unofficially
been discussed with their representatives in .eirope, but always on the underetandtag that they worked hand in ;love with liorgans.

The 4aftranty Trust Comeany will,

I think, desire to associate themselves with :.organs in the event of the latter firm
issuing a loan.

Governor Arong's Views.
Governor 3enjamin :strong, of the Federal Reserve amnR, to Whom I

_Ave ooeies o.z the memoranda handed to :10rLTMLS knnexes D and 1 and to whom I also
showed the various cables received and sent, expressed his approval of ',merles*

participation in an Austrian loan.

reenrds tile question of Trusteeship, he

took the view that there should be

A place for an American banker in the Trusteenhie in the
event of the Trusteeship not being dependent on or involved
with the League of Nations,


If the Trusteeship wore in the hands of the Lea_ue of Nations,
that the ...,merican mixers interested should have a voice
in the approval of the appointment.

As regards the oropesed Austrian Sank of Issue, Gerernor Otron-

was of the opinion that before the loan under discession Tee arraned, a scheme
of control for svoh a Sunk., having reasonable autonomy, should be agreed between
the austrian Government and the lenders.

He ahared the view that the Sank of

Issue should only be established as and When those concerned were Llreed, but laid
stress upon the Cesirability of the glens for it bein:: arranged in advence, ear ticularly with as view to divorce the Government, so far as possible, frori the issue
of ourrency.

Governor :3trong also an ested the desirability of an uderstsndin:
at an early stage between the lerilers of the new loan and the 3701tith, Czech, or

other Governments Who miht have made interim advances to Austria,
ties of their mspeotive loans.

to the priori-

His view was thet if Austria, at a later date,

issued loans to pay off existing interim "'government credits, sich leans should be

either wholly Government or wholly private loans

and thDA in any event the arrange-

manta for the repayment of these interim Government advances should be clearly
defined before an ,merican house issued an .Alstrian loan.



4-44(4-44. 13_


My :personal claivietion is thzIt


%.,.64.4,4 Delegation

would with rectrd to the Gsret44-RusAlta kreeseat L4 aot other,wise than they htve done. It is ertainly 'wettable that pry

thi theident the 001104 Oesferesee L&S beta disturbed aM Nobody

ean regret this acre than the GOMA Delogatiust thasseives whisk
'Ant to Genoa In the ht;.e, and shish still bud*, that the acme --

se would brih a ateA) forward to a real Ate* sad to 4 reeonstruotiam cat the internttionai Iseunuaival Ate. Sat the
of the Incident does sot is aita tae Geraau Delegata; it %la

their duty [wards the Gyrate ke4i4ir t4 Q4bui410 the Ageoureato
whom ttgeggrutsised that by 14sisti 4alux.44, time they would have
been iliatiestea"" by tat unfair ,Tustedinsk ut the eta*, malamse.


Gers4a Goversaai.t Lad de/satiated lath the atasiaa re-

:letztintutives aready for tevaral iwatits Mad hies o aegetiationo
eels,* a few seek.. 440 betore
iista.44 ihintersateep tu aaa louint
%Mit au ftreemeat have
!Idle teen hiYarij la artery

tea *tidied giitA t4sn, shioh would
the anise agoweneat as *44 LIWO Imes

iton41W,ed in (ienoa. 1 hLv vers,:imelly octet*, oefet, I mane tu menus. tat, teat ot the itittnaud a4rfteaest asut des therefor* oft-

tirn that it ourresca4s aarly la every said sita :As

£teaaeat. bat the Gerson 44v caiikat sired to au/et*

.Al lc

with ook/lettly tree fa.41.41 and strut to i,rei:dieso the Goa tereams
by ooniel; lottorehuad tu 'Walk i.lth tear RU4LatA4116 they %hereto!.

tAostvuo.4 the nttotiations hojas that la ;:ilt-m4a4 a genefel epee.

sent with all sations scAuid be .3rrive4 4t,

teuat the limes

upon *Meta they kiwi stegotiatoi in her .in wan the hussies. this

fast ;Awes/ that tat iiersaa aQvervatat ease ultra the best

UMW). and to tho fairest sArit tu Genoa.
did shut

raong had intesaea t4 avoid. instead of *volts/ulna

the 1101.14.tiuns in thm offish ei ftautleeicito

!hen the killed


ale Germony


nen4 below, wevoesersireisly received igformation that very seriuos negotiations were 40/441; GA at the Villa Grose. These were

biu;le 2oarpariers, the' were official meiotisticus of the
Delutites with exerts, intervreters, secretaries, rot4eois wad
au on. The only preetisal differ.*** betmee View Ateertte
mapHatton* sad those of the efficlul eohaissioa ,sta that aeraany

was excluded free the former. the Oman Delegation have than on
repeated ocoasions left no doubt that they would consider thtaSelves trim also to aet um their .art if these Wilt* wed

hat me attention Imo uiven to these


And Amp it betas.

kTarant that tan itIterestb of tiermona- were not ,alif tailored blt
serious4 prejndieed at these meetino, the Germ plele4atiou
were obliccd to set.
It may be thwt it was Rot the intention to sin tt
Villa Croee a foraal agreonest. but if fill esuatries

were utoreed

at these megotiations Lad if slush ot;retement had
thee bees oft/etally submitted to the official 9.,,)g4ission of the cLafsrenee,
then saeh sn affreemtot mould have


etas earrled thz,Ja,.h by a great

erhaA, P.caint the :,retest of Clerics&

the great dtlager of

tq4 14


&la udreaseht .44 t4ut Germaki

staid have bees stated to ai;ree that artisle 116 of ttle Prase

treaty was officially emb)ilt;d in the 2.;;.!-eensiht tictNeca
tue Raestarts and the 4Ulted.
nany salad tliem have be
&aged that .11
its sales to Rnseis were flat .41d bat 41.144 srt.,..ted


tier. eoscunt. Otrassy would Air . 10116 time hart loant imuable tQ
&egotist* es a oosmereial basis with Russia, to Gi.tala for Ale
sales to Russia raw styt erif:1

taxa so wL. 1110 1444:110..

Ulm Coss/salon wculd haw., sig;,2; ordered. Gersuay to nuke such

and stash delverles to Russia. there would have been no


lity for aerecny to take part In the moonoalcal reevestrueitis of
Russia as as equal 2sriner. The germs* 6.verasest 'mulct sevor
have u ,reed



result of the Genoa Coateresse, and as

there was a great dakier tht:t slash a decision
(meld be arrivtd
at by a naj4rity or votes,
as teseribed above, 4* were sla ,
obliged to set anti to eon. with
Russia to um agreement on a fair
and eluitable basis.
As a natter of-f4et the Cerium-Russian

Agroteasat ewes

harm to nobody; quite to tic
uoiarery it shows the only possible
way is which the reeoustsuetva not
wily of Russia, bka of the
escsnosittal life of whole guro,14,
is possible. Nobody will

seriously believe that tieraany sill
be able to ioay for reAration
the sus whlan has berth fluid
at the London Gonferenee. It will
tnerefor, be all the bore ,is,o3sible

that (erial :iv could, is aill4itioll, tai many mulls:41s Gi
40.4AU&Skil =rift' Lrtiele 110 to

Raneia; vies tiaras nobody believes
that RdiMiti will be able to
pay Its ::re-wta. ,nu awl debt
o the Uernan holders of botaU, to


the aerstia ..riperietors of ;;roirert

in Russia and so on. It NbAS

therefore rounnable to rewygnize
Vase tsetse to el&:,ly bolus**
thr! LAftwttitts

und to sturt elvish; with
fleas books. No business
nen will tarry forwt.rd yeas alter
year *lain* is his ipt;r4is of
whiatz il', 14 sate tuat avt WI*
.pessay wa tams will be paid; he
Isl:' sik,ij lear the asevaate,
Lad say should
di;:lenates set

otaerwise ?

Our eoseetitors ooniIlalu of out
eoc.otition is the oinrldbil
strliet. hat we are obliged to work,
to :podium and
to ekl,ort as

much as .01ussibic. It is oat Uhi4 shame,
1 if we get the possibi-

lity to develop afresh war trade
Altri Russia grftdually, which
will reyul.ce 444QkisuU4 .4aumtlLies of
ledustrial ,irt:tduets for its

reuonstrdetioa, we 414u1 Java as outlet

or our 1;rodution, In

a aisestA shore 44 east iAu: la
esshaao the raw
eessary 1",,:x

eateries ne-

as, Knd the uosmi's mernet will taus
be rellelmt for

that extent trio* JUr 401404aiti01. Stit
to be able, to

c....uisenee se-

riously waiter*. with Russia we had tirst te settle
our aid se


avant* of

ti;;.*a bAe war tlaea ttati to aitikee formally

A/100 At4

Tbc.t Is the

aiweat tit tit* u0V:10411e

RU41:44A Ireaty.

.bis t



kl.,4mt:110 relation*

Lt ws I:41W aosesestr4 to rvmpa di24J.14.,t4s reitlAkt. A





lk,h ss




la a steeests:r...i tualz fur t40 reds44*Strusilma



;44144 kA

oaeshat disorua-


The ttl*

neltNreti IA tuct Iteiut nowadaiers and also

t1,,;at C ucerA*



atso tseta co.r4:1%;3

Nutt, i*

444i114,e ore 4bv:Iwttly a4t1'i. It is u
aa;.3i;;ttt.Lt.:* 4iAo


Tne CieS410

Lfe i_voLia*a 1144;AAce

m4(.17 seratej4( A4 urcktseAt
r u

,Ljc4t d,int the


twisatism. 400.4,04.4z

all .1,44r1

z.ta Rugiult,

in aerikus-

LW" digrecaleat,

7;4Lt Js Irk/ 0014101111ft



0100 h4d tO

likes! Iwttuat, asttur tAua Lo

oanrste ;-211Ithry aonventl,a. tale Idea. IS so absurd
ryuilly mot be w

hl :; ,,rit 1:.allag %1L



j1,e4et4,,n m



4 0iILLtri


i sferted



in letter





ill AL

Paris, 18 rue de Tilsitt,
*8 April, l92a,


Impressions of the Genoa

14 dear Z.r. 3eoretarY,
I arrived in lienow Thursday 4)ri1 20th, returning to Paris
Vednesday April 26th, Past experience has convinced me that from five

to six days at a stretch is the maximum time that one can work effecI plan returning for
tively on an informal mission of this character.
another short visit about ...ay 5th, if the Conference remains in session.
ir. Child, the American Ambassador to Italy, who is at Genoa
was extremely kind and in every possible way facilitated my work, The
Department is fortunate in having this very able diplomat at Genoa at
this time, :r. Child's agents are collecting and forwarding all Conference
documents, and therefore it was unnecessary for me to even attempt to
uuplicate this work which 2r. Child had so well in hand,
At Genoa I found old friends of preceding Conferences of various
nationalities who willingly expressed their impressions on the course and
The situation as you will realise is kaleiconduct of the Conference.
doscopic. Detailed reports of happenings are cabled to the American
press by a varying staff of between twenty and forty American press
correspondents in addition to other American "special writers" in Genoa,
'while many of the press reports are colored, nevertheless the important
Notes have been cabled in their full text and through such Notes it is
possible to follow quite accurately the course of the Conference,
view of the foregoing it is with hesitancy that I even venture expressing
the following impressions qs I realise 'tat inevitable changes in national
policies at Genoa may upset the very foundation upon thich my almises
report must therefore be accepted with all reserve,
are built.
I came away from Genoa after this visit with the firm conviction
that our Government had been extremely wise and farsighted in its determi;hile the
nation to refrain from participation in this Conference,
results of the Conference may be disappointing to certain Governmental
heads now at Genoa, I am nevertheless constrained to believe that the
results ,:ill not be entirely unfruitful, A. good airing of the burning
questions now under consideration at Genoa while occasioning much hord4.1-01burning will, I believe, pave the way for later constructive work in
which, in my humble opinion it would be advantageous for us to partiI feel that the impression undoubtedly created in America ik.
the various happenings at Genoa will undoubtedly stimulate the feeling
that Genoa is a sort of "oess-pool of political intrigues", Lachiavelian


machinations, etc.
This impression should not be accepted ithout great
resefve, Is a matter of fact, while there are undoubtedly certain
-aehiavelian type of gentlemen at Genoa, I can only think of a most
restricted number efficient on these lines, Of this number the majority
are Bolsheviks, '.ith perhaps only one or tuo outside such ranks.
By far
the great majority of the members of the conference are men of high purpose rho are honestly endeavoring, so far as their nationalistic lights
will permit, to better the general aurojaan situation.
They are however
nervous and ever-trained, and on this a000unt quite frequently give the
wrong impression of aachiavelian tendencies.

The York of the Conference is divided into five broad classes:









- ton-Aggression.


The eork of each one of the foregoing classes is confided to a Committee
(often assisted by sub- Committees) Who are charged with drafting
resolutions for presentation and formal adoption of the Conference in
plenaie session.
The work of each one of these Committees and suggested
forms of resolution as a basis for discussion had been drawn up by Allied
representatives who met in London some weeks ago to draw up the Program.
This Committee has practically completed its work and
its report has been published, The report is quite academic in character
and contains much sound advice,
It has been carefully draftea so as to
steer clear ao far as possible of debatable premises concerning reparations
Its erincipal recommendation, which I hold to be consand foreign loans,
tructive, is the proposal for an early meeting of representatives of
I hope that our Government will participate in such meetings
central Banks.
and Rill be represented, if only unofficially, by the best talent re have
I do not make this observation from any altruistic motive.
in such affairs.
In view of our special position as regards our gold holaings and related
currency position, we have a most decided practical national interest in
meetings of this character, and in my opinion it is incumbent upon us to
adequately protect ourselves by representation.
The cork of this Committee had not reaohed its final
stage 'hen I left Genoa, From what I gathered the same considerations
as to non inferences of the foreign loan and reparation features ill hold
surmise is that the
in the final draft as rith the Finance resolution,
final resolution will also be highly academic in character containing much
sound economic advice together with an elaboration of the so-called Ter
It will not be harmful, though
eulen or other well known credit plan.
I doubt if it will give any material result.

- TRa6PIRT.

The a rk of this Committee has not yet reached its final
It is largely, not exclusively, concerned in considering recommendations of the previous Barcelona and .Norte -Rosa Conferences, These two
Conferences were called for the purpose of simpljtfying and expediting
passenger and freight transport in Lairope.
The auestions treated are
technical in character,
This Committee has encountered some difficulties
as the secretarial work was not well done.
In addition some political
considerations have crept in which are giving trouble. However all are
hopeful of a final resolution being adopted leading to immediate ratification on the substantial lines of the Barceloaa and Torte -Nora findings,
From a practical point of view the eork of this Committee is of a most
constructive order.


D - tUb31i,
s you know, this question is the one most difficult of
solution at Genoa.
I am still of the opinion that it was dangerous
to convoke the Russians at Genoa. However they arrived duly primed for
a "gallery play".
Their Delegation was at first quartered some miles
outside the city but are now installed in one of the large hotels in
the center of Sham. The impression I gathered is as follows, ?he
Bolshevik leaders fully recognise that the internal situation of _.cassia
is about as bad as it can be and that therefore their own position and
possible existence is becoming precarious. They must maintain "communistic
ideas" but at the same time they require "political or bourgeoisie support";
the latter preferably in the shape of straight loans to the Bolshevik
Government but this being admittedly impossible then other forms of
It is apparent that they would be extremely reluctant
outside support.
to quit Genoa without having arranged for the de jure recognition of their
Government together eith some adopted scheme of financial add economic
They must also return to oscow with
exchange with the outside rorld.
The real question
as much additional "window trimming" as possible.
therefore resolves itself into one of how far they must go in compromising
their position on eamauniem to get this support.
Lloyd George inclines to the
It is generally assamed that
de jure recognition of the Bolshevik Government and that he will use his
influence to this end provided he can get what he considers the best
possible compromise out of the Russians. alr, Lloyd George's reasons for
this are well known to you and need not be elaborated herein. It is not
yet clear hog far the others will follow him, though my 'impression is that
if nothing untoward happens he vill get a considerable, if not unanimous,

A pure guess on me part as to the outcome is the folloving. So
far as the position of Russia's debts is concerned, the Bolsheviks will
agree to the recognition of such debts in exchange for the Allies agreeing
to a long postponement of date of payment, a possible writing (Lawn of
certain portions of the debt, together with cancellation or long deferred
This is largely political eyewash, but it is
adjustment of interest.
good practical politics from the home consupptian point of view, both
of allies and Russians.

So far as the re-establishing of foreign business in RUSSIA

is concernea, the Bolsheviks still maintain their nationalisation (or,
in other vords, confiscation) ideas for practically all importent
induStries as well as an absolute governmental control of exports. For
this reason it will be difficult, if not impossible, to reach any trade
agreements at Genoa at this time. ay impression is that ar, Lloyd George
will endeavor to overcome this by ignoring such confiscatory acts on the
broad grounds that "internal economic arrangements in Russia are the
affair exclusively of the huasian people", ..11erefore, to avoid commiting
,toutside nations to the laussian thesis, the agreement with the Russians will
simply set up the fundamental machinery upon which each individual outside
It will provide
Power may itself base its economic relation t ith Russia.
that aussia effects a judicial procedure 2nd machinery necessary for the
protection of the personal rights and liberty of foreigners engaged in
economic putsuits within Russia together with some broad provisions for the
It is assumed that the
protection of aroperty rights of foreigners,
agreement will contemplate the setting up of courts, with neutral judges
sitting with aussian judges which, while operating under F.ussian procedure,
would nevertheless assure a certain justice in juridical determinations
It would then naturally follow that by
concerning foreigners,in Russia.
means of independent trade arrangements effected between indifidual Powers
and Russia it would be possible to gradually force the Russians to depart
The agreement will also doubtless provide for
from their radical views.
the setting up of the "International Corporation" for the extension of
The plan of this Corporation exists today and has
credits to aussia.
doubtless been forwarded to the Department by ar, Child. Briefly it is
a sort of parent Corporation with headquarters in London under the leadership of Ahich each of the Lowers, if it so desires, may themselves set up
In accordance with
a special organization to handle their ova credits.
my understanding the financial support of the parent company today has
been agreed to by Great Britain and Belgium, ether Powers will undoubtedly
collaborate in its financial support, though this is not altogether clear,
The provision for the organization of the International Corporation does
It is not a pertioulerl; sound business phase
not impress me very much.
in its present shape. I believe it has been framed largely for the
purpose of eyewash and so as to give the Russians something to carry back
I may be mistaken but I
to their public opinion as an acuomplishment.
doubt if in the long run any substaetial sums of money will be practically
forthcoming to meet any comprehensive economic operation under this plan,
I would also surmise that the final ae_reement with Russia would
contain a provision for the setting up of a small Committee of representaBeing rather of a
tives of foreign Powers to handle Russian affairs,
suspicious nature, I might even suspect a desire to use the administrative
organization of the so-called international Corporation for this purpose,
t ough I may be completely wrong in this aarticular.

ie situation with regard to :cassia is changing every minute,
It gill undoubtedly be largely clearea up even before this letter reaches
I can only give impressions of the minute,

I was considerably embarrassed during my visit at ,ren0E. to


receive an unexpected visit of ar, Krassin to n
room at the hotel.
He was accompanied ba an indiscreet friend of mine who remained during
the whole course of his conversation.
I vas embarrassed but had no other
alternative tlan listen.
I told Kraesin and my friend that if Krusein or
he were to say tht;t they had seen me I would deny it, and that he was at
liberty to take the same action in the event I made any reference to
his conversation.
Xrassin agreed and I have no reason to expect bad
faith of his part. As a matter of fact he can have nothing to say as
I kept my mouth shut. Under seal of confidence he handed me the
Enclosure A. Which, while not comprehensive, nevertheless indicates
the general lines of the then Bolshevik position concerning foreign
His conversation was only concerned in an elaboration of the
ideas expressed in the enclosure so it is unneoessara to go further into
it here. Kraasin however in conversation did compare the present Bolshevki
regime with the recenstructioa regime following the French revolution,
;Alb only half heartedly presented the nationalization idea explaining
that this was only a transitory reconstruction phase of tae revolution,
that obviously foreigners would be reluctant to participate in Russian
reconstruction on this basis and that the aussians could be expected
to uradually make further radical departures from their present
theory of aovernment and personal and property rights.
As an instance
of the possibilities in this direction, he stateu specifically that the
Harvester Company and the c.estinghouse Company had both quite recently
aith the Bolshevik Government under which their
properties in Russia have virtually been returned to them in their
entirety. He admitted that similar concessions could be made forthcoming
direct negotiation with the Bolshevik Government.
s. - R44 AGGHLSSIali,
Me position of this question is conflated at the
present time due to the Anglo-French misunderstandings. However all with
whom I talked in Genoa fully realized the very bad impression generally
created throughout t!,e rorld by the Genoa Conference and that the aor-Aggression
P ast of agreement was the best possible way of restoring confidence and
leaving a "good taste" in the mouth of the world at large.
I am inclined
to believe that if the Conference noes not abruptly close that a formula of
lon-Aggression will be found and adopted at aenoa.
It will necessarily
contain certain reserves but all with whom I talked appreciated its importance and I believe all would go more than half way to meet on a common
agreement on this account, All appreciate t,,e important bearing on American
public opinion of a favorable determination on this question.

The Russo-German Treaty,
This occasioned a quite critical incident. I enclose
herewith, as axhibit 13, a statement of the (Armen position which was handed
me quite informally by one of the German representatives at Genoa, and which
I am quite certain had hathenauls O.K. before being passed on to me, The
Treaty is now lainis examined here in Paris by the Legal berries of the
separation Commission for the purpose of determining whether or not it
I an informed that
contravenes time provisions of the Versailles areaty,
while their inquiry is not as yet complete, there nevertheless appears
unanimity in the opinion that it does not contravene the provisions of the



'Referred t

in,,let. ter of


AR4+ 3 '='3121L UNKAAJOIL





-uLne AtA send 7th 1922,

Meeting 01)02104 at ii a.m,

Louis -xipois (chain:on)

in 08 Chair.

2W.J4NTi',Ar John BRADBURY and Mr. KJAB,LL.AOK (United Kin ,tor.
I.. Louie LUBOIS

Manolere (irmee)

The Marquis saircro R-GGI and Signor d'AMELIO (Italy/

RaidlidAJ (Belgium)

Attended uaoffloially:
BOYD.14 and Mr. LOGAZ united

The following were in ...ttendanoe:

Ur. SALMI, General oeoretury.

tatea of






2he Chairman


Our oolleuizue,

tee of Ixperts. whose Chaim=
ban, on behalf of the Commit
eels ion
Commies ion interpreted its T
ha La

ea4ced hOW the

of arril 4th

in via Loh it had entrusted this Committee
upon the 00 Marini': ancl smicing a report

the duty of cons

(Attune trader -.711 ich the German

ai At
Gmiemmenti"in v1017 of

Treaty of

4.ts oblitions as t eats are definod by the
Schedule of Psynants
7arsafties sal in particular, try the
the pro woods of
of ,',:ay 5th 1(.21" roPmtiate loans abroad

redemption of a
which would be applied to th o

part of the

oapit al rep &ration debt.

Ole tads of this docis ion do not svpoar


to art' dotzt. They can only be intmonreted
transmitted by the
the saute defino0 in the lraft re oly

ma to -ee optai


Preach S: °legate, to his colleagues 1.0.


"The loans must have the result of facilitating
In particular, the
Gaimetwa fulfilment of her obli;ations.
should !,ive its
aossnisslon would agme that the ,:ors it '.ee
opinion on the manner in tthioh the pram& of the loan

obligations, anii, if
be applied to aoquittire Crermanye
oo ass ion [cos e, on t he mod if Lc at I ons

for the anent-eiaort


h w ould !vault

of th is it enmities".

*Bat a reduction of Janssen obligations themselves
as these result from the Treaty of Peal* and the

of :arrunts must be neither ons of

the logo nor its


the sedition of




- 4 -


Sir John Bradbury indie.ted the principal points
the jonyittee was to direot its attention : The
conditions, 2uarentees, control,


to which


This draft raised difficulties .enonget the
members of the 1/4;omrniesic.m,


,nd it was only on

4th, after semi -official or =official discussion that
the final decision was taken which instituted tho
of ..,xleirrts.



This cleats ion r:,n as follows

Committee would he .mointed to consider Ind

port to the ,.;orenissicm on the ooneitions under

Gorman Government, rei;erd being had to


which the

its obligations


the Treaty of Versailles, and in particular under the
1.ichedule of Payments on ',ley bth 1e21, should raise
loans to be Applied to the reduction in part of the

capital of the lisp aret ion eon:lesion


There then follows India .tions

to those in

'Ar John


re.eburyge draft as to the means,

conditions, rearrsitees, control, etc.
This decision



;rohn Bradburys draft owing to the


essentially from .31r

addition to

the words


wine had. to its obliations under the Treaty

of Versailles and in particul_r under the .chedule of

Payments of Lay bth 1921.

These words

were introduced in the

request of the french Delegate In order to
possibility of the question of the
debt being, raised by the

text at the

prevent the

reduction of the German

LApert Committee.

if, therefore,

in order to reply to the :.went ion raised by the Com .ittee


- 6 -

Sir John Bradbury stated that when he agreed to the
insertion in the terms of reference to the limitntive words
to which the Chairman had referre.1

hPd taken the object

of thorn to be to prevent the Coadssion beinc in any way committed to taking into consideration any suggestions which might
be made for modifying the obligations of Germen:7 under the
Schedule' of 2ayments.

Ho had not contempleted thet they would

be held to preclude the Committee from discussing end commenting

upon any mattere whieh the loalitee itself mieht reeerd rs
relevant to the eubject -4eatter of its oneniry.

The Committee hfd, however, now informed the Commission,
through Lensiour nelaceole, thrt in Its ()minion no proerees
was possible 'unless the field of Its eneniry ee-eld be extended

in the manner indicated.
It r7yeeeed to

John Ilnedbury thet whetever might hemp

been the precise intentions of the Members of the Commission in
introducing and accepting tee limiteive ;_erde, the eiteeetion

which had row erisen wes one which must be considered on its

Admitting, for the perpeee of ereument, that the terms

of reference as they stood forbaue the Committee tc extend
their enquiry in the manner desired it was clearly open to
Comeisnion, if it saw fit, to remove the restriction.


If the

Commission decided that it was desirable to remove, the rostria-

tior whether it proceeded by the method of iuterpreting or by
that of amending the original terms of reference was not a
question of any reel importance.

The French Deleente had stated that France could not accept
a reduction of the debt owing to hor by Germeny except es part
of a eenerel readjustment of international indebtednees.


John Bradbury was entirely of L. Dubois's opinion that no
economic resettleelent of the world is possible without such


general readjustment.

But he was Aually convinced that until

a provisional understanding had been reached in regard to
German reparations no basis for disoussilv; alLoli a general re-

adjustment existed.

It was an illusion to supuose that Great Britain was
anxious to secure advantages for Germany by means of the reduction of any enforce:ble ?Tench claim against Germany -



greater illusion to suppose that GreL-t Britain Was willing lo pay

far such e favour to Germany either by reducing her own reparation claim or by writing down the d3bt owing to her by Zrc-nco.
Great Britain was anxious not only that 14rance should recover from Germany - but the:, she aerlelf should recover from
Germany - the

maximum amount which it is materially pos3ible to

make her pay.

She believed, however, th-t the German debt as it stands
under the Treaty and the 3che(lule of Payments was to a_ large

extent a 'pad debt and in fact irrecoverable, and that attempts

to enforce it in its entirety would merely hEve the result of
destroying the social End economic fabric of Germany and so
ulti:%stely making irrecoverable even that part of it which, with

a more moderate policy, could undoubtedly be collected.
It had become obvious thnt wi.thout a foreign loan lermanylg

even given good intr.ntions, would be able to restore order in her

internal finances with dif!i:lty if Pt rl', even if she were
relieved entirely for a considerable period from reparation

It was probably - but it was n poi-t on which he awaited the
opinion o.

the Loan Committee - that so long as the Schedule of

payments demtnds were maintained as an unalterable obligation the
basis of creeit nececeary to enable Germany to raise a foreign



portionate indulgence from their own creditors.
Sir John Bradbury was not in a position to say what concessions if any could be granted by Crest Britein in respect of
the French debt, still loss whether any could be granted by
America either to France or to Groat Britain, but it was obvious
that if a practical solution of the German reparation obligation
were in eight and required only conceosions on the part of
Great Britain and America to make it eccepteble by France,

these countries would incur a heavy responsibility at the bar
of history if they were to displey lees consideration to their
Ally then that Ally herself was prepared to show to the beaten

But before any basis could exist for determining what
eacrifices ought to be asked from Great Britain or America, it

was necessary to determine how much could bo ex-rEcted from

If there were a reasonable probability 'of securing

the whole 80 milliard of gold merks - the present value on
sanguine estimate cf the obligations imposed by the Schedule
of 2a-dents - the question of reduction or cancellation of
Interalliod indebtedness mioht not arise at ell.


which would ba appropriate to a halving of this debt would be
inappropriate to reduction of it by a third or by two-thirds.
Further, the atmosphere for the m'ent of concessions

t all

could not be expected to be favourable until it is clear that the
concessions if granted will repult in a settlement of the whole

vould serve no useful purpose, even if it wore practi-

cable, to reCuce the Ferman liability by en arbitrary amount and
inter-allied indebtedness by an arbitrary percentage, if there
wore no better security for the recovery of the reduced amount
than for the recovery of the present debt.




the inter-allied debts had to be considered.
Me statements xthich they had jat heard showed that
all the Dole gat es were unanimous cal the connection between

reparation and the inter-allied debts, 821:1 it4raa to be

hoped that this coo/Action would allow the french relai;ate

to aiee with the opinion of his colleagues.
As a result of tills unanimity a positive opinion would
be obtained from the Committee which, if this we re not the

case, would probably limit itself to stating; the impossibility
of placing a German loan abroad, which rx)uld entail a

situation, the gravity of which it was unnecessary to point
out both to Oen:law and to the Allies.



It. DELECROLX then rack the following stet ement:-

"If I had considered t.t ref:lest add-imaged by the Cormitteo
of .Janicors to the eeparati
manoeuvre wains t

oonInissi on, a daqeorous

ranee late naed to nrii'm the international

loan dopendant on a fresh reduction of her credit, I should

have refused to be its bearer. But I think that I can state
that the i3ankers2 opinion lip flee from my .artisan spirit.
After an =dna ite a vie VS during six meetings, thsy
nave, for various reasons, come to the unanimous conclusion
that a limited loan, even if :7011 secured, woulr3 have no

chame of interesting the international investor, if it did
not aiTear to be a stags termini, a general solution of the
.separation p roblom ',Lich is ovpres Sing



leached this oonclusi eh, too 1i/embers of the Oemmittee have

dear-rue themselves disposed, if teey were not open to

aritioism -'or 'faring exe,:edad the strict terns of .heir
to push their examination further ax":. to contemplate
al 1. tho c onn iti ens I/11111°1a the I sane o f f ore i "pi Gerrie= I oans might

Lemani without exeludink; those necessary for the re-establish runt of '_;erreargrt.9 oredit abroad.

In doing so the Committee

ila a no intentioa of enaroonhin; on the pswers of the
sparatieu Commissior., nor on those of the Governnants, but
on1,7 of 0- Tir-C tier! WWI(' e rrhic h mtr;ht wirer) as a point of

deperture for an oxcha Ego of opinions between them an' mipeit

doubtlese inbrez.-ise the possibility of the issu) o f a

loan by 'Amity.

'ills is the meaning which the British

Delos ate atiribu.tes to tee request of the Bankers' Committee; he

has stated that their opinion mizLiit be the starting point of a sue 0 OR sful at tempt to bring the raper ati on question on to the ,ash of


practical reLlisation, and to consider the Whole of the
problem of the Inter.Alliei debts, adding that without
this necessary prelirhinary startilks-point, the consideration

of the problem of Inter-Allied debts would be inevitably
continually adjourned.
In these circumstanoes it appears to me impossible
to adopt an interpretation Whieh would have the effect in
fllerica of enoeuragin6. the opinion that we have, even without

in any way binding the resnonsibility of the iieparation
Commission and of the Allied Governments. refused the
opinion Of experts ,even on purely banking grounds"


Mr. BOY) If made the billowing statement:

mWhile I

have always recmrded the rrinAnte of the Loan Committee as

instructive, and felt that only a nejative answer would be
possible under its terms, I have tm always expected that if
this proved to be the ease, the Commission would be glad

to receive saamtions from the Committee as to any chan:ses
in conditions which, in their juk;ement, would mate a loan

lay personal jud:ment is therefore that the

Committee should now be 4ven liberty to make such waguestions.
As my colleaoies have indicated that in their minds
there is a close relation between chen,;es in Germany's
indemnity oblitLIstions and the Inter-Allied debt, I mast add

that this subject is not within my competence.


Inter -

Allied debt has already been the subject of legislative
action by the United States Congress, and a committee

appointea under that lejelation is alone oompetent to deal
with it.

I am of opinion that any emphasis on a possible
relation between the two subjects is likely to make more
difficult the result which seems to be hoped for.

I note

that the Cleclaration or the French Delegate contains a

just appreciation of this point of view.

I will further udd that personally I have never seen
any connection between the two matters.

No one is likely

to ma_;est that Jemmy should be relieved of any obliLation
which she can reasonably meet.

The only effect of a chan;e

in the indemnity will, therefore, ue to increase not to

diminish the amounts likely to be received from Germany.
I feel that the Allies have already lost considerable sums
which under a different policy mijit have been obtained
from Germany, and that more will be lost unless the policy

is chased.

If this opinion is well founded, the changes

likely to be suLrested cannot result in any sacrifice by

- 'over."

Sir John 3ILD3URY then proposed the followin,


resolution: -

"The Commission intends that nothing in the terms of
reference should be held to preclude the Committee from
examining any of the conditions which may be necessary for
the raising of external loans by Germany, including_: such as

relate to the general re-establishment of her external

Indeed, any suggestion which the Committee may be able
to offer fro

this point of view, without of course erkAging

the responsibility of the Commission, could not fail to be
of the greatest value."


The Jormission decided in favour of this resolution

by a majority, :sir John BEZBURYi Signor d'alLIO and
DSLACBOIX voting in favour and

I. Louis DUBOIS against.

Yas. BOYDOT expressed his personal a,meoment with the


The CHAIRLIAN expresso d his regret at being =able
to associate himself with his colleal;uest opinion because

a careful study of the question oblirpl him to maintain
the orinion whieh ho had expressed at the first reetir;
at which the question had been dealt with.


He added that the Committee was none the less at
perfect liberty to take account of the majority vote to
continue its studies on a wider scope, the CHAIR,IiiI bein

convinced that the Committee would do so with all the
necessary discretion.


The Meeting rose at 12 noon on June 7th.




(3) --The manner in which-the -revenues-and other
assets -ass iEned. to-the- service - of -the loans sheald-be - -

controlled and administered and the relations to be established
as between the German Government, the representatives of the
lenders and the Reparation Commission.
The-Committee was instructed to consult with persons

having practical experience in connection with the issue of
Government loans in New York, London, Paris, Rome and Brussels,
Amste dam, Berne, Berlin and elsewhere, with a view to the
formation of a pra ctical plan to be submitted f or the approval

of the German Government and the Reparation Commiss

The Committee, after considering these terms in both
texts ( which they wore informed wore e qually authoritative )

felt some doubt as to their scope.

Un June 1st they therefore

addressed the following question to , he Reparation Commission


"Acting on your instructions the Committee have
commenced the study of the subject of a foreign loan
entrusted to it by the Commission. Before proceeding
farther, however, the Uo.I:iittee consider it necessary
to ask tie Reparation Commission whether the words
"regard being had to its obligations under the Treaty
of Versailles and in particular under the cnedule of
"en ltetat
Pevments of May 5th 1921", (French text:
de ses obligations telles qui elles sont definies par
le Traits de Versailles et on particulier par 1'Etat
des Paiements du 5 I4ai 1921" ) are to be interpreted as
meaning that for the purpose of its deliberations, t he
Committee must treat the payments prescribed by the
echedule of Payments as an obligation,
subject only to the power of the Reparation Commission
from tine to t line in the f.ature to vary them in

accordance with the provis ions of Art. 234 of the Treaty
or whether ( without of course in any ay engaging
the responsibility of the Commission ) they are at
liberty to examine the possibilities of s olutions
involving modifications of these arrangements."




( 4 )
















einally, the Committee desire to point out
that in the meantime, and even during the interval between
such a renewed invitation and the conclusion o


negotiations, Germttnyls financial position may obvio sly

be threatened with serious dcmzer.

Protracted negotiations

for a large and long -toppled loan might mature too late if not

preceded by mediate help.

But if the problem

..ttte con-

sidered anew in the improved circumtences sggeLted, and
with a real prospect of an ultimqte setlemeuto

ti e

Committee fe(A. tirAt the obstacles which at -xesf:nt confront

an interim loan rould probably riot prove to be insuperable.

with real bore of n definite settlement within a reasonable
period it would he much easier to arrange a shorterterm secured loan sufficient to serve German c-2edit Pram

collapse during the period of neLotitione


need scarcely add tht they would be glad under these
conditions to give an7

assistance in their power in regard

to such a limited loan as well as in regard to


and more important problem.



June 10th 1922.

monsieur Sergent is unable to associato himeolf with
the above conclualons and with._ some of the statements or

sug3.estions contained In the pro.ent report.
Reforrin:r to the numerous remarks :lade by him in the

course of the


dellbetions, he nakes the

general statement that ho cannot, in order to promote a loan,



14th June, 1922.


The Reparation Commission.


The German Government.

In its letter of the 31st May 1922, to the Chancellor, the
Reparation Commission stated that several points in the Chancellor's
latter of the 28th May required further elucidation, and that a
farther communication dealing with matters still outstanding would be
addressed to the Chancellor at an early date.

Accordingly, the

Commission has the honour to make the following communication to the
German Government.

It has already been settled that the details of the arrangements
proposed for dealing with the followin;; questions will be the subject
of deliberations with the Committee of Guarantees: -

(1) Supervision of the receipts and expenditure of the Reich.
(2) Abusive axport of Capital.
(3) Statistics.

The Commission will accordingly await the result of the deliberations of the Committee of Guarantees with the German Government on
these points.

Apart from these questions, there remain the followin; matters
still to be dealt with:
Forced Loan:

The Commission has the honor to acknowled03 the re-

ceipt of the Chancellor's letter of the 30th laly.

The Commission understands that all arrangements will be made in
due time for the receipts collected in this respect before January 1,
1923, to reach the / minimum figure of 40 milliards.

Deficit of Public Service Budgets:
The Commission wishes to point out that the draft budget submitted to it makes no provision for sulplementary receipts to cover
the deficit in the public services.

It is true that in the Chancellor's letter of the 28th May, the





It attaches much Ladortance to this and indeed would prefer to
see the veto confined to the selection of the Chairman un- 1 y.

The Commission is further of opinion that the Chairman should
invariably be selected from the existing members of the Board of

The provisions of the new Law are not very clear in these respects,
and the Commission would be clad to receive from the German Government
an assurance that they will be applied in the manner indicated above.
Further, as regards the remuneration of the Personnel of the Bank,
all questions of the salaries to be given to individuals should be left
to the shareholders' representatives.

While the Commission does not insist on the immediate introduction
of a further law to place these points beyond doubt if the German
Government will undertake that the existing law will be applied administratively in such a way that the objects which the Commission has
in view are secured, it reserves the ri,;ht to ask for further legis-

lation should experience show it to be necessary.
The independence of the Reichsbank, however, even when made complete in the manner above indicated will only be of practical utility
for the purpose of safeguarding German currency and credit, if it can
be effectively used to secure that loans by the Reiohsbank to the
Government are made only in accordance with sound banking principles.
So lon,.; as the Reichsbank is permitted to issue notes against

Treasury Bills an effective exercise of its autonomy in this connection
can scarcely be looked for.

The Commission recognises that any limitation of the fiduciary
circulation must be preceded by the covering of the public expenditure
by real receipts from

taxation or internal loans without recourse to

the issue of Treasury Bills discounted directly or indirectly by the
Reiohsbank, and that it would be premature at the present moment to
attempt to reestablish purely and simply the limitation of the note
issue abolitihed by the Laws which have been voted since 1914 in amend-

ment of the Law of 1875, without having first put the State finances


But the Commission is of opinion that the flerman

in order.

Avornment should forthwith take in hand the preparation of the
measures which will have to be introduced at a later stage


r,asonable liAitation of the right of issue of the

Bank, and that it should set itself resolutely tc the task of

applying them proressively as soon and as quickl' as circumstances

Failing such action, there is great dan:;er that the

sacrifices which the German people are bein7 called upon to make
to check the expansion of the floating debt will fail to realise
the end in view.





C.G, SUbject Index 444.

PARIS Document 923.
August lt 1922.


Intelligence Service.


The disastrous depreciation of the mark continued at a constantly
increasing rate;during the first week of August;

"Industrie und

Handele Zeitung" attributes this fact to the maintenance, or aggravation
of the "destructive reparation policy" carried on by France.

The request

that the monthly ca.pensation payments be reduced from 2 million pounds
to 0.5 million pounds was brutally rejected by the French Government; tha
latter threatened to take penal measures in case of non-payment;


mark fell in consequence to 0.111 cents at New York, ':which means a

parity of 870 marks to the dollar.
exceeded by accident;

At Berlin, this rate was only

the dollar always remained under 900 marks.


Thursday and Friday afternoon, a tendency towards buying was noted;
foreign currencies fell slightly (the dollar fell to 720 marks), but
on Saturday the market became firm once more, which was especially
noteworthy at the end of the week.

No appreciable fall in the rates of

foreign exchange can therefore be expected during the coming week,


"Industrie und Handels Zeitung" expressed the fear that the new burdens
might fall on German economic conditions, even were the scheme of the

French Government to be mitigated considerably in the course of debate.
A financial reform, which would not include a revision of the Peace
Treaty; a Customs control, and the fact of allowing Germany's former
enemies to take shares in German Com;anies, would, the ;vapor considers
be susceptible of hastening the ruin of German economic life.

The mere

threat of such measures sent the dollar up in a few days from 600 to
900 marks, 17hereas it was quoted at 400 marks only a few weeks ago.

With regard to the consequences of the new fall of the mark on
German economic conditions, the paper considers that the full extent of
these cannot yet be appreciated.

Prices continue to rise daily, thereby

PARIS Document 923


sending up the costs of production, and the scale of wages; moreover the
depreciation of the mark raises great anxiety concerning the sltuation
of the money market,

This situation gets worse week by week; the

money shortage, and the shortage of credit, continue to exist.


has long been found impossible to procure the necessary credits to
Compensate property estimated at a given value on the open market,
which is now thrown on the German market,

Inflation increases: the

last balance sheet of the Reichsbank showed an enormous surplus of
15,7 milliard marks; yet this increase, which represents only about, 8%
of the fiduciary issue, is insufficient for a period when the level.

of exchange rates, and the goods depending thereon are raised by 50 or
oven 100%.

The increase in the number of banknotes in circulation

always remains less than the increase in prides;

if this fact is

satisfactory fr= certain points of view, it emphasizes the money
This money shortage is felt most on

shortage to an alarming degree.
the security market.

The rise in the exchange rates during the past

week had but small effect on the security rates,

The paper notes

that the average rates of securities are at present at the same level
as they were at the beginning of the year, when the dollar was quoted
at between 200 and 250 marks,

The foreign exchange rates during the past week, were as follows


Christiania . ***** a.a

Relsingtors. ........ 00.0.00
Italy .............

New York


Spain ........ .

Vienna (German Austria)
a .

o de Janeiro.








18,227 15
828 96



n'i,-..4.:4. . V, . v .. vv






2,856 40




276 65
12,933 80
19,675 -35

3,455 35





33 70






Paris Document 923.






CommonJealth & Federal State
loans.. ..
Municipal loans
Provincial loans
ge cedules of German
ge banks
an mortgage cedules
rial bonds 101.76






mber of stock changed very little by reason of the
The total index number rose

hown on the Exchange..

amely 0.:,17%1. as compared with the previous week, the

occurred in the various categories:


ge cedules of German
ge banks
ncial loans
pal loans . .... ....
rtgage cedules



rial bonds .
wealth & Federated State


-. 0.4




ties rose, 45 fell and 7 remained stationary.

1 9 2 1







f Jan,

of Jan.

10 Nov.

3 Jan..

















40,586 44,792
1,017 1,046
7,875 10,265
49.478 56.603

ed coupons.

s a basis on January 1 1921, the following figures







843 1.152







Paris Document .923:

The FrEtnhurt Exchange continued to harden during th,) past
7reek; the "Frankfurter Zeitung" (ik) 578 of 7.8;22) notes ho-:ever

that the upward movement of shares 'Jas sloler than that of currencies

in consequence of the shortage of money and credit.

Only foreign

loans were directly influenced by the ::ovement of currencies.

5 standard foreign loans gained 2,890 points in all.


Home loans

gained 29 points; the Commonwealth 37 Loan in particular ilaproved

by 35 points.

The 25 standard classes of shares showed a surplus

of 4,305 points;

the "Harpener" gained 340 points, the Deutsche-

Ubersee 760, the Ver. Glanzstoff 425 and the Baltimore Chic. an
exchange value, 983 IDoints.

(See Paris Document 902).

During the early part of the Commission's recent visit to Berlin
man Government stated its intention to present to the Commission a conert
This intention was no
precise project for the stabilization of the mark.
ried out, and the Commission might, under ordinary circumstances, be justi.
insisting that the initiative belonged to the German Government, and that y
But the gravity of the
Government should carry out its expressed intention.
ent crisis, and the need for prompt action, have led the Commission to aortal&
immediately the remarks of the German Government itself, and also the suggestie
contained in the majority and minority reports of the economic and financial experts whom the German Government summoned from several different countries to
advise it regarding the situation.
There is no need for argument as to the necessity of stabilizing the mark.
The German Government, its "L:xperts, and the Commission are in agreement on this
point. All parties also agree that the mark can be stabilized.
Further, the Commission agrees with the German Government and its Experts
that the primary essential for stabilization of the mark is confidence -- eonfiIf this confidence be once
deuce within Germany, confidence outside Germany.
established, comparatively little money will be needed to stabilize the mark.
If this confidence be not established, then stabilization cannot be effected.

The Reparation Commiscion is prepared to do its full share towards estabOnly by so doing can it properly fulfill its obligation as
lishing confidence.
trustee for those countries interested in reparations, but it is glad to feel
that this policy will contribute towards ends even more important than reparations.
This declaration means that the Reparation Commission, within the limits
of its powers, is prepared to ta7ie whatever decisions may, in its judgment, be
necessary to restore confidence, and is also prepared, within the limits of propriety, to advise further action by the appropriate Governments, if such action
seems to it necessary for the purpose in view. To make its thought still more
clear, the Commission states flatly its recognition of the fact that demands,
which are not properly adjusted to the capacity of a debtor, defeat their purpose
by destroying credit and hope. Proper adjustment of demands upon a debtor involves the preservation of that debtor's incentive - self-interest - without
which human effort, particularly the united effort of a nation, is impossible.
In forming its judgment as to what is necessary, the Commission will at
all times be ready to consider the views of the German Government, or of independent exports selected by the German Government.
The foregoing declaration is subject to one condition, viz: that the German nation pledges itself to do its part towards restoration of confidence.
For the Commission is firmly of the opinion that the most that the Allies can do
is to remove obstructions. Germany's redemption will then depend on Germany
Unless her national will is manifest in such a crisis as the present,
the difficulties in the way of her redemption are insuperable.
This pledge should take the form of sore convincing expression of Gor-Mile it goes without saying that actual performance will
many's national will.
prove the most convincing expression of such a national will, the Commission believes that such an expression will go far on the one hand to create confilence






The Visserine- Dubois plan for tho stab /libation of the
:el oher,ark way be ori ti al sed fry tho follow ing points Of v tec.9 t

If the syndicate formed by foreign tx:31k01%3

th the

lei ohebank should try to raise the leiollemrk considerably

above its preeent revel avid possibly above its present interral
purohasine power then it viii-ht happen that the result of the
transactions of the syndi oats vioul d be only transit° ry,

after a short rise the mark veu3.d 11411 baok again and the

flow spent by the forel/n synd Lento together with the arotvit

of old staked by the Ileiehebank wield be lost in the transaction. To provide aminst such possibilities the syndioate
on the other hand islOit ask for math seouriti es to be given
by the Cr'eriesn Government that all important assets of the
;errain Government would be pleCed in favor of the ran-IAA:ate

and prootioUly n,thing wcul d es left for the Re, arat ion.

The snorer to such critioisin is the follo-Angs
The foreign syndicate furnishes 800 million goldmarks, the
Eiatchsbank furnishes the et no amount so t../at the oi:37e,-ate

larnount at the disposal of the stabilisation syndicate should

be one milliard midmost'. At the present ratio of 1800 to
2000 popermark to one ,,Assault, one milliard goldesarks in

theory would be enough to buy 1500 to 2000 milliards of

pioesnerks. a sun I'M& by fur surposies any ekiatirw wnount

of pepanast-.. It is not proposed that the syndicate shorld
begin Its Operations b; saltine foreign ezehenie on the German
markets. On the contrary the efforts of ae syndicate Ntwild

be conoentsated on foreto!), markets as new York, london,

stertio,m, Zurich where the syndicate should proceed to buy ur
itnul teneou sly all the fl on tin; material of paperrnarks .

it is

hardly possible thut the nnounts of papermarke eVailable
in foreign markets will aggregate anythirp., like 100

Therefore if the mnrk should not rise in con-


sequence of tho s-ndiwite operations, about So)
goldmsrks would be sufficient to buy up the Iota. !amount

of papermerke available in foroVm markets.

if these EU

million geldmarke 25 million would come from the foreign
syndicate and 25 million from the Reiehsbenk.

That would be

the highest amount which the syndicate might poseiuly risk
in the transaction.
gut in pr12.atio

things will develop quite differently.

The combined efforts of the eyndioate to buy up maxim in

all important foreign marets would at once brinR about a
coneiderable rice of the mark end a correspondent fell of
foreign exchange in the German mark ts.

It must be taken

for granted that important amounto of foreign exchange are
being held by Iermans on account of pessimism or speculation.
If the rise

the mark continues only for a few duye, many

;ermnn owners of foreign exohe.nge will sell part of their

holdinRe at least end certrAnly enon'h to repLy at once
any advrrces m =ode by the foreign eyndioate f:.nd the Beichs

bank to the Germ en government. Praotioally therefore there

is no risk in the proposed transaction since the amount
at the disposal of the syndioete is so enormous t,s to do


fAly opposition from those who would be inclined

to fight the improvement of the price of the mark.


success of the syndicate would be a permanent one be the
one billion of goldmbrice at the oommand of the syndicate

would in no time be used to any considerable extent and
consequently would tqweys demin:.te the exohanGe situation.


-3by the grant of
Bove result, of course, u 3/4.whaltioned
c::rom all
a full mor:itorium to the ael7nan 'for.rzuront at least us r,
/tut in that oven the isychogaymonta in oash for =moor of years.
lobloal effect of the mor.torium omsbined with the farm.ktion of
in the
syndicate will be so ore._t as to bring about by itself a turn
sentiment and in the apeonlation of German holders of foreibn

t of the form ti on of
It nun easy be aseumod that at the announoemal
mark will improve conthe st _bi 'motion syndic:it° the :Agee of the
sider ,bly even without any trans ctions of the syndio:,te.
intention of tii eyndicate to force up the

It a hnot be the

prioe of


the 1,1,,,aft

its intarn4 purohasing power. The mark ahould

undue fluctuations. heflCO up easily, the syndicate only to prrment
syndicate should try to hold it wtaire
over the mark b000mes heavy, the

it has the tendency to rest,
syndicate should aft
The best seoority Chia the stabilis,tion
ovornment r isea in
for is to bo fouad in the 2 4which the OS/Stall
foreign exchan;e from

the Gemmel experts.

repri.sont about tit) mil ion gold

told marks a year.

in r atler times t

merles per month, Lou"

one billion

,B German *Wad he tree for sever_tl cash payments,


ilepar ,tion ;,:xcenission

/oars fran

mitt willingly con-

sent to set aside a part of the 26$ levy on exports
for the syndioate. If out of abund:,nt caution



ample security

syndiaate would

claim priority for its adv noes to the German ;OVellinent over all
reparation ct:ulh payments, such .1Liim therefore Aould h_ve no



im)ort hoe.

If the

of the rrark be aS easy a problem us
should not the ileiohebank alone undertake it


explained abovo, why

without the assist noo of a forest t syndicate?
The answer is this. The Aelehsbank doe not ootan;_nd in
full succons of the o)arCtormny ttn necessary credit to assure the
aulohabank have failed.
tion. Various endeavors ::cede so f r by the

-4It would be risky to o. trust the eionso.nk ,lone with t e new effort
to be made oven conditioned by a !nor. torlum. 23esides the tr nadotions
of the .deinhsbiank itself viould h..,ve their naturill
osutre in (kiloton
markets 1.0., they would .)rinotpully oonsist in eollin, foreign t,
on age Whisk would ue thk; wrong vi 4 for the operat ion.

he iislohsbenk

needs the oo-oper _Alan of foreign oapit..1 in two r:apeotss
far a bettor n..sidling of the tr,nauctions

fomiun markets,


in the

in outer to convince the -.4erman public that the

stdliiisation is eur) of wit:owls and that 0,?position
is useless.
Besides thu ileionsbenk atoms could not furnish
the tot 1 of one nil lard
of gold ni;,rke whieh is ..roposed in to eliminate

any risk th t

nit ht otherwise be involved.

iloviosber 11th, 1924

GERitiillY is in her present untenable position for chiefly two reasons:


:The does not produce enough, partly beoause the amount of work per-

:ormd in general is iumfficiont, partly because all the means of
national production are not fully utilized, owing to governmental control of production and distribution and also to foolish tax len:islation.
The Versailles Treaty, through its economically unf))1fillable tor*
and thr ough its grave p syohological blunders, has ruined Germany financially and morally, and makes it 14ossible, moreover, to do away with the
reasons mentioned under (1)
How can Germany and, ,.gith her, Europe and the world get back to healthy

The presupposition far the removal of the causes named in (1) is the
assurance that Germany will becom a free country once more. (a re anval
of the causes named in (1) is nossible only if there is the assurance
that Germany will become a free country once ntre.)
Therefore the following question will have to be laid before the ,..;eraan

Provided the .:ntente pledges itself to evacuate GernurnT. (including the

Saar District) completely, say by the firsi; of npril, 1923, to abandon

any kind of 2En-1ot/ens, rotorsions, liquidations, oonrnissions and conrul-

sory deliveries, and not to interfere henceforth in any way with the internal administration of Germany - will Germany declare its willingness,
possibly by means of a p'ebiscite, to take upon itself the following oblications, without the fulfillment of which a return to healthy conditions
is impossible:

'2hey will work overtime without increased pay rate for

overtime work, i.e. trerely as an addition to the 8 hour
day, and will do so long enotn;:a and to such an extent as to


make the German balance of trade active again and

insure the payment of interest on and the amortization
of a gold loan with which to effect the reconstruction
of Erance and Belgium and to undertake the stabilizing
of Germany curren y. (Details are to be worked out by
experts. It is assumed hero that at least 2 hours of
overtime -nrk for a period of fran 10 to 15 years will
be re uired.)

it so,

Government control in all branches of domestic and forein business intercourse will be abolished, especially the demobilization regulations and all subsidies, in whatever form they may
appear, Luch as regulation of rents, compulsory tenancy (Zwanp,s
mieto), assessed grain deliven-ies, fixing of price limits, pro-

hibition or restriction of irrports and exports, reduction of
railroad rates below the coat price, particularly in the pas:;en-

ger service, conpulsory assessments, compulsory syndicates , taxes
on foreigners and on the letting of temporna7 lodgintss,
On the other hand, German-, working once more with nortnal IsEtges

t ions will e = rywhere in the world be

and under


favored nation clause and will have access to
materials and colonial territories without regard

e mos

all the raw

to the ruling flag and on the same conditions as the rest ef
the world.

(Details to be formulated by eaperts)

(a) a- The German. !hark is to be stabilized at once at


the stabilization

the point at which

reparations loan
(as per 1, b) has been insured, and when tlse following additional
conditions for the permanency of such stabilization have been creit will find

for a period of



at least five years, any strike in any in-

dustrial undertaking that is of vital impart-sasce to nationel
economy shall be forbidden and considered a punishable ofLease.



(Essperts will determine what industrial undertakings
come under this provision snd what the punishments

shall be.)
the administrations of public (government) enterprises must
at once be reorm.nized and put on an economically sound basis (if necessary by combination with similar enterprises
in other countries, but with proper measures to maintain the
national character), 30 that they may yield p:cfit to German national eoononsr instead of causing losses, and ray at
the same tiro become fit to serve as a foundation for the
international gold 1 oan.
(Detailed measures will be suggested by experts)
tax laws must be so changed as to stimulate the
thrift (saving inclinations) of the population, promote the
formastion of capital, and restore the respect for private
property, while crimes against property ar subjected to exThe German

tnemo severe punishment.

(Detailed suggestions to be made by experts).



The forces of all ministries and government departments must
be reduced to a minimum, and all the laws enaotea since the
beginr_ing of the war should be re-examined with a view to ascertaining whether their effect has not been one to hinder
eroduction in some way or other.
(Detailed suggestions to be made by experts)

Those 'persons of the riddle classes and those pensioners who, through
the inflation, have been robbed of their subsistence should be cared
for by the state through the means of terporary :Animus annuities, so
that they may support themselves decently and not, in their despair,
become a danger to Germany and the world.

(Detailed suggestions by experts)


after all this preliminary work has been done, Germany and France, in
conjunction with '..nesslan-i, Italy and Belgium, will have to approach the
crder to try to arrange the indebtedness between the
U.S. of America
nations and thus make possible a final lisendation of the consesuences
of the war of 1914-18.




'AO. V.I.

TEL: CENT. 79-75

F.,Piptris, Feb. 14, 1920.

Hon. Benjamin Strong,
Governor, Federal Reserve Bank,
15 Nassau St., N. Y.



RIR .7

Dear Ben:-




1Wrprt, 0

At a meeting of the Reparation Commission wctieh I attended this week it was finally decided to use the foreign exchange rates recorded by the Federal Reserve Bank of New York as
of 12 o'clock noon each day, for the purpose of making conversion
in connection with certain reparation matters. It will, therefore,
be necessary for you to add _to the rates which are already being
established those of Germany and such of thie other Allied cujiirencies as you are not recording at the moment,where it is possible
to obtain rates.
It is my feeling that it might be of value for
you to also register the rates in Austria and the other countries
of Central Europe, as well as the neutral countries. Occasion
might-arise where it would be very valuable to have some standard
rate in connection with these countries.
In New York transactions in some of the exchanges do not
take place with sufficient regularity to enable the recording of
a daily rate. It would seem to me, therefore, that in order to
place yourself in position to make records of such rates that it
would be well for you to have the Bank of England cable you daily
the arbitrage rates which exist in London in time to reach you on
the morning of each day. With such arbitrage rates you could figure
the rates of any countries not covered through the established
Sterling rate. The rates which you should have from the Bank of
England ought to be nominal rates, that is, rates between the buyBy arranging a code with the Bank of England
ing and selling rate.
which would merely require that the rates cabled you should always
be in the same order, and should always mean the sane thing, a
cablegram could be brought down to a minimum cost. You could in
this way cover practically all of the countries in Europe where
the exchange rates could possibly be of use. It would also make a
very clean record for the Federal Reserve Bank that might be extremely valuable.
If it should so happen that you would prefer to have me
write to Mr. Norman and make the arrangement with him, I shall be
It is just possible that he might not know exact
pleased to do so.
ly where to go to get the rates, although I should not think that
this would be the case.
If there is anything further that you wish r:',e to do in

the matter, just let me know, and I will look after it.


b. S. 2.

It will be necessary for the Federal Reserve Bank to
arrange a code with the Reparation Commission, and at the same
time make special arrangements with the Cable Company under which
the cables will be given right away over everything else. Again,
the code will only need to contain figures covering the rates,
as their order can he understood. This is a most satisfactory way
to handle matters of this kind, and I have carried it on for many
The rates should be cabled 5 or 10 minutes after 12 every
day, that is, the first possible moment when they can be set up
in code. Mail confirmations should also come forward to the
Jr. Rathbone will advise you direct as
Reparation Commission.
to whom to address the cable, and I am suggesting to him that the
Reparation Commission register a cable address for the purpose.
It is my firm conviction that the whole matter handled
in this manner will work out extremely well for all concerned, and
save an endless amount of friction that would otherwise he certain
to occur.
',is are now figuring on the question of how bills shall
be turned in by the various countries on ray 1, 1921, as no one
believes that it is going to be possiblo to turn them in before.
4hen this matter is settled, I will let you know what is done.




Paris, January 7, 1920.

Mr. Benjamin Strong,
Governor, Federal Reserve Bank,
15 Nassau Street,
New York Cit7.

Dear Ben:-

ReferriAg to your letter of December 1st from which I
quote to bring the matter to your mind as follows:Suppose marks
"Let me illustrate by such a case as this:
are Quoted in New York at two cents, or, roughly, one-twelfth
of gold par and Francs are quoted at ten cents, or, roughly,
In order to credit Germany against the
one-half of gold par.
delivery of some specific article, one would assume that the
cost of that article in Germany would be, roughly, six times
what it would be in France -- and I do not believe that that
is the case or can be regarded as a fair measure! "

In the case referred to by you it is going to be necessary for the
In order to do so, it
Reparation Commission to establish a price.
is often going to be a more or less complicated operation, but if
they know positively that after a price is established that its
conversion will be automatically based on certain known conditions,
they can ascertain such price with much greater certainty and fairThe formula suggested in other words is
ness to all concerned.
not aimed to fix a method for the establishing of prices, but to
It must be borne
fix a method for the conversion of currencies.
in mind that the fixing of prices by the Reparation Commission will
probably not work out as a continuous performance so to speak, and
after Lay 1, 1921 nothing of the sort will have to be done whereas
the conversion of the exchanges kill have to be continaed for many

Of course after May 1, 1921 if Germany desires to deliver
goods in part payment of indemnities it could do so provided Germany
and the Reparation Commission agree as to the price but there would
seem very little possibility of the matter developing in this manner
air the Germans will undoubtedly prefer to sell their goods and make
payment by the exchange received therefrom. By doing so it will
help build up their foreign trade and establish nod will, whereas
deliveries to the Reparation Commission would carry no advantages
If therefore some fixed and positive
whatever of this character.



method of converting the exchanges is adopted, no friction need
ever develop.
It should also be borne in mind that the raper mark
after May 1, 1M1 will probably not be brought into the calculations at all except possibly in connection with coal deliveries.
This being true, the price of coal, if it continues to prove necessary to fix it in paper marks, can be so based as to make the
caLversion on the system adopted of the paper marks into gold
marks one that will bring a proper result.
The more I see of the developing situation here, the
more firmly am I convinced that the system suggested is the only
one that will work without friction as when once adopted it will be
automatic in ninety nine transactions out of a hundred which will
prevent the necessity of wrangling between representatives of
Nations which it is to be regretted is a popular sport at the moment
in this part of the world and will continue to be as long as there
is elasticity to Reparation adjustments.
Will not bother you more at the moment with this matter
as I know you are busy, but felt it advisable to give you this
You of course can r,alze how I have certain advanfurther point.
tages as to the obtaining of information which Government Officials
do not, in that Banners and industrial men talk freely with me
whereas they do not always do so with Government representatives,
and I also hear the Government side.
Sincerely yours,



w!_, Iliad in Amuterdam th,t the adherence of a

Dr. Vieeering


conference ouch

to a plen tould be dependent upon action by our Govern
to ell


re,Fud in


I, personally, regret tit it too


r. Kent, toc-u

lettr written you,I te_ieve, by

pro-eat Um,: our Governmtnt, technicaliy, 0,41 not indGr e .ucv. a

.ouid L

r o

,ually uns:*ortostat,1 to it decline to iacorue

irovi, .ithooL;1.

cet it

in gener,.1,


rov_i or not.

this particul r one wcuid vii it, a


to tn.e concluion tn t the Elmpiv.t
of thi, country wouic


the re u4t of


no ,ise;t. proc:.Ourt

along Lao folio,dn,4

of tu, 'rip Co

.14. re eoi.oe.

Fni,,rgo tae

cli...L1c it to oe_l with :444 m4



o ,;re ,t Le 1 o





r, of auavisi !,no

Enlarge the po,eru


of tht

ourc ..


to en,ble it to de.41 aith all matt-er.- of ra

LeAve all financin, of capital reuirentE for
no investorw.

for h-,nlin6 ty our tulkers


InVitb the neutral governments to

u ,pleaent ou

;.ith 11±-alon6 :,,omAhat Limil,r line:: if posj.Lle.

It apearo, u,on

th,,t in Lome res,,-,cto


Lot approve of the above suet.ons at any rtu tor the
poi,side to ondert,ke even th-Lt



tao tre.ty



is all most diea-ppointing to me, ,eronally, Lut,

leing made, I hoe, will reEuit in some ii4n for the im.le'7i:

this Ainter to thoi.o ,art of Europe Ahich :;,ay euffer for a,nt o


fore this lettor ru cads you I nay be able to Arit
along tnis

dafin tely, as to pro-,oeal
I ho.,'; tn t io4

anu quite confidentiElly,




uneortend that I am writir.e yoo





Dr. Viesering


ytareonLi views.

Our discussiOnE of these matter6,-when I
you, did muoh to cir my own min c'.
be t.k.i


the pleasure of visiting

gavemeb.dded aE,ur,:nce to urge that steps

for relief itie,ure'- Uiti minter, feeling -tht ke. mould count uron

t'ken in Hollntl :nd other neutral countri.

step E



alhO to thnic. you mo_t cortAiy for irA


,,ervice y.:14

rendered Lo uE in hlindlint2 the gold rceived from Gerw:hy, cohc,rning rhici, 1

Do write me froi tie to time,



ch,.:if crtiiy ket4 you idform7u

ov r here.

i o_n of devlo,labat
it: 1






0/0 ne Ned6ri.ndache ian*,
Am. Lerd


December 1, 1919.

Dear Fred:


I have your various letters dated )ctober 21, 22, November 7 and
10, all of which I have read with great care and interest.

I an greatly

pressed for time just now and will defer writing you fully in regard to the
proposed system of accounting in the reparation organization.
bills will be promptly paid.

The Embassy

In regard to the meeting at Amsterdam, how-

ever, I feel some real concern lest we be developing a situation already
difficult, either for yourself person:A.1y or for the Government.

It would

appear if you or any American signed the report that certain of our citizens

were endeavoring to influence or bring pressure upon the Government through
the instrumentality of the organization of the League of Nations.


tions of that character should first be presented to our own Government by
private citizens.

Furthermore, the report contains some references to the

method of treatment of foreign dett3rs which are wholly out of line with
what we know to be the present official attitude of our Government and some
sort of embarrassment is certain to result from anyone occupying so near an
official position as yourself signing such a report/

But, what impressed le

as unfortunate and I think I should write you this frankly, was your letter
of Rovenber 10 to Dr. Vissering, the effect of which has put everybody on

notice, that you are proposing to put the matter up to the Government for a

It might be that our Government night not like to be asked to

make such a decision at the tine.

In fact, I think it would have been wiser

to ask for an opinion from the Governnent privately before indicating to
others that we were asking for such an opinion.

I an writing this very


frankly because I kn)w that you want my opinion and that you are accustoned

to getting it frankly when you want it.

In one of your letters you said that you understood that I was in
sympathy with the idea of a bankers conference.

The only conference which I

discessed was a proposal that the Governors of the central banks should meet
at some time to discuss natters of mutual interest.

Such a meeting was urged

upon one by Ar..Gunther, Charge'de Affairds, at the Hague, who it seems sent
a dispatch to Washington repo unending that such a conference be arranged.
Confidentially, his dispatch was referred to ne by the :fission in Paris and

I urged there as I had already with Dr. Vissering, that no such conference
was desirable under present conditions because it would be interpreted as an
effort on the part of the central banks to deal with the foreign exchange
problem which is too vast a problem even for the central banks to undertake
to solve and it night in fact give rise to distrust and aneasiness.

Such a

conference would be of great benefit to the whole world just as son as
governments are spending no more than their intone.

Until that time arrives

continued expansion of credit and inflation of currency is likely to occur
and under such conditions I do not want to see the Federal Reserve banks involved in a discussion, the only result of which can be to place burdens upon
them which they should not now assume.
Sincerely yours,

Fred I. Kent, Esq.,
Vo Bankers Trust Company,
5 Rue Scribe,
Paris, France.


December 1, 191.





Der Fred:


4 If dct-4r

I am sending you two leAers toniay, neither of which, I fear,

-.rove very satiaf,ntory to you.

I am exceedingly Anxious that you do riot push ahead too fast
conhection with Dr. Vis:.,?ring's plane, or thoe other bankers'.
';:iave gra t re&pect for Dr. Vissering en,J for hie intentions and purposes,
ut, personally, I regard al_ of these plans for cre,ting something out
f nothing; as fundamentally unsound in many particulars and nighty cLngerThe report wnich you sent me con4Us from an inflationary stAndpoint.
*ins ,ome aciairable reitale, but, when it comes down to the proposed
0.eatment of the itu,Aion, it i.,, exceedingly indefinite in certain im,
40040rt and rather takes for ,reacted a willia:ness tc, organ0
.ze the financial forces of the world to look after Germany's situation
.t_ the moment, wi,,hout regard to tat, interekta of the hAions with which
were associated in the war.



Nothin that has developed nines my return changes my on
that the instrument to Le employed in this country for furnishing
d credits i the Grain Corporation, :.nd the one for furnishing raw
Serial credits is the riar. Finance Corporation.
I would like to see a
In worked out by which the interested neutral nLtions would cooperate
a large way, and even that should not be difficult with v. little inenuity.
I hope you keep in CIOZJ touch with Rathbona on all of these
ttera, a he, of course, will be fully informed of ov rythin, that is
on here.
`,' many thanks for your very interesting lettere, I au,

Sincerely yours,

-. Kent,
us :crib:),




t i ." 4






November 14th



Benjamin Strong ESQ.
Governor of the Federal Reserve
Bank of New-York

dear Mr. Strong


I just received
your confidential letter of
6th October last only after
a long delay
and thank you very much
for your courtesy to spent
a moment already on the first day
that yo':
were returned at your office
to write to me
Ihope that your
health will be again quite
It is really not a pleasure
and not without much inconvenience
to make such long travels
in this



bad season


In the meantime we have
had an opportunity to
several further conferences
and I expect that Mr.
Warburg will have
informed you that we had a
very interesting meeting on the
13th and
14th of October in my house
where Mr. Kent
, Yr. Rathael Georges Levy
from Paris
and Yr. J. M. Keynes
from London were also present
took the resolution to
call a second meeting only
of individuals
therefore quite unofficial
on the 2nd of November
and we invited
also Mr. Wallenberg from
Mr. Volckmar from Christiania
Mr. Gl6ckstadt from Copenhagen
and Mr. de Haller from
Bern to attend
to this meeting .
We have been so happy
that all these
gentlemen were ready to
come to Amsterdam
and Yr. de Haller was
one of his cdlleagud4-











gr:4-2e to more


.:xpechat he will fuliy;agree
al o with the


Levy was prevented to attend



as his wife was rather seriously

but we hope to gain still his collaboration also for the

resolutions of this last meeting


which has been convocated by

letters also signed already by himself in Amsterdam on the 14th
of October

Mr. Warburg will be able to give all further


information of what hapt'been discussed

and of the final opinion


of the gentlemen present at this conference

Of course



kept the conference and the resolutions absolutely secret until
we should think that the right moment should ha' come to publish
our views


In the meantime
on from Mr. Keht


we got some further informati-7.

writing us from Paris


that it should not yet

be the right moment to bring our suggestions before the adequate

being in the first place eventually the Council of the


League of Nations in London and the Commission des Reparations in

So we are obliged still to keep entirely secret the


results of the second conference


On the other hand we got from Mr. Keynes very
satisfactory communications about the persons he has consulted in
England about the steps to be taken by our combination of individuals


I hope





that when you receive this letter

all these


that are hampering now our combination to take further

will be solved


as circumstances are already more pressing

that something should be done to restore the very serious situation
-hearlytdeteriorating every day


,0ti:001&*44i.ilill be very ..grateful to you if you will be



f the most iitpartant

rhopt.also t




CFI 1°

TEL , CENT. 79-75


Nov. 12, 1919.

Mr. Benjamin strong,
Governor, Federal Reebrwe-uank,
15 Nassau St., N. Y.

Dear Ben:-

Your letter of Oct. 15 just leived to-day, Nov. 12.
Am very glad indeed to know your opinio of the strike situation
in America, although I had felt that there was every reason to
believe that government might be able to control the situation.
The principal difficulty is that they have allowed the poison
to go too far to make possible control without considerable friction.
However, it is a world disaster, end unfortunately government is permeated with it, as well as labor.
One phase of the situation here which is giving me a
good deal of concern at the moment is the lack of coal. It is so
bad that many industrial concerns have been obliged to shut down,
and as many of those which have already closed manufacture for
export, it is having bad results, which are already showing in the
Some coal has just come over from Germany, which is
going to help a little, but the German miners have knocked off
work to such an extent that the German production is nct sufficient to meet the situation. Germany itself is apparently very
short of coal, but this, I believe, is due more largely to lack of
transportation facilities than lack of the actual article. If
the Westphalian mines were worked to their pre-war capacity, the
whole situation would rapidly improve.
Passenger traffic in
Germany and Austria has been suspended for e fortnight in order to
facilitate the movement of freight. It is felt that this will result in a much better distribution of goods, and save some percentage
of the suffering that is inevitable this winter in view of the unwillingness of labor to work properly.

Presume you have talked with Mr. .larburg about the situation in Germany. Have been able to confirm a great deal of what
he said, but there are also conditions there which were not apparent to him.
By this I mean that there is still so much double
dealing on the part of the Germans that it is impossible to trust
them in a way that is necessary in order to enable a pulling together toward better conditions. This is undoubtedly not duo to
the acts of any of those with whom Mr. ..darburg was associated in
Germany during his stay, as they were the higher type and had a
different point of view.
The unfortunate fact remain
that there is sufficient German intrigue going on all the time to
prevent any satisfactory progress.
While the other nations, of
course, have many representatives who are also engaged in intrigue,


S. 2.

and which as well acts to hold back improvement, yet the carrying
on of some of the Germans is such that it makes it impossible to
place confidence in those who wish to act in good faith.

Regarding General Farbord, would say that immediately
upon his return to Paris, I wrote him that certain facts and figures
which were being obtained for me in Constantinople had not yet
come forward, but were expected any day, and asked him in view of
the fact that he had, according to the newspapers, turned in his
report, whether he still wished me to furnish him with the statement that I was working upon.
He has not replied to m
I take it that he does not care for the report, and as I am more
than overwhelmed, I shall not prepare it unless he asks for it,
because it would be foolish to do so unless it were going to be of
some service.
Will look forward with pleasure to your further letter
on conditions in America, which you promise when you have a favorable opportunity.
:;ith sincere regards, I am,




CENT. 79-75

Paris, Nov. 10, 1919.

Mr, Benjamin Ftrong,
Governor, Federal Reserve Bank,
15 Nassau at., N. Y.
Dear Ben:-

My former letter to you was sent immediately upon my return to Paris, and before I had gone over the matter with Rathbone,
as we had arranged before I went to Amsterdam. Rathbone is
absolutely opposed to putting in any matter about reducing loans,
It was because of such anticipation
which I fully anticipated.
that I arranged in Amsterdam before I left to have everything held
in abeyance until I telegraphed Dr. Vissering that the matter could
be released, The position of our Treasury Department in connection
with the whole matter is such that 1 felt it advisable to proceed
in such manner that it would not be embarrassing in any particular.
Will write you and Mr. Warburg fully as soon as Mr.
Rathbone has determined what position he may wish me to take. At
the moment he is considering it, and when he does give an answer,
it will of course be unofficial and absolutely confidential. The
calling of a meeting of financial representatives is in line with
your own opinions as I recall them.
'gill not stop to write more now, as I wish to send this
by Mr. Jay, who is sailing iiednesday.

With sincere regards, I am,


Enclose herewith copy of letter which I have just mailed
Dr. Vissering. Telephoned the contents to Mr. Rathbone, who is
in entire accord with it.

Paris. Net, 10, 1919,

Dr. G. Visclring,
?resident, Nederlandeehe Dank
.esterdame :loll nd.

4r (14_7 D. Vie3erings-

-etarn to ?*vie. i
otively Vasa vep the question
of Ohs presseteldon of the ,iemereedese drove wp laanaterdsowltheartota
impertedirepreeentutises of our Ilersaimit. the question of eneemblag
to the beep* of Motions, arming up as it did se eaddenly is
did nes glow 41, 0VgartunitY to assertaitsidbetber the isles ~fees

in *leered the polltleel eituatlee isimeriaa cLa to the ellseagefts
Wyse, at the asst is us. Dotted otobei foseee in rogation ts the trams
of P0300*
i fiat now, hoover, that than is a yosetbILItr tut% the Promemt
ation of the idemerundom to the League of Nation* olehA Molt in this avoloWm
oat of neeplitedieme shish scull ihorintety defeat the lea of Oter
aseteresseh this tedneltrue, it Is easessar ter re to withdrolozot oillearAPI
flea to the Memorandum anti& the natter eau be platelet lherter.

to °laxity tho altuatieo4 oesiblegreo le holeseent tv-aer
which will result in putting Le matter before our President, for there***
Of obtaining his opinion and it possible hie Smelt approwat. Lme 10 the ten
that the United dilates be ostilet span to Carat& the


am, feud that Nigh, be built ap lop the Nations asimerned, it is variesearg

that as have the approval of ourad-inistratios before emthingeam be dem,
gosh beteg the ammo It 18 tar better to obtain Oleah approval. tt palmate
beam unp meth* elope are undortaren to brims the &Aimee together to the
meow desired rather then etteretard, in sem) ear Aftialitraties doe* melt
appreme, nothing sin be ofteoplished Up Proem** the aseerandem to the
Limos of Nations, sod mhhh friction night develop, vbeream with its eppreeel,
001 NOM tesiordillth oontitenoe in an and
to Wag all of the liatiosS

senoareed is Me.
leardleas of shether it proves advisable to proem* the
reeereadme is the heaps of hohlooss the ilenterenoe With:hem bad, 1414 here

11.0140100 bemuse us wi21 got000ttooslar sod
out *dim the Govaloott aft ttio Vaasa states to eft lisi to to smoomottod

o otooptiotod oseething of volt

at Ow moat MU Ur Ms at

adds. adranees

t isoaps.

Dr. . YLatertif4


114ould we fiat that it is not poselble to in

the esestein

Govorn out into the roattor ba the manner endlaeledlt, the delarevelOo. eny

father oonsider_tiou of UOVOraMint taring part at proverb Wad be alp

*mod and It would

not be neeeleary to meet. 1111, more tias on this photo
WitA the hasekodle thus gained* it ribald usraly Weems a
Seatteres preposition riblohAbeesoleurly realised mold be tinflovi trot drat
alt tho problem*

polet of Tie. without Wag mated by the elseeet


governmental action, It moult thee be in or- or for lae Members of the
anterooms* to
their stogy of the elt4atIon alai/ether lime and as
sem se aorristpeaftess h passel lostrassn us that seemed 1 anew for Via


ieelsemseat ef NMI prestleal sethei
preeseures a way tber emit be *ailed
la Paris aid MI exult mese teswash dale. l7 two* the asseaftlisissent of
sesstasig that will be effeetive in tootle. the neeeeefitles of the seee
it will be in order

far you

to need a eeyfy of this letter to every
I am is resaipt of Aisplies to oalegvems
now gotag forwrd4 I mill Aviv, yen fiat. of ft* moult, also for thn intorno»
ation of the
of the c3onf3z-nno0.

Member of the antennae* AS


414 .,j,

truly yours*


Paris, Nov. 7, 1919.
Mr, Benjamin Strong,
Governor, Federal Reserve Bank,
15 Nassau 5t., N. Y.
Dear Ben:-

Enclose herewith copy of matter which was prepared at
the meeting called by Dr. Vissering in Amsterdam. Doubt whether
it will entirely please you, as I am not satisfied with it myself.
However, it seemed to be the best thing that could be obtained
in view of all the circumstances, and the importance of getting
the neutral nations of Europe linked up to the situation seemed
great enough to make it worth while to let it pass as it is.
Germany owes the neutral nations of Europe some 4,000,000,000
Marks, of which originally 3,000,000,000 Kronen were owed to
Sweden. A part of the Swedish debt has been repaid, but just tow
much I do not know. The neutral nations are, therefore, extremely
interested in having Germany able to work out from under her presThey also recognize fully what it may mean to
ent situation.
them if Bolshevism should develop in Germany or central Europe, and
they are ready to put their shoulders to the wheel to try to help
prevent such an outcome.
The meetings, which lasted throughout Sunday and Monday,
Nov, 2 and 3, were attended by Dr. Vissering and Mr. ter Meulen, of
Amsterdam, together with one or two others from the Nederlandsche
Bank, and representatives from Norway, Sweden, Denmark and
Mr. Levy, Vice-President
Switzerland, in addition to "Yours truly ".
of the Credit Mobilier, who represented France at the first meeting, was unable to come on account of the illness of his wife.
I expect to go over the matter with him, and if he approves the
paper, it will then carry a representative of France, as well as
of the other countries.
Mr. Keynes state) that in Great Britain they were extremely anxious to have the matter submitted to the League of Nations,
and he took such positive ground for this method of procedure, which
seemed to meet with general approval, that it was allowed to develop
in this manner. Of course if signatures are obtained to the memorandum by representative people in all of the countries concerned,
and presentation is made to the League of Nations, which may be called together inside of the next four weeks, it will either receive
notice, in which case a note may be presented to the governments
concerned, or it may be ignored. In the latter event it will leave
the Committee called by Dr. Vissering high and dry with no plan.

As you know, I have of course been working more toward



leave to lay before

The undercigned indivduals bie

the Council oZ the League o:! ration,, a pre7ceal that the

concerned, which should

Governments of tho coirit7ies

include the United Ltates, t.le United 1:Linp:aot. and the British

Ger7any, Austria,


the' chief e;,:poting count-

the Neutral countries 9f '.;Alrorie

ries of 6cut--.11Leric, should be invited by the Coul.!cil forthwith (the si:ztter being of tl.]e greatest urgency) to convene a
r::eeting o

Pinncial reue,,enttAives, .for The

ea:.:ining the situation, briefly set

iirp,.so of



to ro-

coE-::ond, in the c- e:1-. oi their deciding that co-operative

asEistance ie neesary and advisable, to whom and


eneral conditions.

as:dotance should be given zinc'_ oil what

They venture to add to the above recommendation the
following observL:tions

The ,;.ar Ags left to conqueror and conquered alike
the problem of fif:din

/roans octively to arrest and counter-

act the continuous gro1.7th in the volu:ne of outstanding money

,l-overnr:a.nt o*Jliations, an t, its conco.nitant, the

constant increase of prices.

A decrease of excessive con-

sumption and Ra increase of production and taxation rare
not the only-, remedies.

recognized as the r,ost hopeful,

Unless they arc prcrptly &7flied, the ;_opreciation of Toney,

it ib to be feared,



continue, viping out the savins of

the past and leading to a -::3raduF; :l but persistant sT,reading

of banruptcy and anarchy in Europe.

- 2 -

There can be no social sr oconoLlic future for any country , which

ad6ptb a perlanent policy of meeting its current expenCiture by a continuous inflation ^f its circulation and by increeaing, its interest-bearing

debts without a correoronling increase of its tangible assts . In prnotile
every country will have to be treated uftor careful study and with due
regard to its individual conrUtion3 am requirelnents


is deserving of credit


No country


nor can it be considered a solvent


debtor , whose obligations we may treat as items -f actual value in formulating our rlana for the future

that will not ",r cannot bring its

current expenditure within the compass of its receipts from taxation
andThis principle 1.0M.#9 clearly brought home
other reular Lust oo



for it

ill be impos.,,ible otherwttse

dream of false hdres


illusions to the

that Germany .r1ll have to bear a heavier load than



in conformity Tfith the Treaty of Peace

st possible burdn she may saf::ly assur.le

kia that this, bur,4cn

ble taxatien o-J1''

which forms th

o. a riot

t.,xc.'d ths.m3as..Irc.

very sourc.. of :ffoctive taxation

mic flv..?lopmnt is i.ivolv.A.


inds that



, whose

mast not




th tho most drastic

trale and corioumption



tribute imn,, towards the curr nt




that it lot;s not 'stroy

itors Ll.nd for th.: saki ni th




oblie,atirns now stipulated

ootA to talce th

view that tho scope

brought v:ithin the lizialts

even though it might

d of instaIn_nts

necassary for



a7z .17.T




















j7;Srar V










.T-:ICU r7t









T b



















LJL aq









v ;Jvd ru


























Lc o7;






:..:UTTToTo V













JatI4T So .touTuvpD:rov eu:Jav7..)-;ez,a.:,7_tzT au

aToVq. leoTTTIT










o7; ;evd



.70MILTAL oVq.


oW. Ta1.7VIOu




it. e-7.TAve






























7J:x euvJT




ev v

ovm V



oqT I-211T.TM 30TIVIrQ IJ
...,$7:71137UT tr-J


laTou40; p7v pTo7.)

- 4

4,11enot necessary


free the

the fictitious items

or,71J's bslcIncesheet fro.n come cf

hick no'' inflate it nni lead to Pere

.despair an the part of some, -nd i I rocklpssness
others ? 'ould uo. ^


firs.t step to-ards

c re



-hen once the e-Tenditure Di' the vari,uF

has been brought ithin their taxable capacity,
a first cOitirNn






.opran countries

-hich should be

granting the r, further a::sistance


n i



the burlens of indebtedness, as betreen the 'liffcrent nations, have

been brught

ithin the iLmits ol


as to h.or those countries are to

tal necessary for them t

tins the cirel of

raLle' 'arises

furnished -ith the Iorking capi-

purchase the imports renuired for ra-star-


to rr,::tmre thfr!ir pre,Auctivity, and

to reorganize their currencies.
Thn cip;n-orios submit that, rhile -,nch can be- lone through
bankinf; channels,
in smount r,til


-or!:inr capital rraelcd is too larg4

is re,luired too


adeouatt. Thy are of (1,Anion thtrefore tit
sulm scheme



only to a single country,


it is not



-ore comprehensive

',unction of -.o1'1'ordi"nr

-er2 allied in the -ar.


channels to be

in .!(

o p of Anintris

inter.sts of the

belligerent countries, Mich -n




.asidy from taking it


hich all Throp,


t :orn,, 1

now suffwrin,7.


LrArit Yor which

thr, League stands than 1 great int, rnational act of

assistance designed to heal

or r-urope

4.,tions wore to rec4mmend

co,k(ative action, there is n 1.1.tion u2lonst

.Jo act could



Theyht.liee that, if the Lc :ague




.:t,(1 .-conoTic evils from

It is net rur intention to sur77est in detail f-e rethod
by 7:-inh such intrrnational co-rye-ration in the grant

roy be secured.



e alle'r ourselves the folloyin7 observat-



1.- Abe

.,reater 'rart of the furC,E, must necessarily he sul'rlied

by these countries, .here t.7:e balanne and the ox-

(.harze3 are favouraele.

2.- Lrr4: tern nredit, sunh as is hen nortorrlated,

only desirable in so far as it i3 obsrlutoly receSs-ry

to restore rrlductive rrrresses. It is rot o substitute for
'those efforts and sacrifices Cr.. the Tort of e:leh country,

by whinh olcre they can solve their irterral Irobler. It
is only by the real eronomir renditions 7sresin' : severely,

as tbey- rust, or the irdividual that equilibriur can be

5.-For tl-is reason, and also base of the Tfeat derands or
r.qrit:1,1 for their on interral
nourtries V-;er:seivos,

uroses in

t'i' :7


the credit strlied s'-ould be reduned

to the ririrum al,solutely necessary.

4.-Assistance should as far as lossible he giver ir a. rorr
which leaves national ar.d irtrrnatioral trade free from
the restrictive control of C:overrrents

5.-Any SCIP

ercrura7e to t:-.e

T;reatost extent rossiblc

t:v suyly of credit and the develorert of trade throurl'h


as it ,-ro-e s T:essible to issue lo-,,s to the

uhlic ir the lendin7 countries, these leans rust 1,e or
s'Arh terro as -ill attract

dividual; other-is

inflation ":ould bo incrased.

bcrrolrinr; ocurtris

chtairable sonurity. For tl:is



real savin4s of th-. in-

L:--c to yrovide the best
'-qr:r.ose, it shruld he





surh loans should ra..h in frcnt of ail other iddebtedness

whatare,-er whether internal Jet

interallied ovor=ental debt


reY.aration payment ,1



Rlrull be set aside by the borrowing

countries a


a ,7:uarantee for the pay:rnt et interoot an amortiz-

the rharactor of surh nruriy varr;rin 7 T.orhars from

nountry to nnuntry

but includinc: in the caao of Gerna7ly and

the riL-nr ntates the assi.7r1T-.ont nf

paya:)le on a gold basis

export duties
of E;tates entitled

and 111 t./7

receipt.? from Ger:lay


a fit char

tn ouoh ronoipts


at preqent I- darl:
Ilefore us now

7reatr tash is

than to devise neano .):: which sr-z,e measure rf

ho.cfullness will roelitor the nindo of the msses
bliohi:.lent of

tr -forL and to cave




The reesta4

of Incentives

tc the nir.:h:-:st indi7idual effort and rf orportunitis for every

one to enjoy a relsonable share of the
the air,: towards which the bo:t

should ncoperate

, of hia exertions

in aIl crurtrieo


Only if we. rer7nise that the tine has now

rr,me when all nruntrieo must hlr, rne another

bring abut an atmosphere


in -hirh r-fe

ran 7so hope to

ran iron ferwAI-1. to the

restnration of nornal conditions and to the end of our rresent

In conclusion th

simatcries desire to reiterate their

ronviotirn as to tho very 7.ra-fe ur7en:7 of these questiens in
print of tit


fi_jvery nohth



yjJj aravato the

-orrblem and render its e7entual nriuion increaningly difficult.

ll the infornatinn at their dionrsal nonvices them that very

rritiral days for :urope are jC

cnt and that no tine nut

be lost if catatrorhos are to be a7crted







Dated October 28th, 1919.
Recd. 29th, 9 a.m.

Secretary of State,
Washington, D.


October 28th, 10 p.m.

R-18, to Secretary of Troasury for Davis
from Rathbone.

The exchange questions affecting

accounting are difficult of solution.

It is evident

that damages for Which reparation is to be claimed
must in first instance be computed in currencies of
respective courtries which have suffered same.
For accounting purposes there should be ore currency
used, to which all others car sooner or later be

The gold mar: is obviously the proper currency

to so use, particularly as bonds provided for in Annex
Two are to be payable in gold marks.

It seems quite

evident that in figuring Germany's maximum debt
it is proper to convert the items of damages expressed
in the respective currencies of the various Allied
ar.d Associated Governments into gold marks at gold

parity, provided Germany, in making payments in gold

raris - 2 -



or its equivalent, is given the benefit of the depreciation

in the currencies of the various governments at the time
of payment, so that Germany will be credited on account
of future payments with the depreciation at the time of

payments of each allied exchange upon New York exchange
market as fixed by Federal Reserve Bank.

The foregoing

is equivalent to, but simpler in its operation than providing that Germany should be only required to pay install-

ment in gold or its etivalent up to the requisite proportion
of the respective currencies of the various Allied and ,tosootited Governments which such paimenf would produce, on account

of the depreciation of those respective currencies as shown
by the rates fixed by Federal Reserve Bank.

You will ob-

serve that as maximum German liability is determined by
conversion of allied currencies into gold marks at gold parity
though the currency of a country may, theoietically, go to a

premium in New Yoit, the maximum Ger]mn obligation to pay
will not thereby be increased.

In view of the fact that

conditions of trade will more nearly approach normal as
time goes on and considering also the effect of present
treasury support &British, French, and Italian exchanges

will disappear - it is believed that no fairer

Paris, 4669



the currency of the country receiving same would

be deducted from the gross claim of that country
expressed in its own currency and the same amount
would be converted into gold marks at gold parity
and be credited to Germany as a payment on account of

As to (B) second above, appropriatT

that at the moment conversion of marks intc other
currency measured by exchanges may not furnish fair

However, as trade returns to normal and

artificial conditions brought about by blockade and
War disappear believe that price of materials on
row York exchange market will furnish most equal
basis for conversion of paper marks into gold marks
or into currencies of various other countries.

In meantime

it might be possible to make conversion of paper marks
inim gold marks on basis of table of commodity prices

in United States and Germany as index

with reference

to prewar prices of such commodities.

See no reason

why such table should deal with prices elsewhere than
in United States and Germany.

It will be necessary

fix value of paper mark only with reference to
gold, as all conversions between gold mark and
currencies of various allied countries will be on

basis of mint (parity?) of exchange, and as already
explained Germany on all payments, whether in gold,

materials, services or paper marks, will be given

Paris, 4869



- 5 -

given benefit of depreciation of the allied
currencies as measured either by New York exchange
or by decreased purchasing power of currency in
which values of materials or services are fixed.
It is recognized that where



are made by Germany on account of reparations

while Treasury's support of pound, franc and lire exchange
still exercises influences on New York exchange market, the
system proposed is not beyond criticism.


as payments during such periods will be relatively small,
the comparative simplicity of the plan proposed compared
with any other plans considered recommends its

Believe it is impossible to devise any

fairer plan or one beyond criticism.

The plan

proposed which contemplates the agreement in advance
on many important principles will, it is believed
tend to avoid friction and differences of opinion
between this and countries in t,e future.

If you approve, intend to submit

to commission on organization Reparations Commission,
exchange section, American position and accord with
foregoing, substantially as followst


As the

custom sustained by France, Great Britain, Belgium and
other countries must necessarily be final, in the
first instance, in their own currencies, it seems
sound that these currencies be converted into gold
marks at par of exchange in fixing maximum custom, and

Paris, 4869

and that Germany should be given the benefit of

in exchange of these countries,

measured by New York's market in most cases: i.e.,
the payments made by Germany in gold marks to be
figured at the exact amount of the respective amounts
of francs, pounds, etc., the gold payments would
produce over the Eew York exchange market.

To the extent that the payments are

made by Germany in materials or by services (uhless
otherwise determined b,y the treaty) the value thereof

should be determined by Reparations Commission as of
the time of the delivery of such commodities or the
rendering of such serviceg,in the currency of the
country obtaining such payment in materials or

While ordinarily these values would be

fixed by the °omission on the basis of values of
similar com.odities or services in the country receiving
the same yet, if the commission were of opinion that
unusual conditions existing at the time did not
give a fair indication of the valuation of such materials
or services so determined, the commission in their

discretion, might fix such values with reference to
the world values thereof.

The values of the

materials and services so furnished by Germany, fixed
as above, would be converted into gold marks at gold
parity, and the corresponding amount of the claims
of the respective countries receiving such materials

- 6 -

Paris, 4869,



materials and services would be credited with a
corresponding payment in gold and the amount of
total maximum claim against Germany as fixed in gold
marks would be diminished by the aggregate amount.
As the claims of the Allied ard Associated Governments
in their respective currencies are to be converted
into gold marks at mint parity, similarly the amounts

paid by Germany in a materials and services when valued in a
currency of an Allied or Associated Government should
also be converted into gold marks at mint parity in order
to determine payment made on account of Germany's
maximum obligations stated in gold marks.

Reeognising the abnormal conditions produced

by the blockade and other war measures upon German
exchange maw prevent at the moment the purchasing power
of the paper mark being fairly measured by its value on
the New York exchange market and recognised also that
as trade conditions return to their normal state the
concession of paper marks into gold marks may fairly
be made on the basis of exchange rates between the
United States and Germany it must be left to the



to derive when to commence the operation

of such rule of conversion and in the meantime to base
the conversion of paper marks into gold marks on the

basis of a sympathy with camodity prices ir the United
States and Germany as an index with reference to relative
changes from pre-war prices of such commodities.

Paris, 4869,


Cable at once whether you

approve our taking position indicated.

You will observe the soundness of

our position as to method of conversion of
German paper marks depends on whether proper table
can be prepared as contemplated by subdivision C,
paragraph six above.

There are no experts here to

prepare such table or to demonstrate that same
could fairly be used as a basis of conversion of paper
marks into gold the table papers in Washington.
Believe that Gay's organization

had compiled data

needed in making up such table.

Will you have

such table prepared and cable me earliest possible

Without awaiting comrletion of table I should

be advised what commodities are to be used and
fully the methods of converting paper marks into gold
the use of the table and the reason why such methods
will give an equitable result.

Kent and Sterret have been this

but lately and agree with it.

Eent suggests that

last clause of sub-division A, paragraph six above
would be more clear if stated in foreign exchange terms
as follows:

'Payments made by Germany in gold marks
to be credited Germany succeeded to the percentage
of deprecation in money of each country concerned as

Paris, 4869.

as measured by the rate for its exchange as
quoted in the New York exchange market."

Kent also informs me that large amounts
of paper marks are being now sent in Holland
and United States resulting from special buying
in those countries and from Dutch purchases of marks;
resulting guilder' have been used to purchase dollars
and sterling.

These transactions show that the mark

is beginning to be dealt with more freely again in
the world's market.



AMERICAN nissior.


Paris, Oct. 27, 1919.

Mr. Benjamin Strong,
Governor, Federal Reserve Bank,
15 Nassau St., N. Y.


Dear Ben:-

While I do not suppose it possible that you could consider from my letter to you, and the plan enclosed, that I believe that the exchange rates represent an exact parity of prices,
yet as we are so far apart, thought I had better not take any
chances of a misunderstanding, as it might make a difference in
your opinion of my point of view.
It seems to me that any bill which is rendered must be
on as firm a basis as possible, and that gold of "present weight
and fineness" is the only satisfactory measure possible to this
operation. While due to local conditions commodities in different
countries carry different price indices as reflected in depreciated
currencies, yet due to the peculiar situation of the United States
as a producing nation in connection with the requirements of the
European countries concerned, I believe that the foreign exchanges
will come nearer to giving a correct and fair solution of the problem
than any other plan that can be devised. Their use in the manner
outlined by me will also eliminate friction between the representatives of the various countries, that would be certain to occur
should any uncertain methods of procedure be adopted. If price
indices were taken into consideration, there would still be the
necessity of using the foreign exchanges for the purpose of making
a proper comparison, and I believe any such system would lead to
endless bickering that might develop more bad feeling between the
countries than anything else which could occur in connection with
the work of the Reparation Commission. Germany is not going to be
able to pay any more or any less because of the establishment of
any complicated or other system, and I feel certain that if she
is placed in position to obtain credit for depreciation of the currencies of the Allies as shown in their foreign exchange rates,
it will be entirely fair to her, and she will receive all she deserves.

The Reparation Commission has it within its power to
analyze the bills for damages upon their presentation, and to consider prices of commodities and labor in the make-up of the bill.
They can do this with far more certainty of exercising proper judgment if a fixed system of accounting and conversion of the foreign
exchanges is to be followed afterward than would otherwise be possible.



F. 2.

Mr. and Mrs. Rathbone and their daughter took dinner with
us the other night, and we had a very interesting evening.
The meetings of the Commission have now started, and
those of the Organization Committee, to which I was a delegate,
are finished, for which I am very grateful, as it took so much of
my time that I have been simply overwhelmed.
Hoping this will find you well, and with sincere regards,
I am,



TEL CENT. 79-75

Paris, Oct. 44 4919.

DEC -1 1919
Mr. Benjamin Strong,
Governor, Federal Reserve Bank,
15 Nassau St., N. Y.
Dear Ben:-

Dr. Vissering requested me to attend a meeting in
Amsterdam, which he called for the purpose of considering the
whole European situation. Mr. Keynes was there from Great
Britain, and a representative from France. Mr. darburg was at
the meeting, and a number of others.
It was decided to hold
another meeting on November 2, which will be attended by representatives from Norway, Smedensnd Denmark.
Dr. Vissering asked me to write you in detail about
the matter, which I gladly promised to do. Will, however, await
the next meeting before doing so, as I can then give you a much
clearer idea of the situation.
In the meantime this will let you know what is going on.
dish you might have been there.
Sincerely yours,




Paris, Oct, 21, 191,94
Mr, Benjamin Strong,
Governor, Federal Reserve Bank,
15 Nassau St., N. Y.
DEC -11919


Dear Ben:-

Since I wrote you last I have been simply overwhelmed,
as I have been serving as delegate on the Organization Committee
of the Reparation Commission, and have also made another trip to
Belgium and ITOiland.
It is only on that account that I have not
written you.

In connection with the work for the Reparation Commission for some reason or other cables have been sent that the delegate had made certain recommendations which had been agreed to
after consulting me.
As a matter of fact I have been the delegate,
and have attended all the meetings, but I suppose my address being
all Street made it seem advisable to camouflage me more or less.
However, that is neither here nor there, but I thought it had
better be mentioned to you confidentially, so that you would better understand the situation,
During the meetings I made two reports, one depending
upon the other, copies of which I enclose herewith. They were
both cabled to the United States, except the table, which they
did not feel could be very well sent in this manner. Athout the
table I can readily see that the whole plan might not be understood, as it was drawn up for presentation to the Commission with
the table as a part of the document, so that without it it is
Mr. Sterrett just called upon me, and showed me a copy
of a cablegram which Mr. Rathbone received from Mr. Davis, in
which he stated that he had consulted with you and Mr. Leffingwell,
and that you all felt that the system outlined was not satisfactory and might not be fair in its operation. While the points
raised by Mr. Davis in his cablegram were clear, yet it was also
evident that you did not any of you understand the system, which
was not at all strange, as you did not have the table.
Further, the fact that the United States Government advanced funds to the Allies which helped protect their exchange during the war has no bearing upon the situation at present, as all
the exchanges are free from effective government interference. *
This being true, exchange rates are of necessity written into
prices of commodities. For instance, if a French importer buys
wheat in America at 12.00 a bushel, and he is obliged to pay 8
Francs for every dollar of exchange, he must sell his wheat in
France for 16 Francs a bushel, plus his expenses, before he comes
(see last page)


B. F. 2.
out even.
pith the censorship on cablegrams and letters removed,
and the service becoming more and more normal, arbitrage of exOn this acchange and prices is getting more and more free.
count dollar exchange as between France and the United States is
finding its way into prices of articles that may be imported from
Great Britain. Again, the United States must supply certain
principal foods and raw materials to Europe for a considerable
period, and the cost of living is largely based upon such articles, for luxuries are purchased from desire and not necessity.
Establishing some positive system of figuring the exchanges does
not prevent the Reparation Commission from considering price bases
in any manner that they may desire for the purpose of ascertaining the ability of Germany to make payment as time goes on.

From what T can gather in my study of this situation,
which has been greatly extended since I saw you through many
new fields and a going over of old ones, one of the greatest necessities of the moment is certain knowledge on the part of
Germany as to what her maximum payment must be. If it is stated
in a certain number of gold Marks of present weight and fineness,
with a fixed maximum that is fair to all, it will be far better
than if stated in any uncertain manner based on possible fluctuating
prices of commodities. Such credits as Germany may receive from
the Allies under the system that I have outlined will simply
serve to reduce her payments as they are made, but will always
keep before her a clean total amount that she will have to meet,
except for any possible future credits.
Then it comes to the question of the depreciation of
the currency over gold, the foreign exchanges are one of the
This is shown fairly well in the question of
clearest measures.
pension payments. The French representatives at the meetings
stated that they were authorized to include pension payments in
their bill for damages. They stated that on that account they
must receive the exact number of gold Francs that was necessary
to cover their pensions, and that their pension payments should,
therefore, be carried into the bill on a gold basis without any
deduction for exchange.

I explained to them that if the plan I outlined were
used, and Franc exchange as measured by the United States dollar
was 50 discount, and Germany paid in gold Marks on a basis of
50% discount, so that France would receive 50 Francs for each
100 Francs presented in her bill, that the gold so received could
be shipped to the United States and dollars sold for the proceeds, which would give the French Government exactly 100 Francs,
less cost of shipment, so that even in this case, which they
felt was the most difficult of all to consider from an exchange
basis, it was entirely fair to France, as well as to Germany, to
allow the exchange rate to rule. As long as it is possible to
ship gold Francs to the United States and sell the proceeds in
dollars on a mint par basis in Franc exchange, which is paid for
in paper Francs, the dollar rate of exchange measures the depre-

rip B. S. 3.
ciation of the French paper Franc, and the same is true in
Germany. Paper Marks are now being shipped to the United States
in large amounts, and the dollars received are available for
purchase of goods in the United States, for shipments of gold,
purchases of securities or other forms of investment. If the
price of goods in Germany as expressed in paper Marks should
reach a point where it is profitable to ship paper Marks to the
United States and sell them for dollars, which could be used to
buy the same kind of goods in the United States for import to
Germany, the operation would be continued as long as it was profitable, As the United States is a producer of such an immense number of different commodities, and articles, which go into the
daily life of man, the value of the American dollar is a very
real measure of the depreciation of the paper currency of the
European nations, under present conditions.
Any operations which the United States Government may
have made in the past to temporarily help the exchange of the
Allies now hang over that exchange so that such operations cannot
be considered in the light of favoring the Allies over Germany
in connection with reparation payments,
will not write more at the moment, as I want to get
this to you as quickly as possible.
Sincerely yours,


Understand there are still some funds available to France that
were advanced by our government, but by May 1, 1921, when the
bills for damages have to be presented, such funds will have
Now that the blockade of Germany has been
long been expended.
raised, Mark prices in Germany are rapidly climbing to arbitrage
levels, and there is evidence that long before May 1, 1921
parities will have been reached.



October 10, 1919.

Charge to Treasury Department.
For Rathbone from Davis.

Treasury R-4.

Refer Mission's number 4469 October first to Secretary of State
relative to accounting under Reparations Commission.
'While it is probably necessary for the reasons stated to carry

the accounts in gold marks, I question the equity and soundness of determining such sums under the system proposed.

Although I realize the

difficulties in developing another workable basis and have no specific
plan to offer now in substitution, it seems to me for the following
reasons that some other basis of determining values must be worked out.

It is a mistake to assume that the depreciation of the

mark Paper currency or its mark gold value can be ascertaired correctly
through the dollar rate of exchange.

It is also wrong to assure that

the rate of exchange between dollars and marks and francs registers the
relative depreciation in those two currencies.

That might be Possible

if the rates had been determined by natural comnercial transactions free of articifial restrictions.

Such is not the case.

Franc, sterling,

and lire exchanges have been supported to a great extent by the Treasury while Germany hue been excluded from the world's commerce for five
years and has had no means of supporting her exchanges.

When such

artificial factors enter into the determination of exchange rates

such rates have no real economic significance. Men peseta exchange
was selling at 28 cents it would have been equally fallacious to have
assumed that the dollar had depreciated 50 per cent.
It is doubtful whether the German paper mark hae less


relative purchasing power in Germany than the franc has in France.


is therefore more important to devise some plan for arriving at the value
of commodities and services and the relative purchasing power of the
respective domestic currencies than try to fix their depreciation or
gold value in relation to New York exchange.

This may be done by using

commodity prices as an index with the relative increases from pre-war


do not understand where there will be any interchange of

commodities with which the Reparations Commission will be concerned, where
conversions of Allied domestic currencies into gold marks will have to be

There are also few if any cases where German domestic currency

will have to be converted into so- called gold marks.

The coal, etc., to be

delivered by Germany under annex five of the Reparation Chapter apparently
may be paid for in German paper marks.

In respect to materials, etc., to be

delivered under annex four, to ships under annex three, and to the other
items specified in Articles 236, 237 and 243 for which Germany is to be
credited on reparation, the Reparations Commission shall determine the
values and respective credits and may very well fix this in gold marks

without any specific conversion process, by reference to the world value
of such properties and materials.

I do not quite understand the Proposed plan that each

Allied country should compile a statement of its damage on the basis of

- 3 MIP

its gold currency and that the total should then be converted into gold
marks at the mint par of exchange.

The amount of damage assessed against

Germany should, in my opinion, be calculated in the domestic currency of
the respective countries, because most of the reparation of such damage
(which will represent labor and local materials) will be paid for in
such doMestic currency and not in gold.

It may be expedient for account-

ing purposes to convert these sums into gold marks.

The damage however

can not be restored or paid for for many years, and by the time this is
°one there may be a considerable difference in the so-called gold value
of the currencies which have been theoretically iireviously converted
into gold marks.

If, however, it is proposed that the calculation of

damage shall first be made in the present paper currency of the country
concerned, and then reduced to the gold currency of such respective

country by determining the percentage of its depreciation in relation to
New York exchange, and the sum thus found converted into German gold marks
at par of exchange, it would probably be fair and just to all concerned,

provided the rate of exchange on lew York would show the correct relative
depreciation in such respective currencies which is moat doubtful.

Germany will owe so much more than she can pay that it will

be a very unjust, shortsighted policy for the Allies to attempt to purchase German commodities deliverable under annexes four and five and six
of the Reparation Chapter at less than their real value by taking advantage of her abnormally low rate of exchange and taking the domestic price
in paper marks as a basis for conversion through dollar exchange into
so-called gold prices.

Naturally the mark has a greater purchasing power

in Germany than abroad, likewise the franc.

The determination of pre-

war prices for German commodities such as dyestuffs figured in marks


- 4

can only be properly made by ascertaining the relative eurdhasing value
of such pre-war marks.

I have discussed matter with strong and Leffingwell who

agree substantially with may views and also briefly with
sailed yesterday.
ing out a plan.

terrett who

Sterrett should be of considerable assistance in workIn the meantime suggest you discuss question with Kent

with a view of his working out plan more on lines above indicated.


you can defer action until Sterrett arrives and then determine on whatever
plan you think best after discussion with him and Kent.
R. C. Leffingwell.
Assistant Secretary of the Treasury.




lot. 1, 1919.


ct. 2, 4 AM.

Oeoretary of !'tate,

Tashington, D. C.

,:)ctober 1, 10 Pr.

American representative, who is being assisted by 7r. Fred
F. -ent, or subcommission of Interim Reparations Commission considring the methods of accounting of the Reparations Commission, has
tentatively presented following nemorandum to committee as showing
American position;

coney of Account.

The accounting of the Reparations Commission should be carried on in gold marks for two principal reasons.


Ir, order

to be able to follow the terms of the neaoe treaty with such certainty that no misconception oar: ever be placed upon any operation

fa 4
of the books of acoount, the kind of money nominated in the treaty,

mmely 'gold', should be used.


For greater convenience, be-

cause the separation Commission, after determining prices in each of
the Allied countries of commodities exchanged and the amount of damage to be assessed Germany in the currencies Of etch Allied country
on a gole basis, will have only one conversion to make, and that di-.
rent into gold marks.

r of

:40itn 4469 Faris



With the accounting established in

gold marks, it is desirable that a system of oonversicv of foreign Rare
rency into Bold marks be dfcided anon that is ail:rile and eositive in

it& operation, and that is beyond 7)ossible otaticism.

The best

means to this end is tocnerate under the followinr system:

gold values of the currencies of all of the illies should
be used, all conversions being made at the gold rates of exchange (mint
pars) from the currencies concerned into German gold marks.


this system it will devolve unon the eparation Comission to establish
the orices of comrodities (which it must do undrr the terns of the
treaty) in the gold currencies of each country.

This will necessitate

the conversion of prices as ascertained in the paper currencies of the
Allies into the gold of the same moneys before such moneys are converted
into gold makks.

The percentrAre of derreelation of such currencies

should be ascertained through the dollar exchange, for reasons which follow.
Prises which are ascertained in mark paper currency should be
converted into mark gold by obtaining through the United rtates currency

the 7rcentage of depreciation of the mark paper currency.

'ach Allied country, when comellinp a statement of damapesle,,,4
should do so on the basis of its gold currency, and the total ,rould

- 3





of Aopreelation as the operations of the Leparation Commission take

Again, because of the fact that the t'nited Ctates payer dollar

and gold dollar have the same buying power in the ;;kited "Ttates, lil-

ted Mates dollars renresent the only point that might be called
stable from which to figure the Percentage of depreciction in the currencies of the other Allies.

united ;' totes dollare, therefore, can

effectively be used as a basis for ealeulation.

rates of exchange

under present conditions are fluctuating in large percentag s, not
only from day to day but during the business hours of each day.


es7ablishing a rate in dollars from whio% to figure the depreciation
in other currencies, it would be necessary, therefore, to accept
thP rates of some ;.articular time of dap.

Fortunately, ire connection

with other matters an official rite is being established at 12 o'clock
noon of each business day by the Federal reserve Bank of rew York
covering the currencies of erincioal Allies.

The establidamert of

suoh official rates can be extended to include the currencies of all of

the countries necessery, including Vraany, which will vivo a positive
and properly established firm rate of exchange to act as a basis for
all calculations.

The Federal Reserve Lusk of r:ew York would un-

doubtedly be glad to furnish the reparation Commission with an official
cony of such rates at the*, are establiehed from day to day.

In view of ;act that the iederal 7.eserve Bank of Yew York

does establish official Tatra daily at 12 o'clock noon, it would be

more effective and work with greater Notice to all concerned if recommendation be made to the

epantion Commission thLt the conversion

rites for each transaction be those of the day of its consummation, and


- 4



not those representing a monthly average.

By so doing it will

not be necessary to wait before making calculations until monthly average
ratescan be ascertained, nor to accept the average rates of the previous month, which might be entirely out of line.

Surmarising general

71th accounting in gold marks and conversions from Allied

moneys into gold marks being made at mint pars of exchange, and nerCenteges of depreciation of currencies being ascertained through the
Ftates dollar based on official rates established by the Federal 7eserve Bank, a smooth working, prectioal and legal eyutem would
have been established.
beyond controversy.

The mint pars of exchange are fixed points
The treaty of T'eaoe dist'netly authorised the

7 eparation Commission to establish prices and wit: no instructions to-

the contrary, their determination in the gold currencies is legal
beyond toubt.

Througn the establishment of prices in thr gold

moneys which are to be converted into the gold mark, the Reparation
Commission wouli, be 17] :,osition to operate with positive justice,

as the price when arrived at would be the exact price which would be
converted into money of account.

By taking the official rate of the Federal reserve Bark
of Yew York at 12 o'clock noon of each day, the cVterminatior of
an average rate which otherwise would have to be established from

mere opinion as to what constituted an average rate of a day would
be eliminated, and the di.ferences in time which exist b"tween various
foreipm exchange centers could never be broupht in throuph argument t40-:

throw uncertainty u'on an: exchange rates selected."

5 -

'lain 4469


Our delegates' opinion that
this 92'0-n:teal will be
by subcommittee and reported
to Interim !eparations
Commissions with
their a woval.
Request this be referreo to
strong of Federal T,eserve tank for his views and
then taken up with TreLsury
for its an9roval prior
to cabling
:rpartment's loproval or
modification of :merican
delegates' position.
strong fully conversant
with latest chases this
question and his views therefore
of great value.
uestion will hzve passed
through subcommittee and
will come up for consideration
Interim lenaratlons
Cow:lesion in a-

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