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MISC. 4.1-120 M-1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
Tb

Governor Strong
QM

DATE

February 9,

192k

SUBJECT

Yr. Carl Snyder
The article "Business Men on Money" may amuse you; and I should also like

to draw attention to Prof. Fdgeworth's review of Prof. Cassels new work.

MISC,A.00M4-20

I FEDERAL RESERVE BANK
OF NEW YORK
DATE

1FFICE CORRESPONDENCE
Mr. Jay

T6

SUBJECT.

October 26, 1920.

The Rediscount Rate

Mr. Snyder

There seem to me at least some reasons why it would be advisable to consider
lowering the bank rate.
It would probably take two months of discussion to bring this about.
The fall in the big basic commodities within the last five or six weeks
has reached almost panic proportions-..on our chart, 26 per cent0 from the peak in
May to last Saturday.

to

This is confirmed by Bradstreet's, whose index had fallen 21 per cent.
October 1.

This fall in prices and the check to business is largely ascribed to the
The Federal Reserve
Federal Reserve policy, and there has been savage criticism.
System is on serious trial for the first time, and it might be wise and politic
to temper the wind.
The influence of the Federal bank rata is, under the present law, almost
purely sentimental, and under this law the banks and Board have no real control of
money rates, such as does the Bank of England.
Lowering the bank rate would not of
itself tend to expand credits further.
A bank which can get 8 per cent. on gilt edge bonds and other collateral
is going to do all the expanding on a 7 per cent. Federal bank rate that it deems
wise and safe.
This would not be stimulated by a 6 per cent, bank rate.
Such action by the Federal banks would take the edge off of criticism,
give the country a feeling that the banks and the Board regarded conditions as
sound, and tend to check the present collapse in the markets, which is quite as
inimical to the peace and prosperity of the country as the wild inflation of last

year.
I(5)

(6)
As the Federal banks did practically nothing to check last year's inflation until it was too late, it might be argued that it has no business now to
throw all the weight of its influence towards a too drastic deflation.

The present prospect is for intense business stagnation this winter,
contraction in bank credits, and quite possibly money a drug in the market
next April.
This would inevitably mean greater unemployment than has been seen
in this country this generation.
asevere

1(7)

The present fall in prices has probably occasioned greater losses than
any panic we have ever had.
The situation now is really a critical one and might
easily run into an actual crisis.
Which is precisely what the Federal Reserve
System was designed to prevent.
As this country is in the soundest financial condition of any and as a
severe crisis here would probably precipitate a world crisis, it is probable that
our recovery would be quicker than any other nation's.
If there was a marked
contraction of loans and a great redundancy of bank credits, and very cheap money,
this would almost inevitably start another wave of speculation and corresponding



MISC.3.1.0M-I-20

I FEDERAL RESERVE BANK
OF NEW YORK

FFICE CORRESPONDENCE
TO

Mr. Jay...

DATE

SUBJECT

inflation; and if the Federal system should then step in to endeavor to check t,
there would be a great outcry that its policy would precipitate another panic,
"throttle prosperity," atc09 ate.




msse.3.1-eom-1-2o

FEDERAL RESERVE BANK
OF NEW YORK

FFICE CORRESPONDENCE

D

TE_December-1-,--1920.-

SUBJECT .RATK

TO

Mr. Jay

FF

POLICY

Mr. Snyder

For the first time in a year and a half, loans on commercial paper in
the Reporting Member Banks of the System, in the last month have shown a real if
Part of
It amounted for the month to about li per cent.
very slight decline.
But it is not associated, as last year,
this decline is seasonal and normal.
with a marked contraction in speculation.
Along with this decline has come a distinct, if slight, easing in the money
market, and at least in the total of credit demands.
This, also, is in part
seasonal, but in part due to the approaching contraction in business.
Along with all this has gone the greatest decline in prices the country
has ever known.
Bradstreet's and this bank's index of the 12 big basic commodities showed, on November 1, nearly the same decline from the peak, about 25 per
cent.
On last Saturday this bank's index has shown a further decline to more
than 36 per cent, from the peak.
The decline, alike on Bradetreet's and on the Bureau of Labor index, in
October, was the heaviest ever recorded on either of these indexes (Bradstreet's
runs from 1892, monthly).
The indications are that the fall in November was
still heavier than in October.
This decline appears to be nearly twice as great as anything known before in
peace times.
The nearest comparison was the swift drop in the first six months
of 1865, just before the close of the war, with an equally swift recovery in the
succeeding six months.
The drop of 36 per cent, now compares with about 9 per
cent. in 1907, about 11 per cent. in 1892, something like 10 to 15 per cent,' in
1873, and around 20 per cent., possibly, in 1857.
Prior to 1893, only quarterly
index figures are available.
This great decline, as always, has been accompanied by severe prostration in
many lines of industry, and wide unemployment.

ever

This decline was preceded y undoubtedly the most remarkable rise in prices
known in peace times, and exceeded in only one brief period of the war (1916).

Now, regarding this remarkable rise and unprecedented fall, two things
in especial are to be said:
So far as I know, there was almost no one to predict, almost
no one who had any idea of, the probable extent of this rise, or the
subsequent fall.

Both the rise and the fall took place with practically no
change in the momentum of production.
The actual volume of goods produced, exchanged and consumed in the United States between the years
1916 and 1920 has not, so far as the available statistics show, very
much differed one year from another.




This I think we have firmly established by our investigations.

MI5C.3.1-90M,-20

FEDERAL RESERVE BANK
OF NEW YORK
DATE

FFICE CORRESPONDENCE
TO

FRt

Mr, Jay

SUBJECT

December 1, 1920

__BANK_RATE_POLICY..-Continued

Mr. Snyder
2

It is, I believe, a mistake to suppose that the rise in prices
(c)
was materially influenced by our foreign trade.
Although the actual volume or quantity of goods (in tons, bushels
and bales) shipped abroad in the fiscal year ending July 1, 1919, was
slightly above the preceding fiscal year of 1917-18, it was very considerably below the high level of 1916-17.
In the single month of July, 1919, our exports were enormous, but
following that point up to the present time the trend has been downward,
and for the first ten months of the present year was about 13 per cent.
below the first ten months of 1919.
There was an unusual European demand for certain of our goods, but
This demand
this affected only a minor part of our total exports.
from Europe was not sufficiently large either to create, or sustain, any
unusual rise in prices in this country.
It is generally reckoned that, on the average, something like five to six
months of the country's total product of goods is always in transit from the proThe total income of the country for 1919, on the basis
ducer to the consumer.
of that year's prices, has been reckoned as high as 70 billion dollars.
These
estimates are admittedly only approximations, but if they were anywhere near the
fact, the value of this year's product, of this year's actual production of goods,
on this year's level of prices, might easily exceed 50 or 60 billions of dollars.
Something like one-half of this, i.e., five or six months' product, would be on
These goods have been produced on the basis of
the order of 25 to 30 billions.
this year's prices, wages and costs.
(It is interesting to note that the present volume of commercial loans outstanding in the United States is now close to 28 billions.)
If the price decline from the levels at which these goods were produced
should, through the next six months or more, average 25 per cent., this would
mean a loss to the producers, jobbers and retailers of possibly 6 or 7 billions
It is a very large sum, and presents a situation which apparently
of dollars.
the country has never had to face before in such aggravated form.
It scarcely
seems possible that it can fail to produce a very serious business disturbance.
It is to be noted, however, that the purchasing power which, in the mind of
the writer, was most patently responsible for the great rise in prices last
Iyear, that is, the huge extension of bank credits, still potentially exists.
The flow of goods, now temporarily checked, will go on, and in due course what
surplus exists will be consumed.
Our investigations have shown that the rate
of increase in the nation's production from year to year has varied but little
in the last 50 years, through the wildest of our panics, booms, and likewise
through the great war.
Prices change widely but the actual volume or quantity
of goods produced does not.
The increase is on the order of
per cent, per
annum.



44

WSC,A.90M-120

FEDERAL RESERVE BANK
OF NEW YORK

DATE__Deaember 1, 1920.

FFICE CORRESPONDENCE
TO

Mr. Jay

FR.

Mr, Snyder

SUBJECT _BANK RATE BOLICY--Cont inueti

3

Our chart of production shows that in 1916 and 1917 there was a considerable
swell out above this normal line of growth, but there has been no subsequent increase, so that this year'sproduction, for example, is very close to the normal
line.

Unless, therefore, a great European crisis should supervene, which would
seriously disrupt the world's trade and occasion great losses to this country,
there seems no reason why, when the normal flow of goods is reestablished, there
should not be a relatively quick recovery in price level.
The alternative to
this appears to be as great business prostration as this country has ever known.
If this does not occur, then there seems likely to be a rapid rebound in
prices, which may be all the more pronounced from the unprecedented violence of
the present fall.
In other words, supposing that the present depression does
not much outlast a year from now, then the middle or latter part of 1922 may
see as great an outcry against the High cost of living as we have had this year.
I think that everyone would agree that this is a consummation to be avoided
if possible.
Now, if the foregoing argument is soundly based,
...If in these two years of the most violent price changes ever known, the
volume of production and the flow of goods has not substantially varied; and

--If these changes have not been sensibly affected by our foreign trade; and
--If there seems but one chiefly responsible factor, viz., the command of credit and the attendant distribution of purchasing power among the people,
-.Then it ought to be within the purview and powers of the Federal Reserve
Board and Banks so to formulate a rate policy as to prevent a return of these excessive price fluctuations.
If this be true, the formulation of that policy ought to be made now, and
announced.
It might, perhaps, begin with the reduction of the present rate by
perhaps 1 per cent., as a notice to the public that the credit strain has passed,
that liquidation is in process, and that money will soon be plentiful at reason.
able rates.
Such an announcement should, with the present solvency of the Federal Reserve
System banks, at least go very far towards checking an undue apprehension among
the people and do much to restore confidence that in due course prosperous times
will return.
But if this were done, then it ought very distinctly be announced that
the 6 per cent, rate would thereafter hold, even though money rates should decline
very much below this point, which would mean, of course, that eventually the
borrowing banks would pay off the larger part of their loans at the Federal Reserve

Banks.

I(8)



MISC.3.1-0011-1-20

I FEDERAL RESERVE BANK
OF NEW YORK.
DATE

_FFICE CORRESPONDENCE
TO

FR

SUBJECT :___BANK-RATW

Mr. Jay

December 1, 1920

POTIOY--Continued

Mr. Snyder
4

We shall probably see in
But such a formulation ought to go much further.
the next six months or a year a very marked contraction of the currency and possibly also, to a less extent, of credit or deposit currency.
If the general decline in prices should average no more than about 20 per
cent., and the contraction in the actual volume of production and trade possibly
8 to 10 per cent., this would mean apparently something like 30 per cent, lessened
This would be accentuated by the general tendency of people
need for currency.
to carry less currency in their pockets in slack times than in flush times.
This would suggest
billion and a half, all
the contraction in bank
cent., this would be on

a possible contraction of the currency by as much as a
of which would fall upon the Federal reserve notes.
If
loans and deposits should amount to as much as 10 per
the order of three billions.

This contraction, even though it followed the great fall in prices, would
inevitably arouse great criticism and outcry at the Federal Reserve System.
A
policy which would to some extent forestall this criticism, i.e., a reduction of
the bank rate, might be politically wise.
(9)
But in any event, whether the rate be reduced or not, in the course of a
year confidence should begin to return, as it usually does; the banks will begin
again to expand, business will be prosperous, and from the extremely low level,
relatively, of prices, profits may again be large.

It does not now seem probable that we shall experience in the next year or
two any heavy outflow of gold.
If this be the case, we shall have, almost in.
evitably, another business boom, another extended rise in prices, and another
collapse.
It seems to
the writer .that all this could be forestalled, and in large part
prevented, by a definite announcement by the Federal reserve banks that they would
follow rigidly a definite policy and that the rate of rediscount would be fixed
by two factors along fairly definite lines.

First, that, as Mr. Case has suggested, a given range of the
reserve ratio, e.g., 70 per cent., should mean, say, a 4-A- per cent, discount rate; a 60 per cent, ratio a 5 per cent, rate; and so on, the rate
increasing more rapidly than the ratio falls.
Second, that as the second determining factor, if the general
level of prices (say the Bureau of Labor index) rises by as much as 10
per cent., the rediscount rate should then rise by 1 per cent, or more,
as should be deemed wise, thus fixing definitely in the public mind the
relation between the volume of bank loans and the general price level,
giving notice, too, that the banks and the Board would do their utmost
to check another violent rise by increasing the rediscount rate as rapid.
ly as was necessary to effect this check.




M.9C.3.1-90.11-20

FEDERAL RESERVE BANK
OF NEW YORK

-FFICE CORRESPONDENCE
TO

DATE

Mr. Jay

SUBJECT

Decembar_1,_192.0

BANK_RAIE_POLIC Y- -Co nc

Mr. Snyder
5

(10)
It is here clearly recognized that the effect of the rediscount rate
is very largely sentimental, and unless it were carried to an extreme point might
not mean any very great check upon loan expansion.

So long as the Member Banks can borrow their reserves, by rediscounting, the
difference of 1, 2, or even 3 per cent, which might be created, on the 7 to 13 per
cent, of their deposits, would be a very small matter to the banks' profits, compared with booming business and rapidly rising loan rates.
It is the writer's
belief, however, that the effect of such a policy would still; with the recollection of the present tremendous decline, be very great.
As a practical measure of "stabilizing the dollar," such a policy might possibly be of almost as much effect as, for example, the plan of varying the weight
of gold in the dollar.




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FEDERAL RESERVE

MISC 3

BANK OF NEW YORK

OFFICE CORRESPONDENCE
T0
om

bate_

Governor Strong

Subject:

Mr. Carl Snyder

January 2111_1921

Two charts of Production and

Prices

JAN 27 1921

Attached to the two charts of Production and Prices, which
were sent you and which you desired to send to England, is a brief word
of exact description.

I attach also a copy of the paper I gave at the

meeting of the American Economic Association at Atlantic City, concerning this investigation, and endeavoring to set forth its meaning.
I attach also another chart which sets forth more clearly the
lack of any correspondence between the price level and the rate of production.




0

Mr. Carl Snyder,
15 Nassau St.

AN INDEX OF NATIONAL PRODUCTION

In his comprehensive work on "Business Cycles," 1913, Mitchell pointed out
as among the first requisites for a larger understanding, the need of an index
of the physical volume of trade.

An inquiry undertaken by th

that a reliable index of the volume of trade was much more difficult

of com-

pilation than an index of production in the loading lines of industrial activity,
of the latter
including, of course, the arms.
But the preparation/revealed that an index of

production is likewise probably
There is probably

duct.

no great

the most accurate index of trade that we have.

variation in trade aside from the variations in pro-

That is to say, what is produced is very largely consumed year by

and there

appears to be very

rarely any accumulated surplus

of moment.

Probably the best general index of trade that we had was the

outside of New York City.

It

had been supposed

that these grew
they

than the general trade of the country, and also that

fected by

periods of intense speculative

Prior to

extension of the clearing house

were very

greatly af-

to 4

index of production

revealed

that the average annual increase in
of

per cent. per annum.

speculative

tion between the two indices; but only for a

The prenaration of an

activity do show a

the product was

sensible varia-

brief time.

It is remarkable that, until the present year, there had been no




by

a fairly consistent growth

of close

of years.

the rapid

changes by dividing

at the average rate

to measure the

year.

system, and the actual number of clearing houses.

the Bureau of Labor's index of commodity prices, show

Periods

more rapidly

very rapidly, owing to

Subsequent to 1890 these clearings, corrected for price

practically the same.

bank clearings

activity, like those of last

1890, these clearings did grow

year;

serious effort

total national product or its rate of growth over an extended

period

This was the more regrettable, for it left the field wide open for

the

2

most conflicting views as to
L

whether production

labor inefficient or the reverse,

low or high,

in a given year was

whether there was a scarcity of goods, and so on.

Prof. Kemmerer had made an excellent beginning in his "Money

and Prices," and

Prof. Fisher had attempted the same thing in the working out of his standard work

Then, as so often happens, the

on the purchasing power of money.
attacked anew

problem was

this year, from somewhat different angles, by Dr. King, Dr. Stewart,

A very substantial

Dr. Day, and the present speaker.

each of the investigations.

agreement appears between

Dr. King obtained weighted averages embracing 15

principal products; and these averages show a fairly steady rate of growth of about
3.4 per cent. per annum.

had not yet combined his

Dr.

Stewart's

series into a single line.

his unadjusted indices for his

three

Dr. Day

line shows about the same trend.

We took simple

series, and obtained a

averages of

slope of close to 3.5

per cent.
We worked

out three

different series, first one of 28 principal products run-

ning back 40 years; then one of 49 items running back 50 years; and finally one
beginning with

these 49 items and adding others as rapidly

so that for the last 20 years the

average was above 70 and latterly

earlier period from 1870 to 1890, there was

series.

the

total num-

Unweighted averages were taken of these, and, save in the

ber of items 87.

three

as they were available,

no substantial

Taking the elope only from about 1890,

first was 4.3 per

difference between the

the rate of increase on the

cent.; on the second, 49 items, about 3.3 per cent.; and on the

longest list about 4.2 per cent. per annum.

The problem of weighting is obviously a difficult one, and the method necessarily one of arbitrary choice.

Happily, the number of items available is large

enough so that, as Bowley, Mitchell and others have been at much pains to demonstrate in

other fields, there was no

between these and the

very marked difference, save in minor

weighted averages of

King,

Stewart and Day.

details,

In general all

of these agreed in a slope, in the last 30 years, of around 3i to 4 per cent.



3

Considering the amount of material available, its nature, and the considererror -involved, it may now be said with confidence that this

able probability of

is approximately the annual rate of growth within the
be noted

that this

it will

last generation.

rate is considerably lower than that estimated by Prof. Fisher,

and somewhat lower than that of Prof. Kemmerer.

This also disposes of the idea

that the ton mileage of the railroads is a good index of production.

For the

the railroads, expressed in ton miles, has
at the rate of about 6.2 per cent., or SO per cent.

last 40 years the freight traffic of

shown a remarkably even growth

greater than any probable rate of production growth.
fact

that, as

the urban population

This simply expresses the

grows and production is concentrated more in

large centers, the greater must be the haul of food, fuels and materials back and

forth to feed and supply this population and their specialized industries.
The fact which stands out, of course, in all these investigations, is
amazingly even character of this production growth, and how
riation in the flow of goods from year to year throughout

very slight i

the
the va-

periods of wide pros-

perity or deep deoression, how slightly it was affected by the war, and

how little

relationship it often bore to the prevailing spirit or traditional idea of any
Thus, the period after the great panic of '73 is usually referred
given time.
to as one of the deepest depressions the

country ever knew, and yet, beginning a

year or two after that panic there

appears to have been a very marked expansion,

at a rate seldom equalled since.

We have here a transfer of the usual delusion

that profits and prices

are a measure of the real

In the same way we see that there was,
sion, no

prosperity of a nation.

contrary to almost

unusually rapid expansion in the late war.

The peak appears to have been

reached in 1916 or 1917--there was seemingly little difference
two years.

in the total of the

And in the same way, contrary to almost universal expectation, there

has been no great diminution since the war closed.
goods to dispose of.



universal impres-

So we had no huge surplus of

On the contrary, there never seemed a greater scarcity than

4

last winter and last spring; and never such an extraordinary rise in prices in
a...4

peace times.

So tar as we can judge, there has been, between the lust five years, no very
great difference in the total of the annual product; and the considerable increase
in the rate in 1916-'17 has been compensated, apparently, by a somewhat lower rate
since.

From this I think we can say pretty surely that there is no huge over-

growth of manufacturing or

productive

few lines too obvious to need mention.
prehension that the

present

capacity in this country, save perhaps in a
So there does not seem any cause for an-

depression through which we are passing

will

be of any

longer duration than those of the past; and in the minds of many careful observers
the forces at work are such

as to

make this

depression, for

the United States

perhaps, briefer and lighter than for any of the other great commercial nations.

In the same way it is perfectly evident that between the total
al product and the general price level there is only the

relation, and

this only of the briefest duration.

of

the nation-

slightest discoverable

Periods of the most rapid

growth in production, as in 1874-1880, have likewise been periods of rapidly declining prices; and vice versa.

Pardly greater foundation has the traditional belief that "iron is the barometer of business."

It

is no doubt

true that the volume of new construction

makes up the larger part of that which we call the business cycle, that is, the
variation

between periods of expansion and

relative quiescence.

And iron and

steel are, of course, a most important element in this new construction.

It

is further probably true that when the steel trade in good, other business is

brisk and profits satisfactory.

But just as the variation in the mercury tube

in extreme depression and a "high barometer," when everyone feels buoyed up, is

normally on

ence in

the order of less than 5 per cent., so we may say that the differ-

national

product from

one period to another is probably not much more--

8 or 10 per cent. at the outside, as measured by years.



S

The difference produced by extreme depression and prosperity in the iron
trade is fairly set forth- in the estimates of manufacturing products which have

been given us by Dr. Stewart and by Dr. Day.

For the rest, it is evident that

the iron trade lags rather than leads the general expansion, and is one of the

last of the industries to feel

the turn of the tide, as was so notably evident

this year.

But if the problem of measurement of the national product has now been dis-

posed of, there still remains yet another, and that is the measurement of the current product; and for practical affairs this is of far greater importance. The

variations in the business evil*, as Prof. Mitchell has so clearly set forth, lie
perhaps as much as anything in a dislocation between the even pace in the differ-

ent lines of industrytoo rapid expansion in one direction, too little in another, so an to disturb the normal equilibrium. The whole of the national product does not greatly vary, but that of the several industries may vary ouite
widely.

Now, in very large part, goods are exchanged for goods and services for

in this line or that, there comes inevitably overproduction in special lines, a period of crisis for these industries,
services; and if there be over-expansion

unemployment, failures, and all the traditional phenomena of lack of balance.

This and little else is that

is happening now.

It is not because of any

fall in our foreign trade, or beeause of over-extension of credits abroad, or the
inefficiency of labor,or any of the nine and forty special reasons which are always urged at such times.
enormous.

the war.

Our foreign trade has been good, but it has not

been

Its rate of growth over the last ten years was not deeply affected by
It is not now due, it does not seem to me, for any violent or long-

continued collapse.

And if national production has been at the peak of its

history in the last five years, it is very evident that the idea of the inefficiency of labor is very largely a subconscious impression, or what Prof. Ogburn would

probably call a wish thought.

What is troubling us is simply industry out of balance.




In certain particular

6

Now, if we wish to

nd very obvious lines we have been going a little too fast.

get rid of these periods, or cycles, of industrial disturbance, we ought to know
that the several industries are marching in step, in other words, what is the
current rate of

production in the several lines.

especially engaged my department
satisfactory indices in
perhaps 60 or 70

this

We have so far

year.

about 25 of the major

per cent.

This is one question that has
been able to obtain

industries of the country, including

of the raw products and basic materials, and in some

of the more fundamental manufactures, as the production of pig iron and steel,
refined sugar, refined copper, and so on.
In the course of a few months we hope to have at least

ten or a dozen more,

and with these We shall have, I think, a very clear and accurate picture of the
industrial flow from month to month.

By reducing each of the industries to

a

common denominator, we shall know by means of index figures exactly whether we

are producing very

much more pig

iron

or copper or sugar, or importing much more

rubber or silk or wool than the normal need.

It was very striking, When we first

obtained these indices, to note how clear was the overproduction in certain lines
and the very large certainty that there would be inevitably a collapse in these
special industries.

In fact, from the relative

height of

the indices you could

pretty well pick them off in the order in which the decline would and did come.

The preparation of these indices was
than the annual product.

For

more difficult

obviously a much

matter

here we have to deal with .a wide seasonal variation.

In many lines, as for example the milling of flour, the

slaughter of meat,

duction of sugar, cement, and, in fact, a majority of the industries,
may be very wide, amounting to as high as 30 or 40 per

the

the pro-

variation

cent. above or below

the

average for the 12 months of the year.

To work out this seasonal

index it was needful to have

duction by months for a series of years, ten




or twelve at

the

figures of pro-

least, and then

to

determine

7

by examination of the scatter as to whether this seasonal was fairly even and
whether a

given

industry tended to run fairly true to form.

In most of the cases

a fairly satisfactory seasonal was obtainable, in some less so.

have some 25 or 30 of the major industries, the

individual

But now that we

variations are ironed

out so that, in the summation of the averages, we have a fairly good picture of
the nation's monthly product.

And as one industry after another is added to the

list, the picture will, of course,

become more complete and

A summary of these monthly indices in 1920, follows:




satisfactory.

PRODUCTION,

PRICES, LOANS AND CLEARINGS IN THE

CHART I.




U. S., 1870-1920

Av.

Prioes,--Department

of Labor index of wholesale commodities, in

annual averages, the average for 1913 taken as a base of 100 and
other prices computed in percentages of this base.
Production index,--The annual average of 87 commodities and
other indices
inclusive,

of production,

in each case the average of 1910..'14,

taken an a base of 100

in percentages of

and the different years computed

this base.

Loans and discounts are the total

loans and

discounts of

all the

banks of the United States, as reported by the Comptroller of
Currency, plotted directly on the chart,
earliest

date

for which comparable

in billions,

the

from the

figures are available.

Bank clearings are the clearings of all the banks outside of New

York City, corrected for variations in
the figures, as

reported by

the

price

level by

dividing

the annual averages of the Bureau

Labor's index of wholesale commodities.

of

PRODUCTION AND TRADE IN THE U:S., 1870-1920

CHART II

The same line as the fourth line of Chart I.
Prof. E. E. Day's index figures of production, as reported in the

Harvard Review of Economic Statistics, 1920-'21
Same, by Prof. W. W. Stewart, of Amherst, to be reported in the

American Economic Review, 1921
Same, by Prof. W. I. King, reported in Bankers Statistics

Service,

1920.

(5), (6) and (7)

Our production indices of three different series:

first, of 49 items covering 50 years; second, of 28 items covering
40 years; and third, the series of 49

itpms enlarged as

rapidly as

the figures became available, to a total of 87 varieties in all.
Population, plotted directly after division by four, to permit of

(6)

clear placing on the chart.

CHART III
Course of Commodity Prices--Should explain itself.




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-120

DFFICE CORRES DNIDENCE

D AT

Ejan 28,

1924_

SUBJECT:

Governor Strong
'ROM

This was very hurriedly done, as I am leaving for a few days' vacation; and,
as you will find, is

repetitious.

But I

did think

it

worth while to

go pretty

careful4.y into this very interesting question.

The !emu, on the jump in our silver holdings will be sent you on Monday by
Mr. Bellah.

It was delayed by proof reading on the Monthly Review.

as-41\A

Q,,

/

C>1)
1(ILflt1)9AL-el 12q

(C
V \ AA- r

cri

71.

(-2




e'netA.

.

/,

- ZA)

1/

Alb

FEDERAL RESERVE BANK
OF NEW YORK

MISC.4.1-120M-1-20

OFFICE CORRESPONDENCE
To

Governor Strong

'ROM

DATE

Jan. 28,

Mr. Carl Snyder

SUBJECT.

This was very hurriedly done, as I am leaving for a few days' vacation; and,
as you will find, is repetitious.

But I did think it worth while to go pretty

carefully into this very interesting question.
The memo. on the jump
v_

Mr. Bellah.




in

our silver holdings will be sent you on Monday by

It was delayed by proof reading on the Monthly Review.

1921_

FEDERAL RESERVE

MISC 3

BANK OF NEW YORK

Date_ January 28, 1921-

OFFICE CORRESPONDENCE
To

WAR_
Subject :__THE_RISE_IN___PRICES IN THE

Governor Strong

Mt. Snyder

Your question is:

"Did the expansion in our bank credit and currency from the
beginning of the war until the present time reflect the advances
in the prices of goods brought about by the insistent demands beyond capacity to produce, or did high prices result from an overIn other
expansion of credit caused by war borrowings, etc.
words, is the high price level a cause or an effect?"
This is a subject about which argument will apparently be endless if we have
no solid basis of fact upon which to build an opinion.

As the matter seemed

worth while, this department has made a number of studies in the last year which
offer such a basis, and the results we have obtained have been confirmed by other
investigators, as in the Harvard Bureau of Economic Research,
I.

First as to periods.

The main rise in prices in the war took place be-

fore our entry into the war, and after the war had closed.
as given by the Bureau of Labor Statistics (base of 1913

.7.

The index figures,
100) were as follows:

July, 1914

100

April, 1917

172

Nov., 1918

206

April, 1917

172

Nov., 1918

206

May, 1920
,
(peak)

272

Increase

72 per cent.

19.8 per cent.

32,per cent.

That is, in the period of "the withdrawal of more than four million men from
industry," of "huge Government borrowings," etc., the rise in prices was relatively
small.
II.

We now have three sets of production indices covering the period, com-

piled from different points of view and employing weighted and unweighted, or rather
equal-weighted averages,

These were prepared respectively by Prof. Day of the

Harvard Bureau, Prof. Stewart of Amherst, and by this department.

These index

.figures, by calendar years, from 1912 to 1918 inclusive, compare as follows:




./

MISC 3

FEDERAL RESERVE

BANK OF NEW YORK

OFFIC CORRESPONDENCE
To

Date_

January _28, 1921

Subject: THE RISE IN PRICES IN THE WAR

Governor Strong
Snyder

2

Calendar
F. R. Bank. N. Y.

Years

Day

Stewart

1912

357

212

50.96

1913

357

202

52.64

1914

339

202

51.10

1915

371

224

54.92

1916

407

234

62.26

1917

418

248

65.69

1918

418

250

62.74

The percentage of increase from the average of the three years of

1912-1914

to 1917 compared, on the three indices, as follows:
Stewart

F. R. Bank., N. Y.

1912-1914

352

205

51.57

1917

Average

418

248

65.69

Increase

III.

19 per cent.

21 per cent.

27 per cent.

We also have careful computations of the relative volume of our exports,

i.e., the actual quantity of goods measured in tons, bushels and bales, for the
same period.

These were made respectively by Prof. Berridge of the Harvard

Bureau, using the actual computations of the U. S. Shipping Board; and by a different

method by this department.

The index figures of these two computations

for the period in question compare as follows:




FEDERAL RESERVE

MISC 3

BANK OF NEW YORK

bal_JArluary 28, 1921

OFFICE CORRESPONDENCE
Subject

QOvernor Strong

To
M

-

_TR! RTSK_IN PRICES-114-INZAWV--

Mr, Snyder_

Base of 1911 : 100
F

Berridql (U. S.S.B.)

Fiscal Years

R. Bank

1912

108.8

101.2

1913

120.0

114.4

1914

115.5

109,9

1915

135.5

128.3

1916

175.5

185.5

1917

191,1

194.3

1918

140.0

147.6

The percentage of increase from

the

fiscal year of 1913-'14, which was

slightly below the fiscal year of 1912-'13, compares as follows:
F. R. Bank

Berridge

1913-'14

115.5

109.9

1916-'17

191.1

194.3

Increase

IV.

65,5 per cent.

76.8 per cent.

The investigations of this department have established that, the element

of intense speculative activity eliminated, bank clearings outside of New York,
corrected for price changes, are a fairly good index of production.

We therefore

thought of obtaining the ratio of exports to the actual volume of production and
trade, by dividing the export values, as reported, by outside bank clearings, uncorrected.

This method presupposed that bank clearings and export values would be

equally affected by the rise in prices.

If export prices in

the

war rose more

rapidly than the general average of prices which affected bank clearings, then the

ratios would naturally be higher. This same ratio was
parison of all the available items.




also computed

from a com-

These two computations, from a low point

FEDERAL RESERVE

M1SC 3

BANK OF NEW YORK

OFFICE CORRESPONDENCE

Date__ January 28, 1921

.Jm

wAR

Subject:__THE RISF IN_PRTORS

Governor Strong

To__

Mr, Snyder

4
for 1909 compared as follows;

Ratio of Outside Bank

Clearings toExport

Computed
Ratio

1909

4,74

1910

2.7

4.47

1911

3.0

5.39

1912

3,2

5,62

1913

3.3

6.10

1914

4.3

5.98

1915

4.5

5.99

1916

5.3

6.52

1917

4.8

7.87

1918

3.9

6.34

1919

4.3

7.91

1920
V.

2.7

3.9

8,40

The computed ratio, made by Mr. Gilbert King, in this department last

summer, involved elaborate and detailed study of the actual percentages of some
100 of the principal commodities entering into our export trade, for which comparable figures of total production in this country could be obtained.

These

percentages were weighted according to their dollar value and an average of all
taken.

Where actual figures of quantities in tons, bushels and bales were not

available, a large number of computations of the percentages as measured in dollars
was taken and these included in the composite.

The result of this investigation

showed that the ratios of outside bank clearings to export values represented a
real increase in the physical quantity of exports, and was a fair index thereof.



FEDERAL RESERVE

MISC 3

BANK OF NEW YORK

OFFICE CORRESPONDENCE
To

Date

Subjeot!ra_BISEIN PRTCRS_IN_THVWAB__

Governor Strong

Jm

January 28, 1921

Mr. Snyder
5

As recorded above,Kingis figures showed a rise from an estimated 4.7 peT cent1 of
exports to total national product in 1909 to about 8 per cent. in 19174

We have also made a careful analysis of the rise in average prices withThe chief

in the different groups reported by the Bureau of Labor Statistics.

and insistent demand occasioned by the European war was for food, and it might

readily be supposed, therefore, that food prices would rise at a much different
The Bureau of Labor's index for

rate than the general average of all prices.

the same months as reported above were as follows:
Food Prices

July, 1914

104

100

April,

182

172

1917

75 per cent.

Increase

April, 1917

182

172

November, 1918

206

206

Increase

13 per cent.

Most of the above studies are graphically set forth in the

20 per cent.

charts

We are now in a position to make a statistical study of

The facts may
(a)

the

attached.
problem.

be summarized as follows:
The great rise in prices, and practically all the rise in exports,

took place before our entry into the war and the question, therefore, need

not be clouded by any considerations as to "number of men in this country
withdrawn from industry by the war," our war borrowings, labor efficiency, and
a great number of other confusing matters.




FEDERAL RESERVE

MISC 3

BANK OF NEW YORK

OFFICE CORRESPONDENCE
To

Date
Subject:

_Governor Strong

-,11

January 28, 1921

THE RISE IN PRICES IN THE WAR

Mr. Snyder
6

The percentage of exports to total national product for the
years from 1914 to 1917 did not apparently rise at a more rapid rate than
in the preceding five years.

In these preceding five years there was almost no

rise in the general level of prices.

If it was the export demand which

caused the great rise of prices in the war, we should expect the same thing
before the war.

The rate of increase in the actual volume or quantity of exports
as measured by our indices in, for example, the period from 1893 to 1898,

was much more rapid than the rate of increase in the war from 1914 to 1918,
as shown by either Mr. Berridge*s index or our own.

The rise in prices in

this period was quite moderate as compared with the rise in the late war.
If the increase in percentage of our products going abroad to the
total national product rose only about 3 per cent, of the total, in the entire period from 1909 to 1918 and only about half of this took place in the

war, then even if we allocate all of this increase to the war demands it
would be on the order of less than 2 psr cents of our total national product.
VIII.

All of the three indices of Day, Stewart and our own indicate that the

increase of production from 1914 to 1917 was on the order of 120:tO 25 par cent.
may, therefore, pose the problem in the following form:
If the war increased the percentage of total product going abroad
by only 1 or 2 per cent, of the whole, while in the same period production
increased by 20 to 25 per cent.; and
If the rise of food prices, and these are prices of grains
and food taken at wholesale and not at retail, did not rise much more
rapidly than the average of all commodities (more than 300 different



We

FEDERAL RESERVE

M1SC3

BANK OF NEW YORK

OFFICE CORRESPONDENCE
To

Date

January 28, 1921

Subject THE RISE IN PRICES IN THE WAR

Governor Strong_
non:

Mr. Snyder

7

commodities included), and
If the rate of growth of our exports, in actual volume, was
approximately the same in the five years before the war as in the
years of the war, as shown by the attached chart; then the question is:

Does this trifling increase in the export demand
occasioned by the war present an adequate explanation
of the greatest rise in prices, as measured in gold,
ever known in this or probably any other country since
the making of prices began?
IX.

As to the "bidding up of prices" in the war, the chief bidding up, and

especially at the beginning, was, of course, in foods, and that meant princi.
pally wheat and meat.

If, therefore, food prices rose at about the same rate

as the average of all prices at wholesale in all the United States, does not this
suggest that some greater cause was at work then the energetic efforts of the
grain speculators?
X.

Let us now turn to the other side of the problem and note this:
The rise in prices in the United States did not notably begin

before the fall of 1915, a full year and more after the outbreak of the
war.

In this period the "demand" was very great and our exports increased.

Prices did not go up.

In the six or eight months following the outbreak of the war
there was a heavy export of gold from this country.

It is at least notable

that the rise in prices did not begin until this export of gold had been
replaced by imports and a considerable surplus shown*




FEDERAL RESERVE

MISC 3

BANK OF NEW YORK

OFFICE CORRESPONDENCE

Date_ January 28, 1921
Su

AGovernor Strong_
m

bj e c t :_THERISE-IN_ PRICES- IN THE- WAR

Mr. Snyder
8

(3)

Thereafter prices rose pretty steadily with the quantity of

incoming gold.

Now, as to this it is to be said very simply that every dollar of "war
demand" was equal to a dollar of home and ordinary demand, and no more.
There was nothing magical about the war dollar.

On the other hand, every dollar of added gold meant eventually an increase of at least six or seven dollars in bank loans and bank deposits, and
therefore of purchasing power.
Statistically, then, it may be said that the effect of an import of

gold was, measured in dollars, six or seven times as potent a cause of increasing prices as each dollar of increased "demand."
XI.

Now, as to this increased "demand":

It is shown by the production indices of Day, Stewart and this department, and

by the index of volume of trade computed by this department, that the variation of
production between lean years and flush years may be as high as 10 per cent, and
possibly more.

Prof. Parsons thinks not more.

If we have correctly measured

the increased European demand for our products before our entry into the war as
not exceeding 2 or 3 per cent, of our total product, then this increased demand
was far less than the normal variation between good times and bad.

The index of production and of volume of trade is here employed as an index
of "demand" intentionally, for we have no other index, and in a broad sort of
way the great part of our national product, possibly 90 per cent, or more, is on
the average consumed in the year following its production.

Now, the variation of this normal demand between good times and bad does




FEDERAL RESERVE

MISC 3

BANK OF NEW YORK

Dsto_January 28, 1921

OFFICE CORRESPONDENCE

Subjeot.___THE-RISE IN PRICES IN THE WAR

To Governor Strong

Mr. Snyder

9

not occasion any considerable variation in prices.

If over a long period we com-

pare the indices of wholesale prices with the indices of production it will be
found that there is very little relation between the two.

Periods of rapidly

falling prices have been periods of very rapidly rising production, as notably in
the period of from about 1874 to 1880.

And in turn, periods of very rapidly

rising prices have shown no corresponding increase in the rate of production, save
perhaps for isolated years.

We are driven to the clear conclusion that, contrary to the almost universal
belief, rising prices do not very greatly increase the rate of production.

Nor

do falling prices very greatly depress this normal rate, and in general not at all.
Over a long period of years our national product increases at between
4 per cent, per annum.

3-h-

and

This rate varies from year to year, but the variations

do not correspond with the direction of rising or falling prices, save for very
short periods, measured perhaps in months.
In a broad sort of way, prices rise with the increase in bank loans,
as is shown very strikingly by the comparison of prices and loans, both in this
country and in England..

If we take the average annual prices and plot these with

the volume of bank loans at an intermediate point, as for example June 30 in each
calendar year, the result is a parallelism that can scarcely be accidental.

It

is set forth in the accompanying chart.

The conclusion, therefore, would be apparently as follows:

The excess demand in this country, occasioned by the war, was not greater than
the normal variation between good years and bad, and was probably far less, possibly



FEDERAL RESERVE

MISC 3

BANK OF NEW YORK

OFFICE CORRESPONDENCE
To
.Om

Dafe__January 28, 1921

Subject:

Governor Strong

THE RISE IN PRICES IN THE WAR

Mr* Snyder
10

not one...half so great.

The war's demands, therefore, seems a totally inadequate

explanation of the rise in prices.
In a rough sort of way and excluding years of extreme depression, the demand
is always pretty close to 100 per cent, of the supply.

That is only saying that,

in a broad sort of way, goods are exchanged for goods and money is only the mechan.
ism or vehicle of the exchange.
Practically the only way to increase prices is to increase purchasing power
by an excessive addition to the volume of credit and currency.

And

in the war

the expansion of bank credit and currency went hand in hand with the rise in prices.
There is almost no one to contend that high prices could have been financed
without a corresponding increase in bank credits.

Therefore, if there was no ex-

cessive demand it seems to follow that the increase in bank credits alone was responsible for the increase in prices.
If this conclusion seems extreme let us simply imagine what would have happened
if we had had no Federal Reserve System to expand credits, and all of the gold received from abroad had been buried, in the ground.

The increased exchanges due to

rising prices could, therefore, have taken place only in one of two ways: either by
an increased velocity of bank credits or by a fall in the prices of other goods
than those included in the war's especial demands*

We have as yet no accurate estimates of the increase in the bank credit velocity.

Prof. Fisher's computations, as he himself observes, have been so far

removed from their base as to become simply estimates.

There is sore reason to

think that the increase in velocity in the war was not very great, only enough, per-

haps, to account for the difference shorn between the expansion of loans and the




FEDERAL RESERVE

MISC3

BANK OF NEW YORK

Dafd_

OFFICE CORRESPONDENCE
To

Subject THE RISE IN PRICES IN THE WAR

Governer Strong

i .6m

January_ 28, 1921

Mr. Snyder

11

percentage rise in prices.

What apparently happened in the war was that the normal check to rising prices,
which inheres in the check to exports, and the outflow of gold, was absent.

There-

fore, an excessive expansion of bank credits was free to work its full effect.




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54-.1
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11NDEX
XP71e7 09L(115-0'
PR / C E
191140

7--brgz. VozumE
%SCR YERAi6

/9// - 192 0

ExPoier
VfiL CIE'S

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.

IV

oc-1 28

192A

PRICES

The extraordinary rise in prices, which began shortly after the Armistice.
continued until about the month of Nay, and for that month the Government's index
of wholesale commodity prices was 32 per cent. above March of the preceding year.
But even prior to the high point in May there were notable declines in a number
of leading staples, especially in silk, wool and hides.
in Japan, which, exactly as in 1907.

WE.S

In April came the panic

the forerunner of reports of commercial

distress in other parts of the world, even in far away Java.

Almost simultaneous-

ly, price declines began in all the leading cOmmercial nations, at least in commodities at wholesale.

This was not in any equal degree true of retail prices, and,

indeed, retail trade remained good and retail prices fairly stable to the end of
the year.

But it was clear that the peak of the great boom had been reached, and

the downward tendency in prices brought to a sudden end the heavy speculation in
many commodities which the long rise in prices had

invited

and stimulated.

It

also brought about a flood of cancellations of orders and revealed a situation the
extent of which had been but little realized.

For the rising prices, and es-

pecially their acceleration in the autumn and winter of 1919-20, had not only induced heavy speculation in raw commodities but had created among merchants and







r`7
(

MISC. 4-9o4-12-19

FEDERAL RESERVE
BANK OF NEW YORK

OFFICE CORRESPONDENCE
e

FROM

tr.,

DATE__

if

J-2.?

o2.

929

192_




January 28, 1921
THE RISE IN PRICES IN Tan WAR

Governor Strong

Ur. Snyder

Your question is:

"Did the expansion in our bank credit and currency from the
beginning of the war until the present time reflect the advances
in the prices of goods brought about by the insistent demands beyond capacity to produce, or did high prices result from an overexpansion of credit caused by war borrowings, etc. In other
words, is the high price level a cause or an effect?"

This is a subject about which argument will apparently be endless if we have

no solid basis of fact upon which to build an opinion.

As the matter seemed

worth while, this department has made a number of studios in the last year which

offer such a basis, and the results we have obtained have been confirmed by other
investigators, as in the Harvard Bureau of Economic Research.

First as to periods. The main rise in prices in the war took place before our entry into the war, and after the war had closed. The index figures,
as given by the Bureau of Labor Statistics (base of 1913

100) were as follows:

July, 1914

100

'Vern, 1917

172

4ov., 1918

206

April, 1917

172

Nov., 1918

206

May, 1920

272

Increase

72 per cent.

-------

(peak)

19.8 per cent.

32 per cent.

That is, in the period of "the withdrawal of more than four million men from

industry," of 'huge Government borrowings," etc., the rise in pricee was relatively
small.

We now have three sets of production indices covering the period,

com-

piled from different points of view and employing weighted and unweighted, or rather
equalweighted averages. Theme wore prepared respectively by Prof. Day of the
Harvard Bureau, Prof. 3tewart of Amherst, and by this department.

Theme index

figures, by calendar years, from 1912 to 1918 inclusive, compare as follows:




January 28, 1921
Governor Strong

THE RISE IN PRIM IN THX WAR

Mr. Snyder

2

Calendar

Stewart

Years

F. R. Bank

1912

357

212

50.96

1913

357

202

52.64

1914

339

202

51.10

1915

371

224

54.92

1916

407

234

62.26

1917

418

248

65.69

1918

418

250

M. Y.

62.74

The percentage of increase from the average of the throe yearn of 1912-1924

to 1917 compared, on the three indices, as follows:
Stewart

L.L.E2.1110.A.j.a-IL

1912-1914

352

245

51.57

1917

Average

418

248

65.69

Increase

19 per cent.

21 per cent.

27 per cent.

III. We also have careful computations of the relative volume of our exports,
i.e., the actual quantity of goods measured in tons, bushels and bales, for the
ewe Pwriod.

These were made respectively by Prof. Berridge of the Harvard

Bureau, using the actual computations of the 9. S. hipping Board; and by a different method by this department.

The indiox figures of these two computations

for the period in question compare as follows:




Januery lb, 1921
ern or Strong

THE RISE OF PRICES IN TI

Wr, Snyder
3

5ase of 1911 = 100

Berridgp (U. 54.0.)

11119.11X/SLO.

/4_11Alat

1912

108.8

101.2

1913

120.0

114.4

1914

115.5

109.9

1915

135.b

128.3

1916

175.5

185.5

1917

191.1

194.3

1918

140.0

147.6

The percentage of increase from the fiscal year of 1913-'14,

ich was

slightly below the fiecal year of 1912-'13, compares as follows:
1913-'14

Btrridge

F, R8ank

1913-'14

115.5

109.9

1916-'17

191.1

194.3
4.110MOVAIMOrrowIlile....

Increase
IV.

65.5 per cent.

76.8 per cent.

The investigations of this department have establiehe4 that, the element

of intense speculative activity eliminated, bank clearings outside of New York,
corrected for price ehangos, are a fairly good index of production. le therefore
thought of obtaining the ratio of exports to the actual volume of production and

trade, by dividing the export values, as reported, by outside bank clearings, uncorrected.

Thin method presupposed that bank clearings and export values would be

equally affected by the rise in prices.

If export prices in the war rose more

rapidly than the general average of prices which affected bank clearings, then the
ratios would naturally be higher. This same ratio was also computed from a com


parison of all the available items.

These two computations, from a low point

January 28, 1921
. overnor Strong

0

THE Rrm OF PRICES .114

WAR

Mr. Snyder
4

for 1909 compared as follows:

Ratio of Outside sank

ewe to 'vports

Computed

Ratkp

1909

4.74

1910

2.7

4.47

1911

3.0

5.39

1912

3.2

5.62

1913

3.3

6.10

1914

4.3

5.98

1915

4.5

5.99

1916

5.3

6.52

/917

4.8

7.87

1918

3.9

6.34

1919

4.3

7.91

1920

V.

2.7

3.9

8.40

The computed ratio, made by Ur. Gilbert King, in this department last

summer, involved elaborate und detailed study of the actual percentagos of some

100 of the principal commodities entering into our export trade, for which com-

pfirable figures of total production in this country could be obtained.

These

percentages were weighted according to their dollar velum and an average of all
taken.

Where actual figures of quantities in tons, bushels and bales were not

available, a large number of computations of the percentages as measured in dollars

vas tuken and these included in the composits.

The result of this investigation
showed that the ratios of outside bank clearings to export valuse represented a

real increase in the physical quantity of exports, and was a fair index thereof.



January 28, 1921
Governor Strong

THE HIST? OF PRICES rm TIM WAR

AAA

Mr. Snyder
5

As recorded above,King's figures showed a rise from an estimated 4.7 per centa of

exports to total national product in 1909 to about 8 per cent. in 1917.
We have also rude a careful analysis of the rise in average prices within the different groups reported by the Bureau of Labor Statistics.

The chief

and insistent demand occasioned by the Muropean war was for food, and it might

readily be supposed, therefore, that food prices would rise at a much different

rate than the general average of all prices.

The Bureau of Labor's index for

the same months as reported above were as follow.:

rood Pricer

All Pricer

July, 1914

104

100

April, 1917

182

172

75 per cent.

Increase

72 per cent.

April, 1917

182

172

November, 1918

206

206

0.110ema
13 per cent.
20 per cent.

41111111011.1.*

Increase

Most of the above studies are graphically set forth in the charts httached.
We are now in a position to make a statistical etudy of the problem.
The facts may be summarized as follows:

(a)

The great rise in prices, and practically all the rise in exports,

took place before our entry into the 'war and the question, therefore, need
not be clouded by any considerations an to "aumbwr of men in this country

withdrawn from industry by the war," our war borrowings, labor efficiency, and

a great number of other confusing matters.



January 28, 1921
THE RISE IN PRICES 13 THE WAR

Governor Strong
Mt. Snyder
6

The percentage of exports to total national product for the

years from 1914 to 1917 did not apparently ripe at a more rapid rate than
almost
in the preceding five years.
In these preceding five years there Wee ,Ao
rise in the general level of prices.

caused the great rise of prices in

If it was the export demand whiCh

the war, we should expect the same thing

before the var.

The rate of increase in the actual volume or quantity of exports
as measured by our indices in, for example, the period from 1893 to 1898,

was much more rapid than

as shown by either

the rate of increase in the war

Mr. Berridge's index or our own.

from 1914 to 1918,

The rise in prices in

this period was quite moderate as compared with the rise in

the late war.

If the increase in percentage of our products going abroad to the

total national product rose only about 3 per cent, of the total, in the entire period from 1909 to 1918 and only about half of this took place in the
war, then even if we allocate all of this increase to the war demands it

would be on the order of less than 2 pr cent,
VIII. All of the

increase of

of our total national product.

three indices of Day, Stewart and

production from 1914

to 1917 was on the

may, therefore, pose the problem in the

our own indicate that the
20 to

order of

As

per mint.

/e

following form:

If the war increased the percentage of total product going abroad
by only 1 or 2 per cent. of

the whole, while in the same

period production

increased by 20 to 25 per cent.; and

If the rise of food prices, and the,' are prices of grains
and food taken at wholesale and not

rapidly


at retail did not

rise

much more

than the average of all commodities (more than 300 different

January 28, 1921

'Governor Strong

THE RISE IN PRICES IN THE WAR

licr. Snyder
7

commodities included), and

If the rate of growth of our exports, in actual volume, vas
approximately the same in the five years before the war as in the

years of the war, as shown by the attached chart; than the question is:
Does this trifling increase in the export demand
occasioned by the war present an adequate explanation

of the greatest rise in prices, an measured in gold,
ever known in this or probably any other country since
the making of prices began!
IX.

As to the "bidding up of prices" in the war, the chief bidding up, and

especially at the beginning, was, of course, in foods, and that meant principally wheat and meat.

If, therefore, food prices rose at about the same rate

as the average of all prices at wholesale in all the United States, does not this
suggest that some greater cause was at work than the energetic efforts of the
grain speculators!
X.

Let us now turn to the other side of the problem and note this:
The rise in prices in the United States did not notably begim

before the fall of 1915, a full year and more after the outbreak of the
war.

In this period the "demand" was very great and our exports increased.

Prices did not go up.
In the six or eight months following the outbreak of the war
there yes a heavy export of gold from this country.

It is at least notable

that the rise in prices did not begin until this export of gold had been
replaced by imports and a considerable surplus shown.



January 200 WU
.

Governor strong

THF; RISE IN PRICES TN THE TAR

Mr. Snyder
8

(3)

Thereafter prices rose pretty eteadily with the quentity of

incoming gold.

Nov, as to this it ie to be said very /imply that every dollar of "war
demand" was equal to a dollar of home end ordinary demand, and no more.

There woe nothing megical about the war dollar.

On the other bend, every dollar of added gold meant eventunily i.e in-

crease of at leset six or seven dollars in bank loans and bank depooite, and
therefore of parehosing power.

Stetietioally, then, it may be oaid ttut the effect of an inert of
gold was, iensured in dollars, six or soven tie e ue potent a cauam of increating prices as each dollar of increased "demand."

II.

IOW. As to this increased "demand':

It is ohown by the production teaUces of Day, Stewart and this department, 4nd

by the index of volume of trade comouted by this department, that the variation of
production between lean years and flush years may be as high at 10 per cent. and
possibly, more.

Prof. Parsons think* not more.

If we have correctly meaeured

the increased European demand for our products before our entry into the war an

not exceeding 2 or 3 per cent, of our total product, than this increased demand
was far lame than the normal variation between good times and bad.

The index of production and of 40/ume of trade is here employed as an index

of "demand" intentionally, for we have no other index, and in a broad sort of

wey the great part of our national product, possibly 90 per cent. or more, is on
the average consumed in the year following its production.
Now, the variation of this nor mai demand between good times and bad doss not



January 28, 1921
Governor Strong

TH1 RIP. IN PRICES In THE WAR

Mr. Snyder
9

not occasion any cc idoratle vtriation in prices.

If over u long period we cow-

pare the indices of wholesale prices with the indices of production it will be

found that there ie very little relation between the two.

Periods of rapidly

ft....latAx prices have been periods of very rapidly rieink production, as notably in
the period of from about 1874 to 1880.

And in turn, period!' of very yapidlv

rising prices have shown no corresponding increase in the rate of production, save

perhaps f-r Isolated years.
we are driven to the olsar conclusion that, contrary to the almost universal
or
belief, rising prices do not very greatly increase the rate of production.
do falling prices very greatly depress this normal rate, and in general not at all.
ever a long period of years our national product increases at between 3+ and

4 per cont. per annum.

This rate varies from year to year, but the variations

do not correspond with the direction of rising or falling prices, save for very
short periods, measured perhaps in months.

In a broad sort of way, prices rise with the increase in bank loans,
-s is shown very strikingly by the comperison of prices and loans, both in this
country and in England.

If we take the average annual prices and plot these with

the volume of bank loans at an intermediate point, as for example June 30 in each

calendar year, the result is a parallelism that can scarcely be accidental.

It

is set forth in the accompanying chart.
0

The conclusion, therefore, would be apparently as follows:
The excess demand in this country, occasioned by the war, was net greater than
the normal variation between good years and bad, and was probably far less, possibly




January 28, 191;
THE RI$E IN PRICES IN THE WAR

Governor Strong
Mr. Snyder
10

not one-half so great.

The war's demands, therefore, seems a totally inadequate

explanation of the rise in prices.
In a rough sort of way and excluding year of extreme depression, the demand

is always pretty close to 100 per cent. of the supply.

That in only saying that,

in a broad sort of way, goods are exchanged for goods and money le only the mechan-

ism or vehicle of the exchange.

Practically the only way to increaee prices is to increase purchasing power
by an excessive addition to the volume of credit and currency.

And

in the war

the expansion of bank credit and currency went hand in hand with the rise in prices.
There is almost no one to contend that high prices could have been financed

without a cerresponding increase in bank credits.

Therefore, if there was no ex-

cessive demand it seem' to follow that the increase in bank credits alone Was re-

sponsible for the increase in prices.
If this conclusion seems extreme let us *imply imagine what would have happened

if we had had no Federal Reserve System to expand credits, and all of the gold received from abroad had been buried in the ground.

The increased exchanges due to

rising prices could, therefore, have taken place only in one of two ways: either by

an increased velocity of bunk credits or by a fall in the prices of other goods
than those included in the war's especial demands.

We have as yet no accurate estimates of the increase in the bank credit ve-

locity.

Prof; Finher's computations, an he himself observes, have been so far

removed from their base as to become simply estimate°.

There is some reason to

think that the increrval in velocity in the war was not very great, enly enough, perhaps, to account for the difference shown between the expansion of loans and the



January 28, 1921
Governor Strong

0

THE RISE IN PRICES IN T

AR

Ur. Snyder
11

percentage riso in pricer.
'That apparently happened in the war was that the norm/ check to rising prices,
which inheres in the check to exports, and the outflow of gold, was absent. Therefore, an excessive expansion of bank credits was freo to work its fall effect.







FEDERAL RESERVE

MISC 3

BANK OF NEW YORK

OFFICE CORRESPONDENCE
To

Governer Strong

Fii

Date_

Feb* 9 * 1921
--

Mr. Snyder

Subject:

You may like to see the
the decrease in the

first results of an attempt tp get at

purchasing power in what is still our basic industry.

The three charts show how closely the average annual value of the crops

is reprasented by the estimates from prices as of December
with the average of prices in the main

1, as compared

marketing months and the average

of prices for the twelve months of the "crop" year. Th5 figures represent
the annual product of each year multiplied by the various prices chosen.

On tna average of these three crops the total

value (i.e., purchasing

power) has been more than cut in two from last ,year.

It is doubtful if

the average of retail prices has declined as much as 20 per

cent.

FEDERAL RESERVE

MISC 3

BANK OF NEW YORK

OFFICE CORRESPONDENCE
To

Date_

Feb. 24_1921

SubjectAUSE OF HIGH PRICES

_Governor Strong
Mr.__Snyder

As an addendum to the memorandum on "The Cause of High Prices," it has
occurred to me to compute the percentage of increase of bank loans for the
same periods as for the rise in general prices.

For the odd dates of April,

1917, and December, 1918, only an estimate was obtainable, but I think the
results are fairly close.

These percentages, for the loans of all the banks

of the United States, compare as follows:
July 1, 1914, to May, 1917
May, 1917, to December, 1918
December, 19189 to July 1, 1920

Increase, 33 per cent.
Increase, 18, per cent.

Increase, 32 per cent.

In other words, exactly as with general prices the main increase in bank
loans was before our entry in the war and since the Armistice.
It does not make any material difference in the percentages if you include in the period of our participation the four or five months following

the Armistice, because in these four or five months both prices and bank loans
declined instead of rose.
Before our participation, the percentage of increase in bank loans was
not nearly so great as in-prices, but from April, 1917, to the Armistice and
since the Armistice the correspondence between the increase in prices and the
increase in loans is very remarkable--far too great, it seems to me, to be
other than that of a close or causal relationship.




FEDERAL RESERVE

MMC3

BANK OF NEW YORK

OFFICE CORRESPONDENCE
To _

Governor Strong

Date Feb. 15

1921

Subject:Bank Rate Policy

Mr. Snyder____

I attach herewith,_as you requested, a copy of Prof. Sprague's very
noteworthy address at the meeting of the American Economic Association, and
with it the draft of something on the same idea which I drew up in November.
For the latter the figures are a little out of date, but the idea remains.
I should particularly draw attention in Prof. Sprague's address to the
relation which he develops on page 4, of deposits and loans to the amount of
money estimated as in circulation.
Prof. W. I. King has also investigated
this relation over a long period of years and has shown that, with the exception of the war period, when the ratio of deposits to cash rose very
rapidly, the ratio has varied but little in the last twenty years and has
In the last year or so it has been about that.
been around 4k or 5 to 1.
It seems to me that, as Mr. George Roberts puts it, there is here a
means that gives the Federal Reserve Board and banks a real grip on the
credit situation in this country.
If, as now seems definitely to have been done, we have given over the
idea of hoarding the gold, then a positive limitation of the amount of Federal reserve notes to be issued would draw gold into general circulation as
bank loans expanded, and the demands for more hand to hand currency increased.
This would draw down the gold reserve, force up interest rates and discount
rates, and bring a check to further loan expansion; hence to prices.

This is, of course, exactly the system which had operated so admirably
in England, up to the war, for nearly half a century.
Do you not think it is now clear that we have gone, in this country,
from a perhaps too rigid currency system to one that is altogether too much
elastic, and that this is responsible for a good part of the topsy turvy
conditions of the last two years?

I should, be very glad to know your judgment on the matters discussed in
the last paragraph of the current Business Summary.




PAI9C.9.1-90.1-1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

FR

DATE-

SUBJECT.

GOVOINNW-A.PWNMW---

Februar3e_17,-1421---

Copy of latter-regarding-Bank

Bate Policy

--Mr.Snyder

A friend of mine, of real competence and understanding, sends me the follow-

ing interesting suggestion regarding the control

of the bank rate:

"In reference to our conversation regarding the automatic fixing
of rediscount rates, the case may perhaps be stated as follows:
To prevent money panics, money must always be loanable on proper security. The expansion and contraction of

loans shouad, therefore, he determined by the interest rates

charged and not by any arbitrary, or seemingly arbitrary, decisions of the banking authorities.
To prevent the over-expansion of business during
periods of prosperity, the increase in interest rates must be
greater than the increase in profits from new investments, after

a certain normal limit of loan expansion has been reached.

their

To enable business men to conduct
affairs
with reasonable certainty and confidence, the adjustment of
interest rates to loan expansion and contraction must be automatic ard not subject to political pressure.

To secure the greatest possible stabilization of busibusiness it mast be possible to forecast the changes in interest rates
with reasonable certainty.
"In View of the above considerations, it may be praeticuole to establish,
(or equivalent scale) for rediscount rates
such that the rates in question will increase in geometrical progression as
the reserve
'
For example, if a 6 per cent, rediscount rate is
assumed to be normal when the resolve
.50, the formula might read:

by law or regulation, a formula

ratio falls.

ratio is

Rediscennt rate a
1.5
(Reserve Ratio)2
"Such a formula would give results as follows:

Reserve Ratios
.30
.40
.50
.60
.70

Rediscount

Rates

16.7%
(.3.4

6.0
4.1
3.1

"If necessary, the increase in the reeiscount rate
more rapid by using a formula such as:




Rediscount Rate 4

.75

(Reserve Ratio)3

could be made

still

M I SC.3.11-90.1-1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

Govereer--Streng

FF.

Mr.

DATE

SUBJECT

Snyder

2

Flobruary l,

-Copy_o_f-alotter-rogard_ing__Bank_

Rate

ic_ay

"This would give the following results:
Reserve Ratios

Rediscount Rates

.40
.45
.50
.55
.60

8.2
6.0
4.5
3.5

"The essential thing, as I see it, is to have an automatic scale of
more rapidly than business profits during
My impression is that it is not of absolute
relation between the reserve
importance to establish any
ratios and the rediscount race's. Business will soon adjust itself to any
credit facilities that the banking system affords and, sooner or later,
prices will rise or fail until we lose er gain gold in such amounts as to
establish a natural balance between interest rates and the gold reserve.
Men this balance is established, we should thereafter rock back and forth
in reasonably stable equilibrium, if only the rediscount rates rise and fall
at a rate distinctly more rapid than that of the changes in business profits.

rediscounes vhich will rise much
periods of business expansion.

particular initial

"I am assuming, in any case, that credit expansion will go on to a point
where, except in times of greatest loan contraction, there will always be a

considerable reliance on rediscounts for the establishment of member bank
reserves.
I am assuming, also, that action along the lines proposed will
tend to induce somewhat similar action by the central banks of Plurope. If
such action is not taken abroad, we should undoubtedly lose some, but not all,
of the stabilizing effect of uur own practice.

"Finally, there may be distinct advantage in the adoption of a formula
that gives very high figures for low reserve ratios.
It is very difficult at this time to determine what the future moral effect
of high rediscount rates will be as compared with the effects due to the
It is possible that, in time, the
actual cost of new money to member banks.
for rediscount rates

moral or hortatory effect will weaken and control of credit will depend more
largely on the actual cost of added credit secured through rediscounts. If
to have the higher rates autothis should be the
matically come into effect, even if they are quoted only by formula in the
initial plan."




case, it will be desirable




Feb. 21, 1921

Governor

Strong

Mr. Snydei,

I attach what further information Mr. Riddle could get here.
I saw Mr. Ieffingwell

difficult to get at the

do this in Washington on
Philippine Government

and got what he had.

actual facts of
Monday.

the

But it seems

situatiod now.

I hope to

Mr. Leffingwell's idea was that the

ought to replenish the fund by a sale of bonds.

But this, as you know, would now require an act of Congress.
not able yet

very

to find out just

how pressing is their need.

I attach herewith the draft of the letter you asked for.

I am

PRICES

Our fall in prices has soaaewhat

Our index of 12

exceeded yours.

basic commodities shows to date a decline of 47 per cent. from the peak,
while our index of 25 basic commodities in England, compiled from cable advices

each week, shows on the same date a fall of 44 per cent. from the peak on
Ilay 1.

The Bureau of Labor's index, which is the best measure of the price
level which we have, shows a decline for the averagerof January of 35 per
cent. from

the peak, while your nconomist'e index for February 1

shows a de-

cline of 33 per cent.
Retail

prices have

declined hardly half as muchretell food prices,

which is the only index available, about 20 per cent.
large retail department stores and drygoods

spring

prices will average about 16

is a pretty

widespread"

textiles, runs from 40 to
deal of confidence

Reports from our

establishments indicate that their

per cent. below those of last year. This

between the wholesale prices which, in the case of the
50

per cent. below last year and indicates a good

on the part of

the retailers.

LOANS AND RItISERVES

Speaking of the country as a

Loans on

been thus far extrenely small.

Member Banks in the Federal Reserve
cent. from their

peak of

same banks about 5

a slight contraction, so that,
little

or no headway thus

in loans has

commercial Paper in

System show

last October,

per cent.

whole, the liquidation

a decline

the

Reporting

of about 6 per

and total loans of all kinds in these
of the year there is generally

At this season

broadly sneaking, credit liquidation has made

far.

The contraction in our note circulation up to laot week was a little

over 10 per

cent. from the peak of December.

But this,

more than the contraction a year ago and two years ago,




again, was little
and it will be some weeks

2.

before we can determine whether this contraction will go on or whether it has

about run its limit.

I will say that it was the very general expectation

that this contraction would be very considerable, and it is a matter of

sur-

prise that it has thus far been so small.
The reserves of the Federal Reserve System, as you know, have shown

a small but steady improvement for many months, and last week were but a

fraction below 50 per cent.
remains below 40

The same is not true of this bank, which still

per cent.

to the fact: first,

that

But a considerable part of this latter is due

the country correspondents of the :ow York banks have

drawn down their balances very heavily, which has forced the New York banks
either to borrow from us

or reduce

their loans; and second, that the New York

banks have been comeelled to loan a quite unusual amount to their

country °dr., 0.

respondents, these loans in some cases being two or three times as

this period

last year.

The banks of

interior, as well as here, have had to

do a considerable amount of rediscounting of

eligible at the Federal Y:eserve
time a considerable part of
turn,

great afeat

paper of the smaller banks not

It had

banks.

been expected that by this

these loans to interior banks might begin to re-

but so far there has been very little of this.
A9 you probably know, the reserve banks of some of the Western and

Southern

distriots are likewise very low, and until this situation is recti-

fied it is

probable that there will be no considerable return of funds to this

center.

INVILST1'01172

It is the general report of bankin- houses and the brokers that the
amount of investing at the end of last year was unusually heavy and this was
especially

true of stocks.

Apparently a

paid for in cash and taken out of the



very large quantity of stocks were

market.

These

reports are alike

from

3-

the large dealers and the so-called odd lot houses.

In general, the in-

vestment market since the turn of the year has been fairly good and the issues
brought out pretty well cleaned up.

There has been distinctly a tendency,

however, for prices to ease off a little after the syndicates were closed out
and this has "eeen a little discouraging, and apparently leas given indications

of a slight droop in the forward outlook.
10Y nATzs

The money rate, as you know, has continued at the very top, with

very little change in the last eight months.

This has been very remarkable

and 'brought the average rates on commercial paper for 1920 up to the highest
annual average oince 1873.

In fact the average for the last eight months

would be ',ell up towards the highest probably of any eight months since the

civil war, and the demand still continues fairly heavy.

For example: this

weak a very solid and substantial manufecturing concern - the Deere Company,

makers of agricultural implements, of Uoline, Illinois, e came into the market
for $10,000,000 of gold notes at an offering price of 7.65, which meant that
the money cost them between 8 and 9 per cent.

This is an exceptionally con-

eervative end well managed concern that he carried its inventories on a 1914

:aois, and the fact that such a concern would be willing to pay this rate for
money indicates how heavy is the pressure.

On the other hand, the dealers

in commercial paper generally report that the market is rather thin, especially as regards the highest grade names, and that whilethe rate shows little

signs of easing as yet, the pressure seems distinctly less.

That is, the

better class houses seem to have fairly well satisfied their present demands
and will not come into the market for very large borrowings until the rate is
lower.




4.
GOLD MOVENENT

Gold imports during January were about 038,200,000, the smallest
amount since last August.

Of this, 4,22,300,000 came from England,

05,500,000 from Aieia, and 04,700,000 from France.

Japan, which for many

months has been drawing gold from this country, sent us over 02,000,000 during
January.

of which 02,200,000 went

to ITexico.

Imports exceeded exports by nearly 035,500,000, compared with

about the same excess of exports over imports for the corresponding month last
year.

STOCK "- CHANG

LIQUIDATION

A number of large brokers report that their loans are at a very low

point.

A canvass made by one large brokerage house showed that among the

very houses with which it had considerable dealings, the loans of a number were

at the lowest point in many years.

This is borne out by the report on street

loans of the sw York banks, which shows a decline of about 50 per cent, from
the peak in October or November of 1919.

We have no records going back a

long way, but the indications are that this is about the limit of liquidation
after the most severe crises.
CONUMCIAL FAILURES

Throughout the country businers embarrassments continue below

nor), in spite of the treelendous strain of the last half ,,,car.

We

tam n an index of the number of failures based upon the experience of the last

half century and this shows that the percentage of fir.

to those

reported in business has been abnormally low for the last year or more.

It

came up in January to near 90 par cent. of normal, and for February, allowing

for the usual seasonal variations, was a litt]e above that.




But neither

5.
number nor the amount of liabilities has been anything like as great as was

the universal expectation.

The remarkable thing is that this low range of

failures appears to have been eoeally true in and following the greet droe in

pricee at the end of the civil war.

For several years after the close of

our vier failures were sub-normal and did not begin to rise sharply above the

normal until along towards the crisis of 1373.

I do not, therefore, look

for any great increase in failures this year.

The potential number, due

to the tremendous drop in the average level of prices was so greet that it
was more or legs a question, so to speak, of all or none.

In spite of

the epidemic of small bank failures in the mid-west, the total number for the

year was not very great, not, I should say, over about two to three times the
average for the last ten years, which was very low.

A full quarter of them

occurred in North Dakota alone and almost two-thirds in the mid-west section

from north to south.

The difficulties in North Dakota were in part occasion-

ed by semi-socialistic finance of the farmers government out there, but for the
most part precipitated by the great drop in wheat and other farm products.

1-0VTIRIZITIT BORP.OWINGS:

The latest issue of Government Certificates of indebtedness due July
15, 1921, was heavily over-subscribed, $100,000,000 asked for and subscrip-

tions totalling 0218,000,000.

The quota for this district was '330000,000

and the subscription V30,000,000.

Outstanding on January 21 the total amount of these certificates was
2 ,351

Theee subscriptions were on a 54 per cent. 'basis, or from 1/4 to 1/2

per cent. lover than recent offerings, and they are reported this morning in
the market at a slight premium.



6.

GOVJMNILENT BUDGETS

You have probably noted the Government estimates for 1921, fiscal
year running about 4,600,000,000.

To this, however, must be added Abe

the estimated deficits in the Post Office Department, which will bring this
amount well over $5,000,000,000.

Just as you knot, there is a very

large amount of talk of great reductions and much agitation among the busi-

ness men's associations, etc., towards this end.

But, when it comes down

to brass tacks, the bills go through with very little retrenchment.

Wash-

ington has not yet waked up to the fact that the country has had a very
severe set-back and that it can't go on pouring out the Government's money

at the present rate without severe consequences.

A great deal will de-

pend on who is chosen for the Treasury portfolio.

If he is a strong man,

But the present outlook is

with real influence, something may be done.
not overly encouraging.

CONCLUSION

A concensue of competent oeinion I think shows that, in general,

liquidation alike on the stock exchanges and the field of speculation in
commodities has been extremely thorough.

The decline in industrial

stocks has run a full 45 per cent., and we are now passing through the
usual period of dullness and weakness that generally follows such a long and

drastic decline an we have had.

My impression is that this liquidation

is so complete that the general trend of the market for the next year or
more will be upwards.

It would not greatly surprise me if, towards the

and

end of the year, a conceivably even earlier, we might not see the beginning
of a strong and long-continued bull movement.

But if it comes too soon

it would be premature and probably short-lived.



On the other side, the commercial side, it seems doubtful if the

7.

The banks have

liquidation has been as thorough as on the investment side.

had to carry over a great number of enterprises of every kind and description, weak and strong, and there are no doubt here a great many week spots
that have not yet been taken care of.

There is always the possibility

that some of these may be large enough so that, if several of them topple
rather closely together, it might bring on a real disturbance.

But my

feeling is that the banks and the whole business community are so alive to

the pooeieilitiee here that the danger is not very great and that it is
slowly becoming less so.
to optimism may

DO

There is always the possibility that the return

premature and that we may have another set-back.

do not think there has been the same liquidation in what you
may cal/ the field ce:

not yet spent

all

eponding.

their money.

I mean that the typical spenders

have

While the wholesale trade has been very

dharply curtailed and forward buying almost at a standstill, retail trade,

especially in the larger cities, has unquestionably been
during the holidays and since.
cline in retail prices so far

very good, both

It has been so good, in fact, that the de-

has been dieanpointingly small.

But the decline in the purchasing power of the largest single
class in a community, the farm ponulation, and its immediate dependents,

has been very great, amounting to nearly one-half, as compared with last
year.

There has been no corresponding decline in the prices of the things

which these people have to buy, and until this wide discrepancy is adjusted,
do not look for any very great improvement in general business.

Putting

it in a time limit, I do not sea the probability of any sharp improvement
much till toward the end of the year, if then.

But there is always the

possibility that tho. fall in wholesale prices has been so unprecedented and

so violent that we may have a very sharp rebound such as eame in 1865, after
the big drop of that year.

be to give



The effect of such a rebound would undoubtedly

great impetus to business for the time being.

But my impression

8.

is that if this oomes too soon it will he short-lived.
For the long outlook, I can eee very little prospect that we snail
lose very much gold, and the liquidation in bank credits may not be very

great.

In the lest half century it never hac been great -- meaeured by

our national bank reports it has never amounted to more then about

oent in the lent hal? century.

per

If we do not have a draetic reduction in

bank loans then, with the present monstrouy volume of both loans and cur-

rency outstanding, it some to me that anoteer great n'.ss in prieoc is almost inevitable.

I should not like to suggest how far it will go, but,

as you roaliee, we new ht.-7e none of the usual check upon the rise in prices

that inhere in gold exports.

sescl more likely to gain gold than to

lone it.If !-Lle proven true, then I cannot cee any sustAnctd fall in
prices in this country for several years to coeo, and that will mean more
or lees for the whole woled.

Practically speaking, prices in all the

great coramarcial countries measured in gold are substantially the Barnes

and whatever is the general level in the United States will mean the general

level far most other countries.




Feb. 23, 1921

Governor Strong

Philippine

xchange Situation

Mr. Snyder

The substance of my talk with.General McIntyre, at the head of the Bureau of
Insular Affairs, was this:

That the chief source of the trouble with the Philippine exchange is the fact
that the Philioaine Government has not steadily transferred funds to New York, as
it sold exchange, in order to keep the gold fund intact, and

the

result is that

this fund it not down to about 3* millions, as reported.

For the latter months the balance of their trade has been against the Filipinos
to the extent of 74 million pesos, to say nothing of the invisible balance which is
Apparently the Filipinos thought that this unfavorable

always hard to reckon.

current would turn and, so to sneak, that the gold fund would build itself up;

And they are therefore in a hole:

which it has not does.

They figure that they need about 15 million d.ollars, not pesos, to tide over
to about the first of April, when they think the situation can "then take care of
itself.

A bill was put into Congress to raise the bond limit so that

pine Government could sell
as Congress found
stopped

its bonds or notes and replenish the fund.

the PhilipBut as soon

that this was an emergency measure and not a general one they

it.

Now General McIntyre is trying to get the Tar Department to deposit funds for
Manila credit, sufficient to meet the situation, but

does not know if they have

enough.
Practically what

has been done has been to sell exchange and use the proceeds

to inflate the currency, then keep up prices.
posited in the

Philippine

The money so obtained has been de-

banks and loaned out on wartime values.

Mr. Wilson,

new manager of the Philippine National,

has been out there only a little over

month, and his cables indicate that the

situation is rather tangled; but he is




a

the

Feb. 23, 1921

Philippine Exchange Situation

Governor Strong
Mr. Snyder
2

hopeful that they will be able to force the sale of goods, even at a loss, and
liquidate loans enough-in the next six or eight weeks to get the situation in hand.
But of course thie is not whet the Filipinos want.

!I'

As far as the immediate pressure goes, it apparently comes from the 'Jew York

foreign banking corporations that have very considerable funds out there which they
cannot get back except at a rether heavy 1iscounI4e, diipd they would be very glad

of a chance to pass the buck0

General lCIntyre could hardly say just how urgent the situation is.

But ap-

parently it id not very dire. Everyone speaks highly of the new manager, and he,
apparently thinks it simply a matter of tiding over to get the situation properly
in hand.

It is so much of a- political situation that it is difficult to make a recommendation.

epnerin4e L1s c

.mr3c..

e

et tiekao4
,Bm wen
orf.-euci




.ie




Feb. 24, 1921

Governor Strong

W. Snyder

You may be interested in this chart which sets forth the relation
between street loans and commercial loans in the New York Citi banks,
the rate of turnover of the average amount of net deposit; and activity
on the Stock Exchange.

The thought behind it was to set forth very clear-

ly how little commercial loans, even in New York City, appear to be affected by stock speculation.




MISC. 4-90M-12-19

FEDERAL RESERVE
BANK OF NEW YORK

OFFICE CORRESPONDENCE
To
FROM

\.f

DATE
SUBJECT:

S
ei\XL

)12.7 _,_
-

Y

t

1922_

Paper at Washington Conference
February 22, 1921

THE INTERPRETATION OF REPORTS ON BUSINESS CONDITIONS

After Dr. Miller's admirable address yesterday, and the discussion which followed, there does not seem a great deal left to say.
not difficult to define.

The ideal interpretation is

It would obviously be a clear-cut application of economic

and financial theory to current conditions ard problems.

But Mr. Breck has re-

minded us that economics is still a highly controversial subject, and I regret to
say that the same is true of matters of finance.

And this is perhaps a measure

of our present situation.

It is clear that controversy, always, is born of ignorance or uncertainty.
You cannot have very much controversy about the length of a yardstick or, let us
say, the theory of gravitation.

. Economics and finance and our knowledge of the

laws of trade and prices have scarcely advanced so far.

Otherwise, our banks

would scarcely have the great quantity of frozen loans with which they are now
burdened.

Nor would trade be in the position where it now is.

Now, as regards reports on business conditions, it is evident that everyone
will concede their great value;
without them.

Our business world could now scarcely get on

We recognize the value of the facts.

The question is on the in-

terpretation.

Now we may as well recognize that what we mean by interpretation is, in plain
language, forecasting, predicting; in other words, offering an opinion.

And I

do not see how it can ever be very much otherwise, unless it is the barest and most
uninteresting statement of fact.

You can scarcely collate any

of data, expressing trends and directions, without an implicit expression of opinion,
that is to say, some sort of a forecast.




But we shrink just a little from putting

2

it in exactly this way.

Why!

If we stop to examine the matter we shall see that forecasting, predicting,
forming an opinion, is the very essence of everyday business life.

Every mer-

chant must regularly make up his mind whether he shall buy certain goods at a
certain price, in the expectation of a certain market, and attempt to sell them
at a certain price.

This is just what business is.

And to do this he con-

sults everyone whose judgment he regards as of value, he reads the papers, recalls as best he can exactly what has happened before and goes ahead, to success
or failure.

You may say if you like that the whole of his success depends upon

this very ability to predict, to forecast.

Even the apple woman on the corner

must do it more or less.
And all this is really but a part of the whole scheme of our civilization,

which in its very essence is in general a more or lees intelligent and successful
effort to anticipate the future.

It was the service of that very interesting and

half-forgotten character of the last century, the economist John Rae, to point out
that the difference between civilization and savagery is very largely a difference
of provision for the future.
of it.

Among the savage tribes you will

All of you are familiar with the amusing story of the man who could not

repair the leak in his roof when it rained, for he would certainly then get wet;
and when the weather was fair there was obviously no need for it.
expresses the savage view of life.

This really

And Rae points out that among the savages, and

even among vast peoples like the Chinese, a large part of the famine and decimation
which they periodically undergo is largely due to the want

of

this anticipation and

preparation.

And in the same way Irving Fisher has vary clearly set forth tbat this is the
essence of the idea of interest.

Among the lower orders of civilization there is

very little accumulation of capital, and borrowing is usually of the week to week




3

or month to month character, and at the most fantastic rates of usury--10 per cent.
a month and even 5 per cent, a week being not at all uncommon.

And just exactly

as our human race has developed in the economic scale, the rate of interest has
gone steadily downward; and it is precisely among those people like the Dutch, the
English, the French, among whom the idea of abstinance for future gain has been
most highly developed that, of course, the rate of interest is the lowest.
And in the same way it is precisely in America, where business has become not

merely a kind of national passion but a sort of gigantic romance, if you like, that
this endeavor to anticipate and forecast has been the most developed.

Nowhere

else, perhaps, is there such an extraordinary quantity of periodicals and agencies
of every kind and description endeavoring to disseminate business information--

great financial and commercial daily newspapers, like that of which Dr. Willis is
now the head; widespread agencies, like Bradstreet's and Dun's;

number of

organizations whose very business it is to attempt this kind of forecasting,--organizations like Mr. Babson's and Brookmire's, and Mr. Thomas Gibson, and perhaps
scores of others.

And finally we have now our greatest university gathering to-

gether a fine body of the most qualified investigators, under the lead of Prof.
Persons, Prof. Day and Prof. Copeland, and undertaking the same thing.
It is obvious that before

we can have foreknowledge, before we can predict,

we must have hinter-knowledge, past knowledge as it were; and

likewise the very

best current knowledge as well, and for this we have a great number of Governmental
agencies, a large number of associations of manufacturers and producers of every
kind, and many reporting organizations, to say nothing of business newspapers and
periodicals, so that in no other country in the world does there exist such a wonderful and varied supply of material.
agency of the Federal Reserve Board.

To all this very recently has been added the
I think everyone who has an interest in such

matters feels a real debt to Dr. Willis and to Dr. Miller and others who have aided




4

in the development of the fine series of reports which are now published monthly in

0

the Federal Reserve Bulletin.

The question now before us is how to make all this great mass of material
available for the business men of the United States, in order, I take it, that we

may most greatly prosper as a people and avoid, as far as we may, those foreboding
crises and ensuing depressions, with widespread unemployment and suffering, which
have seemed to be such a striking development of our modern industrial life.

Now, before I say what it is on my mind to say, I should like to set it forth
very distinctly that the organization of all this information and material which
now exists is the end and aim in the whole scheme of its preparation and its development.

It has no other very serious use.

It is doubtless of value to know,

for example, that the production of hemp in Manila was perhaps at its highest point
in, say, 1917, and that it has since somewhat declined.

I do not know if this is

the actual fact, but it would readily interest some people to know that it was a
fact.

And in the same way it is of interest to know that in the day, say, of

Henry the Eighth or a little before, tea was so scarce an article that it was sent
from one king to another as a royal gift; and in the sane way, for example, that
wheat bread, in the days of Queen Elizabeth, was a luxury enjoyed only by the noble
and the rich.

But we in America, especially, want things that are practical and of immediate
or very definite future use.

And the business of economic research is to subject

our present knowledge to scientific analysis and then synthesis, to the end that

we may in very large measure anticipate and predict what will happen, given a
certain set of economic conditions.

Only in this wise will all this mass of ef-

fort have any real scientific character or practical value.
Such is, indeed, the very essence of all the sciences.

This has been set

forth very clearly by Prof. Jacques Loeb, when he said that the end and aim of all




5

science was "the prediction and control of phenomena."

Otherwise, it is merely a

Omatter of academic interest and a more or less entertaining diversion.

I say more,

or less.

Now there are certain things that are possible.

For example, in the last

year three different sets of investigators, Prof. Day in the Harvard Bureau of

Economic Research, Prof. Stewart at Amherst, and our department at the Federal
Reserve Bank, have gone very extendedly into the question of national production,
its rate of growth and variation from year to year.

This work was done indepen-

dently, and from different points of view and by different methods.
concurrence was remarkable.

The general

We now know very closely what is the rate of our in-

dustrial growth, and we know that this rate has not substantially varied throughout
the last fifty years, a little faster in one period, a little slower in another, but
in general quite remarkably the same.

Now, utilizing this material, it is not at all difficult to look forward for
a certain way, say five years or ten years, and say with a great deal of confidence

what will be the approximate or average production of pig iron in 1931, what will
be the approximate needs of railroad traffic for that year, and about how much
wheat we shall raise and export or import.

These matters are now almost as pre-

dictable as the probable growth of population.
But all this sort of thing is of interest only to relatively narrow groups of
people, to pig iron producers or to railroad presidents, and the like.
is not yet conducted on such a long-time anticipation.

Business

Some day, and perhaps soon,

it will be, and then we shall not have, perhaps, such crises and depressions and
alternations of good times and bad.
very much "interpretation."

Nor, perhaps, does this sort of thing need

The facts or the forecasts are very definite, the de-

gree of their probable value can be very definitely stated, and the facts can speak
for themselves.

What we really mean by interpretation is, if we come down to brass tacks, very



6

From this, I do

largely a prediction as to prices--prices and sales and profits.
CI_ not see any clear escape.

And, indeed, this is what business men want and the thing

that they are really interested in.

You may write an interesting little disserta-

tion on the nature of capitalism or the value of thrift, and the interest it will

have will depend upon the extent to which you offer some slightly novel point of
view.

These are not deeply passioning subjects.

It is a different matter when

you come to tell the cotton planter or the cotton factor, or the retail merchant,
what he will get and what he will have to pay for his goods.
So posed, the question that is in my mind is fairly clear.
Governmental, or quasi-Governmental, function*

Is this a proper

My feeling, setting the matter

forth in just this way, is that very distinctly it is not; for a double reason.

Dr. Willis has very well stated one side of the question when he said that the Federal Reserve Board and the Federal reserve banks differ from any other kind of

business reporting agencies in that, to a limited extent, at least, they have a
certain power of enforcing their opinions or beliefs by action.

This is not true

of Dun's or Bradstreet's, or of Babson's or Brookmire's, or of the Harvard Bureau.
Their opinions, predictions, forecasts can be and are taken for what the individual
subscriber comes to believe that they are worth.

This is not true of opinions ex-

pressed in the various publications and reports of the Federal Reserve System.
These have, to a certain extent, the value of judicial obiter dicta.

They more or

less reflect or indicate the trend of mind of those who have a good deal to do with

the shaping of the rates of discount, and therefore eventually with the course of
business and prices themselves.

You may say, if you like, that this is just what

the business world really wants, and needs, and that the public interest will in
this way be best served.

There is obvious force in this view.

But there is another side to the matter, about which we may feel a certain degree of caution.

I think it is fairly clear this year that our theory of the

movement of prices is, as yet, very distinctly inadequate and incomplete.



I hardly

know of anyone in the United States who dreamed that such a tremendous fall of
C:

prices could take place as actually has taken place in the last eight months.

Or

if any such person had any such idea it was simply a dream, and nothing more.

I

think it is fair to say that We had no sure basis upon which to forecast or predict.

We might have a feeling, a hunch, but that is not a very scientific mode of procedure.

And in the same way, at this moment who can say, or who will venture confi-

dently to predict, what will be the course of prices in the next six months or a
year?

I am myself a rather dyed-in-the-wool believer in the general validity of

what is termed the modern theory of prices, that they depend chiefly upon the volume
and velocity of bank credits.

So, for example, are Prof. Fish

It is a matter of note that their views as to the probable course of prices are almost diametrically divergent.

Prof. Kemmerer thinks that, barring natural re-

actions which almost always occur, the general trend in the next few years will be
downward.
fall.

Prof. Fisher cannot see the slightest possibility of such a continued

I am not going to hazard an opinion here, but I have one, and I ao not know

that it is quite coincident with either of these.

So you will see that even those

who belong to the same school of thought and have the general habit of looking at
matters in almost identically

he same way may be at wide variance in their judg-

ment of just what will happen.

And precisely the same, I think, is generally true of those who have not this
point of view.

There is equal difference in judgment.

And if you will look back

a little you will recall that this has practically always been true.

After the

Armistice it WKS a very confident prediction among many very intelligent persons

that there would be a drastic drop in prices.

Instead of this we had the wildest

rise in prices ever known in peace times--nothing like it in a whole century.

So

far as I can recall there was almost no one clearly to predict this tremendous and




8

If it had been clearly a matter of foreknowledge, certainly

demoralizing rise.
our business men and

bankers and economists would have united in some very definite

measures to attempt to prevent it.
why it happened.

Looking back at it now it

But this is "hindsight," not foresight.

And in the same way there was almost no one, or at least only a very few, who
foresaw clearly the tremendous rise of prices that would occur in the war.

If that

question had been a clear matter of foreknowledge, I think it fair to say that we
should never have permitted the great inflation of currency and credits that took
Or if this was inevitabld, we should have tried some means of counteract-

place.

ing it.

So as to our immediate problems.

Today who can assure, who can guarantee to

the cotton planter or the cotton buyer that 13 cents is a fair price or a low price
for his cotton?

Within seven years, and for months after the war had begun, cot-

ton was going begging at 7 and 8 cents.

From all the South went up the slogan,

"Buy a bale of cotton"--and this was not as a good gamble but as an act of friendly
cooperation.

in the face of an almost unimaginable demand;
Who could have predicted the dumbfounding fall in the price of rubber,/sell-

ing today at a little more than 10 per cent. of its value a few years ago?

Who

can say to the wool grower or the tobacco grower: "Grow more wool and more tobacco.
You will receive a good price for 'your product."

You might make a very lucky guess.

But if you could do it often enough it is

trite to say that you probably would not be

engaged in the business of forecasting.

The reward of real foreknowledge would be so transcendent that probably it would not
be widely disseminated.

am one of those who believe that we shall soon have something of this kind
of knowledge.

I will even say that I think we are in sight of such knowledge, and

that the foundations have already been laid for its successful development.
think it is fairly clear that we have not got it now.



In another year, if we

But I

9

foregather again, if work now in hand goes prosperously, we may be able to make a
different report.

But not now.

For the present it seems to me that we must con-

fess the present limitations of our knowledge.

To vary a little a famous dictum

in another field:




Ignoramus; laboremus.

FEDERAL RESERVE BANK
OF NEW YORK

TIME

INTEROFFICE

ROUTE SLIP

OFFICE SERVICE
MESSENGER SECTION

DATE

TO
DEPARTMENT
DIVISION
SECTION

RKS

FROM
II

DEPARTMENT
DIVISION
SECTION
El
N. H. USE THIS FORM INSTEAD OF OFFICE ENVELOPE WHEN POSSIBLE.
TO INSURE PROMPT AND ACCURATE DELIVERY ALL COMMUNICATIONS SHOULD BE DISTINCTLY LABELED




-,_-_

1.0111,

0-Jctvr, A.,
-

.

12

?fi

Such a rebound would probably bring a general rise, and ti0.s

would probably do a great deal to restore business confidence and forwaid
buying.

This prospect may not be very near.
eer'sation

Indeed,

in a private con-

last week, Mr. George E. Roberts expressed the view that there

could be no considerable revival of business so long as the buying power
of nearly one-half of the community, the farms and dependents, had been
so heavily reduced.

This has already been commented upon In these pages.

But precisely such a restoration might cyceivalo/y take place the
present year.

An English economist, speaking at one of the English bank
/11/4

meetings last month, declared that the productive capacity of Great Britain
was to-day "50 per cent, greater than before the war."
an exaggeration.

The productive capacity of the United States to-day has

ot advanced since 1914 much more than 25
J-

This is probably

or 30 per cent.

But that in

ngland may be somewhat greater.

Now, productive capacity of this kind means enhanced power to
goods; for goods, always, are exchanged for goods and not for money.
The shipping trade and international trade generally

iS now at a low ebb,

\buy

Its revival can scarcely be postponed much beyond the present year.

There

is no excessive production of ships; the number of steam vess21s afloat
to-day is not more than would have been required if there had been no war.
Roberts also suggested that It was becoming somewhat doubtful in his mind
Iee'/''Mr.

as to whether the continuation of a strong deflation

policy was now as desirable as it seemed six months ago.




QELATIVE VALUE 01° 5T Ef2 LING
compared withWHOLESAL E WIC E5
par

-10$

\.- ----/ I

-20

4:00
3.90

4,19/45

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)ik4

3.80
3.70

/

Wholesale Priced (as Oept of Labor

'

ii.

.360

350

.

.

NEWar17"

V

I

31-0

330
a veraie /cw" ritort,X

Qeekly



hyh a nd low
a.

ni"

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J

19Z 0

5

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0

19Z1

MISC,A-90M4-20

FEDERAL RESERVE BANK
OF NEW YORK

OVICE CORRESPONDENCE
Govern

DATE

SUBJECT,

March 7, 1921

Chart from Mr. Gilbert

Snyder

The chart sent you by Mr. Gilbert simply shows:
That in the Reporting Member Banks the item of "all other loans
and investments," i.e., commercial loans and all investments, rose at nearly
the same rate as net demand and time deposits, from the level of about 10
billions in 1918 to nearly 15 billions in 1920; and,
That this item of "all other loans" now exceeds deposits.
That the holdings of these banks of U. S. securities, and their
loans thereon, rose from about 2 billions in 1918 to 4 billions in 1919,
and have now declined to under 2 billions..
That Reserve bank discounts on U. S. obligations reached a peak
early in 1919, of around 1600 millions, and are now down to about 1200
millions.
That Reserve bank holdings of "all other bills," after declining
very sharply from 1918 to 1919, have since risen steadily from around 400
millions in 1919 to around 1800 millions at the end of last year.
That Government deposits, which from the beginning of 1918 to the
beginning of 1920 fluctuated about a level of around 600 millions, have within the last year fluctuated around a level of about 100 millions.
Mr. Gilbert states that the chart "indicates with mathematical precision
It is true that on this type of
the exact percentage rates of change."
chart, which we use freely, the slope of the lines indicates the rate of
change, but no percentages are either given or indicated.
Such percentages have to be worked out, as on any other charts.
The chart is quite as confused and difficult to read as you evidently
found it.




a

March 7, 1921

Atlantic City Address

Governor Strong
Yr. Snyder

I don't see

why an address on world

conditions as you found them would
involve con-

not be exceedingly interesting, or that it should needfully
fidential mattere. For example:
Your impression of
self-government, etc.

conditions in

the Philippines; prospects for

The panic in Japan and conditions which

brought it on; prospects

for recovery.

China under the new republic; what they are trying to do, the
great difficulties they labor under, chances of success.
ihaVamerica
could do.

The crisis in Java and what produced it.

Its repercussions in

Europe.

The great industrial awakening in India; prospects for self-

government; development of manufacturing; the part which a nation of 400
mialiona may come to play in international trade.

(e)

The trade of the Levant.
The great commerce that was
vast and the Black Sea when the war came on.

in the ports of the

developing
Prospects

of early reestablishment.
Conditions in Egypt.
suing crisis like that in Cuba.

Their groat prosperity in the war and en-

Possibly a little word on the absurdity
Readjustment in Turope.
of the idea tat the war meant any gmat capital derAtcuction; that, on the
contrary, the capacity for production of goods increased steadily and must
be from 20 to 40 per cent, greater in Great Britain and Germany and the
German territory, and even in France, than before tne war.
-Prospects for
a great revival of world trade and the ominous outlook for another tremendous rise in prices and world "boom" (if this fits in with your ideas).

war,

The tremendous enhancement of English prdstige and power from.the
the great gain in her industries, her commanding banking position and

her renewed grip on world trade.

(I think four hours would be sufficient to cover these subjects.)




March 8, 1921

Governor Strong
Mr. Snyder

The American

Statistical Association is

memberships from a number of large

endeavoring to secure life

corporations, banks and

insurance

companies, in order to promote a very useful programme ofinvestigations.
Mr. George E. Roberts, -,:to is president of the Association, has written

to Mr. Jay a letter expressing the hope that
I believe that the Bank

of Commerce and a

this bank may be one of them.

number of the large insurance

companies have already agreed.
I enclose herewith a copy of the letter of Colonel Leonard Ayres to

the Rockefeller

Foundation, which secured a subscription from

them.

I feel it is a very worthy cause, and I should be very glad if you

could see your way to suggest to Mr. Jay your adherence.




March 15, 1921

Governor Strong

Impounding Gold

Mt. Snyder

You remember that the Federal Reserve Act, Section 7, provides that the
Secretary of the Treasury, at his discretion, may use the surplus earnings of
the Federal reserve banks, paid to the Government, to supplement the gold reserve
held against outstanding greenbacks.

At present that fund amounts to a little

short of 153 millions, the odd three millions being realized from national bank
circulation taxes, the balance from bond issues.
This leaves about 190 millions of these notes uncovered.

It would probably

excite very little attention if the Federal reserve banks were to anticipate their
surplus earnings this year, and payments so made should be used in this fashion.
It seems to me this would possibly be better than any of the four methods proposed, as far as it goes, because therm would be a certain sentiment back of the
idea of putting a metallic dollar behind all the greenbacks at last.

Personally

I do not see the objection to paying out gold certificates.

T

Prof. Sprague's suggestion from quite other reasons, viz., that the issue of
Federal reserve notes ought to be restricted as it is

in

mgland, and that in no

other way can the Federal Reseirve Board have any real grip on the credit situation under the present law.

As things now stand it would require an absurdly

high

bank rate really to

restrict the expansion of ?!ember Bank loans, provided that there is no attendant
demand for currency.

The rate would have to be two or three times the market

rate to have any very decisive effect, though it is admitted that the sentimental
effect would be strong.

But if the banks are pressed by currency demands, and their rediscounts at
the Federal reserve banks are paid out in notes, then,if the issue of notes is
restricted, the power over loan expansion is sharp and prompt.



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March 15, 1921

S

Impounding Gold

Governor Strong
Mr, Snyder

IS )ITAA£i

If we get another big boom out of

what it

seems

to me

is preparing,

the present situation, which is precisely

then we are going to have another

big rise of

prices and further bank expansion, and the only way that the Federal reserve
authorities can stop it is a bank rate which will raise

an outcry.

Paying oat gold certificates would obviate all this.
Furthermore, if we get new gold, why not put it

instead of keeping it where, at a pinch, we could issue

much currency

against it.

much currency now.

The whole idea of

directly
two and a half times as

into

impounding

circulation

is that we have got too

The plain fact is that wm have not got an elastic

system now at all, because elasticity implies power to contract.

currency

And that now

seems lacking.

There is an inevitably
prices, near to

tendency more or less to

standardize

the limit of the available gold supply.

loans, and

This bankers do uncon-

sciously, and if we have a secondary gold reserve I fear, as you do, that the
inhibition on further expansion will be very slight.

If, on the contrary, the gold is paid out into circulation, it is potentially
there to recoup our supplies, if the necessity some years hence




should

arise.

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Yarch 16, 1921

Governor Strong
Mr. Snyder

YoU may have already noted a paragraph in ''r. Roberts' report from Naumburg

as to the amount of returned commercial paper in proportion to sales--as the highest in the firm's experience of twenty years.
DCAS not this seem to confirm the belief that the banks have not and are not

following 9agehot's 'golden rule of banking,' viz., that they shall loan freely in
a crisis, at a price!

I cannot get away from the feeling that this is the root of the whole difficulty we are now experiencing, vii., that the banks have themselves largely created
the

predicament

they now face, of carrying what are practically insolvent customers.

Obviously it is one thing to check loan expansion when it is going too fast
and there is obvious danger, and refusing loans in a crisis.
situation is being any better handled in

ngland this time than in this c

But it is a very remarkable fact that up to the war period
crisis since 1866.

I do not know if the

ngland had had no major

In the preceding forty years it had had four.

bnok appeared in 1873, and, if I recollect,

the

Bagehot's

reversal of the Bank of

ngland's

declared policy followed shortly thereafter.

Paven't we

something to learn?

And if about last November, when the crisis

was fairly on, the banks had announced that

they would lend

freely, although at a

high price, would it have gone so far and as disastrously as it has




ta

March 26, 1921
Governor Strong

Governors °

Conference

Mr, Snyder

I cannot help feeling that the most important problem facing the
Federal reserve banks and the Board now is that of definitely formulating
some plan of action with regard to a new wave of inflation, providing it
should come, as I am sure a great many intelligent people now believe.
A prediction of just such a renewed wave, from an English source, is quoted
It is almost impossible to imagine
in this morning's Wall Street journal..
that so violent a fall in wholesale commodity prices will not be followed
Such a rebound will give a renewed impetus
by an equally violent rebound.
to business and speculation, and almost inevitably bring about another banking crisis.
We have had in the last year the most thorough liquidation of the
It is almost the universal report of
stock market, probably since 1907.
the brokers that speculative loans are at the lowest point in long years,
and the average of industrial stocks at their low point was just about at
There is every indication now of
te low point for these stocks in )118.
a prolonged bull market in stocks.
Factory production has been more sharply curtailed in the last
This is almost certain
six months than probably any time in a generation.
A gento lead to a shortage of goods in many lines next fall or winter.
eral revival of industry would almost certainly bring about another wave
of speculation in oil, real estate, and all the rest,
The question is: lhat are the Federal reserve banks going to do
about it?

Personally I do not believe that any bank rate which would be regarded as reasonable or which would not incur very wide criticism would be
As long as the Federal
any serious check to sucha renewal of speculation.
teserve Board undertakes to protect its gold hoard and to permit the praccan have no effective control
tically unlimited issue of Paper money,
over the credit situation.




it

MISC. 4.90M-12-19

FEDERAL RESERVE
BANK OF NEW YORK

OFFICE CORRESPONDENCE
To

Governor Strong.

t-Aom

1921__

DATE
SUBJECT:

Mr. Snyder

Here is an interesting article on a really interesting phenoienon.
I have yet to find in French or German a single clear-cut exposition of
the cause of the fall of their exchanges.

And even in England, -the land

of sound economics, there are only a few, Akxe D'Abernon
blunt truth.




But is it much better over here!

to tell the

MISC. 4-90M-12-19

FEDERAL RESERVE
BANK OF NEW YORK

OFFICE CORRESPONDENCE
To

DATE

,j1 26,

Coverner-Streng

SuBJEcT_In dex

!Jr. 3nydor

in thc rapoleenic Period

ofPrices in Prance

We have combed Lhe libraries here for any authsntic index of prices in
France in the Napoleonic period.

We have a itt Jf detached prices, but I

am wondering if somewhere there does not exist a red.]. study of this period.
Could I write to someone in the Bank of France, and could you suggest me a
name?




192_1_

megc.3.1-gom-t-2o

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

Governor Strong

FROM

DATE

April 28, 1'2,1

Mr. Snyder

U BJ ECT

InereaSR of Time_Depesite

The rapid growth of time deposits in the banks of the Federal Reserve
System does not lead to as large a change in the reserve requirements, were
time deposits to bear the same reserves as demand, as would at first sight
appear.
Even if the whole of the time deposits in the system were converted
to demand deposits, this would have led to a reduction in the reserve percentage, for example as of last December 29, only from 42.7 per cent. to
41.6 per cent.
The computation is as follows:
Taking the figures for December 29 last (the latest available dates)
and adding an extra 10 per cent, on the time deposits of the central reserve
city banks, 7 per cent, more for the other reserve banks, and 4 per cent.
more for country banks (i.e., making the reserves 13, 10 and 7 per cent.
respectively), the result is:
Extra reserve for central reserve city banks
ff
" other reserve city banks
ft
If
"
country banks

Total extra amount required

$59,562,500
133,473,410
147.421.320

$340,457,230, or 19.8%

They were carrying on that day $1,763,424,000

I compute that they needed to carry that day _11,222022211_
Estimated amount required

$2,063,289,230

Total liabilities of F. R. banks as thus
estimated

$5,263,186,000

7stimated reserve percentage 41.6 per cent. compared with
actual percentage that day, 42.7 per cent.
You have asked for the effect if the percentage of time deposits remained
the same in 1920 as at the end of 1914.
The computation is given on the attach d sheet from Miss Schutt.
You
will see that the additional reserves requir d would amount to only a little
over 6 per cent, above the present required eserves; which is not a great
difference.

What I had in mind when I pointed out the remarkable growth of time
deposits was that this seemed to represent a real increase in the available
fluid capital for use by the banks.
If, as seems to be the case, the large
part of this growth is due to the rapid increase of savings banks accounts,
it is not a matter calling for correction.




metc.3.1.904-1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

FRO

DATE

Governor Strong

Alr._Snyaer

SUBJECT

April 28, 1921

Increase of Time Deposits

2

rather the change in
The real evil, if there be one, seems to have been
the Act of June, 1917, reducing the original requirements from 18, 15 and 12
Whether this was a misguided action or not, it
to 13, 10 and 7 per cent.
was certainly most inopportune as it turned out; for it paved the way for the
larger part of the post-war inflation.




sC 3

FEDERAL RESERVE

BANK OF NEW YORK

OFFICE CORRESPONDENCE
To

Date_April 03, 1921

Mr, Snyder

Subject

K. M. Schutt

om

Proposition: Assume ratio of time to net demand deposits * in December 1920
was same as for

national

banks, December 1914.

Percentage of time deposits to total 1914
"

"

17.3
26.0
8.7

1920

Difference

0

The absolute figures for 1920 would bet
(In thousands)

Ratio of time

,Computed

Actual. Ratio of time

to demand
20.9

Time Deposits
4,115,780
Net demand deposits 19.674.857

6,187,921

23,790,627

to demand
35.1

Difference
2,072,141

23,790,627

This difference would be made up as follows:

Central reserve cities

198,926,000
638,219,000
1.234.996.000
2,072,141,000

Other reserve

Country banks

The difference in reserve on these amounts would be
19,893,000
44,675,000

10% on 198,926,000
7% on 638,216,000
4% on 1,234,996,000

49. 40Q,000

113068,000

I compute that under present
conditions they needed to carry
Additional reserve required

1,722,822,000
113.968_.000

1,836,800,000 or 6.6% additional over

present.

Looked at from the standpoint of the Federal Reserve banks, if the
earlier ratio of time to demand deposits of member banks had prevailed in December
1920, the total liabilities of reserve banks would have been $5,036,700 and the
reserve percentage would have been 44.7 instead of 45.4.

Vr. Riddle's figure for national banks is the ratio of time to demand, not net
demand, deposits.
Ratio of time to net demand

0




20.9

20.9
120.9

=

17.3%

MISC. 4-90M-12-19

FEDERAL RESERVE
BANK OF NEW YORK

OFFICE CORRESPONDENCE
To

Governor Strong

DATE

May 2, 1921

192___

SUBJECT:

We have been in Teepee that, with the incoming of the new Administration,

it might be possible to secure more dependable and consistent figures in the

returns and reports of the Comptroller of the Currency, as regards national
banks.

We have also bcen thinking that it might be possible to make up a sim-

plified statanent of the returns of not only the national banks but the Reporting ,!ember Banks and the annual statments for all banks; and a sugges-

tion for such a form is attached herewith.
T should like very much to go over this form with you.



MISC.3,-90M4-20

I FEDERAL RESERVE BANK
OF NEW YORK
DATE

OFFICE CORRESPONDENCE
anvarrnr

TO

OM'

Mr,

May 2, 1921

SUBJECT:

Snyder

An organization is to be made at a meeting in Washington next month, of
a Stable Money League.

It is committed to no plan, but is to investigate

any method for securing a more stable price level. The organization committee
is headed by seven ex-presidents of the American Economic Association, and a
large number of other economists, solid business men, same bankers, and others.
It is much on the order of the Sound Money League recently organized in
England, with Lord D'Abernon (Sir Edgar Vincent) as President, and it is pro-

posed to make someone like ex-Secretary of the Treasury Houston Chairman or
President.

There seems to me little prospect of obtaining any action by Congress in
the next five or ten years, even if a definite plan should be agreed upon; but
I do believe very thoroughly in any high class organization which will carry
on the work of popular economic education.

I have been interested in this

subject for many years and my name has been put dawn on the committee.
Is there any objection*







May 6, 1921

Governor Strong

Rand Library

Mr. Snyder

have seen iii'. Rand's library this morning, and my feeling about it

is that it is more especially a collt,Nction for a statistician in railway
finance.

Ile has Hunt's Magazine and the Chronicles, etc., which are

valuable and interesting,

But the most of it has to do with railroads.

It would be quite impossible to decide on the value to us until we know
whether we get the American Lankers Association library.

But even if we

do not, it does not sew to me that the collection would be worth even a
quarter of the price he suggests, because
cr, wo

nnri

is not especially the type of




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-120 M-1-20

OFFICE CORRESPONDENCE
To

CovArnor Strong

DATE
SUBJECT:

My 9,

Chart on Commndity Prices

Mr. Snyder

Mr. Jay wondered if you had seen the attached chart.

We have a

hundred or more of all sorts, any time you would like to look them over.




13, 1921

Lectures a

Gov. Stro g & Mr. Jay
Ur. 3nYitar

-"Abel of

SO alai fteamreli

Prof. Cooley C. Mitchell will not be able to give his course on
"Pusiness Cycles" next year at the New Gdhool of Social Research, and has

asked that T give the course in his stead.

It is quite out of banking

hours and more or less concerns the sort of thing we have bean doing a
good deal of here.

But before I consider it I should like to know if

there would be any reason Whatever thy it might be better to decline it.




The Leading
Business Man's Paper
Daily, except Sunday

VOL. 111NO. 8,478.

Entered as Second Class Matter
St Post Office, New York, N. Y.

RAPID BIRO RECOVERY

AND

PRICE TURN IN SIGHT, SAYS MELLON

,

,

'

1

Economic Pendulum Ready
for Upward Swing to Pros perity, Secretary of
Treasury Believes.

WOULD PUT EMBARGO ON
PULPWOOD AS ANSWER

TO U. S. FARM TARIFF
OTTAWA, May l6.Proposals for
either an embargo or heavy export
tax on pulpwood were made in the

HIGH BANK RATE PERIOD
ENDED, HE INDICATES.

House of Commons to.day by T. W.
Caldwell, an Agrarian member from
New Brunswick.

Improvement Here Should Bene-

discriminating against Canadian farm

fit European Countries, Thus
Aiding Debtor Nations to Pay
AmericaNo Ban on German
Reparations Bond Sales Here.

Canada to advocate this course, Mr.

The policy of the United States in

(Washington Bureau of The Journal of
Commerce.)

products will cause the people of

Caldwell said.

The United States depends upon
Canada as her main source of pulpwood, he added.

COMMITTEE HEARS

WASHINGTON, May 16.Probably the worst of the economic re-

NEW TAX PLANS

action of the country has been passed,

with every indication now existing LEVY ON EXCESS PROFITS IS
DEFENDED.
for a rapid business recovery and
the advent of more prosperous times,

according to the views of Secre- Representatives of Motor Industry
tary of the Treasury Mellon as exOppose "Stigma" Tax and Depressed in discussing the business clare Against Any Increase in

outlook to-day.
Secretary Mellon frankly announced
himself as predicting more favorable

Burdens Now Being Carried.
WASHINGTON, May 16.The Senate

conditions for the immediate future. Finance Committee was swamped at
Prices generally, the Secretary said, hearings to-day with suggestions for

undoubtedly have reached their lowest revision of the Federal tax laws. It
level and much lower values are highly heard for the first time a vigorous defence of the excess profits tax as well
improbable.
More probably, he said, the economic as pleas for reduced taxes and elimipendutnn is ready to tahe an upward nation of alleged discriminatory Proswing, carrying with it several years visions against business.
of prosperity for the country after the C. C. Hanch of Indianapolis, and
past two years of businesa difficulties George M. Graham of Buffalo, speakand readjustments incident to the tran- mg for the National Automobile Chem-

sition of the country from a war to a ber of Commerce, ct ere the chief witncsses from the Industrial ranks, and
peace time basis.
Certainly, the Secretary Indicated, urged removal of the excess profits,
luxury, excise, transportation and conthe Priod of high reserve and bank sumption taxes.
rates has passed. Notwithstanding
Defends Profits pevy.
the general reduction In rediscount
H. Archibald Harris, of Chicago, a
rates from a 7 per cent to a 6,6 and certified public account, was the champ6 per cent level within the past few ion of the excess profits tax and his
stand proved a surprise to committe,
weeks, Secretary Mellon expressed
members, several of whom said they
the opinion that subsequent reduction
had felt the sentiment throughout the
to even lower levels may be expected country was practically a unit for reduring the summer as business and peal of -that section cf the laws. Mr.
Harris also urged exemption of corfinancial conditions continue to imporation dividends irom personal income surtaxes. ..
prove and warrant 4.1ta.,ealaxation of
Frank E. Seidman, of Grand Rapids,
high money rates.
Michigan, took still another tack on
the profits tax question, suggesting a
Improvement in econotraic conditions
tn this country and the better condi- taxo atoinonsuntdistributed earnings of dortion of the exchange market, the Sec- gyr repeal oofmgee rrofitslosraexsescaus;Ide
retary agreed, should have a beneficial proposed taxes similar to the graduas the
effect upon the economic structures of ated rates on persona/ incomesundisproper method of dealing with
the principal European countries.
The recurrence of improved financial
and business conditions in Europe, it
was said, might affect the ability of the
comatries indebted to the United States

tributed earnings.
Attempts of officials during the war to
differentiate between essential and nonessential industries has left bad spots
in the nation's commercial life, Mr. Graham said.
"We cannot
the
on account of war loans to repay the motor cars and feel," he added, "thatand
motor truck industry
advances and thus exert a marked in(Continued on Seventh Page.)
fluence upon forthcoming negotiations
between foreign financial representasupplu y WIENIs HEAD
fives and the Treasury in arranging for
the funding of the foreign indebtedness
of the country.
In response to a question concerning

SEES GOOD FUTURE

the Treasury's policies on the sale of

German

reparations

bonds

in

the

United States, Secretary Mellon indicated that the Treasury probably would CONFIDENCE IS NOW BEING
not interpose any objection to the sale
of the securities in the domestic investRESTORED, SAYS MORGAN.
ment field, especially if the securities

were transmitted to the United States

through friendly channels.
Situations Thought Unsolvable A
Objections of the Government to the
Being ClearedAction of Si
sale of foreign securities in the United

States during the war period, because

Corporation in Maintaininr
Price Levels Is Praised.

of the imitortant governmental financing

pro,g,inmes under way at that time,
Secretary Mellon said, no longer exist.

Inview of the fact that foreign issues (Special to The Journal of Con
of various kinds are being marketed ATLANTIC CITY, May 16..

In this country without objection ol the
Treasury. it is not probable chat any
special obiection will be made t-o the
sale of German reparations bonds here
if

Crannell Mr
Akron, Ohio, sounded an optir
together with the predict'
annual address

country is drawing
the securities are offered for sale of brighter bus,- near,

in the United States,

seen f^"

SOCIALISTS AND CATHOLICS
LOSF. TAT TM

T

-

se.




L921..

e's no substitute for
ant Camel blend.
ants Camels. That's
fragrance and a milde.

Ither cigarette at any
Fry Camels for your-

Es and you'd walk a

R. J. REYNOLDS Tobacco Oa,.
Winston-Salem, N. C.

try, according to Howard W. Adams,
representative of the Department of

Commerce in Berlin. Business. in this line

has, as a result, experienced a severe
wave of depression. According to reports, only a third of the factories are
fully employed; another third of the
plants are limiting their operation to
part time work, while the remainder
have been forced to close down. The
export business appears to have fallen
off considerably, this situation being
ascribed to the overstocked condition
of foreign markets.

The 50 per cent export tax demanded
by the Allies brought sales to England,
France and Italy to a complete stop,
the German Government refusing to
reimburse German manufacturers to
the amount of such export charge. The
leather glove manufacturers could not
see their way clear to bear this charge
alone. Another factor contributing to
the present unsatisfactory condition is
found in the existing high price of raw
skins and other materials which, it i3
felt, must experience further declines.
The manufacturers believe that the
only prospect for a restoration of their
business to a healthy basis lies in a
considerable reduction in the price of
this commodity and the adjustment to

The State Bank of the
Portuguese Colonies

BANCO NACIONAL'
ULTRAMARINO

New York Agency, 93 Liberty St

lousrauBANK.
ofNEwYoRK

a more equitable basis of the various
taxes and other charges which affect Fourth Avenue nt TwentyFaniti Street
this industry.
" Wie

PACKER HIDES FIRMER.

1

Bank, c y Wert)ice"

Barquismetes
Laguayras
Peruvian

261/2a
211/2a

40 a
50 a
30 a
65 a

Oaxaca, first selection...
B. A Cardobas
Brazil, first selection
Rio Bache
narket for city packer hides has Maracaibo
ip appreciably the past few days. Payta India... Hartian, etc
West

I Well Cleaned Up to April-Dry Hides Improving.

2.51/2.s

22.

4C --'
.'15

a

65 a
bulk of the old skins, has been Bogota
up to April. It is said that a SHEEPSKINS
7 a
9
sales have been made, but Peruvian (wool)
40 a 50
do (slats), per
e lacking. Dry hides are at- Chilean (wool) dozen
101/2a ....
00
re attention in the local do (pickled), per dozen.... 4 00 aa5....
18

ling buyers are unwilling Punta Arenas (wool)
Brazil Cabrettas, each
nf 12c for Bogotas. Cent.. Amer. Cabrettas. each
nd Central West India Cabrettas, each
CALFSKINSN. Y. City
- till City, 9 to 12 lbs
City, 7 to 9 lbs
ritv. 5 to 7 lbs
-- . to 12 lbs

50 a
20

55

30

220 a 2 25
1 95 a 2 10
1 70 a 1 SO

175 a 1
1

,-,

8t5

, 1 gn

MMC.A.OMA-20

I FEDERAL RESERVE BANK I
OF NEW YORK

OFFICE CORRESPCNIDENCE
anvnrnnr strnng

TO

P

4-

DATE

My 17, 19_21

SUBJECT:

Mr. Snyder

Does office make politicians of them all?
It looks to me as if things were being staged for another wild West boom,

which might get well under headway by a year from now and reach a tolerably
high level in the political campaign for the election of a new Congress in the
fall of next year.

That does not make a very good prospect for high discount

rates, or any other kind offlorakesr or attempts to "throttle prosperity."

other words, are we not in for another huge inflation,and another crash in
about November, 1923?
In other words, is this sort of thing going on indefinitely?




In




MISC. 4.1-120 M-1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
To
.1=- _DM

ornorStrong

DATE

Hey 18

SUBJECT

Mr. Snyder

This memorandum toltr. Jay deals a little more explicitely vith the

que3tion of how to meet the effect of a huge redundancy of geld. So far,
I have been unablo to see any other way that woUld not meet vith vitriolic
attacks in Congress.

192)_




MISC. 4. 1-120 M-1-20

.

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
To

aoverror Strnrg

DATE

May 18,

SUBJECT:

F.-M__Mr811yder
This memorandum to Mr. Jay deals a little
question of how to

meet the effect of a huge redundancy of gold.

have been unable to see any
attacks in

more explicitely witlithe

Congress.

other

way that would not meet

So far,

with vitriolic

1921

MISC.3.1.0M-1-20

FEDERAL RESERVE BANK
OF NEW YORK

D ATEMay 17, 1921

OFFICE CORRESPONDENCE
TO

it

Jay

SUBJECT

Mra Miller B

measarandura -en-

FederalReserve Peliey-

__lira-Snyder

His view of the Reserve Board's
Attached is Dr. Miller's brief memorandum.
attitude at various times is certainly widely at variance with that of an ordinary outsider, watching the proceedings.
But as to his specific proposal, it seems to me that it is entitled to
very careful consideration.
This is, as you recall, essentially also Prof.
Sprague's proposal, and it embodies also the doctrine enunciated in the Cunliffe
Committee resort, from which Mr. Miller quotes, and from which, as I understand
it, he derived his idea.

It seems highly possible that political, as well as financial and business
reasons might make it very difficult to maintain a high discount
the
face of a fairly good reserve bank
If the general level of prices
should, in the next year, experience a considerable rise, that would tend to
bring on a very strong revival of business activity, and, with the great influx of gold and the huge liquidation in bank loans which has already taken
place, might readily bring on another big boom.
This migh
in full swing along in the summer and fall of next year, and about the time
of the campaign for the new Congressional elections.

ratio.

rate in

It might prove very difficult to raise discount rates at such a time, and
if they were raised earlier it would undoubtedly bring on a big protest that
the Federal Reserve Board was endeavoring again to "throttle prosperity."
So long as the issue of Federal reserve currency is unlimited, nothing
short of a very hie' bank rate would have more than a very strong sentimental,
For example, if, as after the
or what might be called hortatory, effect.
Civil War, interest rates should tend towards high levels, as in the last year
or two, even a 7 per cent, bank rate would scarcely be of very much avail to
check another great wave of inflation.
Would it, in your judgment, be possible to get any higher rate than this, and would anything less than, say, a
9 per cent, rate be any very great restraining influenceZ
The only possible way that this could be done, apparently, would be
This might
through a radical reduction in the Federal bank's reserve ratio.
be done through a large Government loan of gold abroad, or by various bookkeeping devices; but would not the intent be very obvious, and therefore
nullify the effect of the action!
Personally, I do not see the objection to paying out gold certificates
on rediscount instead of Federal reserve notes, and thus radically reducing
I cannot see the force of
the gold holdings of the Federal Reserve System.
the objection that we may need all this gold at some future date.
If gold
certificates were paid out for popular circulation, the gold would still be
here and could be gathered into the System again by the same methods as three
For the rest, there is at present very little prospect of a very
years ago.
The only way that such an outgo could be occasioned
large gold outflow.
would be a very heavy increase in imports and a decrease in exports, owing
to the fact that our prices in gold were much above European prices in gold.



MI9C.3,9014-1-20

I FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

Mrs Jay

FR,

DATE

May- 17, 1921

Mr. Snyder

SUBJECT:

2

But is there any present prospect for this?

I can see almost none.

Europe has not learned its economic lesson, apparently, even to a small
Even up to the present time there has hardly a single voice been
raised against the popular delusion that exchange rates are the result of
unbalanced foreign trade or unbalanced government budgets, or of big government borrowing.
There is hardly a single 11uropean statesman or banker to
tell the people the simple truth, that the trouble with the exchanges is the

degree.

amount of ,aper money issued, and nothing else.

3o long as this condition obtains, it seems almost certain that there
will be no serious deflation of European currencies and that, en the contrary, if our prices again undergo a great rise, they will tend to expand
rather than contract these currencies, in order to obtain the needful goods
for import.

A year ago I was not sympathetic to the proposal to limit the issue of
Federal reserve notes, but at that time there seemed some little prospect
that Europe would wake up from its paper money orgy and attempt to get back
to a sane financial basis. I can see now very little prospect for this,
even in England. In consequence, instead of losing a large part of our
redundant gold supply, it is actually increasing, in the face of every

reason to reduce it.

If all this useless and burdensome new gold is to be made the basis for
the issue of more paper money in the United States, in
then it seems to me that we have almost no method that is now politically

the ratio of 21 to 1,
feasible, to check another huge credit inflation, with results as socially

and commercially disastrous as those of the last
It seems to
erably changed.




two years.

me that the situation, from a year ago, has very consid-

May 19, 1921

Governor Strong

'Ir.

Economic History

Snyder

Supposing the young man has had a year of Economics,
that the three following would

be

Prof. Macaulay thinks

very good:

Sumner's 'History of American Currency"
Dunbar's "History and Theory of Banking"
Hartley

Withers' "Money Changing"

His other suggestions are:

Oairnes' "Essays in Political Economy" (article
Laughlin's "Binetallism"
Hepburn's "History of the Currency"

on gold)

Jevon'a "Honey and the Mechanism of Exchange"

This is supposing, of course, that he is had Derley'e "nnancial History
of the United States," and has, perhaps, been through one of the standard
books on Economic !Tiatory of the United States, like Bogart or Callender.

This list sounds a little heavy, but light readiag it the field or
outside of T:artley ithers, ie apt to be rather sorry stuff.

finance,

Might I suggest a bound volume or two of Mr. George E. Roberts' National
Cit7 Bank circularel

They are available for the asking.

Also, Simon Mercombls "Principles of Political Economy," which seans to

me the

clearest and

It seaas

to me

and John Stuart a

ablest

introduction to

the subject I know of.

that I read "Lombard Street" at

not much

past that age,

good while before.

Andrew D. White's little history of paper money in France is a little gam.

Would not a few interesting biographies like, for example, of Alexander
Hamilton or Robert Morris,

aroused?




be a

very good introduction

and

get his interest

MISC.3.1.0014-1-20

FEDERAL RESERVE BANK
OF NEW YORK

'FICE CORRESPONDENCE
TO

,

Governor Strong

'

DATE

SUBJECT

May 19, 1921

Economic History

. Snyder

Supposing the young man has had a year of Economics, Prof. lacaulay thinks
that the three following would be very good:

v/
/\\

Sumner's "History of American Currency"
Dunbar's "History and Theory of Banking" 2;
Hartley Withers' "Money Changing"
-

His other suggestions are:
Cairnes' "Essays in Political Economy" (article on gold)
Laughlin's "Bimetallism"
Hepburn's "History of the Currency"
Jevon's "Money and the Mechanism of Exchange"

This is supposing, of course, that he has had Dewey's "Financial History
of the United States," and has, perhaps, been through one of the standard
books on Economic History of the United States, like Bogart or Callender.
This list sounds a little heavy, but light reading in the field of finance,
outside of Hartley Withers, is apt to be rather sorry stuff.
Might I suggest a bound volume or two of Mr. George E. Roberts' National
City Bank circulars?

They are available for the asking.

Also, Simon Newcomb's "Principles of Political Economy," which seems to
me the clearest and ablest introduction to the subject I know of.
It seams to me that I read "Lombard Street" at not much past that age,
and John Stuart a good while before.
Andrew D. White's little history of paper money in France is a little gam.

Would not a few interesting biographies like, for example, of Alexander
Hamilton or Robert Morris, be a very good introduction and get his interest
aroused?







MISC. 4.1-120 M-1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
To

Mr, Jay & Cov. Strong

DATE

SUBJECT:

May 23,

192_4_

A. B. A. Library_

Ferom..---Mr,, Snyder

I hope if you have time you can find occasion to inquire a little as to
who or what put the crimps into the plan to give us the American Bankers
Association Library.

I gained the impression that Mr. Bowerman and the folks

across the way were utill heartily in favor of it.

L







May 23, 1921

Governor Strong
Mr. Snyder

Does this commend itself to you?

last

Loans in all commercial banks, July 1

year, were a little under 28 billions.

The ratio of total gold to total

loans at this time was about 14 to 1.
A similar credit structure on the present gold basis would rise to 35

billions and such a credit
at least 20

structure would

per cent, above the peak of

to our calculations.

carry the general level

last year, I

should

of

prices

think, according




FEDERAL RESERVE BANK
OF MEW YORK

OFFICE CORRESP
TO

Goxerner_Strong

FROt:

DAT__May

DENICE

Mr. Snyder

Does thisthis commend itself to you?

SUOJEC,

Loans in all commercial banks, July 1

last year, were a little under 28 billions.

The ratio of total gold to total

loans at this time was about 14 to 1.
A similar credit structure on the present gold basis would rise to 35

billions and such a credit structure would carry the general level of prices
at least 20 per cent. above the peak of last year, I should think, according
to our calculations.

./e

cf-t444.4 kt.t.

711

3,

2

THE CAUSE OF HIGH INTEREST RATES
Attention was drawn last week to the tendency which appears to exist for
interest rates to continue high long after the direct cause, a heavy increase
in the general price level, had been withdrawn.

This was markedly true after

our Civil War, when the tendency of commercial paper rates was distinctly upward from the close of the war, and, for that matter, practically from the
beginning of the war, to as late as the panic of 1873.
In the various standard works on the theory of interest the cause of this
long hold-over of high money seems nowhere very clearly explained.
causal element which must be very strong seems to be quite neglected.

And one
This

is very simply the need of increased capital, due to the higher price level.
Obviously if, for example, the Steel Corporation needed liquid "working" capital to the amount of say a quarter of a billion before the war, it would require approximately twice this amount if the general average of prices be
double.

And the same is, of course, true for every business.

Now, the very fact that money is high makes it difficult to sell bonds
or stocks at favorable rates.

The natural tendency, therefore, is to resort

to bank loans to make up the deficiency.
It seems almost unmistakably

that this was one of the very strong causes

of the tremendous expansion of bank credits which followed the Armistice.
NOW,

if this be true, and if relatively high rates are likely to prevail

in the next year or more at least, then it seems doubly probable that the
heavy liquidation

which has been in progress since the late fall will soon

cease, and, with the revival of the normal flow of trade,which should certainly
not be much

delayed

beyond the coming fall or winter, a renewed expansion of

bank loans will take place.
This is quite independent of the injection of nearly half a billion of



.

2

new gold into the System since a year ago.
It is noteworthy that many writers and speakers continue to dream of a
return to pre-war or "normal" levels of credit and prices.
considered that a return

It seems little

even to -Life credit levels prevailing at the be-

ginning of 1919, after the Armistice, would mean a contractionAof over six
billions.

And to get back to the credit levels of 1913--what is popularly

taken as "normal," would require a contraction of from ten to twelve billions,
allowance being made for the increase in the volume of trade in this period.
The implication of high interest rates seems to be that, so far from any
such cantraoti,ma,e that contraction which has already taken place will be rather

quickly cancelled as business revives, and that very strong pressure will then
develop to utilize the resources of the banking system to the same extent as
in the first half of 1920.
Lc:LA*4

At the peakA the ratio of loans in all commercial banks to the existing
gold reserve was very nearly 14 to 1.




2

new gold into the System since a year ago.
It is noteworthy that many writers and speakers continue to dream of a
return to pre-war or "normal" levels of credit and prices.
considered that a return

It seems little

even to tife credit levels prevailing at the be4. -80-emt

ginning of 1919, after the Armistice, would mean a contractionAof over six
billions.

And to get back to the credit levels of 1913--what is popularly

taken as "normal," would require a contraction of from ten to twelve billions,
allowance being made for the increase in the volume of trade in this period.
The implication of high interest rates seems to be that, so far from any
such contmetion,t that contraction which has already taken place will be rather
quickly cancelled as business revives, and that very strong pressure will then
develop to utilize the resources of the banking system to the same extent as
in the first half of 1920.
At the peak

the ratio of loans in all commercial banks to the existing

gold reserve was very nearly 14 to 1.




May 23, 1921

Governor Strong

High Interest Rates

r. Snyder

I do not find a reference to the idea of high interest rates, except for
panics.

These are on pages 39, 40 and 127, and the extracts are as follows:

"The management of the money market is the more difficult because,
as hae been =Id, periods of interne.] panic and external demand for
The foreign drain empties the
bullion commonly occur together.
'ank till; and that axybiness, and the requiting riso in the rate of
The holders of the reserve
discount, tend to frighten the market.
have theneione to treat two oppoqito maladies at once: one requiring
stringent remedies, and especially a rapid rise in the rate of interest;
and the other an alleviative treatment with large and ready loans.
hilefore we had muchespeciric experience, it T1S not easy to prescribe for this compound disease; but now we know how to deal with it.
Tie must look first to the foreign drain, and raise the rate of interest
as high as may be necessary: unless you can stop the foreign export,
you cannot allay the domestic alarm; the Bank will get poorer and poorer,
And at the
and its poverty will protract or renew the apprehension.
rate of interest so raised, the holders--one or more--of the final bank
Very large loans at very high rates are the
reserve must lend freely.
best remedy for the worst malady of the money market, when a foreign
drain is added to a domestic drain; any notion that money is not to be
had, or that it may not be had at any price, only raises alarm to panic
But though the rule is clear, the greatand enhances panic to madness.
est delicacy, the finest and best skilled judgment, are needed to deal
at once with such great and contrary evils.

"Nothing, therefore, can be more certain than that the Bank of
England has in this respect no peculiar privilege: that it is simply
in the position of a bank keeping the banking reserve of the country;
that it must in time of panic do what all other similar banks must do;
that in time of panic it must advance freely and vigorously to the public
out of the reserve.
"And with the Bank of England, as with other banks in the same ease,
theee advances, if they are to be made at all, should be made so as, if
possible, to obtain the object for which they are made; theend is to
stay the panic, and the advances should if possible stay the panic: and
for this purpose there are two rules:-"First. That these loans should only be made at a very high rate
of interest; this will operate as a heavy fine on unreasonable timidity,
and will prevent the greatest number of applications by persons who do
The rate should be raised early in the panic, so that
not require it.
the fine may be paid early; that no one may borrow out of idle precaution
without paying well for it; that the banking reserve may be protected as
far as possible.






.4

May 23, 1921
Figh Interest Rates

Governor Strong

Mr, Snyder

2

That at this rate these advances should be made
on all good banking securitiee, nnd as largely ae the public ask for
"Secondly.

The reason is plain: the object is to stay alarm, and nothing
therefore should bo lone to cause lam; but the vay to cauee nlee
to refuse some one who has good security to offer.
will spread in an instant through all the money market at a moment of
terror; no one can say exactly who: carries it, but in half an hour
it will be curried on all sideo,'and will intensify the terror everylioadvancos indeed need be made by which the Bank will ulwhere.
The amount of bad business in commercial countries
timately lose.
is an infiniteeimally small fraction of the whole business; that in a
panic the bank or banks holding the ultimate reserve should refuse
bad bills or bad securities will npt make the panic really worse,
tee 'unsound' people are a feeble minority, and they are afraid even
to ldok frightened for fear their unsoundness may be detectod. The
great majority, the majority to be protected, aro the 'sound' people,
If it le known that
the people who have good,security to offer.
the Bank of England is freely advancing on what in ordinary times is
reckoned,a good seeuritypeon what is then commonly pledged and easily
convertible,--the alarm of the solvent merchants and bankers will be
stayed; but if securities really good and usually convertible are
refused by the Bank, the alarm Will not abate, the other loans made
will fail in obtaining their end, and the panic will became worse and
worse.
them.

is

"It may be said that the reserve in the Banking Department will
If that be so, the Banking Departnot be enough for all such loans.
ment must fail; but lending is nevertheless its best expedient,--this
is the method of making its money go the farthest, and of enabling
Making
it to get through the panic if anything will so enable it.
no loans, as we have seen, will ruin it; making large loans and stopping,
The only safe plan for the Bank is
as we h ve also seen, will ruin it.
the brave plan,--to lend in a panic on every kind of current security,
This
or every sort on which money is or,Ainarily and usually lent.
policy may not save the Bank; but if it do not, nothing will save it."

illy 24, 1921

Governor Strong

Mr. Snyder

I'd rather like

to have just a word

with you before you go to

ashington, regarding the idea of something in

the way of a

foreign

service and better foreign information, about which Mr. Morgan spoke
to you some little time ago.
Apparently the matter is to come up this week
Washington.

and see if we could not make

industries, and

tics than seem now available.




the Board at

I am rather keen to get over on the other side

summer, perhaps in connection with

in the major

with

the (lhamber of

this

Commerce meeting,

o start on better production figures
rather better current financial statis-

MISC.3.1901.1-1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

Governor Strong

FRp

DATE

June 1, 1921

Mr. Snyder

S BJ ECT

__Prof John H-

I have at last received an answer from John Williams, who wrote the
article on "Foreign Trade Balances" with Mr. Vanderlip, that he would be
unable to come here and take up this question further by means of a
questionnaire, as you suggested.
I wrote him nearly three weeks ago and again a week ago.

Having

offered it to him, T did not feel like going ahead until I had had a
reply.

You will note that he finds his estimate of the export balance
"dwindling considerably," and at last accounts it was already only half
that of Mr. Anderson's estimate.

Mr. Anderson advises me by telephone that his estimate (privately)
now 5 billion instead of

ai billion,

i.e., his estimates rise as

Prof. Williams' fall.

I should like to bring down in the morning the letter to go out as
a questionnaire.

0




4-/r-tx-

4/54 Ak-ez/' 51t-Ct

MISC. 4. 1-120 M-1-20

FEDERAL. RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
To

Governor Strong

FROM
.44

Mr, Snyder

DATE

1921

June 2,

SUBJECT: RAquest of Hon. Basil P.
Black ett

Practically everything Mr. Blackett asks for is published in the Federal

Reserve Bulletin, and in Bradstreet's, Dun's and the newspapers.

So it

does not seem as though there was any especial need for referring the matter
to Washington.




I have `therefore, drafted a reply, which I attach herewith.

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FEDERAL RESERVE BANK

MISC.4.14201M4-23,

OF NEW YORK

OFFICE CORRESPONDENCE
To

Covornor Strong

DATE

SUBJECT.

June 4,

192_1_

DARumr_cAmoora

Mr. Snyder--

These cartoons of Mr. Darling's are very widely syndicated and
otherwise reproduced.
klew him quite well.

Is it worth while having him down to lunch?

I

I presume he makes his home more in Des Moines than

in New York, and I presume he was hitting more at the Chicago bank.

L 0 rid on.

(

0

Ff1st- Report.

1st July 1921.

Arrived at Southampton a week ago Tuesday, I spent a day
at Salisbury end round about;then up to London. I spent last
week-end at Oxford and so hay., had a little chance to see both

the city and the country, and the running of the trains.
The fir st thing that has s struck me is the general atmosphere

of cheerfulness in the face of the coal strike and all other
difficulties. As Mr. Hartley Withers put it:- "Here we are
in the midst of an spelling crisis, with several million men out
of work, and no one seems particularly disturbed. So I suppose
we shall muddle through in our usual way."
This was almost the tenor of a very first ir npression. Taking
the train at Southampton up to Salisbury we asked the -uard how the
coal strike was going, and his fully characteristic reply was:
"All :roes merry 'and bright". That seemed the gene ral feeling.
The train service is good, and on time, though a little
curtailed, especially the express trai nS. Othe rwi s e eve rything
i-11 (.1

seems moving

normal way.

As you pass through the country

are struck with
the amount of building that is going on; in the country districts
chiefly re s entia 1 . This is in part due to the Government 's
Housing operations; but I think not all.
-11




In London there is far more building going on, especially
along the main thoroughfares, than I have ever seen in the last
20 years and more - in fact nothing like it. Far more than in
Everywhere the streets a re torn up, and ma ny fine
New York.
build ings are in course of construction.
This gives everywhere a general look of prosperity, and that
is the feeling you get from the people as well. There has been

relatively little reduction in retail prices in ,.]ngland as yet,
not nearly so much as with us. In London,hotel prices and everything that a tourist pays are almost fabulously high, and everything crowded and jambed to the limit. Traffic in the streets
and on the railways is very heavy, lines wait for buses and you

must go to stations in good season to get seats on the trains.
A much travelled friend of mine just back from the Continent
and only recently in New York gives it his impression that:"London
is now the dearest city in the world". You certainly get that
impress ion.

The bankers and city people seem general ly cheerful, and Mr
oidc
It is evident that the crisis of last winter was
confident.
not nearly so severe he re as with us. The banks seem in sound
4.0

apprehensive of further difficulties.
condition and
e shall probably have a
Governor Norman remarked that:
rd a ut unin, but after that t hing s should improve".
This seems the general feeling. The one exception I have
found so far is Mr. Reginald LcKenna who seeired to De rather
pro fessionally pessimistic. He is of course very strongly opposed



to the present Government , and can see no good until it is ousted.
From Lr. McKenna I received the most interesting point I have so
far obtained regarding the question of loan expansion and
contraction.
This was that the expansion at least, and to some extent the
cmtraction is under the dire ct control of the Government, because
it is through them alone that the bankers can obtain more cash or
currency, on which to posit loans. It would be iTriposs ible here
for the banks to borrow at the ?kink of England heavily without
running the bank rate up sharply and quickly.
The process is directly the reverse of our own where the Banks

are in a position to force expansion to the last limit without fear
of any very hip.h bank rate. In the same way as the Government
ways and mans advances decrease, and the Treasury blad,/1 also,
the amount of currency outstanding would likewise decrease,and

this if carried far enough would force a contraction in bank loans.
I find that/the English bankers are still keeping to their
traditional mthodS Vt/VAttliV, and while their reserve is low
it is carefully watched.
There is naturally a very big interest in the question o
exchanges and this I met with wherever I go. I was very much
surp rised to find it already- being widely discussed, at le astby
, Withers and the like, as to whether
such men as Brand,
there should be any serious attempt now to get back to the old
pariity or whether it is better to attempt to stalpilise now on
the basis of something like existing rates.



0




Of course older men like Sir Felix Schuster am strong for
deflation to the limit, and e'ven back to "1913 levels". But
among the younger men it seems very- generally recognised that
this is an entire impossibility and s ane, at least would
favour Professor Casselz's scheme of immediate stabilisation

at the status quo.
I went to Oxford to see Professor Edwin Cannan, one of the
S 61411._
ablest of English economists and a man ofAreal influence. He
describes himself as "a dear money man" and believes them should

be still further deflPtion in wages, retail prices and so forth;
and iret not even he seemed shocked at the idea of at least some
temporary effort to fix exchange at prevailing rates.
Mr. McKenna of course is not at all averse to the idea and
in general is opposed to the whole policy of deflation. Er.
Brand, the English partner of Lazard Freres is of an open mind.

Sir Henry Strakose2-1,who organised the South African "Federal Reserve"

Bank and who was very active i n the Brussels Conferencei is quite

strongly opposed; but was extrenely interested to discuss the
whole question and cons iderag the arguments in favour. Mr.
Gardner at the head of the Overseas Bank, had I think the traditiona:
bankers distrust of any idea of change.

But it is evident that there is a very strong party that
would not be averse to a more liberal policy and even to some
further in fie, tidn. I lunched yesterday with Mr. Brand, Sir
Edward Craig, Lloyd George's Secretary, and Lord Robert Cecil.
It was very evident tliBt Mr. Craig was strongly for "some further
-4-

Ot

0

inflation' if need be, and Mr. Brand thinks this accurately refle ct,s
Lloyd George's mind.
Several have described the latter SE
"tickled to death" at the way the French and still more the Germans
have in la rge part extinguished their public debt by heavy inflation, and would not be at all averse to trying the save thing on,
in a limited way in England, if he could carry it through.
Yet I know that he has had several conferences recently with
Professor CasSaiof Sweden, who is here attending the International
Chamber of Commerce meeting, and who I find is everywhere listened
to here with the very greatest respect, as one of the ablest minds
of "u rope.
I have had several long talks with him; he feels
very strongly that the huge takings of gold by the United states
are a very serious menace to tire equilibrium of international
trade, and that something must be done to stop it or to wutralise

the effect of it.
His position of course is that of stsivilisation of exc hangeE
at the status quo and without further thought of deflation.
He argues that any attempt to bring back the world to the 1 evel
of 1913 would breed every kind of social disorder as well a
work the most serious injustice; that we must accept the
consequences of the war and begin on a new basis. His vie w is

that the most serious obstacle to the revival of internatio nal
trade is the breakdown of exchanges, and that there can be n
permanent, prosperity until these exchanges are again fixed upon
a permanent and common standard.



His view is that while trade may limp along with the lc resent
-5-

wOR

0




wild fluctuations and complete uncertainty, that all serious
investment and long term loans between the countries are almost
completely checked.
He described, the countries of the world
as all severally stocked with their especial products and awaiting
only a solid financial basis upon which to resume their .exchanges
of goods.
Professor Ca sbit has an impressive personality, speaks
with gre at f or_ce and I think it is fa ir to say that his views will
gain increasing importance.
Perhaps this is enough to report for the first week. I go
next week to Paris; but from a number of conversations with foreign
representatives here and Englishmen like Sir William Goode
representing this country in Austria, I have already gained the

impression that there is a slow but steady revival of continental
in what was regarded
industry and that this is the most pro
as one of the blackest s pot s, name ly in Austria.
confirms this impression.

Governor Norman

Taken as a whole I think there is no serious doubt of the

view expressed in *my first cable la st i-ond ay that there is a very
distinct improvement in general sentiment, aAgr wing feeling

of confklence and an almost universal belief that if political
difficulties could be solved the rest of the problem would be easy.
Whatever may 7 be t rue of the Continental Gove rnment s, neither

JInglish nor Continental business is bankrupt. but, on the contrary,
seems in a far better condition than is generally believed in
Certainly trade is stagnant, and there may be little
Arre ric a .
improvement for months to come; but I have the strongest feeling
t

-6-




7-1,,k;e

rituo w.cui mot 1)-C- 1 6/1412:1 4); a44-4,)
that the course of business is upward and not downward.
-there

A
is a wide division' of cr-e.4411. fA4 as to just the be st
war to go
ahead; but practically nowhere have I found any serious

belief,

from any competent minds tek"Xlc.esir,..--A0, other than that
they P re
going ahead.

I can check this Impression better after
a month of first
nand investigation on the continent; but here et least I
believe
the best opinion is that basic conditions areitsound.

gEP 8 1921
RAL ,RESEinE BA
OF 1EV4/ YORK

.)

Second Report.

July lb, 1921,
Hamburg.

ear Governor Strong:

I have been so much on the go, and meeting mnd talking with

so many people that it has been difficult to find time, or rather the
-energy to get any impressions on paper, for talking the same thing
with many people of many minds, I find rather strenuous work.

As regards Bnaland, there Is not a great deal to add to my

first letter.

I feel I made some headway with Governor Merman and

gr. Trotter, on the idea af the Aanic exchanging statistical information
in a larger degree with us, and when I return there, I am hopefnl of
some action. Seedless to say they were very friendly and seemed interested; and the Governor gave us one very large bctuet, that ehen be
wanted any figures or statistics, he looked up our Summary:
As to general bunkieg oonditions. I am sure the general feeling
is that they are fairly sound, as I said,and slowly growing better.
They were overstrained, no doubt; but I 612 sure this was either not so
great as with some of our Mew York banks, or they took It much easier,
and have not given way ep suoh M2 excess of caution at the wrong time.

In spite of their strain, the English banke still are lending

freely on the right paper, even to Germony and the continent.

The cc s=* as to indastry Is that revival will be slow, but
that It is definitely oomtng. Some are still very pessimistic, no doubt,
but I think the were Imisieated gaol that basic conditions as to labor,
The government, so long as Lloyd George is
taxes, etc. are improving.
there, will not curtail much. He does not believe In it, and in this he
has a very large followieg, and even the approval of some of his strongest opponents. It Is the bankers and the old school of economists, and
remnants of another generation, like Sir Felix Schueter who Glamor for
"deflation" and imegine a return to a pre-war basis. 14ve Inglan4 does
not.

I had a long and most interesting talk with Xtynes. He has been

.1de Chairman of an Insurance Company and has begun to mingle in the City.
4,(Itess to &sly he is anathema to many but I find everywhere a great re-

spect for his opinion. He is very cool, not impatient, and no propagandist.
But he is very sure the knglish pound will never go back to its old gold
parity, and in this he is beginning to have the support or tolerance of many
able people.




Mr. Brand's view for example, is that they will soon appoint a

new Commission on the Exchange and that this tray very notably modify the
policy laid down in the Cunliffe report. Lloed George woeld look with
favor and Xeynes might be a member of this commission. Lloyd George has

had several conferences with erofeesor Cassel on tee subject; and seemed
to favor his idea of no more deflation and stabilleatioa on the status quo.

Keynes' idea is this will take about a year and a half or two
years, and that they will,of course,not call it a "re-valuation" but steely
"pegging" the pound. 'Ms figure is "about $3.50," and thinks at that
figure they could go back to a gold basis.

It is exceedingly hard to get what Is the present feeling of the

Labor leaders, as they are badly divided, and have,of course, been badly
defeated all along the line this year. 23 belief is that the more conservative elements will win out, because existing oonditions of trade are
all against the radicals. Their funds are runninr low, and there is
ginning to to oe a report of real suffering amonr the enemployed.

This will steadily increase no doebt, even while trade is steadily
reviving. This is alwaya so. The tee overlap. And it seems to be the
brutal pressure of necessity and privation that makes the masses of men work
hard.

But I am sere that in the war the general standard of living among
the English workers was distinctly raised. They have Deems accustomed to
more and better things, and they will work now to get them book. The
English wage level or cost of production is probably still relatively high,
es oeepared eith ours, or Germany's, and may have to come down somewhat.

German competition will be just as keen as before the war; it is already
being felt, and there is a great outcry about it. and this will have one oad
effect. It will tend to mike the English less lenient towards Germany, and
align more with krance. And this will augment the bitter feeling that is
now steadily growing in Germany.

But this is an old rivalry and it can only be settled in one way

end that is by improved methods of production. Without this keen spur, I
seriously think that English indastry would be on the dawn grade, because

in some of its basic lines, ez in coal and steel, production costs have teJen
steadily rising for some 'years. (I mean, of course, real costa and not jest

paper money prices.)

English crops this year may not be very large; but the land is
being sold off to smell buyers, the great estates being broken up, the crofter
type thrown out, and a stronger class put in, who have a stake kej soil.
English agriculture is backward, and no one can compare their farms with the
rich fields of Germony, and not realize the greet opportunity for intensive
culture, as berm.

The future of farming, I think it is °leer, is to the highly
fertilized fields,- for the soil that still nay be mined and not farmed, is
slowly disappearing, as the world's need gross.




Already German artificial nitrate can compete with the Chile
One step more sad all farmine will be of the intensive type,product.
I believe even with us.

3o I think the break up of the landlord eystem in England

may,

in this juncture, prove a greet step to the country.

For the rest, it will doubtless go more and more to blanking,
capitalizing ehteping and buying and selling. And in the first of these,

in banking, its price 13 Still very clear.rglizh banaers seem to feel

that we do not understand 'world banking; we he not the traditions; and I
believe this is the generel feeling among continental bankers. I imagine
they have felt a real disappointment in the way our eanko have quite failed
to take ea international view.

13 this in part the effect of our neglect of branch banking, end
the lack of training oer bankers have for any save mostly local needs?

I spent five hectic days in Paris. It is n tourist horror. The
whole city is jawed to limit - hotels, restaurants, retiree' trains, taxis,
and shops. It is as if all the seenders of the earth lend concentrated there.
London seemed bad enough, but Paris is the last gasp

)f "aquender o mania."

And it is especially the most luxerioas places that are crowded,
as if people were ashamed not to spend to the limit. And of course this has
its natural effeot on Parte and on France. Paris 13 o7erflowing with prosperity. Yoe have only to note the tide of travel. Even a aeburban trein,
of which there were throe en hearein enich I rode Nees of rstonishing length
and crowded.

The sleeping:. car service is, of conrso,not so highly developed but
it is crowded and must be booked dPys ahead, like the hotels.
And the seme evereehere; free Coloens here the train ren ie two
long eectiens, to accommedete the crowds of wag aid fourth, class; the same
way from Paris to Cologne, throee sieQpinE ears of twenty to twenty-five

third class and second class coaches, all crowded. It is not merely the rich

who have the spending craze.

Europe is stillafloat in its paper none; lag. / think it will, if

need be, inflate more to keep it going. The return to what we call nanity
will be slow. and if the aet effect of this peeper jag has been to increas
comfort of many millions, there it has not boon carried too far, I am not sure
that we may not have to so ne extent revise our ideas es to what is the policy

of greatest god.

haee seen the extreme in Austria, I nay have a different idea;
When
but Gernamv in this section, seems not unprosperoes: and so does Prance, for new.




an thie, more in ny next letter. 7Ith beat re:poets,
(signed)

GAEL SNYDER.

(It is very hard to find an English stenographer here, so I have had
to write this be head)

July 15, 1921

Cecond Report

Hamburg, Germany.

ear Governor Strong:

I have been so much on the go, and meeting and talking with so many people,

that it has been difficult to find time, or rather the energy, to get any impressions

on paper, for talking the same thing with many people of many minds, I find rather
strenuous work.

As regards '-eegland, there is not a great deal to add to my

I feel I made some headway with Governor Norman and

'Yr. Trotter, on

Bank exchanging statistical information in a larger degree

there I am hopeful of some action.

with

first

letter.

the idea of the

es, and when I return

Needless to say, they were very friendly and
gave us one very large bouquet, that when he

seemed interested; and the Governor
wanted any figures or statiotics he looked up our Summary:

As to general banking conditions, I am sure the general feeling is that
they are fairly sound, as I said, and slowly growing better. They were overstrained,
o doubt; but I am sure this was either not so great as with some of our ;Amw York
anks, or they took it much easier, and have not given way to such an excess of
caution at the wrong time.

In spite of their strain, the English banks still are lending freely on the

right paper, even to Germany and the Continent.

The consensus as to industry is that revival will be slow, but that it is
eefinitely caning. eate are still very pessimistic, no doubt, but I think the more
foresighted feel that basic conditions as to labor, taxee, etc., are improving.
curtail much.
He does

The Government, so long as Lloyd George is there, will not

not believe in it, and in this he has a very large following, and even the approval
of some of his strongest opponents. It is the bankers and the old school of
economists, and rennants of another generation, like Sir Felix Schuster, who clamor
'or "deflation" and imagine a return to a pre-war basis.
Live ItuAng does not.
I had a long and most interesting talk with Keynes.
He has
Chairman of an Insurance Company and has begun to mingle in the City.

1

, eedless to

say, he is anathema to many, but I find everywhere a great respect for his opinion.
He is very cool, not impatient, and no propagandist. But he is very sure the
English pound will never go

i'

been made

back to its old gold

to have the support or tolerance of many.

parity, and in this he is

beginning

Mr. Brand's view, for example, is that they will soon appoint a new Comnotably modify the policy laid down
in the Cunliffe report. Lloyd George would look with favor and Keynes might be a
member of this ",oemission. Lloyd George has had several conferences with Professor
Cassel on the subject; and loomed to favor his idea of no more deflation and stabili-

mission on the Exchange, and that this may very

zation on the status quo.

Keynes' idea is this will take about a year and a half or two years, and
that they will, of course, not call it a "revaluation," but simply "pegging" the
His figure is "about 4.50," and thinks at that figure they could go back
Pound.
to a gold basis.

It is exceedingly hard to get what is the ?resent feeling of the labor
leaders, as they are badly divided, and have, of course, been badly defeated all along
the
My belief is that the more conservative dements will win out,
 line this year.


eecond Report- 7

iecause existing conditions of trade are all against the radicals. Their funds are
running low, and there is beginning to be a report of real suffering among the unemployed.

This will steadily increase, no doubt, even while trade is steadily reviving.
This is always so. The two overlap. And it seems to be the brutal pressure of
necessity and privation that makes the masses of on work hard.
But I am sure that in the war the general standard of tivine among the
English workers was distinctly raised. They have become accustomed to more and better things, and they will work now to get them back. The English wage level or cost
of production is probably still relatively high, as comparea with ours, or Germany's,
and may have to come down somewhat. ,German competition will be just as keen as be-

fore the war; it is already being felt, and there is a great outcry about it. And
this will have one bad effect. It will tend to make the English less lenient
towards Germany, and align more with France. And this will augment the bitter feeling that is now steadily growing in Germany.

But this is an old rivalry and it can only he settled in one way, and that
Without this keen spur, I seriously think

is by improved methods of production.

that English industry would he on the down grade, because in some of its basic lines,
as in coal and steel, production costs have been steadily rising for some years.
(I mean, of course, real costs and not just paper money prices.)

English crops this year may not be very large; but the land is being sold
off to small buyers, the great estates being broken up, the crofter typo thrown out,
and a stronger class put in, who have - ytake.tn the lull.
ii]nglish agriculture is

backward, and no one can compare their farms with the rich fields of Germany, and not
realize the great opportunity for intensive culture, as here.
The future of farming, I think it is clear, is to the highly fertilized

eields--for the soil that still may be mined and not farmed is slowly disappearing,
es the world's need grows.
Already German artificial nitrate can compete with the Chile product.
el more and all farming will be of the intensive type, I believe even with us.

One

So I think the break up of the landlord system in :aegland may, in this
'tincture, prove a reat step to the country.

For the rest, it will doubtless go more and more to banking, capitalizing,
And in the first of these, in banking, its primacy
shipping, and buying and selling.
is still very clear. English bankers seem to feel that we do not understand world
banking; we have not the traditions; and I believe this is the general feeling oolong

I imagine they have felt a real disappointment in the way our
banks have quite failed to take an international view.
Continental bankers.

Is this in part the effect of our neglect of branch banking, and the lack

of training our bankers have for any save mostly local needs?

I spent five hectic days in Paris.
tourist horror. The wholea
It is
city is jammed to limit--hotels, restaurants, railway trains, taxis, and shops.
It is as if all the speeders of the earth had concentrated there. London seemed
bad enough, but Paris is the last gasp of "squanderomania.*

And it is especially the most luxurious places that are crowded, as if
the limit. And of course this has its natural

people were ashamed not to spend to



Second Report--3

effect on Paris and on France.

Paris is overflowing with prosperity. You have
7,ven a suburban train, of which there were three
sn hour, in which I rode was of astonishing length, and crowded.

snly to note the tide of travel.

The sleeping oar service is, of course, not so highly developed, but it is

crowded and must be booked days ahead, like the hotels.

And the same everywhere; from Cologne here the train ran in two long
. actions, to accommodate the crowds of third and samEIL class; the same way from Paris
to Cologne, through sleeping cars of twenty to twenty-five third class and second
class coaches, all crowded. It is not merely the rich who have the spending craze.

Europe is still afloat in its paper-money jag. I think it will, if need
be, inflate more to keels it going. The return to what we call sanity will be slow.
And if the net effect of this paper jag has been to increase comfort of many millions, where it has not been carried too far, I am not sure that we may not have
to some extent revise our ideas as to what is the policy of greatest good.
When I have seen the extreme in Austria, I may have a different idea; but
____aseram, in this section, seems not unprosperous: and so does l'rance, for now.

On this, more in my next letter.




(Signed)

With best respects,
Carl Snyder

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Laiessig, July 21, 1921

tear Oev. 3trong:
/ have 11011 seen a i;ood deal of Germany, frors

o to Colome, to

'men (the Krupp works), to Bersburg, to Berlin, to Ballo, and here; sad I think
OM DOW in a lest-don fairly to ,,,,euge tie inikietrial situation.

begin with the moat striking feet, lie .7';,t.viera1 prieø level.
exthang-o, this is distinctly below that of,.. `raties, 7nglan4 or :aortae.

cansured

I said

that prices in IMAM .1,tad ?arts, in the things that tourists buy, were, at *arrant
exchange, rather hitter than in Hew York.

..ith sterling at ;'.4.00 end franos at 60,

ind over, they were clearly hirtor.
Ntt ao far no one ...In grAlgs it, the49-a;ral erica level, lid& Plasma both whole-

o amt retail *rises, wagon, selarioe, rents and all, is, of the three countries,
a the *message er,rchange rotee of the last year. 05sential1Y the Wile*

That is, ti
loiter convertod into storlire: or francs, indifforontly, would buy about the IMO
!unntity of good and foamless the year throue):, in I;kiland or ?rane, as it would

in the UMW Stator; .

Flrond3.y, the erice levels of the throe countries iserirw together, !Ind the eit

over a eufficient period, exactly ioaurns the differcesee in the eurchasing
or of the severe]. ourrenciee.

This w'is why, for exunplo, eterling at 74.00 wen

"hide or "dear," tand had to emu) do m as it hoe, if goods were to be frooly exd.

hi e is not true of Coresany.

The tare* is hoavi1y undervalued.

"or exam's:

This morning in the hotel eere, one of the boot hotels in ;Iarse, I paid for
my usual breakfast of fesffoo, rolls and jun, and one egg, 13 taarksat ourront tete
&rasp about 14%; for a large double roots with two beds end unueutely largo bath,

eaid, for two peolle, 200 rearku or, *ay, $2,70, for en hour's drive around tom



last rapht,

or 130c; for my morning laser 30 pl., or 11$.

excellent dinner last night, in ono of the -femous ntudents' rostauron

roast ir see, salad, potatoes, caulirlover, te., end t.Nr+ lame steins of wonderful
beercost 63 Iline4 3, or, say, 90f.
In Berflin it was not much laoros
moter shoving.

Cobs in general cost niipt to ten tines the

You rodo a mile for, may, 161.

'rerlin rray .wlife bought linen in the best litorec at Ant she eatirvites would

be just about half rhat she vould pay ttt

-1cf:lutehoon's 3 in 1.. ov York.

And

so it is

every*ere you pl.
Lend on

rents are keret artificially low by the rent laws nd the enonaouo colt

of building Nero as with us:), and railway 'faros are about half uhat They .1'hould be
on 5 level with other prif383.

Min is art1y

Yet 4yisenp1e, from

!burg to the .:]orth 5oa resorts (five bourr3), IOW elass, there Is in oxoursIon at
about half rates 3f) marts, or 45.

Ten trnino a. day have boon naring 3,000 people

a day gtonlily for throe wefit9 already, or over 150,000 people, !uld the sonson lamely begun.

In n

Thi3 is, of course, simply a lub31.4y.

rd, gener4 prices in lerenny have risem eight to toolva tines, 4,with

fat r averace of about ten times; many arttcloii, 1 ik e steal , fifteen to twmty-f Ivo

times; wbaseale prices near to fiftom times, ea:Carlo; retail prices not ::).vor ten,
I should say; voages are estimated at eight to ten; railway frotts rkUnit 31X times
ond so on,

,And at Ilia level Germany to, ne I said, fairly prosperous, *r rzt beast unusually
well ertrAlwaci, 112d I think now fairly wall rod.

It never VOA, at its soon, eight or tali years ago, very well fed, in tbe !Iserican
or even the 7reneh sense.
Novi, masider.

Oernan 2ricoo rise about ten times, vhere ours about double, as

nearly as anyone ean eat/mate.

Howe, the relative value of tho mark, is osld, in actual surrlasing 'power, is



4t 5 or & to 1 to former parity, i.e., in 'worth" 1/6 to 1/5 vhat it was, in lad.
The prertent oxchangs rote in near 1 to 17, in nold; 6ND that, in oald,

present value of the uRrk is not over 40 per cent. of its purfilsin oarity; 50 per

,t. it the outside.
By this r 1744 XVI tal qt.
Tc,9

'a dollar ka,;:,',4?remat, nt current oxchome, will buy, re Uegra y

n d one-bvlf ties Vhat it will in lligiond, or Yranco, or the United

itA7 t

.tote.
This s

wurso not true of the suds rtielos of ex2ort,

iere the average

of prises, in geld, is andolibtedly mud) higher, seseilay 30 por sent. Uglier, at a

-ut it still ratainc that even the orlort prieo loyal is far below that of
A or ?ranee, or our own, or wan, at least, last year. It io not so much so

gueso.

of (lours

'rid the exeluntion of this extraordinary situation 7 find very difficult.
There Fire many mirwerc.

*diet food, etc.
And undoubtedly

Are, as tie Pasently mew prices he'll boas kept *pan by

rert, there

ve bees, U9 to now, real difficulties of transport.

o heen a real :shortage of produetion.

.Atoot all the oval...

able riguron ihw thi 9 Ca tarty

But the nein fast, as I see it, hos boon but little touehod won.

That is

the roo3 Industriq and ceertsretal paralysis in %mew 'that MIMI with the wor's and,
and the

OVOIL Ut

Cer luny woo than IA about the half-way stage to %salon loviettatz, i.e., to
easpl ate bretik dom.

other country, aupstrently, was co 414:ab1y geared to a ear basis as Ocrylanr.
Aormrontl y it foullt the war to talTieot coup], etc th,ilistrial xhrmetton.

it caul d

not havo sone on.

Awn the aid c le, it oreamted

1

Satraordinary ituatiek of a land, so

to sosal-., 'without 1 war ruin, untouttloiriutb1, or outwardly by the var, that rns

norynorcial min.



And whet the onr loft, the Revolution nearly nweot may.

`-hereas the etid of the ear meant to f'''ressae and Isfaand, and to us, a quick

revivo3., a reloase fral hardshios, it brought nensady near to st-ervatiall. its
trade enat1 not revive from the oollanse of its industrita arrale. its r000very
is slovz.

'othing aloe, t thin, willeventtin /lily today Iierrsany does not present a "atom
dies for buyers, ond *-ty to vast volume of marks held adoPlad, artiorltoo, at 30 billions
and lere, doss not now bad.: to buy !pode and send t1eresan prices s'Irward Neill.
beliceve '

soon 1411, 'mei that the p.,vont etoek.miat boor now on here orslages

rise in the ?Kee levol in this country, .1 noriod of feverish and un
.v.r);...rsetrity and 'boon, vith tho inevitable oollense.

holialky

I do not see how, oven ,sltit all the reparations diffieelties, and ater
need or raw materials, the pmit snots:110UB situation can continue. It ts
etsentemically iesoefietblo.
0011111tei

1.

.

o

?or the nretwat, the aituation has been selve, or roth:or

by her Irciat borrtufine11 in the last two years, for food ,And,

r.I Vic.rburg anti Dr. lavtalstein, of the acichsbank, two of Geroanyce ahl est
beaters, oortialato the rAmount of mark credits in Gernany, hold by fored.pore, et "not

/*es then 60 to 80 bill.icos" (our notation), which, vith 30 billions of passer marks
abroad, Isould *bring the tot4 to 1.00 milliards (bil.ltons) or more..17,oldelookyn,
the Imnkor, r.Kunctler, of Bletehrooder's Watt, and others do not put the mount
co high. Tait tt is certainly very largo, for Germany.

Tbie undoubtedly bee a Ileavily desroosing effect on atehan;rie, !mid 4111plains tyhy

it is so telly out of line vrith the genera/ 'rico level of this and other eountri.ee.
An akormany's production and eaperts rise, so !iust exottango., If, of course, they oan

rented further inflation.
1,ca far this .year they have lone very well.

about 2 billions, or about 2 per cont.

The not increase

3K)td_Eta is only

Lost year it me over 50 par cent.

And

all of this them:se, end !o3a, has one abroad, for prteos have held fairly on a



*level for a year.
The variance betwoon the note iosuo and the price level huu beep very narked,

and has been n nuzzle to those oho hold to on inevitable vontitationt relation.
I hove modo thig onledation:

BSA the oxolonntion, I think,

The total note issue, including the Darldhn notes, now ruan to about 90 billion,.
But over 30 billions are hold abroad, and hanco have no effect on 7riees AOTO.

The net, then, i.e from 55 to CO billions.

Before the war, au r regal it, the note igeue in Germeny vine about 5,700000,000.

The imnroaofe, thereon', Is nbout ton thus:, or aloof) to the ootimated average in

cr Loo or all oricoo.

It ig very striking: but,/ think, invariable one. inevitable.

Nev, lernany in till borrowing heavily, and muut, ?or food and notarial.. lie

produetion to Ain very low.

?rot. Bonn and Dr. Kuesl000ki

Sere than GO pOr emit. of nro-wrtr totals.

oottlite it at not

?ornoo this i.e much too low on estino 0;

but tho foots about nany i.ndootries, nnd the crone, aro known.
tngoc then will orobably rennin low for a sped while, p000lbly n yenr

The (

or nor..

It is now gaining considerable credits from Hoiland and raaand, rnd

doubtleus olocohoro.

cAr, max Varbers ressi4-.0, by the way, on the extreme eiev-

nese of our boakors to ask.

They were arrnnrAnz a erodit for '.5,100,000, which he

said ono oerfootly 000d, and it hung fire in ;A:me York for four weeks.

Finally

they tried out London, and got a elleitt for throe times thi armmat in Amr 4nYs.
thinks we ;Iwo yet cluck to laarn to beamte internotionnl bankers'.

The lorns will stinulate iroduction hero; but their first effect will probably
be to keep exchange at low lovas, an it is only by very ettraertivo oxport prices
that Oernan trade can thrive.

Add to this reparation diffioultiao.

But eventually, to eredistien risme sod imports rine, no will general prises,
ond tho present inequolity of Jurchasino rumor be balanced.

The end in ;:usala of the aoviet regime Gown) not far off.

!tenertoi that filter

throuo): indicate an apnittling failure of the harvests in Xelt.orms Husain, and a hawser



1

panic.

I would not be greatly surorioed if, with the domfail or Lenin, the

INSIortry IOWA eak for a sort of Allied looney, to take ohare of its attain, for
a time.
The opening uo of anemia ond its rostorotion Lo au oconomie ototo would be,

of eouroo, thO activation or leroculy; and this alone. I think, will Mite it noosible
for Germany to moot its reparation permute.

t had two conversations with tho

thrincollor, ar. Wirth, Who owns on able and honest man; trith yr. I invertutein ,

the Relehebank, .lathennu, fienaeloohn, Kmotler, and it nixtbor of ()Vlore, and this is

tho general fooling.

There is, of course, greet disappointment at the attitude of iVeoriall Mit kiwi*
obt bankers, end, Of oourao, the bitterest feeling aminet Fromm; and, on Ike other
th

hand, a curious rolinaco on 10.nnd,

d11, loom Inv, Deo that they ,,,et

*tat they wed reird here as fair play.
t, op/Werra tribute!.
In my emit T shnil try to 10.ve a el000r viow of he pronont dirrioultiou in
the industrial situltiort,vhieh will perhane emolain v4hylle hoo) ita,1 utsoh a VRViOti

of oonflicting re..ortn, otly, I think, from very ouoorfleial oboervotion.
In the morning papor Inot* a dieoatdi from Antteoro onying that,on ncoount of
the how/ buying of .84311114.00.11 diamond nerchants, 5,000 diamond workers in tiolland,

vehe h,,tve bean idle for coven Nonths

hallo ..;/osit.

takablo indioation of the turn or the tide in Pmerica.

This 36411113 tr)

413 tarli

A year arp, in Yebruary,

the oudden drop in the diamond trade wno the first clear ladiacttielt of the coming
With boat regnrde,




Alveflye,

(aimed) rhri. 3nyder




FTEEN NASSAU STREET
N E W YO R K

1-tid

otA,

r.
kit:e

0L--ot

r1Zi41-

L-1

5P
bt.p,244.4,..4




atAdA-ir

LZ,
LA1_,LiL

4

(co)
Vionna, July 29, 1921

Denr Gov. 3trongt

The induotriol situation in (ermany nay, I think, bemimed up in the
facto I have already eitod.
Pirat of oll, 0oromny somas gnaerally

Ain there is vory little uncop/ornalt.

000loyod.

5* tar os I could

Among nortoin tynoo, as clorko, otono-

-ober*, eta., thoro nay be oome owino to tho oroot doclino in tho oxoort trod*.

ot it is not imoortant.
The seeOnd fact 18 that clemmuor is not now producing over 0 par cont.

of ite oroar output, pro ratod on Ito pr000nt population, i.e., the product to
new about ao per sent. of 90 per cent., or around 70.45 per cent, of the pro-war

total.
This is Just an amroximation, but I tank it to not for out.
)croono, like Bonn and leAkozyuski, eay not over 6040 par cont.

Competent

But Jr. 3ehuopetort

former finance niniotor hor* IA V., OW/U that 0000 Or the figuras given out in

(lemony by the larfor oorporations undorstato the Meta ond that thin is with the
tneit consent of the Germa government.

Certain industries; like otool and iron, aro prosooroue and running at
000r to their normal, 000sibly a few above this.

T have given the figures for

Xrupps-52,000 men ogninat t pro-war force of 45,000.

have branched out into every sort of thing.

Rut since the war Kruppe

They make moo motion pieture macho

inoo, motor cars, moto-pedo, ond hoovon knows Ohat.

Alio), they have cone in

heavily to !Inking locomotive°, etc., hoisting madainory, and too like.

oo that

they the:me:toot; ovon oould make little) oomparloon with thoir pre-oor oonditien.

They sold, hownvor, thotr gun worko never esployod over 5 per cont. to 10 per amt.

of their force.
Their oain output has, of oouroo, clomp boon fin* otoolo, for oaohino



30M0 of it approaching the value of aemiepreciou; metale.

In enper Matta, their erelent earnings on their eaeitel are very high.
Roughly, they would hey* to be 10 to 12 ttnee ats iude. to be equal to the pre-war

This mennot by muy calculation be true, so it aeale Pelt to say that

sernings.

wean with a lerger forge the Krupp works prefite in gold are now lees than before
the war.

Jueh the mane, I think, Is tree of the *tole iron induetry: it is well
MailoYod. Mid earning largevpaeor peofits, whicii are aetuelly lice In teald than
before the ear.
The eleetrical industry about oorreeponde to the known inporte of oop

That im, the output le erobebly not such over .11111 ehat it ea..

That

to

Dr. Rothe:rut/1'1 estimate for the A. N. G., and if it ens more, then we should have

to elopes(' that the braeo work*, eta., in Germany were today out of eminieeion.

The reverie, I think,

to

probrdaly tree.

The eleetrical induotry in ()enemy ainco

the war has enjoyed no *di tronendoue boon au eure.

There hne been no large

amount of diareonOlo onPitel for the extension of eleetricel linoa, nor, as in

orioa, has there teon

a shortage of eervanto aa to lead to an /memo manue

facture of eleetrical thin:en for the home.

This faits I believe, hal; grot ei ifieance for our eopper induetry.
With the greet revivul which I believe to be coming, Gorman end eluropeen tekinge

of copper ehould be very large.

It IA extremely difficult to get any eort of accurate Wee of the present
Ante of Gemmel exporte.

The figure, have eonfeesenly been unreliable end have

recently been overhemled, and from note on nay 1emutil releo depeldeble.

parison with preerer exeorts

to

But come

very diffitult.

We know that her greetest aouree of profit in erearte, Poland nut' aussia,

helm berm elneet out cf.

but this

to




not large,

T fancy there has bee a a good deol of underground trade

e*porte to Trance and EneAand, to eustria, Mete, etc..

ere Gerleinly far below pro-N7ar,

, to the reot of the world, etill leen.

So, in spite of undoabted emailiretion, one very large noun,* of Germany'a

wealth rag

han been at 1tt out in two if not in throe.

'

'Aaron, the

war I eatiftated that probably Aorta than one-quarter of Germany's total product, pos..

'Ably 30 per ant., wao going abroad, no against loon than 10 per cent. with us.
So that ehile OW foreign trade is not of very great Importance to uu

could

eaeily adjuat so au to awl along without nny exports), thin trade we) to Germany,

eta

to Inland, the pouroa of hr largest profit, and WRS tho bunia for her roenreable
inoreftao in wealth after 1070.

0ut off a large part of this and it
eerieuely crippled.

in

(dear that Germany must be very

I am irate ours it is, and that the talk that Germany in

shamming, and able to pay a largo indamnity, le absurd.

probably the hardest hit by the war of any

Economically, Germany vas

ntry in the war.

Mow, if in the feno of this one can nay that unemployment La not oarioua

and a laret* pert of the oonntry to fairly "roe," rhat deco it mmnY

It

means that, wpoakang very roughly, it takeo in Germany new 10 mu to do U MATi$A

nomal or nre-eear work.

That to the offoct, broadly, of the Oehour day abl, ex-

ieting induotrial eanditions.
In an economic mina, Germany and a larre part of the ontinent are industrially overmanned.

The only nell0010 eseuit of thin, of course, to that the reel ille)1100 el
the German loople in moods end aerviceo, to at least 30 oer cent. below the pre-

war etandard.

And I think there t ovary evidence that, in a broad way, thia in

the fact.
Undoubodly, in name incluntrinl mections, au in the iron induetrieo, the

workers are recoiving kiel real wages, and doing fairly wall.

The general enti.

rate 9 as I have given it, in that gape have riaen about 4 times and the workers
east of living 940 time,. In sem* osetiono, it to bettor than this.



In theme? the eoeleminers get high wages, end Germany hae had a colliery..

It it elowly being brut bank

Ater problem almost as eerious nu enelandis.

At firet, after the eevolution, the workere demanded a eehour day

to normal.

with a promise of 6.

Now they work U. and in some eases 9.

Hence* Gemeny's

coal shortage hag been only in part an effect of the eartition.
But if eons elaeees, like the minery nnd steal vortern, have done fair-

ly well, others have suffered, and I believe to an extent thnt will serieuely hamper Oermany'e revival.
There wee), and is, in Germany an ieeaaane population of a middle elite*,

like the Government eeployone, echool tone/hero, etc., that eentributed largely to
'eeep up the high standerd of Gera= intolligenee.
and °elide

They were thrifty, hard working

litany of these have been reduced almost

to

penury.

You get a glimpse

from this;

In eerie, For a hay-fever merun injection, eetieh takes five minutes, a

very ordinary pheekeian, for an office vleit, ehareed 300 fr., about the reel
equivalent now or, gay. 02.50 to el in eeld.

LA eroeden, for the ewe thine,

---the real equivalent of, ouy, perhaps 504

Or leeet

Reny Oovernment officials have to live now on the equivalent of not ever

.

How they do it is e. Watery.
Before the war, epilog', prof:a:more le eerlany wore well pcideee5,000 to

:10.000 and over.

Today the real equivalent is not ono-fourth of thie.

And ral the great elect) of maall inventory end Evaill, fortunes, people
Ath incomes

e5,000 end over, have been nearly wiped out.

I vislidtd a friend

in Berlin who livfte in a house and property worth, before the wer, perhaps
eS0,000.

Nit pronent eenle or living would perhape be equal to around e2,500, gold.

The result of ell thie In that the upper claim in Gereeny toy are the
epeculetore and estiliebers," the profiteers, the Aimee, and half a million imilinters.



If before the wer Gerneny had 3,000 millionaires, in gold marke, today

-5.

//-

it may have 30,000, or twice or throe times, in paper.

And these nemenix, kiches

largely own Germany, 40W.

The educated, the Oultivated, tho thrifty, this population that made Geriy before the vnr preNainsat in literature, painting, 90101100s Invention, end
education has bean expropriated und ornetioally ruined.

rattly, to make the oft Germany n land of vulger rioh.

The effect will bef 4,0

tt will be interesting

ta nee.

Aeanvhile, the erops this year viii be, in spite of the dreuth, very good,
and mearly double last year.

There le food alyugh and German frugality will make

euffiee without, peehapo, such heavy torte.
v-;etern Germany looked mud:A infrtor and better fed than nerlinl.

or Needen.
most of n11.

Leipzig,

All of the latter look a little Uhabby and lbw at the heels, Berlin
The oeuntry ie crowded with foreimere and bellain hunter*.

It is
own

they who anjoy her luxuries and 1,opulnte her hotels; for the mot part horkeeple
-A afford 1:_t.

But all this outside .;a14.1inr, helps to tide over a seriouo.

There in little doubt that, if it ie not too heavily loaded with rep.
time mnd 'hamstrung at the name time, Genataly elAn ogee bnek end will.

Indeed, if Ian right in thinkinl thnt we shall see a great revival and
perhaps a boor,. in world trade, ?On yeara hence my find Germany rei,14t rell to its

pre-war level of !)rodnotion, trade nnd gsnoral comfort.

It this in true, it presontu .it the moment a wonderful field for 14merioan
investment,




3ineerely,
(ainmed) Carl 3nyder

(bed Orestein, euntria.
Auguet 2, 1921

eeer Governor 0trong:
OZe

The uore I see of present-day -Tempo, the more I an impreseed with
the belief that I' ow thing's OM do /3ore to disturb the equilibrium of a
try, both internal and external, than a debaselent of its currency.
both
o have had examplee enough in oar on country.

trntion ie eustria.

gy preient illue-

Men reached nerlin the dollar would buy about 750 Austrian Kroner. .
A year ago, about 650. Meal I reached Vienna it would buy 950, and no one

seems to have the 911teat idy.i. an to -;thore it will go.

The Oeverenent "(unmet ecert preeent oxpeneoe by taxation because,

they 'eay, of their suddenly being trerlecortaed into an i3eintell miner state
of six millione population from an economic unit of 50 millione, end that
thie some fact makes it imposeible for the country to becone at ()nee wet..
eustalaing, or balance its Laporte and exports.

No doubt this is in largo part true. Vienna was the ire,oj. of
a diversified metre, with its induatriei3 largely in eohelie, Ita renery
Hungary, leed 30 on.

At e otrok e of a +Kai this economically ea tiefactory

state in torn asunder to satisfy the national. and nolitiera ere-rings of a
bother they, or the roet of Aaron°, will be any
heterogeneous population.
gainer thereby reinine to be soon.
Probably eloely the old efersercial order, disturbed by tariffs and
li ut this
will take tine. Meanwhile, four or 'five inexperienced and rather imam/It
governeonte ere tryik: to eupplant economic reality with nati .ruolistio
egotiora. Thereby a (Yanildarabla part of the population is near to the starvaEine.). MI6 controverziee, will be restoredeeie now being restored.

tion line, the erofit of trade is difficult to realize, and a ;general deeoralizetion MIMI 09

ZU1 eve
Aare told things are much better now than a year ago, and
here and there you 'ind those who feel that it will slowly Work out all rigirtt.
Mr2 this is probably true.

Of the diemombered oteten, euotria has undeubtedly fared the worst.

It is now the smaUont of the four now states and has the least natural re-

,lienna iase. trading, banking and governing centre and co -o rdina ted
the aertivitice of the
Thie it is now badly orippled to do. he a
roeult, it has lost several hundred thousand .population, has known much
leieery, and Iono back 20 years in ..:.salth end'inconte.
sources.

it appears now to have an ex0011t.tlt government , non-eoliti eel , trained
and coneervative, fez tho whole T tae. it the best, munh the bait, of the
four Anton. The rest 3 OM pretty bad. Here the nocialicte and the worlde

reneeera were the first to lose mote and power in the rase of the general
prostration end nieory of the country. But euetrie was and La a bureaucratic
land; tlei, of fiee-holders are a eowerful class in thensaven and aeparontly, as
eNerywhore there is a large overelue or public Mir/rants
Many who were in



differont parts or the lapire wora kirum molt htne and had to ho taken aura of.
This hoe made lovoneleartal eonoy dill a t
Then, this eogroceeted nix Lfillione of trader!) 7.:knd connorcialiets, with
their dependante, had oomohow to be fed, and tient mant paying money to otatea
that %anted airaply tonail end not to trade or barter. A flood of !Japer
erfrtinee wna the remult.,..t.tth all ita attendant

W3 aura it MS in great part, Ilea, a MIMI 0 of esilttng conditions.

thin difference between a gOvonlm wit bond ,.,nd paper sionoy, that until
orier bowmen on active medium of exokelin5e and Acta,
, it has little
or no effect on general pricee. This in what apparently few fyi -"oral ant 3 havc

over been able to learn.
Austria did not.
tt wed not rtraires that it was
better to sell ite boncte at «15d on the dollar than to erint money.

As a result, it le, next to Ruesin, perhaps) the Liost araoralized
F;urope.
I say this in a very wide eerie%

Yet, astonishing to nay, Austria., in part
leant, is now industrial..
ly doing fairly well. Ioretl of ite alenkler indutetrlea !lave evon been enjoying
a little boom. :kt present the total tesount of WI nip lop:mit is not larle
nothing, for exare!Ao, to empare $fith ..*4annd or with no.

But shy? 3imply because with the ateedy deorociation of the currency certain export* have been possible at very !.tttraotive re*Lees to euteide
buyer. In addition a considerable mitnelt of epeculative eapital haa earao
to ruurtria for suet this reason. '!.fre-ry kind of pronorty is astonishingly
ehaap.

DLit a13. thti etto go on only en long as depredation continues.

To

this there is a definite end. And today ell kinds of trade and trill:airy are
in the met topepeturvy state. You go into a Mop and price a seat or bedetead and they -,-;tve you a price for that day.

more, an ex ohmage falls.

The rtaxt it may be 10 per emit.

This ix not fte bad so lent as the doarooiati goes on. But
versa], of this trend would mean ruin to many rgeratonts
manufacturers.
The result la tivt everyone liven from hand to mouth. The stocks in the
ahope
evarywhere ere low, rud T ai told that it is impossible to buy or
(lontreert for any *arid &web). lurntitifle of enytItingo
aand

As a far mom important reault

This simply nouns that the country ie slowly elating itvelf up.
There is the float fantaatie disparity or pricos. 0101 you pay the taxicab,

you multiply the meter reading by 60, and the (van', tstrotay; things you Kea
about in are dear fnron at the Ilriac.
For a hotel room I paid 2400 Kr, Itvetta probably about 30 Kr. before
the war, 4 fair dinner, such as 17 0 la d coat in :,;law York may 2, wets in
Vienna at the best restaurants, Env 600 Kr..; before the war, perhaps 10 Kr.

A fur mot that woad cost in !law York $00 to 0500, sesta newin
Vienna 100,000 Kr.--at curreiet exchange a little over a00. 3ilks or fine



3

u are doar, and trttc1e, of geld, but other jewelry Is abeurdly chmap.
nalleny faro re otill rietenlounly low. A niehtle ride with
r !ram Vienna here leete, for tee, about 10,000 Cr., eay

It ttapeecible to eatimete the average riee of nricoo, au you *an

tn Oa, ny, 15ecauee they aro atill rieing rapidly, and, as elenys, very unn

evenly, 30 that *ill 3142 prefit the many auffer.

nougNiy, I ihoUld say the avers of all priees, wages, oelariee,
real Gettig (ietteh hae risen very little) and all, had risen from e0 to 100
time

or about 10 time thet of Germany.

In a word, the preannt Vfatte of the Kronor an a purehaeing instrut present azdhenee in teild, about 1,000
4ent. i4 now around 1 to I holler.

Kr. to the dollar, it le not, iat this.

An in aernane the_ external value of the noney la not over helt it
interwU value. Mt e result, Auxtria, fern:ore than eermany even, in now 0.
beemin nounter to tee outaido imester. And whoreme in orsany they look
rather petiousIy on forelen purehnoos of rInInmet industriee and Gement propeortes, mnd have sought to prevent this to *ono extant, in Austria, tintnke
to Ite nalitinal and eeonomie re well as ft:mantel plieht, It le welcomed.

T M3 told that the novernnant to prapared to offer the meet attrac-

tive trio to outalde capital and to guarantee ite eafety twee interference
or inimical taxation; and I think thim guarantee would be reliable. The
loadeem of all the partiee heve ftraeticelly joined in an aseurance that the

pledges made by the eevernaget will be faithfully carried out.

Of couree here, s overyghere, there are extreeiste of ornery type.
But the temeer of Austria has always been noneervative, and its recent and
preeent exeerience ha o been leeh ne to give thia topper a renewed hold on
the people.

actrIn badly neode help. It le willing to pay for It. ,eyip.leh
capitel is now coning into the country, and some of this, an I understand it,
from the Bank of 141g3and itself.

aceme of our GermaneAmerican bank a and cape

Ltaltti have done the sane in a small '4Aty.

1 en eere there, are few fielde where & ri.,in inveeteent would offer
larger or surer returns; and Vienna le the eingotel point of the trade and banking of Raetorn Nurope, that in, of a popUlation lerger then the whole of the
effeetivoly three tine thenwhole of 3outh America.
United ntatoo. That

'Ath Germany crippled end 'Ingland pretty fully oceupied, 1: know of no direction
in which American capitel, anorly and that:1314*y could boners effectively employed than hero. Their water power alone) far exceeds our own, is but little
developed, and nowhere are labor nnd mnterinle einaper Vont hero.




aways

(Jleeled) Carl fetyder

_

MISC. ...0.1-1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO -

eovenear_Strong

FiM

DATE

Mr. Carl Snyder

SUBJECT,

Aug. 224 1921.

Mr. H.A. Glesmaeher!aelettere
to Senator Wadsworth.

The policies of the Federal Reserve Banks and of the commercial
banks of the country, throughout the late crises, must inevitably be a subjedt
of controversy so long as men differ on what constitutes sound banking and
to get rid of certain misunderstandings which are typically reflected in ,r. Glasmacher's letter.

financial policy; but at least it is possible

Mr. Glasmacher
orderly manner like in
England and
ponded, month by month, as is
percentage of "deflation" has

in an

fall in orices in

would like to have had deflation carried out
England."
It is only needful to say that the
the United etates has almost exactly corresset forth in the attached diagram.
And the
been to date almost exactly the sane.

Mr. Glasmacher speaks of cutting off "practically every firm"
from its credit supply.
The answer to this is that the
prices began in May and that the peek of loans in the commercial banks of the United
States was not readied until the following October and that there was no perceptible reduction in the amount of these loans until December.
The
in prices did not result from a contraction in credit and this fact has been
a very great nuzzle to many of our economists.

fall in

fall

Mr. Glasmachor SedMS to imagine that the number of business
As a matter of fact,
very great.
up to the latter part of last linter the percentage of failures was far below the normal or average of the last sixty years, and has been only just up
That is, the percentage of failures has not
to this normal since that time.
been greater than in times of ordinary prosperity.

failures in the present crisis has been

The letter refers to an estimate by "a leading manufacturers

that these losses run over 25,000,000,000."

magazine,
ation.

It is doubtful if there
goods on hand for sale in
the average, both wholesale
evident that the above estimate is
very widely distributed among the
lators, and the banks, so that the
eo has been extremely snail.

eorth of

This is pure imagin-

are every much more than 625,000,000,000
And as they have on
the United States.

and retail, fallen by perhaps one-third, it is
simply grotesque.

And this loss has been

manufacturers, jobbers, retailers, specu"trail of ruin" which

r. Glasmacher refers

Mr. Glasmaeher speaks of the Bank of England's gad reserve
(5)
Computed by the same method as that of our
as being only 11 per cent.
Federal Reserve Banks, this reserve ratio was on August 3rd 50.6 as compared
Federal Reserve ratio of 63.7.
-

rith the

Our bankers may have, from :Ir. Glasmacher's point of view,
certain that their losses have
handled the
been as great as that of any other class, so it could scarcely have been a
The
"studied intent to ruin the vast portion of the people of the country."
prosperity of the banks is dependent upon the prosperity of the people, and
not upon their misfortunes.




situation very badly, but it is

Mr. Mellon is censured because his department "could easily

1,419C.3.190M4-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

Fitv

DATE

SUBJECT :

Gevaneer-Streng

--Aug4;-23/21--

Mr.N.A. GlasmaeherLs-letter toSenator Wadsworth.

ir. Carl Snyder

2 -

Sureprescribe an easement of these conditions through the National banks."
ly Mr. Glasmacher must know that neither the Secretary of the Treasury, {or

any national power, or the Federal Reserve Board have the slightest power
over the making or withdrawal of a loan by any bank, national or other, save
when the bank is thought by the examiners to be in bad condition and certain
reforms are prescribed.
Mr. Glasmacher seems to imagine that the London beets have not shut
down on a further extension of loans like the American banks and that the inAs a matterest rate there is very much lower than in the United States.
ter of fact, on the testimony of the Bankers' Magazine of London, the prevailing rate for corriercial loans through the larger pert of last year in

London was around 8 per cent, and has only slowly receded in the present year,
Mr. Glaunacher is apparentexactly as in New York and other cities here.
ly misled by the prevailing rate on bills in the London market, which is always

this

somewhat lower than the rates on acceptances in
this difference, the two countries have been and

country.
Aside from
pretty much on a par.

remain

The London banks have been subject to the same violent criticisms
which Mr. Glasmacher levels at the bankers of this country, because their
extremely doubtful
I think it
policy has been practically the same.
if any long-term credits, save of the rost gilt-edged sort, have been granted
They
at any such terms as Mr. Glasmacher mentions, "5 per cent. maximum."
are, of course, much more accustomed to international banking and it may have
been somewhat easier to secure loans on exports from England than from this
But this is probably in large part due to the very heavy losses
country.
which our banks have sustained within the past year on precisely this type of

is

loans.

Apparently Mr. Glasmacher imagines that there has been a great curAs a matter of fact, the total decrease in
tailment in the credit supply.
loans in the commercial belies of the country from the peak of lest fell, up
And
to the present time, does not much ezceed, if it equals, 12 per cent.
this decrease has been in large part quite voluntary on the part of the borrowers
and simply because they did not wish to pay the prevailing high rates of inDoubtless there have been many cases where the banks have reterest.
fused to renew loans, and in some cases this refusal may have worked severe
But it is proof that this has been rare from the fact that
hardship.
the number of failures has been no greater than the average of ordinary peaceful times, and nothing like the great number which has usually been the aftermath of such a severe commercial crisis.

last

three years
The bankers are fallible and their judgment in the
may huve been very faulty. But in the minds of thoughtful economists the fault
lay rather in the direction of giving rein to a wild and unrestrained boom,
accompanied by a most violent rise in rices ever known in this country within
History teaches
a similar period throughout the last century or more.
equally
that such a violent rise in prices invariably brings in
What the condition of the country would have been had the
violent fall.




its trail an

MI8C.3.1-00114-1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

Governer-Strong

DATE

SUBJECT

AlLag23/21

Mr. H.A. Glasmacher's letter
to

Senator Wadsvorth.

Carl _Snyder

-.3 Federal Reserve System not been there
imagined.

ade crisis.

eo palliate the disaster can only be

Ur. Glaamacher will recall that the recent crisis was a worldThat it appeared in Java and Japan aed south America, and in

some countries of Europe, long before it did in the United States, and that
the onset of the crisis in this country was largely occasioned "ley the collapse of foreign payeents and the sudden stoppage, in =sequence, of our
foreign trade.
causes.

that was world-wide car scarcely have been the product of local
Possibly if the Foderel Reserve Banks had been in a position where

it would have been possible to raise the rate of rediscount much earlier than
they did and thus to some extent prevent such a tremendous extension of bank

loans and hence such an unprecedented eios in price, the fall in pricea and
the ensuing crisis would not have been as severe in this country as it was.
But this is a question of judgaent.
And similarly a lowering of the Re-

serve Bank rate of rediscount in the crisis miellt have had some palliative
effect.
But the real difilculty lay in the quality of the loans in the banks

themselves, and not in the prevailing rateseesdevat7tele.va4. of interest;
clear, wae dueeeto the ever-confidence
studied intent" of the bankers to bring
ruin, or great loss to not only their clients, tb r neighbors, and their
friends, but to themselves as well.

and the making of these loans, it is
of our bankers, and scarcely to "ti







FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-120 M-1-20

OFFICE CORRESPONDENCE
1-0

GOV ernor

StroYlg

DATE

August 24,

192;_

SUBJECT

Mr. Sny407_____

Here is a note from Mr.

Nixon, of the League of Nations, and Blackett

gave me another from Mr. Loveday when I was in London.

As every item they
ask for is published currently in the newspapers and business journals, I wonder
if there is any objection to complying with their request to send it along unofficially.
we would take no responsibility whatever; and they could get it
all a little later in Mr. Hoover's now "Survey of Current Business," only it
would be several weeks late.

_MI

3. 9014-1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

Governer Strong

FP

DATE

Aug. 24, 1921.

Mr. Carl Snyder

SUBJECT: -6:-at

Everywhere I went two questions seemed to be uppermost.

These were

How shall we stabilize our exchanges?
What will your country do with its monstrous load of gold?
The two questions are, of course, very closely associated.
Professor Cassel
had the idea that the simplest way would be that we should utilize our gold to
inflate to a certain extent, so that the exchanges, and especially that of
Sterling, would be considerably bettered
the present prices and then the
different countries might be willing to stabilize, as a temporary measure,
upon the basis so reached.
The difficulty with this suggestion is that English and American prices
tend to swing very closely together.
This has been markedly true in the
decline of the last year or two when the declines in the two countries have
been practically parallel.
And, speaking broadly, this has been true for
a century or more, as is shown by our recent comparison of English and American
prices from about 1790.
The exception, in the period of our Civil War, was
more apparent than real, since the great rise in prices was purely in paper
money.
Measured in gold, there was practically no rise in prices in this
period.
It seems evident that this relationship will continue, for the simple
reason that the big bases of wholesale prices are the major products, which
are the main articles of international trade.
And England, for example,
and other countries must pay the same price, plus the freight, for cotton, or
copper, or meat, or wheat, that we pay.
And in almost the same way their
prices for products of steel and copper and all the rest must be essentially
the same as ours, in order that international trade shall subsist.
If, now, prices in England have aeclined in almost exactly the same
degree and in the same time as prices in the United States, it seams extremely doubtful if it would now be possible for the United States to have a
great rise in prices without an exactly corresponding rise in England, because the normal process of equalization in exchange and prices is absent
A rise in prices in this country would not occasion a heavy outflow of gold,
as in normal times.
The only way I can see that English and American
prices could be restored to their former parity would be such a further deflation of the English note issue and a corresponding decline in the general
or national level of all prices, salaries, wages and rents, as no statesman
at the present time could contemplate.
.

The EnglieR5ti ce level is at least 25 or 3f1 er4pe t. above that of
hanged within the
the United States; and this relationship has noteimimiiii
last year and a half.
Therefore, I do not believe that Professor Cassel's
proposal is a solution of the difficulty.



MI9C.3.100M-1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

Governor Strong

DATE

SUBJECT

Aug. 24, 1921.

Stabilizatien of Exchanges.

Mr. Carl Snyder

-

2 -

But almost everyone must agree with Professor Cassels belief
that the great barrier to the resumption of international trade is the lack
of stability in exchange.
Business will adjust to almost any level, and
the absolute or exchange value of the pound, the franc, or the mark, so far as
What is
international trade is concerned, is of almost negligible interest.
of profound interest to the business man, and the exporter, and the importer,
is that this relationship shall not vary by 10 or 20 per cent, before he has
had time to manufacture and deliver the goods that he has contracted for.
In each of the countries I visited there is already the beginning of a
solid body of informed and influential opinion behind Professor Cassel's
proposal to stabilize as quickly as possible and at practically the status quo.
This need- not involve any revaluation in gold of the different currencies.
The
These valuations are already abrogated simply by an effective embargo.
only thing that is needful is to give the central bank, or some similar body,
authority to buy and sell exchange at a fixed figure in unlimited quantities,
The gold embargo would,
with, of course, the government treasury behind it.
of course, have to be lifted in order that gold might flow freely, as in normal
times, and in the place of the present embargo it would be needful to suspend
This
the present nominal conversion rights for the outstanding paper money.
would involve no hardship to anyone.
The question then arises whether it would be possible to fix the "pegging point" with sufficient accuracy to prevent a great drain of gold from any
This is a very delicate question
country, save possibly the United States.
For,example, at the present time, as I have
and the answer is not easy.
pointed out, the currencies of Germany and Austria are very heavily under-valued.
I think the same is true, to a lesser degree, even with the pound Sterling and
But it is d very interesting question as to whether it would be
the franc.
possible to work out statistically a purchasing parity between the different
currencies that in actual practice would involve no great gold movement, or
whether the present exchange rates are not pretty near to a true index of this
relative value.
It
The answer, I think, is that the pegging point need not be final.
And if any one country found that it was unable to
could be experimental.
sustain exchange at that oarticular point without a great loss of gold, it
would simply have to lower it.

As to this latter,it would be an advantage if the common point, so to speak,
for the European countries, could be at such a level that this, would occasion
a pretty steady flow of gold from the United States.
It would, of course, be an immense further step towards real stabilization if the United States would agree to an international loan of say six or
Probably this is politically imeight hundred millions of our surplus gold.
possible, in view of the clamor of the cheap money advocates, but I do not see
They
why the ten biggest banks of the United States could not undertake it.




FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

nOvArnor Strnne

DATE

SUBJECT:

Aug. 24, 1921.

Stabilization of Exchanges.

Mr. Carl Snyder

could float an international loan to say the five or six principal countries
of Europe, which could be a common liability from all of them.
And I do not
see why this should be any very great difficulty.
I believe England would
undertake it if France would agree.
There is at least a fair degree of
probability that this loan could soon be floated in this country on a very
favorable basis and the proceeds of it could be delivered in gold.
And there
never could be a more favorable time for the withdrawal of such a quantity of
gold as at the present, or at least within the next year.
I should like to commend such a proposal to your serious consideration.




nu., I £t4.
- 12 -

)14f 4.1 y

STRICTLY CONFIDENTIAL

Please return to Mr. Barrows in the
attached stamped and addressed envelope.

ID
THE FALL IN EXCHANGES:

It is not easy to understand the continuous and heavy

fall in the continental exchanges, and especially the German mark.

curious situation.

It is a

Up to the first of July there had been practically no

increase in the output of paper money in Germany this year.

The apparent

increase in Fteichsbank bank notes was balanced by a nearly correspondi

decline in the War Loan Bureau notes, so that the net increase was

negligible,
It is possible that, in order to meet the August reparation paymentd,
the German government may again have had recourse to the dubious expedient

of selling marks in foreign markets; and this may account for the recent
extreme weakness*

mark exchange.

But this merely accentuates the anornalousposition of
The external value of the mark does not now exceed,

it is equal to, 50 per cent. of its internal purchasing power.

if

Retail

prices, wages and salaries, in other words, the average cot,' of living, has
not risen in Germany more than ten times; and rents,. of course, far less; so
that at present prices American money in Germany will buy goods at somett. Ing

like 50 cents on the dollar.
In Austria the situation is worse.

In exchange the kroner is not

worth 40 per cent. of its internal buying power.

There the situation is

due larglly to the plight of the government and the disruption of trade
relations\with the former constituents of the empire.

great
But in Germany the/

depreciation of exchange seems rather due to the prevailing distrust of the
German government, and the fear of a further flood of paper money.

The impression gained by the writer of the intentions and policy of
the present German government was on the whole favorable.



I believe

- 13 ;-

that, unless driven to extremes by the determination

of the

ultra-radical

party in France to break Germany on -the wheel , even if it means the ruin of

continental Europe, the German government

will

pursue a fairly sound financiol

policy; and that they are just as anxious to get back -to
could be.

a gold basis as anyone

Dr. Wirth end others of the present ministry are deep] y interested

in the proposal to stabilize at something like the present status quo; -st-id---1

cannot escape the impression that this is the most vital thing that could

possibly be done for the restoration of her trade.

At present her merchants

and enterprisers are in deep fear of being caught with long-time contracts which
they might not be able to fulfill.

And time contracts are the very essence of

modern commerce.
And what is true of Germany is equally true of England and France and all
the rest.

Almost every country, except possibly our own, is in dire need of

goods which it cannot buy, because it cannot sell the surplus of goods which it
itself possesses.

A very large part of -this difficulty is due not to the mere

depreciation in exchange, but to the violent fluctuations of exchange, which
render all forward contracting a more or less desperate gambles
minds of Europe are ready fo,r some, step towards stabilization..

The more active

In the mind of

the writer, this country could dc no greater service than to propose an inter.-

national conference upon exchanges, possibly to be held at the same time as the
conference on armaments.

Practically speaking, this country is in a position

to exert a very powerful influence in this direction.

And until this end can be

achieved, it is certain that all efforts to revive our foreign
lergely futile.

It is our own direct and personal interest which should

determine this action.




trade will be very

gt.
August 28, 1921

Not included in Summary)
,-

/

2
i

//

(

THE BUSINESS PROSPECT:

Looking back over the attempts of three months ago, made here

lo size up the business situation, one is inevitably struck with the slightness of
change within this period.

There has been, it is true, a steady advance in the

Federal reserve ratio, and the load of surplus gold continues to pile up heavily.
There has been a notable decline in the ratio of loans

(excluding investments) to de-

posits in the Reporting Banks, and this ratio is now back to the lowest figure in
the last three years, quite possibly to somewhere near as low a figure as it will
reach.

This means in general a much more liquid condition of the banks, and that

they may expand unhampered as business revives.
It is the writer's belief that this revival is now not far away.

It would not

be surprising if the next month or two would see a very marked upturn in prices in
the commodity markets, and possibly the inauguration of a very strong bull movement.

Wheat exports for August have apparently broken all records and show clearly that
the European demand is just as strong as it over has been.
The general range of wholesale prices has in the last three months been bumping
along what is probably bottom for a long time to come.

There is a remarkable spread

between retail prices and wholesale commodities, and especially of the big basic
commodities which form the substance of our index.

.

This wide gap can scarcely be

long maintained.

The prospect of a much further lowering of retail prices seems slight, and in
many lines an

upward tendency is already evident.

This country has probably had a

swifter reduction of retail prices than any other, and this in spite of a very heavy
retail trade.

All the evidence available indicates that -ale actual volume of goods

moving over the counters the present year has been larger than last.
this physical volume shows no signs of diminution.

And as yet

0

We have now had 15 to 18 months of declining commodity prices, and this decline
is nearly twice as great as anything ever known before in a century.

Likewise the

stock market, which is always a valuable though not infallible barometer, has now




2

shown 22 months of decline.

Few bear markets have ever outlasted two years.

The

percentage of declines in industrials now reaches about 50 per cent, or more, which
Ls greater than any other decline of which we have full records.

There has been a high mortality of mushroom millionaires, which means the transfer of large holdings from weak or reckless hands to strong.

Loans on stocks and

bonds are probably now near to a minimum, and several large brokerage houses report
their borrowings at the lowest in many years.

The beginnings of a marked change

should not be many months away.

It is the belief of the writer that the foundations have been laid for a long
and strong period of prosperity.

Just as In the spring of 1920 it seemed probable

that we were due for a violent reaction, so now the reverse is true.
production has been curtailed to an almost unprecedented degree.

In many lines

Not in fifty years,

probably, has the iron trade known a greater depression or a heavier fall of prices
than this year.

Experience teaches that this cannot long subsist.

The momentum of human needs

is very great.

The people of this country are accustomed to abundant comforts and

many luxuries.

The price of these is hard work and this price they will pay.

In

the mind of the writer the present crisis has been so sharp that it must be correspondingly short-lived.

The one great problem is our foreign trade, and the pros-

)ects seem to be that this will .steadily improve from now on.

If our bankers and

business men would take the lead in the reestablishment of a gold exchange standard,
the restoration of international trade might be very rapid.
On the basis of the highest point of last year, our present gold holdings would
provide for a loan expansion of nearly 10 billions, or one-third more than the total
of commercial loans at the peak of last year.

Practically speaking, this is beyond

anything known in this country in at least forty years, save in 1916, following the
huge inflow of gold at that time.

It is possible, of course, that our trade re-

vival may be slower than here anticipated; but when it comes, present indications
suggest that it will mean at least two or three years of marked prosperity, if it



3

does not develop into another general "boom," like 1919-20.

This might mean, if

we do not find a means to get rid of our redundant gold, a higher general price
level than that of last year, though not necessarily of wholesale prices alone.




MliC:3,1001M-1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

FROM

Governor _Strong

DATE

SUBJECT

August 301 l92l

_NationalEconomic League on

International Relations

Snyder

NO such animilel

The :dational Economic League has an office

in Boston, and its Secretary is Mr. J. W. Beatson, 6 Beacon Street.

Most

of its activity is confined to sending out, about six times a year,
questionnaires to a

largo number of more or less economically-minded

people, taking a vote on their
I

OM

opinions on this question or that.

deeply surprised that you are not among the number.

questionnaires and replies, I

suppose, are nore

or

These

less utilized by the

economic clubs of the different cities, for their programmes and as topics
for speakers.

the voters, I

In spite of the

very excellent Character and personnel of

should not attach any very great weight to the results of

the canvass, not much more than to an ordinary newspaper




questionnaire.

MI9C.3.1.9014-1-20

I FEDERAL RESERVE BANK
OF NEW YORK
DATE- _Septa___2,,,_192.1.____

OFFICE CORRESPONDENCE
TO ,

Governor Strong

Fs'as

Mr. Snyder

SUBJECT:

Fix edaversus- -Spekoulative-

Ihdhanges

I do not think that either Governor Norman nor Sir Charles Addis was in
the least convinced that stabilization, even for sterling, was at present practicable or even very desirable.
As this is a matter that it s
well make a difference, perhaps of billions of dollars to the commercial world,
I should like very much to offer this for your consideration:
After sterling was unpegged in March of 1919, it fell steadily for
a year, then had a sharp rise and fall, and another rise and fail.
This means
that now, ior about two years, sterling has been fluctuating about a pretty
definite point.
And the same is true of most of the other exchanges.

This can only mean, it seems to me, (a) what is the main contenthat a paper currency has a definite
and determinable value and that this value depends upon the amount of goods it
will buy in the country of origin, and that, in a broad way, this will determine
its relative value among frailly trading countries; and (b) that the fluctuations
of the exchanges about this definite value will be dependent upon the pressure
for bills and credits, in other words, the current state of trade, and that these
latter have practically nothing to do with the fundamental question of value.

tion in the whole idea of stabilization, viz.,

It seems to me that the attached Chart showing the wholesale prices
of the different countries, converted into dollars at the current rate of exchange,
sheds a real light upon this question.
You will see that the lines steadily
tend to converge and that in general the parity of all the paper currencies is
below their relative value.
In other words, there is a distinct undervaluation,
as Prof. Cassel contends.

It seems to me that this can only mean that the effect of the establishment of a gold exchange standard would be somewhat to rehabilitate or raise the
value of these currencies, so that it is of the most intimate interest to these
countries to effect this stabilization as quickly as possible.
If it be true that all those paper currencies are distinctly undervalued, then the point at which they could probably be stabilized, without a
drain of gold, would possibly be higher than even the average rate of the last
year. Or, to
other way, if the exchanges were pegged at this average
year, there would be a steady drain of gold from the United
States and to these countries.

put it the
rate of the last

The only thing I can see that would seriously interfere with
would be a temporary pressure for credits or bills, owing to the fact that,
general, the imports of these countries are excessive and must be reduced.

this
in

I can see no way by which they can be reduced so long as the great volume of paper
currency outstanding encourages extravagance, and the excessive imports do not
have their normal effect in producing a drain of gold, a lowering of prices and
a cessation of fictitious prosperity.
In talking about unbalanced trade being the cause of depreciated
exchanges, I think Mr. Gregory is right when he insists that we have got the



MI9C,A.OMA-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

-Govern-or-strong

FROM

Mr.snyior

DATE

SUBJECT,

Sept. 1, 1921

Axed- versus- Gp-eettlative

2--Exchanges

cart before the horse, and that unbalanced trade is in reality the effect of the
depreciated currency, that is to say, of inflation.
(?)

If the above is true, the relative value of sterling and gold dol-

lars, for example, has not substantially Changed within the last two years.
This, as I see it, means simply that the relative or effective volumes of currency and credits in the two countries have not substantially Changed and have
both been efected by the same influences at the sane times. In other words,
relative to the dollar there has been no deflation of the English paper money
issue within this period. Therefore, it seems to me that the possibility of
the restoration of sterling to its pre-war parity is just as far off as ever.

Nor can I sea how this relationship can change unless the fundamental
factor is changed, that is, unless England reduces the volume of its paper currency or this country correspondingly increases its quantity (counting, of course,
as currency every form of circulating medium).

(8) Now, as to another side. The unpegging of the exchanges and their
consequent fall took place in the midst of a worldwide boom in trade and a violent
and worldwide rise in prices. The whole world was lost in a kind or speculative
fever. The effect of the great fall in exchanges and of their violent fluctuations thereafter vas, therefore, not felt for a long tine. It seems to no that
it is being very seriousoy and drastically felt now; and will continue to be
for a long tine to come. In other words, the recovery of international trade,
which is otherwise Clearly in sight, will be seriously impeded, it not long delayed, by this great eleaent of uncertainty in exchange values, thich makes of
almost all business more or less or a more speculation.
(9)

Even Sir Charles Addis and the Gunliffe Ummeittee seen to expect

no immediate return of sterling to par. At least, they laid their programme out
for ten years, simply as a provisional measure. Could they have seen the terrific losses which were to take place In British trade, and all over the world,
partly if not largely due to the violent dislocation of exchanges, load their
conclusion have been the same! In other words, the question SOEPAO to me this:
Shall we accept the average results of the last two years, which
have clearly established the relative value of the pound sterling and other cur-

rencies, and fix upon a central point to which business may be adjusted and international trade revived; or:

'Shall we leave the exchanges to be the football of the speculators
or more within

and have a fluctuation of sterling to the amount of 10 per cent,
each three or four months, to the ruin of international trade?

(10) There is nothing new in the doetrine of purchasing parities.
It
by Lord Gosdhea at the time of our Civil War, and
it was by no means new then.
If this general truth could be clearly seen by
bankers like Lord Goschen then, and, for example, Lord D'Abernon now, that is it
that stands in the way of its recognition and the adoption of a consequent policy

was clearly and ably set forth

now?


N110,4,9,20010-0

n

I

s,

I

)

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

Governor Strong

FR 01'

Ur. 3nyder

DATE

sue,E,,

Sept. 1, 1921

Fixed versus Speculative

Exchanges

I do not think that either Governor Norman nor Sir Charles Addis was in
the least convinced that stabilization, even for sterling, was at present pracAs this is a matter that it seens to me might
ticable or even very desirable.
well make a difference, perhaps of billions of dollars to the commercial world,
I should like very much to offer this for your consideration:

After sterling was unpegged in !larch of 1919, it fell steadily for
This means
rise and fa/1.
a year,
now, for about two years, sterling has been fluctuating about a pretty
definite point.
And the same is true of most of the other exchanges.

that

then had a sharp rise and fall, and another

This can only mean, it seems to me, (a) what is the main contention in the whole idea of stabilisation, viz., that a paper currency has a definite
and determinable value and that this value depends upon the amount of goods it
will buy in the country of origin, and that, in a broad way, this will determine
relative value among freely trading countries; and (b) that the fluctuations
of the exchanges about this definite value will be dependent upon the pressure
for bills and credits; in other words, the current state of trade, and that these
latter have practically nAhing to do with the fundamental question of value.

its

It seams to me that the attached chart showing the wholesale prices
of the different countries, converted into dollars at the current rate of exchange,
You will see that the lines steadily
sheds a real light upon this question.
tend to converge and that in general the parity of all the paper currencies is
below their relative value.
In other words, there is a distin
as Prof. Cassel contends.
It seems to me that this can only mean that the effect of the establishment of a gold exchange standard would be somewhat to
value of these currencies, so that it is of the most intimate inLerest to these
countries to effect this stabilization as quickly as poseible.

rehabilitate or raise the

k

If it be

'

.

true that all those paper currencies are distinctly undervalued, then the point at which they could probably be stabilized, without a
drain of gold, would possibly be higher than even the average rate of the last
year.
Or, to put it the other may, if the exchanges were pegged at this average
rate Of the last year, there would be a steAy drain of gold from the United
States and to these countries.
The on/y thing I can see that would seriously interfere with this
would be
temporary pressure for credits air bills, owing to the fact that, in
general, the imports of these countries are excessive and must be reduced.
I can see no way by which they can be reduced so long as the great volume of paper
currency outstanding encourages extravagance, and the excessive imports do not
have their normal effect in producing a drain of gold, a lowering of prices and
a ceeeation of fictitious prosperity.
In talking about unbalanced trade being the cause of depreciated
'rregory is right When he insists that we hive got the

exchanges, I think 71r.



lt

W.,. 3.1-200M-0-20

I FEDERAL RESERVE SANK
OF NEW YORK

OFFICE CORRESPONDENCE

DATE_

Governor strong

TO

SUBJECT'

etre &nyder-

2

Sept. 1, 1921

Plead vereue `Inaculative

ExChanges

cart before the horse, and that unbalanced trade is in reality the effeet of the
depreciated currency, that is to say, of inflation.
(7)

If the

*WC'

is true, the relative value of sterling and gol2 dol-

lars, for example, has not substantially changed within the last twe years.
This, as I 830 it, means simply that the relative or effective volumes of currency and credits in the two countries have not suhstentially changed and have
both been affected by the sane influences at the same times. In other words,
relative to the dollar there has been no deflation of the TAnglish paper money
issue within this period. Therefore, it osems to me that the possibility of

the restoration of sterling to its pre-war parity is just as far off as veer.

her can I see how this relationship can change unless the fundamental
factor is changed, that is, unless England reduces the volume of its paper currency or this country correspondingly increases its quantity (counting, of course,
as currency every fore of circulating medium).
The unpegging of the exchanges and their
(S)
Now, as to another side.
consequent fall took place in the midst of a worldwide boom in trade and a violent
The whole world was lost in a kind of speculative
and worldwide rise in prices.
The effect of the great fall in exchanges and of their violent fluctufever.
It eeens to me that
et long tile.
and will continue to be
it is being very seriously and drastically felt now;
for a long time to came. In other words, the recovery of international trade,
which is otherwise clearly in sight, will be seriously impeded,

ations thereafter gas, therefore, not felt for

if not long delayed, by this great eielent of uncertainty in exchange values, which makes of
almost all business more or less of a mere speculation.

Even Sir Charles Addis and the Cunliffe Committee seem to expect
(9)
At least, they laid their programme out
no immediate return of sterling to par.
Could they have seen the terfor ten years, simply as a provisional measure.
rific losses which were to take place in British trade, and all over the world,

partly if not largely due to the violent dislocation of exchanges, would their
conclusion have been the sumo? In other words, the question seams to me this:

Shall we accept the average results of the last two years, Which
have clearly established the rolative value of the pound sterling and other currencies, and fix upon a central point to Which business may be adjusted and international trade revived; or:
Shall we leave the exchanges to be the football of the speculators
a fluctuation of sterling to the amount of 10 per cent, or more within
three or four months, to the ruin of international trade?

and have

each

(10) There is nothing new in the doctrine of purchasing parities. It
was clearly and ahly set forth by Lord Goschen at the time of our Civil Tar, and
If this general truth could be Clearly seen by
it was by no means new then.
bankers like Lord Goschen then, and, for example, Lord WAbernon now, what is it
that stands in the way of its recognition and the adoption of a consequent policy
now?




.11

1.19C.3.190M-1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

anvernnr Strong

FR,

Mr. Snyder

DATE

Sept. 1, 1921

Forecast of Business
Conditions

The main basis for the little forecast of business conditions which I
handed you the other day lies In the studies we have been making as to the
amazingly even and steady rate of growth in almost every line of industry
where the figures are available.

I showed you the chart of the world's

steel production, and I am attaching herewith a number of others.
The world last year was short at least 30 million tons from what would
.ave been its normal growth except in the war, and the total shortage for

the last seven years from this normal growth is probably not much under
100 millions.

That was the basis for my prediction of a great boom in

the steel trade within the next three or four years.
A very interesting parallel was in the cotton consumption of the
United States during and after the Civil War.
jumped back.




Please note how swiftly it




FEOEF:AL. RESERVE BANK
OF NEW YORK

MISC. 5. 1-120 M-1-20

OFFICE CORRESPONDENCE
Governor Strong

Fr ' M

DATE

Sept. 2, 1921

192_

SUBJECT

Mr. Snyder

I am sending you the attached, in case you should want an extra
copy for Sir Charles.

mrn,r1C

4,er
P-ivita6tict

,/ittvA4a f

af-het

,Liu,if3u1'

4dt.,

MI9C.3.I Anibal -1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

FROF

Governor Strong

Mr. Snyder

DATE

SUBJECT

Fixed verRuR

Sept. 1

1921

Spenulative

Exchanges

I do not think that either Governor Norman nor Sir aharles Addis was in
the least convinced that stabilization, even for sterling, was at present pracAs this is a matter that it seems to me might
ticable or even very desirable.
well make a difference, perhaps of billions of dollars to the commercial world,
I should like very much to offer this for your consideration:
After sterling was unpegged in March of 1919, it fell steadily for
This means
a year, then had a sharp rise and fall, and another rise and fall.
that now, for about two years, sterling has been fluctuating about a pretty
And the same is true of most of the other exchanges.
definite point.
This can only mean, it seems to me, (a) what is the main contention in the whole idea of stabilization, viz., that a paper currency has a definite
and determinable value and that this value depends upon the amount of goods it
will buy in the country of origin, and that, in a broad way, this will determine
its relative value among freely trading countries; and (b) that the fluctuations
of the exchanges about this definite value will be dependent upon the pressure
for bills and credits; in other words, the current state of trade, and that these
latter have practically nothing to do with the fundamental question of value.
It seems to me that the attached chart showing the wholesale prices
of the different countries, converted into dollars at the current rate of exchange,
You will see that the lines steadily
sheds a real light upon this question.
tend to converge and that in general the parity of all the paper currencies is
In other words, there is a distinct undervaluation,
below their relative value.
as Prof. Cassel contends.
It seems to me that this can only mean that the effect of the establishment of a gold exchange standard would be somewhat to rehabilitate or raise the
value of these currencies, so that it is of the most intimate interest to these
countries to effect this stahilisation as quickly as possible.
If it be true that all those paper currencies are distinctly undervalued, then the point at which they could probably be stabilized, without a
drain of gold, would possibly be higher than even the average rate of the last
Or, to put it the other way, if the exchanges were pegged at this average
year.
rate of the last year, there would be a steady drain of gold from the United
States and to these countries.
The only thing I can see that would seriously'interfere with this
/5)
would be a temporary pressure for credits or bills, owing to the fact that, in
general, the imports of these countries are excessive and must be reduced.
I can see no way by which they can be reduced so long as the great, volume of paper
currency outstanding encourages extravagance, and the excessive imports do not
have their normal effect in producing a drain of gold, a lowering of prices and
a cessation of fictitious prosperity.
In talking about unbalanced trade being the cause of depreciated
exchanges, I think Mr. Gregory is right when he insists that we have got the



(6)

MI9C.3.1-901.1-1-20

I FEDERAL RESERVE BANK
OF NEW YORK
DATE

OFFICE CORRESPONDENCE
TO

Governor Stroeg

Mr._Buder

SUBJECT,

2

Fixed_ versus spenulative

Exchanges

cart before the horse, and that unbalanced trade is in reality the effect of the
depreciated currency, that is to say, of inflation.
If the above is true, the relative value of sterling and gold dollars, for example, has not substantially changed within the last two years.
This, as I see it, means simply that the relative or effective volumes of currency and credits in the two countries have not substantially changed and have
In other words,
both been affected by the same influences at the same times.
relative to the dollar there has been no deflation of the English paper money
Therefore, It seans to me that the possibility of
issue within this period.
the restoration of sterling to its pre-war parity is just as far off as ever.
(7)

Nor can I see how this relationship can change unless the fundamental
factor is changed, that is, unless England reduces the volume of its paper currency or this country correspondingly increases its quantity (counting, of course,
as currency every form of circulating medium).
The unpegging of the exchanges and their
Now, as to another side.
of a worldwide boom in trade and a violent
consequent fall took place in the midst
The whole world was lost in a kind of speculative
and worldwide rise in prices.
The effect of the great fall in exchanges and of their violent fluctufever.
It seems to me that
ations thereafter was, therefore, not felt for a long time.
and will continue to be
it is being very seriously and drastically felt now;
In other words, the recovery of international trade,
for a long time to come.
which is otherwise clearly in sight, will be seriously impeded, if not long delayed, by this great element of uncertainty in exchange values, which makes of
almost all business more or less of a mere speculation.
(8)

Even Sir Charles Addis and the Cunliffe Committee seem to expect
At least, they laid their programme out
no immediate return of sterling to par.
Could they have seen the terfor ten years, simply as a provisional measure.
rific losses which were to take place in British trade, and all over the world,
partly if not largely due to the'violent dislocation of exchanges, would their
In other words, the question seems to me this:
conclusion have been the same?
(9)

Shall we accept the average results of the last two years, which
have clearly established the relative value of the pound sterling and other currencies, and fix upon a central point to which business may be adjusted and international trade revived; or:
Shall we leave the exchanges to be the football of the speculators
and have a fluctuation of sterling to the amount of 10 per cent, or more within
each three or four months, to the ruin of international trade?
It
(10) There is nothing new in the doctrine of purchasing Parities.
Civil War, and
was clearly and ably set forth by Lord Goschen at the time of our
If this general truth could be clearly seen by
it was by no means new then.
what is it
bankers like Lord Goschen then, and, for example, Lord D'Abernon now,
policy
that stands in the way of its recognition and the adoption of a consequent

now?



a

FEDERAL RESERVE BANK
OF NEW YORK

DATE

OFFICE CORRESPONDENCE
TO

Governor Strong

SUBJECT

Sept. 1, 1921

Fixed ver u
-------5-13-313 eculative

Exchanges

FROMMr. Snyder

I do not think that either Governor Norman nor Sir Charles Addis was in
the least convinced that stabilization, even for sterling, was at present pracAs this is a matter that it seems to me might
ticable or even very desirable.
well make a difference, perhaps of billions of dollars to the commercial world,
I should like very much to offer this for your consideration:
After sterling was unpegged in March of 1919, it fell steadily for
This means
a year, then had a sharp rise and fall, and another rise and fall.
that now, for about two years, sterling has been fluctuating about a pretty
And the same is true of most of the other exehanges.
definite point.
This can only mean, it seems to me, (a) what is the main contention in the whole idea of stabilization, viz., that a paper currency has a definite
and determinable value and that this value depends upon the amount of goods it
will buy in the country of origin, and that, in a broad way, this will determine
its relative value among freely trading countries; and (b) that the fluctuations
of the exchanges about this definite value will be dependent upon the pressure
for bills and credits, in other words, the current state of trade, and that these
latter have practically nothing to do with the fundamental question of value.
It seems to me that the attached chart showing the wholesale prices
of the different countries, converted into dollars at the current rate of exchange,
You will see that the lines steadily
upon this question.
sheds a real
general the parity of all the paper currencies is
tend to converge and that in
In other words, there is a distinct undervaluation,
below their relative value.

light

as Prof. Cassel contends.

It seems to me that this can only mean that the effect of the establishment of a gold exchange standard would be somewhat to rehabilitate or raise the
value of these currencies, so that it is of the most intimate interest to these
countries to effect this stabilization as quickly as possible.
If it be true that all these paper currencies are distinctly undervalued, then the point at which they could probably be stabilized, without a
drain of gold, would possibly be higher than even the average rate of the last
Or, to put it the other way, if the exchanges were pegged at this average
year.
rate of the last year, there would be a steady drain of gold from the TJnited
States and to these countries.
The only thing I can see that would seriously interfere with this
_ould be a temporary pressure for credits or bills, owing to the fact that, in
general, the imports of these countries are excessive and must be reduced.
I can see no way by which they can be reduced so long as the great volume of paper
currency outstanding encourages extravagance, and the excessive imports do not
have their normal effect in producing a drain of gold, a lowering of prices and
a cessation of fictitious prosperity.

In

talking about unbalanced trade being the cause of depreciated
exchanges, I think Mr.. Gregory is right when he insists that we have got the



1419C.3.,001.4-1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

DATE

Governor Strong

SUBJECT:

2

FR , Mr. Snyder

Sept. 1, 1921

Fixed versus Speculative

Exchanges

cart before the horse, and that unbalanced trade is in reality the effect of the
depreciated currency, that is to say, of inflation.
If the above is true, the relative value of sterling and gold dol(7)
lars, for example, has not substantially changed within the last two years.
This, as I see it, means simply that the relative or effective volumes of currency and credits in the two countries have not substantially Changed and have
In other words,
both been affected by the same influences at the same times.
relative to the dollar there has been no deflation of the English paper money
Therefore, it seems to me that the possibility of
issue within this period.
the restoration of sterling to its pre-war parity is just as far off as ever.
Nor can I see how this relationship can change unless the fundamental
factor is changed, that is, unless England reduces the volume of its paper currency or this country correspondingly increases its quantity (counting, of course,
as currency every form of circulating medium).
The unpegging of the exchanges and their
Now, as to another side.
(8)
consequent fall took place in the midst of a worldwide boom in trade and a violent
The whole world was lost in a kind of speculative
and worldwide rise in prices.
The effect of the great fall in exchanges and of their violent fluctufever.
It seams to me that
ations thereafter was, therefore, not felt for a long time.
it is being very seriously and drastically felt now; and will continue to be
In other words, the recovery of international trade,
for a long time to 0=8.
which is otherwise clearly in sight, will be seriously impeded, if not long delayed, by this great element of uncertainty in exchange values, which makes of
almost all business more or less of a mere speculation.
Even Sir Charles Addis and the Cunliffe Committee seem to expect
At least, they laid their programme out
no immediate return of sterling to par.
Could they have seen the terfor ten years, simply as a provisional measure.
rific losses which were to take place in British trade, and all over the world,
partly if not largely due to the violent dislocation of exchanges, would their
In other words, the question seems to me this:
conclusion have been the same!
(9)

Shall we accept the average results of the last two years, which
have clearly established the relative value of the pound sterling and other currencies, and fix upon a central point to which business may be adjusted and international trade revived; or:
Shall we leave the exchanges to be the football of the speculators
and have a fluctuation of sterling to the amount of 10 per cent, or more within
each three or four months, to the ruin of international trade'
It
(10) There is nothing new in the doctrine of purchasing parities.
was clearly and ably set forth by Lord Goschen at the time of our Civil War, and
If this general truth could be clearly seen by
it was by no means new then.
bankers like Lord Goschen then, and, for example, Lord D'Abernon now, what is it
that stands in the way of its recognition and the adoption of a consequent policy

now?



PER CENT.

400

,..

350

,
,

,

,

116

FRANCE

300

A

250

I- /

200
/

,

/

/

//
'

/

\A

ITALY,/ ENGLAND \

IL

7 1\

A
A

Iiir

Apv\ N../.
/

111110116VW

A

V

UNITED STATES

16.

\
1

7w
1

1 ..A

,/

150

,
1

\

V \ /
V

\
1

\

.

C
1913 AVERAGE

100

//

\

\

\

1

...--....-

i

// \ \
\IGERMANY.

...

%

50

0




1917

1918

1919

1920

190

Prices in Different Countries Converted to Dollars
at Current Rates of Exchange

a.

,

FEDERAL RES,RVa- E.NNK.
OFT, isi .
'ORK
I

I

DA,- Sept._ 13, 1921

.ESPONIDENCE
.r Strong
01

SUBJECT.

-

Snyder

The doctrine that paper currencies have a definite value, and
that this value is pretty accurately registered in the exchanges, is at
least as old as that very excellent banker-economist, Mr. David Ricardo.
In his "Primciples of Political Economy," third and last edition, 1821,
I find this interesting passage:
"Whenever the current of money is forcibly stopped,
and when money is prevented from settling at its just level,
there are no limits to the possible variations of the exchange.
The effects are similar to those which follow when a paper
money, not exchangeable for specie at the will of the holder,
Such a currency is necessarily
is forced into circulation.
confined to the country where it is issued: it cannot, when
too abundant, diffuse itself generally amongst other countries.
The level of circulation is destroyed, and the exchange will
inevitably be unfavorable to the country where it is excessive
in quantity.
"The comparative value of money in different countries
may also be ascertained by comparing it
If a bill on
with some standard common to both countries.
England for 12100 will purchase the same quantity of goods in
France or Spain that a bill on Hamburgh for the same sum will
do, the exchange between Hamburgh and England is at par; but if
a bill on England for 6130 will purchase no more than a bill
Hamburgh for 6100, the exchange is 30 per cent. against England.
"In England 12100 may purchase a bill, or the right of
receiving 12101 in Holland, 6102 in France, and 17105 in Spain.
The exchange with England is, in that case, said to be 1 per cent.
8.inst Holland, 2 fper cent. against France, and 5 per cent. against
It indicates. that the level of currency is higher than it
Spain.
should be in those countries, and the comparative value of their
currencies, and that of England, would be immediately restored to
par by extracting from theirs or by adding to that of England.

"Those who maintain that our currency was depreciated
during the last ten years, when the exchange varied from 20 to 30
per cent, against this country, have never contended, as they have
been accused of doing, that money could not be more valuable in
one country than another as compared with various commodities; but
they did contend that 12130 could not be detained in England unless
it was depreciated, when it was of no more value, estimated in the
money of Hamburgh or of Holland, than the bullion in 6100.
"By sending 130 good English pounds sterling to Hamburgh,
even at an expense of 125, I should be possessed there of 17125; what




I FEDERA'L RESE_..., -13.4.P4K

1

OF NEW YORK

DATE

:ESPONIDENICE
Jvernor Strong
AP
lir




Snyder

Sv"t_. 13*

SU BJ ECT.

2

then could make me consent to give 1,130 for a bill which would
give me B100 in Hamburgh, but that my pounds were not good pounds
sterling?--they were deteriorated, were degraded in intrinsic value
below the pounds sterling of Hamburgh, and if actually sentthere,
With metallic
at an expense of 125, would sell only for 1,100.
Pounds sterling, it is not denied that my 12130 would procure me
111.25 in Hamburgh, but with pounds sterling I can only obtain 1,100;
and yet it was maintained that 1,130 in paper was of equal value
with 1,13° in silver or gold."

Sept. 13, 1921

Governor Strong

Mr. Snyder

The doctrine that paper currencies have a definite value, and
that this value is pretty accurately registered in the exchanged, is at
least as old as that very excellent banker-economist, Mr. David Ricardo.
In his "Primciples of Political Economy," third and last edition, 1821,
T find this interesting passage:
"Whenever the current of money is forcibly stopped,
and when money is prevented from settling at its
there are no limits to the possible variations of the exchange.
The effects are similar to those which follow when a paper
money, not exchangeable for specie at the will of the holder,
is forced into circulation.
Such a currency is necessarily
confined to the country where it is issued: it cannot, when
too abundant, diffuse
amongst other countries.
The level of circulation is destroyed, and the exchange will
inevitably be unfavorable to the country where it is excessive
in quantity.

just level,

itself generally

"The comparative value of money in different countries
may also be ascertained by comparing it
with some standard common to both countries.
If a bill on
England for 1,100 will purchase the same quantity of goods in
France or Spain that a bill on Hamburgh for the same sum will
do, the exchange between Hamburgh and England is at par; but if
a bill on England for 1,130 will purchase no more than a bill on
Hamburgh for h100, the exchange is 30 per cent. against England.
"In England 1,100 may purchase a bill, or the right of
receiving 19101 in Holland, 12102 in France, and 4105 in Spain.
The exchange wit, England is, in that case, said to be 1 per cent.
Tainst Holland, 2 per cent. against France, and 5 per cent. against
Spain.
It indicates that the level of currency is higher than it
should be in those countries, and the comparative value of their
currencies, and that of England, would be immediately restored to
par by extracting from theirs or by adding to that of England,

"Those who maintain that our currency was depreciated
during the last ten years, when the exchange varied from 20 to 30
per cent, against this country, have never contended, as they have
been accused of doing, that money could not be more valuable in
one country than another as compared with various commodities; but
they did contend that 1,130 could not be detained in England unless
it was depreciated, when it was of no more value, estimated in the
money of Hamburgh or of Holland, than the bullion in h100.
"By sending-130 good English pounds sterling to Hamburgh,
even at an expense of h5, I should be possessed there of h125; what







Sept. 13, 1921
governor Strong
Mr. Snyder

2

then could make me consent to give 1,130 for a bill which would
give ma b100 in Hamburgh, but that my podnds were not good pounds

sterline--they were deteriorated, were degraded in intrinsic value
below the pounds sterling of Hamburgh, and if actually send there,
at an expense of 125, would sell only for b100. With metallic
pounds sterling, it is not denied that my 1.130 would procure me
1'125 in Hamburgh, but with pounds sterling I can only obtain b100;
and yet it was maintained that 19130 in paper was of equal value
with 1,130 in silver or gold."




FEDERAL .RESERVE BANK

MISC. 4.1-120 M-1-20

OF NEW YORK

OFFICE CORRESPONDENCE
To

GovernorStrong

F

D AT E_Septir 15,

1921,_

Mr. Snyder

SUBJECT:

This calculation of the Bremen Statistical Amt comes out to the same
figure

that I had calculated

On this

in

a very rough way in my letters from Germany.

basis the market is now selling outside at

cent, of its internal purchasing

yeime.

less than

It is a very remarkable

40 per

situation.

nept. 15, 1921

IT

Toeics for Governors' Con-

Governor Strong

ference

,nr. Snyder

I guess you know my feeling is that pretty near the whole of the
conference ought to be given up to the euestion that is probably uppermost
in your mind, and that is:

I.

PRACTICAL STEPS TOWARD THE RESTORATION OF THE GOLD STAFDAR11.

ne are prenaring a memorandum for you shoving what countries would

be in or near a nosition innediately to restore free gold exChange; -nd (
think it is euite n remereable list. in other words, it ao0 not 5061M to
me that the question is nearly so difficult as most neople imagine. end if
the different countries could only be brought to realize the actual situation,
the stee w,uld be very easy.
Of course, as 1 see it, the main barrier is SIngland; and that was

why I was so sadly in earnest %hen the Governor and 3ir Charles were here.
T. believe the evidence is very clear:

That the relative value of the currencies of the united ntates
and Great Britain, that is, the value of sterling in gold, has not sensibly
changed within the last two years; in other words, that there as been no
improvement whatever in the exchenge value of sterling; and

I am pretty firmly of the belief that this will subsist for
the next two or three years, at least--for the reasons set forth in the mai°.
I gave you just before you went to Bar Harbor.

Therefore do I believe that it is wrong, Lenora', euieidn1 and detrimental to leave this, the premier exchange unit of the world, to be the
football of speculators, ,to the serious disturbance of trade and the practical blocking of most long-time contracts.

II.

OUR OMOAIMIS LOAD OF GOLD.

At the present tine, as near as one can calculate it, the expansive
power of the Federal Reserve :4sta-a is very near to 10 billions; or, in other
words, near to two-thirds of the preeent outstanding loans of the member banks
of the system. It seems to me that this is an appalling prespect, in view
of the tremendous political and commercial pressure for inflation.
I do not believe it is clearly recognized that this expansive capacity is now greater than anything over knonn in this country since the eltablinhment of the national banking system.
In the Treasury and Federal reserve banks is at least a billion
eollars of redundant gold; and if we do not find eome way to take care of it,
it is going to result in another wild boom and e still :reater smash than we
have had in the laA two years.



.3

t. 15, 1921

Governor tron
M. Snyder

2

As T Dec it, all the novelle interoate Which profit by hig,1 prices
wU1sny, if you attempt to . Alt back the rediscount rats to 7 per cont: "You
did this once in 1920, and soothe result."
Further, I do not believe, when the boom gots started appin, that

per eeit. bank rata vill be adequate '() =rtrol it.

3o far au I can so, tho only means, politically feasible, of
getting rid of thia mountain of gold is for the loading bank° of the country
to finance an interallied loan and Ustributo this redundant gold among tho
most aood it. Than catablish the gold exchmage standard,
nations *doh
which has worked with such remarkable succss In India.

As to the presont prospect* of the gold oupply, and manotary needs,
Prof. Ausael has an intersating suiclatien in hia new paper on "The World's
Monetary ?roblems," a copy of mhich ho has just sent me, and mhiah I am enclosing to you ,e.i.errsith.







.1210RANDUla
ON

CURIIENT STA TISTICS OF UIELTLOYDENT

STA TISTICS DEPARIIMIT
FXDERAL?RI:Jaffa. BANK OF MU YORK
SEIPTELIBBE 21, 1921

CONTENTS
Page

Current Figures on Unemployment
Direct Evidence of Absorption of Persons Released from Industry
Indirect Evidence of Absorption of Persons Released from Industry
Conclusion

1
6
10

16

TABLBS
1. Average Percentage of Members of New York State Trade Unions
Employed in Different Months of the Year, from Reports to the
New York State Department of Labor, 1904 - 1916
Number of Families under Care of Charity Organization Society of
New York at the End of the Month
Nnmber of Homeless Len who Applied for Aid at Joint Application
Bureau
Applications for Work, Orders for Workers, Percentage of Orders
to Applications - New York State Employment Offices
Average Percentages of Total Gainfully Employed Workers in
Principal Occupations - Twenty States........... .
Per cent of Population Engaged in Gainful Occupations
Average Percentage of the Population of Twenty States which was
Gainfully Employed
Average Percentage of the Population of Eighty-one Cities ten
years of age and over who were Gainfully Employed

4
6
7
8

11

12
13

13

D I i G R A Li

Number of Persons Employed in Selected Industrial Establishments in
New York State and in the United States
Percentage of Members of Unions in 11 Industries and Occupations in
New York State employed at the End of Each Month-




2
5

Current rigures on Unemployment

The only available figures on unemployment

which

have been carried

forward for a sufficient period of time to give a significant index of the

current situation are those reported by the United States Department of Labor
and the New York State Department of Labor.
",

These two agencies have been

collecting figures since 1915 showing the numbers of persons on the payrolls

of selected industrial establishments in the United States and in New York
State.

Figures in each case cover establishments employing about 600,000

workers in the early months of 1920.

The New York State figures are therefore

much more nearly complete than are the Department of Labor figures.
The Statistics Department of this Bank has computed Indices from the

figures reported by these two agencies, for the different industries upon which
they make reports, and for all of the industries taken together.

Figures for

all industries are shown in the accompanying diagrams, the data for December,
1914 being taken as the base of 100 per cent in each case.

The diagrams show

that in general the number of persons employed in the industrial establishments

covered is now somewhat less than during the depression of 1915 and about 25 to
30 per cent less than in the early part of 1920.

During

the war

1918 employment was about 20 per cent higher than in 1914.

the curve in 1919, but it reached a peak in 120.

years 1917 and

There was a dip in

These findings were in general

substantiated by a survey if employment and wages undertaken by the Federal
Reserve Banks last April.

The results were reported in the May 1 number of our

Monthly Review of Credit and Business Conditions.

The notable unique feature

about this summary was that many of the returns distinguished between the




oPtal-c,

ttAhus

odr/)-r
470-6,0

-6,fget eg-

i-.

PER CENT.

150

...../.--.....-%, N Y. S TAT E ,...7,.....

.

100

......

I
.

..1

UN IT E 0 STATES
.........

..

-....

50

.

.._

0

1915 1916 1917

1918 1919

1920 1921

Number of persons employed in selected industrial establishments
in New York State and in the United States.
(Figures for December,
1514 = 100 per cent.)




employment of males and of females.

The returns indicated that just as large

a proportion of men as of women had been included in staff reductions of the
factories of this State.

The data reported for the past six or seven years are not sufficient
to form a basis for computing an index of seasonal variation, so taat normal
seasonal variations may be allowed for in the index.

The best available figures

which we have showing the seasonal variation in employment are derived from
reports made from the years 1904 to 1916 to the New York State Department of
Labor by trade unions of New York State.

These reports show for the end of each

month the percentage of trade union members who were idle.

Reports were received

from eleven representative industries for nearly thirteen years.
industries showed a wide range in their seasonal tendencies.

The different

The percentage

of union members idle runs from 3 or 4 per cent to as high as 45 or even 50 per
cent.

In 1908 in the early months of the year between 40 and 50 per cent of

the union workers in the clothing and textile trades were reported idle and in
the same months more
were idle.

than

50 per cent of the union workers in the building trades

The accompanying diagram shows for all trades the average percentage

of workers who were employed each month during the years covered by the reports
and the following table shows the average seasonal variation in the percentage
of union members employed.

The maximum period of employment appears to be the

later part of the summer and the maximum period of unemployment to be midwinter.
The figures indicate a normal seasonal Improvement in the employment conditions
between July and August and between August and September.




iP

Table 1

AVERAGE PERCENTAGE OF 11E511105 OF NSW YORK STATE TRADE UNIONS EMPLOYED IN
DIFFERENT MONTHS OF THE YEAR, FROM REPORTS TO THE NEW YORK STATE DEPARTUENT
OF LABOR - 1904 - 1916

Per cent
employed

Month

71.6
75.5
77.1
81.9
81.2
81.6
82.1
84.4
86.6
85.9
82.0
73.6

January
February
March
April
May
June

July
August
September
October
November
December

The normal

seasonal

range between the maximum of employment and of

unemployment appears to be about 17 per cent.

Between the summer of 1907 and

the early months of 1908, however, there was a range of 32 per

between

the maximum number employed,

last

or of the United States and the number
than the variation

took

which

summer in factories of New York State

employed this

spring appears no

figures and these seasonal indices

All of our current

deal in the main with workers in

industrial

We nave no adequate current figures showing the number of

persons emplOyed on farms, in personal and
service or in other occupations.




greater

occurred in 1908, but somewhat greater than that which

place in 1915 among union members in New York State.

establishments.

cent. The range

4

domestic

service or In professional

Per Cent.
100

60

40

20

1904

_90

1906

-507

1508

1909

1910

1911

1912

1913

1914

1915

1916

Percentage of members of unions in 11 industries and occupations in New YOIrk State employed at
the end of each month.




Am.A...alamosutt PuPYttion 01 Peons ie1 eased

ft

in the pant twelve months there have boon released from industrial
establishments between 3,000,000 and 4,000,000 persons 4flad considerable numbers
from transporation,

clerical work, and mining. Although the

forces took place some months ago, ti.ere have up to

of distress on the pert of workers,

this

main rednotions in

time been few evidences

This office has been in constant

touch with

the charitable agencies of New York City and with a number of employment agoncies.
They. have boon in agrennent in indicating

for assistance or for positions until

that there have been

no unusual appeals

the past two or three months

and even at

this time the number of applicants for assistance is not as Large as in most

periods of industrial
number of families

depression,

This is illustrated by the following table of the

under the care of the Charity Organization Society of New York City.

r1-1)l

2

OF FAMILIES UNDTO CARE OF CHARITY ORGANIZATION SOCIETY OF NEW YORK AT
THE

END OF THE, NOM

Year

Jute

July

Auguet

September

1914
1916
1921

2.761)

2,797
2,966
2,044

2,794
2,676
1,961

2,66e
2,410

3,269
2,110

The number of homeless men applying for aid

reau is slightly larger than




at the Joint Application

In 1924-16, as shown In the following table:

Table 3

NUMBER OF HOMELESS: MMN WHO APPLIED FOR AID AT JOINT APPLICATION BUREAU

Year

June

1914
1915
1921

662

674
607

July

685
500
700

August

September

591

63.9

492

473

718

Table 4 compares the orders for workers with the number of persons
registering for employment with the employment agencies maintained by the New
York State Department of Labor.

The figures are clearly subject to rather wide

fluctuation but indicate the several trends.

The Department of Labor reports

tlat the percentage of orders to applicants would be even smaller in recent
months but for the fact that many who visit the employment offices do not make
written application for work when there are no positions open immediately.




Table 4
APPLICATIONS FOR -MIRK, ORDERS FOR WORKERS AND PERCENTAGE OF ORDERS TO APPLICATIONS

NEW YORK STATE EMPLOYMENT OFFICES
(Figures in thousands)

1917

1916

Applications

January
February
March

5.8

5.2
5.9
5,0

Per
urders
4.2

4.2
6.1
6.8
8.0

Cent.

73
82

Orders

7.;

8.3

136
136

7,4

127
149

October

5.8
4,4

6.8
6,9
7.8
9,0

8.3

November

4,4

8,4

December

5.7

7.3

April
May

June
July
August

September

5.9
5.8
4,5
3.8

7.9

82

5.3

148

8.0

203

5.8

191
130

4.9
6.2

1919
January
February
March
April
May

June

July
August
September
October
November
December

82.4
48,2

37.6
36,5

57,4
51,1

114

6.9

119

8.9

Applications

7.8
7.1

122

11,4
10.5

119
126

12.8
12,2

23.9

147
164
186

24.2

198

132
182
132
180

38.5

63.3

165

40.6

91,0

73.9
65.1

140.2

224
190

10.5
9.7

lo.6

10.5
8.4
7.3

171
117

59.4
71,1

113

24.1

45.6
80,6
68.7

125

27.8

140

24,6
34.2
25,1
15.1

25.0

108
100

52,8
17,4

25,6

168

17,6

166

24.7

28,0

150
143
101

19,4

33.2
17.6
17.0

114
171
144
68

21,3

25.8
30,4

21,9

22.2

12.2
25.1

33.0
25,5
27.8
32.3

110

24.6

116

23,8
23.0

115
116

27.1

36.9

A - During May a number of offices were discontinued.

168.8
122.3
99.2

259
206

139

1921

29,9
22,1

17.2

110
119

9.0

105

178

8.4
13.1
16,9

10,3

114

69,4
69,7

8.6

Cent.

127

1920

135
123

Per
Orders

10.9

50.3
42.4

39.0




Cent.

93.7

41.0

42,1

Per

Applications

5.8
7.0
8.9
9.6

lo3

1918

11.2
22.7
22.7

14.6
14,1

15.9
23.2
16,5
16,3
13,9
12.1

59
59
69
74

173
71
80

/.0
0/

Table 4
1PPLICATIONS FOR -JORK, ORDERS FOR WORKERS., AND PERCENTAGE OF ORDERS TO APPLICATIONS
NEW YORK STATE EMPLOYMENT OFFICES

(Figures in thousands)

1916

Per

Applica-

tions

January
February
March

April
May

June

July
August

September

October
November
December

Orders

5.8

4,2
4.2

5,2
5.9
5,0
5.9
5.8
3.8
5.8
4.4
4.4
5.7

6.1
6.8

80

7,4
6.8
6,9
7.8

9.0
8.4
7.3

Cent.
73
82
103
136
136
127
149
82
148
203
191
130

Applica-

tions

Orders

7.3

8.3

5.8

70
8.9
9,6
8.3
7.9

5.3

80

5.8
4,9
6.2

1919

January
February
March

April
May

June

July
August
September

October
November
December

82.4
48.2
37.6
36.5

93.7

50,3
42.4
45,6
80.6

57,4
51.1
41,0

68.7
52.8

39.0

69.4

42.1
17.2
21.3
21.9

69.7
25,8
30,4

22,2

6.9
8.9
10,9
11,4
10,5
10.5
9.7
10.6
10.5
8.4
7.3

Per
Cent.
114
119
127

122
119
126

132
182
132
180
171
117

114
105
113
125
140
135
123
178
166
150
143
101

29.9
22.1
24,1
27.8
24.6
34.2
25.1
15.1
24.7

19,4
12.2
25,1

33.0
25.5
27.8
32,3
27.1
36.9
25,0
25.6
28.0
33.2

176

17.0

Per

Applica-

tins

Orders

7.8
7.1
9.0
10.3
12.8
12,2
38.5
40.6
73.9
65,1
59.4
71.1

8.6
8,4

13.1
16.9
23.9
24,2
63.3
91.0
140.2
168.8
122.3
99.2

Cent.
110
119
147
164
186
198
165
224

190
259
206
139

1921

1920

A - During May a number of offices were discontinued.




1918

1917

110
116

115
116
110
108
100
168
114
171
144
68

24,6
23.8
23.0
31.2
22.7
22.7

17,4
17.6

14,6
14,1
15,9
23.2
16,5
16,3
13,9
12,1

59
59
69
74

173
71
80
69

4

It is generally reported

released from
employment,
school.

industry

have gone

that a

great many workers who have been

to the farm, have taken up some other type of

have emigrated, or in the case of young people, have gone back to

There are few definite figures to substantiate these reports.

the most reliable is the record of school enrollments this year

for

Perhaps

New York City.

It is reported by the President of the Board of Education that the increase in
registrations in September 1921 is more than 35,000 greater than the normal
increase

and that the increase

New York City has in the

has

been particularly heavy in the high schools.

neighborhood

enrollment of the country.

of 5 or 6 per cent of the total school

If something approaching

the

same rate

of

increase

takes place in other parts of the country, the public school attendance this
year may well be more than half a million greater than last year.

A great many

who would normally be entering Industry this year will continue in school and
some who have been at work will go back.

Other figures showing the absorption of

workers are reported by Dun's for the number of firms in business in July, 1921.
In spite

of a large

number of failures during the past months, the

number of

firms in business shows a sharp increase to 1,927,000 as compared with 1,621,000
last year.

This may well be accounted for by the setting up

of

small businesses

by persons who were released from industry and had been able to save up some
capital during the past few years.
Letters have been written to fifteen or twenty concerns in this part

of the country remesting any records they may have as to what has become of
persons released from industry.
memorandum.




Their reports will be embodied in a separate

Indirect Evidence of Absor tion of Persons Released from Industry

Preliminary figures which have been reported by the United States

Bureau of the Census for occupations as of January, 1920 indicate a radically
different industrial situation from that of the last census period.

evidence goes

The

to show that 1920 was not, contrary to general belief, a year of

extraordinarily large employment.

That in fact a smaller proportion of the

population over ten years of age was probably gainfully employed than in 1910,

and a considerable number of

occupations were undermanned.

The census of occupation figures for

reported

1920 thus far have been

for only twenty states and a number of these are small or largely agricultural.
The record is consistent, however, in showing that the percentage of workers
employed in agriculture was smaller in 1920 than in 1910
employed in mechanical

and manufacturing

and that the

industries was larger.

percentage

In 1910 the

average percentage of workers employed in agriculture in these states was 40.5,
while in 1920 the figure was 37.4.

ing

The average percentage employed in manufactur,-

in 1910 was 22, and in 1920 23.3.

There were also increases in the percentages

employed in clerical occupations, professional

service, public

service and

trade,

and decreases in the percentages employei in mining, transportation, and domestic

and personal




service.

The following table shows these percentages:

Table 5

AV3RIGE PERCENTAGES OF TOTAL GAINFULLY BLIPLOYED WORMOS IN PRINCIPAL OCCUPATIONS
'..7R11TY STATES

Occupation

1910

1920

22.1

23.5

40.5

37.4

Trade

7.5

6.4

Domestic and personal service

9.3

7.6

Transportation

7.4

7.3

Professional service

4.2

5.2

Clerical

2.9

4.6

Mining

4.6

4.2

Public service

1.4

2.0

alufacturing and

mechanical industries
Agriculture

In this and the following tables

based

upon advance releases for 1920,

percentages represent averages of the percentages for different states.

This

Alethod was used because in the absence of complete data for all states it was

thought that it would give a more typical representation than
on aggregates.




Figures for the

Alabama
Arkansas
Arizona
California
Colorado
Connecticut
Delaware
Florida
Georgia

Idaho

following states

are included:

Leine
k4ssissippi
Liontana

Nevada
New Hampshire
New Lexie°
North Dakota
3outh Dakota
Vermont

Wyoming

percentages based

The figures would appear to indicate that in agriculture, and domestic and
personal service in particular there was, under normal conditions, considerable
possibility of absorbing workers.

lore striking than the percentage distribution of workers between the
different occupations is the change in the proportion of the population which
was gainfully employed.

Since the year 1880 there has been a continued tendency

for a larger proportion of the population to be reported by the census as gainfully
employed.

The increase is largely due to women's entering industrial, clerical

and professional occupations.

The changes from 1880 to 1910 are shown in

table 6.

Table 6

PER CETIT OF POPULATION ENGAGED IN GAI1FUL OCCUPATIONS

Both
Lear

Male

Female

sexes

1880
1890
1900
1910

57.8
60.2
61.2

10.7
13.1
14.3
18.1

34.7
37.2
38.3
41.5

63.6.

In 1910 41.5 per cent of the population were recorded as gainfully employed.

One

would have anticipated that this percentage for 1920 would have been largely
increased as the demands of war industries called for larger lumbers of workers.
The exact contrary appears to be the case, however.

For twenty state

eighty-one important cities figures of tables 7 and 8 are in agreement in
indicating that the proportion of males of ten years or over who were gainfully

employed was somewhat smaller in 1920 than in 1910 and the proportion of females



of ten years or over who were gainfully employed showed a much smaller increase
The figures of table 7

between 1910 and 1920 than in the previous decade.

for

probably show a lower percentage/xhan

w1520ould

be true for the United

States as a

whole because the rural states are heavily represented and the movement of
workers has been away from the farm.

On the

other hand,

the city percentages

are probably proportionately high.

Table 7

AVERAGE PERCENTAGE OF THE POPULATION OF TWENTY STATES WHICH WAS GAINFULLY
EMPLOYED

Year

Per cent
employed

1880
1890
1900
1910
1920

41.5
41.7
40.7
43.8
39.9

Table 8

AVERAGE PERCENTAGE OF THE POPULATION OF EIGHTY-ONE CITIES TEN YEARS OF
AGE AND OVER WHO WERE GAINFULLY EMPLOYED

Females

Males
1910
1920

26,6

82.2
81.7

27.1

While our current employment figures for industries show a peak in
1920, it is clear that taking the country as a whole, the proportion of
population employed was not exceptionally large.
well be accounted for in a number of ways.



-

13 -

the

This divergence of figures may

In the first place, the

preceding

tables have made it clear that the wage earning population was quite differently
distributed between occupations in 1920 and in 1910.

There was a larger

proportion in mechanical and manufacturing industries, while agriculture,

domestic and personal service, mining and transportation engaged smaller
proportions of the population.

The lower figure for the total percentage of wage

earners to the entire population must be accounted for in some other way, however.
Some evidence an this point is found in the figures reported by the
United States Commissioner of Education for school enrollment and attendance.

Between 1910 and 1918, (1920 figures are not yet available) there was an increase
of nearly three million in the number of children in average daily attendance in
tne public day schools of the United States.

This is an increase of more than

21 per cent and may be compared with an increase of about 15 per cent in the
total population between 1910 and 1920.

In other words, the increase in the

number attending public school was not far short of 1,000,000 greater than
have been expected from the normal growth in the population.

might

The growth was most

rapid in the years 1914-15, which were years of comparatively large unemployment.
If the data were carried to 1920 and private school and college enrolment included,
the figure would probably be well over 1,000,000.

A part of this increase is

undoubtedly due to better school facilities and attendance laws, but a large part
may be ascribed to longer school attendance before beginning work.
What seems to have occurred is this: the number of women going into

business and industry has continued to increase, but this gain in the number of
wage earners has been offset by a lengthening of the period of school attendance,
The larger school attendance was favored by the difficulty in securing positions
In 1914 and 1915, but was undoubtedly further favored by the
of the war years.




high

wages of the

A still further element in the arrest

in the

of

the tendency toward an increase

proportion of the population gainfully employed may be found in restricted

immigration during the past few years, as in general there is a

high

proportion

of wage earners among immigrants.

The full significance of
until more complete data are

these figures probably cannot be determined

available.

The figures do, however, appear to

indicate in the first place, that the present situation offers an opportunity
for a redistribution of workers among the

offset

industrial unemployment.

occupatiors which may in

large measure

Evidence for believing that this has already

taken place to some extent has been submitted above.
In the second place, these figures appear to

the effect of

considering
number

of workers per

have some significance in

unemployment on the well-being of the family.

If the

family had been extraordinarily large in 1920, unemployment

could have been more easily borne than if only the normal number of workers per
family had been employed.

In 1910 there were approximately twenty million families in the United
States and thirty-eight million wage earners, an average of 1.9 wage earners to
a family.

It seems likely that the final figures for 1920 will show a slight

reduction in this ratio.

The seriousness of unemployment is further enhanced

by the increase in the standard of living since 1910.

The evidence is clear that

children are staying in school longer and it seems probable that in other ways
the standard of living has been raised.

Some of these gains in the standard of

living will undoubtedly be retained, even at the sacrifice of what have been
considered necessities.




os
Conclusion

The available figures indicate that there now exists severe
industrial unemployment.

Industrial unemployment has been offset in some measure by the
return of workers to occupations

in which they

were engaged before war pressure

called them into industry.

As a result it appears that while there are now many calls for
charitable assistance, the number of such calls is thus far somewhat smaller
than during the corresponding months of 1914-19154
The year 1920 was not a year of extraordinary employment.

A

number of occupations were considerably undermanned and a reasonable return of
business activity would appear likely to result in a shortage

rather

than a

surplus of workers.
6.

In the meantime, families which have become accustomed to a

higher standard of living are likely to be in need of some type of assistance.







MOLOYZENT IN

INDUSIRIAL ESTABLISHIMIS
EN HEN YORK STATE

AND IN THE
UNITED STITES

STATISTICS DEPARTMENT
FEWERAL RESERVE BANK OF Ndd YORK

STIPTELBER 24, 121

C ONTENTS
Page

Ekplanation of data used

1

DIAGRAMS

ill Industries
All Textiles
Cotton Finishing
Woolen Manufacturing
Cotton Manufacturing
Silk Manufacturing.. ..
Hosiery and Underwear
Men's Ready Made Clothing
Boots and Shoes
Automobile Manufacturing
Iron and Steel
Car Building and Repairing
Paper Manufacturing
Cigar Manufacturing
Leather Manufacturing..




2
3
3
3
3
4
4
4
4
5
5

5
6
6

6

Since 1914 the New York State Department of Labor has been collecting
figures for the number of persons on the payrolls of representative industrial establishments in New Yark State employing in the neighborhood of 600,000 workers in 1920.
Returns have been received from substantially the same establishments each month since
1914.

From these figures index numbers have been computed, taking the figures for

December, 1914 as a base of 100 per cent.
The United States Department of Labor has been gathering somewhat similar
figures from industrial establishments throughout the country employing about 600,000
workers.

In the collection of these figures, however, there have been a good many

changes in the reporting firms and in order to place the data in comparable form,
the Department of Labor has prepared tables giving for identical establishments the
number of workers reported for the current month, the preceding month and the

corresponding month of the previous year.

From these figures this Bank ha

index numbers of employment on a December, 1914 base.

The indices for both New York

State and the country as a whole are presented in the following series of diagrams.
The figures for New fork State cover a larger proportion of the total

number of industrial workers of the State than do the figures of the Department of
Labor for the country as a whole, and the indices are therefore more closely
representative of general conditions in the State than are the Department of Labor
figures of conditions in the country as a whole.
The total index number for the United States has been computed from the
indices for different industries, weighting the figures for each industry in accordance

with the number of workers in that group as reported by the census.

The New York State

totals are likewise weighted by the numbers of workers in the different industries.




1

roem

CD

PER CENT.

150
......,...

.

-,

N .Y.

S TAT E

.

.--.
.

.1

100

1

UM! E 0 STATE

.
.

.

.

..

'..-'''.

-,,
....

50

,

_

0

1915 1916

1917

1918

1919

1920 1921

Number of persons employed in selected industrial establishments
in Now York State and in the United States.
(Figures for December,




7.914 = 100 per cent.)

r-D
PER CENT.

PER CENT.

150-

1501-

ATE

UNITED STATES

40f.

10 0

' .....
N

STATE

50

0

1915

1916

1917

1918

1910

1919

1921

1916

1915

1918

1917

1920

1919

1921

__.

PER CENT.

PER CENT.
15

1501
e.

N.1" . STAY E

......
:
.

100

N.Y. STATE

100

.

ee,....,

V

..

...

........

..

UNITED STATES

UNITED STATES
...

..

50

JP

1915

1916

1917 1918




1919

1915

1920 1921

1916

1917
ALL

3

1918

1919

1920

1921

PER CENT.

150-1

N.Y.STAT E
M.Y.STAT E

r

100

100
UNITED

'ATE S

50

50

()I

1915

1916

1917

1918

1919

1920

1915

1921

1916

1917

1918

1919 1920

192.1

1916

1917 1918

1919 1920

192,1

SILK

PER CENT

PER CENT.

1501-

150,

100

50

1915

1916

1917




1918

1919

192,0

1915

192.1

B 00T3

CLOZEIZG

-4-

SECES

PERCENT.

200

15
UNIT D STATES

100

50

1915 1916

1917 1918 1919

1920 1921

AUTOMOBILE MANUFACTURING

PER CENT.

PER CENT

200

200

150

100

50 -

50

0,.

1915 1916



1917

1918

IRON & STEEL

1919

1920 1921

-5-

1915

1916

1917

1918

CAR BUILDING

1919
kik:FAIRING

1920 1921

PER CENT.

150

100

50

1915

1916

1917

1918

1919

1920 1921

PrErlit

PER CENT.

PER. CENT.

150

150

Y. STATE

100

100

50

50

1915

1916

1917




1918

CI41.:Z.7.;FAcrorli1c

1920 1921

1919 1915

1916

1917

1918

1919

LEATHER LIATILTACTUEING

1920 1921

1 It

MISC.3.1-00M-1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

Governor Strong

FR

DATESept,_26,_ 1921_

Urk_Snyder

SUBJECT : Ur/ eL41.13.-0Yra ent

Just as a sidelight on unemployment, this may be of interest:
3tamford, Conn., where I live, is supposed to be one of the
worst hit towns in this vicinity, especially on account of the long shut-

down of Yale 6.. Towne and the fact that they are now employing 50 per cent.

of their peak force.

I hear of other industries around about in much the
same condition, and the complaint of unemployment is very general.

In spite of this:

It is verydifficult to

cook or other domestic help in 3tamford now,

and the wages demanded are nearlmiuLlas
anything_lastjear.
As you know, 3tamford is a town of about 30,000 people and is a

very solid, prosperous cOmimunity. The question is: Where do all the women
who were formerly employed in the factories go?

It is very evident, I think, that there is one field of labor
that is not liquidating, and that is domestic service.




MISC.3.1.0.11-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

Governor Strong

FR

DATE_Sept. 26, 1921

Mr. Snyder

SUBJECT

Unemployment.

Just as a sidelight on unemployment, this may be of interest:
Stamford, Conn., where I live, is supposed to be one of the
worst hit towns in this vicinity, especially on account of the long shutdown of Yale 4. Towne and the fact that they are now employing 50 per cent.
of their peak force.
I hear of other industries around about in much the
same condition, and the complaint of unemployment is very general.
In spite of this:

It is very difficult to get a good
cook or other domestic help La Stamford now
malhewAges demanded
as
anything last year.
As you know, Stanford is a town of about 30,000 people and is a
very solid, prosperous community.
The question is: Where do all the women
who were formerly employed in the factories go?
It is very evident, I think, that there is one field of labor
that is not liquidating, and that is domestic service.




Sept. 28, 1921
Governor Strong

Unemployment

Mr, Snyder

I think you will be interested in the following:
I went up today to talk to The Knit Goods Association of America, and at
lunch and afterwards there was very considerable discussion of the matter of

unemployment; and from this it developed that a number of concerns have found
it very difficult to man their mills adequately to meet the current demand.
A number of them reported that they had been recruiting and advertising for
some weeks now, and had been quite unable to get anything like the number of

eeople they wished.

One large factory in Utica said they had pent in the month of August
surrounding towns, and
t111 in small advertisanents in newspapers
Another =acorn said that it had
had gotten comparatively little response.
kept the addresses of all the people they had been compelled to let go in the
slump, and that they had circularized and written to these asking them if they
On the
would come back, and that the response was comparatively small.
women's side of it, apparently a very notable number of them had gotten married, and when they were asked if they did not want to earn some extra Loney
husbands had said no--did not want them to work.

in all the

they replied that their

Another very large concern, in Grand Rapids, Michigan, reported that
Grand Rapids had been
and recruiting for some time, and with no very great success, that
advertising
People had drifted away or into other lines of work and were not tempted by
the wages offered.

not only themselves but several other big concerns in

You Will note how all this tallies with the very interesting report
from The Pierce-Arrow Company, attached herewith, that they had found it
difficult to get good mechanics and that there was relatively little unemployment observable in and about Buffalo.
It was especially interesting to note, also, the canfirmation
the same report that a great number of the workers lot go had found work in
other lines which were apparently more attractive than the wages in the

factories.

Likewise, all of than agreed that domestic labor was still scarce
This agrees exand that the wages demanded were nearly as high as ever.
actly with our own personal experience in Stamford.
It may be true that there are three and a half million people out
of factory employment in the United etates, but that there is one-half that
number actually out of employment of some sort now I should very much doubt.-The general feeling expressed at the Knit Goods meeting was that business is
fairly good though not at maximum, and that there was a general atmosphere
of optimism.

The two charts on wages and cost of living requireda good deal of
I
compilation, but it seals to me that they were well worth the effort.
think they are crackerjacks.




FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

-Governor- Strong

DATE-

Sept.--29-, 1 21

SUBJECT,

.r.^anyder

should like to draw attention to an extremely interesting fact

id.th regard to this chart.

The commodities included in these two indices

are things like cotton, copper, Wheat, meat, and the rest very largely
commodities of international trade Wherein the price in New York or London

is just the difference of transport, but also plus or minus the difference
in exchange.

Nov, in the year under view, starling has varied in dollar value
by as much as






MISC. 4.1-120 M-1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
1-4.)

Governor Stro-ng

DATE

Sept. 29,

1921_

SUBJECT:

Mr. Snyder

I should like to draw your attention to the astonishingly complete and
careful review of conditions in the United States which is given in the monthly
circular of the Bank of Switzerland.

Also, you will note on pages 147 and 157

quotations from the Review of this Dank.

If it ever seemed worth while to defend the statistical and information

service of this Bank, we could put in as exhibits a few such circulars as these.




MISC. 4. 1-120 M-1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
-0
To
r-'

anvArrnr strnrg

DATE

Sept. 29,

1921

SUBJECTS

Mr. Snyder

I should like to draw your attention to the astonishingly complete and
careful review of conditions in the United States which is given in the monthly
circular of the Bank of Switzerland.

Also, you will note on pages 147 and 157

auotations from the Review of this Bank.

If it ever seemed worth while to defend the statistical and information
service of this Bank, we could put in as exhibits a few such circulars as these.

mi9C.3.1 90.1 -I-20

FEDERAL RESERVE BANK
OF NEW YORK

DATE-S-apt, 29-, 1921

OFFICE CORRESPONDENCE
TO

Govareverefet4 rong

FRC

SUBJECT

Mr. 3nydsr

I have been pursuing a little that very interesting chart Which
Anderson had, showing the effect of exports on the price of *heat.
The
attached Chart compares the average price of wheat each month with the average of all commodities, Bureau of Labor index.

You will observe that the heavy export demand of 191445 did have
a very marked effect on the price and ran up to a premium, as you might
say, of 60 per cent. over what would have been the normal increase.
But
this held only for a few months and throughout the rest or the war, with the
excention of three months of 1917, the premium was less than 20 per cent.,
and averaged only about 10 per cent.
This is in spite of the fact that from the end of 1915 the sub-

marinas and German raiders practically cut off the Argentine and Australian
wheat, which meant that the whole burden of the war's demands in Europe fell
upon this country.

Further, you will note that in the present year the tremendous
exports, which have broken all records, have not kept wheat from going to
nearly 20 per cent, below the average of all prices.
You will remember that wheat 'actually went to a permium of 200

per cent, and more over the pro-war average price, and averaged through the
war around 150 per cent.
In other words, apparently only
of its rise in price could be ascribed to the unusual war denand, and the
ether nine-tenths was participation in the general rise of all prices.

Of course you may say, if you like, that the general rise of prices
itself due to the war's demands, but as to this it ueses to me the statistical proof is wholly lacking.
The facts are that general prices did
not begin to rise when we got the war orders nor when we shipped the goods,
but When we got the cash.
Apropos of which latter, an interesting little bit from the ablest
banker-economist of England:

"There is ne point more important, in issuing paper money, than
to be fully impressed with the effects which follow from the nrin4ple of limitation of quantity.
14 will scarcely be believed fifty
years hence that bank directors and ministers gravely contended in
our times, both in Parliament and before coemittees of Parliament,
notes by the Dank of England, unchecked by any

that the issues of

power in the holders of such notes to demand in exchange either
specie or bullion, had not, nor could have, any effect on the prices
of commodities, bullion, or foreign exchanges."




David Ricardo, 1817

-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

Governor Strong

FR

DATE '

Sept. 29, 1921

mr. Snyder

SUBJECT

I should like to draw attention to an extremely interesting fact
ylth regard to this chart.

The commodities included in these two indices

are things like cotton, copper, wheat, meat, and the rest very largely
commodities of international trade wherein the price in New York or London
is just the difference of transport, but also plus or minus the difference
in exchange.

New, in the year under view, sterling has varied in dollar value
by as much as




- 6PRICES OF BASIC COMMODITIES
A further advance of 1 per cent. in our index of twelve basic commodities was due to a sharp advance in petroleum and advances in copper and hogs,
which more than offset new declines in wheat and corn.
Pennsylvania crude petroleum, which had held for nearly two months at
$2.25 per barrel, had advanced to $2.50 in the week previous, and in the past
week further advanced to 43.00 per barrel.

Wheat declined from 4.27 1/2 to $1.19 1/2, another new low for the
year, and corn lost 1 3/4 cents to 64 1/2 cents, also a new low.
Copper market was active and prices advanced 1/2 cent per pound to 13
cents at which all offerings were reported taken.

PRICE INDICES OF 12 BASIC COMMODITIES IN THE UNITED STATES
AND 26.BASIC COMMODITIES IN ENGLAND (1913 = 100 PER CENT.)
PER CENT.
400

ENG AND
..,...r..

*..,

300

u.
N
.s.

200

''',.....-'-'--.-........-.

,---,---t-\,, -/*-

.

100

AUG..




OCT.

1920

DEC. J

MAR.

NAY

JULY
1. 9 2 1

SEPT.

NOV.

mmc,A440M4,0

I FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

DATE

Oct. 4, 1921

Governor Strong

SUBJECT:International Note Issuing

Mr. Snyder

Bank

Mr. A. H. Gibson, author of this latest Proposal, is the Northern
District Manager of the Anglo-South American Bank at Bradford, England.
He made a rather interesting and original address last year at the meeting of the British Association.

I attach herewith a brief correspondence

I had with him.

This plan is rather along the same lines as the proposals of
Dr. Vissering, of the Netherlands Bank in Amsterdam.




M190.3.1.044-1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

F. i

DATE

Governor Strong

SUBJECT

Mr. Snyder

Oct. 4, 1921

International Note Issuing

Bank

Mr. A. H. Gibson, author of this latest Proposal, is the Northern
District Manager of the Anglo-South American Bank at Bradford, England.
He made a rather interesting and original address last year at the meeting of the British Association.

I attach herewith a brief correspondence

I had with him.

This plan is rather along the same lines as the proposals of
Dr. Vissering, of the Netherlands Bank in Amsterdam.




0

MISC.3.1.90M-1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

---GSIY_Masir,Sixong

FR-

DATE

SUBJECT,

October 5, 1921

Foreign Exchange Situstion

Mr. Snyder

Your question is:

How large a gold fund would be required
to maintain at a fixed point the exchanges of
those countries which have now a fairly satisfactory gold reserve, say 30 per cent, or
more, that is to say, those countries whose
exchanges are least depreciated?
I have never seen anywhere any attempt to answer or even consider this
question, and although I have discussed the general subject of stabilization
with almost all the chief proponents of that idea, including Prof. Cassel,
Mr. Keynes, Prof. Bonn and Lord D'Abernon, I do not recall that this partiNor in any of the numerous textbooks on the
cular point was ever raised.
subject is there any attempt to get at the fundamentals back of the question.
So I should like to have your judgment on the following:

Where a gold embargo exists the only way a country can settle an adverse
Now, as long as the amount is
balance is by obtaining credits in some form.
relatively small, such an adverse balance will not materially affect the exBut as soon as it becomes considerable it must, and the effect
change rate.
of such a depreciation in exchange is to reduce this adverse balance and restore the equilibrium.
As this runs counter to the current gibber on the subject, let us conA nation does not essentially differ from an insider the case in detail.
Supposing, at the end of a month or a year, you find
dividual in business.
that your total sales and receipts do not equal the payments you have to
If
make; you must either put up the balance in cash or obtain a credit.
loan.
But
the balance is small you will probably not have to resort to a
as soon as it becomes large enough you will, and the interest paid will be
That is to say, the
very roughly proportional to the amount involved.
heavier the balance is against you the higher rate of interest you will have
The higher the rate of interest the more you will be tempted to
to pay.
L force your sales and restrict your purchases, so as to keep this balance down.
Is it any different in the foreign exchanges of a nation, except that the
That is to say, the interest on the adverse balance
operation is automatic?
is represented by the depreciation of exchange, and the effect of this depreciation is, other things being equal, to reduce purchases and increase sales;
in other words, to restore the balance as quickly as possible.
extended
If this be true, then if we / the present situation of matching paper
currencies against gold over a long series of years, we should expect to find
that the exchange rate fluctuated pretty evenly about a fixed point, which
fixed point represented very nearly the relative value of the two currencies.
(All this was pretty thoroughly gone into by Ricardo over a century ago.)




MIEIC.4.1.120M1-29

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
Ti

Governor Strong

FROM

Mr. Snyder

DATF

SUBJECT

October 5, 1921

Fo_r_eign_Ex_driange Situation

2

We have no such long experience, but we have an experience running now
nearly two years, in which the principal exchanges have shown pretty nearly
just this expected result, most clearly, as one would expect, in the case
of sterling, as shown in the attached chart.
You have here this rather
remarkable result, that the average of the rate for 22 months represents
almost exactly a median line across a pretty good sine curve.
And you will
also note that the up and down swings were at approximately the same seasons
of the year.
Now, if the foregoing is correct, it follows that, for example, England's
foreign trade is not, as is popularly supposed, heavily out of balance, but
that, with such credits as she has been able to obtain, it has been for two
years very closely in balance, with the result that there have been only
very even fluctuations above and below a fixed point,which fixed point represents pretty closely the relative purchasing value of the paper sovereign
and gold.

If this be true, then it follow that if the exchange were pegged at a
point sufficiently below this median or average value the effect would be, on
It is almost impossible
balance, to draw cold to England and not from it.
to determine what the most adverse point has been in the last two years, of
the balance against England which has resulted in a depreciation of approximately 10 per cent, below the average value of its currency.
be theoretically the maximum sum that would be required to keep the exchange
at the new parity.

It is likewise impossible to say how much of this extreme depreciation
of 10 per cent, was of what is called a sentimental nature, and what would
have been the actual effect
if it were known that gold was obtain
This is a psychological and not a statistical question.
Just to
demand.
make a very rough guess' at it, I should think this sum would not be greater
than the normrl ratio of gold to the total volume of trade required for this
same purpose in normal times.
This is based upon the view that, contrary to popular supposition, the
present situation differs in no way from the normal, or ordinary, situation
in pre-war days, except that the balancing of the current trade demands with
a paper currency matched against gold is much more difficult than under the
ordinary gold exchange, and therefore that the swing of the exchange rate
above and below the actual parity of the currencies (i.e., the equivalent of
Under a gold exchange this flucthe "gold points") is very much greater.
I made a
tuation of the rate is on the order of only about 1 per cent.
rough calculation that, with a fairly stable paper currency like England's,
the fluctuations might be something like ten times as great as with gold
exchange; and this seems to be very roughly somewhere near the fact.
for sterling
So to put it into the roughest sort of a figure I should think/the maximum
gold fund that might be required would probably not greatly exceed 100 million
On the same sort of a guess,
dollars, and pretty certainly not 200 millions.



-

MIEIC.SA-00M.1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

riONI

DAT

Governor Strong

Mr. Snyder

SUBJECT:

Foreig

0.

Situation

3

the amounts for any of the other countries would be correspondingly much
smaller.
Now as to the two chief probable difficulties;
First, as to the reparations payments.
It seems to me that, if it were
definitely known that sterling could be cashed in gold at a fixed rate, there
would be no further reason or temptation to accumulate dollar credits and so
upset the situation.
Or, if this was nominally found to be necessary in
practice, the disturbance would be quickly annulled by the exchange men
if they knew the exact amounts required and the times of payment.
Then they
could balance their sheets accordingly.
Second, as to payments on our foreign debt.
If these payments have to
be made then they would have to be allowed for and due calculations made to
meet the balances required.
I do not apprehend that anything like the full
amount would have to be paid in gold, for I um very strongly of the belief
that by the end of the year the money market will be very much easier and
that from that time on the floating of foreign loans will be quite feasible
But this, of course, is merely an opinion.
at favorable rates.
Likewise,
my feeling is that, even by next spring, there will be a quite different attitude on the part of the country towards this question, and that such a
thange can reasonably be depended on
with the general improvement of the
business situation.
,

I do not know how well grounded this reasoning will appear; but it seems
If
to me the only kind of reasoning which will fit with the known facts.
it is approximately correct, then the sum suggested as the total amount of
the gold fund would have a factor
of safety of very roughly someth
50 to 100 per cent.
Possibly it ought to have to allow for any unforeseen
But it also seems to me that its success would depend very
complications.
largely upon its being given full publicity and the amount of the fund be
sufficient to carry in the public mind the weight of the full restoration of
the gold exchange standard.




QELATIVE VALUE of ST E 12 LING
compared with WHOLESALE

P1ICE5

par

.

--\ .
-20

Wholes ie Priced ( as. oept. .
,

\.- -

\

-:. knyb,5

---....-

Otert try 5xcha

4.00
.

330

ilk

e

e

or

e

lag

3.90
.3.80

,..----

-0-

3.50

Nimparr.

v

3.60
,

la

..

.5:t0

330
averaje /-

rnor&X

weekly hyh and low



a

a.

5

n.

a.

NOTES IN 1IRODLITION. GOLD RESERVES AND RATIO OF GOLD TO NOTES.
(000,000 omitted)

End of 1913
Ratio
Gold

Notes

country

Gold

in
%roil-

serves

Re-

lation

to

Notes

Notes

Ep4 of j,920
Gold
Ratio

Re-

Gold

serves

lircu-

lation

_

to

Notes

jatest available data
Gold
Notes
Ratio
Rein
Gold
in
lirouserves
to
Notes
lation

(1)

Belgium
England

fa

B

40
30

12

E

34

31.2

114.4

6,227fr.

317fr.

(21

5.1

E 481

b155

5.2

6,216fr.

(2)

(2)

32.2

426

b 155

36.4

,

France

i 229

b

141

61.6

38,590fr. 5,501fr. 14.3

Germany

E 130

is

72

55.8

Holland

E

26

Er

13

48.4

E

71

b

49

68.8

Italy

81,387M.
1,116f1.

37128fr. 5,523fr. 14.9
(3)

(3)

1,092M.

1.34

636f1. 57.0

88,419M.
993f1.

1,024M.

1.15

605f1. 60.9

(4)

15,437 L. 1,339 L.

8.7

13,870 L. 1,345 L.

9.7

(1)

426 14

Japan

224 Y.

52.6

Norway

b

Spain

E

77

Sweden

E

12.2 b

5.7

46.5

E

12.6 I

6.8

54.2

5.9 b
i

2.6
19

44.4
24.9

1,217 Y. 1,269 Y. 104.3
147 K.

374

4,326 p. 2,457 p.

56.8

478 K.

760 K.

1,049 Y. 1,275 Y.121.6
419 K.

147 K. 35.1

4,183 p. 2,496 p. 59.7

282 K.

607 K.

285 K. 47.0
37.1

543 fr. 53.0

927 fr.;

545 fr.58.8

Switzerland

(1)Includes silver each year.
(2)Includes currency notes and

1,024 fr.

gold reserve against them.
Bank notes, Gov't notes and notes of all banks of issue.
(3)Includes Loom
(4)Bank of Italy only reserves include total cash.




RATIO OF GOLD TO NOTES IF CIRCULATION IN SPECIFIED CCUNTRIES
(arranged in order of present ratio)

End of 1913

End of 1920

Japan

52.6

104.3

121.6

Holland

48.4

57.0

60.9

Spain

24.9

56.8

59.7

Switzerland

54.2

53.0

58.8

Sweden

46.5

37.1

47.0

114.4

32.2

36.4

Norway

44.4

37.1

35.1

Franoe

61.6

14.3

14.9

Italy, Bank of

68.8

8.7

9.7

Belgium

31.2

5.1

5.2

Germany

55.8

1.34

1.25

Country

England




Latest available date

October 5, 1921

?oreign Exchange situation

Governor Strong

Mr. enyder

our question is:
How large a gold fund would be required

to maintain at a fixed point the exchanges of
those countries ohich have now e fairly satisfactory gold reserve, say 30 9er cent. or
more, that is to say, those countries whose
exehanges are least depreciated?
I have never eeen anywhere any attempt to anewer or oven consider this

euestion, and elthouill I have dieeuseed the general subject of stabilization
,eit.h almost all the chief proponents of that idea, including Prof. Cassel,
e. Keynes, ?ref. Bonn and Lord D'Abernon, I do not recall. that this partieller eoint was ever raised. Uor in any of the numerous textbooks on the
subject is there any attemet to get at the fundmeentele IIRCG of the quootion.
So I should like to have your jedgnent on the following:

/

Where a gold embargo exists the only way a country can settle an adverse
balance is by obtaining credits in some fern. 'ow, as long as the amount is
relatively small, such an adverse balance will not materially effect the exchange rate. But as noon an it becomeo considerable it must, and the effeet
of such a deereciation in exchange is to reduce this adverse balance and re-

v'I store the equilibrium.

As this rune counter to the current gibber on the eubject, let us oonalder the case in detail. A nation does not eseentially differ from an in-

dividual in business. Supeosing, at the end of a month or a year, you find
that your total sales and receipts do not typal the payments you heve to
make; you must either put ue the bell-Ince in cash or obtain a credit. If
the balance is mean you will probably not have to resort to the loan. But
as soon as it becomes large enough, you will, and the interest paid rill be
very roughly proportional to the emount involved. That is to soy, the
heavier the balance is against you the higher rate of interest you will have
to pay. The higher the rate of interest the more you will be temeted to
force your sales end restrict your )urchases, so as to keep this balance down.

Is it any different in the foreien exchanges of a nation, exceet that the

operation is automatic? That is to sny, the interest on the adverse balance
is reereeented by the depreciation of exchange, and the effect of this depreciation is, other things liming equal, to reduce purchases and increase sales;
in other wordn, to restore the balance ns quickly as oossible.
extended

If this be true, then if we / the present situation of matching paper

currencies against gold over a long series of years, we should expect to find
that the exchange rats fluctuated pretty evenly about o fixed eoint, which
fixed noint represented very nearly the relative value of the two currencies.
(All this was pretty thoroughly gone into by A.cardo over n century ago.)



October 5, 1921
Governor Streng

rToreign 1,:',xchange Situution

Mr. 3nyder

We have leo eueh long experienee, but we have en exnerience running nee'

nearly tee years, in ehich the principal exChenges have shown pretty nearly
junt thin expected result, nest elearly, as one would exeect, in tht ense
of aterling, al shown in the attnehed Chert. You have here this rather
relerkeble reeelt, that the avernge of the rata for 22 menthe repreeente
almoet exaetly a median line across a eretty good sine curve. And yeu will
also note tent the ue and down swings were at approximately the saw, seasons

of the year.

Now, if the foregoine is correct, it follows that, for exannle, Ragland's
fereign trade is net, as t3 popnlarly teepee:30d, heavily eut of beleneee but
that, with such erealte as ahn hen been able to ebtain, it }lee been for tee
years very clolely in holland., isith the reeult that there have been only
very even fluttuutione above and below a fixed point,vhich fixed eoint reeresente eretty airway the reilattre purchenine value of the :ter eevereign
and eold.

If this be true, then it fellow* that if the exchange vere pegged at a

noint sufficiently below this median or average value the effect would be, on
balance, to drew gold to KInglend end not free it. It la alnoet impossible
to determine ,that the most adverse point has LIcen in the last to years, If
the belance against Eneland whieh hen reaultod in a deprealation of aperoxie
mntely 10 per cent. below the average veleta of its currency. Thie sum would
be theeretienily the maximum on that would be required to keep the exeeenge

at the nee parity.

It is likewise imeomeible to nay how much of Wes extrene depreciation
of 10 eor cent. wee of it le called a sentimental naturn, and What would
have beenthe actual effect. if it were knovn that eold wee obtainable on
duet to
demand. This Is a psydhological and not a etatietteal question.
sake a very mull gueee at it, I Should think this 8144 would not be greater
than the normal ratio of geld to the total volume of trade required for this
Oarat purpose in nornal timen.

This is baeed ueon the view that, reentrary to popular eeposition, the
preeent :situation differs in no way from the normal, or ordinary, situation
in pre-wnr deye, exceet that the balancing of the current trade deneade with
a paper currency matched againet gold is much nore difficult than uader the
ordinary gold exchange, and therefore that the swing of the exchenee rate
above and below the actual ptrity of the currencies (i.e., the eluivnInsat of
the "gold points") is very much ereater. Under a gold exchange this flue.'
tuation of the rate is on the order of only about 1 per cont. I mad* a
rouge emieulation that, with a fairly stable paner currency like :Aleleand's,
the flucteetions might be :something like ton tines as great as with gold
xehenee; and this solana to be very roughly somewhere near the fact.
for sterling
30 te put it into the roughest sort of a figure 1 should think/the maximum
eold fund thetAnight be required would probably not ereatly exceed 100 million
lellers, and pretty certainly not 200 millions. On tile sane erne, ef a euese,




October 5, 1921
Governor Strong

Ur.canyder

Foreign Enchange :i!.tuation
3

the temente for any of tho other countries would be correneondingly much
smaller.

Tiow an to the tee) chief probable difficulties:

Plret, as to the reperationo payments. It scene to me thet,if it were
definitely known that sterling could be cashed in gold at a fixed rats, there
would be no further reason or temptation to accunulate dollar credite and so
upset the situation. Dr, if this woo nominnlly found to he necessary in

practice, the disturbance would be quickly nnnullee by the exchange men
if they knew the exact amounta required and the times of payment. Then they
could balance their sheets accordingly.

Second, an to peymente on our foreign debt. If these payments have to
be rends than they would hew, to be allowed for and due calculatione made to
meet the balances required. I do not apprehend that anything like the full
Amount would have to be paid in eold, for / am very strongly of the belief
that by the mad of the year the money market will be very -each easier and

that from that time on the floatinn of foreign loins -111 be lutte feasible
at favorable rutes. But this, of course, is merely an opinion. nikevies,
my feeling i.e that, even by next spring, there will be a quite different attitude on the Dort of the country towards thie quention, and that such a

thenge cnn reasonably be depended on , nith the generul tnnroviment of the
bweinesu eitention.

I do not know how well grounded thie reneoning 'till appear; but it Beans
to me the only kind of reaaoning which will fit with the known facts. If
it to aenroximAely correct, then the num euggested an the totel anount of
the gold fund rould have a factory of safety of very roughly nomething like
50 to 100 per cent.
Possibly it eught to bnye to allow fo
complications. But it also seven to me that ite succeen would depend very
largely upon its being given full publicity and the Nmount of the fund be

sufficient to carry in the public mind the weight of the full reetoration of
the gold exchange standard.




October 5, 1921

Oovernor Strong

'Aoreign 7.xehange Situation

Mr. Snyder

Your question is:

How large a gold fund would be required
to maintain at a fixed point the exchanges of
those countries ahieh have now a fairly satisfactory gold reeerve, say 30 9er cent, or
more, that is to say, those countries whose
exchanges are least deereciated!
T have never seen anywhere any attempt to anewer or even consider this
question, and although I have discussed the general subject of stabilization
with almost all the chief proponents of that idea, including Prof. Cassel,
Ur. Keynes, Prof. bonn and Lord D'Abernon, I do not recall that this particular point was aver raised.
tfor in any of the numerous
subject is there any attempt to get at the fundweentals back of the question.
So I should like to have your judgment on the following:

Where a gold embargo exit s the only way a country can settle an averse
balance is by obtaining credits in some tonne
iseow, as lo
relatively small, such an adverse balance will not materially affect the exchange rate. But as soon as it becomes considerable it must, and the effect
of such a depreciation in exchange is to reduce this adverse balance and restore the equilibrium.
As this runs counter to the current gibber on the subject, let us consider the case in detail.
A nation does not essentially differ from an individual in business.
Supposing, at the end of a month or a year, you find

that your total sales and receipts do not equal the payments you have to
make; you must either /est up the balance in cash or obtain a credit. If
the balance is small you eill probably not have to resort to the loan. But
as soon as it becomes large enough, you will, and the interest paid will be
very roughly proportional to the amount involved.
is to say, the
heavier the balance is against you the higher rate of interest you will have
to pay. The higher the rate of interest the more you will be tempted to
force your sales and restrict your purchases, so as to keel this balance down.
Is it any different in the foreign exchanges of a nation, except that the
operation is automatic?
That is to say, the interest on the adverse balance

is reeresented by the depreciation of exchange, end the effect of this depreciation is, other things being equal, to reduce purchases and increase sales;
in other words, to restore the balance as quickly as possible.

exad
If this be true, then if we -be/ dethe present situation of matching paper

currencies against gold over a long series of years, we should expect to find
that the exchange rate fluctuated pretty evenly about a fixed eoint, which

fixed point represented very nearly the relative value of the two currencies.
(All this was pretty thoroughly gone into by Aicardo over a century ago.)



October 5, 1921
governor Strong

Ur. Snyder

Foreign exchange Atuation
2

es no mach long interience, but wo have en experience running nee
eherly te:: ynars, in which the principal exchanges have shown pretty nearly

just this expected result, most clearly, as one would expect, in the case
of sterling, as shown in the attached Chart. You have here this rather
relarkabls result, that the average of the rata for 22 months reprecente
almolt exactly a median line acroes a pretty rood eine curve. end you will
aleo nets that the up and doen swinge uere at approxinately the same seasons
of the year.

tow, if the foreeoing is eerrect, it follows that, for exanple, England's
foreten trade is not, ao to polulerlj unpeosed, heevile out of belenoe, but

-Meet, with eueh credit:1 aa ehe has been able to obtain, it has been for two
years very closely in balence, with the reeult that therm .ave been only
vary even fluctuetions above and below a fixed point,which fixed loint reoresents pretty closely the relative purchasing value or the paper sovseeien
gold.

If this be true, then it follows that if the exchange were pegged at e
point suffieiently below this median or average value the effect would be, on
balance, to draw gold to 7englend and not from it. It is almost impossible
to determine what the most adverse point has been in the last two years, of
the balance agranot 2neland *Wei+ has resulted in a deereciation of approximetely 10 per cent, below the average value of its currency. This sum would

be theoretically the maximum sum that -would be required to keep the exchange

at the new oerity.

It is likewise impossible to say how much of this extreme depreciation
of 10 per cent. 177,:s of Whet is called a sentimental nature, and what would
eave been the actual effect if it were known that gold was obtainable on

demand.
This is a psychological and not a statistical question. Just to
- 'he a very rough guess at-it, I Should think this sum would not be greater
n the normal ratio of gold to the total volume of trade required for this

.1 purpose ih normal times.

This in heeled upon the view that, contrary to popular supposition, the
.resent situation differs in no trey from the normal, or ordinary, situation
n pre-ear dlys, except that the balancing of the current trade (emends 41th
paper currency matched against gold is much more difficult than under the
ordinary gold exchange, and therefore that the swing of the exchange rate
above and below the actual parity of the currencies (i.e., the equivalent of
"gold points") is very much greater. Under a gold exchange this fluetion of the rate is on the order or only about 1 per cent. 1 nada a
rough calculation that, with a fairly stable paper currency like 4ngland's,
the fluctuations might be something like ten times as great as with gold

exchange; and this :evens to be very roughly somewhere near the fact.
Cor sterling
SO to put it into the roughest sort of a figure I should think/the maximum
old fund thatmmight be required would probably not ?Tautly exceed 100 million
iollars, and pretty certainly not 200 millione. On the sane sort of a guess,




October 5, 1921
Governor Strong

Mr. Snyder

Foreign Rechange Atnation
3

the amounts for any of the other countries would be correepondingly much
smaller.

NOV ao to the two chief probable eifficulties:

7irst, as to the reparations paymente. It eorene to W8 tie,t,if it were
definitely known that aterling could be cashed in gold ttt a fixed rate, there
would be no further reason or teuptation to accumulate dollar credits and so
upset the situation. Or, if this was nominally found to be necessary in
practice, the disturbance would be quickly annulled by the exeaange men
if they knew the exact allot/ate required end the tirade of payment.
could balance their sheets accordingly.

Then they

Second, as to payments on our foreign debt. If these payments have to
be neat, then they would have to be allowed for and due calculations made to
meet the balances required. I do not apprehend that enything like the full
Amount nould have to be paid in geld, for I. am very strongly of the belief
that by the end of the year the money mnrket will be very much easier end

that from thet time on the floating of foreign loans eill he vitt, feasible
at favorable rates. But this, of course, is merely an opinion. eikewise,
my feeling is that, even by next spring, there will be a quite different attitude on the part of the country towards this question, and that :web a

dhange Carl reasonably be depended on , with the general improvement of the

'eueinete situation.

I dc not know how well grounded thia reaeoniag will appear; but it seees
to me tho only kind of reasoning which vill fit with the known facts. If
it is approxinetely correct, then the sum suggested as the total amount of
the gold fund would have a factory of safety of very rougnly something like
50 to 100 ear cent. Possibly it out to have to allow for any unforeseen
complications. But it also seems to me that its success would amend very
largely upon its being given full publicity and the emount or the fund be
sufficient to carry in the public mine the weight of the full reotoration 3f
the gold exchange standard.




misc.9.1.00.4,213

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE 'CORRESPONDENCE
TO

Governor Strong______

FRO.

DATE

Oct. 7, 1921

Mr. Snyder

SUBJECT,

Stabili7ing Faehsn.111

As to the exact effect of pegging sterling at a given figure,
mechanism be as follows:

would not the

The bank in London and the bank in New York, for example, agree to buy or sell
exchange without limit at a fixed figure.
They do this and settle their balances
in the usual way of shipping or receiving gold. There would be none of the usual
small interplay within the so-called gold points; the exchange would be absolutely
fixed.
At certain periods the two banks would settle, and if it was so desired the
actual gold would be sent, or that gold would be earmarked for deposit in the one
bank to the credit of the other.
So long as it physically existed, there would
be no particular reason for having it in one country more than in another.
It.
would be counted as a part of the gold exchange fund of the country to which it
belonged.
Now as to the effect: It is true that this gold would be no more taken into
the vaults of the English banks than at the present time.
At the present time the
Bank of England has impounded upwards of 600 million dollars of gold.
For all
practical purposes no one can touch it.
Supposing that it set aside 200 millions
or so of this for a gold exchange fund, such as exists for Indian exchange and such
as the.Philippine banks had for exchanges in this country; if the balance of exchanges was against England, this fund wduld be drawn down correspondingly.
If,
on the other hand, the balance was in favor of England, gold would be shipped to
it or credited to the fund, and the fund would thereby be increased to a point where
it would sustain a prolonged drain.

By virtue of the fact that this gold would not go into circulation nor into
the bank vaults to support credit expansion, an inflow of Gold would have no effect, per
upon the prices in England, nor would the outflow.
On the other hand, supposing that England sent to this country a sufficient
quantity of gold; theoretically, at least, that gold might flow eventually into
the bank reserves of this country and be there used to support a corresponding expansion of credit.
This on the theory that in the long run business will always
expand the bank loans to the limit.
The effect of this would be to raise prices
accordingly, and therefore, eventually, to decrease exports to Great Britain, increase imports from that country, and thereby restore the balance which had been
lost.
Now as to probabilities:
If the average price of sterling for the last 21
months represents very closely the average value of the paper pound in gold, and
this relative value has not changed in this period, then there outht to be no
more difficulty in settling the balances under this gold exchange standard plan
than under the ordinary conditions of fixed standards.
In other words, this
average represents the actual gold parity of the two currencies.




MISC.3.1-001.4.1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

Mr. Snyder

SUBJECT:

Goverpor_S.Erong

FR

DATE

Oct. 7, 1921

e

2

But if, as our investigations show, the paper pound is really depreciated,
relative to its internal purchasing power, then the effect of adopting this
average price of exchange would be to make English goods relatively cheap, to
The
And this, I think, is exactly the case.
the extent of this depreciation.
establishment of a fixed exchange rate in gold, then, ought to have the effect
of increasing British exports and decreasing their imports; in other words, to
But this would eventually stimulate
increase the English gold exchange fund.
trade in Great Britain, lead to a rise of wages and production costs, and thus
Al]. exactly the same as under the ordinequalize prices in the two countries.
ary system of exchange.
In all this there seems to me very little that is theoretical or that is not
England has had the gold exchange standard for
referable to the actual facts.
India for a number of years, and until the outbreak of the war it was working very
The same would have
well, and stabilized prices in India to a very high degree.
been true in the operation of the gold standard exchange with the Philippines, if
That fund simply broke
the management of the Philippine bank had been honest.
The very existence of the gold standard exchange
down because of dishonesty.
Presupposes that the balances will be settled promptly in gold, and that no one
will abuse the opportunities which such a system creates.




mtpc.S.t 90M-i-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

DATE

_Govialiar strong

SUBJECT

Oats 7._1923.

_Stabilizing _Exchange

Mr, Snyder

FRO

As to the exact effect of pegging sterling at a given figure, would not the eechanise be as follows:
The bank in London and the bank in New York, for example, agree to buy or sell
They do thie and settle their balances
exchange without limit at a fixed figure.
in the usual way of shipping or receiving gold.
There would be none of
small interplay within the so-called gold points; the exchange would be abeolutely
fixed.

At certain periods the two banks would settle, and if it was so desired the
actual gold would be seat, or that gold would be earnarkee for deposit in the one
Sc long as it physically existed, there would
bank to the credit of the other.
be no particular reason for having it in oho country more than in another.
would be 0ounted as a part of the gold exchange fund of the country to which it
belonged.

It

Now as to the effect:

It is true that this gold would be no more taken into
At the present time the

the vaults of the English banks than at the present time.

For all
Supposing that it set aside 200 millions

Bank of England has impounded upwards of 600 million dollars of gold.

practical purposes no one can touch it.

or so of this for a gold exchange fund, such as exeoee for Indian exchange and such
as the Philippine banks had for exchanges in this country; if the balance of exIf,
changes was against England, this fund would be drawn down correspondingly.
on the ether hand, the balance was in favor of England, gold would be shipped to

it or credited to the fund, and the fund would thereby be increased to a point where
it would sustain a prolonged drains
By virtue of the fact that this gold would not go into circulation nor into
the bank vaults to support credit expansion, an inflow of gold would have no effector
upon the prices in England, nor would the outflow.
On the other hand, supposing that England sent to this country a sufficient
quantity of gold; theoretically, at least, that gold might flow eventually into
the bank reserves of this country and be there used to support a corresponding exThis on the theory that in the long run business will always
pansion of credit.
The effect of this would be to raise prices
expand the bank loans to the limit.
accordingly, and therefore, eventually, to decrease exports to Great Britain, increase imports from that country, and thereby restore the balance which had been
lost.

Now as to probabilities: If the average price of sterling for the last 21
ths represents very closely the average value of the paper pound in gold, and
period, then there ought to be no
this relaeive value has not changed in
more difficulty in settling the balances under this gold exchange standard plan
In other words, this
than under the ordinary conditions of fixed standards.
average represents the actual gold parity of the two currencies.




this

se,

MC.3.I 90M-I-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

Governor Strong

FRO,.

MrA_Snyder

Oct.DATE____

SUBJECT:

7, 1921-

Stabilizing-Exchange

2

But if, as our investigations show, the paper pound is really depreciated,
relative to its internal purchasing power, then the effect of adopting this
average price of exchange would be to make English goods relatively cheap, to
the extent of this depreciation.
And this, I think, is exactly the ease.
The
establishment of a fixed exchange rate in gold, then, ought to have the effect
of increasing British exports and decreasing their imports; in other words, to
increase the English gold exchange fund.
But this would eventually stimulate
trade in Great Britain, lead to a rise of wages and production costs, and thus
equalize prices in the two countries.
All exactly the same as under the ordinary system of exchange.

In all this there seems to me very little that is theoretical or that is not
referable to the actual facts.
England has had the gold exchang
India for a number of years, and until the outbreak of the war it was working very
well, and stabilized prices in India to a very high degree.
Th
been true in the operation of the gold standard exchange with the Philippines, if
the luanagement of the Philippine bank had been honest.
That fund simply broke
The very existence of the gold standara exchange
down because of dishonesty.
presupposes that the balances will be settled promptly in gold, and that no one
will abuse the opportunities which such a system creates.




iJAJV




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4. 1-120 M-1-20

j

OFFICE CORRESPONDENCE
To

)

.z4.

SUBJECTS

-

kr--,-Xcpe)

2 yy

ttr-a_d

/

l4
,_;

-teit

tti
0,,,z7z.ac,zte_at.

U

192_

DATE

at,

,

4t
°y/

/6

44a--

.0,4

,A

aq--;-t

M.C.3.1120M-1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

FRO

Governor Strong

DATE

October 8, 1921.

SUBJECT,

-

-

Mr. Snyder

The problem of estimating the relative value of our foreign trade, and
So long as the variations in
especially exports, pr4sents curious difficulties.
prices are not great, and likewise the character of the articles of foreign trade
does not vary widely, this relative value is represented with a fair degree of
approximation by the actual figures as reported by the Department of Commerce.
As reported by the Department of Commerce our exports for the first eight
months of the present calendar year compared with the two previous years as follows:
Eight Months

-

1919

$5,151,347,542

1920
$5,369,349,400

1921

$3,143,553,402

Judging from the reported values alone one would infer that the actual
export trade in relative value or quantities was about the same for the first eight
months of 1919 and 1920 and that this trade had suffered a fall of about 40 per
cent. in the present year.
As a matter of fact there was so wide a variation in
prices that thesd figures.have little representative value.
Index figures as to
export prices have been prepared, but in general they do not differ widely from the
average of all prices as tabulated by the Bureau of Labor, and for the present
purpose it is quite possible that the average of all prices is the more reliable.
For the first sight months of these three years the average of the Bureau of Labor
index has compared as follows:
Eilaht Months -

1919

208

1920
258

1921
157

It will be seen from this that the average of wholesale prices in 1920 was
about 25 per cent. above 1919, and if this was true for the average value of all the
exports, then the actual volume or relative value of the exports for 1920 was about
20 per cent. below 1919.

In the same way the average of prices for the present year has been about
40 per cent. below the corresponding period of a year ago, which is just about the
same decline as in the reported values of our exports.
This would suggest that
the actual volume and relative value of the exports this year were approximately the
same as last, that is, that there has been no real decline.
Utilizing this method, the relative values of our exports for the three
years would then compare as follows:
1919

1920

1921

$2,476,622,330

Eight Months

$2,081,143,170

$2,002,263,310

That this method does possess a fair degree of reliability is evidenced
by a comparison of the results so obtained with estimates made by an entirely different method.
For the years 1914 and 1918 the United States Shipping Board made
an elaborate calculation as to the actual quantities or tonnage and the relative



mMc.A.00MA-2o

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE

DATE

Oct. 8, 1921.

SUBJECT:

TO

FRO;,,

2.
Utilizing the figures so obtained the Harvard Bureau of Economic Revalues involved.
search attempted a similar estimate for other years from the quantities of such
exports as were reported by the Department of Commerce.
The results of the Harvard calculation and of our method of allowing for
price changes by dividing by the Bureau of Labor index are set forth in the accomThis shows also the actual values as reported.
panying chart.
It will be seen from this graph that the results for a series of years
were strikingly parallel.
This gives some confidence that the same method may be
followed at the present time.
But it is to be noted that the fall in prices has
been much more rapid than the probable fall in the price of the articles actually
exported.
There is always some lag between the contracts and the actual exports.
If such an allowance be made as to the last eight months the result would seem to
suggest that the actual exports this year have not been very different from those
of the same period last year.

This result is borne out by a comparison of 161 of the principal items
of export for which the actual quantities are given in the Commerce reports.
If
the percentages of these quantities for the present year, as compared with last,
are taken and these percentages averaged, the result would show an average decline
of about 12 per cent.
But if these several percentages are weighted according
to the relative values of the different items, the average would show a very
notable increase, instead of a decline - something like 37 per cent.
It is highly probable, however, that this result is altogether too high, because certain
heavy exports greatly overweight the remainder by this method and the likelihood is
that the real relative volume of this year's and last year's exports lies somewhere
in between.
That is to say, somewhere around parity or a little above.
This result compares favorably with the computations of the Federal Reserve Board, which finds an increase in the relative volume of 29 important articles
for the present year of about 4 per cent.
These 29 articles represent about onehalf of the total exports in value.
The 161 articles noted above, for which we
took averages, represents very closely three-quarters.
In the same way an estimate as to a number of important divisions for which
quantities were available, including breadstuffs, cotton, cotton cloths, and a
selected number of steel products, indicated an increase for the present year in
relative volume of about 5 per cent. over last year.
The total value of these
products was about one-quarter of the total exports.
In the same way Mr. Austin, formerly the head of the Statistical Bureau
of the United States, made an estimate for the first seven months, which seemed to
show a gain in relative volume of about 2 per cent, for this year.
The general similarity of these results, reached by quite different methods,
strongly suggests that they approximate the fact.
In the face of all the innumer


M I EC.3.19011-1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE

Oct. 8, 1921.

DATE

SUBJECT

TO

FRC,

3.

able stuff that has been written about the "colossal decline of our export trade,"
it seems somewhat hardy to suggest that there has been no decline whatever relatively, but this seems at least somewhere near the unescapable conclusion from any
kind of calculation that has been made.
It is well known that at least certain
of our chief products have gone abroad this year in very heavy volume and some of
them, like wheat, in record volume, so that, while out of the 161 articles for which
quantities are reported, nearly three-fourths show a decline,
the importance of
the remainder was so great as largely to counterbalance this result.
Finally, this conclusion is strongly enforced by the actual figures of
tonnage entered and cleared, in foreign trade.
Contrary to almost universal belief, for the first seven months these compared as follows:
(7 mos.)

1920

American

Foreivi

16,105,000

.16,185,000

1921
Total

32,290,000

Increase over

America/1

17,421,000

1920

Foreiga
17,807,000

Total

35,229,000

9.2 per cent.

We have next to inquire as to what is the relative importance of our
exports to the total national product; and here again we obtain a result greatly
at variance with a great deal of popular writing and speaking.
Studies made by this department last year show that this relative importance of our foreign trade had been steadily declining throughout the period under
view (about 40 years) down to about 1909; and that from that year it made an aboutface, and this trade has been steadily rising in relative importance since.
Mr. Gilbert King made a very careful study for us and came to the conclusion
that for 1919 our exports represented in value something around 9 per cent, of the
total physical product of the country, of all kinds.
This is probably an outside figure. The reality may be somewhat below this, because there are huge numbers
of things produced in the United States, of which practically none is exported.
A
notable example is the total printing bill for the country, which runs far over a
billion dollars.
Next, the studies of national production made by this department indicate that the total for 1920 was only about 5 per cent. above that of 1919, so
that the proportion of the whole which went abroad remained about the same.
But
for the present year, there has been, in most fields, a very notable decline in
this national product, not less than 20 to 25 per cent. in manufacturing, and including farm products and transportation, not less than 15 per cent.; probably much more.

We come then to the most unexpected conclusion that




Llearauzion

of our national

roduct which has been

e),seacortedthiAbeenthela
the last quarter of a century at least.

in

MISC.., STAT. 1M 9-21

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE

DATE

Oct. 8,

1921_

SUBJECT:

To
FRoM

4.
This conclusion should suggest a large measure of caution in contending that
the supposed decline in our foreign trade has been largely or in any way responsible
for the present depression and unemployment.
Indeed this caution is suggested by
the most elementary consideration.
Our largest single item of export now is wheat
and flour.
For the present year these exports have been in record volume, and
double those of last year; and the total wheat crop this year has been below the
average.
In the face of this, the price of wheat has had a headlong fall and is
now, and has been for the most of the present year, about half the average price of
the same period last year.
And the same is true of corn, another important item of
export, though the corn exports this year have been eippt times the exports of last
year.




PER CENT.

400

....
a.'

'.

30

%

%

..

EXPORT VALUES

.

..

:

.

..

0()

/

.

..

CM.

..ft. voLume
Sii

°.I'''."1".
of

EXPORT
,,,,F.

VOLUME OF
EX DO RT
shin.' rls 13o6xci.

R .3

sr ion

100

1913

1914- 1915 1916,is1217..1918 1919 192,0 19Z1

Per cent of United States export values and two estimates of export volume
Shipping Board volume is based on tonnage figures. That of
above 1913.
Federal Reserve Bank of New York is the reported value divided by wholesale
price index



misc,A.90M-1.0

FEDERAL RESERVE BANK
OF NEW YORK
DATE

OFFICE CORRESPONDENCE
TO

FRO.

Governor Strong

SUBJECT

October 8, 1921._

Our_ Recent Ioreign--Tradeia-

Mr. Snyder

The problem of estimating the relative value of our foreign trade, and
especially exports, presents curious difficulties.
So long -s the variations in
prices are not great, and likewise the character of the _articles of foreign trade
does not vary widely, this relative value is represented with a fair degree of
approximation by
reported by the Department of Commerce.

the actual figures as

As reported by the Department of Commerce our exports for the first eight
months of tha preeent calendar year compared with the two previous years as follows:
Eight Months

-

1919

$5,151,347,542

1920

1921

$5,369,349,400

$3,143,553,402

Judging from the reported values alone one would infer that the actual
export trade
quantities was about the same for the first eight
months of 1919 and 1920 and that this trade had suffered a fall of about 40 per
cent. in the present year.
As a matter of fact there was so wide a variation in
prices that these figures have little representative value.
Index figures as to
export prices have been prepared, but in general they do not differ widely from the
average of all prices as tabulated by the Bureau of Labor, and for the present
purpose it is quite possible that the average of all prices is the more reliable.
For the first eight months of these three years the average of the hureau of Labor
index has compared as follows:

in relative value or

Algit

Months -

1919
208

1920
258

1921
157

It will be seen from this that the average of wholesale prices in 1920 was
about 25 per cent. above 1919, and if this was true for the average value of all the
exports, then the actual volume or relative value of the exports for 1920 was about
20 per cent. below 1919.
In the same way the average of prices for the present year has been about
40 per cent. below the corresponding period of a year ago, which is just about the
same decline as in the reported values of our exports.
This would suggest that
the actual volume and relative value of the exports this year were approximately the
that there has been no real decline.

same as last, that is,

Utilizing this method, the relative values of our exports for the three
years would then compare as follows:
1919

1920

1921

$2,476,622,380

Eight Months

$2,081,143,170

$2,002,263,310

fair

of reliability is

That this method does possess a
degree
evidenced
by a comparison of the results so obtained with estimates made by an entirely different method.
For the years 1914 and 1913 the United States Shipping Board made
an elaborate calculation as to the actual quantities or tonnage and



the relative

INI9C.3.1 DOM-I-20

FEDERAL RESERVE BANK
OF NEW YORK
DATE

OFFICE CORRESPONDENCE

Oct. 8, 1921e

SUBJECT:

TO

FRO

2.

Utilizing the figures so obtained the Harvard Bureau of Economic Revalues involved.
search attempted a similar estimate for other years from the quantities of such
exports as were reported by the Department of Oommerce.

The results of the Harvard calculation and of our method of allowing for
price changes by dividing by the Bureau of Labor index are set forth in the accomThis shows al oo the actual values as reported.
panying chart.

It will be seen from this graph that the results for a series of years
This gives some confidence that the same method may be
were strikingly parallel.
13ut it is to be noted that the fall in prices has
folloeed at the present time.
been much more rapid than the probable fall in the price of the artialos actually
rs%ore is always some lag between the contracts und the actual exports.
If such an allowance be made as to the last sieht months the result %veld seem to
suggest that the actual exports this year have not been very different from those
of the same period last year.
exported.

This result is borne out by a comparison of 161 of the principal items
of export for ehich the actual quantities are given in the Commerce reports. If
the percentages of these quantities for the present year, as compared with last,
are taken and these percentages averaged, the result vould dhow an average decline
but if these several percentagee are weighted according
of about le per cent.
to the relative values of the different items, the average would show a vary
It is hiehe
notable increase, instead of a decline something like 37 per cent.
ly probable, however, that this result is altogether too high, becaue6 certain
heavy exports greatly overweight the reeainder by this method and the likelihood is
that the real relative volume of this year's and .last year's exports lies somewhere
in between. That is to pay, somewhere around parity or a little above.
This result compares favorably with the computations of the Federal Reserve Board, which finds an increase in the relative volume of 29 important articles
for the present year of about 4 per cent.
Those 29 articles represent about onehalf of the total exports in value.
The 161 articles noted above, for ehich we
tool averages, represents very closely three-quarters.

In the same way an estimate as to a number of important divisions for which
quantities were available, including breadstuffs, cotton, cotton cloths, and a
selected nuebor of steel products, indicated an increase for the present your in
relative volume of about 5 per cent, over last year. The total value of those
products was about one-quarter of the total exports.
In the same way Hr. Austin, formerly the head of the etutistical Bureau

of the United etates, glade an estimate for the first seven months, *lice sewed to
aeow a gain in relative volume cf about 2 per cent. for this year.
The general similarity of these results, reached by quite different methods,

strongly suggests that they approximate the fact.



In the face of all tho ianueer-

1419C.3.1-00M-1-20

I FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE

DATE

Oct. _a,. _1921a

SUBJECT

TO

FRC

3.
able stuff that has been written about the "colossal decline of our export trade,"
it seems somewhat hardy to suggest that there has been no decline whatever relatively, but this seems at least somewhere near the unescapable conclusion from any
It is well known that at least certain
kind of calculation that has been made.
of our chief products have gone abroad this year in very heavy volume and some of
them, like wheat, in record volume, so that, while out of the 161 articles for which
the importance of
quantities are reported, nearly three-fourths show a declines
the remainder was so great as largely to counterbalance this result.
Finally, this conclusion is strongly enforced by the actual figures of
tonnage entered and cleared, in foreign trade.
lief, for the first seven months these compared as follows:
(7 mos.)

American

1920
flEliza

Total

American

1921
Freg

Total

35,229,000

17,421,000
16,185,000

16,105,000

Increae over

1920

9.2 per cent.

We have next to inquire as to what is the relative importance of our
exports to the total national product; and here again we obtain a result greatly
at variance with a great deal of popular writing and speaking.
Studies made by this department last year show that this relative importance of our foreign trade nad been steadily declining throughout the period under
view (about 40 years) down to about 1909; and that from that year it made an aboutface, and this trade has been steadily rising in relative importance since.
Mr. Gilbert King made .a very careful study for us and came to the conclusion
that for 1919 our exports reoreuented in value screething around 9 per cent, of the
total physical product of the country, of all kinds.
This is probably an outside figure. The reality may be somewhat below this, because there are huge numbers
of things produced in the United states, of which practically none is exported.
A
notable example is the total printing bill for the country, which runs far over a
billion dollars.
Next, the studies of national production made by this department indicate that the total for 1920 was only about 5 per cant. above that of 1919,
so
that the proportion of the whole which went abroad remained about the same.
But
for the present year, there has been, in most fields, a very notable decline in
this national product, not less than 20 to 25 per cent. in manufacturing, and including farm products and transportation, not less than 15 per cent.; probably much more.




0 come then to the most unexpected conclusion that
the

ro ortion of our national roduct which has been

2aported

thiejas

the last quarter of a century at least.

in

Contr

MISC. 31 STA, IM 9-21

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
To

DATE

COt. 8,

192

SUBJECT

Fes)m

4.

This conclusion shculd euggeet a large poseur() of caution in contending that
the cuppoced decline in our foreign treAe hes been largely or in any way reeponcible
indeed this caution is suggested by
for the precent depreesion aril unemployment.
Our largest single it of expert now is :float
the most elementary consideration.
ii'er the present year there export& IJWO been in record volume, end
and flour.
double. theee of la t veaz; and the WW1 *eat crop this year has been below the

In the face of this, the price of that has had a headlong fall and is
beeK for the most of the present year, about half the average price of
the same period last year. And the mmme ix true of corn, another important itam of
export, though the corn exports this your have been AAA times the exporte of last
average.

now, and ha s

year.




I




FEDERAL RESERVE BANK

MISC.4.1-120W-20

OF NEW YORK

OFFICE CORRESPONDENCE
Strong_

To

Governor

FROM

DATE

Nov. 2, 1921

Jr. Carl Snyder

192____

When

everything

the

SUBJECT:

Vanderlip_ Plan

Vanderlip plan was cabled, I gave instructions

printed about it should be sent to you.

that

This last in the

Times is the latest I know of.
Ine are sending up town for a
of the McKenna speech.

Chicago paper

with a full account




misc.3.1-DOM-1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

FROM

aovernor Strong

DATE

November 3, 1921

SUBJECT

_LirCarl_Bnyder

I attach
of the

herewith an almost sensational statement

Silesian question by the League of Nations,

of the mark which attended it,

and the disastrous fall

which appears in the Economist for October 22.

This is from the pen of Mr. Robert Crozier Long, to
ter by Hartley Withers,

of the handling

whom I was given

a letHe

with the recommendation that I surely see him.

is a very keen, cool, practical sort of person, extremely well informed,
and I should say of very good judgment, thoroughly English and not German in
his point of view.

If he can

write in this fashion on the question, it

must have been pretty bad.

If this is a sample of the League of
US

pause?

Nations' work,

does it

not make

MIEI,MA-DOM4,0

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

__Governor

Strong--

Mrs_Carl Snyder

FROM

DATE

SUBJECT,

Nov. 7, 1921

Confident{ p1 Msmoesodum or

Reparation Payments (J. A. L.)

The calculations and estimates made in this report are based
upon the position of the mark at the beginning of October, a part even
earlier still, when the paper mark was around 14 or 15 to the gold mark.
With the mark at .35 today the depreciation from October 1 is more
than 60 per cent, and brings the mark to less than 70 to the dollar.
This knocks any calculations as to the probable deficits under
It means, also, that the whole Wirth scheme
the proposed budget galley-west.
of taxation is, as Mr. Long put it in his Economist article, "as dead as the
Erzberger plan," unless, of course, there should be a violent recovery in the
value of the mark, of which at the present time there seems very slight prospect.

We have tried to check up some of Mr. L.'s calculations, esThey do not seem to
pecially as regards the balance of imports and exports.
Germany has been kept alive
me of very much value, for a simple reason.
in very considerable part in the last year by an enormous tide of tourist
travel and tourist purchases, and probably, also, a very large borderland trade
As this is mostly small stuff that can be carried
all around its periphery.
in hand bags or trunks, it has almost entirely eluded inclusion as exports.
Then there is the "hole in the West," about which Germany has
complained bitterly, both as regards the inpour of a huge quantity of articles of every description, to be sold to the "schiebers," or profiteers; and,
I gained the imon the other hand, a very considerable volume of exports.
pression in Germany that no kind of foreign trade figures were really of very
much value now, and an attempt to calculate the supposed "adverse balance" is,
I think, hopeless.
It is true that the outside holdings of marks have considerably
And possibly, also, German merchants have been
increased in the last year:
It is further a characteristic,
able to obtain considerable credits abroad.
I think, of a country under inflation, with rising prices, that its imports
almost always exceed its exports.

7.

Germany's exports before the war were running around 21 bilA rough estimate has been made that they are about onelions of our money.
This, at prices in gold roughly 50 per
third this in relative quantity now.
cent, higher than in 1913, would mean something like a billion and a quarter.
Mr. L.'s estimate amounts to about a billion, and is possibly rather low.
The Government's revised estimates as of last week are shown in the attached
You will note that they are considerably higher than
Associated Press cable.
those in Mr. L.'s memorandum, and even these are out of date in a week.
(8)
All of this shows very vividly what Prof. Bonn said in a conversation last July in Berlin, that the primary essential, the sine qua non




FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

FROM;

DATE

Governor Strong

SUBJECT

Mr. Carl Snyder

Nov. 7, 1921

Confidential-Memorandum on

Reparation Payments (J. A. L.)
2

of any solution, was the stabilization of the mark; that until this was accomplished it was impossible to estimate budgets, tax receipts, export duties,
foreign trade balances, or anything that goes into the fixing of payments.
But it does not seem
Al]. this seems A. B. C. and as plain as a pikestaff.
to have gotten through the heads of either the Berlin Government, or of the
Reparations Commission, or of any of the people concerned,with the exception
of a few people like Keynes, Bonn, Lord D'Abernon, and Professor Cassel.
Therefore, it looks as though there was nothing to prevent the
realization of Keynes' prediction of a default and a total collapse of German
seems as though it might be coming before
finance next spring. Only

it

I had a very strong feeling last summer when I was in
smme definite steps toward stabilization would be taken; but the
ficulty appears to be that the Wirth Government, in undertaking
reparations payments, had bitten off more than it could chew.
was, I think, that if they made one heroic effort to meet their
they would then be able to make terms with the Allies.
No one
But what has happened
clearly see the subsequent catastrophe.
certain that Mr. L.'s conclusions were eminently correct.




that.

Berlin that
great ditto make the
Their idea
promises
could very
makes doubly

MI9C.3.1.90M-1-20

I FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

anvornor Strong

FROM

MrA_Gerl Snyder

DATE

Nov. 7, 1921

SUBJECT :GennanAtiVaratinnS-PaYMente

in August
2

If the selling of marks has been wholly from the outside, then
practically nothing that the German Government could do directly would have
saved the situation or will help it now.
I should add that my informant is a German of 26 years' banking
experience in London, and now two years here in New York. I was very much
struck with the fact that when I talked with him about the general situation
six weeks or so ago he seemed to be in a fairly optimistic mood, while now
he regards the situation as very dark and feels that unless something can be
done a violent uprising or even a revolution might result. He feels that
the manufacturers cannot go on under the present conditions, and that if they

should shut their factories it would precipitate a worker revolution.

he is




not in the least of the

alarmist type.

Yet




NTEROFFICE

ROUTE SLIP
A. M.

ft,

P. M.

1

fr.

OFFICE SERVICE
MESSENGER SECTION

DATE

DEPARTMENT
DIVISION
SECTION

REMARKS ;7

I

FROM
-nNt4d

re7-111-0

N. B. USE T S FORM INSTEAD OF OFFICE ENVEL

DEPARTMENT
DIVISION
SECTION

POSSIBLE.
TO INSUIRE PROMPT AND ACCURATE DELIVERY ALL COMMUN7 ATIONS SHOULD BE DISTINCTLY LABELED

MMC,,ADOM4-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

Governo-nStreng-----

FROM

Mr._Carl Snyder_

DATE

SUBJECT

in

Nov. 7, 1921

:__Grerman_Reparatiest_e_

August

I have just been able to obtain from one of the participants a
confidential account of how the money for the German reparations payments,
due last August 30, was obtained.
The amount to be paid was one thousand million gold marks, or
approximately $243,000,000.
Of this the Reichsbank had been able to accumulate in exchange, up to the end of July, only to the amount of about
$60,000,000, leaving something like 0185,000,000 to be raised.
This was
done through loans in various centres.
Something like $20,000,000 was
obtained here, the five participating firms being the Equitable Trust,
Speyer, Boissevain, Hallgarten, and Goldman, Sachs.
Part of the security
was the Reichsbank's silver.

Another loan for about 1.5,000,000 was obtained in London from
four or five participating parties; the same way with a loan for about
40,000,000 Wise francs in Switzerland, or about 48,000,000; another loan
made by Mendelssohn & Son through Dr. Mannheim, in Holland.
This with
what additional exchange the Reidhsbank was able to accumulate up to the
end of August, made up to about $65,000,000, requiring the balance of about
$125,000,000 of the Reichsbank's gold.
Some of this gold
still being received.

These loans were of short date, running from August 15 to the
first of October.
On the first of October the Reichsbank had been able to
accumulate only a very small amount of exchange and had to ask for an extension of most of the loans for another six weeks.
In these six weeks
they have been able to secure enough so that the American loans, at least,
will be p/id off on the 8th.
It is of interest to note that even the large
Paris banks were sounded, and that they said they would be glad to participate except for the political difficulty that lay in the fact that practically all of these payments was to go to Belgium and England, and almost
none to France, but that on the next payments they would be in a receptive
mood.
It was also stated definitely that the Reichsbank, which means the
German Government, had not been selling marks below .80, which is a point
of extreme interest.x

The security for these loans,outside of the Reichsbank's silver,
was Reichebank notes, kept good to within 10 per cent, of exchange value.
This means that the increase in the Reichsbank's circulation has nct gone
into the open market, but has simply been used to increase the security required on these loans.
Apparently, from my informant, th
mark has not been due to foreign selling
by the German Government.
If this be true, it seems to me that it. renders the situation far more difficult than it has otherwise seemed.







,115-2 39M-4-20

FEDERAL- RESERVE BANK 1
OF NEW YORK

INTEROFFICE

ROUTE SLIP

TIPjE

REI."Rks
at

OFFICE SERVICE
MESSENGER SECTION

DATE

Cita tyfr,?u,
_aeektiZia(WA*/4--

FROM 44-1976-aii414N. B.

DEPA
DIVISION
SECTION

USE THIS FORM INSTEAD OF OFFICE ENVELOPE WT-IEN POSSIBLE.
To INSURE PR OMPT AND ACCURATE DELIVERY ALL COMMUNICATIONS SHOULD BE DISTINCTLY LABELED




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-120 M-1-20

OFFICE CORRESPONDENCE
To

DATE

\M1-

192 (

Ct

SUBJECT.

FRi

LArLc,L.

)

Ia
C.A11A

'6'1 cf

ov-rt,
otA-2.1

L

,41113C.3.1-90,11-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

FROM

DATE

Nov. 9, 1.921

Governor Strong_

SUBJECT:

Mr. Carl Snyder

the world's monetary problems._

Re. Prof. Cassel's memo_randum_on_

Interested in your impression that Cassel's paper was "a bit rambling,"
and offered "no possible way of accomplishing the impossible," I read it over
again carefully last night; and I confess I did not get this impression, then or
before.
So far from that, I am very strongly of the feeling that, unless the
general principles laid down in his paper are specifically recognized and acted
upon, things will go on in the same helter-skelter way for at least the next five
years as they have been going since the Armistice.
For example:
(1)
Is it not clear that, as he says, the effect of abandoning the gold,
standard by the big commercial countries of Europe, and the dumping of a large
quantity of gold into the United States had as an inevitable effect a great rise
of prices here and a corresponding decline in the value of gold?
And was not one .41-44-/1
effect of this to compel a corresponding amount of paper issue in countries like
England and France, to meet and handle the rise in international prices compelled
by the
cf\a great number of
UnitIod States?

9

ries

helmTortsfrom the

10)
-

A_P

We have now h d a very violent and unprecedented def ati n, with
the result, as he says, to carry the prices of commodities, and especially the
large wholesale commodities, to a point below the cost of production.
This must
imply one of two things, does it not?
Either a radical decrgase in wages or else
a marked rebound in pr coma
(2)

Prof. Cassel feels that the effect of heavy gold imports into this
country will be another rise in prices with another drop in the value of gold.
But he does not see, as I think is almost certain, that such a rise will bring a
corresponding rise in England and other countries.
And this rise will be supported by the heavy volume of currency and bank loans still outstanding in those
countries; for in these countries there has been little actual 4eflat4oniri.e.,
reduction of currency and bar* loans.
In other words, I cannot get rid of the idea that the whole wide
world is in for another very heavy rise in prices--if you please, another inflationist boom which will be fought by the usual methods at too late a date, and that
these methods will therefore bring another collapse.
You know, for example, that
to expand their bank loans in England the English banks have merely to take exchequer
bills and convert them into Bank of England notes, so as to produce the required
amount of "cash."
As to the rest of Prof. Cassel's suggestions as regards foreign exchanges, the impossibility of Germany's meeting the payments, etc., I imagine we
are fairly in accord.

to study the




Now; his proposal is that a committee of experts shall be appointed
involved and make recommendations to their several governments.

questions

M.C.3.1.0010-1,0

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

Governor Strong

FROM

DATE

Mr. Carl Snyder

SUB.MCT:

Nov. 9, 1921

Re. Prof. Gassel's mlmorandum on

the world's monetary problems.
2

Politicians are a blundering,
Does not thio seam the only possible way out?
stupid lot, and bankers, especially the Old World bankers, are apt to be pretty
Is not the only possible way for men of vision and vigor
set in their ideas.
and understanding, like yourself and Governor Norman, and Lord d'Abornon, and
Sir Charles Addis, to match up their minds with practical economists of real understanding like Cassel and Keynes and Bonn and Gide, with the addition of a few
keen minds like Hoover and Paul Warburg and one or two others over here?

The Cunliffe Committee represented a fine body of the Old School, whose
whole life training had been under the influence of what you might call the
In their way they could no more get out from under its
standard English policy.
I can't help the
influence than the Bullion Committee of a hundred years ago.
feeling that the Bullion Committee Report gave England ten years of needless hardAre we going to repeat the same operation now, and pull the United States
ships.
and the whole rest of the world along with it?
I believe it w




MIS C.9.1-DOMI-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

DATE

Governor Strong

SUBJECT:

November 10, 1921

Financial Conference

Mr. Carl Snyder

I do not find that any of the men mentioned yesterday were members
Brussels Conference except Mr. Vissering. The delegates from this

of the
country were:

)

Mr. Boyden
Mr. Keith McLeod
Colonel R. H. Hess

From England:

Lord Chalmers

Lord Cullen

Mr. Henry Bell
From France:

M.de Fleuriau

M. Avenol
M. P. Cheysson
Neither Cassel nor Gide were members but merely sent memoranda.

Very roughly, what I had in mind was a conference of men of real
understanding and influence in their several countries, to be made up of,
say, the heads of the six principal central banks, including yourself; six
aninent private bankers, six of the most prominent financial economists, and
six men as near to stateamen,-with a knowledge of the financial field, as
could be found, as for example:
Financiers of PoliEconomists Like tical Standing Like
,IT,eofFILyail.alaktr
Heads of
Sir Charles Addis
Bank of England
Max Warburg, or
Bank of France
Paul Warburg
Reichsbank
Bank of Italy
Bank of Japan
Federal Reserve
Bank of New York

Possibly the list

might

Lord d'Abernon
Keynes
Ex-Secretary Houston,
Gide of France
etc.
Bonn of Germany
Cassel of Sweden
Hoover
Schumpeter of Vienna

Prof. Anton Van Gijn

include the heads of

all the principal

central banks and representatives be asked from several other countries.
But in general the larger a conference is the more unwieldy it becomes.
Of course it was very easy at the time for the different governments,
as Hartley Withers says, to acquiesce unctuously in the recommendations of
But if a new conference were
the Brussels Conference and go their way.
called, especially to meat in this country, whence they are anxious to secure




MISC.3.190M1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

Governor Strong

tRM

Mr. Carl Snyder

DATE

SUBJECT

November 10, 1921

,_Flnancial Conference

2

large loans, do you not think, if the list was made up of men of high position
and real influence and understanding, it would be different?
Even in twelve or fourteen months the temper of the people, and
governments, has considerably changed; and may change much fur-

therefore of

ther in the next




few months.

-,42L

14.-4n

,

o,/t/

IL

1419C.3.1-0041-1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

Governor Strong-

FRC.A4

DATE

November 16, 1921

Mr._Carl Snyder

SUB.MCT

:___Axtiole by Prof. Bonn

You may be interested in reading this brief paper by
Prof. Bonn, which he has just sent me.

You will recall that he

was an exchange professor at Columbia, and has been sort of unofficial economic adviser to the new German Government.

He was

being urged strongly, when I was there, as Ambassador to this
country.

He has an extremely keen mind, I think is very sound;

he has few illusions, and his idea is at least very original.




November 16, 1921

Governor Strong
C -1=1. Snyder

So far as I can see, the matter is about this wise:
N
,(-

The only reason that the Federal reserve notes came back to the -Federal reeerve banks is that they are not needed in the course of business
and are paid into the banks and by thoee banks paid in to the Federal Re-'
uerve in reduction of rediscounts. It is very difficult tc estimate
what has been the reduction in the average of all prices, but it is evidently far lose than the lowering in wholesale eoeiodity prices. Perhaps
the best due would be to take the average of retail food prices, or, bat-

ter still, the average of the eetimated cost of living. From the average
of laet year to the average of the present year, retail food has declined
about 25 per cent. The estimated coot of living, as coreouted by the
National Industrial 7onforence Board, ha.: doelined about 15 pe- cent.

The estimated amount of currency in circulation ir the United
States is between four and five billions. It cannot be accurately estimated
because of the inability to estimate the losses and hoarding. If we put
it et around four and a half billions, then the decline of a billion of
Federal rbserve notes represents a decrease of about 20 per coat, in the
total. Considering that these are very rough esLInates, I think they may
be said to agree fairly well, and adequately count for the decrease in notes.







MISC.3. 1.90M 4,0

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

Governor Strong_

FROM

DATE

November 17, 1921

Mr. Carl Snyder

SUBJECT ___The_Italua_a__th-e--Paper-Pound

Does not most of the difference of view regarding the practicability
of stabilizing exchange now turn around one thing?
That is, a lurking hope
or belief that somehow or other the paper pound, now worth, say, 16 shillings,
will work back to parity in some other way than the one way that the thing
can
ever happen.
The paper pound is now worth about 16 shillings, not merely in
gold but in goods.
If you could tomorrow put the pound to parity it would
drain England of every dollar of gold available and ruin its trade in the
bargain.
Illy?

Simply because it

would increase the value of Brit:goods to the

foreigner by 25 per cent, and decrease the value of foreign
to the
Britisher by a corresponding amount.
The result would be a heavy increase
of imports, a heavy fall of exports, and a corresponding outflow of gold.

This is the simple
and the like simply ignores.

fact

that all the talk about balanced budgets

The value of the paper pound is not a theory.
It is a very
present fact.
It is the fluctuations alone which are influenced by the
pressure of bills, not the intrinsic worth.

intrinsic

In the last two years this
value has been, apparently,
very close to about $3.72 in our money.
In the last few months the general level of English prices has been falling, while ours has been stationary.
As a result, the value of the paper pound, measured in gold, has
been rising a little.
This, with light bill pressure, makes possible a
price of $4.00.
Nothing else.

If this is the fact, and so I believe it, if a syndicate would
agree to sell paper pounds freely at $3.70, r can see no reasonable doubt
that gold would flow to England.
Suppose, for example, that the syndicate would agree to sell
That would make British goods 25 per cent, cheaper and
pounds for $3.00.
all exports 25 per cent, dearer to them.
Hardly anyone would question that,
at this price, gold would come to England.

I believe it

would be equally true at $3.70.

Now. This gold would be paid to the seller of exchange, e.g., the
Bank of England.
It would not go into circulation.
It would not be exchangeable for paper pounds at 20 shillings to the sovereign.
It would not




MI9C.3.1.0011-1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

Governor Strong

FROM

Mr. Carl Snyder

DATE

go into the
credits.

banks.

SUBJECT

The

November 17,_1921

Value_a_Abre_Tapsr-P-ounci-

2

It would not

be the

basis

for the expansion of bank

It would be, to all intents, immobilized or impounded, exactly as
the 140 million pounds of gold in the Bank of England are now.
And if this rate were fixed and the bill pressure swung around the
other way, this gold would flow out simply because more bills would be sold
by them than were offered, exactly as under normal conditions.
All this
is not theory, it is simple fact.
It is pure theory, or conjecture as to
what the British Government might later do to valorize or devaluate the
pound.
What the Bank of England or a syndicate would do would be simply
to average the price now made by the current demands of business; nothing
more.
A single
actly the same.

dealer

in New York, with unlimited funds, could do ex-

A hundred years ago, misunderstanding or blind adherence to a mistaken theory cost England ten years of stagnation and hard times.
If we
are to learn nothing from history, of that good is economics*




FEDERAL_ RESERVE BANK
OF NEW YORK

MISC. 4. 1-120 M-1-20

OFFICE CORRESPONDENCE
To

Governor

DATE

Strong

November 21,

192

1

SUBJECT

F'ReN4 Mr. Carl Snyder

There is a very interesting article in the current number of the
new "Economica," on the working of the gold exchange standard in England, and
just why it broke down.

You know Addis was on this committee.

Oiitril 7440L---trit0.1-1C:
i_
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fita-- 09 reet4s

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tta----/Itt

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rt4-----rler--XCZX , 041- 444// ,
-- Auven-,
oCiV

,

1--

MI9C.3.1-.0141-20
I

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

Governor Strong

FROM

DATE

November 2, 1921_

Keynes Book

Mr. Carl Snyder

SUBJECT

Very sorry indeed to know that you are under the weather.
I'd like you to know that my remedy, the new serum treatment,
seemed to work very handsomely for a third time.

I had a severe bronchitis

while you were away and was in bed most of a week; and it seems to have pulled

me out very nicely.
If you are feeling well enough to take notice, I thought

you might

be amused at a few paragraphs in Keynes' book, about how strongly the gold
exchange idea for India was opposed by the very ablest bankers of London.
Even as here and now
The charts on foreign exchange are ready.

It took a long search

to get some of the material, for as you know a number of these exchanges
were not quoted in New York until the last year or two.
Is there anything I could get you or do for you?

.

dier
1f14icketoi Cleita:/--) ftout

7';11-*/

*tit( if




:t

lor

frtceci

Af

Eqr

IA_

4-5

,474-

MMC.A.90M.1,0

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

DATE

Governor

Strong

SUBJECT :

Carl

Snyder

November 22, 1921

Balances

Mr.

Street Loans and

Country

Is not the relation of sensitiveness in the reports of the street

When conditions are

loans and your reports just the other way around?

sound a strong bond market generally, almost invariably, precedes an upward
move of the stock market.

The street loans include

over by the dealers while, as I understand it,

your

loans on bonds taken

The

reports do not.

amount of bonds sold in the Stock Exchange, of course, ie small as compared
with the total of sales through dealers, etc.
dealers make large purchases and

these will appear in

finance them

It may ha
with the loaning banks, and

the street loans long before there is any indication

of an increase in your reports, which deal

principally only with

stocks.

Moreover, in times of very great dullness many of the large
brokerage houses are unable to utilize all their

funds

and their

accounts

may have a very considerable rise before their oloans begin to make any difference in your reports.
Moreover, the return of country bank money to New York and the rise

of their balances is one of the surest signs that the stress is over and that
healthy liquidation is proceeding.

It seems to me, therefore, that these

two items, street loans and balances, are likely to be much more sensitive
than the other.




M.C,A.OMA-20

FEDERAL RESERVE BANK
OF NEW YORK
DATE

,FFICE CORRESPONDENCE
TO

Mr. Jay

Br
SUBJECT-A-

November 23

1923

Charles_Addis!Address

Mr. Carl Snyder

Sir Charles Addis' address is
was saying here, and saying very well.
my favorite idea that reason counts for
where else--that our economic ideas are
traditions and sarroundings.

essentially the same as what he

1 think it illustrates very well

very little in economics, as anysimply alotional reaction from

This is a pretty notable example, because lir Charlet) is a great

personal friend of Keynes, and spoke of him when he was here with the highest admiration. His argument is very largely directed against Keynes'
position.

More than a hundred years ago Ricardo wrote to the effect that:

"A eentury hence it will scarcely be believed
A
that directors of the Bank of England would appear before Parliament to avow their belief that an unrestricted
issue of bank notes not backed by an adequate amount of
bullion would have no effect upon prices."

Scarcely any banker would go quite this far now, but it is essentially the base of the banker's position as regards exchange. They cannot
ascribe the principal cause of depreciation to the issue of an excess of
bank notes; but I think we have the clearest evidence that this is exactly
the case.

Sir Charles has his little fling at"claustrareconomics, but I

have very much the idea that,if the advice and ideas of the"claustral"
economists had been followed, lIngland would not be in the very serious situation T believe she is in now, and where I believe she will continue to
flounder for the next eight or ten years if the ideas of Sir Charles continue to be followed.

But my feeling is that there is more light and more statistics in

the world now, and that Keynes was right when he told us last summer that it
would take England about a year and a half or two years of her usual muddling
to work her way through to a clear perception of what was the trouble, and
that then they would not, of course, do such a thing as "devaluate" or revaluate. They would call it pegging. It will be interesting to see if he

is right.




November 25, 1921

Governor Strong

"The Budget"

Mr. Carl Snyder

was awaiting your return to talk to you about this.

It is very

difficult to compere the cost of such a publication, printed on news stock
and presumably on a rotary press, with our Monthly Review, which is on a
easy to

much better grade of paper and vary carefully printed.

get an exact estimate from as many sources as desired, if the Committee will
furnish the specifications.

Our Review is now being done by the Publishers'

Printing Company, end I have had a good deal of experience with them in pre-

vioys years, and have found than a very agreeable and desirable firm to do
business with.

My suggestion would be, if you vie% to re further in obtaining

estimates, that the Coemittee get in touch with Mr. Gantz, of the Publishers'
Printing Company,

and give him es close an idea an possible of just what is

wanted; and 17 nn sure the figure he yeeld give you would

he a very reasonable

one and approximately that which you could get from any other reputable printing house.

The estimates for

editorial east, etc., are quite separate from this,

and would pretty much depend on the class of matter and the amount of original
work that would be involved.




Our agreement

with the

Publishers' Printing

Company

attached.

I

FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4. 1-120 M-1-20

OFFICE CORRESPONDENCE
To

Governor Strong

DATE November 29,

1923

SUBJECT

Ftor-A__Mr._Snyliar
4

I gave Prof. Fisher a note of introduction to Hartley Withers and
to Kiddy, and I think he pretty well knows most of the rest.

I imagine the last paragraph of this note was just a general request
to his correspondents, and does not call for any reply.




SC.3.1-200M020

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
--Governor-Strong

QAT.

_Nov. 29,_ 1921

SUEBJECT

Mr, Carl-Snyder----

This bill was under discussion last Friday by the group, which inIt was agreed that ems of the
cludes Prof. Mitchell and the rest of us.
phrasing needed a little modification, as obviously the United States Government could scarcely go into the business of predicting panics or notifying
the public when one was due, especially pa no one has yet had the brains to
do this anyway.
The main object to be achieved, apparently, is that of taking it
out of the hands of the Senate Committee on Printing, to be able to suppress
the publication of business reports of the Department of Commerce, if it should
For the rest, it was agreed that the
happen to have a great fit of economy.
idea was fairly harmless and might be very cordially commended.
In point of fact, it is very doubtful if any Government official
could very seriously retard the flow from the pork barrel, once such a flow
has been authorized by Congress.
I believe I am one of the original proponents of this general scheme,
but I have never felt that the Government was any likely agent for its exploitation--rather the railroads and big corporations; and this latter is a
matter for economic education.




And this latter, I think it is clear, is coming rather rapidly.

./`

- -

(Copy of Senate Bill 2749, introduced in the Senate rovember 16, 1921, by Mr.
myon and referred to the Committee on Teducation and Labor.)
.

'

1111161

A BILL

To prepare for future cyclical periods of depression and unemployment by systems of
public works.
Whereas a sound economic policy requires that a larger percentage of the public
works and projects of the United States be undertaken and prosecuted during a
period of major industrial depression and unemployment, when labor and capital
are not fully employed in private industry, that a smaller percentage of such
works and projects should be undertaken and prosecuted during a period when
private industry is active and competing for the same men and material with
resulting business strain and overextension, and that the prosecution of such
works and projects should be utilized as a stabilizing force during a period of
It is the purpose of
over-expansion as well as during a period of depression.
this Act to grant the authority necessary to carry out this policy: Therefore
Be it enacted by the Senate and House of Representatives of the United States
of America in Congress assembled, That the head of each executive department is
authorized to prepare and to periodically revise the necessary plans for all public
works and projects within his jurisdiction concdrning which a report has been requested by Congress or a committee thereof under the provisions of existing law, and
to make the surveys and to prepare the engineering plans necessary for pronosed
public works and projects, in order that the ,eork may be commenced immediately and
properly prosecuted when an appropriation becomes available therefor.
(a) That the Secretary of Commerce shall prepare and publish monthly
Sec. 2.
reports as a supplement to the Current Survey of Business of the Bureau of the
Census, or otherwise, concerning the trend of business conditions, the approach of
periods of business strain and,overextension, or of periods of business depression,
in order that the President, the heads of the executive departments, the Congress,
the governors of the respective States, the mayors of cities, and persons engaged
in private industrial enterprises may properly prepare for and plan against such
periods.
e,.

The Secretary of Commerce shall transmit, vd.* his recommendations, copies
of such report to the President, the heads of departments, and to the Congress.
The Secretary of Commerce shall utilize the available statistics collected
or compiled by any department, bureau, office, or agency of the Federal Government
or of a State, or by an ine.iustrial. banking, labor, or other association, and he is
authorized to obtain such additional facts and statistics as may be necessary to
carry out the provisions of this section..




I
That the head of each executive department is authorized, upon the
advice of the President, to postpone the date of the commencement or retard the
prosecution of such portions of the public works and projects 'within his jurisdiction as may be necessary, in order to prepare for and to prevent a further rise
in the cyclical 1-2ave of industrial expansion and resulting business strain and
overextension and, rithin the appropriations therefor, to enter upon a maximum
program of public works, and projects as a preparation for and in order to counteract an impending period of industrial depression and unemployment. Where a time
limit has been specifically provided within which any such work or project, or any
part thereof, is to be commenced or completed, this section shall not be construed
to extend or remove such limit.
Sec. 3.




14130.3.1.001,1 -I-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
Governor Strong

TO

November 30, 1(321_

ppd.

.

Davenport's Pamphlet

tbi)
--

FROM

Mr. Snyde

1.0"

LILL

kiC>

CU'
I had lunch with Prof. Davenport yesterday, and he

Coo'

wishes me

to

say that he sent you his address on "The Post-War Outlook," delivered at

The American

Economic Association last December, as a kind of reply to your

letter and enclosure of the testimony at the Agricultural Inquiry; and as
expressing a little bit of his idea about it.
very glad to come

when you

interview.

teresting man.

he would be

and talk to you about some of the questions raised,

are back, if you desire.

by asking an



in

He says that

But

he does not want

He is, as you know

to embarrass you

a very stimulating and in-

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
TO

Governor Strong

DATE

Novem er 304 1921

SLJ ISJ EC,

Snyder

PROF"

Vie have been keeping these foreign exchange charts for your return.

Perhaps you would like to have them now.
get.

Some of them were rather hard to

We grouped them, '\as you will see.

I also have a little word on sterling exchange in this week's
Strnary.

As to the

general

question of attempting stabilization

after

listening to Monday night's two hours' oration by your friend Mr. V., I am
rather perausded that your view of a Fabian watchful waiting is perhaps
the wiser course--especially if last night's product was the best that our
1

"best minds" can offer'.

May I draw your attention in the first of the charts, also, to the
fact that both francs and lire, since about the first of 1920, have also appeared to run on a particularly even keel, as you will note?




I FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE

DATE

ro

aoyambr-Strong

SUBJECT

FRO.

Mr. Carl Snyder

December 9, 1991

of

Department

Conferences

Yesterday afternoon Mr. Sailer gave us a very
and

at the close

Statistics

interesting talk,

he and Mr. Case and Mr. Hendricks got to "reminiscing" a bit.

This suggested that the Thursday-before-Christmas Conference of the
department be thrown open to the bank generally; and that it be an Old Timers'

Experience Meeting, telling about the early days of the bank and its organization.

If this meets with your approval, we

present and preside.
,m1=====?
The little personal

wonderfully and

suggested

terest in the bank.



2to 1

hope very much that you can be

lisLe eta.

note that was

ei.w)-ta---Aet

struck yesterday seamed to go

that this was a real way to

promote

community in-

t
Vkt"

c,\C

tor




December 2, 1921

Governor Strong and Mr. Jay

auggestion Contest Score

7,r. Carl :7:nyder

"-e are fooling rather proud of oureolves.

The score by depart-

ments in the Suggestion Contest, the net not number of suggestions from each
department, was, for the six highest, as follows:

Collection Department

154

Chock Department

100

Cash Department

95

Securities Department

01

Custody Department

?I

Statistics Department

400

In LIs seoarument every member contributed at least one suggestion,
and the youngest member, both in yours and service, Mice Itudd, was among the

six highest, each of whom contributed twenty or over.




Stanley .havi
Dr. Burgess

Yr. Bellah
Mr. Snyder

!hiss turnett
'is° Rudd

These were:

FEDERAL RESERVE BANK
OF NEW YORK

TIME

INTIFFFICE

ROUT SLIP
A. M.

P.M

OFFICE SERVICE
MESSENGER SECTION

DAIS'
DEPARTMENT
DIVISION
SECTION

REMARKS

c,o(
FROM
N. B.

USE THIS FORM INSTEAD OF OFFICE ENVELOPE WHEN POSSIBL

DEPARTMENT
DIVISION
SECTION


TO INSURE PROMPT AND ACCURATE DELIVERY ALL COMMUNICATIONS SITDJLD BE DISTINCTLY LABELED


110




((The frontiersman's attitude towards banking and credit,

from Prof. Edward

Channing's new

"History of the United States,"

Vol. V, 1921, page 434:

"A reaction from this period (preceding 1829)
of agricultural and industrial expansion was inevitable,
but it must be said that both the going up and the coming down were greatly hastened by the actions of the
President.
Jackson, himself, had never had anything
that could be remotely termed a business education. He
had a plantation and slaves, but his income for the most
part had been derived from offices that he had held and
especially in the later years from his position in the
army.
As a frontiersman, he regarded credit and banks
as something provided by nature and the government for
the benefit of the converter of new lands to the uses
of civilization.
"There is something fascinating in the ingenuousness of the frontiersman in these matters.
He has
no objection whatever to the establishment of banks by
the State or by individuals and at once proceeds to borrow money, giving a mortgage on his crops and lands in
return.
As the people come from the East, as the forest is cleared away and the ground brought under cultivation, his property will double, treble, or quadruple
in value.
To him it is worth not what he paid for it
or what he could sell it for at the moment, but what he
can obtain for it in eight or ten years' time, if everything goes well.
To him time is no object: in the
spring he plows and plants and through the summer and
into the early autumn watches the forces of nature bringing the crops to fruition with a little hoeing or cultivating, now and then; and in the autumn he collects the
reward of his labor and of nature's work.
"As he joyfully ponders the affairs of his farm
or plantation, it appears certain that if he can clear
more land and employ more labor he will gain ever increasing returns.
It is at this point that he go es to a banker to borrow money and finds the man of the counter possessed of a "horror of land," for it is difficult to
handle if taken on execution.
Moreover the banker is
ill appreciative of future land values.
He will loan




2

money only on a portion of the actual selling value of
the land at the moment.
And then the banker will
sharply limit the duration of his loan to three months
or possibly to six.
Farm improvements mature slowly,
and when the time for payment comes the frontiersman
sees no reason for haste.
The land is constantly
proving in value, and the bank, therefore, is perfectly secure.
The interest will go on, corn or cotton
will be much higher in thirty days or in two or three
months; why not postpone the payment, therefore, especially as money is a little scarce at the moment, the demand for labor on the farm urgent, and travelling difficult?
To the banker, the aspect of things is very different; his obligations must be met on the moment, and,
therefore, if the debtor cannot or does not pay what he
has promised, the only thing to do is to take the property that was mortgaged as security and sell it for what
it will bring.
There was thus a wide gulf between the
ideas of the farm and of the bank.
Furthermore there
was little capital in newly settled regions that was not
already invested in land; the capital for new enterprises
necessarily came from the older settled parts of the
country.
It seemed, therefore, as if a few capitalists,
living afar off, were consuming the fruits of the farmers'
labors.

"Jackson sets forth the frontier view in his
letters.
He declared that banks are capitalistic institutions whose sole function is to make money, and capitalists united in corporations are devoid of ideals.
In
short, according to him a bank is not a charitable institution as it should be, but one where profit is the sole
object even at the cost of oppression to the people.
"Somewhat similar ideas as to banks and bankers
were held by most people throughout the country, even in
the Old Thirteen.
To them there was something obscure
in the workings of financial concerns and the word "credit"
possessed little meaning.
A banker or a bank opened an
office, issued notes in exchange for mortgages or other
collateral security, and demanded interest oftentimes at
a high rate, from twelve to twenty-five per cent, a year.
The borrower took the notes and immediately paid them out
to the government for more land or to a trader for more
stock or slaves.
It seemed as if nothing had been transmuted into something, lands, cattle, or labor; and the only
person to profit immediately was the banker, and thus he
who had contributed nothing tangible was the first person to
be rewarded."

C Wry

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reArmnA, RESERVE BANK
OF NEW YORK

WFICE CORR ESPON DENCE

DATE

January 10,

.

SUBJECT: Index of business conditions

To

Mr. Snyder

FROM

W. R. Burgess

published by the Arerican Telephone
and Telegraph Compa_ny

The index of business conditions of the Imerican Telephone and
Telegraph Company is made up of the following items with the percentage
weights indicated:
Per cent.

Outside bank clearings deflated by the
price index of the Department of
Labor according to a formula making
allowance for the lag in the effect
of price changes

Pig iron production

20

Gross revenue per ton mile

15

Number of business failures inverted

10

Copper production

5

Cotton consumption

10

Bituminous coal production

5

10

Prices, Department of Labor index

These figures have never been published except in a confidential
report on business conditions.

r)-eA).-:-0&c,
0-2)44

YLO




1922

1

oatti;,0

OMR MEW

FE_DERAL RESERV__

OF NEW YORK

11111rMig'MM.-

FFICE

DA,
11416 ;11110. /7 eee
-

1RRESPONIDENCE

Mr. Jay

SU BJ ECT

Mr. Snyder

_15

The Currency Needs of the

Country

i)vva, (5,

k

tt

This department is bringing to a conclusion a study which has
extended over a rather long period and which is, I think, of fundamental
importance in the determination of our currency policies, and of especial
in/PC-rtance just now, when we seem on the eve of a tremendous campaign for
currency inflation and fiat money.
Our investigation proves, conclusively
we, think, that:

An expansion of the currency, or of bank
credits, beyond the normal rate of increase does not

bring_any

co rrespon ding_ in crease in_ p ro duction or in.

of

the volume

trade.

Its sole effect, appareny is to inflate
prices, ex cit e_apequktitorki_Lbria_or2.1,2'
Sat..speculative

"booms " with an ensuing_p_m_iic.and

The statistical and conclusive proof of all this has hitherto been
We now have this proof, and it extends, by induction at least,
lacking.
over something more than a century.
-NI;
It was most conclusively shown in the late war perio and after.
In that period the peak of the nation's production was reached in the latter
half of 1916 and the first half of 1917.
Our results here are fully confirmed by the parallel and independent inquiries of the Harvard Bureau of
Economic Research under Prof. E. E. Day, of Prof. V. W. Stewart at Amherst,
and of Prof. 1,J. I. King, of the National Bureau of Economic Research. Their
results, as ours, show that this peak of production was not sensibly exceeCed
either in the war or in the ereat boom that followed the war, and this in
spite of the enornious increase in the volume of circulating medium in the
form of currency and' bank credit.

Our results show further that within the last half century there
have been periods of normal or more than normal production, when the volume
of the currency was not increasing at the normal rate.

_




We have, moreover, established what was this normal rate of increase
in the currency over more than a period of a century.
This normal rate of
expansion is at about 3+ per cent, per annum and has not sensibly changed in
any quarter of this period.
Where the rate of expansion in currency has exceeded this normal
rate there hac been
most invariably a corresnonding increase in prices.
Further, we have established that in the last half century, just
as far back as the statistical material extends in sufficient quantity, the
normal rate of production is likewise about 3-1- per cent. per annum.
We find furth er good reason to believe thai
in physical terms, the is to say, the total quantity

e volume of trade
gools and services

INMEMMEMIXIMIR,

A

41111.111111111111111,

FEDERAL RESERVE BANK
OF NEW YORK

FFICE CORRESPONDENCE




41

Jay

DATE

SUBJECT:

Mr. SAyder

2

WIPP

marl 13

The Nrrotogy Needs_ of the

aountry

end services sold, has likewise grown at this sane normal rate of 3+ per cent.
per annum.

In other words, we have found, and we believe that this is a dis-

covery of fundencsatal import, that the amount of currency needed corresponds
exact/y -:ith the total amount of f7ooda produced, and that this total !production is not increased through an expansion of the currency.

The increase of bank credit is at a uomowhat greater rate, a little
over 6 per cent. per annum, owing to the increasing use of checks in the
hruidling of business. Here again it is clearly shown that a great expansion
of bank credit moans no correolonding expansion in the rate of production.

It wae with the idea that we might establish a now point of view,
based upon definitely ascertained facto instead of abstract and unverifiable
theory, that this department began, nearly two years ago, the tabulation of
indices of production and trade which would show exactly what was the rate
of growth in our industries and whether that rate of growth varied very
greatly from one decade to another. We have eAablishod that it does not.

*e have carried this inquiry back for nearly half a century in
fifty o the most important lines of industry.

re have then carried back the some inquiry, so far as the material
extends, in important individual lines, as, for example, pig iron production
back to 1854, bitutsinourt coal production back to 16221 anthracite coal pro..
duction trIck. to 1811, and cotton oonetmiption back to 1827.

All of these tell the same story, vtz., of a very steady rate of

growth from one decade to another, scarcely interrupted save in cotton consumption even by the period of the civil War.

This inquiry, I should like to point nut, has been the 14114i: of the
I cannot help the feeling that
it should be worth, in the next two or three years, to the country and to
sound business and to sound banking, tens or hundreds of times its cost.
small group known as the Researeh Division.

In the Bryan free-silver canpaim, and in the dark days of the

woback erase, we could arNe and beliovs but we could not prove,
we have definite proof.

ow

FEDERAL. RESERVE BANK
OF NEW YORK

RE
e rno r _Strong

ENCE

DAT

suB,Ec,

The effect of bank expansion

nyder

It is very good news that you are getting along so well, and I hope
devoutly it will continue.

The passage of the Senate bill, adding a "farmer" to the Reserve Board
has stirred me to reflections, as I dare say it did your-As though the addition
of a "farmer" was the remotest step towards that foreknowledge, prescience and
understanding which alone would contribute in any way to the solution of the
farmers' problem.
I confess to a very great disappointment that the Reserve System has
not seemed to be more effective in preventing the wild runaway of prices which
came with the post-war boom, and the inevitable and invariable collapse which
followed it.
And it is this failure, of course, which has brought on the
whole of the present agitation.
I 'malt to show you as soon as you get back some extremely interesting
results we have been obtaining lately, which seem to show conclusively that:

The great rise in prices did not stimulate production.
from this, it seamed really to check production in many lines.

So far

In many leading and most important lines there was no overproduction in 1920, using this word in the sense of the quantity being above or
below the line of normal growth.
So far from this, in the iron industry, the copper industry, in
cotton spinning and perhaps several others, production has rather been below
this line of normal growth than above it in the three years since the war closed.

The 022.2 effect of the great expansion of bank loans, therefore,
was the great rise in prices and the resulting collapse, with all the disturbance
to society and business and human happiness which this brought about.
I feel that this is very important work that we have done, and I want
to go over it with you; and if you are convinced that it is sound and unimpeachable I should like to talk with you about ways and means of utilizing it for
the education of public opinion.
It seems clear that we have a very serious fight ahead of us, and the
one thing that has always been lacking in sound money controversies has been
very clear and incontrovertible proof.




I attach a little memorandum to Mr. Jay about it.

C.), 1,W YCJI,$.

DFFICE CORE SF'ONIDENCE

DATE

nPvernor Strong

SUBJECT

February_54_1922

Letter to Mr. F. W. Foote

Mr. Snyder

FROM

I should rather like you to see the reply to Mr. Foote and his
answer.

It was quite a job to dig out the material, and I thought of send

in a a copy of it to Mr. Perrin, of

one of the
,

Land Banks out in

San Francisco.

California

The Vice

has been making

?resident

a similar

of

charge, and

es you see by this correspondent, refuses to recant.

111111111111-

You will see that the source of all this stuff was the same, i.e.,

Mr. Brookhart, of Iowa.

note

T thought of writing directly to him a very nice

of innuiry as to the source of his figures.

Do you approve?

Chairman Anderson also wants a copy of the letter, as per enclosed.

II




111111-

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OF NEW YORK
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/

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TIA

REMARKS

tA a--7 1-.0

tat
FROM

.

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TO INSUREPROMPTAND ACCURATE DELIVERYALL COMMUNICATIONS SHOULD BE DISTINCTLY LABELED


[7
Mr. F. W. Foote,
Vice President, First National Bank,
Hattiesburg, Miss.
Dear Mr. Toote:

As Governor Strong is away, your letter regarding farm loans was
referred to this department.

We have had considerable difficulty in getting

at the source of the statements made by ex-Governor Brough, in the newspaper
clipping which you sent.

Apparently they had their origin in the testimony

given by Mr. Brookhart, representing "a National Farmers' Union, of Washington,
Iowa," in a hearing before the Joint Commission of Agricultural Inquiry last
summer.

His testimony is given in Part I of the hearings, page 9 ff.

Therein he declared (page 11):

"Of the primary deposits in all the
banks of the United States, agriculture furnished
approximately 50 per cent., labor 20 per cent., and
other business 30 per cent.
Senator Capper: "Are those official
figures?

Mr. Brookhart: "No; those are estimated;
but I will sustain them with some official figures
that point quite strongly to this conclusion."
But no official figures were given.

On page 18 he says:

"I figured that (the percentage) out with
Mr. Howard, the president of the Farm Bureau, just
before the war, and we estimated, after considering
everything, that it was above 50 per cent, that was
deposited by the farmers."
Again, on page 29, he says:
"But let us assume that my claim, is true
that 50 per cent, of the bank deposits are made by
farmers," etc.

We have been able to obtain no evidence that there is any foundation for these estimates in fact, any more than for Mr. Brookhart's further
statement that (page 12) the farmers pay "56 per cent, of the freight rates,"




2

etc., of the country.
of
So far from-this, there is much to suggest that the proportion

is
deposits in the banks of the United States furnished by agriculture

relatively small.
elaborate
For the Agricultural Inquiry last summer this bank made an
in
computation, which is summed up on page 653 of Part 13 of the Hearings,

the part containing the testimony of Governor Strong.

Analysis was made of

the Federal
the capital, deposits and loans of about 9,500 banks included in
semiReserve System, by counties, classifying the latter as agricultural,

agricultural and non-agricultural.

The basis of this classification is

given on page 650, wherein it is stated that:
"Counties were classified as agricultural
when the value of their products according to data
obtained from the 1920 census reports, the Geological
Survey, the Bureau of Soils, and all other available
sources was estimated to be not less than BO per
cent, agricultural, as semi-agricultural when their
products were between 50 and BO per cent, agricultural, and as non-agricultural when their products
were less than 50 per cent. agricultural."
Combining the two first divisions of agricultural and semi-

agricultural, it is still shown that the percentage of capital and surplus
in these 9,500 banks

in

these counties was only 27 per cent. of the total,

and the percentage of time and demand deposits in the banks of these
counties was only 25 per cent, of the total.

It is perfectly true that a large number of deposits from farmers
may be included in the banks in counties classed as non-agricultural; but,
on the other hand, it is likewise true that possibly one-half or even twothirds of the deposits in the banks classed as agricultural or semiagricultural were not from farmers but from merchants and others in the towns.
Balancing these two there is much reason to believe that the proportion of
deposits derived from the farmers is much less than 25 per cent., rather



3

than more.

This conclusion is borne out by several divergent considerations,
first of all, we now know approximately what is the total income of the
people who live on the farms, as compared with the total of the whole country.

This has recently been made the subject of an elaborate inquiry by the
National Bureau of Economic Research, an impartial organization of the
est standing, and under the direction of Prof. W. C. Mitchell.

high-

Their

estimate for the years of 1917, 1918 and 1919 is that the average income
derived from persons living on the farms was less than 20 per cent, of the
total income of the people of the United States.

This included the cost

of the articles produced and consumed on the farms.

These estimates accord little with popular conceptions and customary
statements; but they are certainly the most careful that have ever been made
and their impartiality is above reproach.

For the rest, it seems clear

that the wealth, production, and in general the importance of the farms have
-

been in recent years quite absurdly exaggerated.

Farming today is only one

of our most important industries, and not more.
The proof of this is very clear.

We usually think of "the West"

and "the South" as =prising the great agricultural area, while the great
bulk of the manufacturing is done in a narrow section of the Northeast.
Some figures regarding the latter are rather instructive.

If we take the

area east of the Mississippi and north of the Ohio Rivers, we find that
this small section is

but about 17 per cent, of the whole of the United

States, yet it contains nearly three-fifths of the population, three-fifths
of the wealth, does three-fourths of the manufacturing, produces seven-eighths

of the coal and iron of the country, and has three-fifths of the total railway traffic, measured in ton miles.




All the rest of the country, known generally as the West and the

As you know, the total of farm mortgages more than doubled from
1910 to 1920, and in my own native State of Iowa there is clear evidence
that%this huge increase of debt (in that State 139 per cent.) was almost
exclusively due to the buying of more land and did not increase the total

yield of the State by even half a million bushels of grain.
this was generally true for the whole country.
practically no increase in production.



I believe

All this new credit brought

4

South, does only one-fourth of the manufacturing, has only two-fifths of the

population, two-fifths of the wealth, and two-fifths of the railway traffic.
Now ,when we come to banking strength, we find that in the 30,000

Reporting Banks Of the United States the percentage of capital, surplus and
deposits in the banks of the Northeast section is equal to two-thirds of the
whole.

ake

It is perfectly true that, even in this Northeast section, in states

New York and Illinois, farming is still an important industry.
But, on the other hand, it is equally true that the other 83 per

cent, of the country also has large cities and large business enterprises
demanding heavy banking credits.

I doubt if it could be shown that, even

in this distinctly agricultural area

one-half or even one-third of the bank

deposits could be derived directly from "agricultural interests," that is to
say, not one-half or one-third of one-third of the total of the country.
I should like to go further and suggest that, on the other hand, it
seems probable from all the available data that considerably more than onethird of the total of all loans in the United States, banking and otherwise,
are devoted to agriculture

and to the movement of agricultural products to

market.

First of all we have the recent census figures on farm mortgages.

On about two-thirds of all the farms of the country, viz., those
operated by their owners, the total of farm mortgages outstanding in 1920
exceeded 4 billions.

This means a total of between 5 and 6 billions for

all the farms, including those operated by tenants.

A

In the compilation of this bank, referred to above, as to the total
of deposits and loans in the agricultural and non-agricultural counties of

the Union, it was likewise shown that in the 9,500 Reporting Banks included
in the Federal Reserve System the total of loans an

discounts in the banks

in the agricultural and semi-agricultural counties last April exceeded



4i billion dollars, as against about 14 billions in the non-agricultural
counties.

This would be approximately 25 per cent.

But even if we suppos

that the proportion for all the country was less than this, and only about
in proportion to the farm income, viz., about 20 per cent., this would still

mean something like 5 billions out of a total of approximately 25 billions
of commercial loans in the banks.
It may be that there is here some duplication, but it is also to

be remembered that we have 3 billions and more of loans by savings banks and
others, a.

consider,able part of which goes to the farmer.

It is further impossible to distinguish in bank loans between thos
made directly to the farmer and to middlemen, speculators and others.
well known that the banks of New York

It

ahicago, New Orleans a

cities make very large loans on cotton, grain, hogs and other farm products,
some of which goes to the speculators, but also a very large part to the

millers, shippers and cotton factors, without whose intervention the successful marketing of the crops would be almost impossible.

Taking it as a whole, I would hazard the guess that at least onethird of the total loans of the country, including
loans, is upon farms and farm products.

both bank and mortgage

In other words, that, so far from

the farmer or farming industry being starved of credit, the probability seems

to be that it has credit all out of proportion to its actual value and importance.

Instead of the farmer being the heaviest of depositors, it seems
probable that he is among the smallest in proportion to his numbers, and,
on the other hand, that he is among the heaviest of borrowers, and that out
of all proportion either to his numbers or the worth of his product.




This cry of more credit for the farmers has, as you know, been

6

chronic practically from the foundation of the first banks in the United
States.

Nothing is more instructive than to go back seventy or eighty

years, at the time of the opening up of the Ohio and Mississippi valleys,
and to read of the enormous loans extended by the East to these States and
the calm way in which they then proceeded to re3ist payment, oftentimes
either of principal or interest.

Your own State of Mississippi, if you

recall, contributed one famous page to this instructive story.

At that time the agricultural population made up 85 per cent, or
more of the total of the country.

Today it is but a little more than 30

per cent., and steadily declining.
The total amount loaned by banks, companies and individuals to
the farmers at the present time is, in proportion to the number of farms

and farmers and the total value of the product, undoubtedly greater today
than ever before in the history of the country.




Very sincerely yours,




SUBJECT

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESP NDENCE

MISC. 4.1-120 M-1-20

DATE

192_

iSC.3.1-200M-9.20

FEDERAL RESERVE BANK
OF NEW YDRK

.)FFICE CORRESPONDENCE
SUBJECT.

Governor Strong_

.m

ATE

February 7, 1922

Judge Pendleton's letter

Mr. Snyder

We have nothing in the way of literature which deals effectively
and in detail with the points which Judge Pendleton raises.

I should like

very much to get up something on just this line for your consideration.

To this end, may I ask if you have had a look yet at the little sketch of a
booklet on the Federal Reserve System which I did rather hurriedly a week
ago?

It was given to Mr. Jay.

I should like very much to get your reaction on it, and whether
its general tone and character

might

be continued for the Pendleton matter.

.}T observation is that the understanding of lawyers and others on matters

of finance does not differ very much from that of the average farmer.




441

FEDERAL RESERVE BANK
OF NEW YORK
'

ORRESPONDENCE

"E

DATE

February 15, 1922

SUBJ.., The Edison Questions

With reference to making a distinction between gold money and other
kinds of money, in the reply to Mr. Edison:
The very first question Mr. Edison asks is:
"What, in your opinion, would be the
approximate market value of a troy ounce of pure
gold if all the governments of the world should
demonetize it?"
That is, of course, a question no human being could answer, but it
is fairly certain that, with the vast stock of gold now existing, it would
fall heavily in its exchange value for other

goods, if

its use as money was

wholly discontinued.

The industrial demand for it could not take care of this huge

4,
stock in

41,1-49

generation.

Therefore, does it not seem better not to attempt to make any distinction between

gold

and.paper money, because the point he makes that part

of the present value of gold is dependent upon its legal tender qualitieeEventually, of course, over a sufficiently long period the value
of

gold

would be determined by the relative labor cost; but even here the

demand would be a large it era ,

for it would determine whether or not certain

mines were to be worked or not.




etq.c.,a

alickciAkA

.MS-2

m-9-20

FEDERAL RESERVE BANK
OF NEW YORK
I

INTEROFFICE

ROUTE SLIP
A. M.

OFFICE SERVICE
MESSENGER SECTION

DATF
DEPARTMENT
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REMARKS

--rjAef '6)

FROM

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MISC.3.1-200M-D

FEDERAL RESERVE BANK
OF NEW YORK

UFFICE CORRESPONDENCE
TO

FROM

Ur. _Snyder

DATE

SU EIJ EDT:

February 149_1922

Street Loans and Balances__
of correspoudenta_

R. G. Bell&

Law Point
1921

Street Leans for Correspondents
"
by New York Banks
Total Sept. 3,1921

Street Loans for Correspondents
Balances of Correspondents
Total Alcust 31, 1921

Feb. 10, 1922

350,369,000

4

316.669,000

511,325,000
497,043,000

$ 669,038,000

01,008 368,000

0 353,472,000
533.782.000

$

$ 887,254,000

01,133,050,000

Increase

'33-9,330,000

511,325,000
621,725,000

245,796,000

MISC. 4.1-120 M-I-20

FEDERAL RESERVE BANK

OF NEW YORK

rH.




)FFICE CORRESPONDENCE
To

Governor Strong

F

DATE Feb=9./7_21_1-192-2

Mr. Snyder

SusJEcr:_Letter to Mr. .

The attached draft of a letter to Mr. H. A. Wallace is on an
Important matter of policy, and I should be extremely indebted if you could
find time to give me your judepent thereon.

If it met with your approval and seemed to you of value, I had

thought that maybe the material might be used for a brief magazine article.




FEDERAL RESERVE SANK

MISC. 4. 1-120 M-1-20

OF NEW YORK

1=FICE CORRESPONDENCE
To

SU8JECT:Incoma.

_Gav_arno_r Strong
M

DATF

February 21,

19

si the_Uited Statee-

Mr. Snyder

I am wondering if you
in the United States,"

have seen the little volume on "The Income

from Prof. Mitchell's bureau.

represents more than a year's hard work of four of
ever

been trained upon this problem, you

very modest.

It was

something not more

mind for a book for Macmillan's.
little

further about it.

Althouda this

the best

will see that

its

minds that
dimensions

extensive than this which I

Sometime I

have
are

had in

should like to talk to you

a




10101

AS-2 150M-9-20

FEDERAL RESERVE BANK
OF Ngw YORK

TIMF

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FEDERAL RESERVE BANK
OF NEW YORK

February 17, 1922

My dear Sir:

I have examined with care and attention the questions you have
propounded.
Needless to say, they are ingenious and interesting; but,
if I may offer comment, as You invite, it seems to me that the same essential idea is contained in them all; and it is to this essential idea
that I would address my reply.
That idea, as I apprehend, is that money and capital are practically the same thing.
But a very little observation shows that they
are not.
Capital consists in cultivated lends and machinery and processes
wherewith to make goods and produce things; and likewise in the technical
and nrofessional crafts needful to carry on a great industrial state.

Money, if I may so phrase it, is merely the lubricant by which
the great volume of needful exchanges is carried on.
You can print money
or manufacture it in any desired volume, and, by Government fiat, call it
legal tender.
But you cannot print or manufacture capital by fiat.
As, for example; it would be perfectly possible for our Government
to print, let us say, 10 billions of new money, and, by undertaking large
expenditures for public works or simply by bonuses, to force this money
rapidly into circulation.
Or it could print 10 billions in bonds and put
them into the banks and expand bank credit by a corresponding sum.

But all this would not needfully add an appreciable amount to the
actual capital of the country, that is, its ability to produce goods.
In fact we had, to all intents, exactly such a happening in 1919
and 1920.
Our banks expanded their loans by nearly 6 billions of dollars,
an this, injected into the business current, led to what?
increase in production and in the means of production?
By no means.
In
a few notable lines there was some increase, but for the country taken as
a whole there was none.

We now know definitely and conclusively that the total product
of the country in the three Years following the close of the war, the total
output of the farms, the factories, and all forms of productive industry,
has been slightly below the level reached in the war, and below what would
have been the line of normal growth if there had been no war.




FEDERAL RESERVE BANK OF NEW YORK

2

Mr. Thomas A. Edison

The chief result of the great expansion
a rise in prices unprecedented in peace times, a
all over the country, a serious demoralization of
and producers, and, following that, as invariably
very severe collapse.

of bank credit was simply
great wave of speculation
the morale of the workers
and inevitably canes, a

Investigation during the lest year or more, by several different
agencies, has shown that in the last half century the productive capital of
the nation, its ability to produce goods, has grown pretty steadily at the
rate of about *per cent, per annum.
In this time we have had a dearth
of money, with falling prices, and great surfeits of money, with rising or
And throughout it all the real and actual production of
soaring prices.
the country has not materially varied, except in times of crisis, as in
1893 and in the last year.

There is another side to this question that may be called the
Those who profit chiefly by a great rise in prices are the
moral side.
speculators and gamblers and the owners of lands and machinery.
And what
they gain thereby comes from the pockets of all the people, the poor, the
thrifty and the hard-working, whose incomes and salaries can never advance
at the same rate as prices.

Inflation simply puts a premium upon profiteering, stirs up every
kind of social unrest and discontent, and spreads among the people a feeling of the injustice of society.
Those who have undergone
save a little money find their savings worth two-thirds or half as much as
They have been robbed of a considerable part of their holdings.
before.
That, indeed, was John Stuart Mila'S definition of inflation, simply robbery.
I cannot believe that you or Mr. Ford, or others who have proposed various schemes for expanding the currency of the country truly wish
I think it is laboring under the mistaken
to bring about any such result.
impression that there is a dearth of currency and money in this country.
I cannot nut it too strongly when I say that this is absolutely the reverse
of the fact.
There is now no dearth of money or of bank credit in this country.
On the contrary, we have the machinery to create as much of it as could
possibly be needed to promote a healthy growth of enterprise and industry,
I am not sure that this is not at the present
perhaps even too much.
moment our greatest danger.
It is for these reamns, my dear sir, that it seems to me that all
of the questions you submit involve a fundamental misconception of the
nature and effect of capital and money and the means by which the one and
the other may be created or enlarged.

Please believe me, with great respect,
Very sincerely yours,

Thomas A. Edison, Esq.,



Pierre Jay,
Federal Reserve Agent.




4. 1-120 M-1-20

\ADERAL_ RESERVE BANK
OF NEW YORK

A

-

\pitor--

)FFICE CORRESP NDENCE
To
Fh.

SUBJECT-

Mr. Snyder

February 23,

DATE

192 2

Letter to Mr. Henry A.

Wallace

,

Mr. Hen

Secretary of Agri
League, and objected
Declaration of

A. Wallace,

ture,

Editor of

Wallace's Farmer

and son of the

is one of the Vice-Presidents of the Stable Money

very strongly to

one of the

articles

of the proposed

Purpos4e of the League.

Because I t ought that this was a

very good opportunity to go

in-to the whole question of the relationship of the fanners to the banks, and

the Federal Reserve Banks in particular, I have drafted the accompanying letter, which was to be a personal letter from me.to
is attached herewith, with the

Governor's

note.

Mr. Wallace.

The draft

H. A.

allace, Ise.,

editor, eallace's Farmer

Des Uoines, Iowa.

Ay dear Mr. Wallace:

have read with Interest your letter to the President of the Stable

Money League, oujectine to the following paragreph in the League's Declaration
of Purpose:
"To defene the American clanking system

against all attempts at political or class
control or interference."
You state in year letter that:

eTne farmers feel that there has been

too mach banking control of the American
banking system."

AS it seems to me this is one of the most important euestiens now Defer°
the country; and, because tnero has been incessant agitation endeavoring to represent that the banks of the nation are under some kind of control inimical to the
farmers, or that the farmers ought to have a greater share in that control, might
I ask your consideratien of the following:

First of all, there are in the country, an you know, a total of

30,000 banks, more banks than in all the rest of the wide world put together.

;leftover, where in almost every oteer great comeeecial nation the banks
of the country are centereu In a few large controls, and centrally owneu, as in
the case of the great banks ef 'Auden, Paris, earlin, and Canada, tho banks of the
United etates are almost entirely locally owned and locally controlled. Practically
speaking, branch banking or chain banking is unknown in the United States. ro
other country in the eorld has such a degree of decentralization of banking pcmer.
Of these 30,000 banks in the United States, more than 20,000,
that is, more than two-thirds of the whole, are not members of the Federal leserve
eystem or in any way under the control of the eeueral eeserve aenks. Outside of
the 6,000 National banks of the country, only about 1,600 of the tate banks and
trust companies, out of a total of nearly 22,000 state banks and trust companies,
savings banks and private banks, have become members of the Feueral lesorve ystem.
.

The larger part of these 20,000 banks outside of the eeuerel leserve eystem are chiefly ehat are calleu ecountre eanks,e locetee for tee must part
in small towns anti haeine a large part of their dealings with the farmers anti those
who locally handle the farmers' prouucts, tee grain buyers, the butchers, etc.
Does anyone have tee idea that tease e0,000 country beeks are under some inimical




"banking control," or under the control of

atreet?"

I think we have very definite proof that they are not. It is
clear that "Wall Street," and many bankers anu merchants of the :4;ast and of the
large cities, and especially of Hew York, began to feel clearly the waning of the
great boom of 1919-'20 at least

early in

the

latter year, and segan to curtail

Jut the rest of the country,
their commitments and reduce their beak loans.
and especially the "country banks," went on expanding their loans ana commitments
until late in the year.
the whole Federal eserve system the peak of the loan ex1at that of the Vow York disthe fall of 1920.
pansion was not reached
trict had been reached a fall year before, and throughout that year had been

In fact, for

until

steadily declining.
Outsiue of the mercantile and
Philadelphia, New York and aoston, there was no

districts of
nearly a year after the fall

manufacturing
appreciable contraction of loans
That was
evident until the early part of
of prices had begun, and not until after this fall in prices had passed all
Does it
records of declines in prices in this country in more than u century.
"the bankers should not
seem fair to you to say, in the face of these facts, that
have shown such an overwhelming, such an indecent haste to get back Le normal conditions, starting early in 1920."

last year.

There tOA,

similarly, no evidence of contraction in the currency

the beginning of 1921, not 1920. The peak of expansion of ieadoral 10serve notes was not reached until in December of tee latter year.

until after

I should next like to consider for a moment the idea persistently
reiterateu that agriculture Is "the great basic industry of the Uniteu states,"
anu that the prosperity of the whole country is dopenuont upon this single inaustry.
(5)

It is clear that this is no longer

true.

If you will take the portion of the country lying east of the Alssissippi
and north say of St. Louis, Cincinnati and lichmond, you will have an area which
includes less than one-fifth of that of the whole country, only about 18 per cent.
indeeu, and furthermore an area in which the population on the farms is relatively

small, in spite of the fact that it

Includes such rich agricultural states as !tie-

consin, Illinois, Indiana and'New YoOk.

In this area more than 67 per cent. reside in the large cities or towns;
included sixty-one Of the one hundree largest cities of the

and in this area are
United States.

rov, in this section, which I will describe as the North East of the
country, there is containea:




Three-fifths of the total population.
Three-fifths of the estimated wealth.
Three-fifths of the total railway traffic.
Three-fourtas of the total manufacturing of
the country.

seven-eighths of all the coal and iron of

the country.

)1

;ikeasise in this North cast section is to be fauna more than 69 per
cent. of the total bank deposits of the country and more than 88 per cent. of
all the savings bank deposits of the country.

Now consider what that means for all the rest of the country, more
than BO per cent, of the total area.
It means that the remaining four-fifths
of the country, the typically agricultural part of the country, has less than
40 per cent. of the population, 40 per cont. of the wealth, 40 per cent. of tho
total railway traffic, and less than 25 per cent. of the manufacturing.
aoreover, it has less than 31 per cent. of the commercial bank deposits of the

country and less than 12 per cent. of the savings bank deposits of the country.
14

"mar in mind that
Now the inquiry that I would make is simply this:
these bank deposits are locally owned anu are the product of local increments in
wealth. The aispesition of these deposits is in the hands of the local banks
exclusively. The amount of these ueposits which is sent to the large cities
redeposit or for the purchase of commercial paper is almost negligible, less

than 10 per cent, of

fl 11for

the total.

New is the idea back of the present agitation that the disposition of
these deposits ought to be under some control or direction, political or otherwise, other than by the boards of directors of the banks in which the deposits
are made?
There is now no such control, oven by the aeaeral eserve Janke or the
Federal less:rye Board, even of that portion of the nation's deposits which are
The only control ay the Auerin the Member 3anks of the Federal eserve System.

al aeserve aadks or asard of any moneys at the present time is ever the reserve
deposits of the Iember awake, which amount to slightly less than 8 per cent, of

the total deposits in these aember aanks, which means not much over 5 per cent.
of the total deposits of the country. And the only control which the Fbaeral

Reserve 3anks have over these sums is that of reloanine these sums, to the member
as you know, the le'Janke themselves, or in the purchase of commercial bills.
servo %aka cannot directly loan a dollar to any person, firm or ordinary corpora-

tion in the Skated atates.

--Asaaa

If there is to be any kind of control or direction of the disposition

of the banking deposits of the United States, other than such as now exists, by
whom is that control to be exercises, and is this control to be political or coma
meroial? Is a body at tashingaon, or in the Federal eservo 3anks, or anywhere,
to day arbitrarily that the deposits of a bank in Maine or Indiana or Oklahoma or
Idaho are arbitrarily to be removea from the control of the banks in which they
are depositeu, and loaned to another set of banks, let us say in New York, or
Chicago, or Iowa? And if so, on what plan or principle in such an arbitrary transfer of banking funds to be made? I should be deeply interested to know your idea
or that of others who advocate it, what would be the plan of ,loontrol,' of banking
fends other than at present exists not only in this country but all over the world.

There is, I feel, yet another side of the present agitation
(7)
which deserves very careful attention, and that is the belief that teo farmerualways
"get tho worst of ite'. and that this is especially true at the present time. As
to this, I submit the following:




4

According to the lust census of agriculture, in 1910, the total amount
of capital improvements on the farms of all the United States was reckoned about
12k billion dollars. This included the value of all the buildings, implements,
livestock and other improvements on the farms. New, according to the Year ebok

of the Department of Agriculture, the vele° of ail the farm crops in the last
two Jeers before the war was as followes
1913
1914

16,133,000.000
6,112,000,000

This did not include the value of animals and animal products, which
was nearly 4 billions more.
VOW, according to the same source, the value of these same crops in the
four :mars from our entry into the ear was as follows:
1917
1916
1919
1920

Total

Four years crops at
1913- '14 average value
Excess income in four years

413,479,000,000
14,331,000,000
16,013,000,000
11,145,0qp,000

04,966,000,000
2Auld92OWAQ02

tIZ 0,476, 000,000

In the same eeriod the value of term animals and animal products more
than doubled, so that if these were added this excess might ran well auove 40
billions of dollars. These are, of course, gross values and not net income.
Nevertheless, I point out that it was still the excites income over and abuve what
was the farmer's average income before the wars

NO doubt a large part of this excess income was ubsorbeu in increased

costs of labor, living, machinery, etc., and in income taxes, possibly two-thirds.
la for 1919, a-yeer of high prices and high gages, the Census gives
the total exponeitares of the farmers for ',leer, the board of help, and for fere
tilizer as only #3,000,000,000. Was it less than half this in 19137
At this rate then the excess eepense was not much over say six billions('
leaving for the four years, a net excess of income over normal or prewar of the
staggering sum of 24 billions for the crops alone.

Sat suppose it was only about half this. Then in four years they would
have had a net excess income over their normal income equal to more than all the
Capital improvements on all the farms of the Uniteu states accumulated through a
hundred years and more of American fareing.

Imposing, now, that the farmer has one bad year, 1921. Is all this
colossal excess income in the four years free 1917 to count for nothing?
all been lived up, squandereu, or frittered away? j do not believe it. I believe
the enerican farmer at the one of 1921 had more wealth, and at the presunt moment
has more wealth, comfort, and a larger share of this world's gooes in proportion to
the rest of the population than over before in his history, prior to the world war.



5

ilaybe in the Civil r:ar and just after there was something comparable,
but nothing to the same degree, for in the Civil '"ar prices readhed their peak
in 1864 and fell rapidly and continuously from that point.

(0)

One thing we o know, however, and that is

that the farmers

of the nation did not use this 10 or 15 billions of excess income in these
four years to pay off their debts.
On the contrary, as a whole, according to
the Comas, the farmers from 1910 to 1920 doubled their debts. In your own
State, which is also my native State, farm morteges, as is well known, rose
140 per cent.
In other words, it seems to me that, perhaps of any decade in the
Whole history of the nation, the farmers of the country have now the least
reason to complain.

There is another side to consider, and that is the farmer's
on contrioution to the wealth and to the banking deposits of the country. At
the Joint Agricultural Conference, hole in Tashington last summer, of which
Congressman s4ydney Anderson, of Ainnesota, was Chairman, Ur. 3nith 7. 3roo1chart,
of -ashington, Iowa, made the assertion that the farmers of the country "contribute 50 per cent. of the primary deposits of the banks of the country;" and
this statement has been repeated all over the country, anu this percentage com-

pared with the percentagm of loans made by aeueral Aesurve .lanks to the farmers.
I cannot find that there is the slightest justification for !Ir. arookaartes

On the contrary, I believe
statement, nor do I believe that he can justify it.
that the total of agricultural deposits is less than 25 per cent. of all deposits,
and possibly not mach over 20 per cent.
For this same inquiry a very careful investigation was maae,

county, for over 3,000 counties of

the

county by

United States, dividing them according to

the valve of their annual products, as "agricultural," "se*1-agrioultural," and
"industrial."
If the product was 607; or more from the f
reckoned as agricultural; if only 50 to 80 per cent., as semi-agricultural; and
per cent., as industrial.

if less than 50

This investigation shoaled that, of the total deposits of the 9,700
the Asueral eserve System, the banks in the 432 non-agricultural or
"industrial" counties had 74..per cent.; the banks in the 344 smmi-agricultural
counties had 8 per cent.; and the harem in the 2,266 agricultural counties held

banks in

only 16 per cent. of the total deposits.
Of coarse some portion of the deposits in

the

banks in the semi-

lut, on
agricultural and non-agricultural counties was derived from the farms.
the other hand, a very large part of the aeposits in the counties reckonea as
"agricultural" was derived from the millers, shippers and merchants in the small
Therefore, I think we have
towns in these counties, anu not from the farmers.
good reason for thinking that the total farming deposits in all the banks of the
United States does not represent much over 20 per cent. of the total, and nothing
like ;Jr. 3rookhart's "50 per cent."

One reason for thinking that this is an outside figure as to
farm deposits is that the income of the farmer probably appears not to amoant to
as much as 20 per cent, of the total income of the people of the country.
Tnis
is the result arrivea at in a very careful investigatien eatenuing over more than
a year, conductea sy the national jareau of ;Lconomic Research, under the uireation



6

Including as income the value of all that was conof Prof. Wesley C. aitchell.
sumed by the farmer of his own product, and reckoning also his rent, this inquiry obtained the following percentages for the farms, of the total income of
the people of the country.
Percentages of national income
Agriculture
1915
1916
1917
1916
1909-1916 Average

contributed by

17.6 per cent.
15,9
"
16.0 "
"
21.0 "
.
17.4

This is by far the most careful inquiry that has ever been made into
the distribution of income in the United States, and until more adequate data is

We know that the farmer is not typically
the small amount of savings
As a rule, when the farmer
bank deposits in the typical agricultural states.
He
gets any money he makes improvements on his property or buys more land.
I believe, therefore, that mr. eruokhart's
aoes not put his money into banks.
widely quoted statement before the igricultural Committee was a very serious
available must rank as authoritative.

an accumulator of savings in banks, as is evident by

error.

Finally, as to the idea that the farmer does not got his
(11)
There is practically no way of determining
share of the available bank creuit.
what is the exact amount loaned to the farmers or on farm products by the banks.
3ut we can make an estimate.

To begin with, the Census for 1920 gives the total mortgage debt of
operate a by their owners an 4 billions; and as this lz about two-thirds
How much of this was
of the total number, this means about 6 billions in all.
loaneu directly by the banks we uo not know; but we so know that one Of the main
farms

causes of the tight condition of thousands of banks
fact that they had loadea up with farm mortgages.

throughout the West was the

If now, aS here estimated, anything like 25 per cent. of all bank deposits came from the farmers, tnen it is probaole that a. good uoal more than 25 per
bank loans was made to farmers and stook raisers LABOallae ue know that
cont. of
in general borrowing farmers du not keep balances at the oanks, as ordinary merat if it was only onechants uo, but expect to draw out every nickle oi
fourth, this would mean at least 6 billions and probably more.

all

It.

This theemmuld indicate a total debt of something like 10 to 12 billions,
or an average of nearly t2,000 for every farm in the whole uniteu :Aetna, counting
as a farm anything over three acres, or a tract producing ,:,250 worth of produce.

It

know that in 1920, of the farms owned by their operators,
Haw.
more than one-half were free from mortgage deot, and that the average debt per farm
mortgaged was 0,350. If anything like this was true of all farms, then
of loans per borrowing farm would rise to above 0,000 per farm at the lowest, possibly above 5,000.

the total

not at the

inflated prices of January 1,
Taking the value of the farms,
1920, but at thbir more normal value in 1910, the average per farm, including all



7

improvements and livestock, was only 0,444. 1 shoule very much like to know
if, in your judgment, there is any limit to a safe and reasonaole amount of

--11
1

credit on farms; and if so, whether that safe limit exceeds half or two-thirds
of the normal Value of the farms ,with all their improvements le. livestoWea mmk

leNflaArnah`
i
/'

/

peek

-----

,-banks--- (12)
'Ito get

Next as to "the overwhelming, the indecent haste,' of the
If this does not mean a reduction
back to normal conditions."
of bank loans, then it seems to me it must mean little.

Now, in the 7,700 National banks outside of the 400 banks in the
so-calleu reserve cities, the total reduction in their loans from the peak
which came, not early in 1920, but in September or Ootober, to last December 31,
As the average reduction for the banks in the
was a little over ID per cent.
larger cities was above 20 per cont., then we may suppose that, an the average,
the reduction in loans in the 20,000 banks, mostly small banks, which are outside of the Federal leserve System, would be much less than in the country hationto sew, much less than 10 per cent., and possibly not mucn more

al banks, that is

than 7 or 8 per cent.

aearing in mind that, in the five years preceding, the increase in
banks loans in all the United States had been about 115 per cent., does it seem
to you that a reduction of loans in the agricultural districts, ranging from 7 to
10 per cent., from the high point of inflation reached in 1920 is to be regarded
as eoverehelming or ',indecent,' haste, or any kind of haste, or oalculateu to

work any serious hardship to

the

farmer, if general conuitions had been sound?

eo the great wave of credit inflation which followed 1915 and oulminateu

Were we to try to get along with
In 1920, was there to be no check whatever?
these dangerously extenueu °malts; and was there to be no attempt unatever to
got hack to fairly safe and sound banking conditions?
(13)

Next; it is I think a mistake to believe

that the city banker dominates
fair to say that there
So far from this,
the country banker.
And
is a good deal of very natural antagonism between the two.
last year or two, there never was a more complete disregard of the city banker's
advice to the country banker, to exercise a certain degree of caution in his loans.

or controls

It is,

of course, true that loans on

loans, and the commercial beaker does not dare

Nevertheless, the writer
these loans.
which shows very vividly what can be

it is

certainly, ix the

farm products are rather long-time
to tie up too much of his funds in

can certify to the following instance,
energy and bruins:
one with

In one of the rural counties of Now Jersey, twenty years ago, a boy of
seventeen went in with his father on a small truck farm, which did not yield even
enough to give the boy a technical education such as he desired.

A few years

This represents a single man's

achievements,

later the boy bought out his father and has since conductea the bueness singlehanueu.
A year ago, that is, 1920, the gross sales from this single farm were
over half 'a million of dollars.

For years, from the time he shoetel that the stuff was in him,
little county town, five miles away,
the legal limit of loans to a single customer. in addition to this, the banks
have aideu his to obtain the outside capital ehich he has needed to build up his
aided Sy the banks.

he has had from each of the four banks in the

business.




So great has been his suceess that his company is now laying out an

p.

orchard which will entail an investment of something like three-quarters of
million dollars. This is one instance of direct aid to farmers by banks, and
I venture to say that it could be multiplieu, naturally on a smaller scale,
not by thousands but by hundreds of thousands of cases.

The business I have cited has steadily earned, according to a
Price-eAterhouse examination, an average of around 18 per cent. a year on the
Invested capital. Is there any business in the United etates, farming or
otherwise, that coulu not get from the banks all the tunas it could safely use
If !twat; showing an average profit of 18 per cent, a your? Yet this particular
business had not a single aavantege of any kind that was not open almost to any
farm in the United states; nothing in the way of capital, or superior oducetion,
or location, or richness of lend, or any single thing that could. be namea. The
dieference was energy and brains, and nothing more.

In justioe to the farmer. Like yourself I was born and
brought up in Iowa, and in the rural counties. I have given a great deal of
thought to the farmer's problems; I know his difficulties; and I do not believe

that it is in the uirection of legislation or of arbitrary control of banking
that his condition can be improved. I cannot see that it would be helpeu in the

least by a farm member of the Federal leserve esare, nor farm members of the
boards of directors of every Federal leserve eank, for the simple reason that
neither the members of the eeeeral leserve eoard nor the directors of any Federal
leserve eank have any kind of control whatever over the disposition of tee funds
of the Member masks.

They cannot determine whether a banker in Des Moines, or Ida county,

.hall make a loan to John Jones or to -illiam ememn, to a merchant, or to a
farmer.-

They cannot determine any proportion or ratio of loans to one interest
or another.
They have not even the remotest kind of control over the melting of such
loans, ane I believe that it would be impossible to pass any kind of law by

Congress which would give them any such control.

If there were any attempt towards such a thing, the banks would withdraw from membership in the eeueral leserve ystem, because they coule never

believe that their ovn particular business could be oirecteu as safely from rashington or from New York and Chicago an Minneapolis as by their own board of

directors :rid their own ManaeOrB.

Is it not well to recall that the banks are voluntary associations of

individuals, and teens is no law which can compel a man to invest in bank stuck?
And, in turn, the eeueral eeseree *Inks are voluntary corporations oenad by the
Umber Beeks; and there Is no law whiuh can compel any bank to become a member of
the Feeeral eserve ystem. To the capital of these Feaeral eesorve eanks the
Government does not contrieute a dollar; nor has congress the rigne or power to
control or distribute the funds deposited tAth then in any way.

Lastly, is it not well to remember that bank credit, like
money, is capital only to a vary slenuer degree. You can create bank credit oy
fiat, or by inflation, just as you can create money by fiat; billions and billions



of it, if you wish; just as has boon done in Russia and in Germany and in
Bat
Poland and in other countries where it is worth practically nothing.
you cannot create capital by law, either bank capital or farm capital or any
other kind of capital.
Nor, I believe, can you ever directly control the investment of capital by law or by governmental decree, or direct its use to one inEvery attempt in history, of this sort, has invariably met
dustry or another.
with disaster.

its

That is why, I think, the Stable Money League, as a part of
credo,
wished to set its face against any kind of attempt at class interference or
dictation in our banking system.
I believe it is sound economics and sound
sense, and that if it cannot stand boldly on such a platform it had better go out

of existence.
Using the word in its widest sense, the aggregate ability to produce
and distribute goods, the material progress of this country deeends solely upon
the increase of capital, not of credit.
In the long run no one is more deeply interested in a sound financial
and banking system in this country than the farmer, and therefore I believe that,
In the long run, no one could be more injured by the kind of agitation that is
I hope very much that the Aim Loan 3anke
now rife in 7ashington and elsewhere.
But this is naturally
may grow into a useful and secure part of this system.
a matter of slow growth.
So far from the farmer having suffered in recent years from a luck
was excessive credit, alike to the
Of credit, it is my personal
farmer and to every other inuustry, that had as mach to uo with the present situation as any one thing.

belief that it

Please believe ma, with very high regard,

New York,




March 20, 1922.

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OF NEW YORK

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Governor Strong
....

Mr. Snyder

larigir 27,1.922 bA,..-1-7eb.

I

111
,

Literature for CheinmuvAnderson-

The article in the Bank of Commerce Aonthly, by Dr. Chandler,

dealt quite extensively with the current disorder of the exchanges, and so
did the two brief bits of cerement in our Monthly Review.

Likewise, the two

charts sent to Mr. Anderson brought the principal exchanges up to date, and

the chart on sterling exchange and purchasing parity, copy of which I attach
herewith, scces to me an interesting and as fundemental au anything that has

yet been printed.
So much of what has currently been written on the aubject seeas to
me so confused and so misleading, ae, for example, the recent pamphlet of

Dr. B. M. Anderson, that I hesitate about sending it.

Is not a little

clear thinking worth much more than a great mass that is Unclear, and is it

not tho persistent iteration of ungrounded assertion that is at the root of
most of the trouble?

The articles by Prof. Cassel were In The hnumakaimol.4. in
1918-119, and he can get that just as well from the Conrxessional Library.
Our copy of the Cunliffe Report and Dr. (lemon's edition of the

Bullion Report, under the title of "The Paper Pound," is being sent
herewith; also Prof. Cassel's memorandum to the Brussels Conference, which

has a brief discueeion of his theory.




r1 CV,/ Y

CE: COR

S

K

February 28,1922

ENCE

TO

su....EcTLitable_VAMOr irea,rue

FROM

With reference to the good that might come from the establiohment
of the Stable Money 1..w,,un on o. finn foundation with a backing, of some of the

beet minds in the country, I hould like very much if you would not,o carefully
the composition of the Research corrnittee no at presant constituted.
The idea was to

ft, nn :7,

connittee of rather divemo pointe of view

(and without the slittest roferonne to Prof. Tteheris pa.rticular plan), of
ar deeply int3reted in the problas of stabilization.

economicte rind otherG
Thi

eterni tt oe has groun,by nomination of chosen memberu, from a group of four

apn.-d.nted last spring, to the fo3.1owing:

V. T. Poster, Arector of the 1:ew Pollock Foun:ation
for ':C0110A.0 Research, Uswton,
David Priday, Prefoesor of ,:conomics, University of ..ichigan,
..re:Adent-elect or T,',itdilgen Agricultural College
E. V. Kemmerer, Professor of ilconomics, i'rinceton.i!nivorsity

C. Latoliail, rrirector of the l'iational Bureau of r,conotnic
Research, New York

114:Pe,rsons, of the Harvard Committee of ilconomic Research and

IP*

di.tor of the

'!.tr.r1. F3V1 of :;oonomie Statistics

John X. livven.sky, Presidaat of the i1ational Ben: of :".ommorce
Carl 3nyder

R. Parker

Director of the Bureau of

Research, Tedoro.1 Reserve Board

-.1ra1y8is and

Allyn A. Young, Professor of Moonomics, Parvard University

I should add that no one who has been asked so far has declined to

serve on this committee; and it is planned to keen it as homogeneoue as possible and ao a praeical working committoe.



SPO

CO
TO

Governor Strong

FROM

DATE February

NCE

26,922 ido

Mr. Snyder__

suBJEc,__Delation_i_q_datIL_

The report of the Comptroller of the Currency, just received, gives

some interesting material as to the decline of loans and rediscounts in the
national banks.

oUL,t 3/,
G.
total 10 s, including the amount of rediscount but not including

investments(7ith the Federal Reserve Banks(declined 176 millions, or about
1-1- per cent.

In the 49 national banks of the central reserve cities there

was an increase in loans and rediscounts of 14 millions.

In the other reserve

cities there was a decrease of 97 millions, and in the 7,700 country banks a
decrease of 93 millions.

/9

The decline from the peak in these same items compares with the 800
Reporting Member Banks as follows:




Percentame of Decline

Banks

18.4

Reporting Member Banks

' 16.4

National Banks (all)

In Central Reserve Cities

22.1

In Reserve aties

21.0

Country Banks

10.1

cLeLIA'A IL, .12 )0 o
--t;,/)

6--r-,\44
A

ar
a

o0

d--Lt

FEDERAL RESERVE BANK
OF NEW YORK

mmq 4.1-10094-6-2.

tb

OFFICE CORRESPONDENCE

DATE
SUBJECT:

February 28,

2

192

Literature for Chairman Anderson

By an oversight the memorandum sent you yesterday, regarding liter-

attire for Chairman Anderson, said that the Cunliffe Report, the Bullion Report
446%

and the Cassel memoranda were being sent you herewith.

This was an error of transcription which escaped my eye.

The three

documents were sent directly to Chairman Anderson.

Would it be of any interest to Mr. A. that I should send him two of
4/(1;

the memoranda which Iffeent you last August and September, at about the time of
A
the visit of Governor Norman?




ez

oceep,c,ea,(,

I

fir

FEDERAL RESEF.VE BANK
OF NEW YORK

-7FICE C

SPONIEDENCE

,

Governor Strong
ROM_

Ir. Snyder

-

SUBJE

ATE

February

'4

1922

Literature for Mr. Sydnay

Anderson

hai
As you requested, we haae sent to Crman Anderson the

Cunliffe
the Bullion Report of 1810.
I am wondering if you would care
to forward to him the following, which touches on a side of this general
question which we have not very much considered.
And I am wondering
whether, if we are to form a really just polity, these considerations ought
not to have some weight.

Report and

1111111

The Cunliffe Report, like the Bullion Report of 1810, represents
rather what might be called financial London's view of the ease, and presents the extreme determination to bring back the English pound to its oldtime parity with gold.
No doubt there are very strong and forceful arguments for this
view, but it is fair to say that this is the type of argument which appeals
more strongly to bankers and financiers and bond holders than, for example,
to those whose views are more swayed by general social and political considerations.
Generally speaking the bulk of the English war debt was contracted
at a level of prices when the English pound was worth In gold about one-half
former or legal parity.
So to contract the currency as to valorize
this enormous war debt in
to make one pound worth two.
That is to say, one billion pounds worth two billions.
There are a great
many socially-minded people who consider that this is ethically wrong and
that to impose such a burden upon the tax-payers would be a social and
political injustice.

its

gold is virtually

You get an extreme instance of the same thing in the case of the
German, Polish and other war debts, which hardly anyone
considers it now possible to be, or that they ought to be, valorized at t'

French, Italian,
ancient parity.

is'the

The usual parallel adduced
English policy in and followia
the Napoleonic wars.
It is again fair to say that the conditions were
First, the wars lasted a long time, and thi
debt was slowly contracted at varying levels, so that the degree of co
traction required was nothing like so great as would be needful to rep
the same operation now.

quite radically different.

Further, English trade at that time had not become the colas&
affair it is now, nor was the country's business so deeply affected the
by fluctuations in the exchanges.
Nevertheless, there are many serious students who believe -V
the contraction policy of the Bullion Report was ruinous to English t
and brought a needless hardship to her people.
And it is the view or




FEDERAL RESERVE BANK,
OF NEW YORK

11111
'ffC C,11111.1
FI
RESPONDENCE

Februaey 281- 1922

Governor Strong
OM

SUBJECT

Mr. Snyder_

Anderson

_Literature for Mr. Sydney

minds that in a greatly accentuated degree this will be the effect of the
policy of the Cualiffe Committee, if it is carried out.
I recall these matters because the question is so often discussed
purely in terms of money and change, and not in terms of social welfare.
our Civil War, but
It is true that we followed much the same policy
there were other and very weighty arguments for such a policy which do not
For example, you know that, up to and even
exist in the same degree now.
a little while before the Civil War, State credit was still at a rather low
level and that,practically, repudiation was often attempted and in some
eases partially carried oat.

after

of this was still

felt when the Civil War cane on and
The result
Virtually speaking, even
the integrity of the Union was still in doubt.
after the Civil War it was a vital thing to the people of the United States
to establish clearly and unequivocally that they would pay their public
In former days our debts were
The case is very different now.
debts.
We have practically none such now.
And
largely to foreign holders.
moreover here, as in England, the question is not one of repudiation, as
was very strongly urged after the Civil War, but simply of a just valorization of the war debt in terms of goods.

It is fair to add that we did not have than a highly developed
series of indices of the value of gold and of money in the form of price
indices, as we have now; and the general relations of money and prices
were :not very clearly understood.
In this latter regard I think economics has made a very great
advance in the last ten or twenty years, and that all our financial and
monetary policies will be materially weakened if we ignore this new knowledge.
If this knowledge still belonged only to what Sir Charles Addis
contemptuously calls the'claustral" economist, it might be safe even though
But our working men and farmers and multitudes of the
it were not wise.
population have learned in the late war to think in terms of index figures.
They measure the value of their wages very accurately, and the means for
this measurement are published frequently in the daily papers and in innumerable articles.
For these reasons it does not seem to many that we ought to follow now policies which were perhaps permissible and, in the case of our
Civil War, from some points of view justifiable, fifty or a hundred year
An enlightened statesmanship ought to have made some advance in ti
ago.
period.




MINSIO

jtli,

'9-2'

'

.."

,

i

_

ICE

,

1.-

FEDERAL RESERVE BANK
OF NEW YORK
DATE

CORRESPONDENCE
suB,Ec,

Governor Strong

,om




_February 284_1922

Deflation to date

Mr. Snyder__

The report of the

Comptroller of the Currency, just received,

gives some interesting material as to the decline of loans and rediscounts in
the

national

banks.

From Sept. 5 to Dec.

31, 1921, total loans,

with the Federal Reserve

rediscounts

clined 176 millions, or about

14 millions.

Banks, but not including investments, de-

11-per

central reserve cities there was

an

including the amount of

cent.

In the 49

national

banks of the

increase in loans and rediscounts of

In the other reserve cities

there was a

decrease of 97 millions,

and in the 7,700 country banks a decrease of 93 millions.

The
the 800

decline from

Reporting

the

peak in 1920

in these same items compares with

Member Banks as follows:
Banks

Percentage of Decline

Reporting Member Banks

18.4

National Banks (all)

16.4

In Central

Reserve Cities

22.1

In Reserve

Cities

21.0

Country Banks

10.1

Could the rate of decline in the 7,700 country national banks be
taken as an indication of the average amount of liquidation in the 20,000

non-member

banks?

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