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F.D. 12A.3 9.


Federal Reserve Bank
District No. 2
Correspondence Files Division

grani a



87-4?.o N c

441_6 iv

.S1-7- 42,56



/ 72(..


March 5, 1921.

Dear Mr. Secretary:

The intimate relations which have now been established
between the Treasury Department of the United States and the Federal

reserve banks, justifies my wishing you in a very personal way a
most successful administration during your term of office as
Secretary of the Treasury.

Many of the most difficult financial problems of the war
have been wet and solved.

I sometimes fear, however, that the public

regard these problems as entirely behind us.

The facts are that a

very perplexing and difficult future is still to be

it with,

sild 1

am writing to express to you the desire and intention of the directors
and officers of this bank to lend every possible assistance to you
and to your associates in dealing with these matters.
We all wish you success, and hope that our efforts will be
regarded by you as a contribution to that end.
With cordial regards, believe me,

Faithfully yours,

Honorable Andrew W. Mellon,

Secretary of the Treasury,
tashington, D. C.


March 21, 1221.

Dear Mr. Secretary:

When I was last in Washington, you were good enough to intimate

that you would be glad to have any suggestions that I night be able to send
you respecting certain apeeintments in the Treasury Deeartnent, and since

that time I have given the matter a good deal of thought.
Foremoet among the names which occur to me for appointment as an

Assistant Secretary of the Treasury, and later possibly for the position of
Under-Secretary, if that office ie created, is Mr. Dwight W. Morrow, of the
firm of J. P. Morgan

Company; h) way te very well. known to you.


Morroe was formerly a partner in the firm of Simpsea, Thacher 1 Bartlett, of

this city; in adlitien to his law experience at that time, he had unusual
opportunity te become acquainted with financial matters, as he acted as

couneel for a number of institutions hexing important dealings in finance;
among others, the General Electric Campany and the Electric Bond 1 Share

Comeany, where l became aceuainted nith hie vicn't during the years that I was

a director of both of these comeanies.

About eight years ago, as well as I

recall, he became a partner in the firm of J. P. Morgan 1 Company, and since

that time has di tinguished himself in more distinctly financial matters. I
regard him as one of the ableet of the younger generation in this city.
happens also that he has given considerable time to the study of federal
finauce and the tax laws and, I believe, would qualify as having unusually
expert knowledge of these matters.


March ni, 1921.

No. 2

Of course, I am aware of the objections which may be raised from
more than one direction to such an appointment.

He might be regmrdeo as a

repre-entative of the "money" interests and Wall Street, :,nd the association
with hie present firm might be an objection which you, and possibly Congress,

would regard as insuperable.'Oa ths other hand, of all the mon that I know,

he is best ualifieJ y ability, personal character wad integrity to fill this
important office, both as it relates to the affairs of the Treasury Department,
and to the Federal Reserve Board.

Of course, I have no view as to the

possibility of his accepting such an appointment, as I have not heard his name
fiyntioned in thi* connection by anyone, and be knows nothing of my suggeetion.

Another possibility is Mr. A. P. Hallowell, a partner in the fin; of
Les, Higginton & Company, of Boston.

He has had no legal training but hat

had wide experience la financial matters and tiv?, additional advantage of having
been the active head

the Government Loan jrganiNition for the entire New

Englaod district throughout the w,lr.

He made a distinguished PUCC3F8


Ho, probably, has not the same degree of knowledge of taxation nor, in

fact, it he a man nt such lerning as Mr. Morrow; but he possesses unueual

ability and qualifications for the sort of or rer,uired of anyo-o occupying
thit ,..;Tficto.

Both he and Mr, M)rrow are men of independent means.

Dtubtless Secretary Weeke knows all about lir. Hallowell and his


Honorable Andrew W. Mellon,

Secretary of the Treasury,
Washington, D. C.




March 28, 1921.

Colonel Clifford.

Verbal report has been made to the Secretary respecting this

George Woodruff, Joliet, Ill.

President of the FirEt National Bank of Joliet, and of the Woodruff
Trust Company of Joliet.

These are the leading financial institutions of that

tile last named doing especially a bond and mortgage business.



reported that he is willing to accept a pcsitien in the Government service.
independent means.


Federal Reserve Board.

character and

of strong

suggested at one time as a


poseible member of the

He is about 40 years of age, and reported to be a man
independent opinion, as well as a hard werker.

John T. Pratt.

Mr. Pratt is a lawyer, and practiced law in
Ledyard for some years.

About 42 ye-re old.

the office of

Carter *

Son of

A man of larL7e

the late Charles Pratt, of the late firm of Pratt & Company, oil refiners.


had a position in the Department of Labor in the early days of the war, which he
resigned in order to take an executive position

in Paris

for the American Red

Since the war, has been engaged in corpor5tion work,

as chairman of

the socalled Budget ComAttee, which was composed of

Joseph Cotton, H. L. Stimson,
Benj. Strong.


but principally,

His naie wae

r. Pratt,

Paul Warburg, Prof. Samuel WcCune Lindsay, and
suggested by Mr. Russell Leffingwell.

methodical, hard working man

f considerable ability.

He is a

Occupies a

responsible position in the community in public affairs.
Lewis E. Franklin.

Inr;uiry discloses that he would find it absolutely

impoeeible to accept a position in the Government for
of commitments which he has now made.


least a year, on account

7.71-mt.\ 6,4"4-41 f


August 17, 1921.

Dear Mr. Secretary:

It was very kind of you to suggest to Mr. Wadsworth that you
would be

glad to entertain Mr.


Governor of the sank

of England, and Sir Charles Addis, one of the directors of the bank, at
luncheon or dinner on Tuesday next, the 27rd instant.

I am writing to suggeet that possibly dinner would afford

better opportunity for some discussion of matters in which we are all

interested without too great interference with the day's work, and I
shall take the liberty of telephoning Mr. Wadsworth to-day some further
indication of our plans after reaching Washington, so that you may have

ample notice as to guests, as you were kind enough to indicate.

It is very good of you to entertain these gentlemen, and I

know that they will appreciate it as I do.
Cordially yours,

Honorable Andrew W. Mellonx.

c/o Treasury Department;-'
4shington, D. C.

October 31, 1921.

Dear Mr. Secretary:

This note will be presented to you by my friend,
Mr. Eigo Fukai, Deputy Governor of the Bank of Japan.

Mr. Fukai is* expecting to spend some time in
Washington during the Conference on Limitation of Armament,

acting in the capacity of financial adviser to the delegates.
During my recent visit in Japan, I had the privilege
of becoming well acquainted with the officers of the Bank of
Japan, and feel that Mr. Fukai has become u warm personal

friend and associate.

Our relations with his institution

are of the closest.
He will esteem it u privilege of having the opportunity of seeing you while in Washington, and I shall greatly
appreciate any courtesies which you are able to show him.

Thanking you in anticipation, and with the assurance
of my regard, believe me,

Yours faithfully,

Honorable A. W. Mellon,

Secretary of the Treasury,
Treasury Department,
Washington, D. C.

October 31, 1921.

Dear Mr. Secretary:

With this I am enclosing a copy of a note of introduction which
I have taken the liberty of

giving to my

friend, Mr. Eigo F'ukai.


relations with the Bank of Japan are of such an intimate character, and
have become a matter of such importance between the two nations that I
am most anxious that Mr. Fukai become acquainted with you and with some
of your Assistants in the Treasury.

Mr. Fukai was financial

aoviser to the Japanese Delegation at

the Peace Conference in Paris, has occupied important positions in the
Bank of Japan, and as a young man was private secretary to Marquis
Matzukata, one of the two living members of the Genro and the economist


expert of that


I found him one of the best informed men in Japan.

It will, I believe, tend to the promotion of better relations
between the two countries if Mr. Fukai is accorded a sympathetic reception
while in Washington, especially by the financial


of our govern-

ment, and it is this belief which has led me to take the liberty of giving
him a letter of introduction to you.

Thanking you in anticipation of any courtesies that you may be
ble to show him, 1 beg to remain,
Faithfully yours,

Honorable A. W. Mellon,
Secretary of the Treasury,
Washington, D. C.


June 19, 192?.


Dear Mr. Secretary:

kr. experience of nearly eight years now in a poeitioe ehich iE only
too commonly but incorrectly regarded et a public office has given me con-

vincing and unpalatable evidence of the fact that public office hae fem resurde
in public aepreciation and many penalties in public abuse and


I an lel, there:fere, to send you a pereonal note expressing my high al-precia-

tion of the position *bleb you have tekee in regard te peliticel appointments
in the Treasury Depertment.

After all that has eeen said and dene to throw difficultiee in your
path in this eatter, I am nevertheless convinced that what the people of this
country want - and whet eome day they 'oil: demend - Is Et buEleeEelke adrinis-

tration of Ule Government'e business affairs.

It is my conviction- also that

in the long run your determination to give the Treasury a busdnesslilie adminis-

tration, despite thoes who xeeld like to have it a dumping ground for political
appointments or the restard of political favors, mill be found to be not enly
good business but good politics as xell.

Therefore, permit me to burden you

vith reading a. letter of appreciation which I can assure you is most sincere.
Yours very truly,

Honorable Andrem 4. Mellon,

Secretary of the Treasury,
Nashington, D. C.

May 26, 1924.


Deer Mr. Secretary:

Since our talk in regard to the tax reduction bill, I have had some
further opportunity to look into more of its mein features, and an writing to
point out some consideretions which I believe will make it exoeedincly difficult

to justify edviaing the President to veto the bill, notwithstanding whet I said
without sufficient consideration last Friday.
The veto can hardly oe based upon the ground that it will not
produce edequete revenue in the near future, as I understand the present revenue


If, as may be predicted, a deficiency may arise under the operation

of this lew in the fiscal year ending June 50, 12?6, it will obviously become the
responsibility of the new Congress to Nmend the lew;

but can a veto at the

present time be justified upon such an estimate alone?

The effect of the bill is to make material reductions upon incomes
up to t67,000 per annum;

you originally submitted.

in fact, in excess of those proposed in the bill which
Incomes in excess of t67,000 will enjoy the proposed

reductions in the lower brackets and a further reduction on largest incomes to
the new maximum of 40 per cent.

The question turns upon whether e 40 per cent.

maximum surtax upon largest incomes will prove to be a deterrent influence in

business enterprise.

This seems to me to be too close a question to advise a

veto on this ground alone.

The objectionable feEture ee to the taxation of undistributed

of corporations seems to have been eliminated.


Honorable Andrew J. Mellon

There has been some modification in

the proposed

May 26, 1924.

publicity, and

undoubtedly the publishing of the amount of tax paid by individual tax payers would

give some added stimulus to large investors to increase holdings of tax exempt
securities, the income of which need not be returned.

But, again, I

doubt whether

this of itself would be justifiable ground for a veto.

The establishment of revenue commissions to revise disputed returns
with public hearings, etc., is a. serious adminiatrative defect in the bill and

probably can not be made to work

The delays would be intolerable.


The effect of this provision is difficult to estimate in advance, but I should
suppose it would be somewhat as follows:
It eould operate as a. restraint upon tax payers in making defective or

returns of their

publicity of this procedure.

of tax exempt securities.

income as they would undoubtedly wish to escape the
It may also prove eal added stimulus to the purchase

In some oaees it

amounts which might be escaped, they

may even

induce tax

payers to pay

preferring to pay some penal,y in

exposing their affairs to the public:.

order to avoid

But after all this tanoying mnd unworkable

feature of the law is one of those matters weich can be subeequently dealt with by

Congress and likely will be if it

eeneral structure of the


proves to be wholly unworkable without altering
or raising

The maximum inheritance

the whole questioe of taxation.

tax of 40 per cent. upon estatee of

$10,000,000 or over is undoubtedly an objectionable feature of the bill in that
it adds a very heavy burden of taxation

already imposed by various states.

located within the

taxing power of a

to estates on top of the burden of taxation

On some large estates which happen to be
number of the

states w'lich have heavy

Inheritance taxes it may be confiscatory in the extreme.
can not be claimed, as

one no often reads, that

this is in effect spending the

nation's capital to meet the expense of running the
economic doctrine which can not be sustained.

tax of thie sort

On the other hand, it


That is a false

The effect of a heavy inheritance

is not destructive of wealth or capital unless it cati808 the

Honorable Andrew J. Mellon

May 203, 1924.

caseation of a productive businees and the destruction of the value of its
testruproperty or the good-will, of a going business in sech a way thet
eent cf eroduction is impaired or destroyed.
ship of property from one class to enother.

It merely shifte the owner-

if the governeent and the states

combined confiscate the greater part of an este e of $10,0,10,00Ci cr over for
revenue purposes, the e.ccutrale.ted eterings of the individual who created the

estate are transferred to purchesere of the ,-.roperty whose eavieEei thereby

invested in thie businese and the estate pays the -rooeeds of the sele over to
the governrent as a tax.

The property or the busieeee iP rot deotroyee:: nor is

the eerning power or productive ceteacity of the businese necesearily impaired.

All taxes oenfiscato the earnings of the .eeonle, enl tn inheri He tax of the
Sint of this one, combined with those of the vericus ste.tes, may indeed take en
undue share of savings which eould otherwise ee to the heirs of



but the oevines of others who buy this neoperty are emeloyecl in aoquieing the

.,:roperty, and it merely r,eane that tex eonfienetion in this installer) ie unjuetly

it will be hard upon the individual ectates effected, arid es-

eecially uyon the heir. or those eetetes, but it can not justly be clalee.i. thet
it is destructiee of caeital. Valuee.

I thin 'e it trould very likely deeelop

tendency towerd the inconeere.tion of large besieense


by individuals, as

the se-etlement of inheritance taxenef thic kind by estates which cern stooks in
bucineeeee ean he effected with much le ee Inceneenieeee end lieturbanee eo going
coneerne then where e. business ic cwned by indieieuele.

The one impertent ?-ocsible exceptice there the

cumulative effect of

and inheritance taxes ;1-light he e.ctutelly reest,ructive or a blibinetE wou.ld

in the oaes f thoec bankeri, hrokers, tradere or dettleve in eecurities or
commoditlee where the bulk of the eve:It:el of t10,00"."1,000 or ,eers i

'end of n really and vi


owned be the

r1 ordintrily b tranereitted by inheritance to sons who

weel:1 continue the buciness, but 171:6,re the payment of these neevy inheritence


Honorable Andrew J. Mellon

taxes would so impair the capital as to injure the business.

May 2, 1924.

It might be

claimed that new partners with new capital would make good the loss of capital,

but there are many caees where alb would not be true, especially where family
names and prestige aid long experience in the business would need to De perpet-

uated by heirs.


serious this might be no one can estimate.

Theue seem to be the main boints which have been mdse

ae justifying

a veto of the bill, and considering all the circumstances, especially that a
great mass of tax payers secure a larger reduction on the whole than that pro-

posed in the Mellon bill, leada rAis to believe that a veto will be difficult to

I hope you find ao objection in my writing you so ?illy.
Yours very truly,

Hticrable luldrew

Secretary of the Treasury,

Tioasufy Departmen-,
Washington, D. C.





May 27, 1924.

Dear Mr. Secretary;

Following is the statement I promised to prepare regarding the relation
between debt fundirgLand the gold
and gold imports.


as it relates to our present position

I am sending a copy to Secretary Hughes.

The probable adoption of the so-called Dawes plan for adjustment of
German reparation payments and reform of Garman budget and monetary affairs suggets the need for giving early consideration to our own monetary position, and
the debts owing to our Government.

The German settlement witn adjustments of

inter-government debts in Europe which must accompany or follow it will lead to
undertakings which, on the one hand, may leave this country unprotected against

another period of inflation, or on the other band advantage can be taken of the
processes of arranging tnese settlements to protect ourselves against the recur-

rence of sucn conditions adarose in the years 1919, 1920 and 1921.
Our own interests demand


no effort be spared to secure a return to

the gold standard, and so arrest the flood of gold which tnreatens in time to
plunge us into inflation.

We now hold one-half of the world's monetary gold, and

tur holdings increase steadily as follows:


May 27, 1924,

Honorable Andrew J. Mellon


As Estimated by the U. S. Treasury

01, 924,

Amount estimated as of Jan. 1, 1914

Decrease during 1914

361, 000

0108,385, 000

Increase during 1915

0496, 468, 000





40, 071, 000

Decrease during 1919

292, 796, 000

Increase during 1920

728, 142, 000
276, 487. 000



1924 (4 mos.)

170, 201. 000

02, 894,

222, 000

401, 181,000

02, 493,


Amount of monetary gold May 1, 1924

041, 000

04, 417,

Less decrease

402, 000

1.924,361, 000

Increase since Jan. 1, 1914


Of the total, the Federal Reserve Banks hold about 03,200,000.000,

Prior to the

war the regulation of both domestic and world general price

levels was a more or less automatic affair.

The payment of the small net balances

of indebtedness between the nations resulting from all trade and services by ship,

ments of gold had the effect of depleting bank reserves in the country where prices
had advanced too rapidly and over-trading and speculation had developed, thus forcing
advances in the rate of discount of the bank of issue and of interest rates


which in turn induced borrowers to liquidate stocks of goods in order to pay loans,
so again reducing prices and restoring world price equilibrium.

Comparatively slight

but rapid advances of prices in one country were automatically corrected by these
means and a fairly stable level of world prices resulted.
had to be employed.

There was no one charged with direct responsibility for regu-

lating prices and the extent to which

No arbitrary human agency

discretion or judgment

entered into the


Honorable Andrew J. Mellon

,ocesses of adjustment was very slight.

May 27


Even the judgment which was exercised

was forced upon those responsible by movements of gold which made changes of
interest rates imperative and hardly a matter of discretion.

Since the war and the abandonment of the gold standard this automatic
machinery has ceased to function so that price fluctuations are largely uncon-

r.,e trolled.

In general the recent history of European prices has been that currency

inflation has caused largo price advances, has brought about reductions in true

wages, and has impoverished large classes of people; while in this country where
we can only receive gold and can not export it, we are equally at the mercy of uncontrolled price movements which might be described as gold inflation.

The fact

that we have maintained the gold standard is of no particular advantage to our
price position unless we some day lose our excessive gold and soon enough to check
the inflation which will inevitably arise.

With the automatic control of prices exercised by free international
gold payment lost, a great variety of proposals have been advanced as a substitute.

The chief one in this country is for the Federal Reserve System to adopt an index
of prices as a guide to its credit policy so that when prices advance the Reserve
Banks will liquidate loans and investments and so reduce the volume of credit and
force prices to decline, while when prices decline it will expand loans and
vestments, increase the volume of credit, and so cause price advances.


An import-

ant organization of students of economics and bankers has recently proposed an
amendment to the Federal Reserve Act providing for just such a plan, the investment
of funds to be for the account and at the risk of profit or loss of the Treasury of
the United States.

The arguments against any such scheme are so overwhelmingly con-

vincing as hardly to require recounting(1)

The following may be mentioned:

Prices are not always a safe guide to credit policy,

Price movements

are usually associated with changes in the volume of currency and credit, but not

When arising from other causes then "credit," an attempt to control -the

movement by an expansion or contraction of credit would likely be fruitless and
eiiplit be
Federal Reserve Bank of St. Louis


119porable Andrew J. Mellon

May 21, VA4.-

A continuance of gold imports on such a scale as the

last few


will in due time have the effect of liquidating the earning assets of the Federal Re.4rve Banks to such extent that they will not have anything to liquidate for the pur-

pose of reducing the volume of credit, and reliance upon that protection would then
An "index" control policy would fail.

be fruitless.

The intimate relationship between the volume of credit and the level
of prices assumed by this plan does not in fact exist at all times.

At the present

moment, for instance, large investments in the market by the Reserve Banks may indeed have the effect of somewhat reducing the interest level and might even stimulate
a certain amount of speculation; but with the country in its present temper we are
witnessing a recession in business and a decline in prices rather than


that money has become very cheap



and gold is pouring in at the rate

of a million dollars a day.
It entirely ignores the fact that the great body of the public is not
educated to a true understanding of the meaning of a "general price level." People

think of prices in terms of those prices in which they are especially interested and
which affect their welfare and happiness.

The farmer in what he gets for his pro-

duce; the manufacturer at times in the cost of his raw material, and at other times
In weat he guts for his manufactured article; the wage earner and housewife in living expenses.

An attempt by a government body or bank to regulate the "general

price level" even though successful would nevertheless leave a large percentage of
the community


with the results of the attempt as to the individual

prices in which they are personally interested.


bettor prices

Last year the wheat grower was de-

for wheat at the same time that the consuming public was pro-

testing against the nigh price of sugar.

It also overlooks the important psychologi-

cal fact that every individual is interested in prices in two capacities, that is,

as producer on the one hand

between his


consumer on the other.

The unavoidable conflict

desire to see low prices for what he consumes and high prices for what

he produces will always have a tendency to leave the entire community dissatisfied
with tne result of any avowed attempt by the Government at arbitrary price regula,;





be denied.

Andrew J. Mellon

May 27,



But the most objectionable feature of such a plan is one which can

Any attempt to regulate the credit policy of the Federal Reserve System

by the General price level is equally an attempt to regulate prices by the credit
policy of the System.

This in practice would mean that the Federal Reserve System

would either voluntarily assume or Congress would charge it with responsibility for
fixing prices in the United States,

The exercise of this power and the assumption

of the vast responsibilities involved would rest with a very small body of men,


is inconceivable, in a democracy of the character of ours, that the great body of the
lieople would ever entrust such powers to any man or men.

wise enough for such a task,

No body of men could be

Mistakes of judgment, political influence, or even

misuse of power for improper purposes would in due time wreck the Federal Reserve

No such plan would

function as

did the gold standard.

During the past two years or more the conservative temper of business men,
one rate advance by three Reserve Banks and timely purchases
by the Reserve Banks and liquidation of


offset the influence of these gold imports.
deterred speculation

and business expansion.



of securities

loans, have fortunately combined to
Recently political developments have

But the ultimate, in


the inevit-

able effect of our growing surplus of bank reserves can not be escaped and inflation
is certain to arise, if the gold flow continues unabated.

It has frequently been proposed that our situation might be cured by large
loans or sales of gold to Europe.

Such loans are quite impossible under present

Gold shipped to European countries for the purpose of rehabilitating

their banking reserves and so reducing ours

would come back to us

just as fast as it

was shipped over so long as the American dollar remains at a premium in the
of the world,

Nor is there any inducement for foreign governments or banks of issue

to make such a transaction.


Take the case of the French Government and the Bank of

The paper franc is today worth 5.50 cents while the value of the gold in

franc coins is 19.3.

be obliged

If the Bank of France were to undertake such a transaction, it

to issue 3 1/2 paper francs in order to buy the amount of gold

Honorable Andrew J. Mellon


needed to make one gold franc.

May 27, 1924.

The issue of 3 1/2 billion paper francs to purchase

one billion francs of gold would simply mean that the Bank of France or the French
Government would lose 2 1/2 billion francs and in addition pay the interest on the
dollar loan issued to borrow or buy the gold in case it borrowed in America.

All the

Bank of France would have to show for its 3 1/2 billion francs would be one billion
francs of gold in its vault which would produce nothing whatever to the French


The only ways in which it could escape the actual realization of the capital loss
(:the interest loss it could not escape) would be by shipping the gold back to us, or

continuing to borrow in America until the paper franc was worth 19.3 cents again.

Discussions of these gold loans arouses no more interest in the minds of responsible
officers of the banks of issue of Europe than is exhibited by humorous comment upon
the futility of such proposals.

There is in fact only one method by which we may hope to see monetary re,:

form brought about in Europe, and to see some of this redundant gold leave the United
States and find lodgment behind the restored currencies of Europe, and that is by
facilitating the creation of conditions abroad which will result in some premiums
upon the currencies of Europe.

This will put the banks of those countries enjoying a

currency premium in position to actually take gold from us in the normal and natural
method because it is cheaper for us,to pay accounts abroad by gold shipment than it
is by the purchase of exchange drafts.

Such a program conforms to orthodox well-

tried monetary and economic principles, involves no novel and untested experiments,
requires a minimum of legislation and political agitation, and the least economic

The question is how this may be brought about and how the various elements

of debt settlements, prices, etc., are to be reconciled with such an objective.

As to the debts, these may be divided into the following categories:

The debts which Germany will owe the Allied nations under the terms of
the Dawes plan if it is adopted.

The debts which Germany awes to this country, which are:



Cost of our army of occupation.
Mixed cIalr;


isizons for damagc,s,

May 27, 1924.

Honorable Andrew J. Mellon


The debts which the belligeront nations of Europe owe among themselves
id to various neutral countries.

The debts which the Allied nations of Europe owe to this country,
which are:
War loans.
Relief loans and obligations given for purchase of war
As to (a).

Without analysis of the advantages and defects claimed as to
the Dawes plan, it may in general be said/it presents a most ingenious plan, if
not in fact a masterpiece of ingenuity, by which Germany may be enabled to pay and
the creditor nations become entitled to receive the maximum which Germany is able to
pay, on the other hand protecting Germany against budget deficits due to an execs..

sive burden of payment and monetary disaster due to excessive foreign remittance.
This feature of the plan outweighs other possible objections which may be advanced
against it, and if it is promptlyallopted by the creditor nations in a cordial and

helpful spirit, it will indeed present the opportunity for an adjustment of Germany's indebtedness with a minimum of danger to monetary reform throughout the world.
The adoption of the plan requires some participation by our citizens in various
boards of management and the extension of a large credit, possibly-0100,000,000 or
more, if it is to succeed.
As to (b).

Germany, roughly, owes the United States Government 0250

millions to cover the cost of our army of occupation and owes to our citizens for
so-called "mixed claims" a sum which may be assumed at 0500 millions.
is the subject of the unratified Wadsworth agreement.

The former

Against the latter we hold

as security property in the hands of the Alien Property Custodian worth, say,
250 millions.

There are possible offsets in the value of ships and cables,

other words, Germany must pay us a total of


750 millions, and we hold some offsets

and security worth about one-third or more of the net amount.
The Dawes plan contemplates that the ultimate maximum payment



many may be required to make to all of her creditors of every kind snall not exceed
2 1/2 billion gold marks per annum, unless her capacity is shown to exceed that and even
Federal Reserve Bank of St. Louis

that amount may be reduced when it is demonstrated to be beyond

of tbe United States seems to be that the assertion of claims

The position


May 27, 1924.

Honorable Andrew J. Mellon


aRgregating 0750 millions directly against Germany would either involve payments and
transfers in excess of the "capacity" contemplated under the Dawes plan or they must

she is to pay

cause a reduction in the amount which
clusion seems to be unescapable
a basis




From the standpoint


feason, therefore, the

the other creditors, we will either

of the plan by the Allied governments, or we will defeat

its operation after it has been accepted, or


The con-

unless the United States is willing to negotiate

of division of Germany's payments with

jeopardize the

to her other creditors.


finally we will

not be successful in col-

of monetary stability, if for no other

indicates the need for


with the other

interested governments by which our claims will be recognized on a parity with theirs,
or as to some part possibly with a priority.

Attempts to enforce a greater payment

from Germany than the plan contemplates will have a direct effect upon monetary
stability in Germany, while joining with the Allied Governments in a division of the
German payments will afford

protection to

all participants against monetary dis-


As to (c).


gold standard

Exactly the same

may arise

danger of a

breakdown of plans for return to

out of adjustments of these debts or of

failure to ad-

just them, as was demonstrated in the case of Germany when attempting to make pay-

ments in excess of capacity.
world's exchanges.

The first reparation payments caused a crash in the

While it is impossible, without exchange of views, to form any

opinion as to what will be done respecting


debts, it may be said, that

their successful adjustment is a necessary preliminary to


restoration of gold

Obviously, now that a formula has been found for dealing with Germany's


treaty debts, the adoption of a

for Allied debt settlement will be aided if our

Government can undertake some plan for adjusting debts due us by the Allied Governments.

As to (a).

The key to


situation is in fact to decide upon a program

in regard to the unfunded debts owing to this country.


transpired indicates that the amount of
ment under the
Federal Reserve Bank of St. Louis


Observation of what has al-

obligations of the British Govern-

funding plan is probably not in excess of the capacity of the British

May 27, 1924.

Honorable Andrew J. Mellon


ople to pay to this country, provided circumstances continue reasonably favorable
as to British trade and her capacity.

Distinctly adverse developments in Europe

might seriously embarrass the British Government's efforts to meet these obligations
as they fall due.

The failure of adoption of the Dawes plan is one of the possibili-

Anotner which is more remote but may prove to be a very actual one is that th(

funding of the debts of other nations, principally France and Italy, upon such terms
that the amount they contract to pay, added to what the British have already undertaken to pay, plus Germany's payments,

relief fund and army supply loans, etc., may

prove to be in excess of the capacity of the world as a whole to pay us, without continuing heavy gold shipments.
pects of these settlements.

The French situation will illustrate the monetary asShould the French Government undertake a major monetary

reform and reduce the amount of gold in the French franc from 19.3 cents to 5.5 cents,
which is approximately its present value measUred by our gold standard, the new parfty
of exchange would be 5.5 cents per franc instead of 19.3 cents.

If the franc ad-

vanced in the exchange market to say 5.75, it would then be possible for American
banks to ship gold to France at a profit and France would be in position to command
some of our surplus gold,

But if the French nation undertook any such operation and

at the same time undertook to fund their debt to us, they would be obliged to pay at
the rate of 3


paper francs fOr every gold franc of debt which they repaid to us.

Assuming that the French Government ignornntly or recklessly undertook to pay us, say,
i500 millions a year, monetary reform in France would break down at once
tempted to do it.

And the situation is even more extreme with Italy.

therefore, of monetary reform by a return to the gold standard depends

the7 atio

The permanence,


only upon

tne tolerance and safeguards which characterize the settlement with Germany, but upon
equal tolerance and like safeguards in settlements between the European nations themselves and especially in their settlements with us.

No effort toward monetary reform

and return to gold payment would survive attempts to undertake payments in excess of

t. capacities of the respective debtor nations.

May 27, 1924.

Honorable Andrew J. Mellon


In general, therefore, it may be stated that this country is now in position where the regulation of its price level by the automatic operation of the gold
standard must be indefinitely postponed unless debt settlements are generally undertaken.

We may be forced to attempt extraordinary and undemocratic measures as a sub-

stitute; we shall be exposed to another period of erratic price fluAtuation with per-

iods of inflation and contraction and with all of the resulting hardships and complaints, unless in fact some effective steps are not soon taken to deal with the
world's monetary affairs.

But even assuming that it will be possible to deal with the debts upon suci
moderate terms, limited in each instance to "capacity," as will justify monetary reform, there still remains the serious problem of the disparity of price levels in the
different countries due to monetary disturbances and currency inflation, the correction of which must be undertaken before a return to actual gold payment will be safe.
This may be illustrated by the case of British prices and our own.

The pound sterl-

ing is, roughly, at 10 per cent, discount measured in our gold currency.

The British

general price level is somewhat above ours, measured in their paper currency.

It may

be roughly stated that the tendency of foreign exchange prices is usually in the
direction of the "purchasing power parity" of the currencies of two countries.


out attempting to enlarge upon this difficult subject and to discuss cause and effect
it may be roughly stated for illustration, as between this country and Great Britain,

that if our prices advance and theirs remain stationary, the value of the dollar


gradually decline measured in sterling, or conversely the tendency will be for the

value of

sterling to gradually advance measured in dollars to about the equivalent of

the change in the respective price levels, if other influences do not intervene to
interfere with the adjustment.

But the reverse is also true, that if the pound sterl-

ing declines in value measured in dollars, the tendency of British prices will be to
advance in terms of sterling to a premium over our prices equivalent to the decline
in the value of their currency.
power parity" is
Federal Reserve Bank of St. Louis

roughly as

Expressed mathematically, the


formula of



Honorable Andrew J. Mellon

May 27, 1924.

If British prices (more especiallyfbr goods with international market) are

expressed by the index number 180 and United States prices by the figure 162 the Purchasing power parity of sterling should be 162 = 90, or a discount of 10 per cent. or
say $4.36 per pound. If our prices advance say to 171 sterling should, other influences not intervening, ShOW a tendency to advance to $4.62+.

The simple but

little understood cause can be explained as follows:
If sterling should advance in one day from $4.36 to 4.8665 (par) an advance

of 10 per cent., English pounds would buy 10 per cent, more dollars than the day before, which is the same as saying that they would buy 10 per cent. more American
goods, or the same as saying that the American goods bought would cost 10 per cent.

Changes in prices of goods internationally traded in cause increased buying

or selling and so increase or decrease the demand for the currency of the country
where payment is to be made for goods bought.

If, therefore, arbitrary attempts are made to advance a currency (say
sterling) and maintain it at an artificial valua not justified by the relation of

price levels, it will induce excessive buying of goods in the United States not only
by the country whose currency has been so advanced but by all other countries where
that currency may be acquired by arbitrage, which in turn puts an added burden of
paying for foreign goods upon that currency (sterling) in favor of dollars and defeats the effort to restore its value to par.

This operates very promptly in the

trade, of which ours is so large, in raw materials like ,:otton, copper, wheat, and

partly manufactured goods like steel and lumber, which are heavily dealt in, closely
quoted and standardized in character and quality.

Taste, quality, workmanship, etc.,

are not obstacles to trade by cable when buying of such goods is induced by changes
in currency values, i.

0., exchange


At the present time. it is probably true that British prices for goods in-

ternationally dealt in are as a whole, rougay,

in the neighborhood of 10 per cent.

above our prices and one of the preliminaries to the re-establishment of gold pay
ment by Great

Britain will be to facilitate a gradual readjustment of these price

1, 4els before monetary

May 27, 1924,

Honorable Andrew J. Mellon


reform is


In other words,

this means

some small

This is not

advance in prices here and possibly same small decline in their prices.

an undertaking which can be brought about ty arbitrary direction or mathematical
No one can



price changes.

between the Bank of

but can be facilitated by cooperation

System in the

They will be to a certain extent fortuitous,
England and the Federal

maintaining of lower interest rates in this country and higher

interest rates in England so that we will become the world's borrowing market to a
greater extent, and London


a less


fall more largely upon us than upon them.

The burden of this readjustment must

It will

be difficult politically and

socially for the British Government and the Bank of England to force a price liquidation in England beyond what they have already experienced in face of the fact that


trade is poor and they have over a million unemployed people receiving govern-

ment aid.

There will, however, he a period of time during which the Dawes program is

being established in Germany and other debt adjustments are being effected within
which cooperation between ourselves and the British can do much toward laying the
price foundation required for the safe resumption of gold payment by the Bank of

Assuming that all debt adjustments can be effected upon a satisfactory
basis and that price


readjust to the point where the

groundwork for the re-

sumption of gold payment encourages belief in its se.ccess and permanence, there is
still one important step which must be undertaken in most skilful fashion.

private credits must be

or by the British Government


opened in this country for use by the Bank of England


British banks in order to steady the rate

of exchange

and gradually work it to a higher level corresponding to the international price
parity, and hold it there, until the


arrives .to actually announce a plan of re-

sumption based upon such adequate credits in this country as will insure
recovery of sterling to par.

The difficulties in connection with this transaction

are technical but can be overcome and need not be recounted here.

the final

May 27, 1924.

Honorable. Andrew J. Mellon



has been used as illustrating a proposal which applies to all

tl-nse currencies which can be rehabilitated without resorting to a reduction in the


But if sterling can

amount of circulation, or in the gold value of the coin.

be so dealt with, the other European countries in that category, such as Switzerland.
Holland, Scandinavia, etc., present small difficulty and should follow suit.


has already made plans to resume gold payment.
Reference must be made, however, to those countries like France and Italy
which cannot resume gold payment without reducing the total of their currencies or
the amount of gold in their coins.

Reducing the total


involves such read.

jdstments in prices, wages, rents, relations between borrowers and lenders, and tax
burdens, as to be objectionable, if not impossible politically and socially.

It would

seem that the terms of our debt settlements with countries in that category, notably

France and Italy, might be easier of negotiation if monetary reform, with reduced
gold value for their


were made a part of the program.

Nor must our own trade advantage resulting from monetary stability be minimized.

The attached chart shows the range of fluctuation of value of important

foreign currencies, quoted in dollars, since "pegging" was discontinued and free gold
payment entirely abandoned.

The fluctuations above and below the par line and within

the points at which gold could be profitably shipped before the war, were too slight
to be able to express in such a chart.
risks of heavy exchange losses.

All trade has become subject to the added

How greatly this deters the making of contracts in-

volving future payments in foreign currencies cannot be estimated, but it is con.

Stable exchange will facilitate foreign trade just as greatly as stable

credit facilitates domestic trade.

To summarize, therefore, it would appear tnat the chief danger to our
position in tbe future lies in continued gold imports and the possibilities of a period of vast inflation reaching proportions beyond our control.
an occurrence an early return to the gold standard is essential.
return to the gold standard, the adjustment of


That to prevent such
Preliminary to a

debts must be effected

and some readjustment of international price levels must be facilitated.
a large credit
Federal Reserve Bank of St. Louis

must be arranged.

But finally

May 27, 1924.

Honorable Andrew J. Mellon


It is my belief that heretofore studies made of the problems of the debts
have not given adequate regard to certain principles such as these which must apply



of collect-

ing the debts is a consideration of minor importance to the country and

its welfare

our monetary position is to be safeguarded.

compared to the major consideration of a sound


to suggesting that the





result in

Government of the

officers of the

United States and representatives of its banking system
for exchanges of views which may

This letter is


should now

make arrangements

the adoption of a national policy.


attempts are made to settle the European debts without those responsible for monetary


having any part in the settlements, or an the other hand if we attempt settle-

ments of the debts

awing to us

without adequate consideration of the monetary effect

of those settlements and without insuring that monetary security is not impaired
thereby, it

may be safely stated

that we will not only suffer a long period of

monetary instability but we will in fact fail in collecting the debts upon any basis
of adjustment which is effected.

It is equally safe to say that

nations will negotiate settlements upon any terms
construction as an essential

which do

Yours very truly,

Honorable Andrew J. Mellon,
Secretary of the Treasury,
Treasury Department,
Washington, D. C.
En c.

none of

the debtor

not regard monetary re-





- 40* fp,



-e...... elk.... ...A, iv.. 4,40 4rgs












Depra2.1Uin af

19 21

19 22


Tthange Rate!) fr3.11 Par Value




March 9, 1925.

Dear Mr. 5ecrete ry:

it gave me a great dml of pleasure to receive
a few days ago a likeneas of you done in etching with your
I shall keep it L5 a souvenir of what to me be
been a very delightful association during your administration
of the Treasury.

It has been an inspiration and a pleasure us tell,

to Lave Boma small part in 50 successful an administration
66 you are giving in the mank.gemeat of the country's finance.

With kindest regarda, I be to remain,
Sincerely yours,

onorable A. W. Mellon,

oecretary of the Treasury,
jashington, D. C.


Apri' 24, 1925.

Deltx kr. Secret!: ry

In a letter just received rrom an old friend of
mine in London, who le a director in the Penit of Fnisia.nd,
and who also occupies an imporV:mt position in the De.wes Plan

organization in Berlin, appe6,rs the following pe.rsgraph:
"Gilbert is winning golden opinions'
in 'Berlin, And. deslrvedly. lie, is a greit
man; and so simple and sincere.
love him."

I thought you xculd be interested in h&vini, this
direct report of the r---ard in which he le 'Z'."."71d over there.

Very sincerely yours,

honorible Andrew N. Mellon,

Secretary of the Tret,6ury,
ashington, L. G.


September 21, 1925.



Dear Mr. Secretary:

While in Europe, s cable -from my office advised that Mr. Wineton desired

a report from me for your use, which I not have pleasure in making. I was slso
asked by the American AmbtA5sedor in London to secure certain information in regard

to the war debts, which I conveyed to him verbally.

My trip afforded many op-

portunities to gain an insight into conditions, especially as they bear upon the
subject of debt funding, and these impressions, together with the information which
I gave Ambaesador Houghton, I Shall now attempt to express in this letter.

luch of whet follows is confidential and knowledge of the existence of
this re7)ort might, indeed, cause me considerable embarrassment.

asking that it be t]eated I

I biE therefore

confidential document, for your use, end for the

President's if he desires to read. it.
I have made it relate particuhrly to the French position because of the
pending negotiations.

but it can be elaborated with comments in regard to the opera-

tion of the Dawes Plan, which, of course, he & bearing upon debt funding.

I will

be glad to write 6 supplementary statement if you desire me to co so.

Attached is 6 translation of a confidential statement which as furnished
to me by the Governor of the Bank of France.

This letter ía in part based upon

that statement.
cariTiork, IN Ft3ANCE

General Conditioner

It is probably true that the people of France are

well employed, and reasonable prosperity is returning mesured by French prewar
stLndards of living, whereas the Government of France is impoverished, if not
struggling against bankruptcy.

This is in contrast with the situation in Germany,


on;b10 .A. a. !talon


rtlitYstl of it,::. debt, to fi;:t..:17 prosperouce but..;....Atwt-.7
azd ,,L:o.;aa,....,rot;

4t.r.: not eo ;..ttfrit?,:),


.,;1e.- not


thf.; wbole, t1.1.6' y146 ,,7toi.t hzvt be,Jr. gooe4 l'.i%te,T ',Ism 1A. i:. :,


alt,Ltt,... aaTe

te:Jultert nom .1.t.:...-41 rti.r.... Nt harvet..t. tine,',...rla.:,-lpaily 4,0 1V; -


tx new, late jszi.-Ir.e thd fralte.

Marl la soriout; ciskrnsion in the wine inc.i.astry of

Southern Frtni:st (toe to toafe 6eterioret1on in t.1.=.:

?ally to

t:-.;... It,re: futpet,..-...3

corAlor or ti t vin..te, but, ii:..t.r.i-

of -,! rinletirg.

tept 'for the "Vorri,'' ,,11 tlt, rrilrelesi on wiif.,:h 1 tm.yzie:-± wart it bed
CC' ' :1 ti, Or .

I Inf i ,.,- 1.t rc*Iy owfoed 1,1 EF..rd .... Fot!lz,%hil.c.1, C.:* te..0 -2: robri:ly

TI:.e, to or

hi..-:r! sufficient ite,m7-71 to fin-bine* the itittritamftCe or Olot


Nit there *era

2,(:: -.- 0-

twenty iretke 17- r r riof.l. of thirty eeyti, trr-atly ilve to 7. 6 '1 track tontil-tiona ad
runnin.7 t rnins too I'
Priencle who,--,7i. 743 74otorad t!.-Irt%5Ehout P n-nc,i, tQl ea thct th., sotor roeth, .:-re

leo In tee ronditior, rrl. boinF kort is. tho ...:orid rapair or Irfoxhr &ye.
The netiotml mortumialt

is evidenta that


nr Nitta hrv. been tlo -pride nf the ?renoh, but there

Ere not taine ,raintiOneri.

Mile rr. Pookr:Ttiller be..* provided

for mpai rir.i the '12.2.f,00 or Yerealllea, the ;.Tourifle !.r61 aot ateitttined
.e, 4opreeeinfr ernote,ole of weecifi etv.! underbrarb.


aro rEthierr

I !a's Pato told thtt the Pehee of

the Loovro ,n,e1 other important ,,,u1..11.- bull :*.lt-z.,:n a r.,. ix tte.f.' repti r.

!.'hile I h!' c.'. no ehancse to




f.° r eaell pirt of


..!c:val.t.tted c.raaa,

told thrt, reconetruo-tion rcrk. ie . bout cosplotee ts to ff.7-z1 bncla, ptAlie build-

infe, reil pone etetiont, ce,nels, ,..2-try oburebef), ebe tit tore 1w4.-erttrtt butineer ace
ir,lt,etriel :71#.ote.

nee et to 5 1-erge nutbar c:r the private dwdlice, althouth

many dvellire hcwrer 61,111 recNire rebuileitr or repeirirJ

?urther work of recOn-

btruetiOr h5lp now teen ritroaq entirely euerentled.
These .avif:Iencee of ottional ecoromi inelente the etr.N.iptto of. the r3ovrrrittrit

oweeed by their tuei47et 0 ericite fire eltricatt with the floetirw eallt.
The peop1e. of the ration, hcwaver, m c, 1,61.tly C t *ork.

I et ,Ivieed that

Ronoreble A. t. Mellon


there is practically no unemployment of consequence, told inhor ie even being im-

ported from Italy and elsewhere for the harvests.

The figurea or the visible balance

trace continue frvorable, but too

optionietic conclusions might be drawn t'rom thin. condition.

ciation of the, franc acts flEi

The prog.resive depre-

strong stimulus to exoorts, and the nation le liable to

experience Pa sharp temporary reversal of trade conditions whenever the currency ie

reorganieed and etabili?ed.
not commonly known.

Another allowance must be wade for s factor - hich is

Frence includea in exoort florae (=.11 exc,orte to her own

colonies, including vrticularly wrench Indo-China, to which 6;1 e exports le rgely.
Fut the. monetary

ystemsof the French colorAies are, in fact, tied to the monetary

system oi Franca, and consequently exports to the colonies cio not produce s true balance of payments.

Of course exports of the CO1Orli6S to tne reat of the world, which

soe not included in export figuree would, in part, offset this. But it its neertheles a ftct that peyixents for exports from France to indo-Ohine made in h r own
currency, therefore serving to smell what s.yoesre to be E favor&ble heltnce of trade
without producing the foreign exchange needed to protect the franc.

There is no doubt that etandarde of living have been reduced. French people.
who live in. the prOViriedii, in former years were

ccuetomed to spend a eeneon ir Psrie,

attend the opera, do their, aod visit frienro...


re no longer able to

pay the hotel retee, nor the .pricee charged at the beet stores /LtsCi restaurants, co
they no lorier &,:o to Faris.

Fut the flood of k)aropean travel :from North nrol Eouth

-series hoe reached :,r000rtione hereto.fore unkno;n, aro:i has kept Perla ft irly prosper.aue.

There are aozte evidences of en upward movement in anges, and especislly in

salaries and wages

the more helplese cle, sees.

ietrrious strike of benk clerks

was in progrees while I me in Paris, which had extended somewnat throughout the

The poetal clerks recently struck for psy increases, and Ken thew. If

Honorable A. W. 4elion

. . .. 4

some much increse becomae general, especielly in the Government .',ervice,

to the dI.triu1ti

1tb the currency.

Any general er. ,ge increesa wiI

wili add

likely te

followed by some price increcees in the provinces uhere they /legs not yet riadn to
city ov,e1s, still further adding to th dir icultles of the currency ,,roblam.

A curious situation hes resulted from the im,t,ehae deliveries of rpert1on
coal by 0stmen.

Coming &".4 this

tith greatly ealcrgeA use or oil and hydro-

elecl,ric poker, there h;,..s been an unwieldy accumulation of urvlue cosi; mnd the coal

business ot Europe is withering. Hydro-electric .lavolcyment la motive


5witzerlend, for instance, ir-zludes in hr

France,',lemony, Zwitzarland rae Italy.

export figures "r,eceii:ta from Power Transmitted Over the or*cr,

hici i5 now con-

Railroad lines are being elev,rified In many districts where water power


A large percentage 3f the ,:,uisse rallmaye aro now being electrically

id accessible.

operated, tald it looks ae though in time h 1,.rge pert of t:.zo *in lines ol!* the French
railways will be to;Jerated by el ctricAty.

This presents a gloomy outlook far

coal business and the extent to which rep,e.retion pyent
ly continue.


ir t-,t-t norm can in,:efinite-

iu,ve been told by members of the reparation organization that in

order to convert coal deliveries into cosh, the French are disposing of reporation co1
at 50%, or even more, below the price at which Germany gate credit.

it ie not impossible


And, in fact,

the entire credit on reparations for deliverios in kind to

the French 0100,1d need to be dfecourited Vro

to 30% In order to bdcertrin ht;te

French era octually realizing.

A fairly almbormts explanation f the French system of taxation

re in the document attached, which till not, however, be . holly intelligible

without better understanding or the difAcultles of taxation which arise largely from
the psycholoy of the French people.

Too icily critics or French finance abuse the

French Government for ite failure to coli.ect taxes without Lay understanding at all

of the french eople.

Limitations upon wakt a Goveramtat can collect in taxa bre

partly what tte .people are able to pel, but equelly what the people are willing to

Honor bit A. W. lellon

The Pren,h netion has alesys rolled upon indirect tAxation, as have the other

Latin countries, where& for izony yetre tht Anglo

have bean educated to

regard direct taxation, pro?ortioned se ()ming to cipacitf,
The French had nc direct income before tht ear.


ore justlatem.

Therefore in eatimeting that

is posoible in tat asy of taxation in Yrence, et should rCe6 the nct tb.t *c. ore

lin with Frenchmen, and not with Anglo ;baxons, end recognize that limits of taxation are eomethet fixed by tht ability to pey taxes, but quite es atiC6 or more by

Ility to collect them.

The psychological limitations of toxation in F rIce are

compsred to whet they.sre in Anglo .t;axori countriea. The pasesnt classes are

..Lrgaly amsil agriculturists; thiA i. to 'my, ?roperty owners and evers.
.-rvwtiva, thrifty, knd. secretive.

tax return.

They ,:=1-e

;41d it id tal,;ossitle to .i:et them to melte

They will pay tPxes on their lt , but.n t on the concealed results of

their thrift. Tha rens lewaant le e quiet 'folios, who etsys et home, or
les his money, trif5 largely escapes tsxstion.

The other class which probably

aa t rsIr shAre of the burden of taxation le the
the afttIG of concealing his income.
om-Ioyed, even,

which to bade et


rlthy businessman; vho n.


Undoubtedly, a great variety of expedients are

wa told, to the extent of keeping e separate sat of records upon
return. But escape

deri0U4 then th!'t of the per tote,

taxation by thio cia,u4.1 ie even more

it Is the wealthy buoineaswen *,,o is able to

eend hie earnings (rat of tho'county ant; keep them invested abroad, without taking the

income home.

IL not only eprives ?rtnce of t4x..x revenues, but roduct

capital of the nation at e, time when it. la badly needed.

the v=orking

This is a situation which

()unmet b6 corrected over night, but, in my opiniotl, uill be corrected if the debt
funding operetiono are completed; if they witke due allowence, tti they should, ror the

0Jouliv.ritieta QV tht, Fronoh toserament, an.( efford the French Unent opo tunity
for increheing direct ttocation greduUly, rtther than f. ludenly, and so avoid a flight

of oepial out of tn country, or s more extensive hoarding of the currency.

honoreble A. a. Mellon

On the ()tiler bend ere the cloecee h,ving eocielistic tendencies, - the

wege earnere, the seleried cleasee, the profereore, iawyers and the like, - many of
whom ere active end eggreseive socialiftte. These ere conetently pre eing for cepitel


thet is the one .vity to frighten the Freneh pet, end get him to ciDt,

C06,1 hib fltvi


Teere tre evidencee, hoeever, that texee art being more vigorously coieected,
and that tee progrem cif enlerging the area of texetion ie being more vigorouely de-

loneieur Limon told me that in a beek like his en, tho RSociete


.0cnerele*, they Neve good opportunity to obeerve much imerov=ent in the thorouehnees
th which tex eollectione ere noe- being made.

It 16 one

the lergest benke in

?mace, end eoeere meet of tele induetriel mection eith 6 network of brenchee.

All of my telke elth Frenchmen iodIceted thet outeide of the egriculturel
cleteee they are now feeling the burden of texetion more hervily.

tly friend Berea

de Neuflize, a benker and one of the reeente of the Rank of Frence, told ae thet he
paid 60% of him income in taxee to the Governeent.

Teey ere elao emterreseed by in-

ability to deduct bueineee lore e (thet is cepitel loaees) frem current income Le we
do, tnd consequently meny ei ,e end bueineeseo tre oeliged to emortitc loeeee over
period or :fee *.

As illuetreting the burden of the inheritente tee, the Governor

of the &elk of Frence told me thtt he had recently been left e le cy of 1,000,000
freace by

eeemend cousin, an4 eftmr celculeting the *mount of the trx, the exeenee of

eeminietration, etoe, ho round thet there would be nothing left end he relinquished

the legacy eiIrely to the Stete.
But in coneieering the capacity of tee French people to pey texee, it emelt
eleo be borne in mind thee eteneerde there tre much lover then *ith tie, or even in some
other parte of Europe. To illustrete, Moneieur

ermentier employe t men and his wife

to run hie aperteent, 'rho do ell the work, the men elo ttking 'ere of ,n entomobile.
Even though he bee increeeed their wegee to or three times recently to meet the in-




crtased cost of living, ht ie today paying them only tt5 frrace a mortll,
/hile I wee In Perla Colonel Lof,tn rentee t

*26. gold.

martb, arid the butler .10.

Ty e ore wages pwid it tte rity or Porie. They ere

recent re,ort on se/sriso of br.nk cleTke ehows Inet tty

rek,eive .n 5ftre8e of 800 or 4.10 fruc

houee 4itb en oblieetion

4-utler. The chef receive the gold equivalert of $12.

to employ tte owner4 chef

lower in the provinces.



aces, OP which tney must uort.


month (440 to .11.5 fole) even ir fl-e hip,ner


ut even thews ;ma are b.tter tn

tbose pale in 'Ulf, eners en American femily 1no of, now living ir Rome, em:eloye

twelve srvante whose 4efrogets elariat are not equal to aht Iey my tract.
If the oc)comic rule ;rcvoils in France that wages tnd etlaries ecusli7e
ttlemetives to reletive levels between tbe 41fterent cltasee, these indicstions or The

tnthza or rowrrd of la,,or in Frtnce ere likewiee some irleieetiOL: AV to ate burden

of inoire.zt taxation,

bIh?3,1.'6 to the (port of living of ell clasee5,

well ea of

the ere cerscitv of the netion bs t td'. le to 2-y hsvy ttlres.
Too little coneideretion is given by critics of the Frer-Il of genarel im7b1rmert at capacity to ;ftl 'Lewes bsreuse

wgr loaeee.

destruction or induatrial eotoblishmenta i are not confined to the

ortern Price ynoto 1or4 idlones in

Pro,4uction while retortion aorx 4A* taking place, but to eirect 10A6OS es the 7rerch

sople in foreign inve,ttents. It ie aatim,,tel that no leac tt'n 14,000,000,000 wee
lodt by French invtor i Ruin s(ecurlties which tvtve been wi?ed out, end total
10t6d6 on forein investeante, the vtlue of which 144-6 destroyed or impaired by the
wer, is pieced by 60,40 estimators titl high as A8,000,000,000.

On the other hand, even with ths incrersed tAX0knd reluosd eA;lonses, the

butt h

ot yet bran balance,i, eLl that, to,athkr with the amt)arrsemsot causer! by

the lurge moturitieb of flottine: 6ebt hae led to many current reportn thet t e


ment is not neving it bills v.roartly.
P,ere is a stron4 argument, not commonly consiAerea, however, in support of



the belief that the French peo.i..le
The o.,.nnexed eteteaient


poly hvier t-Acee than they aro now .paying.

boa that the combined budget arld eu loment;,ry budget in

1914 aggregated 6,260,000,000 franca gold, and th..t toe budget of 1925, reduced to
a gold bl,,sie by


a retio of four francs to one, tottds 9,770,030,000 fr;41ce,

which, on f2, gold basie, i

n incres,oe of only

50;1; over preor.

In icrtgland the prewar budget ran ot e..bout

present budget. rune rou6nly

3,03,00ei, o 1 ci , %lid the

atout. $4,000,000,000 gold, or four to five times

the prewar budget.

In other words, if the purehasing po4er of the French c%:rrency Lo.s been

.uerter of it prew-a.r value, toe buroen of the det mut be but

reduced to

one-quarter 4)4:1 heovy, ,:.rovided, of r:;:our4e, the orohsing power of the franc is

correctly repree..ented by the ratio of four to one.

Unfortunately in e. nation like

Frunce, where a large pert or the industry lo conducted by craftsmen, rmther than
by large orgemi'zed unite, wageo do not advbmce

ae the value of the cur-

rency depreci Aes notwith6tanding thtA the coet of iii

doe e advonce quite

The ;::.reeent, index number of 1,:,ricea In

r,nee is over 500.

Thie rehulte in

poverishing 1rge classes of peo le,, noverthelese, ut cet ?n unduly heavy
parepoution of the t3x burden becue indirect taxation is so

employed r;Abor

than direct taxation.
The solution of the Ittole tax problem or rc' Iii, probably, to gradual-

ly incre,se tie teoces of the ogricultural Olt:8606, tt.nd collect much heovier income
taxes -.'4"Qin the -,ew,ithy clesses. But. it *net be oone gradually:

This latter c14sis,

just ,as the former, ht,a many. Me .116 of eifJcryinE, taxation.

They eend their money out.

of the country, whereas the ;peasant horde

emviros in b-,nk not.


of the rUt1ii

iublio Debt:

d conat..As hi

The attached at.l.tement givee un rif,lytai a of the osition

Le.terence here need only be r4,:de to the st-Aoment on TAge 5,

- ihich indicates the volume and rte of turnover of short obligations issued for one,
thrt,,,e, six


t*eive months, und on page 6 et etro., showing the *eight of s4turitiee


at the end oi taloji.



of oalite4oer 4,ot.'0,Wrio,000 franca

and ou ti a td't o: Lecewoar 10,000,o00,000 france.

Tneee tooturities, to6ether

with toe iseent emberraesment o, the Bank of I,ro,nce, led to the rotiloal uaaeura of

iwauinb a% ettexiiaatiou loan in the for of s ieioetuid rente'oeerihe 4% inoareet,
to be ;did in paper Zrenee eut at ouch a rte that the holJer will always reelle

not La.

W5 .'reatee oer pound eteolln.

Cailleux's print effort to deol with the floatift Uebt 4.-.0 the result or
okioicu or Nor poewible meesure:

a capitol levy

an enforced convoreion
A further inflation of 4,1,0 b&LX aote 141406

tin obligation iesued on c opld baolo.

Pion (a) would liVely have caused t fli.ght of the franc, oe it ctid in Esitserland
socn e capittl threatened. Pltn (b) would Tolve hod sotooehtt einilor effect
and hrve been e eevero blow to French credit.

Plan (c) would have eterted pro-

greeeive inflation. Ano plan (d) we, tne choice of evils.
The expedient ia t dengeroue ova, for if the frnno suffers e turther decline it mesas Vint

eogratosive inflation or the curroncy xill be neoeasery hfter

meeting this obligation, in orc'er to meat the aubeequently maturing Obligatiouo aoich
Theo era meny recomsinaturolly cannot he refunded on ony lass ffororeble braid.
tie Frenchmen fsniller %ith floonoe woo today teve ebwndoued tOeir belief tost the

nation can support it public ,oabt sith the franc worth r much F,41O fronca to the
They thiok It ?shy hove to 0 to 120, or 150, or even to 200 fronco to the

It is now -bout 105 to t



Thiw is counsel of iespeir, out it ie

not out of tbo tueation that ,JosiLing of th!rt aort wit', develop If the pending loan

is r foilurt

sup;ortable debt set leelehts uiLnaOt be efCected with Ula United tItt,tee


4ftny ruore rogeroing the sucosoo or feilure or the Iota ,ere heard ohne

I ate in Frsnce.

st:..tomonte placed subooriptions hS high as 20,000,000,000 franca;

honorable A. !,=;. Mellon




ttted thet it was * complete. failure except in the city o.!' Perit.


amount renlly required ik about 40,000,000,000 frtncso toe. the Goveroment hoped to
get 6 minimom of 20,000,000,00 france.

The 1Let stetemeot which 1 received, while

in London, abler) it probebiy too low,, indictteO that total mobecri tione were then
betoeen 10,000,000,000 and 11,000,000,000 frnnce.

The Bonk of ?ranee c*n otill incratee lone to tht 6tote by over
3,000,000,000 franca, and their note ieoue by over 5,000,000,000 fronce.

This may

enable them to meet the September situation, hot will reoult in further infletion,

further depreciation of the fronc, end might induce a turther export or capitel at a
dengeroue rte.
The Bonk or Frenceo

The pooition of the Benk illootreteo the differeoce

between our scheme of ver finonce tn,1 thet proctiatd by the Kuropenn nations in vorying degree.

11th the exeeption of a loen of 440,000,000 made by the Reserve 5eoks to

our Treasury immediately otter war wae g5ac1ere4 our Goveroment hes borrowed nothing

directly from the Reuerve Banke,-except advanceo to finance the turnover on queoter

days, which try always paid of within t week.

Consequently, all of the ear loens

of tho Reearve aunts ooro uoon the privtte obligetions of individuele and institutions.
The Reoerve Banks were left ia control of tot money market thrauoh their discount
rte, and the booking system woo oblo to 'oboorb the enormous importations of gold
without denEeroos infletion.

The geld simply peid off the borrowinge of our oenoere.

If the Government had borrowed, it might not heve been willing or able to repay os
rapidly os our bankero did ond the imootted gold would heve couned an imoenee

In France, oe with other Allied Governments, too ltrge a proportion of tbe
Government bomeaing woe from the Bonk of 16Alti. The Government crnnot repay the

Bonk, msd the Beak is left helpleue to control the domestic monetary situation.
Groat Britain ascoped toa worat of thi development, but still hEs to -eel with the
currency notee.

Germany cleared the decko by abandoning the old currency tnd re-

WO" ....... 11

Ronorable A. W. Mellon

organizing thu Reichebenk.

The 5enke of Iesue of Ertnce enn Ittly are helpless,

however, because thair portfolioe are elmnet entirely losne to the ntete.

The Bunk

of Prence, in round figures:, he loaned the ante 60,000,000,000 frenee. Ite
private portfolio consists roughly of 3,000,000,000 francs "Lomberd Inane", secured
by inveetment bonne, - say, 050,000,000.

Theee loena are made at the head office

and branches all over Frr,nce, &rid are not of nufficient volume to exert any influence

upon monetery conditions if the bnnk rate tore rniaed.

The portfolio of "bine dis-

counted" - about 3,000,00n,000 frence - in alot entirely composed of ahort bills
deponited for collection nnd payable nitnAn five or eevnn days.

On one of the neye

I vzets tt the nnnk, the nincounte presented were 255,000,000 france, of nhich only

.8,000,000 yam long bills, all the belance boine simply collection items,. This

leaves the Penk literlly helplees; its mnin function is merely to cut up novernment
nonds into small denomination notes to circulete 66 money.
The government of the. Inink is also of

cturncter to add to thek

'bile the regents ere elected by the ntockholnare, the Governor and Deputy
Governor are appointed by the ntate.

The directors cen do nothing without the assent

of the Governor, end the Governor can do nothing without the neeent of the directors.

It results in the influonce of the Stnte being superior to tl,e influence of the

Then the record s of the Rank were reeently fniaified under a previnus cabi

net, I am told thet it nee duo to an urgent eppen1 that if the regents reeigned, na

one or more of them threntened to no, th nttion nould be wrecked finnncinlly necouee

of the resulting tlerm.

Under the conditions deacribed, criticism of the recent

reduction in the diecount rate from 7% to 8% loeea much of its force.


Ny understending of the preeent situetion of the Painleve novern-

ment, guthnred from nanny nourcea, is nrobably ren_nOnebly tocurnte.

inolunes many eociallet vote, - those of the. "left."

The "majority"

The Governtent is deuling

with mnny nifqcult nunotione; thee ere the Riff ear, the rebellion in nyrit, the
domestic debt eituetion, the foreign debt funding, and the negotiation of the

Honorable A. W. Aelion


security -pact.

The socialists do not wish to shoulder the reeponeibility of dealing

with these queeLons and are ulte willing to tAlow the pent government to do ao,

ttd radicals simply retalning the right of sprovtl or disapproval.

There seeme to

be generul expectation tot,t after ?arlimnt rot-ssomOles in October, say by the middle

of lovsmt:er, thit vvernment is likely to ft11, and a more radics1 goverwent take

its place.

Brisnd is 6-uotted to be manoeuvring to secure tho radical vote and form

a government himself.

Caillaux on the otter hand, is Aing

swerhuman effort to

de.1 with the financial 4if.leultles in 'the hope that he msy experience ILIC66 sad. be
asked to form a goiernment himself.

The probability 860W4 to be that thia may

hekpert after a short interval of a more radicfd government, under tome mr1 like Brind,
with Violet ea Finance Minieter.

The followini I believe to be accurate.


it ia based upon my memory of

ttb responsible peoAe during which it was imwoeoible to take notes.

Caillaux's Cirst position *1,6 to insist thp.t payments be *holly conditioned
upon the 'product vi-the Dawed Plan; thst any development such

t decline (Y:' the

franc {which indicLted that Franoe 'wv,a paying beyond, o&pscity would be dealt with by

60Q6 plan analagous to the Lr.lid6 Plan.


offer wat au annuity of 10,000,600

sterling tot sixty-two years,
Tbe British position Tage to require an unoonditional thr:uity of Ifi3O0,000



partly the result of

by experts, but wts finally arrivec r-t by

etudy of estimates fle. figures submitted_
Tough calculation *hich aAtempted to

reconcile the probable results of the Dates PlAn, the - rinciplea of th Balfour Note,
and the oommitmeLtef moods by iiinaLon Churchill in his s?eech in irlismant

The 'Dates Plan 1d4 noughly estimated as capable of proucing one-half

of the normal annual per its of 11),000,000 sterling, Seq. 4300,000,000 per annum,

Tbe irenth ehtre of these paiments, ary b2%, *ould thooreticlly be toout 4160,000,000

Portorble k.



elthoutth ectualy it would te much less t1an this on

cuni of the prioritlee, 1,nd

on rrcourt of the Oiecount on eeliveries in land zertiored elee*tere.

Ucon this

eetiTete the compromist figure of 12,500,C00 sterling vsci fintlly arrived at for the
British anvuity.

k like ;rowortion on t e tmericen e.ebt would be bcot IA,00C,000

eterling, - the tø togethir vpprosching the estiscted receipts by Ymnce from Germau.
Th B.ifour Note lai,! dovn the ;,r1nc41e that GrerA Britain should ooilect
as Tuch on lebte owing To ter te echv 414


recuired to pf,y under the tmarican

The British figured thtt 12,500,000 sterling, plus paymente which t?-.ey

would receive on other debtr, plus their share of the anruitiee under the Dawes nin
(prlobOly figured 88 producing 7Aore then the estimA.ted 50%) mould rouOtly approilmste

the trow.git requiree. to I/eat the American p4yzeut84

As to the Fromise **de in Pt.rliament by Churchili in recexer, that pkyments

to Grevt Britain stoull be pzri -,esu *ith othsr creditor, the vie*


that a debtor thrmetened with insolvlocy could not prefer one creditor over grioter,

but that the creditor ight th=dmselvos agree to accept respectively more or lass one
then the other, if thpt vas agreeable to the debtor. But the tentative a41%,ement did
not commit thi British to eccept less ?roportiomtely th/oh what tht United i,tates i3
to be paid.

il1uxstronIly emohasimed the trvhsfer difrioaltio4, tnd in:slated that
that w:s.e thc controlling factor.

P3 proposed tht if transfer dif ioultiou enaue

reference should be made to t coocittes consisting of the Govrnor of the 3ank of
Beglend, th.P Governor of thm Unk or er.,ncs, and the Pret,i',ent of the Learus of N:tione.

Objection fea ;Facie that such a ret.:rence would only aucloae the fLets of tte situa-

tion at . given moment, but would not correct csueen lealIng to thst ettte of fete,
such, for inutt.nce,

mi,;ht sries from Olusa of the Bank of !mace, avideace of the

pos4bility of which hi 6 edm,4v hmen apecificaly given to the world. The queAlon
could not be eattled and wF,s 1.-Dft iven nor tuturo nesotiation.


W. Mellon

raillaux -lso insisted that there cluLt be t mon,torium, or very easy pty-

xents tt the outset.

nil, ta rote of mment 111G,3 not settled, it wei ,greed that

paymeet would be grcduated, etarting posaitly tt Z,000,000 sterling, -nd

elowlv until the full annuity

later) ted b en fully repeld.

re ched after the Incb of Soglend lova (referred to

cheeule of payments it to te arraaped later.

nkillnux further insietea that poymer.ts be eepend nt u-on the smount eel=

lacted from Ger.
In 7,rincip1e the British

willing to ciake some concession on this ,oint.

Mr. rThurchill intimater! to me th.t robably a fixed annuity of vvondoo
With E,t00,000 conditioned upon Garman 'payments would be oceptAle.

But I surmise

they might Irke a smeller fixed psyment f.nei e 1-rEer cortitvent payment if pressed

by the French, rather then see a ftilurs of tho settlement.
T',e lump eum figure arrived at ea m ,-leoromise wtk. tfldoubtoOly the result of

the intervention of Dosninc, Strt:et.

The Cnsncellor's point of view tt,t frankly that

of t!e Treasury, and of the British budget.

Mr. Chberlainos point to.' riem efts

more lareely, roIitictl. Ye le et preeent negotiating the tecurity pact, to which
they attach the gref,test inrortc,rce.
tne payments 84. OCIT

The influence of rowninr Strnet igoTo to moderate

rid in fEcilitsting successful neroti4t1on of the pct..

The =lc-

tells of the discuseion IT e not c.c,usinted with, but it wet thet influence onich led

Yr. Churchill to gr

to reduce the annuity.

think the eituttion awl be fitly exprekwed by statink: thet while a emi,11,r
payment to th qnited States prcyortion,tely than the rropoeed Britist annuity would

be ?ratif'ying tnd helpful to Downing ttreet, it would not to o at-rein- to yhitetc11.

Put nevtrtheless, I hsve the f Hlin- that while rhitehall v,o4;1d try to irsiet upon
increteing tte Pritish peywonte pad psseu with Ameriett paywerts if the /attar tre
leri!er, *hitehall might te porriusded to mtke even a further reduction in the British
paToente if the American psymerte wore is-roIortionttely emtiler.

Ttlee.igbt ttke the

form of a reduction in the portion of the onnuity which it tixtd, end an increase in

ilo:::oreble h. W. 'Aellon


:Is portion wilich is contingent upon Germsn pLyments.

':jition to t1K

ymenta to tbe Bank of England, end the proposed annuity

to tha Eritish Governant, there i.

t. present being pcid (ni I gather oill be con-

tinued) stout 1,003,003 sterling for aupplise sold Fmnce, iilx to th3 payments
now bein:.J. mada to tns United States.

I understand that the t.ctnal amount of cash ..-vanced to Franco by the
Eritiuh clov,3rament, witLout tny interest included, lut,f:. 470,000,000 r:terling in round

figures. Interest hen been added to capital at the Ba..nk of Lngland discount rate,

etatever thzt might be fro a time to tit, thus increasing the principal to
amount of about 830,000,000 sterling.

affected by 'o1d transi,..etione.


The &mount of thia debt is further ugaia

Before the United 5tates entered the war, 613

reugeaent was made between ',lie British, French, fluesian, and (subse-olantly) the

Italian goveri,mehte by which each contributed an amount of ,old to be shipped
Am-ric.... inpa.imeat for war supelise.

Accbrding to the published stattaents of the

Lank of France, the 4acunt which it furniebed should be estilaated at about 70,000,000

starling. This, c..a I recall, ia the balance of the amounts of lold shown es "teld

road," lese th:1.cut to be repaid by the Lank of England.
told me tflat tho :,mount waa 50,000,000 aterling.

had in ,g.tting



But tr. Churchill

Probably no dificulty.would be

gold, whztever may be

Lmount, has been

treated by thc British GoTainnent us 'borrowed" cold, although the :;ntire =cunt,
together with tha Ruseisn

Itnlian gold (and 'some : believe from Egypt) we

ahipped to the United Etttes ih aceordance eith tb,; arran3ement originally ade.


British 3overnment has been dloing intare:rt, to France upon the Lacunt of this gold

and the into,reet has been crodited.on the interest charged eo:jnet ?ranee on the
_tiro amount of the loan.

It i3 ia the nature o2

L.cAkeeping ,mtry.

The aeu arrangement '..vutemplstes that a non-interestbearing note will be

given representin4i the eatire amount of the

1.chich will be repayable at the

end of sixty-two years, and when repaid, the ?reach are to get back the gold.


Honomblo A. W. Mallon

le eye-wash to s:vo the attement of tha Penk

Itillnui -robably

ever le motqally


I very s:uch doubt 1? it


11#,..nk ofn,t

Grrunsemzmt its temporary to

1.;-einet eny panic.

terence rot., whirtdht renult


tht: T661:4,Ltti who hoq.rd FLnic. of

co noneiderstla

roz,orven of the ?ank aG would be neceet4.r

if thia

ruduction in

noninal gold

wom c;rselited on th:;; French

debt to 'Great Fritain, ane the technicra riFht of the Prot of Frtnce to its rsurn be
thereby t. r.minsted.

ritish wu1

with thc Frsnoh.

nve preferred. to join thR United 1. .tat.te in


tny aettlenent rith en ins!olvcnt debtor,

They -jr not conalIer

or ore of 14oubtrul solvency, would bwtol,irsted which did not rimult in payr ts pad

lie such t joint nerptiation

boveve;', thoy did the beet they


ovuld and strongly hope that the Amorioto esttloment will ct ler,et he dons eler

line, but with neoes

eejustatente of fleteils aw! Itav importsnt m%ttere, eo long

ae the bseio ,i,rinciple of this sottlenert t obs,:lrved- Theyestimate, 1-.I7-t their
settlymunt 4ll eft, re,;tnynent of LL a principal m.:C, not over El irozt.
-Wr. Churchill expiniLed to ms at °greet leacth hie difficulty in -?Ae.alia with


British. eatt RO 1me:T. the Americen debt fettltAent
to h6ve been on

He se,4mod

rh1ydistort-Am! by the vd,orce comIten from. 4merien, and thu in--

ferules thet ir. we() uay th* result or tb6 natotistionc emrted c trai., for tt;7::
United 5totes, or op ated in no

wry to eircumccribe the freedom of tht Vnited Strtee

in fiemlire. rith fmnot; or eomo silo% thlrr.
hie be,hftif, &nd frow hi

e setod mo If I roulJ1 ottte to you in

thrt there el7e not the alightest intention of cueing &ny

evbrruseement, or of placin; any limitation upon the freedo of totlen of the


th;Ift rutrore to t%tt 6ffect shou14 be diereiyrdad.

The British thick the !ranch ca.vblo of metire them, paywonte if,nyiv-4es
sobetentiel paymerta urAer tte Dwet., but *deft
ev,l,n then.

there le come unoertaluty

The question of capacity to i4fect transfers ftust be exti,mined ond

Uh 1.!Iter, aod will umtflibtodly present greet difAcultied...

171;re would be. little


Honorable g.


diseent, however, that If the British setlement ia not foil:owed by 6 somewhat eimilar

4.ettient in Americo, end, followini that,


monetary reorganizetion, there is still

Uenger of F bretkcop.n of the frtne which hould mike

preeent settlement inef'ective,

sale put the whole mrtter back in its original ,osition.
the French floeting febt la not minimiled, but.hcree i

The pariloue situation of

t1li expressed that ttia, cfn

be dealt with aatiaPcto,ily if the extumbl debts ate funded, and if confidence ia
improved by the cuccesaful negotiotion or the security :.oct.
eonveceion in&r, i

On the other hand, the

regarded te im.caing on the Treasury the necesaity for hesesfter

conducting all of ite refunding on some such at/Animation basis.
of s.15 francs to the pound mry ,n'en


Tr ib pending scoeme

later loan with a higher rate per pound, - sad

so on with a io oible incraoting :,eprociation of tat franc.

The only solution is

a monetary reorganimetion, recotnixing the need for revaluation, and regularizing

it by las.
It the pending maturities of French lomeatic loans are not met by some
refuntAng loan,

only recourse of the Government till be to the Bank of Frence.

Lech resort to fresh issue::: of paper money will mean deprecition

terma of sterling and dollars.

the franc in

Ttai oervica of the annuities to the United 6tatee

anu Great Eritain will again cause further emisalone of paper money by the Bank of

Frence, end the reeulting progreasive depreciation of the foreign rolue of tE:e franc
lust inevitably lead to a auepension of foreign payments.


References nre frequently majo to t. eo-c,lled "commercial" Oebte of Frwnce.
They appear in the attached mefl:orandum in three categories;

The commercial loan extended to the Bank of
Frtnce by the Bank of ifingland.
E. The obligation of the i'rench Goverment to
the American Government for war and

other atiliea sold to Francs after the


All other debts) or this general character.

HonoreblefillW. Mellon


totbe debt of the Benk

Frence to the Bette of Englead:

I firet

beceme ecquainted with the eeistenot of the loen, bit 1 recall, in. 1919, end at that
time was told that it int4 zeds, doubtleoe after cola negotiations beteaen the
Governmente, for the purpode of fineneing trede between tee two countriet.


wee. in greet need ot ouppliee for her people; credite hed been withdrawn in London;
tha Frenoh heel no meeneo

paying; end this loan vee expected to meet the Nwergeney.

1 am not awere oe what wee done by the British Government to indemnify the Beek of

The loun wee originally 7E,000,000 sterling, and te ert of the colleteral
the Bank of France delivered to the Benk of Englend 24,000,00G sterlin4 in eold,

which we to be returned Le the .1oth tve repeld pea peeeu pith repeymente. France
hne been meking regular paymente in the pet of both principal and interret en W receiving oyeivelent amount* of the gold in returne_8,00C),000 eterling 11E40 having been

eo oelivered.

Poughly 18,000,000 eterling 16 still to be returned, and tbe principel

of the loen hes boon reduced to about 46,000,000 sterling.

The gold le held ac

collateral and does not ,ppe5T.r in the etetement of the Bank of Lngland.
A new errangement for repeyment hae now been tentatively efected, by which

tbe beIp,nce of lb,000,000 eterling in gold will be held until the 'nen is entirely
repaid, when it pill. he reeturned to the Bank of erence.

The entire emount Of. erinci-

pal at the propoeed Tete of repayeent aill be Ilquiceted in 1g60e
ptymente given in the eLteched memorandum, I

The.echedule of

there are those under the old plan

of relpeyment, which will now be mocAfied, peymente etorting eomewhere in the neighbor-

hood of 4,00,000 eterling and increeeing until the yw,r 1960.

I neve not the

elvet figuree.
Whatever may neve originally been the react:ions between the two governmeets

in connection uith thie loan, its .preeent beering upon the debt eeljuetment liee in
the willingnese of the Britieh Government to forego larger payments-from Feence during

the first five yeere while the debt to the Bank of Englend ie being repaid, eo 66 tO

hono rutl A. A, Mellon

void top heavy a burden of trvmstere, and this, of marts, giveo th. Bank of.
tengland eht it in the nature of p, preference ovsr the Qovernment.
My unAerstandinz hay been thst the intereet on tee Rank of England loan he

been the regular bank discount mte from the begining, whatever thtt mal be.
Thie matter *ea, I beliova, explained Wei-belly to both Mr. Gilbert and
Vv. Vadoworth when they were connected with our Treasury.

Tts payments no* being made by foreign governments to our government, including Belgium nut excluding Fre,ncel soelawhat 'exceed $200,000,000 per enrum.

estimate at the bank that the service or foreign loans tnken by A


ienn investore

inces the conslution of the war will call for further payments of about 4,100,000000

and many of theee, of course, relate to loc,hs stitch ere wholly unproductive for the

nymente to be wade by GermLny to her creditors next year sill, theoretically;smount to around $300,000,000, and Germtny ell not have the procosde of the

tvwes Loth to drew upon for the purpose.

In s general way It miq be tto tht tho facility with which these inter-

national trtrsferc were made itat year .we mainly due to the extent to which credit extended by the investors of the United States, In lose then two years they htve
taken 0,000,000,00,;) of securities of foreign origin.

This enbled forigr purchas-

er& of American goods, espeellly of the increased exports of cereals It yetr et
high prices, to uke payments it America, and. it undoubtedly we the principal meats
for enkbiirg Germany to meet her payments, and* in turn, tho British, French, vnd
otters to mate payment& to 'JO.

It *66 a eavolopeent thich I rear at ee*ential to

European recovery, and grtmtly .ftcilitsted monetary reconstruction and etabilization

in exchanges, so se&entiA to the continuance of our lortign trade.

But it nuat not cc overlooked that if any ottege in conditicilk: in the investment or money mtAitets, or if any shock to the confi6ence of Americe n investor&

aoreble A.
Iii foreien becaritiee, eapacielly Luroot, ehould
ouch r,0 might indeed be the
if a French 6ergult ehoult: occur, or if the negotietion of the eecurity vet were

t failure, then the cloaing down. of to American invettment mtrket to the rest of
the *odd would coneidertbly imperil the continuance of thee-a toreign paymente.

The great importance of the i,mericta inveator, cnd his ebsorption of turopsen

aeouritioa, in enabling those debt settlements to proceed in 611 ore.erly fashion is
not euff-iciently empbtaized in Aecueelont of this subject.

Therd are certain uneecapable conclueione to be drawn from what I have ot**erred s.broad, wiiich I will bristly bUittW6r146:

That this fAmestic debt of Fmnce, so large

eszly meturity, is e mout.ce to the Governxent'a credit,
to the Bsns of ?Inns*.

portion of which is of
contequently, n ment.ce

It contains the poitility of e co idete OretAdown of th ir

lonetaTi eyttem, necae4itating much more meteuree than thoee shich tre nom
uncer Uiecudaion or being attempted.


Th&t the limitation upon the mbillty Of Frence to make foreign peymenta

ia lee a problee, uf tuansfera; (thht is finding the tmOuLt of Damien exchemge

necessary to me6t obligL,tione) then it is of collecting aufficisnt tbxcs in francs
to enable the iovamment to acuire the foreign exchtnge without inflating tb*

That -4.1141 the ,Stitte atede ie e thorough-soing financial roorgenisetion sad

funding of the zhort debt, *Lien shogl6 bo accomplished by 6omestic loans end not by

fomign loans.

expectation that ,erance light roly upon anything like the maximum

of '300,000,000 a yeti^ fro

ny 4,11; prove ilAiaory or b0M6 time, it not entirely

es con readily b.b. shown by a study of the scent :sport of the Repsretion Agent,

ici by couaderation of the verioua diticulties with which Gerovny is nor stra64ing,
.6hich are not, hog. overt touched upon above.


Honoruble A. ;. Mellon


b. TheA tho present pitn of funding the c:obt to Cireat Britain with tt

annuity of 12,500,000 sterling, if "tsloscetci by a refunding of the American debt upon
approximately equal terms, k10,Jet impose t burden of payments ukon Franco Ilhich she

is not at the presunt time likely to bo able omeet in full, uri.ris recoveries from
Gorawny are greator than expectation juatifies, and psyments &re graduated for some

That an otiigation to pay annually st once to the United States .and
Great Britain any Jorge oua such ae ;125,000,000 to 050,000,000 will to likely be

rollowod y an infl ..tio o

the eurfuicy, sae: resulting inability' to mske transfers.

7. That the elosing of the British inveiAment market to all foreign lome
excupt her on colonies and the notions boiag reorgani4ed under the finenco atotion
of the League of LAions, has ,Aosod the only market,- outeide of the United States,
wsoJore ?ranee could borrow; tnd thet in consuonce, the attitude of our government

in retreining our bankers trom neotiatin French lone in thkocrieriu mrket, and
at the ba:M. time insisting upka dobt funding, has placed the French Troteury in 6
lastilioi au tome- we
Visa, from which there io no escape except by repudiation, or
may exact.


must except the-fact that we u,re ,ietling with the French ieoplo

and not *ith Anglo Saxonn, send meet the peculiarities of the pecvle or that netion,

which would in:qcote the neceusity for satalrdgrtidudlly increeing ptyzents at the
outset, until the ak:ximum iG retLched, say, thirty-five or forty years hence, or even
later, after which tio the rate of transfers should grLdually be docreased in order
to avoid the earious readjustments which would be noceseary ware transfers to be entirely Ci6continued Et the poriod of maximum papsente.

That if some such plan la edolAtid, ths Wrden Of taxation in Franre le not
so heavy but what roptyment of principul nd oame interest could be elected.
wouic ctually be
Gradual incruz:,ses in taxstion (the only plan likely of 6110C

facilitated by the need for a Aing gmdualy increasing payments.

Hon° re bl e A. ff.





Thr;t t oucceserui negotiation slong these linee would alao Nctilltp,te

the management of the domestic debt, and might even be followed by


of ttln currency to a stable hie, co thct prices, true wages, the burden or eht,
on0 the cost of foreign currencies ;t111 not be constantly flactueting.
Au you butte .. oubtleas bten tdvivad, the *Atonal Benk or 31iucz and the

4eleian Government tieve

fuirly w.1imt,.turd plan for denling with their )tn monottry

problem, which I ha:1 an oi,ortualty u e4amlne with tnr; Go:arnor (>1- the Etnk in come

detail. The Parading or thA Be11rn debt to the United 6tetwe cow pro&ects the Opportunity for thmiato cLrry out their pit,n, whichI hove little doubt *ill be eeccosful, and an example to Franca.

If this :01)ad be followed by u similar reorganization

in Franco, especially if political trumtaillity 15 inured by the negotletIon of the
s,:4curity pact, I 1)151:Lore we can look forward hopefully to the tTprocch of the lust

eteges ts' economic roovery in Europe.

I aope that tIps foregoing may prove to be of zIone value in der,ling with this

icalt mutter.
FaithfAly yours,

;norable hnorew *. Mellon,

.eorettiry of the Treaury,
Wasninton, D.



October 5, 1Q25.


Dear Ur. Secretary:
While I P68 in Bruseels, the Governor of the Nation!). Hank explained

cv to me quite confidentially a program which wee then under conei4srAtion (Or the
reorganisation of the Belgio,tn currency, the execution of whichnplan, he explained,
deioendant for its SUCC006 upon arrenging the funding ol the debt by the
Belgian Gnvernment to the United ;.:ttes Government.

Mr. Hautain stated tlAt if the negotiation& were succseeful fAld the
burden upon Bel Juts oie not prove to be too heavy, he propoeed in tne neer ruture

to visit this country, poosibl/ aith one or more of th


rrM-rt.e. in

order to useertain what oou1:1 1.e 6one toserd the oarryinp out of P !:lan which would

require a certain amount of saiotance in this country.

While the details of tOo ;den will require consioroble mtody wrd investigation, in a general -way thsy impreesed both Governor Women end me 68 being sound

and faaeible.
I am now in receiot'of a cable from Mr. Hautain vivising that he it plenning

to sail for this country on the foorteenth instant, secompanied bv Ministers
Vendevyvere and Vsnzeeland, and I believe he has already been in ooreultation vih
Governor Normen of the Bank or England.

He is, of course., moat ackioue that hie

plans be regarded as oonfi entIal latil he has completed blis investigations as to

::jrhe feasibility.
em now writing to eogeoint you with the situation, of Prtich r. inston

has Ifenol'y been advised; ani Ipm doing co peTtly in the hope that eome of the
difficulties encountered in connection with negotiations with the Bank of England

Honorable A. W. Mellon


may be evoided, in case it develope thtt Governor Heutain will need some aseietance
r rom

MayI ask if you have any suggestions in connection pith this mmtter by
which I should be guided, or which it would be desirable for mt to convey to them

by cable before they sail.
bog to romain,

Vely truly your,

Hono:L.Olu n. M. ;iiellon,

,-ecretary of the Treaeury,
Wanhik;ton, D. O.

January 14, 1928.


My deer Mr. Secretary:
When you spoke to we about Yr. Ward

no deeired to join

the Metr000liten Club et '4nehin6ton, I exeumed because the proposal
il0b6 wee by George Prelmer, that it er. ay old friend, William M. Ward
who has long been the Republican leader in Weetehester County and *ho
lives. in Porteheeter, enure George Palmer lives. since then, hover,
I have wondered ehether the letter jou zeceived could have related to
the other Ward, whobe initials eTe tlaost eho eame as %Allem M. WerdXs,
and who, as you teal*, is interested ie the Werd baking Compeny. That
Er. 1Werd I do not know, and do not know whether he is t friend of
George Palmer or rot.

Referring to my tslk with you out my own ;Ilene, I have
decided to take & xonth'e holiday, leaving here on the tvertysecond
and eeeneIng a fee eeeka in Southern Celifornie. I shall be beck about
the first of krch. This ia a precaution which I bit' taking, because
February Is the worst month for me ie Aew York, and after a rether herd

year's eork with only a oauple or weeks' rest in Europe, I think it is
a neceeeary preceution.

Beyond thet my plan is to sail for Italy &round the first
of April, to leern something more of the Bank of Italy end its affairs,
pending action upon their desire to wake a connection *itn this bank;
then to visit eome of the other banks with which we have relations, and
return home in the midsummer.

Do you euppoee there is & chence teat Mr. Wineton could get

away for at least the Italian part of my trip. In view of tee conclusion

of tlie funding errengement, which doubtleee wili bex ratified by taht time,
it occurred to me that it would provide opportunity for gaining an
underetaading of the outlook as to the operation of the agreement, which
can be gathered in no other way. And then he might be willing to visit
the Benk of Italy with me ne Milen end get femilier with the operation
of teet old ineeitution. This is just a euggeetion which I hive mentioned to him, oencerning which he has given me no final reply.

Tith beet regerds, believe me
Sincelely yours,
Honorable A. W. Mellon,

Secretary of the Treesury,

Washineten, I).


July 1


Dear Mr. Secretary:

I understand that you have now received not only Professor

Hollanderls oral report, but also Governor Strongle written report, concerning the testimony which he snd Professors Hollander and Sprague nre-

sented before the Indian Currency Commission at its invitation and on

your request. We are now able to subsit to you a. report of the extra
expenses ee incurred, beyond the time given by our officers and employees,

in the preparation and presentation of evidence. These expenses aggregate
$13,665.5 and are summarized in the accompenying esecrendum.

Professors Hollander and Sprague sailed with Governor Strong on

April gt and returned to this country on May 28. They were paid at the
rate Si' $100 a day plus expenses, which we have found upon investigation to

be 4 customary rate for highly expert services for brief periods.
In addition to Professors Hollander end Sprague, it as found
necessary to employ three ether experts experienced in the mining of eilver

.end other nonferrous metals and acquainted with the statisVcs of these
industries. Those employed were *Ir. E. M. Lmwrie of Aashington and Messrs.
H. A. C. Jenison and Arthur N-tman of New York.

These experts were paid

at the rate of WO a week, plus their expenses, which in the ()Else of
,10sast's. Lawrie and Jenison invelred trips to and from Washington.

In sec dance with our understending of Governor otrongte arrangementewith you, we reg rd these expenses as incurred by ue as fiscal agent

for the Treasury, although like most fiscal agency expenses they will not

Honorable A. W. Wellon


be reimbursable. in vie* ot the very r,onf.ldenttai nature of this whole under-

taking and the fact that we have been acting for the Treasury in the matter,
the Federal Reserve Board has not been consulted regarding the employment of

these erperte se would ordinarily hlve been the case. lie understand, however,
that Mr. Winston has now made a report to the Board concerning Governor

Strong's appectranee and testimony, and we should like, If we mey, to leave
rith you the mmtter of informing, the Board with regard to the expriaee which
have been incurred.

Very truly yours,

Pierre Jay,

Honorable A. W. Mellon,

Secretary of the Treasury,
Washington, D. C.


r C4' I


Sept. 30, 1928







I called Mr. Mellon on the telephone this morning to
him that
Governor Strong had landed last Friday and after being at the bank two or
three days had contracted a bad cold which is now confining him to bed and
which, because of someClat high fever, might keep him laid up for sometime.
I told him, in the circumstances that I knew Governor Strong would want me
to telephone to him to explain the situation and to let him know how matters
I then told him what he already knew, that
are progressing in London.
Governor Hautain had resigned and that Francqui had appointed Frank to succeed
him as Governor of the National Bank of Belgium, that Francqui, Frarik and Outt
are going to London to-morrow to have a meeting with Governor Norman, and that
upon the recommendation of Governor Strong and the approval of our directors,
Mr. Jay (who has been on his vacation in Italy) is going to London to be
present, with the understanding, however, that he is not to make any sort
of a commitment whatever, but rather to be there to ascertain the nature of
their request for a credit and to report back to us on certain matters relating to the National Bank of Belgium, its management, policy, etc..

Mr. Mellon said he was very glad in the circumstances that we had
asked Mr. Jay to go back to London, but that he was very much disappointed
to hear about Mr. Strongts illnese.
I then told Mr. Mellon that Mr. Strong
had arranged to go to Washington next Tuesday to tell the Board about hie
European trip, that I was quite confident that he would not be well enough
to go at that time, and that while we would know better to-morrow, perhaps,
how long he would be incapacitated, I rather imagined he would not be able
to go to Washington within the next two weeks.
I mentioned this peri
because when I asked Mr. Melton whether he thought it would be wise for me
to offer to go to Washington on Tuesday to explain the bondon situation,
he said he thought that would be very advisable unless it was likely that
Mr. Strong himself would be able to go in the neat week or two.
We then agreed to let the matter ride until to-morrow, when we
would know better how long Mr. Strong would be confined to his apartment,
and then if it seems likely that he will be there for some while, I should
telephone the Board, explain the circumstances, and offer to go over myif they care to have me do so.



270 Park Avenue,
New York City,

December 2, D26.

Dear Mr. Secretary:

This letter may be quite unnececsary, but it involves a matter
which concerns the Bank so intimately and is so much in my CY.W1 mind that
I shall send it, understanding that others connected with the Bank will

explain the situation fully.
Mr. Jay, as you know, is leaving us to become associated with

Mr. Gilbert in his work in Berlin. It leeves a very important vacancy in
the Bank,

one, in fact, which it is well nigh impossible to fill because

of Mr. Jay's exceptional ability and experience, which could not be duplicated
in any person who had not long been in the Federal Reserve System.

After a great deal of reflection, I have come to the conclusion
that the wisest arrangement is to promote Dr. Burgess to fill the vacancy
created by Mr. Jay's departure. This might appear superficially to involve
promoting a man occupying one of the less important positions in the Bank

over the heads of others in the organization, but in fact that will hardly
be the case.

Dr. Burgess has been r. Jay's assistant no?, for come yaars

and has had moat responsible duties lihich he has discharged to complete


It was his '4ork ;hich formed the basis of our appearance in

London in connection 7:ith the Indian Silver .1,1uiry, and the quality of that
iork was recognized by the Members of the Commission in most impressive







Our directors felt, and I :-...Aharoci the vic;i, that before Dr. EurLees
could be appointou to

r. Jaye position, it woule be noCCOC6.17.1 to iuire of

both Mr. and Mr. Ilarrisor4 if they iroulf.i the position desirable,

andm if ao, to .6ivo them opportunity to accept the :-.ppointment in ce,se the Federal
Reserve Board werc.: willing to malce it.

The directora have, I underst.e.nL;) t:icen all the necessr..ry steps to
them to recommend to you, and to Governor Crissinger, that the Board
appoint Dr. Burgess a Ldrector and 0hairm,An of the Board and Foderil Re2.erve

A committee of the directors dill eet zith you, I believe today,

to report ha.t has been done.

They .;.,111

advise. you Lht both Ilr. Case and Mr.

Harrison have been con:Lulted and egroe as to theiedora of this docieion.
I sm, therefore, writinE you simi.dy


ko corti:in that you under-

the directors, and the sEnior officsrs of the 13.,ril; ho would naturally
be coacernod, have b,en consult,ed in this netter sad agree thii.t this api)ointment

is tit most desirable tLt cou/d be in,:;

I e,,raost,ly hope that the Federal

Reserve Boarci Will share this view and appoint Dr. Burzese -promptly.

ith cordial rres, believe, me
Fbi Z.hfully yours,

Honorable A.

Secretary of the Treasury,
shington, D. 0.


May 7, 1889

Newport, R. I.

Brown University, A.B. and A.M. (1912)
McGill University (Graduate stud- - no degree)
Columbia University, Ph.D. (1920

Positions held:
Educational positions in Montreal, P.Q. and New York City
1912 - 1916, combined with graduate study.
Statistician with War Industries Board and House Mission to
England and France 1917 - 1913.
Assistant and Acting Chief Statistics Branch of General Staff
1913 - 1919 Rank of Major, General Staff Corps.
Statistician with Russell Sage Foundation 1919 - 1920.
Federal-Reserve Bank of New York since December 1920.

Connections with Federal Reserve System:
Chief, Reports Division, Federal Reserve Bank of N.Y. Dec. 1,
Jan. 3,
Manager, Reports Dept.,
Jan. 3,
Assistant Federal Reserve Agent,


Present Salary,



Mr. Burgess' six years in the Reserve Bank have given the Directors and
Officers a good knowledge of his personality and his qualities.
His health,
integrity, intelligence and industry are excellent.
He is well trained technically and has had practical experience in the kind of work the Federal Reserve
Agents function involves. He has a quick and very practical imagination, an
inquiring turn of mind, and a sympathetic human approach which greatly facilitates the acquisition of information. He also has the kind of mind which enibles him readily to analyze'and sift facts, to make a plan, and then to teach
the plan and impart enthusiasm-for it in his associates and carry it through.
He is independent and his judgment is good.
Indeed he is constantly being
consulted on various questions of policy by Gdv. Strong and the senior officers
of the bank.
He is well liked and respected by all the officers.
He is a
clear and informing writer and speaker. He is well regarded by economists and
is often asked to address their gatherings on subjects which he has given
special study.
He has developed steadily since he has been in the bank and just the background and the age to develop further under broader responsibilities.

September 27, 1927.


Dear Mr. Secretary:

What I have said to you about Mr. Young's character I

feel Is very much confirmed by a letter which I have just received
from him and of which I enclose a copy.

Analyzing this letter, to me it displays the following

qualities: first, modesty; second, prompt decision; third, a fine
regard for his family; fourth, discretion; fifth, great loyalty
to his associates; and sixth, a. very high quality of patriotism
in.making the sacrifice to accept the appointment.

ability, I have never had any doubt.
Sincerely yours,

Honorable A. M. Mellon,

Secretary of the Treasury,
Washington, D. C.

As to his


F.D. 12A.3 9-



Federal Reserve Bank


District No. 2
Correspondence Files Division



/7.-2.Ei_x_ a



(.5'-t-re_o ,t/ 6

- /727
(SEGTA--rpg. y







March 9, 1921.


dear Governor Strong:
I have your very kind letter of the 5th of

March, and thank you sincerely for your generous
good wishes.

I appreciate your offer of coopera-

tion and service.

The administration of the Treas-

ury is exceedingly important to the people of the
nation in this difficult period, and I shall hope
for the support and cooperation of the Federal Reserve System and banks generally of the country.

I am grateful for your letter and its cordial assurances.

With best wishes, I am
Sincerely yours,

Benjamin Strong, Asq.,
Governor, Federal Reserve Bank,
New York, N. Y.







March 9, 1921.

My dear Governor Strong:
I have your very kind letter of the 5th of

March, and thank you sincerely for your generous
MAR ,14.: 1921

good wishes.

I appreciate your offer of coopera-

tion and service.

The administration of the Treas;

ury is exceedingly important to the people of the

nation in this difficult period, and I shall hope
for the support and cooperation of the Federal Reserve System and banks generally of the country.
I am grateful for your letter and its cordial assurances.

With best wishes, I am
Sincerely yours,

Benjamin Strong, Esq.,
Governor, Federal Reserve Bank,
New York, N. Y.




June 22, 1922.





Ey dear Governor ttrong:

I received your letter of June 19, 1922, an the
subject of

political appointuents in

appreciate your indorsement of the

the Treasury, and

stand which I have taken.

I think you are absolutely right that it is good politics

as well as good business to run



and met the

the Treasury on business prin-

hope that now that the issue
Treasury will be

business without

has been raised

left free to attend to

further interference from political


Very truly yours,


Benjamin Strong, Esq.,

Governor, Federal Reserve Bank,
New York, N. Y.




1,1044 uI






ber 29, 1927.

Dear Governor Strong:

Thank you for sen
letter you received

rig me copy of the

om Governor Young.


is a characteristic letter which is heartening
to read, and I am

ookin6: forward with pleasure

to the associat n with him here.
we arrived at

fortunate selection.
Sincerely yours,

Hon. Benjamin Strong,
Federal Reserve Bank,
rew York, L. Y.

I think


Mtk' e



ber 29, 1927.

Dear Governor Strong:

Thank you for sen
letter you received


ng me copy of the
om Governor Young.


is a characzeristic letter which is heartening

to read, and I am ooking forward with pleasure
to the associat* n with him here.

we arrived at

fortunate selection.
Sincerely yours,

Hon. Benjamin Strong,
Federal Reserve Bank,
New York, N. Y.

I think


JAN 2 6



January 25, 1928.

My dear Governor:
I am enclosing herewith a copy of my letter of even date
to Messrs. White and Case, 14 Wall Street, New York City, F. Y.,
with reference to the stamping of first mortgage bonds of the Boston,
Cape Cod and New York Canal Company in connection with the purchase
by the United States of the Boston, Cape Cod and New York Canal.
In the event Messrs. White and Case deliver the bonds referred
to in my letter to your bank, will you please see that each bond is
stamped with the legend approved in my letter, and address a letter
'to the Treasury Department showing what bonds have been presented to

your bank and that the bonds so presented have been duly stamped with
the approved legend.

traly yours,

Secretary of the Treasury.

Benj. Strong, Esq.,
Governor, Federal Reserve Bank,
New York, N. Y.

1 enclosure.




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