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Paris, May 24, 1928.


Quesnay sent me a wireless to the "Majestic" saying that Dewey

was in Paris most anxious to see me and would like to run down to Cherbourg
for a meeting the day of my arrival.

I had already been advised that Dr.

Stewart would arrive there the night before, had been experiencing a good

deal of discomfort on the steamer from some of the secondary results of my
illness, and just did not feel equal to the visit with both men at the same
time, so I asked Quesnay to explain to Dewey, which he did, and the understanding is that at some later date Dewey will meet me wherever I may be,
but that will likely be after Mr. Harrison's visit to Warsaw.

While I have been most conservative about what I have been doing
in Paris, it seemed necessary for tactical reasons to accept the invitation
to dine at the Bank of France night before last, when the Governor was giving a
rather important dinner party.
and his wife were there.

By chance, the Polish Ambassador to France

They are very popular in Paris, and the Ambassa-

dor's wife enjoys very much the same popularity that Mme. Ciechanowski does
in Washington.

They both speak English perfectly.

she came to me quite voluntarily and expressed the delight which everyone in
Warsaw felt at the way Mr. Dewey had been conducting his work and the way he
and his wife had charmed everybody.
same thing quite voluntarily.

Later the Ambassador said exactly the

In fact, they were so enthusiastic in their

praise of Dewey that it raised some little question in my mind as to whether
he had not been a little too much "adopted" by the Poles and a little too in-
clined to accept
Federal Reserve Bank of St. Louis

the Polish point of view about the various problems he was


- 2 -

I also gathered from Stewart that Siepmann gave him a very
favorable impression of the way matters had been progressing in Poland.
I have not yet had opportunity to discuss the matter with the
people in the Bank of France.

Paris, May 24, 1028.



Dr. Stewart was on the dock when I landed from the tender at Cherbourg
Friday morning early.

Except for two hours, when I rested after lunch, we spent

the entire day together and discussed practically nothing but the situation between the two banks.

The talks were se long, and it being impossible to keep

notes, that I must give you a very sketchy account of it all, rather a resume
than in detail.

In the first place, Stewart claimed that the discussion between Moreau
and Lubbock Louis
Federal Reserve Bank of St. had

not, in his opinion, resulted in a definite agreement as to Bank

- 2 -

issue of Roumanian Government bonds.

He thought that whether we were re-

sponsible for the plan or not, the market would undoubtedly construe our participation in the credit as in the nature of a blessing upon the bond issue.
There were other points where he questioned our position which he
said he would leave for Governor Norman to explain on his arrival.

I pointed out to him that Lubbock's position had not caused us any
particular embarrassment, but when we received a copy of Governor Norman's
letter to Governor Moreau stating that the interpretation to be placed upon
Lubbock's commitment was that the Bank of England would take part only in
case the Federal Reserve Bank was an original and responsible party with the
Bank of France as in the case of Poland, we definitely and positively objected.

In fact, that was a considerable influence in our decision to participate in

I said that the reasons advanced in support of the position taken


tioned it to them and they expect him to do

Stewart that our position was that we had

ant associate to take a participation in a
nominal in amount;

that in taking such a

position than Switzerland or the Netherlan

Poland stabilized, and while of course all

put upon our participation in any business

fectly clear to the Bank of France and the

sion arose that we would not be original p

responsible for a plan, we would simply gi

- 3-

as would ordinarily be the case in partici

- 4 -

(1) The Bank of England should recall that the project of coopera-

tion by banks of issue was not first suggested by the Bank of England but by
the Federal Reserve Bank, and I would refer them to the original memorandum
initialled by Lord Cunliffe end myself in 1916, the last paragraph of which suggested by Lord Cunliffe - expressed the intention of the parties to invite
the Bank of France at once to an equal participation in any arrangement made.
I said that we had always considered this the principle of our association.
We intended to continue to observe it.

Before the war, the French nation was

a large exporter of capital, had large interests in other countries, and the
Bank of France was one of the most important and influential of the banks of

We would not be a party to any development which sought to suppress the

restoration of prewar conditions in these respects in France.

It was not our

intention when the original proposal was made, and tc assume such an attitude
now was to repudiate the whole fundamental principle of cooperation.
(2) On this point I said there must be no misunderstanding.


Niemeyer was in New York he told me exactly that.

When Rist and Quesnay arrived, having in mind that when we granted
a credit to the Bank of England I had addressed in writing a communication to
the Governor of the Bank asking for advice as to continuity of management, and
that in the cases of Belgium and Italy exactly that

question was addressed to

the officials of the Bank orally, I pursued the same course Tith Rist and Quesnay.

Without mentioning Niemeyer's name or suggesting any source of informa-

tion, I toldthem that I had heard something about the possibility of their ret4.ring at a later date, that if we were to join them in any business like the

Roumanian matter or should we be consulted or have any participation in plans

for the stabilization

of the franc we would consider it our duty to address

what the intention of the officers of the Bank was.

They replied at once

that both Governor Moreau and Mr. Quesnay had every intention of continuing
with the Bank and no thought of resigning, that Dr. Rist was anxious to get
back to university life again but would not do se until he felt that he had
fully discharged his obligation to the Bank of France and completed the work
that he had undertaken to perform there.

(3) I told Dr. Stewart about this story, which I have every reason to
believe myself came from Governor Norman, because Jack Morgan told me that he
had been at the Bank of England, and Norman when he arrived at Cherbourg told me
that he had been all over the Roumanian affair with Jack Morgan.

I stated the

following to Stewart: -

(a) That this story had been brought to me by a most responsible party.
(b) That I could not definitely claim that I knew the source of the story.
(c) That I did not believe that any such letter was in existence or had
ever been written.

(d) That even if it had been written, it would not have influenced our decision, because we felt that all the larger nations of Europe had political interests in other countries which they were seeking to protect or promote.


we would have objected to was any effort on the part of the French Government to
coerce or induce or influence the Bank of France to undertake a transaction with
the Bank of Roumania with any political object in view.
Stewart agreed with this and then told me a most extraordinary thing.

He said that when Siepmann was in Paris having long discussions with Quesnay
he saw lying on Quesnay's desk a letter which he made out to be a copy of a
communication addressed by the French Government to the Roumanian Government

making some

reference or representation as to this Roumanian business.



- 6 -

-7 -

him what we
that upon learning it, we had sent for Mr. Elisha Walker, told
had heard, askea him to cable to BuCarest and to their representative to
ascertain the facts and deny that any such position had been assumed by the
Federal Reserve Bank.

I think Stewart was a little astonished at this infor-


Stewart assured me most positively that Norman's illness when Moreau
was in London was not diplomatic, but he admitted that it was most untactful
for Norman to go to the Bank the day following the visit and write the letter of

interpretation which he did and which of course aroused grave doubts as to
whether his illness was not diplomatic rather than actual.

The whole tone of Stewart's conversation indicated that he had many
reservations as to the way in which the Bank of England had handled the whole
Roumanian negotiations
Federal Reserveme to St. Louis
Bank of be stupid beyond

with the Bank of France.

I told him that it seemed to

understanding that an inconsequential and unimportant



situation similar to Roumania migh

the arrangement of the Jugoslav bu
and Hambro and Schroder was being

transaction, but as a matter of fa

Bank of England and the Bank of En

slav Government e.s to the revision

seems that Norman has placed the h

hands of Bark, the Russian who is r

although not directly, because he

of England tcok over during the wa

Bark is well known to have represe

and the assumption that everyone w

with the business as being in beha

Stewart had himself insisted that

be laid before the Treasury Commit

so that no surprise would be expre
was bound -to be the case.

This h

completely satisfactory to Stewart

In connection with all o
He is loyal tc the last degree and

bourg in advance of Norman's arriv

our liaison officer might himself t

the bad as well as the good, and ce
- 9 -

him in better form, both intellectu




tempted in Portuga

away, to get a tru

face of these incon

I then r

Roumanian matter w

principle of coope
"wriggling" about

he had told Govern

some way took care

England would part
confirming it, he

had been dismissed.

I told h

which Dr. Stewart t

Norman t
French bankers and

ferences as to Jugo

of the Bank of Engl

"No, not directly",

to run this bank, w
of England.

There was

especially the ones
- 12 -

was speaking as a m

d comity.

ay, it


ing to me

- 14 -

privately that he was endeavoring to persuade Norman to give me a message to
convey to Moreau which would be in the nature of an olive branch and open the
door to good progress during Norman s absence on his sea voyage to Africa.

norman apparently thought about this a good deal, and late Saturday
evening, when they had to leave to go back to London, he came to my room, I believe, with the full intention of giving me some such message, but it seemed as
though he could not bring himself to do it, and he really left me with nothing
more than a promise, which was expressly given, to do everything he could to
avoid developing friction and to heal the differences which already existed.
It was all in very general terms and not altogether satisfactory.

AS they were leaving the hotel, I drew otewart aside and pointed out
to him that, while we had threshed cut the whole subject between us in the two
days, I .ris ccirt tc Paris with absolutely nothing fren Norman but generalities

and disclaimers of knowledge and the reassertion of a let cf vague principles,

some of which we had never heard of before, and I wanted Stewart to bear in mind
that, while we were trying to and would do our utmost to maintain the friendliest
business relationship with the Bank of England, as with the Bank of France, I
thought the time had come for the Bank of England to contribute some real help
towards the maintenance of true cooperation.

My own conclusion is that Norman is a bit frightened, and in the back
cf his mind is very much confused by the position.

He is nervous and upset,

and I do not believe he is thinking clearly or putting things in their true perspective, or that he understands the relative values of the various questions involved.

He really needs a rest.

His gestures were nervous and he seemed to be

a good deal constrained and uncertain of himself at times.
about his

I think he is wor-

own health, and I fear he may be a bit anxious lest he may not

- 15 -

conversation was productive of good in this one respect.

Stewart, I find,

enjoys the affection and confidence of everybody in the Bank of England and
he now has a pretty good understanding of the whole story.
to lean on him more heavily every day.
improve the situation.

Norman is getting

Norman has expressed a real desire to

Stewart intends to use every effort to make that promise


When Norman gets back, I hope the whole Roumanian question is disposed
of, and I hope that the French stabilization plan is concluded and adopted.

Then these disputed matters will be faits ascomplis and we might then hope that
a new situation and a new atmosphere would arise, with causes of controversy eliminated and friendship restored.

One difficulty, of course, is the Jugoslavian

business, which I fear is going tc cause a great deal of dissatisfaction in

Paris, May 24, 1928.



Stewart handed me a copy of this, which I enclose.
copy I have.

It is the only

I think you will agree that in some respects it is one of the

most extraordinary bills that the Parliament has passed.
Two things about the whole affair caused me almost consternation.

One was that the British Government had been induced by Norman and his associates to adopt this plan by agreement between them, and it is now either passed
or advanced to the last stages of the third reading, without disclosing to any

member of the British Government that the Bank of England has over 200 million


dollars of dollar resources.

I told Norman that I thought if Worthington-

Evans or other members of the Government who had defended this extraordinary
bill, partly on the ground of the necessities of the Bank of England, should
ever discover that this vital information had been withheld from them, their
confidence in the Management of the Bank would be greatly shaken.

The other point which shocks me is the provision about the compulsory
purchases of gold.

It is directly aimed at Mc Kenna.

critic and enemy of the Bank of England.

Mc Kenna is the worst

He has considerable influence with

some members of the Government and in Parliament.

Why this extraordinary act

of reprisal should be undertaken at this time is beyond me.
to it seriously, but was over-ruled.

Stewart objected

In fact, I think some features of the

bill were generally objected to in the Bank and only adopted on the Governor's

There are some features of the bill which interest us practically.

One is that the Government has admitted and advised the Bank that dollar re


sources may be placed in the Issue Department as secu

It seems to be in Norman's mind that he can turn abou

to the Issue Department and take down a corresponding

and hold another 100 million dollars in the securitie

the public, to be applied as occasion may arise eithe
or to protect the exchange.

Steuart and I both agreed that this was a b

that one of the severe critics of the bill is Keynes,
has no right to assume the additional liabilities cf

it has a margin of gold of 80 million sterling, where
sterling margin which it can spare.

Now if the fact

these concealed dollar resources do in fact bring the
margin, there is bound to be criticism of the Bank.

This is all I can now dictate, and the next

my discussions with the officers of the Bank of Franc

- 2 -

between Governor Strong and Sir Arthur Salter
at Hotel George V, Paris - May 25, 1928.
(written by 0. Ernest Moore)

Sir Arthur Salter began the conversation by referring to the Brussels
and Genoa conferences, the first named having been outside the League of Nations,
and the second held under League auspices.

He said that, as Governor Strong

knew, the Brussels Conference had in a general way called attention to the
desirability of an economy of gold, and the Genoa Conference had worked out and
recommended certain specific methods for putting such economy into actual practice by means of the gold exchange standard and cooperation of the central banks.

He said that the Economic Consultative Committee of the League, which was an outgrowth of the Geneva Conference of last year and which had just held its first
meeting, had adopted a resolution in ccnnection with the maintenance of the
purchasing power of gold, to the wording of which the most careful attention
had been given.

He handed a copy of the report cf the Economic Consultative

Committee to Governor Strong, who then read over the resolution in question.

Sir Arthur Salter explained that the resolution did not refer to the maintenance
of a "stable" level in the purchasing power of gold but was purposely worded to
refer to the "dangers that might arise frcm undue fluctuations" in that purchasing

In other words, the question which they had in mind was not one of

maintaining the purchasing power of gold at its present level regardless of other
circumstances and influences, but simply to keep fluctuations down to a minimum
insofar as they might be the result of monetary policies and considerations.

There was no thought of attempting to check the natural consequences of changes
in the growth or in the rapidity of productive processes, insofar as these
might affect
Federal Reserve Bank of St. Louis

the value of gold, but only of determining what influence monetary

what was going on or what decisions had been reach

be desirable to arrange some sort of an official i



meeting of the central banks or of other qualified




exchange standard as outlined by the Genoa Conference, because it would mean,

by virtue of the extensive credits which the exchange standard countries would
be holding in the gold centers, that they would be taking away from each of
those two centers the control of their own money markets.

This was an impos-

sible thing for the Federal Reserve System to accept, so far as the American
market was concerned, and in fact it was out of the question for any important
country, it seemed to him, to give up entirely the direction of its own market.

One had only to look at the English reaction in connection with the operation
of French credits in the London market in order to get some idea of the difficulties and complications which would arise under the scheme proposed at Genoa.

Governor Strong stated that he had always been opposed to any sort of
a formal conference or meeting between the world's central banks, as contemplated at Genoa, for several reasons.

In his opinion, it was expecting entirely

too much of human nature to think that representatives of the central banks of a
great many nations having differences of language, customs, beliefs and financial
and political needs could sit down together and agree on anything at all.


over, in the course of his travels he had had occasion to meet a great many of

the central bankers, as well as governmental and political representatives, and
to learn considerable about the relations between the various banks and their
governments, and he was not at all convinced that at a general meeting or in any
common organization of central banks the policies of certain banks would not be
dictated by the interests of their respective governments rather than by purely
monetary considerations.

Another point was that in any formal meeting of the

central banks, the Federal Reserve Bank would represent the only lending market,

while the others would all be borrowers, and he would never consent to go to
a conference

with the prospect of being outvoted on every issue of any

- 5 -

sure of having one more vote than all the borrowers combined.

Finally he was

obliged to consider the viewpoint of the American public, which had decided to

keep the country out of the League of Nations to avoid interference by other
nations in its domestic affairs and which would be just as much opposed to having
the heads of its central banking system attend some conference or organization
of the world's banks of issue where they would be tied down to a fixed program
which might later turn out to have been contrary to the best interests of America.

To illustrate how dangerous the position might become in the future as a result
of decisions reached at the present time and how inflamed public or political
opinion might easily become when the results of past decisions became evident,

Uovernor Strong cited the outcry against the speculative excesses now being indulged in on the New York market and the criticism of the Federal Reserve System
for its failure to curb or prevent this speculation.

He said that very few

people indeed realized that we were now paying the penalty for the decision which
was reached early in 1924 to help the rest of the world back to a sound financial
and monetary basis.

Governor Strong related the details of the situation in America during
1923 and 1924, saying that the speculation which was found to be rapidly developing in the United states early in 1923 was checked during the course of that year
by the Federal Reserve banks

selling of over 500 million dollars or practically

all of their holdings of securities.

as a result of this action, the commercial

banks became indebted to the Federal Reserve Banks and a process of deflation set

By the end of 1923, business had been deflated to such an extent and the

situation had changed so greatly that business failures were beginning to show a
considerable increase.
 a decision

Early in 1924, therefore, the Federal Reserve System

tc help the restoration of Europe despite the fact that it


maintaining low interest rates in America, the movement of capital to the higher
money markets of Europe was facilitated and encouraged, and that was the beginning of the growth of American foreign investments.

Referring to the subject of a gold shortage, Governor Strong remarked
that another reason why he did not believe in the probability of any such shortage was that not sufficient account had been taken of the stock of gold which
America had been holding all those years "in trusteeship" for the rest of the

This gold had only just started to return to the countries where it was

to serve its real purpose, and it was certainly not necessary to do anything
about warding off a world gold shortage until the redistribution of this surplus
stock of America's had been effected.

Furthermore, the United States was now

using in circulation a large quantity of gold certificates which it would be
possible for the Reserve Banks to recover if there should ever be any signs of
a gold shortage in prospect.

It was a simple matter to refrain from paying

out any more of these gold certificates and to pay out Federal Reserve notes in
their place, which would eventually bring them all in.

These gold certificates

had been left in circulation at a fixed figure up to the present time and simply
for the purpose of giving some significance to the reserve ratios of the Reserve
Banks, the changes in which are now no longer the result of gold certificates
moving into or out of the banks but really the result of changes in the credit

Sir Arthur said that he was very much interested by all Governor
Strong had told him and that he understood the objections outlined to a meeting of the central banks.

He stated, however, that such a meeting would not

necessarily result in any statement that such and such a theory was a fact and

that so and so

must be done by the banks of issue.

It would rather be an at-

-7 -

more in the nature of enlightening the public as to the actual financial and
monetary situation of the world so that groundless fears relating to gold
shortage or to the private conversations between central bankers like Governor
Strong and Governor Norman might be dispensed with.

Such a meeting need not be

one of the central banks themselves but might consist of qualified experts such
as, say, Sir Josiah Stamp.

Governor Strong stated that he was not in favor of a formal meeting of

any kind to discuss the theories of central banking and to tell central banks
what they should do and what they should not do.

He knew that any attempt by

such a body to indicate to the Federal Reserve System what its policies should be
would be very badly received in America, just as the League of Nations itself had

However, what he did think would be feasible and worth attempting now was

the organization of a fact-finding commission which would provide the answers to
the following questions which, to his mind, had not been satisfactorily answered
by anyone as yet, namely: -

(1) What are the gold resources of the world?
(2) What is the position today as regards monetary gold reserves held


by the different banks and countries?

The statistics so far

available did not agree at all as to the amount of these reserves,

and Governor Strong was inclined to think that there was a certain
amount of duplication, as well as certain omissions of earmarked
and other gold.

If only the different central banks could be

gotten to publish accurate and true statements of their condition,
that would in itself be a great accomplishment.

This process in-

deed might very well start with the Bank of England's statement.
What are the real requirements of the world in the way of gold re-


Governor Strong was cf the opinion that these were matters which really

required solution and that the League of Nations might well be better equipped to
find the solution than the central banks, because of its extensive personnel
available for such work.

He thought, however, that a number of practical-minded

central banking men might well be members of the commission appointed to study
these questions, and suggested as an example of the type of men he had in mind
Dr. Stewart of the Bank of England, Dr. Riot cf the Bank of France, and Dr. Burgess
of the Federal Reserve Bank of New York.

These men had both an acquaintance with

the theoretical side of monetary matters and with the practical aspects of central
banking requirements.

He thought, for instance, that Dr. Stewart would be a

better man for the purpose than would Sir Josiah Stamp.

There were also a few

good men to be found among the universities, such as, for instance, Professor
Sprague of Harvard, who was eminently qualified for such work.

Governor Strong

added that, in his estimation, it was very important that the men who undertook
to find the answers to these questions should not be mere theorists who would take
issue on controversial points, and that it would be most unfortunate if the report of such a commission should result in giving color to the views cf men like
Keynes, Cassel and Fisher regarding an impending world shortage of gold and the
necessity of stabilizing the price level.

Sir Arthur said that it would certainly be most surprising to him if a
body of men of the experience and qualifications he had in mind came out with
just a bald statement that certain policies were correct and others not carrect,

and that if anything of the kind was forthcoming it was just as likely to be a
condemnation of the views of men like Keynes, Cassel and Fisher as an approval
thereof. Governor
Federal Reserve Bank of St. Louis

Strong mentioned that one thing which had made him more wary


wrote his book on "Stabilizing the Dollar", he had first submitted the manuscript
to him (Governor Strong) and that the proposal made in that original manuscript
was to adjust the gold content of the dollar as often as once a week, which in
his opinion showed just how theoretical this group of economists were.

Sir Arthur appeared to have been considerably impressed by Governor
Strong's suggested three points to be settled by a fact-finding body, and he
made a note of them for himself.

Governor Strong stated that he had forgotten to mention one other matter
which to him seemed to be a very serious objection against taking any action at
present in the direction of laying down permanent monetary policies for the world
or which would assume the present international situation to be definitive, and
that was that the reparations question had not been finally disposed of.


was no use in attempting to make any permanent arrangements now for the monetary
relations between the different countries, if When the time came for a final solution of the German reparations problem it was found that it all had to be done
over again.

Along the same line, too, he thought that nothing could be done until

the French nation had worked out its own monetary situation completely.

Sir Arthur said that there was another matter regarding which he was desirous of getting Governor Strong's opinion and that was the international loan

He had been wondering recently whether consideration should not be

given to the problem of better regulation of the flow of capital into the countries
whose finances were being or had just been restored.

It seemed to him that in

some instances currency stabilization schemes had been worked out - either by the
League or by the central banks, but he thought this remark applied particularly
to the stabilization work done by the central banks - with very great care involving

the most elaborate

preparations and safeguards, a high degree of protection in the

in this respect enabling it to control the situation at the present time simply


by admonishing the issuing houses, but the Federal Reserve Bank of New York was
still too young and had absolutely no precedent and no power to adopt such



been highly improper for the Federal Reserve Bank of New
Bank of France that Roumanian stabilization under their
it, but that Roumania should go to the League.

Sir Arthur apparently quite agreed with this p

fact pointed out that, personally, he saw little differe
tries came to the League or to one of the great banks of
program, so long as the job was well done.

He even inti

argument with Governor Norman on this subject and that wh

declared that something should be done to prevent Roumani

League he had replied that he saw no distinction as betwe

slavia, that it was no more important that Roumania shoul

that Jugoslavia should do likewise instead of dealing onl
England, as it was just now.

In any case, he did not in

in the case of Roumania or to attempt to interfere in the
bilization through the banks of issue.

- 12 -




knew nothing of

the negotiations un

me as to its possible effect upon our position, and I thought I should frankly
ask him what the facts were.

It had been reported to me that he had attempted

and succeeded in exacting from Governor Lubbock a commitment that the Bank of
England would communicate with no one on the subject cf Roumanian stabilization,
including the Federal Reserve Bank, in any attempt to influence attitudes towards
the project until .1fter Deputy Governor Rist and Mr. Quesnay had come to New
York and secured an expression of our attitude.
Governor Moreau said that nr: information on that point was inaccurate

in important particulars, that he had received definite information before going to London that communications by the Bank of England, either official or
private ones from some of the junior officers to their friends in other banks,

had been going on for some time in an attempt to block any program of stabiliza
tion in Roumar7la
Federal Reserve Bank of St. Louis

undertaken by the Bank of France.

He knew that such communi-

efforts were underand we might regard it as something of an impropriety if

corespondtaken by anyone to introduce any block between the intimacy of our
would regard such an
ence or communications with the Bank of England, just as we
act as rather unfriendly were it attempted between the Bank of France and the
Federal Reserve Bank of New York.

This he conceded, said it was wholly his own

view, and he was very glad that I had addressed the inquiry to him.
Governor Moreau reviewed pretty much all of the ground covered by the
talks at Cherbourg.

I shall not recount it all.

He was very dignified and, I

felt, very correct in his expression of his position towards the Bank of Englend
as an institution, but did display a fundamental incompatibility with Governor
Norman which I believe will be difficult to overcome.

I explained to him that

our relations with the Bank of England were of a character which possibly he did
not understand, that it was not the Bank of England which-had initiated the idea
of central bank cooperation - that had been proposed by us to Lord Cunliffe when
he was Governor in 1916.

Lord Cunliffe had accepted the idea with some enthus-

He and Deputy Governor


itodi and Governor Norman and I had agreed

upon the terms of the memorandum, which simply embodied the principles to be
included in an agreement to be later drafted.

The last clause of that agreement,

at Lord Cunliffe's own suggestion, provided that the memorandum should be conveyed to the Bank of France and the Bank of France be included as a party on

If the archives of the Bank of France were searched, I thought that

original memorandum would be found with my initials attached.

Quesnay laughed and said that in going over some pepers recently he
had discovered the memorandum himself.

Then I explained that from that date to the present time we had scrupDigitized for ulously observed

the plain intention of the memorandum and that we intended to

- 5 -

that Governor Norman was an intimate colleague and associate of mine for
whom I had a deep affection, despite certain personal qualities of which I
heartily disapproved;

that for a period of 12 years we had succeeded in main-

taining a relationship with the Bank of England of the utmost friendliness and
out of which had developed some of the most constructive work that had been accomplished in European restoration;

that there had been but one really definite

dispute between us and that was as to whether Governor Norman was more obstinate
than I or I more obstinate than he.

I thought it would prove most unfortunate

if at this stage and with the circumstances as they were we had a third party
introduced into the situation, where a like dispute would arise, and I begged
Governor Moreau and his colleagues to do their utmost to forget all questions
of personality and deal with Bank of England matters on an institutional basis
with regard to the main purposes to be accomplished, rather than to those cf
passing personalities.

Governor Moreau laughed heartily at all this

and said that he would

promise me that I could never find cause for complaint as to his attitude.
would do his utmost.


He even went so far as voluntarily to pledge that he

would take the Bank of England into complete confidence as to their entire program of stabilization and consult their wishes so far as possible at every

that he would permit nothing to occur in that connection which would

prejudice the position of the Bank of England.

He said one disputed point

concerning which difficulty could not be avoided was Jugoslavia.

A man named

Bark had been in Paris for a week endeavoring to reconcile a situation which
was so inconsistent with the positicn which the Bank of England had assumed
towards the Roumanian business that the Bank of France was unable to accept it
or to

While the Bank of England was ostensibly taking the positicn

- 6 -


,an absolutely exclusive contract had been concluded between British firms
and the Jugoslavian government contemplating ultimately loans of 50 million
sterling exclusively through British bankers and tying up the Jugoslavian
Goverment tc, 11,:ic group for a period cf ten years.

H6 said thet the negotia-

tions, while repudiated by the Bank of Englend, Ilse In point of fast been largely

conducted within the Bank in the presence of the Bank's officials, that the
Bank was advising the Bank of Jugoslavia as to the redrafting of the bank
stetutes, and at the same time that it disclaimed any interest in the business
it was really taking the leadership.

He had perforce taken the position that

the Bank of France could take no interest in the Jugoslavian affair.
All of this provided ample confirmation of the views expressed by Dr.

Stewart, who had stated to me that it was only upon his own insistence that the
Treasury business and of the extent to which the Bank of aware of was concerned with it.
Committee of the Bank of England had been made England the Jugoslavian
Feeling that I was leaving shortly and that Mr. Harrison would be here
within a few days after I loft, I made no effort to explore all the details of
the progress being made in negotiations for the Roumanian credit.

I did say

that I thought it would prove advantageous to the position which the Bank of
France had assumed if arrangements about clearing the Paris investment market
of tax difficulties could be concluded before. the Roumanian lean was offered

and if it could be made distinctly a piece of French financing, so as to avoid

the appearance of the Bank of France taking the leadership in a transaction
where investors of other nations were called upon to put up all the money.
They said they were making good progress in the direction of bringing this about.
The conclusion of the discussion of the relations between the Bank of
England and the Bank of Franco revolved around the situation which would arise
aft '1


I find that the Bank of France is still called upon to

buy immense quantities of valuta, principally sterling.

They now hold in


round figures 1,450 million dollars of foreign balanc

being in sterling, and of this something over 11 bill

sented by foreign contracts due to the Bank of France
and dollars (principally the former) which have been

in Paris for the purpose of lending and otherwise usi

I asked them if it would not be possible to

plan of stabilization some provision by which the Ban

right, at its own option, to accept either gold or, i

rather than to permit the market to be the judge of w
imported or not.

Otherwise there was dancer that wh

was fixed, if the franc rose above the gold import po

who could import gold at a profit would do so and pum

France, and with the importation of gold for geograph

-7 -


(c) The possibility under present conditions

a favorable balance of payments, that the Bank cf Fran

would be obliged to buy immense quantities cf valuta b

being spent by Americans and other travelers in Francs

had considered very fully and it has been a cause of s

Even now they feel the seriousness of the present situ
purchases of sterling every day.

They are consideri

with it, one being tc allow greater fluctuation in the

been the case, which they felt might divert some of t

They also have in mind fixing some limitati

of entry of gold, so that it will be rrore difficult t

gold from England, and even offering special faciliti
drain of gold frer London to, say, Yo%, York.

I was very much interested to observe that,
Bank of France had sent Quesnay to London some weeks
to promote friendly feeling and in order that he might

their program of stabilization with the officers of th
intend to do this again.

In resume, after about 8 hours cf cortiruous

to find any really serious incorrectness in the attitu

has assumed towards the Eenk of England, with the poss

of his interviews with Norman, and possibly in his in
siert, for sere irritation prose when the rather stern

played itself and he took a position which appeared of
England to be a bit threatening.

The French realize

Bank of France is a very strong one ideed, aril they do


of the French
foreign countries end the Penk of France as the real leader

banking community, and in general restoring its influence abroad.

Government Ffnances
This was discussed in very great detail.

In generel, the position

of the French Treasury is far better then they had anticip'ted it would be.

As to the revenues, Every month has exceeded the estimates, despite the large
These surpluses have

increases in salaries granted to the civil servants.
continued to increase.

The present refunding loan, which pays 5%,


against 6% fur the

leet loan, and which is offered at 91, has been so heavily subscribed that
for the first time since the commencement of the war cash subscriptions have
been closed in advance of the possible date of termination.

Cash subscrip-

tions exceed ten billion francs, and the conversion of rentes, Bons de la Defense, etc. had been very heavy, but the amount is not yet calculated.

They tell me that the Caisse d'Amortissement has discontinued the
issue of all securities of maturity less then three years, end by the 15t of
July every maturity of former issues will have been refunded and paid off, e7.-

cept those which commence to mature in 3S7:.
I asked about the deposits with the Treasury.
heartily and said "completely suppressed".

All three laughed

When this loan is concluded, the

Treasury will discontinue receiving deposits from the market.

I asked about the possibility of payments on cash subscriptions effecting a contraction of the currency, such as was now highly desirable, because of the great expansion which had occurred through purchases of valuta
by the Bunk of France.

They replied that it was very difficult to say now to

what extent such a contraction could be effected.

They had discovered on

-10 -

from abroad,
inquiry that very large subscriptions for the loan had been made

and they fear that the amount of contraction made possible by the loan might
be entirely offset by offerings of valuta to pay for foreign subscriptions.
I called at the Bankers Trust Company yesteraay on smile other

matters and aukeu Mr. Cobb what their experience had been.
tions from abroad had beer. astonishing.

He said subscrip-

They themselves had turned in sub-

scriptions for some $4,000,000 for the loan, end they felt that other institutions had had a like experience.

M. Moreau explained that brokers in Paris were new offering considerable premiums for most of the short-time issues, there was quite a keen demand
for them, and they were even inviting investors frcm abroad.

I was amused by M. Kist's statement that when he first took office

it was necessary for him to confer with the Minister of Finance daily - sometimes
two or three times a day - but now the situation was on such a sound and normal

footing that it was hardly necessary for him to see him more than say once a
fortnight and they had little occasion for communication.

As a result of the revaluation of the gold, the present refunding
loan, etc., the Bank of France expects that when stabilization is effectea, all
the government debt to the Bank will be eliminated except about 6 billion
francs representing the discount of Russian bills guaranteed by the government
during the war, and tney now Tully expect that that debt will be put in marketable form so that they can employ it in operations in the money market.

M. Kist stated most imowilylthst he recognized that a true gold
market and an effective control of the position could not be expected in France
unless Paris had a real money market, with the Bank of France as leader.


steps in that direction constantly, having regular meetings, either


which their money market could be organized and regulated.

They asked me if I would express some opinion as to the possibilities
of reorganizing their money market, in view of our experience.

I told them

that the best approach to the subject was from three points of view.
the long-time investment market.

One was

If their tax laws were modified so that

issues of foreign securities could be freely made in the Paris market with
like issues in other important money markets, those securities would themselves
provide the means for a certain international exchange of credit which was essential to the operation of the whole market.

The second point of view was

that there were certain credit transactions of intermediate character between
long-time investments and commercial bills which might have the same effect,

such as international transactions in Treasury bills and like securities which
were of first-rate quality and could be dealt in between different markets like
London, New York, etc.

The third was the development of the international bill

of exchange, the market for those bills, and such a situation that disparities
in interest rates between Paris, Berlin, London, New York, etc. would invite or
repell the creation of franc bills.

I said that in all of these developments

they probably could expect no prompt results.

It took time to develop a money

market along these lines, but the prime essential was that the Bank of France
should morally and actually be behind the money market and prepared at all
times to protect the dealers.

Quesnay is just now studying this particularly and is keenly interested in discussing what can be done and what methods are to be employed.


suggested that later on it might be possible for us to send Mr. Kenzel to Paris
for a long enough visit to give him the benefit of all of our experience.

welcomed this
Federal Reserve Bank of St. Louis

suggestion with delight.



the new value for the franc a little bit lower than at p

the rate of about 125.70 to the pound and the equivalent
They said they had agreed that it would be desirable to

lated solely to the gold unit, rather than to either ste

The discussion of stabilization was almost ent

ernor Moreau, and he first gave a long and comprehensive

done in the past to clear up the position of the Bank of
necessary to review it.

The results are really astonis

tion is concluded, the Bank will have an absolutely clea

the gold shown in the statement will be available gold,

10th would show they had a gold reserve against all dema

38 %, and in addition something like 750 million dollars

I intimated the unwisdom of undertaking a plan
- 12 -

minimum reserve for the Bank, because of the agitation n


- 13 -

which Moreau has gained Poincare's confidence.

- 14 -

Governor Moreau said that he fully understood that, but he felt that
it was necessary to have a little discussion of the matter as a guide to their
course in attempting stabilization.

He then asked me what I thought the pros-

pects were for some adjustment of the dispute to be made in the United States.
I told him that I thought it depended very much upon the lerench, and I

felt rather discouraged at the outlook.
the following.

The situation at home was substantially

The party nominations would occur would outer in mid-Summer.

The short session of (dongress would occur between vecember and March, when the

life of this Congress expired.

It was generally known as the -lame duck" Con-

gress, because it was always very reluctant to legislate on important matters.

Following the adjournment of that Congress the first of March, there would be no
session of Congress until December 1929.

In December 1929 there would not only

be a new Congress but a new administration, probably a new President and a new

Unless, of course, occasion arose to call a special session of Con-

gress, it would be natural to anticipate that nothing whatever could be done about
any change in the terms of settlement until the new administration and the new
Congress had taken office and all of the preliminary and numerous formalities connected with that event had been concluded.

In the meantime, they were aware

that their commercial debt of 400 million dollars fell due, that that debt was
certainly in a different category from the strictly war debt, and that it would
be most difficult to explain to the people of the United States any default in
its prompt payment.

I said of course it might be possible, although I had no

means whatever of judging, that the short session of Congress this Winter might
ratify the Mellon-Berenger agreement if it was promptly submitted with the acceptance of the French Government, but that was merely a guess.

status was that
Federal Reserve Bank of St. Louis

Its present

it had been ratified by the Senate, but, as I understood, not


agreement meant that the French Government was really giv
settlement, which would be unwise and undignified.

They asked me what I thought should be done, an

very difficult for me to express an opinion without the m
to its being purely a personal, private opinion.

It sho

in any decision by France as to what should be done, but

fied in expressing the view that at the time the Mellon-B

negotiated France certainly appeared to be in desperate s
nances and the capacity to make foreign payments.

In th

had been amazed at the revolution which had occurred in t

The budget was balanced with a handsome surplus of revenu

had been refunded, the menace of short-time obligations h

Bank of France had recovered its position and now held th

of any bank in the world, mcept the Federal Reserve Syst

Winter Congress assembled, it was possible that stabiliza
have been accomplished.

It was hard for me to imagine t

member of the present administration being willing to ris

ment on terms more favorable than the Mellon-Berenger agr

possible that the widespread knowledge of the spectacular

French position had already imperilled the chances of rat
ment, because of the delay which had occurred in France.

I reminded Governor Moreau that, by the terms of

Funding Commission Act, the Debt Commission had expired b

negotiations could now be conducted only with the officer

that I had some reason to believe that the Fren

Washington were fully aware of the present situation and

-15 -


not heard it expressed, that the delay in the appointm
M. Berenger had militated against the possibility of a
of the Mellon-Berenger agreement.

At the conclusion I again explained that my

had put me completely out of touch with this whole sit

pressing a private opinion, uninspired by any contact w

and that it must be understood to be without the sligh
pressed this private opinion.

It interested me a great deal to observe a l

part of all three of them tc intimate that they held t
unfortunate that the Mellon-Berenger agreement had not
they hoped that it might be.

They then raised the question as to the relat

ment to the settlement of the German reparations questi

Parker Gilbert had succeeded in obtaining the complete
and that he had great influence in the attitude which
any project.

They explained the difficulty which woul

in accepting some project for capitalizing the annuiti
duction of reparation payments without knowing at the
duction could be effected in the amount of payments to
and British debts.

I pointed out to them that the who

tions in the United States indicated that it would be q

iate a settlement with Germany with a settlement with t
different from the Mellon-Berenger agreement.

The rea

for the purposes of a general settlement would likely r

fort to have the United States assume the entire burden
- 16 -


-17 -

course, although it was a matter on which I had little

-18 -

(1) That
It was in fact a plan designed to disclose by experience two things:

was Germany's actual capacity to pay reparations;

(2) lhat amount of reparations

payments could Germany's creditors afford to receive.

The whole implication of

the plan was that a new sum of reparations, either to be paid by a capital transaction or by annuities would be disclosed as possible after the plan had operated
for say four years;

that the amount to be paid was not in fact definitely fixed

at the tentative figure of 2-i billion marks, because the plan specifically pro-

vided that, should transfers of that amount prove impossible, then accumulations
of mark balances should occur until then reached 5 billion marks, when further
payments would be discontinued until transfers could be effected.

The whole

scheme of the plan seemed to indicate that there rested upon Germany's creditors
the duty at some future time to decide from the results of the plan just how
much Germany could afford to pay and transfer and just how much the creditors,
could afford to receive.

That was distinctly a European question, and when the

amount had been determined, then possibly the time would arise to discuss the
subject with the United States.

They seemed to agree with my interpretation of the Dawes Plan, but
shook their heads over the difficulties of effecting a settlement with Germany
without knowing what adjustments could be made with Great Britain and America.
That is about where the subject was left.

There was some discussion as to the prospects of the new administration
holding a different view.

I told them briefly of course that I knew nothing

as to who would be President, what would be the attitude of the new Congress and
what would be the attitude of any President who might be elected.
leading candidates were Secretary Hoover and Governor Smith. about
Federal Reserve Bank of St. Louis

The present

Secretary Hoover's

the debts had been so clearly disclosed to the French negotiators


far as I was aware, had never been expressed and it wa
have any opinion.

These conversations could not be reduced to

did not feel equal to the task of dictating them immed

stances did not seem to justify taking notes without r
ing the value of the discussion.

I have done the bes

of some days to express the spirit of it all, and doub
will enable me to elaborate more extensively and more

-19 -



Questions were raised by M. Moreau as to what might be done to improve
relations with the Bank of England.

I told him that I had also heard much dis-

cussion of that subject, the only concrete suggestion being that it might be
brought about by the intervention of third parties.

my own name had been sug-

gested, but it went without assurance that anything I could do would be done
without any formalities.

Mr. Morgan's name had been suggested.

I gathered

that nothing like intervention by third parties was possible without some approach
to some one or more cther directors of the Bank of England.
that nothing of that sort would be necessary.

I sincerely hoped

This involved more questions of

personal equation than of institutional relationships, and Governor Norman was
so sensitive that anything of that sort might prove fatal.

I did recognize that

the importance of this question, in case everything went wrong, was such that even

extreme measures might be necessary, and were anything of that sort contemplated
I might then be helpful, but I sincerely hoped that Messrs. Moreau and
would work everything out together.



Hotel Coorzo V,
Paris, 2.:ay 27, 1023.

7-77",7, !:7)


Dear :!r. Harrison:

This lottor and tho accompanying memoranda will be handod to you
by Lr. Jay of 1.:organ

Company, and I need not caution you as to tho nood of

safocuarding thaw with the utmost care.

I have dictated iith absolute franh-

In addition to a copy which I cm rotaining, I C.2 =ding one in confi-

donco to Gatos 1.1c Garrah and Mr. Case with tho roc:uost that they hold it un-

disclosod to anyone, unless circumstancoo develop over hero there it is necessary to discuss it with somo of our directors.

You will obsorvo that there

is soma matorial in it Cnioh is dancorcus in the extromo.
row as to my plans and a littlo about that has happened personally.
The people in tho Lan?: of Prance have really cutdcno thomsolvos to ma ho me

Thero was come delay in errancomonto for my sojourn SOU h, bo-

cause of a littlo delay in rotting on opinion from Dr. Diot and Locauso of
como uncertainty as to whether tho Grand Hotel at Grasso would re lain open.

Dr. Dist was mete tort that I should not stoprin the choro of the :oditorrancan
but co up into tho hills.

Ho cavo M3 a very rood report of my condition, but

said that I nocdod rest, more for the benefit of my nervous cystom than my

Ho thoucht that I should not retain at Grasso later then tho 1st
of July, and .thon approved of my Going to avian.

Ho did not rocom-

mo.:d much travoling.

T;lo doubt I have oxprossod to you about lotting you have .00ro


Ur. Harrison.


arises partly from the facts that I may nood the attention of physicians who
do not opoak English, and that arrancomonto have boon mado for mo to have
somo very important intorviows concorning which olaborato notos should bo

I rofor ocpocially to the visit with Lubbock and tho visit from the

officers of tho Lank of Franco and possibly cons of the officers of the Lank

of England, thich will occur either at Gramm or at Evian.


it (woos to mo I would bo helpless to make the result of th000 talks useful
to others in the Bank.

2y plan is to loave hero Wodnooday morning, Lay ZOth, by motor,
stopping first at Chalons-cur-Saono, next at Avignon, and then Crasco, whore
I shall errivo on the evening of the 1st of Juno.
2nd of Juno.

Lubbock is oxpoctod on the

I havo advisod Norman that, on account or the doctor's aclmoni-

tion, it seems unwise for no to agroo to his proposal that Lubbock's visit

should be immodiatoly followed by one from Nionoyor, and Eiomoyces by one
from siopmaan, with the possibility that Stewart will come at any time that
I rant him.

It could moan discussions of a character that invites a certain

amount of strain, and certainly a groat dual of tact and care.

It would also

moan certain ombarraosment in case I cot word from Soroau that ho and Riot
wore coming to coo no.

So I havo just coat off a telegram to Governor i:or-

man saying that he must await word from no bolero any further visitors coma
from London.

Anothor difficulty is that visits from iiiomoyor and Slepmann are

certain to arouse the distrust of tho Bank of Franco, and that I am unwilling
to risk at this time.

I had a vory interesting talk with Sir Arthur Salter,
ing present and his account of what transpired io enclosed.

lloore be-


Ur. Narricon.


A wiroloos roadhod me from Quosnay just boforo I landod at Chorbourg, asking if Dovoy could come to Chorbourg to coo no on Friday.


ropliod that othor visitors wore oxpoctod, and my illn000 really made) it

inadvisable for me to assume an much on that would mako necessary.
was to arrango for a visit from Dovoy later.


I rich vary much that you

would explain to Dovoy that this reply wan dictated cololy by n000ssity, no
I wan really most anxiouo to coo him and talk with him.

Possibly that can

be boat arranged whoa I am at Arian. receive this, I hopo wo will have boon in communication
by virolooc and boon ablo to (wrong° plans which will ba satiofactory and
com:ortable for you and not intorfore with the nccomplichmont of what we are
both cooking.

If you fool that my ccntinuod stay in 2urope will make it

difficult for you to remain no long no you really Should, I rant you to advise no co frankly and I will gladly return homo coonor.
I have had como long talko with Jack Reynolds, who happono to bo
in Parte, and ha knows a good deal of tho situation and can tako it homo for
early roport to our directors;

but ho will sail too coon for you to moot him.

For your information I oncloco copion of tolograms and =bloc which
I havo had occasion to coed Mich boar on thoca matter°.
Sincerely yours.

tar. Coorgo L. narrison,
c/o I.:organ a Company,

14, Place Vendome,


- km Ili









of .Doctor


beon und

ond on3 of


optir:listic. %bout


ILedieinc: or thr.: pro





f:oon en 1:e



Hotel Goorgo
Paris, May 29, 1928.


Dear Gatos:

You will have soon the letter I wrote to Case and the memoranda
of our talks which wore andlosod with it.

Sinco dictating that letter,

my plans for the next month have boon complotod.

17o are leaving by motor

tomorrow for Grasse, Whore I shall atop at the Grand Motel, at least for
the month of Juno.

This is by Dr. Edouard Riot's order.

join me on the 2nd of June for a week.

Lubbock will

I have deferred accepting sugges-

tions of other visits until I know just how I fool, and especially until I
know What Govornor Moreau's plans aro about further conversations.
By good fortuno, Jack Roynolds turned up in Paris and I have boon
able to give him first hand cone pretty full accounts of all that has transpirod, and ho will bo able to roport directly to you all.

Gilbert was here

yesterday and I expect him again today, and we also had opportunity for some
good talks with Roynolds present no ho can also roport on that subject.

Mat is uppermost in my mind all the time is our organization prob.

If I could get word from you that that has boon satisfactorily worked

out, it would add ton years to my life:
tly very boot to you, Gatos, and to all the boys at the Bank.

miss you all vary much.
Sincoroly yours,

Ur. Gates W. 20 Garrah,
33 Liberty Street,
Now York.


Grasse, June 12, 1928.



While Mr. Lubbock and Mr. Harrison were both here, certain features
of the Roumanian situation developed which could only be disclosed by just such

It will be recalled that the telegram from the Bank of England advising
us of the position taken by Lubbock in his talk with Moreau made it pretty clear,

as I recall, that the Bank of England had made our participation with the Bank
of France with joint responsibility and leadership a condition of their participation.

Our talks with Lubbock disclosed that Moreau had himself stated that

he was planning to have Dr. Rist visit New York for the purpose of inviting us
to join them in doing the business, and Lubbock's reply was that if we accepted,

the Bank of England would accept a participation in the credit, exactly as the
Bank of France had done in the case of Italy.
ified as to its true meaning.

This form cf reply was not clar-

No question of a principle of joint leadership

was raised or discussed, but, as Siepmann expressed it, he considered that the
Bank of England had accepted the invitation in the exact terms in which it had
been given.

If they had cabled us more fully than they did just what had trans-

pired at the meeting with Moreau, we would have been able to state our position
clearly and emphatically to both banks right at the outset by cable.

From the

very beginning, therefore, we were laboring under the impression that the Bank
of England upon its own initiative had imposed conditions which involved us, and
this was confirmed by a private letter from Lubbock in which he advised me that
Norman had taken him to task rather severely for taking a position which appeared
to pass the "buck" to us.


other hand, Norman's letter of interpretation written the follow-


- 2 -



case any further misunderstandings arise and so that we may have something
to refer to.

Harrison's visit to London did much to clarify matters there.

Grand Hotel,
Grasse, June 13, 1928.

Dear Mr. Harrison:

Enclosed are some confirmations and copies of correspondence
which will no doubt interest you.

They are all extras.

Mr. Lubbock writes from London that they find the June 30th
boat is full up and that they are therefore making reservations for you
and Mr. Galantiere for Saturday, July 7th.
before that date, ho hopes that you will stay with them until then.

According to my sailing schedule, the July 7th boat malt be
the "Berengaria".
Sincerely yours,

Mr. George L. Harrison,
c/o Morgan
14, Place Vendomo,

Should yo

ticoctv co

JUL 1 01928


Hotel George V,
Paris, June 27, 1928.


Dear Mr. Case:

There is very little to report since I last wrote you, and as
Mr. Harrison is sailing at the end of this week, he will arrive about the
same time as this letter and will give you all the news personally.
The stabilization of the franc seems to have gone through with
a "bang", and although it is too early to judge of the after-effects of the

change, so far everything points to a fairly unanimous public opinion in
support of the program.

There have been no spectacular developments that
The work of preparation was very carefully

I learn of in any direction.
done by the Bank of France,

d I ether from what friends tell me that M.

iPoincare made a really masterfu
firm as a rock before the Chambe
of the program or being thrown out

esentation of the subject and then stood
insisting upon either the acceptance

Yesterday Governor Moreau, Dr. Rist and M. Quesnay came here to

make a sort of official call and to express their appreciation of the aid
which we had given them in making stabilization possible.

They really were

quite affected, and I felt obliged to confess to them that I thought they

had somewhat over-estimated what we had done, although they could not ovarestimate the good will with which we had followed the matter and endeavored
to be of aid where the possibility arose.

Mr. Harrison is returning, I believe, in good health and spirits



Mr. Case.


after a most interesting experience.

Dr. Stewart was with me for

ten days, and he and Mr. Harrison have both urged me most emphatically
to remain beyond the 1st of August.

I have cabled Phil to find out the

date of his wedding, and if that permits and provided I can get decent
accommodations later, I have decided to lengthen my stay by a week or
ten days, but probably no more than that.
Please give my very best to all at the Bank.

I miss you very

much and am looking forward eagerly to being back with you.
Sincerely yours,

Mr. J. H. Case,
33 Liberty Street,
New York.


41-111 7 7.

if el



La premiere situation heodomadaire publiee
par la Banque de France perrcet de constater sur quelles

bases solidea est desormais assure la convertioilite-or
du franc f rancais.
La proportion de liencaisse-or de la Banque
aux en gageme nt s a vue ( oillet s et co mpt es co ur ant s) e st

en effet de 45 %, tres superieure par consequent aux
35 % qu'exige la nouvelle loi monetaire.
Un communique ae la Banque cle France fait

remarquar que ce result at a ete obtenu grace it la
collaboration amioale des oanquea federales de reserver,
americaines et en particulier de la Federalf Reserve
Bank ae lierrHYork dont le gouverneur M. Benjamin Strong

est act Illement en }lurol:e.
Avant d'accepter la suppression du cours force
la Banque de France devait en effet acquerir des quantit es importante s d'or. Le public a et e infornad des
arrivages successifs de metal ce qu'il ignore, ciest
que cet or etait achete aux Etats-Unix peer la Banque

26derale de New-York pour le compte

Banque ae

Prance, mis en caisse et expeaie par elle. Ses services
ainsi apporte un puis sant appui as la Banque de
France pour la preraration de la reforme monetaire


au Jour dIhui acoomplie


Pres du tiers de 1' enoais se actuelle provient
ainsi de New-York. Vint 6/6t profond que le Gouverneur
Strong a toujours temoigne it la France,
vif aesir

de 1' alder a sortir de 1' incertitude monetaire, se sont
manifestos so us la forme la plus tangiDie. 1,1Amerique

a mis a not re disposition une partie de 1' or qui elle
detena it


la Banque de Prance a pu prrelever a New-York

aveo 1' aicie de la Banque riederale tout le metal dont
el le ava it beso in."

Ce retour ae 1' or faoilite pe.r les autorites
amerioaine s constitue la partic ipati on cies Banques Federales a not re assainissement monet air e : it est la
preuve des rapports Otroits de co la borati on qui e:d stent et continue ront a. exist er ent re elle s et notre
grand Institut d'Emis si on.

Royal Hotel,
Evian-les-Bains, July 3, 1928.

Dear Dr. Burgess:

I have two letters from you unanswered - June 8th and 15th and shall not apologize for the delay:

I have hoard all about your visit abroad from the folks in the
Bank of England and the Bank of France.

It vas in ev

both for you and for those whom you met, and I may say that all reports
indicate that you made a splendid impression and I was rather proud to
have another one of our organization come abroad and leave just the impression that you did.

They have all added to the reputation of the Bank as

a capably managed institution conducted by serious minded men who know
their jobs.

I am too far away and my advices are too delayed for me to be
able to express any opinion of value about the situation at home.


I foel has already boon expressed to you in an earlier letter, but that is
no more than a hint of something to have in mind.

The hint, if you can

call it that, which I expressed in December and thereafter about a change
of policy did not seem to fall on fertile ground, or at least the germination was somewhat delayed, so I wondered whether you were all considering
that sometimes we have to shift our feet pretty quickly and we may need to
do so in connection with the present money market.
home must judge.

As to when, you at


Dr. Burgess.


Both you and Sprague, as well as others, express the view that
the situation as to credit and speculation in securities should be dealt
with by some method other than by rates.

That may be true, if any

method can be found, but I can promise you that if the methods heretofore
suggested of declining or restricting leans in a definite and elaborate
way to banks which are lending on the Stock Exchange are adopted, it will
force a rate situation which will result in higher discount rates whether
we want them or not.

The policy of direct action is absolutely inconsist-

ent with Sprague's argument in the early part of his memorandum that we
cannot concern ourselves with or expect to control the application made of
the funds which we furnish to the member banks.

Such direct action as is

so often suggested can only lead to rationing of credit for speculative
purposes, and that in turn to endless complications and, I believe, ultimately to a disastrous policy.

We can of course deal with extreme cases,

even though it does involve slight injustices in those cases, but to attempt to substitute a policy of directly controlling the Stock Exchange
loan account by methods other than higher discount rates will, I believe,

in the end orove to be a failure and be more likely to invite a catastrophic
result such as Sprague fears than will the present method of keeping credit
fairly snug.

This is dogmatic opinion, and if I had three or four sten-

ographers and ample time I would support it with arguments which I believe
would be convincing.
The stock market appears to be going up in the face of 7r money.
My guess is that it will not continue long to do so.

I am glad that you feel optimistic about the outlook, also to

Dr. Burgess.



The French reorganization can be summed up in a few words by
saying that Moreau has completely dominated the situation and apparently
conceded no vital point in the negotiations with the Government.


plan strikes me as a thoroughly sound one, and the arrangement of any
credit to support it would have been a needless expense and rather cast
doubt upon the plan than strengthened it.

The plan contains in substance

all the suggestions made in Paris two years ago.

The only concessions

made by the Governor had to do with the amount of the statutory debt of
the Government to the Bank, which is increased from 200 million pre-war
francs to 3,200 million of the new francs.
Bank can doubtless support it.
of the profits.

It is a large debt, but the

The other concession was in the division

I do not care for the scheme, but it is a minor considera-

tion which Moreau was wise in conceding.

I never saw anyone more enthusiastic or pleased or relieved than
those three men were in the Bank when the matter was finally accomplished.
They expressed more gratitude to us than we deserved, but I am glad to say
that their press over here expressea it very conservatively, and I hope
there was no unfavorable reaction at home.

The gold exchange standard problem is too big to discuss by correspondence, so I will leave it for when I get back.
Harrison will report the substance of my last talk with Salter,
as he and Stewart were present.

I think between Moreau and myself we

have put a damper on the activities of the Finance Committee of the
League for the moment.

May I suggest the need for saying something promptly to Mr.



Dr. Burgess.

the undertaking to have the stock of the Bank distributed?

It locks

to me as though we might have saved the ultimate purchasers of the stock
some money, as they will likely not pay at so inflated a value.
Yours of June 15th calls for no particular reply.
Please give my very best to all at the Bank.

I hope you are

not over-working during this hot weather.

Sincerely yours,

Dr. 7. Randolph Burgess,
33 Liberty Street,
New York City.

Royal Hotel,
Evian-les-Dains, July 5, 1928.

Dear Mr. Harrison:

Governor Strong suggested that I send you tho enclosed analysis
of the new statement of the Bank of France.

I have set down the names of

the items briefly in Englidh, but '!r. Galantiero took along a copy of the

new statement in French, in case you wish to refer to that.

Also enclosed in a translation of the resume of the monetary reform, Whieh was gotten up by one of the Bank's officers and a copy delivered
to Governor Strong just before stabilization was voted.

Also, you mny bo interested to see the clippings herewith, some
of them selected by the Bank of Franco as representative of the local press
reaction to its communique and the first new statement, and two or three I
out out.

I did not vire you the day before you sailed, because Governor
Strong said he had talked to you by phone.

Since then, he Me definitely

decided not to postpone his sailing, and we expect therefore to board the
"Olympic" on August lot.
Sincerely yours,

Mr. G. L. Harrison,
33 Liberty Street,
New York.



Royal Notol,

Doar Ur. Harrison:

Thoro is not much nowo to pond you, nor will tho
the visitors start arriving in a few days.

In view of our mooting with Salter in Paris, I

would bo only courteous to call on him at Genova, so day b

I motorod down thore without previous notice, but ho was e
mooting somewhere and I just loft my card.

7:o have arra

that I shall lunch with him tomorrow, and I hope to remove
any impression of unfriendlinoss which might have rosultod

Further reflection about it all, howovor, loavos mo adaman

It will Interest me to hoar what Vissorirg, Ba


and possibly Franck havo to say on this subject.

By now you have read the account of my first tal

and I want you to know tho very different impression one g

Uoore's account of the talk and that is oxprossod in Salte

in which ho doscribod my attitudo as expressing a "wish" t
study made.

On talking it over with Ur. Moore, I find th

tion is identical with my aun.

No such expression was uc

It i

attitude generally capable of being so intorprotod.

moo of the wish being father to the memorandum.

The fac

that all of thee° fellows are taintod with the enthusiasm
and propagandists, and in a sense of cranks.

I hate to s

they do carry their ideas to such extremes that comotimeg



Hr. Harrison.


are a menace.

I do not question their intentions in the slightest.

It can all bo summod up by stating that they are a group o: pretty good,
intelligent fellows who are hunting a job, and having no businoss of
their own to attend to, they are looking about to attend to someone else's

Now, after considering this letter and the memoranda which you
have road, may I mako tho following suggestion.

Take the Genoa resolution,

the report of the Zconomic Consultative Committee and thoir resolution,
and the resolution of tho Finance Committeo of the League, and mark the
par graphs which exhibit so clearly that those* gentleman aro driving ulti-

mately towards the goal of fixing prices.

Then see if you can cot hold

of Jeremiah Smith without too great inconvenience.

Toll him the thole

story, show him tho points which we regard as dangerous, explain to him
that we have reason to boliovo that the Bank of Franco, the National Bank
of Belgium and probably some of the othor banks of issue over hero aro in
entire agreement with us, and see if he does not cympothizo with our view
and will not support it at the SoptoMber meeting which ho expects to attend.
I will write you later that I learn of tho views of Schacht and the others.
Be sure and emphazizo with Jeremiah Smith that thoro is nothing

whatever in the Genoa resolution Which puts any duty or rosponsibility
upon the Finance Coramittoo of the League, and the only action called for

is by Governor Norman, who is not now prepared to take that action, so
the Finance Committee of the League is simply "butting in* to undortako a
program in which they have no responsibility whatever as an organization.
Dewey wires me that ho is caning up from Paris to spend the
15th with me.

I may bo ablo to add a little emphasis to some of the

things that you said to him.

I am getting along first-rate, but in view of Phil's wedding
date it is quite out of the question for no to follow your cdvice and

StewaWs about remaining longer.

If I em not up to scratch and Dr.

Miller exhibits the slightest reluctance to my doing much work when I
return, you can count upon my continuing tho rest when I got back, even
if I have to go away again.
Tly beat to you and the othor officers.

Sincerely yoursi

Mr. C. L.Tarrison,
33 Liberty Street,



Royal Hotel,
Evian-les-Bains, July 8, 1923.

Dear Mr. Harrison:

Yesterday I had lunch with Sir Arthur Salter and his cohorts.
I think I should write you very privately something of what transpired but from what follows you will understand readily how very private it is.
The lunch was at Salter's house.

Immediately on arrival at

12:30 he sat us down on the veranda and started in on the same old subject
and along the same old lines.

Shortly the rest of the party arrived, con -

elating of Avenel, who is Acting General Secretary of the League in the
absence of Sir Eric Drummond, and five other men, all of whom I understood

to be members of the Finance Committee Secretariat.

This included a

Swede named Iacobs or Jacobson, and Loveday, head of the Intelligence Section.

The other names I do not recall, but they are not important, as

they all struck me ao a lot of rather youthful amateurs.

The general

cttitude, outside of Avenel, was that of listening to the master's voice
whenever Salter spoke.

Avenel did not have a great deal to say, but what ho said was
rather to the point, and of course he is a man of wide experience and
known ability.

He seems to be in general a gold standard man, but indi-

cated that he thought public opinion was going to require that somothing
be done about the gold exchange standard, although I did not discover that
he was very greatly in sympathy with this particular move.

The Swede Jacobson seemed to be a sensible fellow, certainly


Ur. Harrison.


very earnest, and not at all a disciple of Cassel or any other of that

Lovoday was frankly ridiculous.

At lunch ho exposed himself to

the gibes of most of his own associates, and I formed a very poor opinion
of his capacity.

It was obvious that Salter was much annoyed at the ex-


None of the others counted for anything.

There are only a few points worth describing about the whole conversation, which was largely a rehash of what we have already heard "ad naus-

cue:(1) Salter said that their action on the resolution was rather
forced upon them by a resolution adopted by the Federation of British Indus trios.

I did not question his statement, but I have strong reason to be-

lieve that it was really proposed by Strakosch and supported by some such
resolution, and it struck me as very queer indeed that Salter should claim
that the Finance Committee of the League had to be put in motion by any such
resolution as was passed by the Economic Consultative Committee at the instance of these British manufacturers, just as though the Finance Committee
of the League was an agency for the promotion of British interests.


was a very obvious slip in his statement.
(2) His reiteration of the growing menace of public opinion related
almost entirely to public opinion in England, and when pinned down to a
statement of the reason for that, he had to admit that it was because the
Bank of England gate no informaticn to the public, an all other banks of
issue do, and that this had much to do with the unenlightened public opinion.
I pointed out that if that was the case and that was what he was driving at,


Mr. Harrison.


the procedure might well be confined to discussions with the Dank of England
rather than to drag all the banks of issue into a world inquiry.

(3) He constantly reiterated, and some of the others echoed, the
need for looking after their wards, the six small nations which have been
clients of the Finance Committee of the League.

I expressed the view that

the League had been advising these gentlemen for some years about the management of their banks of issue and I did not understand why it was now necessary to make their relations with these six small nations the excuse for an
inquiry which really had for its objective the very thing to which we objected, and anyway they were of minor consequence, as probably the total of
their foreign assets which counted as reserves did not exceed 60 or 75 million dollars, and there was nothing in the protocols as to the gold exchange
standard which prevented them as a matter of policy from adopting the full
gold standard if they wanted to, but that we would not assume to advise them

as to what they should do about their wards or how they should do it.
was for them to determine.

(4) Salter spoke very definitely of the menace of another Labor
Government in England and what they might do in the matter of stabilizing the
purchasing power of gold and possibly intervening in the management of the
Bank of England.

I pointed out that I had a letter from the last Labor

Chancellor highly commendatory of the Bank of England and in general of our

He replied "But how about the next Labor Chancellor!" and I said

that I did not think that programs could be conducted by banks of issue
designed to moot the views of all future Chancellors and Finance Ministers
who might from time to time hold office.

(5) Towards the conclusion of our talk, I said that it seemed

Mr. Harrison.


necessary for me to oxplain my position.


I had boon ackod to express

come personal opinions on come matters by Sir Arthur Salter and others in
the League Socretariat; that I had not hesitated to do so; that they wore
simply personal views, and no one who heard those views was ontitlod to
construe them do intonded in any way to govorn what the Finance Committee
of the League might undertake to do.

They wore free to do anything which

they chose to do, but ac thoy had asked my opinion, I had not hesitated to
express it quite frankly.

7e did not wish in any way to be understood or

represented as interfering with their program.
Governor Norman.


The man to do that was

I had not disouosed the matter with Governor Norman,

and probably they would decide to do that before attempting to substitute
themselves for him in executing the Genoa resolution.
(6) There was one littlo sinister suggestion which came into the
discussion, first mentioned by Salter and then by one or two of the others,

that it would be rather unfortunate if it was necessary for the

Finance Committee of the League to table this item on the agenda with the
explanation that they had dono so because the throe great banks of issue Iceland, Franco and the United Staten - had celled them off.

St took a

little control to hold my tomper whon that came up, and I have not questioned the statement with Salter, but if I see him again I shall do so.
It is possible I may write him a briof note which will make it quite difficult for those follows to take any ouch position.

Now a word in general of my impressions of the crowd.


out Avenol, who is not of the Finance Section, and possibly the Swodo, I
was roally shocked by the exhibition of amateurish approach to this whole
matter and gonoral incapacity to deal with it.

They struck me as amateurish

young University Chaps who took themselves vary seriously indeed, and cart-


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