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FEDERAL
OF NEW,

-,AR1K

dinabaikrwaiie

111,1111.1.1.10F
DATE

F'ON IDENCE

Mar_ch 1., 19

111111
_

SUBJECT:

overnor Strong
FRO

lir,Snyder

Bank Policy

PIP"

Your question suggests a detailed answer.
the prospect.
I.

Let us first consider

In Business.

Following the boom in 1919 we had an unusually long bear market in
This followed
stocks--from November, 1919, to August, 1921--about 22 months.
a bull market of a little less than average length--about 22 months.

The decline in stocks was followed at about the usual interval-business and an unprecedented
The boom of 1919 lasted about 14 months, on the Bureau of
slump in prices.
Labor index; and the slump lasted about the same length of time, to about last
Since then there has been no appreciable change.
June or July.

'six or eight months--by a prolonged slump in

We have had now for six months a very strong bond market, the longest and most sustained bond market, according to the dealers, since 1905, that
This followed, as usual, upon declining rates for money
is, over 16 years.

and liquidation in business.

Accompanying this strong market has been a quite remarkable rise in
street loans, amounting since September to over $300,000,000, or very nearly
to 50 per cent.
At the same time we have had since August, or for a full six months,
a slow, creeping rise in the stock market, that has had no interruption, and
But a
now amounts for the industrial list to between 20 and 25 per cent.
large number of individual stocks have risen from 50 to 100 per cent.

for at

The prospects, I should think, were for fairly easy money
the rest of the year.
We have had a liquidation in bank loans that,
for the whole country,
does not considerably exceed that following 173, and is certainly much greater than 193, and extending now over a
period of fifteen or eighteen months, and in New York City, of course, over
two years.

least

equals if it

it that this combination of prolonged liquidation,
bond market and a steadily rising stock market was
As the rise
pretty nearly the invariable precursor of a stock market boom.
in stocks has gone on now for over six months without a break, it might be
due for a sharp recession sometime this spring or early summer, but I should
think the boom would be well under way, with active public participation and
generally buoyant feeling, by next September or October.

I should take

easy money and sustained

The violent and

unprecedented decline in prices has likewise created
great boom in commodities.
In the
first place, the fall in prices was very unequal and nowhere more so than in
Where the average of all prices, including a heavy weighting
farm prices.

the conditions, it seems to me, for a



!IrN
a
P.O

Governor Strong
ROM

Li'

FEDERAL RESERVE BANK
OF NEW YORK

DENCE

DATE

SUBJECT:

March 1, 1922

BankTolicy-2

Snyder

of farm prices, has been for the last six months around 150, that for farm
prices has been 20 to 30 points lower, and for wheat and corn more than 50
points lower.
This disturbance of the equilibrium creates the natural tension
for a violent rebound, and this is exactly what we have been having for the
Mr. /Alter case tells me that the rise in wheat
last two months or more.
has been, in percentage, the greatest ever recorded in the Chicago market in
a similar period, and I believe that the general rise in farm products will
soon have, if it has not already, passed all records.

This tremendous rise in farm products must bring about a strong
revival in many lines of business that are now stagnant or utterly dead, as,
for example, agricultural implements and every kind of industry that caters
to the farmer.

Mit

Likewise, we have had, after the 80 per cent. rise in cotton last
If, as seams now probable,
August, a rather sagging market in that commodity.
the textile industry in England, Germany and other European countries is
recovering and there is a good demand in this line in this country this spring,
we have, with a very short cotton crop, the conditions for another very big
rise here; and it may well be that the predictions of 25-cent cotton before
the year is out will be realized.
This should have a corresponding effect
on business in the South.

A strong stock market usually precedes a revival in business by
or eight months.
On this basis, with rising commodity prices and
especially the restoration of equilibrium for farm products, most lines of
business should be in prettygood shape this spring and perhaps in very good
shape this fall.

about six

Such seem to me, in a broad way, the prospects so far as it is
possible to look into the future.
Lest I give you the
that I am merely a chronic optimist, I should like to say that my tendency
is, if anything, just a little the opposite.
So far as I can now recall, I
was the only man I know of in this bank in the spring of 1920 to think that
we were in for a very bad time.
I will say that I felt we might have a much
worse time than we actually got, at least in some regards.
I remember at
one time I believed withidr. Hepburn, who made the unequivocal prediction, in
his speech at the Academy-of Political Science in May of 1920, that we might
not get by without an old-fashioned banking panic.
The influence of the
Federal Reserve System proved to be stronger than I felt might turn out to be
the case.
As to the fall in prices, under date of April 21, 1920, I wrote to
Prof. Persons, of the Harvard Bureau of Economic Research, as follows:




FEDERAL RESERVE BANK
OF NEW YORK

A10,

:..:E CORRESPONDENCE
1110 Governor

Strong

1111111111111
DATE__

SUBJECT _

Mareh_4_1922

Bank Policy--3

Mr. Snyder

"I have been extremely interested in your judgment that liquidation in commodities will be moderate.
Most studies we have been making have led me to an almost
opposite conclusion, namely, that it will be very drastic
I cannot believe we can
though perhaps short-lived.
have a rise in commodity prices in one year of 26 per cent.,
in peace times, with a corresponding increase in bank loans
in 12 months of 25 per cent., without a very severe reaction,
especially in view of the world-wide money stringency. It
will be interesting to see how it actually works out."
As to the present prospects, under date of February 3, 1922, I wrote again
to Prof. Persons, as follows:
"Possibly I am too optimistic, but I cannot help feeling
that there are forces at work which will drive the business
My belief
machine somewhat faster than you seem to anticipate.
is that the rise in the general price level will be at least twice,
if not three times, the estimate of 10 per cent, named in your
letter."
Foreign Trade,

Just a word about the ineradicable superstition that our foreign trade
First of all, as anyone may verify, the
is a vital factor in our prosperity.
great bulk of our exports, even now, is as it always has been in great staples
like cotton, copper, meat, wheat, and a lot of things in which either we have
relatively little competition, as in cotton and copper, or else which we are
able to produce and deliver for export at a cost that compares favorably with
This great bulk of non-competitive
that of the other big producing countries.
or little-competitive exports undergoes relatively little variation in volume and
is not greatly affected by general conditions either here or in Europe, but rather
from quite special conditions.
The proof of this is that, with general business conditions this last
our grain exports and others have been unprice of copper is at the lowest point
relative to the general level of prices in long years, and our exports have
steadily been very small.

year at the lowest ebb for a long time,
usually heavy. On the other hand, the

like
So, on the other hand, our imports are in the main staple articles
coffee, tea, and a great number of other things that we do not
In a broad way, the volume of these imports is but little afproduce at all.
fected by the general condition of our exports.
Mat I mean is that our foreiga
trade is not an affair of simple tarter or direct exchange; and the proof is that,

rubber, tin, silk,




IMF lir 111111.

DERAL RE
OFNEV

ESRE

SUBJECT:

Governor Strong
FROM

March 1, 1922

NIDENCE
Bnnk

Mr. Snyder__

with Europe

for years and years, the so-called "merchandise balance/has been steadily
in our favor.
The amount of our exports in manufactured goods, other than in
foods, is not only relatively small as compared with our great staple exports, but as compared with the whole product of manufactures in the country

is, I almost started to say, a negligible quantity.
I don't suppose that, of the total value of manufactures of the
country, other than foodstuffs like flour and dressed meat, the total of our
exports in manufactures has ever amounted to more than 3 to 4 per cent, at
the outside. Of course this billion or so of manufactures seems very great
to our New York exporters and bankers and merchants, but as against the
total volume of the business of the country it is relatively slight.
Further than this, our studies here at the bank, confirmed by those

at the Harvard Bureau and likewise recently by Mr. Hoover's new Bureau at
Washington, show that in weighted volume our exports this last year, in the
face of the endless talk of the ruin of our foreigp trade, the great decline,
etc., were not appreciably

lower than in either

of the two boom years of 1919

and 1920.

This means that if the prices of all products had remained absolutely the same in these three years, then the reported values of OUT exports
would likewise have been practically the same.
very remarkable implication.

And this conclusion has a

There is little doubt that, taken as a whole, the total physical
product of the country last year, measured in tons, bushels and barrels,
including crops and the Mineral product and manufacturing, was at least

that of the
It follows then from this that if

In minerals it was more than
15 per cent, below
preceding year.
our exports were
30 per cent. below.
practically the same in volume as in the two preceding years, then the percentage of our total product which has gone abroad was greater last year than
in the boom years of 1919 and 1920.
know this seems a very surprising result; but I

incontestibly true, and furthermore the studies made by this

believe it is

department a
ago likewise would suggest that this percentage of products going abroad
last year was the highest in at least the Imst quarter of a century. I
cannot, therefore, share the prevailing view that the key to our prosperity
is our foreign trade. On the contrary, I believe the evidence is over-

year

whelming, for those who will have the patience to study the actual facts,

that it is not.

Further than this, the idea that our prosperity is conditioned upon
the "recovery" or reconstruction of Europe seems to me pretty sheer imagination.
England has been in a bad way in the last year, but the rest of




RESERVE BANK
OF
r.-EDERAI- NEW YORK

1100 E

CORRESPONDENCE

DATE

SUE, EC",

Governor-Strong

March_ 1, 1922

BAik F"olicp.-5

,

RO

Mr. Snyder

Europe has not.

It has probably produced 80 to 90 per cent, of its normalso large a section as Germany has probably been consider-

total, even though
ably below this..

But at most it seems probable that the "restoration" of Europe
would not mean an increase of more than 20 per cent, at the outside, and
possibly less in her total product, and therefore her total purchasing power;
and it is probable, further, that so far as this country is concerned recovery
would mean possibly as large a decline in the demand for our foodstuffs as
it could possibly mean in increased demand for our manufactured products.
For the rest, my visit to Europe last summer gave me a tremendous
wars and
the way things in general
catastrophes, in Europe just as they do in this country even in the worst
years of crisis and depression that we have ever known.

impression of

go on, in spite of all

The variation in the total product probably in the last hundred
years, for either this country or for Europe, between good times and bad,
probably never much exceeded 15 per cent., and certainly not 20 per cent.

has

The Political Side.
First of all, I would like to note that I have a pretty good knowledge of the West, for I was born and brought up out there; and of politics,
for I was born and brought up in them; was editor of a daily paper at twenty
and went through the Bryan campaign at an impressionable age. I think,
A
therefore, I know pretty well the temper of the people from whom I came.
very strong imprecsion I got very early was that the political swing of things
was pretty well determined by business conditions and not the reverse, as so
many people believe.
For example, it is a popular superstition that business in this
country was greatly upset by the free silver agitation in the Bryan campaign,
and that our business recovery dated from the "establishment of the gold
standard."

It seems to be quite lost to view that the depression in Europe
and in South America and other countries started in a full two years before
there were signs of it in this country, in England and in Germany, and the
Argentine and elsewhere, where there were no Bryans and no 'free silver
agitations and no question of the gold standard.

It was apparently this depression in Europe, through the diminution
of purchases here and of exports of capital to this country, which finally
brought on the panic of '93.
I have never believed that this crisis had anything seriously to do with political issues.



FEDERAL RESERVE BANK I
OF NEW YORK

S ON DENCE

1.111111111116.
DATE_

March_l, 1922

Governor_Strong__
FROM

Mr. Snyder

Moreover, you will find that in general in the last fifty years
or more the political administration has usually changed with falling prices
and bad times, and stood fast when times were good. Therefore, I take the
view that the general political swing now, as always, will be dependent upon
general business conditions. Therefore, I should rather expect that,it business was good by
early fall, end farm prices have had a heavy rise and the stock market is
booming, a Republican Congress might be returned with at least a narrow
majority, even though its prestige may have been very seriously impaired.
On the other hand, especially if the Democrats espouse s cheap money or soft
moray platform, as I understand is now the programme, and business is not
good, and farm prices have not recovered, then I should expect a very heavy

Democratic majority, possibly a "landslide."
Looking ahead two years

should expect much the same.
market boom runs about the usual course, 24 to 30 months, this
would bring its culmination in the late fall or winter, say November or
further, I

If the stock

December of 1923.

If this should be followed by a corresponding rise in commodity
they would probably reach their apex with the general movement of
business six or eight months later, that is to say, along in May or June of
1924.
If the reversal is very sharp and we get a headlong fall of prices
and business should have a heavy slump, in the autumn of 1924, then I should
expect to see the Republicans beaten out of sight.

prices,

But if, as in 1920, the docline in prices should at first be rather
pretty well and other conditions be fairly right,

slow and business keep up

then I should think

that

the Republicans would have a 'fair fighting chance.

ELAARPY

If things should work out somewhat along the lines

here very tenquestion of policy for the
might not be so very difficult.
Pretty clearly now

tatively suggested, then it seems to me that the
Federal Reserve

Banks

almost every consideration of general welfare and general happiness, as well
as political and economic considerations, seem to me to suggest that every
encouragement should be given to the revival of business, trade and production as speedily as possible.
Personally I cannot imagine why we should any more endeavor to get
back to the price level of 1913, the imagined "normarof the popular mind,
any more, for example, than that we should go back to that of 196 or any
other date.
The price level of 1913 was almost an even 50 per cent, above
that of 196, end that of '96, in turn, very heavily below that of the average

of the preceding twenty years.



401111.1110

FEDERAL RESERVE SANK
OF NEW YORK

CORRESPONDENCE
Governor Strong

DATE

SUBJECT,

Bank

March le 1922

Policy--'

Mrs Snyder

If the aim of an intelligent statesmanship and banking policy
is the general welfare of all the people, end a general atmosphere of con..
tentment and satisfaction with life, does it not seem to you that what is
desirable is a fair stability of prices and not a tremendous
that
we had before 1913, or a tremendous fall like that we had in the nineties?

rise like

And it is my firm belief that the results of our investigations
here in the last two years show pretty clearly that such a fair degree of
stability is now obtainable if only the public and the bankers and the
Federal Reserve Board can be educated to see that our banking and credit
policies may now be made a matter of science and certainty, instead of as
at present, a kind of rude rule of thumb.

As to immediate policy, if we have had an average decline in bank
loans for the whole country of something like 13 to 15 per cent., as the
recent returns from the Comptroller would suggest, then the banks of the
country would have an available credit supply of plus 3 billions, at least,
before they would have any need to call on the Federal Reserve Banks.
I
should imagine that, from tradition and from the doctrine that has been so
assiduously cultivated, that the banks ought not "to be in debt" to the
Federal Reserve Banks, that they would not resort to rediscounting much
until they were forced to do so.
They probably would be forced to some extent by the demand for
From the peak of 1920 the Federal Reserve currency has been concurrency.
tracted about a billion and a quarter;
again and
trade expands, pretty clearly there will be renewed pressure for Federal
Reserve note issues.
This rediscounting could be made the basis for a

and if prices begin to rise

1111111110

moderate rise in rediscount rates, as time went on, especially if the rates
on commercial paper and the rest should likewise rise.

Meanwhile, T am wondering whether it might not be at once sound
policy and good strategy to reduce the New York rate, at
and possibly
that of Boston and Philadelphia, to 4 per ceat, for the time being.
Our
general money rates have held up much higher than those in London, and there
does not seem to be any reason why they should.
And if this is to be chronic,
as it has been in the past, then clearly New York ii not going to be a great
rival of London as the international money center.

least,

For the time being the broad speculation in bonds and, I think to
some extent, in stocks has created a certain market for funds here in New
York, and held up the rats possibly higher than good business judgment would
fix it. It might be well worth considering whether a reduction of our rate
to 4 per cent, might not be regarded as a formal notice to the country that

the supply of funds was ample, that money in New York
cheaper, and then, by maintaining a higher rate in the
duce some flow of funds to these sections.



was becoming steadily

last and

South, pro-

4114111Pm

FEDERAL RESERVE BANK
OF NEW YORK
CATE

CORRESPONDENCE

Governor Strong
FROM

SUBJ..,

Bank Policy--.8

Mr. Snyder

But such a policy could not be very effective unless the spasm of
contraction which has laid a heavy hand upon the banking mind of the country
is not relaxed by an effective campaign of education. I know a great
many serious and careful thinking people feel that some part, and possibly
a large part, of our depressions, or at least their continuance, is due to
the natural timidity and fright of the banking community at such periods.

Forced by various impulsions in the period of expansion to an
undue expansion, when the snap comes they swing to an opposite extreme; and
it seems as though one of the great problems of statesmanship for this
country is to find some way to combat both of these natural tendencies and
to mitigate their very harmful influences.
Looking farther ahead, if business should get well under way and
prices rise steadily, then it seems to me the bank rate might be put up at
pretty regular intervals, flay each three months, by a half per cent.; and
it seems to me, there is
the thing should swing out into a runaway market and another characteristic
Surely by this time the country has begun to get a little glimpse
"boom."
of the fact that it is a boom that breeds a panic; and I can't help thinking that the strong conservative sentiment of the country would back up
the Federal Reserve Banks in a steady advance of the rediscount rate, especially if this was accompanied by a strong campaign of popular education
in the idea that the Federal Reserve Banks ought to be the governor or the
gyrostat of business to prevent alike wild expansion and disturbing collapse.

at least a possibility that

especially so if, as

11.11110Now

ror this reason it seems to me that the bankers of the country
generally should lend their support to all such organizations as the Stable
Money League, which have for their base popular education of the public in
the field of economics and finance and the advancement of any kind of practical measures which might seem calculated to mitigate the violent oscillations to which this country seems so prone, and which seem to have been
heightened rather than curbed by the introduction of the Federal Reserve
System.
This brings me to another question
of the last three years, we must soon face.
V

which,

in view of the experience
That is the question of:

An "Elastic" Currency.,

We have recently made an investigation that I believe is of fundaRunning back over more than a hundred years we have
found that, taken by decades
to say, in what is called a
ten-year moving average, the amount of currency estimated as in circulation
in the country has increased at the rate of about 3e per cent, per annum.

mental significance.




at least, that is

411MI1111111be

1 FEDERAL RESERVE BANK
OF NEW YORK

Dee. March_1,_ 1922

CORRESPONDENCE
Governor Strong
FROM

Mr

SUBJECT

Bank Policy-9

...nyder

Now it happens that this is exactly the rate of increase which we
found was characteristic for the total product of the country throughout
the last half centurythat taking the average of all the majcr products of
the country,between 50 and 75,for which the material was available, crops,
mining, manufactures and all, the average rate of growth of our industries
has been at this same 3+ per cent, per annum.
Now I do not believe that these two findings are unrelated.
Furthermore, in a very rough way a change in the rate of increase in the
currency above or below -this average seems to have been paralleled by an
increase or decrease in prices.
In the last forty years it appears that the normal rate of increase of bank loans has been at about 6 per cent. per annum, and that in
turn a marked increase from this rate has not resulted in increasing pro.duction but simply in a rise of prices.
closely with the practically
We know that these results tally
They
universal experience of the European countries in and since the war.
could print money and expand their currency and raise prices, but this
brought no corresponding increase in production but, just as in thie country,
apparently the reverse, some diminution.
0

Does not this open up the question as to whether our idea of an
currency which will respond to the demands of business" is fundaIs it not probable that the so-called "demands of busimentally unsound?
ness" are to all intents unlimited; and that the only restraint which we
can have upon rising-prices is a limited currency and a limited amount of

"elastic
credit?

Now the grave problem, it cease to me, fleet faces the Federal
Reserve Banks is to what extent they can throw their influence against another such expansion of the currency and of bank lbans as took place in
The increaBe in bank loans was about 26 per cent., the
1919 and 1920.
increase in wholesale prices, Bureau of Labor index, e little over 30 per
But the increase in production was 'limited to a few months and for
cent.
the two years taken together was below the estimated normal rate of growth.

IL

These are questions on which, from your far greater vision, I
should like very much to have your opinion and idea.
that things will not work along anything like the lines I have suggested as
possible, and then the problems will be

quite different.

But of one thing I do feel confident, end that is that the influence
of the war, per se, end separated
from the direct influence of currency




D,

March l,..1922

IF

Bank Policy--10

SUBJECT

GovernoreStrong

ee

111F

ENCE 1111

ZEE

Mr. Snyder_

and credit inflation, has been curiously and perhaps grotesquely exaggerated;
and this leads me to feel that the conditions we are dealing with are possibly far more financial and monetary questions than that of any great disturbance brought by the war; and therefore that we are dealing with forces
still imminent and likely to persist in their influence.

In other words, my feeling is that the post-war boom was, if we
may divide the responsibility, far more due to an excess of credit than to
a shortage of goods, although the latter may have exerted an impulse at the
beginning. And if this be true then does not the existence of the highest
potential expansion of credit which this country has probably ever known-something like 13 billions at least in bank loans--present a very serious
problem which perhaps only a strenuous campaign of economic education can
cope with?
And if our
such an
VI.

bankers

and

economists

are divided in their views, is

effective campaign possible?

Conclusion.
Definitely to answer your inquiry, is not the sole avenue

11116,00.e.

open, to

make use of and spread broadcast a body of new knowledge which is now
our possession? It seems fairly clear that no rate of rediscount by
Federal Reserve Banks that is politically feasible, or,under existing

in
the
Mon.

ditions which you describe, likely to be put into effect, would be adequate
to control a great credit expansion, if it comes.
The sound money campaign was fought on issues of reason and logic,
that appeal to a relatively small number of people.
They won, but it was
a pretty narrow squeak.

immor

But the question of

that of

attempting to limit

the gold standard
expansion.

was simple as =pared with

credit

But if we do not educate and agitate, and if when it is too late,
as in 1920, the Federal Reserve Banks should attempt to put a curb on currency expansion, end we should have another collapse, what would then became
of the Federal Reserve System?




--Always supposing the boom comes along:

fFElot

I

FEDERAL RESERVE BANK
OF NEW YORK

7.-ORRESPONCIENCE

DATE

iarr.-

a-

Gov
ernor strong

Bank Policy

SUBJECT

FROM .

Mrs_Snyder

I fear I was so deeply flattered by your invitation that I have

witten you an essay.

I did not realize it was getting so long.

So I enclose a brief digest, and for your leisure the material on

11/

which it is based, if you have the patience to go through it.

Dr. Willis said the other night that Smator GlaF.7 had told him
that a strong party was already forming among the Democrats, to go in for
a soft-money campaign with Bryan as their possible leader, and that he
feared they would be able to swing the party.

Which is interesting.

But I cannot help thinking that the tide

of business and prosperity in the next two or three years will be all against
them.

Possibly, if you approve,
the draft of

a letter

Chairman Anderson would be interested in

regarding the farm situation, to Mr. H. A. Wallace.

I really feel as if there was a body of fact contained therein that ought to
be widely known to the




whole

41

country.

1,)

'

ea

)e

'

°I

I

M 1.1111111!)t. I - ZOO

FEDeRAL RESERVE IBANk
OF NEW YORK

....)FFICE CORRESPONDENCE
TO

SUBJECT

Governor Strong

FROM

DATE

March 2, 1922

Bank Policy_

Mr. Snyder
DIGEST

prospect

To digest briefly what I said in extenso, is there not a very fair
that the situation will, to a large extent, take care of itself? Either:

Business and production will improve steadily and perhaps be
well under way in the fall, enough to take care of the fall elections; or
The depression, such as it is, will continue and it will develop
into a contest between say sound money and cheap money.
Even if the cheap
money advocates win this fall they can scarcely do anything very radical for
the next three years.

Meantime, I can't help feeling that, whether it gets under way this
fall or a little later, things will improve sufficiently so as to pretty much
take the edge off the antagonism to the Federal Reserve Board, and banks.
If not, then is there not the very greatest need for a strong organization for the spread of popular economics and sound ideas, such, for
example, as the Stable Money League, an organization that will bring together
The nucleus
the ablest economists, bankers and business men in the country?
for this organization has already been formed.
I am moved to this reflection: Our bankers and financiers justly
regard the ideas of Ford, Edison, and "Coin" Harvey as unsound, end to say
the least as "dangerous."
But economists have something of the same feeling
about many of the typical ideas of bankers and financiers.
The latter retort
by calling the economists mere theorists, and impractical.
that within the last twenty years there has been growing up a new body of
knowledge that, to borrow an analogy from chemistry, may be called quantitative
economics, dealing with measurement and fact, as opposed to the old qualitative

economics, which was largely theory.

With the aid of this new knowledge it is now possible to submit many
economic ideas to the acid test of statistical fact.
And so it happens that those trained in this new economics may turn
on their tormentors and accuse the banker end financier of being theorists, end
as indulging in loose ideas that will not stand quantitative measurement and
analysis.

If, as Mr. George Roberts has been saying for a year and a
Now.
half, we shall have to fight the sound money campaign all over again, would it
not be a pity that our bankers and our economists should be divided in their
view, especially if it be true that the new economics can deal with proof and
not "reason" and theory?
Is it not possible that the exigencies of the free silver campaign
forced the advocates of really sound money (and some economists) into a false
position?




MISC. 3.1-200M -9-20

FEDERAL RESERVE BANK
OF NEW YORK

.DFFICE CORRESPONDENCE
TO

Governor Strong

FROM

DATE

March_2, 1922._

Bank Policy-2

Mr._Snyder

SUBJECT.

In some ways is it not fair to say that, as regards theory, Bryan
was right and the friends of sound money were in the wrong?
this an essential part of their weakness and the difficulties they encountered!
The trouble with Bryan and the free silver advocates was that they
were all wrong on their facts and the ends they sought.
And this is what the
new economics could now show clearly without having to adopt specious and
indefensible theory.
If all this be true, then is not the biggest thing that can be done
now and in the next two or three years to arouse our bankers and financiers
and public men who think upon these questions, and our editors and educators
and all who mould public opinion, to the weight and power of this new
economics; for I am sure if their minds are fairly a unit their intelligence
will impose its will upon the whole country.
Meanwhile, one thing I do not see clearly the need of.
That is
what you have referred to as a "capital operation."
My mind runs thus:
Are not the banking and the business and productive forces of the country now
Has not the liquidation of the last year and a half been
essentially sound?
sufficiently prolonged and severs?

Inlet, in terms of human happiness or general welfare is to be
gained by prolonging it further?
And especially, if the ideas back of Mr. Hoover's conference on
unemployment were essentially sound, does not this call for what reasonable
participation may be given by our bankers and by the directors of the Federal
Reserve Banks!
I submit these considerations merely as questions and I should be
much interested to know what reaction thereto your clear and experienced judgment would have.




3.1-2100M-1101=1111111MIEMII'
1111111111111111111111111

pit

rer

or

I

FEDERAL RESERVE BANK
OF NEW YORK

)FFICE CORRESPONDENCE
TO

Governor Strong

FROM

mr. _Snyder

DATE Mardi-7, 1922

see..., The health o_f_the bank
employees

Being very deeply interested in such matters, I have a strong feeling that the health and therefore the happiness of the employees of the hank
ought to go before any other consideration of efficiency or morale or the
convenience and comfort of the management of the different departments.

This because it seems as if efficiency and morale and all would best

But I get the

be promoted by good health and happiness and contentment.

feeling that there is rather a diTosition to put efficiency and morale first.
f: .ve two inetonces.

One of the most capable workers, Miss Bagwell, has had a rather hard

si,ruggle, I take it, within the last year to fight off T. B.

As :ass Carlson

as very much concerned about her, I sent her up to my friend, Dr. Williams,

a physician of long experience and great intelligence.

titer seeing her at

intervals for six months and more his verdict was that she ought to get away

for a good long rest, and very reluctantly she agreed, end asked for a threemonths leave of abSence without pay.

And this I recommended in a note ex-

plaining the circumstances in full.
This application was opposed by the nedical Department, and granted

rather reluctantly and as a special favor by the I'ersonnel Department.
Perhaps the most capable boy we have ever had in this department is
Andrew Turner, the youngster who, when a requisition came from you in Washing-

ton last summer, during the investigation, to get copies of a certain chart
in the mail that night if possible, went over to the Photostat. Departmant and,
finding it locked and the key gone and no way pos-sible to find the man, broke
in the window, mixed up his own mixture and got cut the charts, although he



OOP

1111=1.111111'

ARM,
FEDERAL RESERVE SANK
OF NEW YORK

)FFICE CORRESPONDENCE

DATE

March- 7, 1922

Governor Strong
FI-QM

SU'jECT.-The health of -the bank

Mr. Snyler

anploy 888 -2.-

had never done qny photostat printing before.

This is the kind of metal

that seems worth encouraging.

The boy has not been in good shape lately, and has a chance to go
up and spend the summer on his uncle's farm, out of doors and doing vigorous
manual work, which he likes and needs.
up.

He is under weight and needs pulling

Hs would like to take six months' leave at his expense, but hates to

resign and run the risk of losing his job.

Do you think he should?

I made application for this leave and it has not been granted.
As this opens up a very wide question of policy, I hope that you

may consider it important enouli for your attention; and there are some
matters I might add verbally.




FEDERAL RESERVE BANK
OF NEW YORK

M1SC 4.1-100M-6-21

3FFICE CORRESPONDENCE
To
.0M

Governor Strong

DATE
SUBJECT:

Marah

1922

Second Bank of this United States

Mr. Snyder

The best brief account of the second Bank of the United States that
know of is Davis Dewey's, *itch is attached herewith.

The interesting thing, 1 think, is that Jackson's antagonism to the
second Bank of the United States, and his ideas about banks were simply

Jefferson's ideas right over again.

There are some interesting quotations

in Holdsworth's sketch of the first Bank of the United States on page 67 ff.
And yet we think of Jackson as a kind of a narrow, ignorant and fantastic
person.



What shall we say of Jefferson?

MISC. 4.1,00M-8-21

FEDERAL RESERVE BANK
OF NEW YORK

FFICE CORRESPONDENCE
To

Governor Strong

DATE

March 10,

192 2.

SUBJECT

Mr. Snyder

I attach herewith copy of the little primer "questions and Answers about
the Federal Reserve
tern, " and with this the revised and shortened draft of a
proposed pamphlet to be put out by the member banks.
Mr. Jay seemed to think
that the revised version was much improved.
I should be extremely obliged for any
suggestions regarding either.




MI$G3 I 5TAT,E100-10-21

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
To

Governor strong

.ROM

l'41_rA.

DATE

March 10,

192 2

SUBJECT:_Gold__Supply and Prices

Snyder

Just to keep the record straight, about what happened at the outbreak of the war, may I note the following:
All the "intense competitive demand" that sprang up almost immediately,
for foods and for all kinds of war material, had no appreciable effect upon
general prices until more than

year after this demand was going strong.

Not until October of 1915 was there any rise at all in the general level, even
of wholesale prices (Bureau of Labor index).

While individual prices rose very rapidly, just as you said, other
prices fell heavily in consequence of the outbreak of the war.

A notable in-

stance was cotton, which in 1915 sold down to below 7 cents.
Now there was about all this a very remarkable fact.

There was no

rise in the general level, even of wholesale prices, and they are the long forerunners of a rise in the general price level, until after the heavy outflow of
gold from this country, which set in early in 1914, had been made good by a
return flow, and an appreciable balance had begun to show, that is, in the
autumn of 1915.
In other words, it seems a definite fact that there was in this
country not rise in the general price level until there was an increase in the

nation's holdings of gold.




I M 9-2t

FEDERAL RESERVE BANK
OF NEW YORK

OFFE CORRESPONDENCE
To

Governor Strong

FROM

DATE

March 10,

192

Edison Questionnaire

Mr. Snyder

SUBJECT

The Thursday meeting of the department yesterday was devoted to the Edison
Questionnaire and the question
What is Sound Money?
Mr. Woodlock, Mr. Morgan and a number of others took part and everyone seemed
to be very much interested.
As a result of the meeting I got very strongly the impression that what is
back of almost everybody's mind in these discussions is the idea that more money would
And it seems to me, therefore, that
bring more happiness and good things to have.
unless you can combat this root idea, that by increasing the money supply you can increase the supply of goods, you can talk until dooms-day about right and wrong, and
all the money theory in the world.
I have reshaped the Edison letter with this thought in mind and should be very
glad to know your reaction thereto.




2

MISC.3 1 STAT,9600-10.21

FEDERAL RESERVE BANK

OF NEW YORK

.)FFICE CORRESPONDENCE
To

Governor Strong

1-ROM

DATE

March 15,

1922

Mr. Snyder

SUBJECT:

The_Increasing Gold Hoard

This week or next the gold holdings of the Federal Reserve System
will pass the three-billion mark.
They have gained nearly 800 millions since the little memorandum
I wrote you just a year ago this date, and there are no clear signs of a let-up.

The gain since November 1, when mercantile exports began to fall off,
has been 190 million dollars, and since January 1, 107 millions.
In the memorandum referred to, you recall I raised the question as
to whether it would not be politically wiser not to go on piling up this huge
hoard as a kind of glittering target to inflame the imagination of every inflationist in the United States; by which I mean both the conscious and subAccording to Parker Willis, this would include most of the
conscious kind.
bankers.
He says that the average banker is instinctively an inflationist,
whether consciously or not; and if one stops to think about it, there are very
strong reasons why he should be so, naturally.
A year ago we were very close to the previous peak of gold holdings,
In 1919 the reserves were at a fairly high figure, and we
reached in 1919.
know what followed.

or nine

Now we have eight hundred millions more, which is capacity for eight
billions of inflation in itself.

And the total is not less than 16 billions now, i.e., we have over
A billion and a half of excess or redundant gold in the Federal Reserve Banks.
It may be an Obsession, but I can't get the feeling out of my head
that it is a great tactical mistake; and that we shall pay for it very dearly.
And I was talking yesterday with Mr. George E. Roberts, and he takes the same
view, and may have a talk with you about it.
He remarked that "the control of inflation is our great unsolved
the Federal Reserve System," and that there is no way now that is
politically possible to put the check on in time.

problem in

The ratio of deposits to loans, in the reporting member banks, is
down now from a high point in 1920 of 97 per cent, to about 81 per cent., a
If this is true for all the country, then the banks
decline of 16 per cent.
as a whole have now a capacity for a credit inflation of close to 4 billion
dollars, without any recourse to the Federal Reserve System save for currency.
The amount of currency that would be needed for this expansion would
But if all the rediscounts were
be, roughly, about 8010 million dollars.
taken out as currency, would the Federal Reserve Banks feel they had the right




IA/SC 3 I 57,07.9500-10-121

FEDERAL RESERVE BANK

OF NEW YORK

)FFICE CORRESPONDENCE
To__Goseraar_Strong

DATE M_ar_Cil_154_

SUBJECT

1922

The Increasing-Gold

Mr. Snyder

to put the rates up to 7 per cent., or higher, with the Federal Reserve Banks'
gold reserve still above 65 per cent.?
And yet, as Mr. Roberts remarked, no less a rate would be likely
to have much effect, because 6 per cent. is a fairly normal rate for business
accommodations over the country as a whole, and in good times a 7 per cent.
rate would be very high.
Unless, therefore, there was the penalty attached to the rediscounta direct loss to the banks, would a 7 per cent, rate, even, be effective
to check the slight amount of rediscounting which would be required?
ing,

If a year ago the banks had followed the course we then discussed,
of paying out gold certificates, we could by now have retired every available Federal reserve note left in circulation in the United States, possibly
two billions or thereabouts, and still have left an ample gold reserve against
the remaining notes and the required deposits.

We could have gone further and taken the 150 millions of gold now
held in the Treasury against our old greenbacks and retired every available
note of that issue, leaving practically
nothing
but national bank notes,
gold, silver, and a small amount of Federal reserve notes.
We could thereby have kept the Federal reserve ratio down in the
lower forties, possibly below 45 per cent., which has always seamed to me
the highly desirable thing to do, from a political or strategical point of view.
The studies we have made seem strongly to suggest that there is no
need for any large expanaions of the currency, or of bank credits, when things
are on a fairly even keel.
Possibly an ideal range of the Federal reserve
ratio would be between 40 and 45 per cent.

This might mean that, at a ratio of 40 per cent., the bank rate would
go to 8 per cent, if not up to 9 per cent., and than, at 45 per cent., it could
go down to below 5 per cent., and if it got up to 48 per cent., to say 2 or 3
per cent., instead of having the wide oscillations we have had within the last
three years, which seem to imply or carry with them, or be accompanied by, an
equally wide and violent oscillation of the price level, which is so utterly
disturbing to business and so unfair to everybody.
I should like very much to go over this work with you, as soon as
you could find the time.







331SC 3 1 ST AT 3500-10-21

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE

DATE__Iliarah 20,

To

_Governor_Strong

sueJEc-r_Pree-i-dency of Stable Money

FROM

lir._Snyieri

1492

League-

We have been consider-Lng who would be, from all points of 'new,

probably the etroagoet man who might be available and would accept the presidency o!! the Stable Money League.

It was the gmieral consensus that, if

possible, it should be a man from the Middle Vest, or at least not in I,!ew York,

and if possible not a. banker.
The name of Mr. John V. Farwell, of Clhicago, had bean most considered,

because or his general interest in the question, and his connection with the
Sound Money hesociation.

Mr. .Tay also suggests either col. W. C. Proctor, of Cincinnati, or
R. S. Brookings, of St. Louis, both of them business men of hlfji standing.
Yet another name proposed was that of George Eastmn, at the head

of the Eastman Kodak Company, who has also shown a very definite interest in
the movement.

I should be very much indebted to know your judgment about these

four, and the suggestion of any other names that may occur to you.

FEDERAL RESERVE BANK

MISC 4.1-100M-6-21

OF NEW YORK

O)F Fi (.. I: CORRESPONDENCE
To
FR'" 1

Gnvernor Strong

DATE
SUBJECT:

March 21,

Thursday Conference

______Lir_._aaysier_______________

should like to make clear that I neither picked nor suggested
the topic for discussion next Thursday.

Various topics were proposed by

different members of the department and then voted on by all, with the
attached result.




192 2

FEDERAL RESERVE BANK
OF NEW YORK

mmc 4.I-wow6-21

)FFICE

44

CORRESPONDENCEMarch
DATE

23,

To

Governo-r Strong

SusJEcT:_mr4_,Hawtrey!a_pap_sr_on_thA

FIJ

Mr. Snyder

rodeml Reserve_aystem

Prof. Carman, in his review of
summed it up as

Prof. Hawtrey's "Money and Credit,"

"a brilliant and very dangerous book."

There was the same

tendency to rapid generalizations, often on a very slender basis of fact.




I have marked a few such passages in this paper.

1922_

FEDERAL RESERVE BANK
OF NEW YORK

MISC 4.1-100M-6-21

(_AFFICE CORRESPONDENCE

DATE
SUBJECT.

Mnr4.1

2B,

1922

"European Problems and Their

Relation to American Business"

Possibly you would like to see just a page of the loose talk and
unbased statements made in this document, of which Mr. Fahey told us yesterday 240,000 copies have now been distributed.

C6A/r),,cri-a,

//!)

7A,P)
44-CT




41.

FEDERAL RESERVE BANK
OF NEW YORK

MISC 4.1-100M-6-21

CDFFICE CORRESPONDENCE
To

GoveTtor_5iMe

ur._anyder

DATE
SUBJECT:

March 23

The J anan Fitumoial and Economic

Unnthly

This is a journal we have been lo010.ng for for some time, and

think we shall subscribe for it.
ir comes?




192!

Would you oars to see it each month when

FEDERAL RESERVE BANK

MISC 4.1-100M-6-21

OF NEW YORK

JFFICE CORRESPONDENCE
To

Governor Strong

FR.^r

DATE

March 27,

SUBJECT

1922

Mr. Snyder

-

If you approve, I thought it would be of interest to make a short
digest of Prof. Hawtrey's very interesting but not flawless article on the
workings of the Federal Reserve System, for the directors and officers; and,
in addition, to this, make some comment on the same for the Business Summary.

h,1,



Soci

6cJoicçj -k

dt144iV),

et,r 6-fritC

FEDERAL RESERVE BANK
OF NEW YORK

misc 4.1.1oom-6-21

()OFFICE CORRESPONDENCE
To

Gnverror Strnne

nui

DATE

March 27,

1922

Statistical Class

Mr. Snyder

SUBJECT:

I should rather like to have you see the attached memorandum.

It

means that, instead of having one or two well trained in all kinds of

statistical work, we shall have half a dozen or more new ones; i.e., that our
own department is competent to give as good instruction in statistical work

as any university, and that we can manufacture our own statisticians here.




FEDERAL RESERVE BANK
OF NEW YORK

M1SC 4.1-100M-6-21

COFFICE CORRESPONDENCE
To

Mr- gnyder

Fipt

DATE

March 24,

192 2

Mi se Cerlsrm

SUBJECT:

You may be interested in knowing that the statistical class which
Miss Bagwell started off with simple analytics and calculus, and that
Miss Myers is following up with more advanced statistical theory and method,

has resulted in the half dozen members of the class learning not only how to

differentiate, obtain correlation coefficients, and calculate various types
of trend lines, but to glimpse also the theories underlying our various working formulae.







1:1

,130140(183FIRO3
°z5.5v.EL

f

'.1.7

FEDERAL RESERVE BANK
OF NEW YORK

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

)OFFICE CORRESPONDENCE
To

DATE

SUBJECT

Governor Strong

March 27,

1922_

Congressional Record

cROIVI_KriL_Znyder.

c'rn
-9*

I find

that, owing to the numerous

calls, Miss Burnett is having

the Congressional Record gone over very carefully each day for any references
.0"
of importance to the Federal Reserve System or Banks; and this is now being

1111,

indexed for

future

reference, and anything of importance is sent down 4- o
.

Mr, Harrison, who, I believe, is watching these matters.




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-120 M-1-20

OFFICE CORRESPONDENCE
To

GavernarStrong
OM

DATE

SUBJECT

March 28,

192k

Prof. W. I. King

Mr. Rnyder

I was to remind you after your return from Miami that you were

to ask Prof. W. I. King to luncheon.

He has a very interesting and

rather unique type of Mind, and I think an extremely good head; well worth
your while.




FEDERA46. RESERVE BANK

MISC. 4.1-120 M-1-20

OF NEW YORK

OFFICE CORRESPONDENCE
ro
i9Doim

ro rig

GO_Verno

DATE

SUBJECT:

March 30,
M

1922

Edison Questionnaire

Mr. Snyder

Mr. Jay tells me he has written a letter to Mr. Edison, and that it
will not be needful for me to revise my draft again.
Some day I should like ever so much to go over my draft with you

again and ace if you could suggest a way in which the material I therein

tried to nreaent could be put ih a more acceptable form.

I can't get away from the feeling that solid facts are better than
any kind of reasoning or argument; and I believe that these were the facts.




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

FEDERAL RESERVE BANK
OF NEW YORK

°OFFICE CORRESPONDENCE
.

To

Governor Strong

1- :pm

DATE

March. 29,

1921

flciii3C..nouaationnaire

Mr. 3n.ye_r

SUSJECT

Mr. Jay tells me he has written a letter to Mr. Edison, and that
it will not be needful to revise my draft again.
I was very much disappointed, and interested, that the draft T
made, in its last revision, did not seem to you, or Mr. Jay, an effective
answer.

I should appreciate it very much if you had time to look over
this again and see if you could suggest a more effective manner of presen-

tation of the facts therein related; for I feel that 'Las new and definite

and incontrovertible knowledge--statistical fact--aught to be very valuable
at the present time, and that there ought to be some mode of presentation
would make these facts more acceptable to the banker-mind than they
now seem to be.
kthat



FEDERAL RESERVE
OF NEW YORK

.ISC. 4.1-120 M-1-20

BAN/Y'

3FFICE CORRESPONDENCE
To

SUEIJE=

Mr. Jay

FRC/1

DATE

Mr. Snyder

Anderson Addres

AL
From the noint of view of the new Sherlock Holmes psychology, as I

enll it, this is most interesting.

Note the suppressed yearning for some

basis of certitude, like the Bible and the Constitution, and the "logical
thinking" based uPon these; and the regret at "the disappearance of the old'
type of logical thinking based on documentary authority."

That I call a

peerless nhrase, and the whole document a vivid revelation of the uncertainty
and lack of intellectual anchorage that, it seams to me, is so evident in the
mnn's own mind.




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-120 M-1-20

OFFICE CORRESPONDENCE
ro
FOonn

DATE

SUBJECT

Governnr Strong

March 31,

192k

Eurnpean Investigation

Mr. SnyAAT____

I am nroperly flattered
And not to be too long delayed.

by

your

suggestion.

I

hope it was serious.

And
Swedish and Danish exchange will go to par this year, I think.
I believe that thirty days' investigation would give the approximate date.
Ditto

regarding

guilder.

I think we have got what I have been looking for, for a year and a
can get a few minutes before you go to Washington to talk
tn you about

half, and I hope I

it.

f"--N







if)

MISC. 4.1-120 M-1-20

FEDERAL RESERVE BANK
OF NEW YORK

4:03FFICE CORRESPONDENCE
To

anvArrinr Strong

FAikieDNI

DATE

April 8,

1922

Mr. Snyder

SUBJECT:

ems

In connection with the question of paying out gold into -Circulation,
possibly you would like to see Hawtrey's Chapter on Systems of Note Issue,
and esneciaaly the three pages 83 ff.
Does not our experience since 1919 shwa very definitely that
Havetrey's view is right, that under the fixed proportion system the expansion
of credit which takes place would be greater than under the prevailing system,
and that "the financial crises in which thoy so often and would be correspondingl3r more severe?"




0.11,, 1 ST Al. 3600,0-21

FEDERAL RESERVE BANK

OF NEW YORK

JFFICE ORRESPONDENCE

DATE

192 2

Payinz_eut Gold

SUBJECT:

__Strong

April 8,

Mr, S Aar

To answer Your Question, as to the advisability of paying out
gold in the form of gold certificates into the general circulation, it
seems to me that the present time presents a golden opportunity to put
our whole currency system on the soundest possible basis, such as it has
not been upon for a very long time and perhaps really never.
I doubt very much if it was ever the original conception of
thw framers of the Federal Reserve System that Federal reserve notes
They have so became.
should ever become the main part of our currency.
In 1920 they amounted to more than three-fifths; and, if we should now
have the great expansion which Mr. Hawtrey and others Apt$41.444/02Canticipate, the other forms of currency would become neg1igible.:2)

C:ce

should have Practically all Federal reserve notes.
t almost

ow it se .s to
ct of

cv v

agree

expert

1.10,4ers-is tun4snl1y wrong.

The practical ideal of a currency system is that which approaches
Therein an excessive
most nearly to the English system before the war.
rise of prices is promptly met by diminished exports and an outflow of gold;
and thus a high degree of stability is obtained.
This stability we have now lost, through the abandonment of the
gold standard in other countries, and by the peculiarities of our own currency system.

We never had such an outflow of gold as we had for a year or more
And we have never had such an inflow of gold, in
after the Armistice.
peace times, as in the last two years.
Part of the design of the Federal Reserve Act was to reduce the
for so large a gold supply: and on this account the Act was deWhich in
nounced by Senator Root and others, as an inflationary measure.
principal, of course, it was.

necessity

utterly

Now by a singular fate we have gained an
redundant billion
If this gold is kept within the Federal Reserve System
and a half of gold.
it opens up the way to another vast inflation, compared with which 1919-'20
would be mild.
Like Mr. Roberts, I cannot see how this expansion is to be controlled.
There is never any limit to the demands of credit.
Prices will
This is the reason we have any
always rise to the highest possible noint.
metallic basis for money at all.




I /

0.441

7:71:1

Gld

"

IL-17

al

6L1




frR5744--j

^

,S11

r:a

MISC 3 I S7,7.3600-10-21

EDERAL RESERVE BANK

OF NEW YORK

OFFICE CORRESPONDENCE
To

FRØ

_Cov_ermor_Strorg

DA TEApril ff,
SUBJECT

192 2

Paying out Gold--2

Mrnyd_o_r

If we paid away our gold into general circulation and retired the
Federal reserve notes, we should then have-a pure gold currency, with a
Is not
smAll amount of Federal reserve notes for emergency purposes only.
this the ideal to be aimed at?
Isn't it safer to throttle down the steam now than generate excess
Is there not much
oressure and then attempt to sit on the safety valve!
danger that another and more disastrous blow-up, like 1920, would mean the
end of the Federal Reserve System!




MISC 3 I STAT.3600-10-21

FEDERAL RESERVE BANK
OF NEW YORK

JFFICE CORRESPONDENCE
To
FR oiA

DATE

April_101 1922

192

SUBJECT: Stabl_e_Money League_

Governor Strong
_Mr_. Snyder

The Research Committee of the Stable Money League, which consists
of:

Warren M. Persons
Dr. William T. Foster
Dr. David Friday
Dr. E. W. Kemmerer
Prof.

needs a

Secretary

to

Dr. Wesley C. Mitchell
Mr. John E. Rovensky
Dr. H. Parker Willis
Prof. Allyn Young, and myself

coordinate its work, and we asked Mr. C. D. Norton, of

the First National, if he

could

spare a little of

the

time of a very prom-

ising young man in his office Mr. P. M. Tuttle, who comes very highly
He may ask you

recommended by Prof. Bullock and others.

about it.

I think at least the investigation of the general problem of
stabilization is a worthy economic effort.

dio

OfIvK, cArirr-tm




"1,e

FEDERAL- RESERVE BANK
OF NEW YORK

MISC. 4.1-120 M-1-20

FFICE CORRESPONDENCE
To

DATE

April 10,

1924-

Ridgaway's "OrcfUetalic

Governor Strong

SUBJECT:

Ur.--anyder

Curreneyan4Weigh4 Standarde

This book was ordered a year ago, but it is very difficult to get.
We have borrowed this copy from the Columbia Library until Wednesday, if that

could suit your conveniance.




Chapter 6 rather sums it up.

WSIC,ISTAT3600-10-21

FEDERAL RESERVE BANK
OF NEW YORK

JFFICE CORRESPONDENCE
To

Governor Strong

DATE
SUBJECT

April 12,_

Restricting Foreign Leans

F

Pages 2 (a), 4 (c), 5 and 10.
Should the argument about the impossibility or uncrofitablmese

of exoorting gold be carried too far?

Obviously if the loans were large

enough, say several billions, exchange rates would turn against the United

States and a large export of gold follow.
Now it looks as if this may soon take place if these loans keep
up.

Since last Seoteriber the risible balance of trade and loans granted

has been against the United States, and this must be true also of the invisible balance, which accounts in part ror the steady rise of exchanges.
Whatever might be the effect of single loans, clearly enough of
than would enhance this to the p int of heavy gfold exports.




192 2

WSC3ISTAT3000.10-21

FEDERAL RESERVE BANK
OF NEW YORK

JFFICE CORRESPONDENCE

DATEADrilJ.3,

To

Governor Strong

SUBJECT

FROM

Mr. Snyder

1922

Price Levels and the Flow_a__

Gold

It irks me ill that you should feel that I had any peculiar economic
ideas; but I think in the present case I have pretty good company.
The doctrine of price levels and the consepuent affect upon exchanges was first clearly stated more than a century ago, so far as I know,
by perhRns the ablest mind that ever wrote upon the economics of finance-David Ricardo.

His position was restated in the forties bone of the

clearest minds that ever dealt with these questions--the orthodox of the
orthodox, John Stuart Mill.

It was restated in the sixties, with proofs

from our Civil War experience, by Lord Goschen, also no mean mind; revived
by Prof. Cassel in this

generation,

with new proof from almost every country

for which price levels are available.

Able support by such folk as Keynes,

who seems to me the clearest mind now thinking in England, and Lord d'Abernon,
a banker and the ablest economist in




English

public life.

Do you think that all of than were wrong?

SAISC SI STAT.3600-10-2I

FEDERAL RESERVE BANK

OF NEW YORK

JFFICE CORRESPONDENCE
cl:).a,,;_

To

FROM

Mr. Snyder

DATE_ Ap_ril_13,

SuBJEcT.Price LAyela_and_Flaw_af

192 2

GOVArriar_S

ADDMNDITM

May I add this:

Suppose sterling were pegged at say $2.43; i.e., at 50 per

(1)

cent. discount.

Pretty certainly that would mean a huge demand for British

goods, and, for the time being, a lessening of her imports.

Therefore, a

large trade balance in her favor.

How could this balance be settled except:

By loans, or
By gold.
And, because loans would probably follow this movement rather slowly, would
not the inevitable result be heavy gold shipments to :Ingland?
.4

(2)

If these considerations gave rise to an adverse balance for

the United States, would not this gold flow to England from this country?




MISC. 4.1-120 M-1-20

FEpERAL- RESERVE BANK
OF NEW YORK

WFICE CORRESPONDENCE
To Governor Strong
FROM

DATE

April 14, 1019.

192

SUBJECT:

Mr. Snyder
A very interesting letter and I should like very much to kr.om his reply.

I note that you do not pursue any further his suggestion as to an advance
upon Reichsbank gold.

In vies of the grotesque English, ac thoy translate it, sculd it not be
better to advise them that after all perhaps it is Letter

srite in German as

before and that se sill translate it here:

I do not think the experiment of their translating their letters is a
good one.

CS .MM
at t.




M1SC.3 I STAT.9800-10-21

FEDERAL RESERVE BANK
OF

NEW YORK

)FFICE CORRESPONDENCE
To

Governor Strong_

FROM

DATE

ApTil_15.

1922

Mr. SnydAr

SuBJEcr:_Exchange Value of Currenzi

AA

Is this way of presenting it any better?
If, say, on one side of the line, in Denmark, butter is selling
for 2 kroner a pound (paper money), and on the other side of the line, in
Germany, at say 20 marks a pound (paper money), and there is a free interchange of goods between the two countries, save for the tariffs, and this
relation of prices is true generally for all kinds of goods, then on this
basis a kroner will be worth 10 marks, or 10 marks 1 kroner.

Now suppose a balance in favor of one country or the other: how
is it to be settled?

Either in a loan or credit, or by some form of in-

ternational currency, e.g., gold.

Practically there is no other way.

Is the case any different if, for example, the kroner is exchangeable for gold at a fixed price?

Then the 20 marks will be worth 2 kroner,

in paper or in gold.

Again suppose a balance, this time, say, in favor of Germany.
How will this balance be paid?

Unless by a loan, than pretty surely in gold?

Do you think a German merchant would refuse the gold?

And if a

German merchant, why not an Englishman?
I am wondering if the question is not being confused with what
would be nrofitable or not, in the case of a government or a central bank,
like the Bank of France, which is tangled up in the question of note issues
and former legal parities.




S

I ST33.360090-21

FEDERAL RESERVE BANK
OF NEW YORK

IFFICE CORRESPONDENCE
To
FR,

Governor Strong

A

192 2
SUBJECT:

(ermen

Debt,_Balances,-stc.

Mr. Seyeler

I

Answering further the inquiries in your memorandum of March 28,
have talked with Mr. Ludwig Bendix and report as follows:

"A" and "B" as here given in previous reply.
/ be answered; no possible way of finding out.

This report seems to have been without the

"O" cannot

slightest

foundation.

The Reparations Commission is supposed to have an estimate
of the amount of reparations payments so far in paper marks, but Mr. Bendix
does not know what it is.
Only the vaguest estimates can be made as to the amount of
An estimate was made a year ego of
exported capital or foreign credits.
around 5 or 6 billion gold marks, and this T think was used by Bergmann;
Just
but another estimate has placed the amount as high as 9 billions.
a guess.
Practically no way of getting at the real balance of German
As long as the "hole in the West" was open
trade in the last few years.
there were heavy imports unreported; and, on the other hand, the unreported
exports carried in trunks and bags and packages must have been tremendous.
In fact, it is practically these touriett.purchases that have kept Germany
I
alive in the last two or three years, Irom what I saw last summer,
think this trade could readily run into hundreds of millions of gold marks
As you know, crowded trains run from a hundred miles or more from the line
into Germany, and return the same day.
Bendix and everyone I have talked to regards any estimate as hopePersonally I think there is little doubt that the real balance
against Germany in the last few years has been very heavy and possibly accounts far more than the reparations payments for the tremendous fall in the
mark.
less.




MISC. 4.1100M 0-21

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
Governor Strong

To
JN1

F

1

DATE

Aril
.

Ip90
-

SUBJECT:

M. Bachmann's

Mr. Carl Snyder

Letter

Yith reference to the main objections raised by M. Bachmann, it seems to
me that his views are vary deeply influenced by an inadequate idea of the nature and
functions of foreign exchange; and 1 cannot help thinking that this is mainly at the
hiCh have
root of about all the misunderstandings and the divergencies of NriB.
arisen.

. .

--

192__

At least one of the functions of exohange is to equalize the differences
betTeen the price levels of different countries trading Tith each other. If you
take the view that this is the controlling and dominant factor and that the other
merely secondary in their effect, then
things like foreign loans and the
would not most of the supposed difficulties disappear?

rest are

I should like to draw ycur attention, if it Tere needed, to the quite
exceptional English of this translation.
CS.MM
att.




FEDERAL RESERVE BANK
OF NEW YORK

400M-020

WFICE CORRESPONDENCE

To

Mr. Snyder

FR,

E

April .24 .1422

M. E. Rose

SUBJeCT: _ILejanig

The Leipzig Fair, which began on March 5, 1922, had about 13,000
exhibitors, of which some 700 were foreign firms.

The attendance was larger

than ever before, being. estimated at 130-000 on the third day, and included

representatives from many countries.

Buying was feverish, and those firms

which could sell for immediate delivery or could guarantee delivery at a fixed
price, did a good business.

In the textile industries, the competition of

buyers was especially keen; sons firms were sold out on the first day, other

IL

manufacturers sold only to regular customers and in some instances a system
of rationing was introduced.

The uncertainties in regard to raw materials, labor conditions,
foreign exchange and transportation costs created

a reluctance on the part

of sellers to book orders for future delivery, and such orders as were taken

were largely on long delivery (4 to 12 months), with the right reserved to
increase the price 50 to 100 per cent in the case of foreign buyers and to
demand from German buyers the price ruling on the day of delivery.
The toy industry was also very successful.

buyers, Americans were reported as the most active, the Scandinavians also
being large 'purchasers.

The buying fever which appeared at Leipzig subsequently spread to
the general public, and was even more intense at the Frankfurt Fair, held
during the week of April 8, than at'Leipzig.
Leipzig were repeated at Frankfurt
foreigners

,

The conditions prevailing at

crowds of eager buyers including many

very little stock, reluctant sellers, contracts for distant

deliveries at indeterminate prices, many exhibitors putting up "Sold Out"
signs after the first day.




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-120 M-1-20

'OF"CE CORRESPONDENCE
To_ ,oek
'ROM

novermsr Strong

DATE
SUBJECT:

April 26,

London Conference

bir,Snyder

As soon as it is settled I should be glad to know as soon as
possible what material, if any, in the way of data, tables, charts, etc.,
you might possibly require for your use in London, in order that we might

have as much time as possible for their careful preparation.




192

2




WSC,ISTAT,000-10-21

FEDERAL RESERVE BANK

OF NEW YORK

CT-TICE CORRESPONDENCE
To

Gbvernor Strong

FR9m

suaiscr:_Curr_ency_and

Mr. Snyder_

Exchanges

As to the three or four "orthodox" economists who might be invited,
the first name that suggests itself would be Prof. Kemmererse, ee the man
But he, unfortunately,
who has had the widest experience in monetary reform.
is in South America.
On the particular subject of foreign exchange, Prof. Chandler has
given more patient study to the problem than anyone else I know of here, besides this department. I should next suggest, more for his good sense and
broad view, Wesley C. Mitchell; but he is not familiar with the question of
exchanges, nor has it been a matter to interest him very much.
Prof. W. I. King I feel has one of the clearest heads
economists, even though he does hold views to which you except.
very stimulating man to talk to.

among our
He is a

The choice is rather narrow because the subject of paper money
almost new to this generation, and there are very few who have
been willing to go into the subject on the basis of the existing evidence
rather than from their preconceived notions or opinions.

parities is

T. have a very high regard for Col. Leonard Ayres, of the Cleveland
he should happen to be in town, who, by the way, gave us,
I am told, a very interesting and original talk yesterday on "The Principles
of Business Forecasting," and I regret to hear that hardly a single officer
of this bank was present.

Trust Company, if

Wesley Mitchell has a very high regard for Prof. Allyn Young, now
Possibly he might be coming over this way.
at Harvard.

let

Rather than a'luncheon, could you
me invite these gentlemen for dinner?

,titAta6.4




dideecru

not arrange for an evening and

--mrst,s-v-ErrAT.3e00-lo-ei

FEDERAL RESERVE BANK

OF NEW YORK

-1FFICE CORRESPONDENCE
To

Governor Strung

FROM Mr. Snyder

DATE
SUBJECT:

May

3,

The for eignArnde of England,_

France_ a.ndG_ermany.

With the extraordinary changes in values there remain only three ways to compute the probable volume or relative value of foreign trade in a country.

The first is the simple method, by correcting the reported money values of
the exports and imports by dividing by an index figure of average export or oommodity prices.
The second, where a large proportion of the trade is stated in quantities as
well as in money, to multiply the quantities given by reported values and strike an
average.
The third, to take the tonnage of vessels entered and cleared.
this latter gives only an approximate or indicative figure.

Obviously

It is none the less of very remarkable interest that these three methods, in
the case of England, give both for imports and exports very closely corresponding results comparing 1921 with 1913, and indicates that the trade for the last year was mimething like one-third less than in 1913, in relative value.
The same method applied to France would indicate that the French trade was about

15 to 20 per cent, less than in 1913.

But when you come to Germany, you have, I think, no reliable figures Whatever.
Any estimate must be and can be only a guess.
There is no total of tonnage from all
ports, and probably the figure here given of Hamburg and Bremen would very much exaggerate the facts.
A large part of Germany's pre-war trade, as for example to Russia,
France and Austria, went by rail.
The price method of estimating means little and
-One reported weights of the total I think quite nothing at all.
Just guessing at the very large quota of tourists' exports, stuff taken out in
bags and trunks by tourists, with probably an enormous amount of smuggling, you might
estimate that the total German foreign trade is not much more than 40 or 50 per cent. of
the pre-war total.




INDICT:3 OF VOL1.1....?. OF F03.7.IGTT TH.AD. TZGLAND. FRANCE AND GESIANY DT 1921

1913 = 100

ENGLAND

IN:PORTS

EZTORTS

66.8

prices

1. Values

TOTAL

2.

London Joint City and
Llidland Banks study

74

3.

Tonnage, entered and cleared

75.6

50
53.7

64.7

65.9
69.4

72.4
74.0

65.4
61.4
71.7

34.5

27.9

31.3

67.2

65.7

66.5

62

FRANCE
1.
5.
4.

Values 1: prices
Reported weights of totals
Tonnage, entered and cleared

(.'CIEBLANY

1.
7.
6.

Values 4.; prices *
Reported weights of total **
Tonnage, entered and cleared
at Hamburg and Bremen

56.1

Sources:

Bank of Commerce "deflation" method.. Lem° to Governor Strong
Monthly Review of LondOn Joint City and idland Bank, January, 1922.
Accounts relating to Trade and Navigation of United Eingdom, Tonnage of ships
with cargoes entering and clearing.
Monthly Bulletin of Statistics of League of Nations.
Official French Report. See Research Binder.
Wall Street Journal, larch 15, 1922, p.11.
Official German Reports - see Research Binder comparison of E months of 1921
with corresponding 6 months of 1913.

National

Estimated for 12 months on basis of C months' report.
**11:au and. December, 1913, 1921 only. These C months are all that have been

*

published for 1921.

Carl son/Bright/Schumann

Lay 3, 1922.



MISS 3 I STAT.3100-10-21

FEDERAL RESERVE BANK

OF NEW YORK

)FFICE CORRESPONDENCE
To

Zovernor_atrong

DATE
SUBJECT:

May
3,

192

Stocks of Cbmmodities on Hang'.

FROM Mr._Bnyder

I have gone all over the question of existing stocks of commodities and it is
perfectly clear that what has been hitherto true is still true, that with a very few
exceptions, any reported figures are almost valueless and any public estimates of the
most doubtful reliability.
Probably the best statemont of stocks on hand is that of petroleum, for these
are accurately known and consumers' stocks very little.

The trouble with almost all other figures on stocks is that the consumers stocks
impossible to even estimate and, in many cases, these may represent so large a percentage to the total stocks as to invalidate any estimate of stocks at wholesale or in
the producers hands.

are

Endless efforts have been made to get at these stocks, for the figures would
But it is rarely that it is possible
obviously be of great value always to the trade.
to get anything very reliable, except from first-hand sources from insiders.
Undoubtedly the copper people know pretty closely the copper stocks and in various
ways can make a fair guess as to the size of consumers stocks and this may be equally true
as to steel and wool and cotton and a number of other staples, but I regret to say that
any attempt to estimate these holdings statistically has only a spurious accuracy.

in a

numbtr of lines and where the proWe have pretty fair consumption figures
duction or import figures are accurntely known, this give); a fair idea of the public
stocks held; as, for example, wheat, cotton, wool, silk, rubber, etc.; but even here it
would be misleading to suggest that such estimates have any hill degree of reliability.




A',3, 2 1 1J22
-EDERAL RESERVE BAV

ur

431. 4 X Qkti.C.

FEDERAL RESERVE BANK
OF NEW YORK

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

bFFICE CORRESPONDENCE
Govraileercnq

To

DATE

SUBJECT

192!

May 16,

English Taxation

Mr. Snyder_

It is of interest that even those in officialdbm ard at last
getting down to the fundamentals of England's taxation problem.

I am

wondering how far men of the type of Sir Gnarled Addis and Sir Felix Schuster

and the rest of those determined to put back the pound to the former gold par
have thought of the probable effect of the increased burden upon English in-

dustry and trade.

ti
fAx

,i4c)
f-----C9

en( EtAiim




it

4fr4

4,.-ort
?rt

40.Lc11tekrir

FEDERAL RESERVE BANK
OF NEW YORK

AISC. 4.1-120 M-1-20

/ _FTICE CORRESPONDENCE

DATF

May 1-6, 1-99-

Mr. Snyder

To

SUBJECT.

Mr. Beyer

FROM

I am returning The Journal of Commerce and Commercial Bulletin,
as of Monday, April 4, 1P2., vhich you sent to Governor Strong to read.

As the Governor l'ants to read this paper a little later on, Mill you be
sure and keep it in a safe place so that vhen it is called for he can
have it immediately.

GE.MM

att .



192

eizk

14,"

44004

4tono:t

AnittoIrr(

4/7i4

May 15, 1922
kimYIDEUTIAL

BANK LOAN LIQUIDATION TO DATE

For some time the weekly statements of the 800 Reporting Member Banks
of the

yrstem have indicated that liquidation in loans held by these banks has

since last summer shown but a slight decline; and that practically all the liquidation since that date has been applied to paper held by the Federal Reserve
banks.

For example, the rediscounts and advances of the Federal Reserve banks

since the last week of last August to March declined about 861 millions, while
the loans and rediscounts of the 800 Reporting Banks declined only 598 millions.
The Reporting Member Banks represent about two-thirds of the System.
The returns from the Comptroller's call for the National banks, as of
March 8, show that much the same is true of the National banks.

From last June

30 to March 8 the loans of the National banks, excluding rediscounts, declined
only 167 millions, or about 1 1/2 per cent. of the total; while in the same
period the rediscounts and advances of the Federal Reserve banks decreased 1140
millions.

The National banks likewise constitute about two-thirds of the System,

that is, their loans and resources are about the same as those of the BOO Reporting Banks.

In other words, on balance practically all of the payments on loans
received by the Member Banks were passed on to the Federal Reserve banks; that is,
notes were reduced by 437 millions and cash increased 469 millions.

The increase

in investments and acceptances accounted for the balance.

In the National banks there was actually a decrease of about 38 millions
in the cash account.

It is interesting that the increase in gold

in

the Federal

Reserve banks in this period was 504 millions.
The Comptroller's statement shows that the decrease in loans for the
period was



about evenly divided between the 422 1tational banks in the Reserve

2

41.

0ities and the 7775 country National banks.

The chart on the preceding page

°shows the course of deposits and loans (excluding rediscounts and investments) of
the Reserve City banks and the Country banks for the last three years:

While the discounts and acceptances of the New York Federal Reserve Bank
have declined to date more than 90 per cent, from the peak in 1920, and of all

the other Federal Reserve banks over 75 per cent., the Reporting Member Banks in
New York City have decreased their loans (including rediscounts) only 26 per cent.,
and the Reporting Banks outside of New York City only 20 per cent.

The decline in "commercial" loans in these Reporting Banks, i. e., in
loans other than those secured by stocks and bonds or Government obligations, has
been somewhat greater, 34 per cent. in New York City and 23 per cent. in the outside cities.

But the declines in the National banks have been much less than this,
exCluding rediscounts, for which figures are not obtainable.

The National

banks

in the Reserve Cities had decreased their loans to March 8 only 14 per cent. from
the peak, and the 7775 country National banks only 10 per cent.
For the 20,000 non-member banks outside the System we have no information; but they are obviously much more comparable to the country Rational banks,
and as the latter show only about two-thirds the decline of the city National banks,
it seems probable that the decline in the 20,000 non-member banks would be still
less, possibly not much over 7 or 8 per cent.
This would mean, to take a very rough average for the whole country,
a total decline in the neighborhood of 12 per cent.

On June 30, 1920,the total

loans of all the commercial banks of the United States, excepting the Federal Reserve banks, were about 28 billions; but this, of course, included interbank loans,

which last year were very considerable, possibly nne to two billions.
therefore, was not over 27 billions.
would be over 3 billions.




The net,

Twelve per cent. on this estimated net

- 3 -

To this is to be added the decrease in the rediscounts and acceptances
of the Federal Reserve banks, which to date has exceeded 2,540 million dollars.
The total liquidation, therefore, from the -oeak of 1920 has been between 5 and 6

billions, or about 16 per cent, on an approximate total of about 30 billions
of all kinds of bank credit.
It is of interest to note that the major part of this liquidation took
place in a little more than twelve months.

In the crisis of '93 the course of

liquidation, as nearly as can be estimated, from the National banks returns,
also took about 12 months and meant in the neighborhood of a 15 per cent. decline.

The was, however, a very striking contrast between the two periods
in that in the '93 period there was a drain of gold from this country, while
practically throughout the entire recent period there was a steady inpour of
gold, amounting to date, from August of' 1920, to nearly a billion dollars.
In other words, at the end of the former crisis the banks were in no position

for a large expansion, while at the present time they could expand, through
rediscounts, far beyond any legitimate needs of trade and industry; and could
at the same time create the added currency that would be required f or such an
expansion.

Besides this, they have, in the commercial banks alone, over 8 billions

in stocks and bonds, over 4 billions of which are in United States Government
bonds and notes.

In the period under review the total of these investments

underwent little change.

In other words, there seems little to indicate that, from the financial
side, the recent depression should be long drawn out, as in the '93-'97 period;
and the quite astonishing industrial recovery in the past six months seems to
suggest very clearly that it will not.




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4. i 1,4-.:M41-20

--.)FFICE CORRESPONDENCE
To
FF.

Governor Strong

May 16,

DATE
SUBJECT.

Ausitrion

A4Atrsnyder
The attached is a translation of a paragraph from a personal
letter from Dr. Schumpeter, former Finance Minister and now head of the
reorganized Biedermann Bank.

aUtAt

"7/19.

411




QirA-c;

d-a-t

fat

FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-120 M-1-20

r FICE CORRESPONDENCE
To

SUBJECT:

Governor c_azolap.

FF4,

DATE

May 16,

Mr. Snyder

Decline in Bank Credits

The analysis of the course of liquidation which you asked for a
fortnight ago was not possible before the receipt of the Comptroller's
statement for March 3,

which came

yesterday.

The attached statenent seena to me rather badly done, but the
essential facts are there.




192 2

THE HEART OF TIE DIFFICULTY IN AUSTRIA

From a private Ietter from a banker and former ainance Minister
of Austria, the following is taken regarding the situation of that unhappy
country.
It

in the meantime, affairs with us are taking

marked out for them by the
penditures

in

order.

incapacity

the

course which is

of the people to put the State ex»
The overextended

nerein lies the whole difficulty.

State apparatus and the almost incomprensible mismanagement in the operations
of the State makes the relation between productive

the absolutely inactive or
powers of the people.

unproductively

active individuals

active too

unfavorable

and

for the

If the deficit is done away with by the increase of

the revenues, - rhich is now being attempted and which, according to the

accounts, ls not impossible, «

that fundamental disproportion will likewise

and all the more so if we receive foreign credits-- render impossible
economic arrangement; on the

contrarywhen

the narcotic of

any

inflation loses

its power, it will cause misery, unemployment and the like to appear for
the firs t time with full force.

Our

I see no solution of this situation.

Parliament is incapable of evolving as strong a government as would be necessary
is

to reduce State

expenditures.

The reaction of this state of affairs/naturally

a decline in Vienna's position as a financial center.
to

finance

It is almost impossible

'Wm) re-e 'Z4.-,'
propositions in the aVertrienewl States with Austrian crowns, although

the equipment and the means may

be present.

The stocks on which Vienna'

position in the industry of the Succession States rests are rapidly disappearing, .
A sad picture, and the saddest thing about it is that the natural possibilities
are not at all to be despised, and that if it were not for our own policy
hf
truly
this country might/enjoy relative prosperity.




FEDERAL RESERVE BANK

MISC. 4.1-120 M-1-20

, OF NEW YORK

OFFICE CORRESPONDENCE
To

DATE

Money Ag a Stzidpr4 t Value,"

SUJECT

--QtaavamemsoT4Ainang

192_1,

May 16,

by Wi3liam T. Fost or

P4*.c_who.1 Mr, Snyder

`Z,

This seems to me an interesting article, and I should like very
much to know your reaction thereto.

Ia ei ria

5:1(14,

rr,2

thy

ikon.

9-(Akt
1A




ti

'kr*
f

(1411,

Thit-t

4

DLitt

e

lt

)

ter,




440/

( ;SC. 4. 1-120 M-1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
v ernarStrong
FROM

--Mr,

DATE
SUBJECT:

May-17,

En gli sh -Banking

Conditions

Snyder
We are having rather a difficult time making any clo se analysis

of banking ccnditions in aigland.
reasons.

The attached memorandum indicates the

Perhaps you mud rive me some suggestions regarding this.
I should also 3.ike to ask you about your Washington address on

June 15.




192_2_

May 111,

2

Invest lents of National and

Governor 3trong

Ur. anyder

Renorting Danko

The receipt of the flemptrolleres Report for national Banks for .reh 10 also permits
of their investment account, wnireeemaRielannh.
c-ra,2
ilorewith.
C%r

f

bnoweiWknenwAinetIn the National Benklrof the country as a whole,

there has been nothing like so large an increase in their investments no in
the 800 Reporting Banks of the System. And, as previously noted, the reeources
of all the 7Ationa1 Benke are just about equal to those of the Reporting Ninks.
Prom the LW point *fleet July the Reporting Banks in this district
inereacted their Goverment holdings by 324 millions, stile their holdings of
other bonds and seturitiee increased only 53 millions; which on the whole is
rather resarkable.
For the whole U00 Reporting Banks the increase in Government so-

euritise was 53/ millions, so that a very large part of the increase came from
thiadistrit_..)e
ineieuse in other bonds) and securities was relatively larger

d amounted to 161 millions.

POI. the National Banks of this district the gain in Government

holdings was only 141 millions, no that in this district the larger part of
the increase was in other than National Banks.

For all the National Banks of the country there was, from the low
point or last year upvto March 10, curiously little dhange, 169 millions in

all; in other wordir;all of it in the New York dietriet.2)
L There was likewise extremely little &cage in the holdings of other
bonds and securities, only 112 millions for the whole country.

So far, than, as the country an a whole is omneernod, judged from the
National Banks there has been ortrenely little change in the total holding, of
all kinds of securities from the high point read/8d in June 30, 1900. This
total was 4183 millions, almost at the peek of expansion in 1920, and it was
4114 millions last Ilardh 10.
Thee° security holding* in the national Banks represented about 25

per cent. of their total lonne and investments.

There would appear to have been very little disposition to cash in
or unload these seeurities at the peak of the hilt interest /*atm of 1920-possibly because such a sale would probably have shown a considerable book
loss. On the other hand, there does not appear to have been midi of a die.-

pooltlon to load up at the very low prices last eumoser, am sharply falling

interest rates




Arkee,

May 18,

Governor atrong

Mr. anyder

Invosbeente of National and
Reporting 13anko.2

The larger part of the change, such as it was, took place in the
NAV York banks, and this simply in the direction of larger holding' of
Goverunent securities. But the amount of this dhange is apparently only

on the orderer 2 or 3 per cent. of the total loans in the amsereial banks
of the country. It seems clear that there is no large absorption of se-

curities by the banks, to be unloaded so noon as expansion of buoiness should
require.
And, as already noted, their holdings of emoh are myloWhat ism
rather than more than in 1920.

All thts has a very important bearing on the probable course of
rediscounts. If, so.noOMMONWPOSiihbo, a great expansion in business is

ahead, this will require not only an increase of loans but of currency;
and if there is no surplus of cash funds in the banks as a whole, then the
only way to secure the needed currency, and to keep up the required reserves
on increased deposits resulting from an increased loan, is through rediscounting. It would appear that the very large part of this financing
must be supplied from the Federal Reserve Banks.




INVESTIENTS

OF

NATIONAL

BANKS

(000 Omitted)

SECOND

June 30, 1

United

States Government Securities
Other Bonds, Stocks and Securities
Total

$509,059
531,116
1,040,166

Total

Increase from

1921 low

point to Mar. 10, 1922

U.S. Government Securities
Other Bonds, Stocks and Securities
Total




2,267,609

1214
4,183,893

Low Point 1921

$453,932
537,327
991,259

Sept. 6 0360,228

2,129,473
1,989,614
4,1194287

SECOND DISTRICT
Per Cent.
Amount

$141,973
54,424
196,397

Dea.31, 3921 Mara° 1922

Dec.29, 1920

525,622
885,850

11

ALL
United States Government Securities
Other Bonds, Stocks and Securities

DISTRICT

39.4
10.4
22.2

Sept.
ti

$488,905
586,911
1,075,816

$502,201
580,046
1,082,247

1,973,440

2,u28,544
2,085,951
4,114,495

DISTRICTS

66'1,859,512
1,973,193
3,832,705

2,080,11/

4,054,277

ALL DISTRICTS
Amount

0169,032
112,758
281,790,

Per Cent.
,

9.1
5.7
7.4

DIVISION OF TABULATION,
;iTATISTICS

RATIENL \

red by.--------

. ,"e__,'

?:-. L,J,-,:s:-,

e)

INVESTMENTS OF REPORTING MEMBER BANKS
(000 Omitted)

SECOND DISTRICT
June 25, 1920 Jan. 7 1921
United States Bonds
United States Victory Notes
United States Treasury Notes
U. S. Certificates of Indebtedness

$300,497
85,384

0302,065
93,234

241,022

130,021

Total United States Securities

$626,903

Low Point 1921

Other Bonds, Stocksand Securities

$020,903

Aril 26, 1922

Jan. 26 0294,285
74,934
Nov. 30
Sept.14
29,359
Oct. 26
38,869

$363,991
88,474
87,738
122,531

$ 449,927
41,818
246,388
55,001

$525,320

(Not Available)

Total

Dec. 28, 1921

July 27

466,737

$062,784

$ 793,134

737,683

Sept.21

102,195

730,257

755,343

July 21 1,187,073

$1,393,041

$1,.540,477

$ ;263,003

ENTIRE COUNTRY
United States Bonds
United States Victory Notes
United States Treasury Notes
U. S. Certificates of Indebtedness

Total United States securities
Other Bonds, Stocksand Decurities
Total

$

879,115
198,b90

$

878,481
20, 572

June 8,$
Nov.30
Sept.7
Oct.26

4v3,124

$1,560,929
$1,311,608
(Not Avai1ab1411,987,879
$1,560,929

03,299,487

1,4b9,323
)2,090,025

01027,266

July 2703,228,662

227,555

01,100,465
82,097
38),779
158,925

July 2701,189,699
Feb.11 1-,975,959

OM naliall

950,270
170,639
125,559
222,855

03,55;,348

$3,804,560

859,401
155,774
48,333
93,742

Increase from 1921 Low Point to April 26, 1922.
ENTIRE COUNTRY

SECOND DISTRICT
Amount

United States Securities
Other Bonds, Stocks and Securities




0

Per *Cent.

324,397
53,148

69.2
7.6

Amount

.

$

537,567
101,335

Per Cent.
45.2
8.2

$

2,137,294

NIISC.3 1 STAT.9400,0-21

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
To
FROK,

Governor Strong

DATE

SUBJECT.

__rely 18,

1921

The extent of the Business Recovery

._Snycler___

Since you did not know of my very deep, and possibly extreme,

pessimism in the spring of 1920, at the height of the boom, it would be

very natural that in the last year you should think of me as merely a
cheerful optimist, and so inclined to rather overdraw the extent of the
recovery that has actually taken place.

So I should like to invite your

attention to a statement as to the latter by Colonel Ayres, of the Cleveland
Trust Company, in the last number of their Bulletin.
paragraphs attadhed.

Chad/ft/CI! &y-4Several0-70 AAA-at 6
#-49"- 7i-"(-11147
0014J e7
a.46'




9 &Lee 451 710-60-42014vst-eva.40,.

traCfgaurviA-: 7

ga'---4mitik.

eek.

MISC. 4.1-120 M-1-20

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
To mkr. Snyder

SUBJECT

FROM M. 1. ROSS
1153 have been unable as yet to find any reference to economic agreements
among the Scandinavian countries.
I am informed that conferences of representatives from the various
countries are held from time to time, but as a rule result only in discussion
without definite action.
The Swedish Riksbank publication, "Lagar, Instruktioner och Reglemente
ti
for Forvaltigen av Sveriges Riksbank," to which Governor Strong refers in his
memo of April 8, contains the text of the monetary convention entered into
by Sweden, Norway and Denmark in 1873, and the terms of various later agreements
affecting the Coinage of the Scandinavian countries, with special reference
to Sweden.
There seems to be nothing, however, about any economic agreement
nor about any monetary agreement later than 1917.
10




FEDERAL RESERVE BANK
OF NEW YORK

MM. AA 10111,4 -2t

OFFICE CORRESPONDENCE
To

Fr-m

DATE
SUBJECT.

WS

ME4_244

Attached_ Address

Jr. Snyder
The ancient story.

And this is the quality of mind to which is

entrusted the economic balance of a nation:




1922_

' Resolution passed in December 1921 at Stockholm by the Representatives
of the National Banks of Sweden, Denmark, and Norway.

To obtain the stabilizing of any value we must have a unit of value
that is nearly fixed, so as to serve as a standard.
Before the war gold was the unit of measure for all the nations
that had a

currency

with a gold base.

But on account of the various

arrangements adopted during the war, gold has ceased to serve this
function and has become a commodity like any other,

subject to

fluctu-

ations in price.

Theoretically other units of measure might be adopted,

but

until

something better) is found the only thing to do is to revive the function
of gold, that is, to make again effective the currency system with a gold
basis.

Each individual country will have to decide on the right moment
to carry this into effect.

To try to attain this end through a vast

understanding among many nations, at the present moment, considering
the enormous differences in the value in the various countries, may be
looked upon as impossible; nor is it

believable

that the European nations

would be now inclined to reduce their values in relation to the dollar
Every state. hopes to improve its

offhand.

speaking generally,

value (currency)

indications are not wanting that an

and in fact,

improvement

may be possible.

Only the United States can be said at the present moment to have
an effective gold standard; but in order that this may be really useful
even to them, it is necessary that several other countries should also
have it

it is not possible otherwise to obtain a true standardization

of values.

No European country could now reestablish its gold currency base
without the assistance of the United States.

http://fraser.stlouisfed.org/
for
Federal Reserve Bank of St. Louis

The best thing would be

the United States and England combined to take the first step,because

of the European countries England is the one that certainly has the
greatest interest in this restoration.

The other countries then would

gradually work in harmony with England beginning with those who are best
off.

The world would thus again have a fixed unit of value, which is

the primary condition in trying to overcome the difficulty of valuation
and to return to an economic recovery.
Many of the chief causes of the present economic muddle are of an

international political character and chief among them are the arrangements that had to be made and the debts that were contracted during the
war, an well as the economic condition of Russia.

It Jo for statesmen

to try to overcome these difficulties.
Until England has stabilized the value of the pound sterling as
regards the dollar, the Scandinavian states cannot think of doing this
with their Krone; an isolated attempt toward this on the part of the little
states will be premature

and might

do more harm than good.

But while waiting for the first step to be taken by England and

America we must work energetically to

improve our own

condition i at

home and abroad, even though we see that the road is long and difficult,
and we should also avoid measures which, although theyiremomentarily

helpful, aggravate the disease and put off the cure.




LIEconomista, No. 2495, February 26, 1922

FEDERAL RESERVE BANK

MISC. AA 11014 .21

OF NEW YORK

3FFICE CORRESPONDENCE
rlovernor strong

To

OM

DATE
SUBJECT:

May24,

192Z_

Artiele_on_Monny

Mr. Snyaer

I am gratified

at your comments

As a Standard of Value," in The Annalist.
he is about as much of a "100

per cent,

on Dr. Foster's article on "Money

I hate to disturb illusions,

quantity

theory" 'fellow as I am, and

no more; and holds, I think, very closely the same views that I do.




That was why I enclosed the article.

but

FEDERAL RESERVE BANK
OF NEW YORK

MtSC. 4.I /OW S-ZT

CORRESPONDENCE
lovArnnr Strnng

To

Fi

A

DATE
SUBJECT:

12La3j 23,

dison Scheme

Mr. Snyder

Colonel Ayres and I were remarking, as to the Edison proposal,

that theingplar hing about it was that it had the backing of the
probably tw,o best-known men in the nation.




192_2

,2C 3 1,333.2600-10-21

FEDERAL RESERVE BANK

OF NEW YORK

FFICE CORRESPONDENCE
To
F

DATE
SUBJECT:

Gevernor Streteg___

May 26,

192 2

Surplus Bank Funds_

Airs- Snyder

Replying to your inquiry as to "surplus reserve accounts in the
banks of the country":
I have already noted that the cash account of the banks, so far
as we may judge from the 800 Reporting Banks and the 8,000 National Banks,
has declined somewhat from the high point of expansion in 1920; and likewise that there has bean, apparently, very little change in the total holdings of securities by the banks within this period.
Meanwhile, the loans and discounts of the 800 Reporting Banks, excluding investments end rediscounts with the Federal reserve banks, have declined about 3 billion dollars.
In the same period the net demand and time
deposits in these same banks have Changed from the estimated peak of 1920
extremely little.
The estimated peak was about 14,200 millions in 1920, end
was about 14,100 millions last week.
In other words, the ratio of loans to
deposits has declined from an estimated peak (exact figures for that period
not being obtainable) of 98 per cent, to about 77 per cent, last week.
Theee Reporting Banks represent very near to one-half the total
loans of the commercial banks of the country (excluding savings banks), which
were estimated at between 27 and 28 billions at the peak of 1920, and somewhere around 22 billions now.

This means that, without unloading any of their investmenta.or rediscounting with the Federal reserve banks, the oommercial banks of the
country could, by returning to the status of 1920, increase their loans by
This would mean at least a 25 per cent. increase
about 6 billion dollars.
presumably, a correspondingly increased demand for
and would carry with it,
currency.

normal

relationship of loan expansion to currency
increase then would carry with it a demand for someas about 5 to 1, such an
thing like a billion to a billion and a quarter of Federal reserve notes.

If we take the

With this expansion also would come, of course, an increase of about

fc),

300 millions in the required reserves of the Member Banks of the Federal Reserve
As these and the non-member banks have now very little surplus cash,
System.
Federal
this would bring up the total discounts that would be required of the
expand the note
reserve banks to something on the order of 2100 millions, and
On the basis of no further increase in gold
issue to about 3300 millions.
cent.
holdings, this would bring the reserve percentage down from about 77 per
to about 56 per cent., which is just about what it was a year ago.




PIISC 3 I STAT.3600-10-21

FEDERAL RESERVE BANK
OF NEW YORK

-;FFICE CORRESPONDENCE
To
FR4..

DATE

SUBJECT.

Go_vernorStrong

Mr.

May_264

1922

Money_ and Prices

iyder

As to the relation of money and prices, to which you refer, if
one were to formulate the definitely known and ascertainable facts, would
it not be somewhat along these lines:

The average level of all prices or payments is an immense

composite made up largely of Ines, salaries and other

payments for services
rendered, since in the long run the value of everything depends chiefly upon
In
the labor cost.
immense composite the total for the exchange of
commodities at wholesale is a relatively small item, and to take the average
of composite prices at wholesale as a general measure of the average price
level is manifestly absurd.

this

In times of very slow price movements the level of wholesale prices
will correspond with the general price level; but not in times of rapid

fluctuation.

investigations carried on by this department in the
shown: (a) that the level of general production, and its fluctuations, may be pretty closely estimated from year to
year and even from month to month; and (b) that the same is true as regards
the so-called velocity or rate of turnover of demand deposits in the banks.
And these investigations have shown in a rough way that these two diverse elements tend to swing together; that is, ES production rises and trade becomes brisk, the average turnover of deposits likewise increases.

Careful

last two years, and by others, have

It is, of course, an obvious truism that the sum of ell things
exchanged, goods and services, must be equal to the amount of the circulating
media multiplied by the number of times of turnover; i.e.:
Quantity,X Prices e

Total Money X Velocity

A)f

But if velocity/andmoney
quahtity of exchanges tend to rise and fall together, then in the long run the average price level must bear a close relation to the total amount of circulating media, i.e., money and checkable
deposits.
that the average of wholesale prices
all times, to the actual amount of money and
deposits than would such individual commodities as cotton, wheat or iron.
For example, heavy forced purchases, such as you describe at the beginning of
the war, or a great burst of speculation, may carry the average of wholesale
prices far above the general price level.

But this

no more supposes

will necessarily correspond, at

But this can be only for a short period, for it is obvious that
unless the money supply increases, if a number of commodities rise very
heavily, then the price of others would tend to fall, just as was the case




fAISC, I STAT3600-10-21

FEDERAL RESERVE BANK
OF NEW YORK

:FFICE CORRESPONDENCE
To

Governor Strong

FR

DATE__

_ May

26*

1922

Money and Prices-.4

Mr. Snyder

SUBJECT.

with cotton and other commodities in 1915, before the

ficient to

inflow was suf-

cause and effect, it

So, without goring into any questions of
the limiting factor, or enabling
great
cannot rise above its source.

is obvious that the money supply is always

act, of any

gold

raise the volume of bank credits.

rise in prices; for a stream

A great collapse of speculation where, as in 1920, it is so
universal, in stocks, cotton, grains, meats, oil, rubber,
silk, wool, coffee, real estate, farms, etc., may result in a great fall in
wholesale commodity prices; and as this inevitably results in great business
prostration there will follow a general reduction of wages, salaries and retail prices.
But this can be only temporary, unless there is a corresponding reduction in the total amount of money and credit.

widespread and almost

Otherwise, as soon as the orderly flow of exchanges is resumed, the
credit will resume its normal effect, with a corresponding recovery in prices.

volume of money and

Statistically, as the decrease in the circulating media probably has not exceeded 14 or 16 per cent., while the average price level has
fallen from the peak of 1920 possibly twice this amount, we may expect, since
the recovery in business is now very rapid, a correspondingly rapid recovery
in the price level.

Stith, as I conceive it, would be the present-day theory of money
and prices, as held by Dr. Foster and many others. Would it not be equally
acceptable to bankers and business men?




liay 29,, 1922

.

St rictly Confidential.
BANK 1.0Kel ,EXPANSION WITHOUT REDISCOUNTING

In view of the fact that the Lember Banks of the Federal Reserve

System hold about two-thirds of the. resources of all the banks of the nation,
.

and rather more than three-fourths of the resources if we exclude savings

banks, it becomes an interesting question as to how far these banks, and
presumably the other commercial banks, could expand' without recourse to re-,

discounting at the Federal Reserve Banks.

It has already been noted here that in the contraction from the
peak reached in 1920 there has beer. no accumulation of cash in the Reporting
biember Banks, or in the National Banks of ti-,e country, and presumably,- there:.

fore, very little in the remaining banks.
,

On the contrary the amount of

known cash held ..has somewhat declined.

It has likewise been pointed out that th'e total investments, holdings of Goverrseent securities and other stocks and bonds of the banks as a

whole, have changed very little within the past two. years, that is, from the
peak af expansion to the present time.
On the other hand, the loans and discounts of thc 800 eporting
fliber Banks, excluding their investments and their rediscounts with the

Federal Reserve Banks, have declined about 3 billion dollars.

-In the same

period the net demand and time deposits in these same banks show little net
change from the estimated peak of 1920.

The estimated peak was about

14,200 millions in 1920, and was about 14,10G millions last week.
In other words the ratio of loans to deposits has declined from

an estimated peak (exact figures for that period not being obtainable




)

of

-298 per cent. to about 77 per cent. last reek.
These Reporting Banks represent very near to one-half the total
loans of the commercial tanks of the country ( excluding savings banks) , rthich

were estimated at between 27 and 28 billions at the peak of 1920, and somewhere around 22 billions now.
This means that, without unloading any of their investments, or
rediscounting with the Federal Reserve Banks, the commercial banks of the
country could, by returning to the status of 1920, increase their loans by
about 6 billion Collars.

This would mean at feast a 15 per cent. increase

in the total.

Butt this would carry with it normally a corresponding demand for
currency.

If we take the normal relationship of loan expansion to currency

as about 5 to 1, such an increase in loans would mean a demand. for something

like a billion to a billion and a quarter of Federal reserve notes.
it will be recalled,

This,

as about the ratio of note increase to loan expansion

in the period following the Armistice.
The loans of all banks were expanded between 5 and 5 billions and
the note issue by a little over 1 billion.

In that period, on balance, all

of the increased rediscounts at the Federal Reserve banks were taken out in
notes and practically none was used to replenish the required reserves
against deposits .

But an expansion of 5 or 6 billions in loans now v-ould require,

also, an increase of about 400 millions in the required reserves of the

Member Banks.

As presumably the banks could spare no cash, but would re-

quire rather more than now, for till money, they could obtain only a very
limited amount through selling their securities.
Apparently, therefore, the only means by which the banks cciuld meet

the requirements of anything more than a very moderate expansion would be



- 3 -

through rediscounting.

For the possible

expappieh here,'ndicated, this would

me,n anincrease in rediscounts cxceedjmg a billion
12,0'D millions for notes and 400 /Lillions for

and a half, i.e., around

increased reserves.

This would

bring up the total of the required reserves to something
on the order of 2100
millions, and expand the note issue to about 3400 millions.
On the basis of no further increase in the gold
holdings of the Federal
Reserve Banks, this would bring their reserve ratio down from
about- 77 per cent.
at the present time to about 56 per cont., which is just
about what it was one
year ago.

With gold reserves well exceeding 50
per cent., it

is a serious
question as to how favorably the courtry would
regard an increase of rediscount
rates sufficient to check such a headlong
expansion.
And it is likewise a
serious question whether such an expansion
would not bringaboutas great a wave
of speculation and as great a rise
in.prices as that in 1019-'.20, which could
scarcely be checked without an even higher rediscount
rate.-

But all this presupposes that we shall
lose no large mounts of gold.
If our prices should begin to rise
rapidly, and at a faster rate than the
rest
of the world, it seems probable that
a considerable outflow of gold would take
place, especially if we keep up the present
rate of foreign loans.




FEDERAL RESERVE BANK

MM. 4.1 111014

OF NEW YORK

OFFICE CORRESPONDENCE

DATE___Ilay 31,

To

flavarnor Strang

SUBJECT

FROtVp

Ur. Snyder

!De

192_2_

7Uture of SilyAr_aiLA'kluumL____

Metal

I was asked to luncheon last week by
them something about the

revival of demand
clear or

some time

in

some silver producers, to tell

future of silver as coined metal.

the East, I

immediately very

suggested that

the outlook

Barring
did

not seem

very

favorable--that France would probably continue for

her token coins and small paper, and a number of

other

likewise.




a great

I should like very much to know how it looks to you.

countries

FEDERAL RESERVE BANK

/MSC, 4.1 /NM 11-21

ri

OF NEW YORK

ITT

tiFFICE CORRESPoNDreNCE

DATE

May 31,

v

To

aOverrOr rrrnrie

FROM...

Mr. Snyder

SUBJECT.

2:r.13

ioRir

444

Bulletin nf Natinn.0 Annk of

Commerce

In the absence of Prof. Chandler, the Bank of Commerce Bulletin

takes a radically optimistic view of conditions.

The article begins:

"Business is better;" and is quite in clarion tones.




i922

IAISC 3 1 STA1.3600-10-21

FEDERAL RESERVE BANK
OF NEW YORK

)010E CORRESPONDENCE
To

DATE
SUBJECT:

3overnarnStrong

May-31,

1922

English Bank Credit'

FROM

With reference to your suggestion of a careful analysis of the
banking situation in Great Britain, I would draw your attention to

Mr. Macrosty's article in the Journal of the Itpval Statistical Society,
which has just come and of which T attach a brief digest.

You will note that he also finds a great difficulty in making

any intelligible analysis from the available figuras, and that you will
recall, is exactly what I reported to you some time ago.

But it does

300M

clear that there has been very little, if any,

deflation in the loan account of the English banks, and I am wondering what

will be the egfect of this, with the current trade revival.

If substantially

the same amount of bank credit is outstanding against presumably a reduced

volume of production and a terrific decline in prices, will this mean a correspondingly rapid rise in prices when something like a normal or average
demand returns!




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1 14044 11-21

OFFICE CORRESPONDENCE
To
FRO

Gov.rnor Strong

r

DATE
SUBJECT ___Import

0f

_Ain

1,

1922_

440ouriti,e an

nydsr

We have so far received 32 replies from -the circular letter asking

for figures on the import of securities and monies in the last three years,
two others have promised the figures as soon as poseble, and sixteen have so

far not replied,
Among the sixteen is J. P. Morgan & Company.

Could a letter be

sent to them, or could you make some inquiry, as they are the Hamlet of the

play and it is little use making a total until e have their figures.




VI

FEDERAL RESERVE BANK

MISC. 4.1 161/14 4-21

OF NEW YORK

OFFICE CORRESPONDENCE
To

Governor strnne

FROM

DATE

Jure 2,

192_2_

Mr. Snyder

SUBJECT:

%r_eigt Creel+, Palence

I attach herewith the letter to Mr. Domaretzsky, rho was to have

immediate charge of the investigation regarding the three and a half
balance.

I never have had even an acknowledoment of my letter,

fair indication of the way some things go.

their desire to undertake the inquiry.




billion

which is a

They were extremely cordial in

FEDERAL RESERVE BANK
OF NEW YORK

MIK. 4.1 11144 421

OFFICE CORRESPONDENCE
To

Governor Strong

FROM

DATE

June 1,

192 2

English bank figures

'1r Snydar
Mr.

SUBJECT:

The annual Banking Number of The Economist, giving returns up to V

January 2 of this year, is just at hand, and on the surface gives some very
remarkable

indications.

Both deposits and total loans have

apparently risen

over any previous year--in other words, no deflation at all.

Before I make the
run over the




complete analysis I should like very much to just

figures with you for any information you could give.

On the Reichsbamk Autonomy Bill,

see marked paragraph on page 955.

MMC.3.1

0

FEDERAL RES
OF NEW YORK

NK

FFICE CORRESPONDENCE
TO

ROM

Mr. Snyder

DATE

June 2, 1922.

Increase in Member Ranks' Reserve

__R. G. Bella
Member banks reserve account carried
with all,Federal Reserve.Banks

me and Demand Deposits
Member baWs

Account.
Fddruary 1,1922
May 17,1922
(In
Millions)

/names.

t 1 , 689

1,811

122

13,277

14,182

905

19,916

21,273

1,357

Reporting

As Reporting member banks are about 2/3
of all member banks, then time
and demand deposits of all
member banks would equal

We found that the member banks on December 31, 1921
aetly

9.

carried almost
per cent, of their time and demand deposits as reserve with 172.

9 per cent

of the 0,357,000,000 increase of their time and demand depos-

itb between February 1 and May 17, 1922 equals .13?-122,130,000, which, it will be
seen from the figures on the first line of this report, is precisely the amount
by which the reserves have increased.




-

FEDERAL RESERVE BANK
0
EW YORK

)FFICE CORRESPONDENCE
To

Governor Strozig

FROM

.Lunel2,___ 192 2

DATE

1r. _Snyder

SUBJECT.

Th e Tows, Senatorial Fight

The success of this Colonel Brookhart seems to me a rather dis-

turbing sign.

He is not a young man--he

is sixty-three, and was a candidate

against Cummins two years ago, on an anti-railroad issue.

But otherwise he

is a new comer.

To beat him

the old crowd got into the field with two or three

other progressives, and the combined vote of these against

crowd would be about

the

Old Guard

three to one.

Now you will remember that in

the free silver

firm, and has ever since been a solid and fairly

campaign Iowa stood

conservative

State.

Brookhart, you will remember, is the man who appeared before the
Joint Agricultural Inquiry last summer, as the representative of the National
Farmers' Union, and it wad he who made the statement,

which I took up with

him, that "50 per cent, of the primary deposits of the

banks of the

United

States are from the agricultural interests."

He was backed especially by

LaFollette,and by

and will come into the Senate under their wing.
a very violent attack on the Federal Reserve.

Stite
1,/tAytirkuto




Aq(-

Norris of Nebraska,

You will remember he made

FEDERAL RESERVE BANK
OF NEW YORK

MISC 4.1-100M-6-21

OFFICE CORRESPONDENCE
To

actv5r11 0 r

Strong

FROM

Mr. Snyder

DATE

SUBJECT,

June 19,

Ulanfin

Corresnondents

You may be interested to see the rapidity with which the loans

for out-of-town correspondents and the total street loans have been rising

of late.

rto




601

7)N.C.

4/1-r)

0.1

l%2

1921

FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.? 10.0M

OFFICE CORRESPONDENCE
To

Mr. Snyder

FROM

DATE

June 10,

1922

Street Loans

G .W. Donaldson

SUBJECT:

1922
(000 Omitted)

Amount

Percentage

April 1.

June 8,

Increase

634,690

806,393

171,708

27,1

427,948

642,075

214,127

50.0

1,062,638

1,448,473

385,835

36,3

600,521

697,129

96,608

16.1

of Increase

Street Loans for
own account

Street Loans

for
Account of
Correspondents

Total St reet Loans
Balances

of

Correspondent s




FEDERAL RESERVE BANK

OF NEW YORK

OFFICE CORRESPONDENCE
To

Governor Strong

FROM

DATE

1922

June_12.,

Mr, _Snyder

SUBJECT:

I think that

S_ecurity onIALIoney Markets

theTolloWing is not without interest:

renewal rate
Last Friday call money/touched the lowest point since 1918; and
last week rates on prime endorsed bills declined to 3 per cent, which was
likewise the lowest point in several years.

At the same

market had the first sharp recession since last August, the industrial list
declining from a high point of 92.27 to 89.14.

This decline in industrial

stocks follows upon a distinct backing up in the bond market for more than
a month.

Since the first week in May both the general bond averages and

the average for industrials have shown a sagging tendency,

If last week's decline in stocks should prove

the

beginning of a

considerable reaction or resting period, it would follow exactly the precedent
of the last two bull

markets.

From the low point of 1915 to the beginning

of the first notable reaction there was

a

period of ten months; and the same

was true of the movement extending from a low point in December of 1917.
There, also, a declining movement set in

just

ten months later.

Last week

was very close to ten months from the low point reached by stocks in the
middle of last August.
The last

TWO

bull markets in stocks

have been characterized by a

steady and practically unbroken rise through these first ten months; and
exactly the same has been true of the present movement.
averages

rising in a

series of waves, with

considerable

Instead

of the

intermediary re-

straight-line movement.
characteristic is generally credited

cessions, they have shown an almost

This change of

to the in-

fluence of the income tax, which, it is held, has greatly reduced the volume
of stocks



for sale on a rise.

Holders have been loath to cash in their

...es,: 3, 131AT:3600-10-21

FEDERAL RESERVE BANK

OF NEW YORK

OFFICE CORRESPONDENCE
To

192

June 124_

SueJEcTaer-urity and Money Markets

Governnr Strong

FROM

DATE

Mr.snydar

2

profits when half or more might go to the Government.

Hence a much greater

ease in marking up prices.

If stocks should now show a dull or declining tendency, it will be
strictly in the classical tradition if this is attributed to the supposition
that "the anticipated improvement in business has not appeared," etc., etc.,
etc.

As a matter of fact, so far as we have

any record this business re-

covery has perhaps been the most rapid, and I think real, of that from
crisis in a long number of years.

any

And apparently the mechanism of the stock

market movements is something like this:
A marked rise in the stock markets is usually followed by a clear
improvement in business at an interval of from six to ten months.

In the

course of ten months to a year business begins to feel the need of funds.
Last year there were a large number of corporations and firms that
had large surplus funds on hand for which they found no need in their own
activities; hence the investments in stocks and bonds.
These investments

now show a

handsome profit, and with the increas-

ing activity in business it seems probable that these investments are now
being liquidated to provide for the required funds, rather than have recourse
to bank loans.
If this were true it would also explain why it is that there could

be a very considerable increase in business activity with no corresponding
increase in commercial loans.




2

STAT,600-10-111

FEDERAL RESERVE BANK
OF NEW YORK

3FFICE CORRESPONDENCE
To

Governor Strong

FROr

DATE

June _13

192.2

Professor Frillay_te letter

Mr. Snyder

Su BJECT

This seems to me a very clear statement of Professor Friday's
general views, and his ideas of cause and effect. From such a base his
conclusions are logical; but because I believe the base is mistaken, the
conclusions seem to me likewise.

His idea of "the interdependence of the values of agricultural

production and of value added by manufacture" seems to me, and to others
whom I have asked about it, a purely fortuitous equivalence and just a
hapsenchance. There is no intrinsic reason why they should be about

equal; but they would, of course, tend to vary, together with the general
price level.
The decline in velocity of demand deposits was apparently
considerably greater than the decrease in the total volume of trade, and
sufficient, perhaps, to count for a considerable part of the difference
between the decline in deposits and the decline in the general price level.

Personally I have always thought that the figure for loans and
discounts, excluding investments, might nossibly be a better index of the
net active demand deposits than the nominal figure given in the reports;

but this is not provable.

As to the general price level, Professor Friday makes the same
mistake which Fisher, Hawtrey, and no end of others have made, of accept-

ing the index of wholesale prices as an index of the general level of all
prices, wages, salaries, rents, stocks, etc. This is a serious error.
I should very much like to see the studies whicisc Professor
Friday has made which indicate that the security markets will continue to
move upward "for some months to come" (page 4).
If you do not wish to
write for them I should be glad to.
My own guess was that for some months to come we might have a

resting or declining period before the advance was resumed.

As to Professor Friday's idea of changes in "bankers'
balances," the following are the figures for the end of the three years,
and the latest available, for all the Member Banks of the Federal Reserve
System.
These are the net balances, i.e., "due to other banks" minus
"due from other banker Professor Friday uses the gross rigures of "due
to other banks," but the difference is not large.




MIS'

STAT.3600-10-21

FEDERAL RESERVE BANK

OF NEW YORK

*TICE CORRESPONDENCE
To

Governor _Strong

DATE._

_1922

June 13,

suBJEcT:Professer Friday's letter--2

Mr. _Snyder

Net Amount Due to Banks and Bankers
All Member Banks in New York City
(In Thousands)

December 31, 1919
December 29, 1920
December 31, 1921
March 10, 1922

$1,029,000.
982,000.
964,000
996,000.

(6) The actual figures of out-of-town balances in the money-pool
banks, which represent more than 90 per cent, of the New York banks, have
been as follows:
January 1, 1919
January 2, 1920
January 3, 1921
January 3, 1922
June 10, 1922

50,000
820,000
716,000
639,000
675,000

It will be seen that there is no wide variation such as
Professor Friday supooses.
These balances are largely required to take
What does vary, of
care of the average volume of checks against them.
course, is the amount of loans placed for out-of-tom correspondents,
which, as you know, have in the last three years ranged from below 400
million to above 750 million.
But surely D. F.--no profanity intended--does not imagine that
these balances, which of course provide an appreciable part, perhaps
20 per cent., of the loans of the New York banks, are final reserves, or
that they can be used as reserves by the interior banks without occasionSurely
ing a corresponding contraction of loans by the New York ranks.
New York is still located in the United States: n
It seems to me that this idea quite typifies the general character of Friday's conceptions.
It seems clear that the amount of balances of out-of-town banks
in New York to in no sense reserves, and the proof is that they are highest
when the volume of checks is greatest and decline with this volume of
checks, as is shown by the above figures.




--That' s all.

FEDERAL RESERVE BANK

MISC 4.I-100M-6-21

OF NEW YORK

()FFICE CORRESPONDENCE
To

GovernorStrong

FROMP>p

DATE

June 13_,

"Money," by D. H. Robertson

Mr. Snyder-

SUBJECT:

This seems to me very clever and amusing, and I think there are
several chapters, like "Bank Money and the Price-Level," "The FOreign Exchanges," and "Monetary Policy," which you will enjoy.




/922




MISC S I STAT.3600-10-2I

FEDERAL RESERVE BANK
OF NEW YORK

WFICE CORRESPONDENCE
To_

Governor Strong

FROM -1

DATE

June 13,

1922

"b00e

Mr. Snyder

SUBJECT:

AhDat_il_

The suggestion of a possible period of

dullness

or

the stock market was not offered as a prediction, but just
If it

comes it will

follow exactly the precedent of 1916

decline in

as a

possibility.

and the winter of

1819.

This SOMAS to me quite consistent with the
for

a period of very heavy expansion and possible boom.

stock market would possibly be an almost
.

idea

corporations
vestments

and big business

indispensable

that we are in

A lull

in the

precursor.

Large

generally would scarcely hold to large in-

in stocks and bonds when

they were compelled to get funds for

the active prosecution of their business, do you think?

borrow at the banks until they had used up their own

They would hardly

liquid

capital.

FEDERAL RESERVE BANK
OF NEW YORK

MISC 4.1-100M-6-21

OFFICE CORRESPONDENCE
To
FROM,




nnvprnmr _Strong

DATE
SUBJECT:

June 14,

192_g

Mr. Smith W. Brookhart

Mr. Snyder

Maybe, as you say, "he will not get anywhere," but I should like to
point out that there will possibly be several others making for the same goal.
It seems probable that McCumber will give way to Non Partisan League ex-Governor
Frazier, in North Dakota, and there may be several others to join with the
LaFollettes and Hefflins and Norrisee--possibly aaough of them to make trouble
when the time comes.
I can't help thinking that this is a serious enough business to
deserve some attention, and perhaps some active support by the Stable Money
League.

FEDERAL RESBRVE BANK
OF NEW YORK

MISC 4. 1-100M-6-21

i:ICE CORRESPONDENCE

DATE

To

Governer Strova

SUBJECT:

FROM

Mr. anyslem

June 19,

Address before Garment

Industriee




This might be the means of getting some other of the

big clothing firms to report to us, and if you soe your way
to it I hope you will push the good work along.

19S

FEDERAL RESERVE BANK
OF NEW YORK

MIS. 4.1-100M-6-21

1FFICE CORRESPONDENCE

'DATE
SUBJECT-

June 20,

19s-

SA1AR of

You may be interested in the attached diagram, for I feel that the
sales of jewelry at wholesale will be a very sensitive barometer of the real
recovery in trade.

Of course the wide discrepancy between the sales of 1920

and the last year or more is in part represented by a difference in prices.

,Euz: ata


M1SC 4.1-100M-6-21

FEDERAL RESERVE BANK
,
OF NEW YORK

,021FICE

June 20

CORRESPONDENCEDATE

To

Governor Strong

SUBJECT: !_" BLitt. y

FRL.,e

Mr. Snyder

Allarewham-9

Y

rn

in

11 Fan

Our old friend Andrew Say, with a few thoughts on the

situation.




k

Et" by

192

2

M1SC 4.1-100M-6-21

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
To

Govorawl. StVang

FRc

DATE

Jmne_21

Mr.Snyder

SUBJECT: ThAglin

Moyer's MilWatik ee address

The reference to the ?ederal Reserve System is on page 14, and
to the proposed legislation on page 16 ff. There is nothing very
striking or, indeed, very concrete.

I note that he attributes the collapse in 1920 in large part
to the decline in the price of farm products;
That he repeats the usual exaggeration as to the purchasing,:
power of the farmer and the relative importance of agriculture;

That he attributes many of our troubles to "forcing agriculture
to adjusting itself to our banking practice," instead of the reverse;
'Ind especially that, in his view, most of the improvement of
the last year is due to the effective work of the War Finance Corporation.




1922

FEDERAL RESERVE BANK
OF NEW YORK

MMC 4.,100M-6,1

)FFICE CORRESPONDENCE
To

Governor Strong

FRo(

DATE

Jure 20,

Ur.

SUBJECT:

WA

la

:

Here is a quite astonishing specimen of a State Governor of a
new kind.




The letter is quite worth looking over.

1922_

FEDERAL RESERVE BANK
OF NEW YORK

MISC 4.1-100M-6-21

Qtr,OCE CORRESPONDENCE
To

JRI-71

tong

Governor
Mr.

DATE

June 21,

SUBJECT:

Snyderf




43

ABOUT PHILOSOPHY
t

1.1,:e.-41174;Th'

riAavf/17.

by Gabriel Hanotaux in The Manchester Guardian Commercial

"I have often been astonished," wrote Grimm,
in his celebrated

Letters to Catherine II, "at

the vainglory of man. The first glance that we
throw upon the universe shows us above all,the
littleness and vanity of our fellow creatures.
Yet this vainglory is nowhere so apparent, it seems
to me, as in that very region which should most proinspire us with moderation and with true huMilIn
.
ity; I mean, in the study of philosophy.
.
.
general, man prefers to impose upon himself, to oreate sciences which teach nothing, to discover the
vain and thorny byways of method, and to deceive himself on the margin, as it were, of human understand-

"perly

ing by an imposing litter of specious terms."

Tavk

192_1

331013CIVICAZI
10.-revon
_ ,I)11rtE,

3 5'1, Pti. tr1:
-

-

Yi9Q.3JI

--';14t1
PF SERIES

'

11




UCLA

AzH

le.hcfeD

.,

-

.t1 ttiaelecrie
few b!morie
1.-t1.4 bars

rtl

oztigoeo..

.

-01.1 QLf!")airi.tri rtc,
efl.t Ptovonalf-,

- 11 ev.iimob
(1p.

". elf.10

'4i:

FEDERAL RESERVE BANK
OF NEW YORK

MISC 4.11-100M-6-21

1)FFICE CORRESPONDENCE
To

Governor Strong

FRC

Mr, Snyder

DATE
SUBJECT:

1921_

Reports from National Banks to

the ComptrollAr of the

ThAre is before Congress now a
fostered by Mr. Louis McFadden, Chairman
to reduce the number of reauired reports
Comptroller of the Currency from five to

June 26,

NrrAnzy

Bill which I imagine has been chiefly
of the House Banking Committee now,
from the National banks to the
three each year.

It seams to me that, of all the times in the last twenty years
when we most need to know exactly what is the state of the country Rational
banks, and get a good cross section of the whole, the time is now. Mr. McFadden
I beis the type of banker who finds the making of these reports annoying.
lieve some reports which he made from his own bank got him into trouble with
Skelton Williams.

I think a good strong letter from you to the Senate Committee, where
the Bill now lies, might do a great deal of good.




ku2

FEDERAL RESERVE BANK
OF NEW YORK

MISC 4.1-100M-6-21

DATE

7IFFICE CORRESPONDENCE
To
FRoM,,

SUBJECT:

Governor Strong

June 21,

Stable Money League

Mr. Snyder

Mr. Catchings has suggested that one of the first things ie might
do would be an expression from the League as to the question of the Allied
Debt.

I am wondering if, in view of tour deep attention to this subject and

your knowledge of the situation in Vashington and abroad, you would tell me
what, in your judgment, would now be the nanent and most advantageous offer

which this countrv could make, towards the !settlement of this question.

take it for granted that it would be needfully a compromise measure, between
the extremist of either side, but it seemed to me such a declaration might

lean a little toward the side of an ideal solution, while keeping well in
mind the political iatelmieta of the case.



MISC. 3 1 STAT. 1M 9-21

FEDERAL RESERVE BANK

OF NEW YORK

JFFICE CORRESPONDENCE
To

Coven/or-Strong

FROM

Mr. Snyder

DATE
SUBJECT

June 29,

..

192_2_

In crease of Member Bank

Ana gi te

In regard to the remarkable increase of Reporting Member Dank

deposits of 1240 millions since February 8, reported in the Business Summary

of last week: the increase of investments by the twelve Federal reserxe
banks, from February 8 to June 14, was 277 millions.

In the same time there was a decrease in the total of bills discounted and bought of 380 millions.

It is not very clear, therefore, that the Increased investments
of the 7edera1 reoerve banks wtRE a strongly contributing cause of the very

great increase in deoosits reported.

In the same period the receipts of gold were a little over 80
millions of dollars, which likevise was not a strong contributing factor.
It 300418 to me that the conclusions state-1, that there has been a

distinct shift of funds from the country banks to the 800 reporting banks

in the cities, would still stand as the most probable explanation.




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-120 M-1-20

--FICE CORRESPONDENCE
To

Governor Strong

DATE

JunelE,S,_

SUBJECT:

Mr. 3/trier

If you Ere aufaciently interested you may like to run throuji
this br:_...ef review.




192-2

MISC. 3.1 STAT. IM 9-21

i

FEDERAL RESERVE BANK
OF NEW YORK

JFFICE CORRESPONDENCE
To

Governor Strong

FROM

DATE

June 29,

1922

Genoa Financial Commission Report

Mr. Snyder

SUBJECT

I am glad to note your comment on Resolution 9, as to the idea
that wide fluctuations in the pUrchasing power of gold resulted from the competition of a number of countries to secure metallic reserves.
It is truly, as you say,..;"a myth," but it is amazing what a perRicardo laidAown the law as to the distribution of
sistent life it has.
precious metals, well over a century. ago, and every country, including our
own, with a free gold market, has over and over exemplified the full force
of that law.

Professor Cassel has shown that, in the long run, prices in England
will correspond pretty closely to the total amount of gold estimated as existing in the world, ;Another in the form of coin, bullion or gold;and of course
all other prices, expressed in gold, tend to conform pretty closely
prices, because these are or were gold prices.

to'inglish

I think it was Bismarck who started the idea that there was a
"scrsmble" among the nations for gold, but obviously the only way that a nation
could buy gold would be by offering a premium which, in the final international
balance, would mean that the value of its own products would have been lowered
in a corresnonding degree.
I am surprised that such a resolution could have
found a place in the report of such a Commission.
The most hopeful paragraph in the whole report seems to me that
on page 17, paragraph 2, wherein it is declared that a great service will be
rendered by the first country which shall boldly fix its parity at a new par.
I do not know how it strikes you, but the fact seems to me that
there is scarce a government in Europe strong enough or resolute enough to
take the bull by the horns and put its monetary systems in order.
They all
seem fearful of some suppositious danger, that I believe exists only in their
own imaginations.
The only two bold steps that occur to me at the moment, from a grossly depreciated currency to a sound money basis, were those of Hamilton in
this country and of Napoleon in France.
So far as I am aware it occasioned
no deep disturbance either financially or socially.
it would now.
Is it
that the price level will adjust to _Eva
clear
not
!given volume of currency and credit, and that apparently rather quickly! Is
not the vital question involved almost wholly that of the equity between
debtor And creditor?
And is not this for the most part, in the case of
Europe, the relations of the Government to the bond holder, since the vast
bulk of debts in each country must now lie here*
And would not the simple,
direct solution be merely to determine with some fair degree of approximation



Nor

'1SC. 3 1 STAT. 1A3 9-21

FEDERAL RESERVE BANK

OF NEW YORK

)FFICE CORRESPONDENCE
To

Governor Strong

FROM

Mr. Snyder

DATE

June 29,

192_2_

SUBJECT Genoa
2

what was the average price level at which the large part of these securities
were issued, and fix the amount of currency to be kept outstanding to correspond with this estimated price levels
Of course the question, in the case of Germany, is complicated by
the immense amount of German currency held outside of the country, but in the
case of France and Italy, and England, there is no such complicating factor.
As for the neutral countries, like Holland, Switzerland, Sweden,
etc., which contracted no huge vier debt, their price levels and exchanges are,
mith a few exceptions, so near to the present dollar parity that the immediate
restoration of a free gold market would, I believe, have very little effect.
Prices would very quickly adjust, through an inflow or outflow of gold, to the
new situation.
In the particular case of England there is another complicating
factor, the maintenance of their ancient prestige, which doubtless has a certain
And others will naturally occur.
sentimental and even economic weight.

But I am wondering if the real nigger in the wood-pile, that makes
the finance ministries of the several countries so timid, is not the fact that
almost all these inflationist countries have been living beyond their income,
are orobablv still on a rather inflated basis, relatively, and that the esBut if this is true,
tablishment of gold exchange would disclose this fact:
is not the only possible road back to financial health doing just this thing,
the restoration of the universal gold standard, and letting the gold flow
as the price levels and trade of the several countries will determine?
Even at the worst,. I suspicion that the adjustment would probably
be rapid, and this leads me to wonder No. 2, and that is Whether the whole
wide world is not making a desperate pother about a matter that is, at best,
very simple and obvious to a degree--?







L +4'

FEDERAL RESERVE BANK
OF NEW YORK

-30M 10-21

'FICE CORRESPONDENCE
Governor Strong

DATE

July 5,

1-92

SUBJECT

kr. Snyder
These are the figures othich shov very clearly that Governor

Harding is mist8ken if he believes that

the

member hanks in the different districts

gives any clear picture of general

banking

cJnditinns in

Therefore, that

frm

h:ee districts and especially of the country banks.

the fluster

1' national bank calls

five to three, as proposed.

CS.MM

att.




returns from the reporting

ught

tc be reduced

192_

nel.C.11.1.200M-,1,

FEDERAL RESERVE SANK
OF NEW YORK

CORRESPONDENCE
TO

WT. Snyder

FRO

VI.

a.

DATE

N

:ply 7, )92

f -

SUBJECT:

Burge s s

I have been working over the problem raised by Governor Strong's
memorandum of June 9 concerning the collection of figures of commodity stocks
on hand with a view to determining what further steps we might wisely take.
As you were away at the time our work on this subject was initiated, it
might be well to review briefly that we have done.

Last summer at about the same

time we were starting the computation of our indices of production of basic

commodities as percentages of normal production, it occurred to me that a
similar computation for commodity stocks on hand should be useful.

I had the

impression at that time, which has not been substantiated by our investigations,
that one of the early indications of a recovery in business activity might be

found in a gradual exhaustion of the stocks of basic commodities on hand and
this exhaustion would lead inevitably to increased production and importation.

It

was with this thought in mind that put two of the young men that we had with us for
the summer on collecting figures for stocks and carrying through the computations
necessary to express .these stocks as percentages of normal.

The two men who work,

ed on the problem for a large part of the time that they were with us last
summer were Doctor E. R. Lilley, Instructor in Geology at New York University, ani

M. J. Williams, a second year student at the Harvard School of Business Administratioa
Both of these men turned out to be competent workers and I believe they ran down
practically all of the good leads for stock figures.

Since Doctor Lil

familiar with the people and the statistics in that field, he worked on minerals,
while Williwams covered such items as cotton, coffee, sUgar, cement, etc.

These

men not only searched the available published sources, but interviewed people in
the various trades rather widely, both for purposes of securing original data, and



MIEC.3.1-200M -9 - SRO

FEDERAL RESERVE BANK
OF NEW YORK

)FFICE CORRESPONDENCE

DATE

SUBJECT

TO

FRC

2

for purposes of checking up the results of our computations.
The results of these researches were published in the Monthly Review
beginning with the issue for July 1, 1921 and running through until May 1,

For the last two issues of the Review we have not published any article containing these figures on Commodity stocks for two principal reasons.

In the first

place, a review of some of our production figures in the light of current data
has made it clear that some of our computations needed revision and I have
felt that probably this was true as well of the stock on hand figures.

We have

not as yet had a chance to give the figures the rescrutiny which we wish.

In

the second place, I have been disappointed in the value of the stock on hand
figures as an index of industrial conditions.

The production figures have

demonstrated their value from the start and are, I believe, in their present form

one ofthe most valuable features of our Monthly Review.

Stock on hand figures,

on the other hand, appear to give very little indication of general business
movements and seem to be affected far more largely than the production figures
by particular circumstances within the individual industries.

44.-atte-ape-thect

figures are less comprehensive and hence somewhat less reliable than those
for production.

In order to analyze the stock figures a bit more fully I have recently
had drama up the attached diagrams of the available series in rough form and
simply for purposes of study.

k'or each commodity the index figures for stocks

are shown as percentages of normal.

Normal may be translated as that amount of

stock which may reasonably be expected on the average, in view of the particular
season of the year and the growth in industry from year to year.



M ISC.11.1- 200M -0-20

FEDERAL RESERVE BANK
OF NEW YORK

3FFICE CORRESPONDENCE

°ATM

SU ISJ EC,

To

FRO,

- 3 -

As you will see, the figures which we have cover twenty-tree basic
commodities.

Eleven of these commodities are ones which are included in our

price index of twenty basic commodities, while the others are additional.

z,ost

of the stock figures- are for raw materials, 'although in a number of cases the

commodities listed have been through at least one stage of manufacture.

The

comprehensiveness of the reports which we have used is indicated in the attached
table.

The least adequate of the figures appear to be those for the grains, which

include the visible supply, but do not include stooks on farms.

While these

figures are not indicative of the entire grain position, they are, I believe, of
considerable value in shaming the movement of grain, and more roughly its available
supply.

While most of the figures are subject to one qualification or another,

they seem to me genuinely indicative of the available supply of the different
commodities.

It strikes me that a careful examination of the diagrams attached
herewith indicates that we have figures of genuine value, but of a different type
of value from the production indices.

These stock figures are not sensitive

indicators of changing industrial conditions.

The stock figures that would be

valuable in that connection would be for finished materials, especially those

wnich turn over rather rapidly, out stock figures for department stares, for
example, which have been exceptionally valuable indicators'.

It seems clear that

variations in stocks of basic commodities lag behind other movements-in the
business cycle.

If any general statement may be made it would be to the effect

that stocks of these basic commodities tend to be reduced toward the close of a




I

FEDERAL RESERVE SANK
OF NEW YORK
,

FICE CORRESPONDENCE

c

SU BJ EC,

TO

FROM

-

4 -

period of active business operations when manufacturers are making large

commitments for raw materials and.that such stooks tend to rise at the conclusion
of a period of depression when orders are placed with great caution and manufacturing operations have been curtailed.

.'or example, in a good many cases stocks de-

clined from about the middle of 1919 to the end of 1920 or the middle of 1921, and
rose in 192L.

This movement, however, was far from universal and the stock

figures in many cases reflect conditions peculiar to the particular industries.
I should think these figures would be extraordinarily useful for
persons in the particular industries who are studying their own situations.

I

am somewhat doubtful of their usefulness for the purpose which I judge Governor
Strong had in mind, namely, that of giving a measure of the quantity of goods
which might be multiplied by prices and compared with the volume of credit.

The difficulty lies in the fact that stocks of basic commodities and
stocks of finished commodities bear a supplementary relation to each other,
when one is high the other is low, and vice versa.

To sum the matter up, I am inclined to think that we might profitably
make further study of this entire problem.

which we had

We should review carefully the work

done last summer and make any revisions wtdch seem required on the

basis of later figures.

We should canvass the field carefully for any additional

figures which might be secured.

We should analyze all our figures more fully to

determine the purpose which they might usefully serve with a view to presenting
them in more significant fashion in our Monthly Review.

To do this work properly

I am inclined to think we should add someone to our staff to undertake it.

could, however, make some headway gradually with our presen
section.



We

ditlipied research

=PM AND SDURCES OF STOCK FIGURES

MEAT

)

coax

)

OATS

)

BARLEY )
RYEI

)

Visible supply "in regularly authorized. warehouses at
prominent grain centers of U. S., East of Rocky Mountains;
including the quantities afloat on the lakes and Brie Canal."
These stocks represent the supply of grain "not disposed of
with reference to ultimate destination; but easily obtainable
to influence the market or to supply any unexpected demand."
The stocks rarely run as high as 10 per cent, of crop usually
much less.
Source: Chicago Board of Trade.

Finished cement based on reports of producers.
Source: U. S. Geological Survey.
Visible supply in the United States.
The highest stock
of the year ranging from 1913-1921 from 16 to 37 per cent. of
year's imports.
_Source:
New York :iugar & Coffee Excnange.

CO20N
9.

CEMENT

COI k hzt

6,

In consuming establishments in public storage and at compress.
Source; U. 6. Census Bureau.

DAIRY PRODUCTS

In cold storage includes
Creamery butter
largest stock in 1920 about 13 per cent of production

AND BIGGS

Packing stock butter
fl

Total (6 kinds ) cheese
Eggs case and frozen

If

20

"

Source: U. S. Department of Agriculture.
104.

MEAT CURED

AND FBOON

In cold storage includes.
Beef, frozen, in process of cure and cured
"
dry salt in process and cured; pickled and in
Pork,
process and cured.
Lamb and mutton, frozen
Miscellaneous meats frozen and cured
Lard
Representing less than 10 per cent. of estimated production of
each kind of meat.
Source: U. B. Department of Agriculture.

11.

FLOUR STOCKS
IN 10 CITIES

Philadelphia, New York, Ghicago, Bt. Louis, Toledo, Baltimore,
Detroit, Boston, Milwaukee and Duluth.
These figures represent about 56 per cent, of total stocks
according to Russell's Commercial Agency. A. L. Russell was
statistician of U. S. Grain Corporation,
Sources Northwestern Miller and
Miller's Almanac.

120

T.R.41),BONIMD

Foreign lead constitutes from 1/4 to 1/5 of lead ameltered and
refined in U. S. Figures are for the stocks of this imported
lead held in bond.
Department of Commerce.

=auk

13.

PAPER




About 12 grades of paper at paper mills in U. S. Largest stock
held each year 1916-1921 ranged from 3 to 5 per cent, of total
production.
Source: Federal Trade Commission.

14.

MOD PULP

About 8 grades beld by manufacturers of wood pulp. Largest
stock held during each year ranges from 6 to 10 per cent, of
year's production.
Source: Federal Trade Commission.

FROZEN
POULTRY
SUGAR

170

In cold storage;broilers, roasters, folds and turkeys.
Source: Department of Agriculture.
Raw cams sugar at Atlantic ports held by importers and refiners.
Source:
;belay Statistical Sugar
Trade Journal.

TEN

1Dr1d's visible supply.
Source: New York Metal Exchange.

18.

TOBACCO

19.

PETROMINI

GASOLIER

us AND
FUEL OIL

Held by manufacturers and dealers in tobacco plus imported
tobacco in bonded warehouses.
Source: Bureau of Census.

"Total gross pipeline and tanl-farm stocks east of California
and gross pipeline, tanb-farm and producer's stocks in
California."
_Source: U. S. Geological Survey
"Statistics of Petroleum."
At refineries. The largest amount an hand for any month from
1917-1921 ranged from 13.2
15.5 per cento of the total annual
production.
Source: U. S. Bureau of Mines
"Stocks on Hand at the Refineries."

At the refineries. The largest stocks for any month range from
8
13.2 per cent, of the total annual production for the years
1917-1921.
Source: U. S. Bureau of Mines.

22.

mum NITRATE




At Chile ports.
supply.

Normally equal to more than 2/3 of the world's

.

Source: Reports of the Chile Nitrate
Producers' Association available
at the office of .4 B. Grace
and Company.

MISC. 3 1 STAT. 1M 9-21

FEDERAL RESERVE BANK

OF NEW YORK

'OFFICE CORRESPONDENCE
To

_Goirenior_Strong_

FROM

Mr. Snyder

DATE
SUBJECT:

July 7,

1921_

Exhibits for A. B. A. meeting in

October

Morgan, Gidney, Burgess, Bellah and myself have been talking over

o/ans for the exhibit at the A. B. A. meeting here in October, and would like
very much to have your view on the same.
will be the following:

Tentative recommendations to you

A huge wall map, in relief, covering the largest wall of the
room in which the exhibit is to be made, showing the location of the dif-

ferent reserve banks and branches, the districts, and little pictures of the

different bank buildings, and, if possible, some kind of shading to show the
percentage of membership in the System of all the banks in each of the various

cities.

Superimposed on this would be a series of little glass tubes
filled with a explored liquid, to show the mOvanent of the gold settlement fund
among the various banks.
Underneath this some kind of a cash carrier device, or other
electrical exhibit to show the increased speed of collections under the new
system.

A huge cube of gold, to represent the total gold holdings of
Our three billions, we figure, would make a
cube of gold a little over twenty feat on each edge. We would make this box
as high as the ceiling and than of the required width and breadth, gild it,
so that it would have the outwide appearance of a cube of box of gold. Inside we should utilize the space for other exhibits.
the Federal Reserve System.

Probably just in front of the cube of gold, and perhaps protecting it in some way, would be a model of the new vault door in our new
building.
Some skeleton representation of our new bank building, showing

all the different departmems, location of the offices, etc.

A set of large photographs of the now buildingg of each of the

Federal Reserve Banks, attractively framed, or else presented in the new
Attractoscope. This is a transparency device for exhibiting photographs,
charts, pictures, eta., enlarging them in the display, and worked mechanically

so as to change the exhibit so many times a minute and repeat endlessly.
These machines can be rented for a very little.

Complete exhibit of all kinds of currencies and different note
Reserve Banks, and with this
exhibit of forgeries, counterfeits, raised checks, etc.

denominations of the U. S. Government and ,i'ederal
an extensive




MISC. 3.1 STAT. 1M 3-21

FEDERAL RESERVE BANK

OF NEW YORK

OFFICE CORRESPONDENCE

DATE

To

_Governor Strorg

SUBJECT

FROM

Mr. Snyder

July 7,

1921

October---2

RThihita for A. R. A. meeting in

(9) Comalete exhibit on the wall of each of the three hundred or
more of the charts mrs.de by the Statistical Department in the last two years.

A considerable number of the more

interesting of these charts will be shown

in the Attractoscose.

We have discussed other ideas which we should like to tell you about.
And Mr. Morgan is in treaty with Mr. Guy II/arson, who has general Charge of
the exhibits.




FEDERAL RESERVE SANK
OF NEW YORK

MISC. 4.1-120 M-1-20

OFFICE CORRESPONDENCE
To

Governor strong

FR01

DATF

July 7,

1922_

mr. gylvder

SUBJECT

Lnnsburel Article

Some economic sanity out of Germany at last%

I cannot get rid of the feeling that, until it becomes clear that
the currency reform is the fundamental reform, Germany and all the rest of
the inflationary states will go on wallowing in just the same mire that
they have been in for the
three years and a half.

last

IS I1 niVecoming clear that balancing budgets,
primary solution, but that it would be a natural detail of

Any



4,10tr--

the p

etc., is not
the real solution.

,

Vkit-

LENDBANDUL ON TH4 GERLAN SITUATION
I - Schedule of Reparations Payments

For 1921-22 the schedule calls for four installments of
500,000,000 gold marks each and two quarterly installments of the

variable annuity due November 15, 1921 and February 15, 1922, provisionally estimated at 325,000,000 gold marks each.
to April 1922 is, therefore 2,650,000,000 gold marks.

The obligation
This is to be

covered by 1,000,000 gold marks payable in rocordance with the regular
quarterly schedule and 1,200,000,000 gold marks deliveries in kind, and
150,000,000 gold marks payable under the Recovery Act.

This leaves a

balance of 300,000,000 gold marks required secured by resources includ-

ing the proceeds of all German maritine and land customs dues, and in
particular the proceeds of all import and export duties, the proceeds
of a levy of 25 per cent. on the value of all exports from Germany (with
certain exceptions), and the proceeds of any direct or indirect taxes as
may be proposed by the German government and accepted by the Committee of
Guarantees in addition to the specified taxes.

decided

that

the payment

and the payment

of customs

The Committee of Guarantees

should be effective from November 15

of the 25 per cent. export levy

should

be effective from

December 15, and should yield 300,000,000 gold marks.

For future years the Committee of Guarantees has stated that it
will not be possible to estimate Germany's obligations, but provisionally
assumed the annual sum as 3,300,000,000 gold marks, this

to

be covered by

000

1,200,000'go1d marks deliveries in kind, 1,250,000,000 Reparation Recovery
Act receipts and 25 per cent. export levy,

and 200,000,000 customs

a total of 2,650,000,000 leaving a deficit

of 650,000,000 gold

covered by

additional

assigned revenues.

receipts,

marks to be

2roposed tax revenues as made by

the German government and accepted by the committee yield 1,300,000,000 or
double the amount required.



The Committee has stated it will accept 50 per

cent. of the yield of these taxes reserving the right to require a larger

amount if necessary to meet any deficit
payments include only

the

in Reparation Payments.

actual reparations and

do not include the cost

of the armies of occupation estimated at 245,000,000
and clearing office

gold marks per year

commitments estimated at 500,000,000 gold marks within

nest two years.

II - German Exchange Situation,.

In order to

provide the exchange

the German government has made use of

for

the reparations payments

the Gentral Ibmhange Office,

a

lindted liability corporation organized in 1914, guaranteed by the common-

wealth, which works very closely with the

large banks through the medium

of the Reichsbanu buying foreign money with paper marks.

foreign currency is

the normal

produce of commerce it

of the banks to sell the surplus

Since this

is to the

advantage

currency at their disposal.

The government has attenpted to prevent the banks from buying
such currency and reselling it as a speculation and has also tried to force

the people to declare their holdings of such money, but

the purchases of

exchange by the Central Bureau has had a disturbing effect on all the ex-

change markets

mainly because of the active and powerful speculation in

Germany and other countries.

Speculators buy foreign exchange, preferably

U. S. dollars, with Reiohsmarks knowing that the German government must in
turn buy this exchange from them in order to
payments.

with the

be able to meet its

reparations

The continuous rise of foreign exchange in Germany as compared

Reichsmark has induced everybody to hold

exchange, thereby practically
government.,

back in offering

foreign

closing the exchange market to the German

According to Herr Bergman, Financial

Representative of the

German Government in Paris, the German government is in a "corner" formed




by unscrupulous speculation.

In 1920 this organization bought 24 milliard paper marks' worth

of foreign money, that is, about 2 ndllards a month, equivalent to 170 to
160 million gold marks' worth. These 24 milliards were used for account of
reparations payments, Clearing Offices, International

Postal, Telegraph and

Railway settlements, essential food supplies, and minor

governmental com-

mitments. The German government hopes by means of a prudent policy to

procure the necessary foreign money to pay at the dates fixed, but it must
do this without entirely raining the rate of the mark.

The following table

shows the purchases in terms of paper marks, for 1920 and up to June 179 1921:




1920

.1921,

June

638,751,000
1,919,516,000
2,954,628,000
2,129,001,000
1,644,841,000
1,448,445,000

July

1,154,3669000

January
February
March

April
Lay

Augast
September
October
November
December

1,075,295,000
2,353,728,000
2,717,262,000
3,164,8079000
1,612,057,000
23,012,717,000

January
February
March

April
Lay

2,439,310,000
1,625,134,000
2,368,386,000
2,499,717,000
3,854,670,000

June 1 to 17 c.....2

.104.0400p9

14,891,257,000

THE FEDERAL RESERVE BANKS
POWERS AND FUNCTIONS, MEASURE OF SERVICE
FACTORS DETERMINING RATE MAKING

What are the Federal Reserve Banks?

Twelve of

twelve different sections

them serving

of the country.

Locally owned by the Member Banks of each district, which also elect
six of the nine Directors, who chose the Governor and decide
on general policies.

Essentially

cooperative in character.
as to loans or policies or rates.

Cannot dictate to Umber Banks

rhief ft:action of the Banks.

To link together

and coordinate a great number of the strongest banks
of the country, nearly 10,000 now in the System.

No direct relations with or control over remaining 21,000 banks.
Total resources of Member Banks about two-thirds of the whole of the country.
Total deposits of Federal Reserve Banks about one-tenth of this.
Banks--Cannot Make Loans to
Bankers

Federal Reserve Banks Purel
Private Individuals.

ublic or

Allowed to purchase certain types of bankers' acceptances and Government
securities.
Total of loans to Member Banks at peak over 2t billions.
a billion.

avers of Vast Gold Reserve.




All tha, gold in the United States now impounded in the 12 F. R. Banks.
Over 40 per cent,
the monetary gold in the world.

of all

Engine of vast strength, not without its dangers.
Might easily become a Frankenstein monster and plunge the country into
headlong speculation.

lold forms basis of currency issued by banks, which at peek was nearly
34,- billions, now 2i-billions.

Provides for elasticity, expansing or contracting with business needs
(possibly too elastic and not sufficiently under direct control).
At present every Federal Reserve note and gold certificate covered by
more than 100 per cant, of gold (no need now of the old National

Bank issues, greenbacks, silver certificates, etc.
abolished).

Ought to be

Never again a currency famine in U. S.
Supjly Credit




-mes of Need.

Loans to Member Banks permit a total credit expansion for whole country
of 6 to 7 billion dollars. Probably much beyond all business needs.
Not

clearly seen at the time.

Need of great caution now.

A fortress in times of panic or crisis.
For first time in its history the U. S. passed through great commercial
crisis without banking panic, and relatively few aoranercial failures.
Recovery from depression has been of unparalleled rapidity, indicating
that banking position of the country was essentially sound.

No occasion for a relapse, nor of apprehension.
thorough and far-reaching.

Liquidation has been

Bank loons so low now that banks can hardly meat expenses for great
public service performed.

Rate Making

Function.

Most important power and function of the F. R. Banks.
whole business life of the country.

Vitally affects

Properly exercised, should become a gyroscope or stabilizer for the
whole commercial world.
Accomplishes this through rate Changes which determine the amount of
rediscounting and hence credit expansion in the country.
Practically all available banking reserves of the country now cantered
in Federal Reserve Banks.
Banks no longer hold large amounts of cash, but only just till money.
Amount of cash not much over 3 per cent. on total deposits of nation.
Credit expansion, therefore, possible only through rediscounting.
Ndequate limitation of this rediscounting
function of the System.

power most important single

Rediscount rate nominally determined by state of reserves.
Actually
determined by state of the country, the volume of bank credit
outstanding, volume of speculation, trend of the price level,
status of Government finances, and much else.

be, if possible, equal

Rate should
to or above prevailing bank rates
for commercial loans.
Otherwise, rediscounting privilege becomes a tempting source of profit with no regard for welfare of
the country.
Indefinite credit expansion of same effect as, and squally dangerous, as
indefinite expansion of the currency of the nation. Russia, Poland,
Germany, Austria, and other countries vivid examples.

Credit expansion in United States a difference of degree but not of kind.
Demoralizing effect of undue expansion just as great.
Vital duty of Bankers.




Osuntry confronted with one of recurrent waves of fiat money and
cheap mendit.

Real danger in advocacy of men of prominence, like Mr. Ford and Edison.
Essential fallacy that plentiful money and cheap credit mean prosperity.
Russia represents reductio ad absurdum.
Productive capacity of the country matter of slow growth, at rate of
about 3i- per cent, per annum.




Can be very little exhi/erated by Oil rrency or credit expansion.
retarded by excessive expan sion

Actually

Proof in the lowered production of Germany, Poland, Csecto..Slovakia,

Austria, etc.

Same thing evident in this country in 1920.
Great need of bankers and mod citizens to understand the "money problem..
Especially bankers.

Bankers natural leaders of financial thoudit in their communities.

Out carefully to study proposals of Ford, Edison, etc., and know
clearly why these pmzposale are unsound.

F;(0E/l1ma article in July ntrabsr of lyikatia, by Or. lkster. Outtt
to be circulated by the million by the hanks of the country.

Great need of the country is financial and industrial stability.

Deno ralization produced by booms and waves of speculative mania.
Bear hardest on those with smallest in CMOS: wage earners, school

teachers, clerks, etc.

Are a crime app./not thrift, prudence, and provision for old age.
No country rich enough to ruin its viorkers and wage earners.

Federal Reserve Banks can do much if their policies are sustained by
the 30,000 banks of the nation and an intelligent public opinion.

Great need of cooperation by all thoughtful and rieit minded citizen*.

Some Items of Service, Federal Reserve Bank. Year of 1920.

A total of 160,000 different transactions in the making of rediscounts
and advances alone. Aggregate amount over 50 billions of dollars.
That moans an average of nearly a billion dollars per week.
In acceptances purchased a total of over 106,000 items, involving a gross

total of nearly Zi billions of dollars.

Handling and counting over half a billion separate pieces of Federal
reserve notes and other paper money, sorting out worn bills, etc.,

to a total value of over 2:i billions of dollars.

Collecting 87 million:. of Checks of an aggregate value of 55 billion
dollars, again over a billion a week.

Collection of over half a million notes and drafts of an aggregate value
of two billions.
Nearly 150,000 transfers of funds by telegraph, involving 17 billion
dollars.
Payment of over 10 million separate cheeks and warrants of the United
Aates Goverment, involving nearly 237 billion dollars.
Handling nearly 48 million different pieces of Government bonds of an

aggregate value of nearly 7 billion dollars.

Total of securities handled in the Custody Department, either for the
U. S. Treasury or for Umber Banks, of an aggregate value of over
100 billions.

This vast voltime of business explains why it should require a total
of over 2500 employes to carry oh the work of the New York bank alone.

Housing of these and storage of the vast volume of gold and se-

curities held a very serious problem.

This could only be met by construction

of a building of adequate size and strength.




FEDERAL RESERVE BANK

OF NEW YORK

.CE CORRESPONDENCE
To

_Governor _Strong

DATE

July 10,

SualecTe_eaavenstein"ea-Xemo-.

Two things seem to me to stend out in this letter:

The first is an old one, and that is the reiterated insistence

upon Germany's incapacity to pay in cash any such sum as two or three milliards of gold marks, with the celeouflaged implicatioe that it or ule not pay
this amount at all, whereas this sum would not exceed 5 or 6 per cent, of
the total of Germany's pre-war rat tiorvl ineome, which was around 40 to 50
billion gold marks.

But it does still remain a very wide open geeetior as to whether
German) coeld pay this amount plus the taxes to meet her very heavy governmental expenditures. I do not knor whet is the taxable limit on a

ration's productSir Josien steep oorsidors it in his recent hook on the

subject, and imagines that it may be much nigher than most students of the
subject have believed.

The second is the last part, and that ig the curious evasion
of the fact that it is the increase in currenny and not the increase in the
floating debt thet ie reeeonsible directly for the fall in tho mark; and with
this a justification of the Reishisbanes course. Of course if they could
only stop the fresh issues of currency, then and then alone would it be possible to balance the budgets (and to float interne] loans.) The people of
Germany are not going to subscribe to a huge loan in a currency that is continually depreciating under their eyes.

If oentinuous inflation. had not, BB we fear, become now a part of
the game, though it may not have been so originally, this letter would make
me think that there was small hope for Germany's salvation under its present
governing powers.




MIBC 9 I STA7.3800-10-21

FEDERAL RESERVE BANK
OF NEW YORK

"FICE CORRESPONDENCE
Grl warrior

DATE

July 14,

1922

_Strong__

ROME

The provisional figures for the German budget are given in the
current number (July 1) of The Economist.
The net total expenditure is
estimated at 332 milliards of marks, and the total deficit at 41 milliards,
though it appears that this result has been obtained in part through the
issue of Treasury

bine.

However, the point is that a deficit of 41 milliards, or even much
more than that, could probably be covered by an internal loan if the people
had any confidence that such bonds would have a stable value. As a matter
of fact, any voluntary loan is impossible, of course, because it would have
no such value.
So far as I can see, Germany can stop the printing press only by
either an external or internal loan of sufficient amount to cover her current
deficit.
Is not either of these impossible
the printing press has
stopned, and therefore is not the first step financi
reform
thP balancing of budgets and the rest of it a merely incider al question?

until

and

Second, with a steadily falling currency, are at all budget figtres practically worthless anyhow, and is it not impos ble for any government to really make any kind of reliable budg t, b anced or Valanced unicer
the con
on now prev.in, . 12 Germany?
li

-40Urr

'Acta_
That, I suppose, is the basis of
reform should came first.

oti, 01.44

A

Amt. *at

ii

sburgh's argument that currency

One difficulty in the way
currency reform and therefore, as it
seems to me, absolutely blocking he making of a reliable budget, to say
nothing of a balanced budget, 1.,e the colossal holdings of German marks abroad,
not less than 30 to 40 milliafds, and including foreign bank credits twice
this sum or much more.
' would a balanced budget help this?

111\0440
ail/MAX:0 th(by

And
the people

doesn't
e.nd

currency inflation seem always to mean
eavy adverse trade balance?

6-ArNA.4

lietAtir,0

tort 9%4.
teadA04/3

7uS

ver-expenditure

eozt

tvtit

-a)c temaLe.teti

((t41011-y7)

dio-ALi

/Worm, Aitei




4,14-7,0

zt7

FEDERAL RESERVE BANK

1.41.. 4.1 1014 141

OF NEW YORK

,_10FFICE CORRESPONDENCE
To

Goverarir Stro

DATE
SUBJECT.

July la,

1922_

Gold policy

Mr. :1114AAr

Would it not be of interest to at least get the different points
of view of several of the abler men in the academic field!

gast Mitchell as one of the first.
wide point of view.




And I would sug-

He has a highly pragmatic mind and a rather

MISC. 4.1-120 M-1-20

FEEJERAL. RESERVE BANK

OF NEW YORK

3FFICE CORRESPONDENCE
To

CleverrOr StrOng

FROM

DATE

July 14,

Mr. Snyder

SUBJECT.

I wonder if you might find time to road pretty carefully Dr. Foster's
eaticle in the july number of the Atlantic, On the Yeed-disor here:slag and
the like? Dr. lobster is one of our Research Committee, and the article was
gohe over very carefully by each member and might be used as a leaflet for
general circulation and 1 should like very much, thefefore, to know your

opinion of it.




MISC. 3 I STAT. 1M 9-21

FEDERAL RESERVE BANK

OF NEW YORK

OFFICE CORRESPONDENCE
To

Governor Strong

FROM

DATE

July 19,

192 2

Mr. Snyder

SUBJECT

fold Pol:iry

For nearly a century following her resumption of specie payments
enjoyed a fair degree of stability in its price level.
So
far as data are available, at scarce any time were the annual averages over
30 per cent, above or below the average for this whole period; and in spite
of these considerable fluctuations wholesale prices, for example, appear to
have been practically on the same level in 1842, 1860, 1879, and 1910-13 (see
chart attached).

in 1819, England

This relative stability it secured simply through the free flow in
and out of gold with, it should be noted, a fixed fiduciary currency, and the
Bank of England steadily pursuing a policy which reduced both the outflow and
the inflow of gold to a minimum.
Such a regime is much
foreign trade, and in addition
business than in a country like
re]atively much smaller and our
None the less, it is remarkable
the general trend of our prices

more possible in a country having a huge
an monnoue international banking and exchange
the United States, where the foreign trade is
international banking much less developed.
how closely, outside the Civil War period,
followed that of England.

This strongly sugges*s that, with our now steadily increasing proportion of foreign trade (sinc0 1909), and our development of international
banking, such a policy would trad to become equally effective in the United
States.
This suggests:
Q. No. 1.

now to Let rid of something...Ike a billion
utterr redundant and, to us uselold!

Is not our

and a half of

reat problem

Part of the purpose of the new Federal Reserve System was to

economize our need of gold.and reduce the quantity we should require for banking and currency reserves.
Instead, the war brought us an import of gold
unparalleled in the whole history of the world..
In 1910.42 there was a
great outcry at the high cost of living, and endless commissions appointed
to inquire into the cause.
It is to be remembered that the writings of
Fisher, Mitchell and others, on the instability of the gold standard, appeared
long before there was a thought of a world war.
It is illustrative of present conditions that the vast majority of people now look back to this 1912-13
level as a kind of beneficent "normal" towards which we should strive to return.
Clearly even this is impossible, so long as we have the menace of
a vast inflation and a great part of the people crying out for precisely such
an inflation or expansion.
Our billion and a half of redundant gold is not
merely useless, but an unceasing danger.
I believe Mr. George Roberto made
the point, the other evening, that in a country like ours available credit
in the long run is always used.



MISC. 3 I STAT, 1M 9-21

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
To

Governor Strone

FROM

DATE

July 19,

1922

Gold Policy--2

Mr. $n ci r

SUBJECT.

Under our present gold holdings we could expand our present bank
credits (and supply the added eurrency needed to support this inflation) by
17 billions or more.
This is equal to nearly three-quarters of the outstanding loans of the commercial banks, and would inevitably entail a correspondingly great increase in prices and another orgy of speculation, and
collapse.
And this vast expansion could take place without needfully any
great outflow of gold, for the simple reason that the old reec_hanisee for gold
distribution, among the several nations, is gone.
So long as nearly all the
great commercial countries of Europe, from England down, are matching our gold
with issues of unredeemable paper currency, a heavy rise of prices here would
only mean a corresponding rise of prices in these countries and would not in
itself occasion any great loss of gold from this country.

0. ,aa. 2. Isl_nol

anyractica1.an for the eetoration of the gold standard
in Europe dependent upon a great gold loan from the United States?
If any way could be found to prevent the employment of our present
gold reserve, which I think is politically improbable, then we should confessedly have a billion and a half of gold that might as well be buried in
the ground, for any good it does Us.
This would seen to suggest, then, that
the quicker we get rid of it the better.
Furthermore, at the present time the loss of this gold would apparently entail no kind of financial disturbance.
Quite the contrary.
And if,
on the ether hand, we should delay, and any considerable credit expansion
should take place, the loss of this gold might help to precipitate another
crisis like 1920.

It seems clear that no great deflation of their currencies is possible in countries like England, France, and Italy, and only in those countries
like Germany, Austria, Poland, and Russia, where their monetary systems are
wreck.
The restoration of a very considerable quantity of gold
would, therefore, be required to build up adequate reserves behind these currencies, and likewise for such new gold base currencies in Germany, Austria,

a total
etc.

Under the law enunciated by Ricardo more than a century ago, the
precious metals, if left to free commerce, will distribute themselves according to the several needs of the nations.
But this is needfully a slow process, and, if it is left to the natural play of circumstances, will mean inevitably financial disturbance and demoralized exchanges for many years to
come.
If, then, we could work out a plan for a great gold loan to Europe,
it would have the double effect of stabilizing conditions here in the United
States and restoring a relative stability to Europe as well (providing, of



MI9C.3.1.1710M4-20

FEDERAL RESERVE BANK
OF NEW YORK

Or FICE CORRESPONDENCE
TO

DATE

Governor Strong

SUBJECT

July 19, 1922

Gold Policy--3

FROM

course, all the needful accessory conditions and enactments outlined in the
Genoa Agenda were fulfilled).

Q. No, 3. Is any grea-Iold

loan to

Europe from

the United States Government

or from the Federal Reserve Banks feasible?

I am sure the answer is =equivocally no.
Such a loan by the
Government could never be passed in Congress, and if it were undertaken by
the Federal Reserve Banks on their own account it would undoubtedly produce
an uproar.
Q. No. 4.

Is any other

plan_

feasible?

Supposing that the ten biggest banks of the United States, or, if
need be, twenty, fifty, or one hundred, were to unite in the purchase of
either a joint loan from three or four of the principal countries of Europe,
or else in a loan from these banks to each of the countries in proportion to
its need, then these banks could go to the several Federal Reserve Banks, and
by rediscounting other securities, could obtain a credit with the Federal
Reserve Banks, and if the Federal Reserve Banks agreed this credit could be
withdrawn entirely in gold, and this gold distributed to the several countries.
In the meantime these foreign loans could be made a joint offering
by the banks to the investing public here, and could be distributed, so far
as was possible, under the offering rate, which pretty surely should not be
to exceed 5 per cent.

Q. No. 5.

But would nOt_t_his.,..ml.d.

rw_Lat_a_a.f2../..m back to the United States?

This would depend entirely upon the action of the Governments of
the several countries, and raises the question as to whether specific agreements could be entered into with these Governments as the absolute conditions
for the making of such a loan.
If such conditions were entered into and
were fulfilled to the letter, then the effect of such a flow back of this
gold to this country would be
to
contract credits in each of the several
countries, bring about a fall in prices, and thus restore the automatism of
price maintenance.
In other words, their prices would very quickly adjust
to the new level and the flow back to this country would cease.
If all this is not feasible, then the next question is:
Q. No. 6.

Is there any other practical my?

Could such loans be made direct by the associated banks of this
country to the central banks of the several countries, possibly in association



MISC 3 1 STA7.3600-10-21

FEDERAL RESERVE BANK

OF NEW YORK

,OFFICE CORRESPONDENCE
To

Governor Strong_

FROM

DATE

July 19,

192 2

Mr._Snyder

SUBJECT.

Gold P0licy--4

with other banks in each of these countries?
This, o
fully imply some sort of contract on their part with their own Governments,
and this, in turn, may not be feasible. The next question, then, is whether
a syndicate of banks in each of the countries could directly make a loan
with the associated banks of this country, depositing therefor full and
adequate security.
For example, nupposing the "big five" of the joint stock
banks united with the Bank of England for a loan of 500 millions in gold,
giving in return therefor securities which would be equal in value to the
amount of the loan, with the stipulation that this gold should go to and be
held by the Bank of England and should be used for the buying and selling of
sterling exchange at a fixed figure.
From the investigation we made last year, I came to the belief that
not much more than half this sum would be quite adequate to achieve this result; certainly 500 millions would be vastly more than would be needful.
Of course such a loan would have to be made under a definite contract that the existing fiduciary note issues would not be increased, and
that the several Governments would meet by taxation the full amount of their
expenditures.
If this could be done, I am firmly of the belief that the
trade balances would correct themselves.
This last is vital, because I believe at base this is the secret
of the whole trouble.
For,
Q. No. 7.

Dhy does the United States now continutta.aill?

billion of gold, in

spite of
In the last two years we have gained a
the fact that in the same period we have loaned abroad more than a billion
This gold would never have come unless the United States
and a quarter.
had sold goods (or contracted credits) in excess of its purchases abroad.
This means that the normal balance which usually obtains in the total imports and total exports of a country has in some way been upset.

In the writer's belief this has been possible only through continuous inflation and, in a certain sense, that must be still existent.
Even in Germany it is clear that the imports exceed the exports, as a whole,
and that this is the fundamental reason why they are unable to pay even a
In a nutshell,. Cermany is buying abroad
passable amount in reparations.
more than it sells; and I think that this has been equally true of England,
France, Italy, and other countries.
Apparently, then, if this be true, the flow of gold to the United
States will continue until the primary cause, inflation and extravagance, is
stopped.
If it does not stop, then is there not a large possibility that
the other nations will, in their distress, begin to consider some other



MISC.3 1 STAT.3600-10-21

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
To

Governor S1rniig

FR,A4

Mr.

DATE

SUBJECT.

_Iuly_lg,

192_2

Gold FNai_ep,en5_._

Snyder

monetary standard than gold?
Would we not have another great surge for
bimetallism and all the vagaries that usually go with it!
In other words, is not the settlement of the present difficulty
of imperative social and political consequence, as well ao from purely
financial and commercial reasons?

Is it not

clear that the effects of a great currency or credit
country are not those which were freely imagined, and that
not, under the existing regime, self-correcting, at least
not in any short periods!
expansion

in a.

these evils are

Q. No.

8.

Is another method feasible!
1

If the idea of a great gold loan to Europe is politically or otherwise inadvisable, might it then not be possible to bring about a revision of
our currency system so that it should consist exclusively of gold notes and
Federal reserve notes, retiring the greenbacks, National Bank notes, and
the silver certificates!
Then, if the existing gold reserves were reduced
to the proper working level by paying out gold into general circulation in
lieu of notes, the existing menace could be in part removed.

Q. No, 9. What is

the proper reserve level?

From a study of the workings of the gold reserves of England and
the Bank of England's rate, one gets the impression that a very wide fluctuation in the reserves is not highly desirable, i.e., a high reserve is indicative o general business prostration and the usual consequences of a
crisis.
Otherwise, the reserves range about a fairly stable level.
Clearly it is the existence of heavy reserves which leads to very
cheap money, which permits the spirit of speculation and the ensuing wave
of expansion.
If the expansion can be controlled, the crisis or reversal
of trend will be correspondingly mild.

Now, in the United States it is certain that the conditions for a
large expansion will sooner or later lead to such an expansion, in a greater
or less degree.
If the bank rate is fixed purely with reference to the
reserve ratio, and not with reference to the trend of speculation and prices,
the problem of control in the United States is hopeless.
If the reserves
were never allowed to get beyond, say, 48 per cent., or fall below 40 per
cent., I firmly believe we should have a high degree of business and price
stability in this country, with a large avoidance of the wild waves of boom
and collapse which have been our steady characteristic.
Therefore, is not the only sate alternative to a great gold loan
for Europe the use of our gold for general circulation, in the form, of
course, of gold certificates?




PER CENT.

300

I

I

UNITED STATES
ENGLAND

t
1
s

i

250

;
/A

/
I
I

A

/1

200

II
1

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150

,

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ti

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100

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SPECIE PAYMENT SUSPENDED

ENGLA1D 1801 TO 182.0

50

U.S.

0




1790

1800

.

CIVIL WAR

....."

NAPOLEONIC lb...ARS-WAR OF1012

\

..

SPECIE PAYMENT SUSPENDED'
IN

1

..._

U.S. 1662 TO 1879

RL1

.I

WAR

1814-TO 1818

1810

1820

1830

1840

1850

1860

1870

1860

1890

WHOLESALE COMMODITY PRICES IN THE UNITED STATES AND ENGLAND

Figures for 1913==100 per cent

1900

1910

192,0

FEDERAL RESERVE BANK'
OF NEW YORK

JFFICE CORRESPONDENCE
To

Go v e rnor Strong

FRom

DATE

July 21,

M emo ran dttm on "Gold Policy"

Mr. Snyder

SUBJECT

If it had not been for your suggestion this would not be offered,
and I have really only tried to formulate the problem.
seems to me bound up in Query NO




g

The whole of it

192L

INISC 3 I ST/LT.34300-10-21

FEDERAL RESERVE BANK
OF NEW YORK

Ok- iICE CORRESPONDENCE
To

Governor Strong

FROM

DATE_August 2,

1922

forikr,Giltart

Mr. Snyder

SUBJECT:_l_elifi_a_s

I asked Mr.
excellent gift

Roberts

prepare a little memo., since he has an

to

for nice phrasing.

It seems

to me vary carefully done.

His conclusion as to the wage earners is that, except as to their
savings, the evidence that they are very seriously

affected

by inflation and

deflation, like people of fixed incomes, is extremely doubtful.
cently Mr. Robert Crozier Long adduced figures to show that

for example

industry,

per cent.

official estimated

as

that

the

reduction

the reduction in

the

year was

during and

after the

war.

And we know,

in wages so far has been nothing like as heavy

cost of food and

It also seems clear that
last

cost of living, had been

And we know, of course, that there is some evidence

along the same line in this country
further,

many lines of

in Germany, the rise in real wages, that is to say,

the actual wages divided by the

as much as 30

in

Very re-

the cost of living.

the actual

amount of real unemployment

grossly exaggerated by simply taking the reduction in the

factory rolls and pro rating this over all industry and assuming, first, that
such a

pro

rating was possible, and, secondly, that

found no other means of gain.




workers

leaving factories

FEDERAL RESERVE BANK

AISC. 4.1-120 M-1-20

OF NEW YORK

RRESP
0

NCE
(14

DATE

SUBJECT.

ROM




p.

(6'-te

192 7"`

1

IC

-EDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
To

Governor Strong

FROM

DATE

Pecember 21,

1922

SUBJECT:

gr. Snyailr

Here's the hasty draft of a letter which Prof. John R. Commons

says he wrote on the train, merely to get down some thoughtsa_proposed letter
that he would send to Mr. Ford on his own responsibility, and not as President
of the organization.

Submitted for criticism and punching.

You may like to look at it as the work of_a rather odd but very
sincere mind.




W.,,

FEDERAL RESERVE BANK

OF NEW YORK

OFFICE CORRESPONDENCE
To

Governor Strong

FROM

The Confidentiol Tigltres

:Jr. Snyder

SUBJECT

Perhaps I should make clear that Mr. Cooper had simply came

to Dr. Burgess to get his idea of the proper way to chart the figures
for you, and that there had never before been any communication about

them, even in this department, except once, a year ago last summer, at
your own request, during the Joint Agricultural Inquiry at Washington.




S

FEDERAL RESERVE BANK

4.!.

OF NEW YORK

OFFICE CORRESPONDENCE
To

Governor Strong

FROM

DATF
SUBJECT:

DOCeMber

Statistics Depprtriunit

Ir. Snyder




We are planning our annual Christmas party for Wednesda.
January 3, at the bowling alley in the Annex, with lots of gymkhs:
stuff.

Festivities begin at six o'clock, and we hope very much

at least be on hand to start the ball rolling.

531'

BANK

OF NEW YORK

OFFICE CORRESPONDENCE
To

_Go v ernorStrong_

FROM

DATE

Dec emb_er__13_

_

192 2

Mr._Snyder

SUBJECT:

REDISCOUNT_RATg

There still seems a prevalent idea, even in the best informed
quarters, that a further expansion of bank credit would be necessary for
the "restoration" of normal production and trade.
Thus, in its last
review, the Harvard Bureau says:

"So long as the expansion of credit means merely
a further recovery of business and the restoration of
a normal volume of production and trade--and it must
continue to mealaust that for some time in the
future--it seems unlikely that there will, be any drastic advances in rates."
There seems nowhere any realization that we have had, in
the last year, one of the heaviest banking expansions we have ever known,
amounting, for the commercial banks, to perhaps 3 billion dollars, or not
less than a 10 or 12 per cent, addition; nor
That,in all probability, if there had been no expansion at
all, we should still have had a heavy rise in prices from the low levels of
last year, because of the excess of credit then outstanding.
In other words,
that:

So far as we can measure it, there was ample and excess credit
outstanding to finance at least the peak volume of production and trade so far
reached in this country (1920), at the average level of prices prevailing
last year; in other words, ample for all recovery to normal, or whatever it
may be termed, and probably much more than that, i.e., enough for any probable
expansion in the actual volume of production and trade next year.
It seems to me, as long as even expert opinion is ignorant of the
actual situation, and does not realize or understand what has been happening
in the last year, there is very little basis for the education of a sound public opinion, which would certainly be required to sustain any advance in the
rediscount rate within the near future.
It seems pretty clear that any further advance in prices now must
carry us into another headlong tide of speculation, if, indeed, with 25-cent
cotton, 29-cent rubber, $8,50 silk, and corresponding prices for wool and
other commodities, we are not pretty near that now, and, if so, that a later
advance in rediscount rates might prove as ineffective for arresting this
tide as it was in 1919.




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4,

!OFFICE CORRESPONDENCE
To

aly_onio_ Strong

FJ,A

DATE

Mr. Snyder

SUBJECT:

War___Co 11 ego- Address,-

Mr. Bendelari has again made a laborious search for something new

and of interest on the subject of conscriptior of lac,r, materials, etc.,
and price regulation in feudal and in later times.

T attach herewith the

notes he has made, and would be very glad to know if these are sufficient
for your purpose.




'7719r

77vd

1




Yrs

ibv

4-- Currents in Foreign Trade.

A pronounced shift in our foreign trade during the past few years is
the increasing ratio ,o f irports from tropical countries. A study of this
situation reveals that over one-half of our imgorts are of tropical origin
(rubber, sugar, .coffee, woods and so forth), as against about one-third of
such imports before the war, The balance of trade is heavily against us in
the tropic's as a thole. A study of the trade of these particular countries
indicates that the excess of our iimoc.)rts from thoc.!,a areas over our exports
to them is about $500,000,000 per annum, which is largely used by them for
the purchase of manufactured goods from Europe, thus to a considerable extent liquidating the excessive balance An our favor in our European trade,
created by shipping to Europe our agricultural produce, This triangular
operation seems likely to incroaso as tropical goods do not materially conflict with our ow .a production and our consumption of these commodities is

likely to increase steadily.




-0-




3Currents in Foreign Trade.
can be noted. It would, at leart, aope,ar that the invisible exchange is
certainly able to take care of commodity balances, and that we are reao'hing
the end of the geld import stage of war re-adjuqtnients.. Continued trend in
the general direction now evident would soon produce gold exports even in
the fa..,e of 'payments on account of Allied debts.
SHIFTS IN THE CHARACTER OF EXPORTS

There are several important shifts in cur foreign trade .due to the war.
The export of foodstuffs has immensely increased, due partially to the demoralization of Russia. 'there is at best no probability oi Tussian exports
of large volume for another two or three years, not only because of the condition of agriculture, but also because of the demoralization of her ral-1,7i:.ys.
There has been a decrease in raw cotton exports due to various C 9..USO

short production, but partly due to steady increase in our cotton manufactures.
The following table shows the quantitative movement of major agricultural

exports, pre-war and tor the last two fiscal year
1913

Grain and grain products (bus. ) 258, 3-43-, 629

1921
542,375, 523

Mats, dairy products, animal
and vegetable fats (lbs. ) 1,610,053,715 2,384,517,262
Tobacco leaf (lbs. )
418, 795, 906
496,R:78, 630
Cotton, raw (bales)
8,724, 572
5,408,985
Fruits (Cbs. )
Oil cake and meal (10 s. )
TOTAL VALUES

TOTAL VALUES AT 1913
PRICES

1922

544,220,964

451,555,221
6,541,011

620,423,027
675,392,383
2,049,261,136
837,306,407
$1,029,967,344 $2,192,335,101

$1, 557,372,997

$1,029,967,344 $1,126,682,232

$1,168,521,140

191, 227,140

1,099,246,797

About 55 per cent of our total exports are agricultural produce and raw
materials and 45 per cent are manufactured and partly manufactured goods (excluding manufactured foodstuffs).
About 75 per cent of our exports of agricultural produce and raw materials go to Europe and about 25 per cent to the rest of the world.
About 26 per cent of our manufactured goods go to Europe and 74 per cent

elsewhere.

Our exports of agricultural produce comprise, roughly, 15 per cent of
the entire crop value on the farm, while our exports of manufactured goods
comprise less than 4 per cent of our production. our :exports of agricultural
produce to Europe comprise 11 per cent of the value of our agricultural production, and less than 1 per cent of our manufactured production.

This last fact has much to do with our ability to shake loose from

European economic currents in the manufacturing indttstries and with the
strengthening of employment in our home industries, we will, no doubt, increase home consumption in agricultural products.




2




.MON Of TAVO.Plett,
STATENCO

Typed by

r,crnpar.

OrfP.1114:11T,

....tc,:rt

2-- 2urrents in Foreign Trade

during the previous year.

Fbr the year 192C-21 the excess of export goods o'er imports, i.e., the
total trade balance of $2,862,00C,000 was liquidated ink part by S511,000,000
in precious metals shipped to us in part by invisible exchange of, say,
$1,100,000,000, leaving an apparently unliquidated balance of about
$1,200,000,002 to $1,300,000,000 for that fiscal year. A study of the banking returns of unfunded foreign advances at this time does not -bear out the
conclusion that such an amount of private financing of 3xports, as indicated
above, was ever undertaken and thus the probabilities am that the
speculative
losses in European currencies and other investaent :3 and other forms
of invisible exchange were even larger than has been estimated above.
For the year 1921-22 the excess of exports over in.2orts of $1,163,000,000
was liquidated in part by 6449,000,000 net imports of precious metals and
this, together with the additional estimated balance ag-inst us of
$1,500,000,000 of invisible exchange, exceeds the amount necessary to square
accounts by some 750,000,000. No doubt this was at lest partly absorbe,d
in repayment of private loans because even a smaller am)unt of private export financing existed in July, 1922, than in July, 122: . Generally this
change indicates a much sounder and firmer basis of trat e.
GOLD MOVEMENT.

The gold situation in the world is a matter of a g:eat deal of economic
thought and no doubt the heavy drain to ilz8rica has coa'ributed to the instability of f °reign currencies, not only by the diminu'-ion of their essential guarantees but also by their fluctuation involved nn liquidating trade
balances in this fashion. Our gold stock s ambunt to abut $3,077,000,000.
Of this, the minimum legal necessities at the moment for assurances to our

currency and credits aznount roughly to about $1, 600,00C ,000, but for a 60
per cent reserve of security, 7,0 would require about
400,000,000. The re-

f ore, our surplus amounts to somewhere over $700,000,2)0. Mile this is an
asset, it nevertheless would be more advantageous to vs if it were in active
use. The automatic tendencies in our international tiade and financ'ial re-

lations are, however, setting strongly toward rectifitoation of this whole

situation without artificial acticn.

There is a steady increase in the ratio of imports to exports of goods,
as indicated by the decrease in the average monthly ',alances in our favor
over the last 2-1/4 years.
Six months July 1 to Lhc. 30, 1920
Jan. 1 to Jul 3r 1, 1921
July 1 to rec. 3C, 1921

Average lonthly
t 2-74, 674, 311

202,323,536
126,980, 328
66,887, 576

rec. 30 to July 1, 1922

Three months July 1 to Oct. 1, 1922

At this rate we would, theoretically,

"-

51, 623, 542

rTneTEie movement

of goods in another few months. However, economic o v e ments do not proceed
on time schedules, although their trends are no 10:33 positive. ' ,T,any uncertain
factors naturally affect cormodity movements and bu t little beyond tendencies



'

r




DIVISION OF TArDt OtTI,

STAT I :,,TICS

DITAlt I MEM.

Typed

C mpared Ly

jet,k9Aht--,)

k-

TEMOrIARY
NOV

Polerved fei u

rl

Fl LS

1922

th4t ,Affallr

re ni*.g)

r 6, 1922.

,A

DE P ARV* ,i2-bCE
Washington
CURRENTS IN FOREIGN TRADE
(Extracts from the forthcoming annual report of the repartment of
Commerce for the fiscal year 1921-22).
During the twelve months ending June 30, 1922, our 'foreign trade suffered
The monetary value of our exports
in corznon with the general world depression.
and imports during tne pericd in question, in comparison with the previous
fiscal year, is shown in the following table:
1920-21
$3,654,459,346
6,516,510,033

Imports

aperts

1921-22
$2,608,079,008
3,771,286,428

Total foreign
10,170,969,379

trade

Balance of exports
over imports

6,379,365,436

2,862,050,687

1,163,207,420

The fall in the monetary value of imports was therefore 28.6 per cent, in
The great decline
exports 42.1 per cent, and in total trade 37.3 per cent.
in value from the previous year was due in a large degree to a fall in prices
rather than in quantities, as indicated by the tables of quantity movements
From these tables it will be seen
of larger commodities in this statement
that our azrieultaral experts were actually larger in quantity, during the year
A
of depression, although they decreased in value by about $700,000,000.
study of the whole export and import list so far as quantitative statistics
are available indicates that roughly our trade in 1922, if it was valued at
1921 prices, would have shown a decreaae in exports of 12, percent, an increase
in imports of 29 per cent or an increase in total trade of roughly 2.7 per cent.

INVISIBLE EXCHANGE
The influence of the balance of invisible exchange in our whole trade and
It is Possible to estimate
financial relationships is of growing importance.
roughly some elements in invisible exchanp.:,e, such as public issues of foreign
loans, tourist traffic, remittances of immigrants; and freights.; but other
items such as private loans, reciprocal interest payments, investments, and
Foreign
loss by speculation in foreign currencies are unknowable factors.
loans were issued publicly during the fiscal year to the amount of $1,015,000,000
Vhat the ebb and
as compared with $618,000,000 during the previous year.
It would appear
flow of private loans may have been is, of course, unknown.
that the net balance of the other items against us amounted to a minimum of
In any event, the invisible
from $400,000,000 to $500,000,000 per annum.
exchange against us could be approximated_ at not less than about V_,000,000,000
or $1,100,000,000 in 1920-21 and. about $1,400,000,000 or $1,500,000,000
1921-22.

The balance of goods in our favor drew a net amount of $449,000,000 in
silver during the fiscal year 1922, as compared with $511,000,000


gold and





FEDERAL RESERVE BANK

OF NEW YORK

OFFICE CORRESPONDENCE

DATE
SUBJECT.

December 7,

1922

Dollar values of goofstuffs ex-

ported

Attached are the dollar values of foodstuffs exported, for calendar
years back to 1913.

I enclose also a statement from the Department of Commerce,
page 3)1 that also gives a vivid

idea

of

the

(see

situation.

I think it would be well to note that last year,

the year

of the

greatest depression and especially in farm products, was the year of the great-

est farm exports we have ever had.

MISC.3 I STAT.3000-10-21

FEDERAL RESERVE BANK

OF NEW YORK

OFFICE CORRESPONDENCE
To

--------Cverrmr

DATE
SUBJECT:

S

D_eaemb er 5,

1922

Th_e Voluof Goods and_Prizes

y_dar

(1)
From 1910 to 1920 the total tonnage accepted for transport by the
railways increased at the rate of 2,2 per cent, per annum (this is not ton
miles moved but total tons only).

01

From 1900 to 1910 the rate of growth was a little higher,
about 3 per cent., the slackening tonnage being due, apparently, to the
rapid development of waterway and motor truck transportation.

But do not these facts, tallying as they do so closely with our
estimate of the rate of growth of the total product of the nation, show
clearly that the variation in the volume of goods produced and services
rendered (outside of the crop yields) is extremely small, and not extremely
large, as popular imagination had always pictured it
And does not this make it clear why even so small a rate of in
crease in demand deposits, as a little over 3 per cent, per annum, before
the war, was sufficient to finance the total volume of trade, even at a
slightly rising level of prices?

The estimates we gave in this week's Summary, as to the vol(2)
ume of trade and production in 1922, show pretty clearly that we have largely recovered from the slump of last year, and that we are probably pretty
nearly back to what may be called the normal line of growth, a little below
it, perhaps, but not over 5 per cent. below.
Now, if 1920 was only about a normal year, as we compute it, is
it not clear that an excess of credit needs of approximately 100 per cent.
applied to about a normal volume of goods, could only have the effect that
it did have, that is, of increasing prices and nothing else?
And if today the total volume of purchasing power, as represented
by demand deposits of the banks, is greater than in 1920 and the volume of
goods about the same, is it not probable that we shall have identically
the same effect?
We have expanded our bank deposits by.more than3 billions in the
last year, bringing them to the highest point yet reached.
What I am wondering is whether we are not going to have a general
level of prices, and probably an estimated cost of living, higher than in
1920, even if the index of wholesale prices does not rise quite so high.
And if this was anything like the probable prospect, then ought
not the Federal reserve banks promptly to get rid of their investments, force
rediscounts, and then put up the rate as soon as possible?
If they don't
now, then won't it be too late?




MISC.9 I STA, 3600-10-21

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE

DATE
SUBJECT:

5, 1922_192

New Farm Bloc

Prof. John R. Commons, who, as you know, has accepted the
presidency of the National Monetary Association, said yesterday, at a
luncheon given for him here, that Senator LaFollette had always been,
and still is, a sound money man, and that, radical as he is, he has
never leaned towards any kind of vicious financial legislation.

He

believes that, if Senator LaFollette were provided with full information regarding the credit and currency situation of the country at the
present time, and his intere9t elicited, that that would be the end of
any kind of dangerous legislation in the Senate.

This seemed to me a

very interesting point of view, and for this reason I am arranging for
Prof. Commons to have a talk with Mr. Jay.




MI.. 4,

FEDERAL RESERVE BANK

OF NEW YORK

OFFICE CORRESPONDENCE

DATE

To

Governor Streng_nnd_Mr. Joy

SUBJECT:

FROM

Mr. Sllyder

Deoember_4,__

_Asso4iation




192_2

Dinner_OtAmericanStatistical_

I do not know how muoh this would interest you, but if it would,

and you were free for that evening, T should he very glad if you could come
as my guest.




FEDERAL RESERVE BANK

MISC. 4.1.

OF NEW YORK

-OFFICE CORRESPONDENCE
To
FROM

----GovernorStrong

DATE__41,0vomber49 T-

1922_

SUBJECT:

Snyder

When you are in need of a little diversion, you might be interested
in the very shrewd observations on human nature and crowd psychology contained
in this very popular article--if you have not seen it already.
I even thought that there were one or two good pointers in it for
ourselves--one, especially, that the public is not greatly interested in approvals of any past nerformance, however good--that they want something always
for the future.




SUGGESTED TOPICS FOR THE ANNUAL REVIEW

Arrest of deflation.

Revival of inflation.
The big rise in prices, giving list of commodities that
have risen 50 per cent. or more.
Great expansion of bank deposits compared with pre-war
percentages.

Huge increase of investments by banks, creating
The great

bond and

stock markets.

Increase of foreign balances in American banks probably
a contributing factor.

Continuance of gold imports, but at

a declining rate.

Corresponding decline in tY,E1 excess of exports.
Revival of trade production and railway traffic.
Heavy volume of retail and wholesale sales.
Enormous boom in building continues.
Automobile

production probably

breaks record.

Heavy increase in employment and
Turn in the trend of wages upward.
Shortage of labor in many lines.
Disturbance to business, manufacturing and wholesaling,
from high cost of raw materials, rising wages, and
labor shortage.

Average cost

of living continues low, owing to the low
level of grain and food prices, which has been advantageous to the urban population but hard on the
farmers.

MISC 3 I STAT.10,-

FEDERAL RESERVE BANK

OF NEW YORK

JFFICE CORRESPONDENCE
To
FF301A

DATE

1922

Annual Review

SUBJECT

Mr, SylyderL__

November 2a ,

2

The average rise on our list of twenty basic commodities,
and also of Bradstreet's list, has been about 25 per cent.
This is
greater than the
at least fifteen years before the war.

total rise in

The returns of the National banks for September make it
clear that bank deposits in the last twelve months have increased some-

thing like 15 per cent., due very largely to the heavy investments of
the banks in bonds. This stands against a pre-war average increase of
about 6 per cent., and in the five years just preceding of about 5 per
cent.; and of only about 3 per cent, in net demand deposits, which are,
of course, the vital thing.
We have had the greatest boom in the security markets, in
We have probably never had quite
some ways, that we have ever known.
such a bond market, and the duration of the rise in stocks, and the perI gave a list of
centage as well, has certainly broken all records.
or more stocks some months ago, that had risen by 100 per cent.
eighty
or more from the low point.

'4)

greatest inflow of gold in the last two
known in peace times in any country.

We have had the

years ever

we have had what is described as the biggest building
boom the nation has ever known, and
exceed all records.

Must we not reoagnize
and not simply of "recovery"?




automobile

that these

are

production will probably

the evidences of inflation,

CC

MISC 3 I STAT. 3600 %.111-3,

FEDERAL RESERVE BANK
OF NEW YORK

,),FFICE CORRESPONDENCE

DATE
SUBJECT:

_G_o_vernor Strong

FRam

Novambor 28,

19k. 2

Annual Review

Mr. Snyder

As regards the

most striking occurrences of

the

current year:

I find myself, as events become clearer, growing to the conviction that we can no longer regard the "recovery" of the last year
as a mere rebound from a period of depression; the expansion of deposits
and the rise in prices have been too great.
A year or so from now I
think we shall recognize that the period of reinflation set in at the
beginning of 1921 and was continued, with practically no let-up, throughout the year.
Consider the facts:
(1)
Here are 21 commodities which, from the low point of last
year, have risen 40 per cent, or more:




Lumber
Steel Beams'

Hides
Rubber
Linseed Oil
Corn
Coffee
Sugar
7,ggs

-

Butter
Pig Iron
Steel Ears
Pig Lead
'inc

,ituminous

Coal

Petroleum
Haw Cotton
Cotton, print
Wool, raw
Silk, raw

NEr YORK UNIVERSITY BUREAU OF BUS
Reserve

ES

RESEARCE

Ratio Questionnaire

rhat do you consider an adequate ratio of reserves to
combined deposits and outstanding Federal ResorTe
notes during a period of normal business?
For your Federal Reserve

District

For the Federal Reserve Systela

rhat is your basis for this conclusion?

During a period of abnormal business expansion, to what
minimum figure do you believe this ratio should be
permitted to fall?
For your

Federal Reserve

For the Federal Reserve

District

System

May we use your name in this connection?
Do you desire a copy of the Bureau's report?

That is




your

Reserve

opinion of the significance of the Federal
Ratio as an index of business conditions?

(Signed;

(Institut:I.on)

NEW YORK UNIVERSITY
BUREAU OF BUSINESS RESEARCH

go TRINITY PLACE, NEW YORK
TELEPHONE: RECTOR o 8 8 2

LEWIS H. HANEY, DIRECTOR
N63,...S A. BRISCO. MERCHANDISING
WIL,JAM F. CORNELL, PLANT MANAGEMENT
J. ANTON DE HAAS. FOREIGN TRADE
ROLAND P. FALKNER, STATISTICS
ELMER E. FERRIS, SALESMANSHIP
LEE GALLOWAY, BUSINESS MANAGEMENT
CHARLES W. GERSTENBERG, FINANCE
GEORGE B. HOTCH KISS. MARKETING
JOHN T. MADDEN, ACCOUNTING
JOSEPH W. ROE, INDUSTRIAL ENGINEERING




November 24, 1922.

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

Attention of Mr. Cari.Snyder:
Gentlemen:

This Bureau is engaged in a study
of the Federal 'Reserve ratio, in connection
with which the opinions of selected banking
experts are being sought. You will greatly

oblige us by filltng in and returning the

-

enclosed farm.at your very earliest aonvenience.

'Mile individual replies will be held
in strictest aonfidence, we shall be glad to
send a Copy of the results' of our investigation
to those wh-o co-operate with us.
1r=ery, try yours
NEll YORK MITITERSITY
PUREAtHCf BUSIYESS ESEARCH

Director

INISC.3 I STAT.3100-11,,..1

FEDERAL RESERVE BANK

OF NEW YORK

DFFICE CORRESPONDENCE
To

Governor Strong

FLH4I

Mr.

DATE
SUBJECT'

November 21,

_1922

Internatibnal Debt

2

double those before the war and from one-third to one-half higher than present
incomes.
Nor does it seem a fair statauent to suggest that the people of
this country would sustain a "loss" if these debts were pared down to a gold
or commodity-value parity, because all of the "loss" involved would represent
simply the fictitious value that we were able to put upon our goods, owing to
our Allies' supreme necessities.
Rut, for one, I would waive all these questions of equity and all
other discussions if we could boldly adopt a policy of saying that we would
enforce the payment of these debts to the last dollar of interest, and without quarter of any kind, if Europe is going to go on maintaining large standing armies and big navies.

Surely the splendid gesture, though it may have meant little more
than that, that we made at the Washington Conference, deserves to be followed
up in a way that would really mean the realization of the thought behind that
Conference.

1

If we could buy the peace of Europe, and therefore of the better part
of the world, for 10 billions, wouldn't it be cheap at the price?

(;)u,

tt.




MISC.3 1 STet7.3600-10-aV7

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
To

DATE
SUBJECT.

Strong

November 21,

192

Internatione1 Debt

There is one phase of the question of collecting our debts from
Europe that has been very little dwelt upon, but which seems to me at least
That is the matter of equity.
a primary question.
We are demanding payment from Europe in gold.
But we did not loan
any gold to Europe.
We sold them goods and took their I. 0. D's.
These goods were sold to them at extravagantly inflated war prices.
We are now asking that they be paid in full in dens.ted gold prices.
Does
this seem to you a very high-minded attitude?
Consider the implication:
Supposing the war prices had been, not roughly about twice present
gold prices, but, let us say, ten or, better, twenty times present gold prices.
Would anyone then dream of endeavoring to make full collection in gold?
Or if ten times or twenty times be not sufficiently clear to enforce
the arguynent, supposing it were fifty times.
Is the case any different now
that the war prices are only about 100 per cent, higher, let us say, or 200 per
cent., instead of a thousand or 5,000 per cent. higher?
Here are some of the prices at which we sold Europe 8 to 10 billion
dollars' worth of goods:

Wheat
Corn

Hogs
Pig Iron
Steel
Copper
Cotton
Hides
Tobacco

$2 to $3
$1,25 to $2 (Sept.1'7, $2.06)
$15 to $20
$40 to t50
$80 to $95
300 to 350 per pound
300 to 420 per pound
$40 to $50
350 to 490 per pound

Not for money loaned but for goods sold at these fictitious war prices
we would ask full payment in gold.
Is not this asking for two pounds of flesh,
or three, instead of one, which would be stipulated in an equity proceeding?
The seine line of argument applies especially to France, Italy and
similar countries, where the rate of exchange has shown no such improvement as
in the case of England.

And is it to the point to say that the people of the United States
taxed themselvee to provide the loans for these amounts?
They did not tax
themselves to the extent of any 10 billion dollars in gold.
They taxed themselves at war prices and bought bonds on war incomes which were, broadly sneaking,







6

FEDERAL RESERVE BANK

4.1.

OF NEW YORK

FICE CORRESPONDENCE
a
ROM

_0 rnO

Strong

DATE
SUBJECT

Noverabsr 20,

Credit An la 1 ys; s

Mr. Snyder

With reference to yours of November 15:

The figures for the 800 Reporting Member Banks are inconclusive,
and even misleading until they can be checked up by the returns from the
National Banks, and, better still, from the full statement of the whole
system.
We have tried to make as full an analysis as possible from the
returns available to date, i.e., to June 30.
The full figures for the Comptroller's call of September 8 will
be available this week.
I have tried to obtain an advance copy of it,
and may have it tomorrow.

711M1

a4

1922

NIISC 3 I SIA7.3600-10-21

FEDERAL RESERVE BANK
OF NEW YORK

)FFICE CORRESPONDENCE
To

SUBJECT

novArnarStrOne.

Fasm

DATE_NOYellIbef 16,

Mr. Snyder

1922

Ratio of Deposits to CUrrenCY_

in Circulation

With reference to your inquiry as to the constancy of the ratio
between the estimated amount of demand deposits and the total amount of
currency in circulation outside of the banks and of the Treasury, I submit
the following computation, the figures being taken as of July 1 of each of
the years:
1919

1920

1921

laga

5.15

4.86

4.98

5.53

In this period, as you will recall, we had probably the greatest
expansion, alike in bank deposits and in the amount of money in circulation
outside of the banks, of any peace-time year in a half century, I should
say, and then the greatest shrinkage.
Roughly, from the early part of 1919, Federal Reserve notes expanded by about a billion or something like 20 to 25 per cent, of the total
And, as you know, the increase in bank deposits from the
circulation.
spring of 1919 to 1920 was without any parallel, even including the war
period, in half a century.
Then came a shrinkage of the note circulation to a total of something like 1400 million, and in deposits of a corresponding amount.

Yet, despite all this, the ratio of the four years was very closely
The two high points of 1919 and 1922 both came at a time when
the same.
bank deposits had been expanding more rapidly than general business.
In
the two intervening years the reverse was true; and this seemed sufficient
to account for the slight difference shown.
It is the constancy of this ratio, it seems to me, which gives the
Federal Reserve Banks the greatest leverage they possess over the tendency to
excessive expansion and inflation.
(If an increase in the total of demand
deposits soon carries with it a corresponding demand for money for hand to
hand use, then any tendency to expansion will, under our present system,
carry with it a corresponding demand for Federal Reserve notes.
In fact, as you know, practically all of the expansion of rediscounts
from 1919 to 1920 was taken out in Federal Reserve notes.
It is for this reason, it seems to me, that we can rely upon the
fact that the rediscount rate at the Federal Reserve Banks could very easily
be made a real control over expansion,
heedless to say, this control would
be very much greater if the gold reserve were not so great and the reserve
ratio were not so high.
It is this latter and the question of public support
of a proper rate policy which seem to me the real problem.

74Z


17-4,4L,49-1--444.eits/,

-

MISC 3 I STAT.3400-10-21

FEDERAL RESERVE BANK

OF NEW YORK

3FFICE CORRESPONDENCE
To

Governer Strong

FkC..m

DATE

November 16,

192 2

Prices, Magee and Credit Volume

Mr. Snyder

SUBJECT

3

The price of food at retail, in this case, would tend to rise much
more rapidly than prices at wholesale, since in general retail food tends,
in times of expansion, to run closely with or above the estimated cost of
living, and also factory earnings in New York State.
The index of the cost of living reached a low point last March,
The public quickly
and has since remained practically at the seine level.
adjusts itself to a given scale, and if there be now a rapid increase in
this figure we may expect a renewal of the outcry at the high cost of living,
and a corresponding demand for higher wages.
If we are in a period of expansion and rising price level, the
natural tendency is towards an increase of wages, rather-than the opposite.
If the tendency as to wages in the last three or four months be an earnest
of what is to come, especially if prices continue to rise as rapidly as they
have, shall we not then be in the full swing of the same vicious circle as
in l919?
I attach two charts which depict graphically the relationships,
which have here been discussed throughout the last four or five years.




NI1SC 3 1 STAT 34300-10-21

FEDERAL RESERVE BANK

OF NEW YORK

)FFICE CORRESPONDENCE
To

FROM

DATE
SUBJECT:

_GovernorStrong
Mr. Snyder

November 16,

192 2

Prices, Wages and Credit Volume

2

The actual increase up to last July, as we estimate it, was about
This amount has, of course, been rising steadily since.
20,600 millions.
This would give a theoretical ratio, of the actual amount of outstanding bank credit to the maximum estimated amount required to finance
industry and trade at a slowly rising price level, of about 183.
In other
words, the present amount of credit is 83 per cent. in excess of the estimated
required amount.

Of course all these indices are not to be taken as absolutely exact, but with a certain and possibly considerable probability of error.
Of
all of them, the least probable error seems to be in the amount of excess
bank credit outstanding.
If this can be taken as some approximation of
the fact, then we would be led to the view that the present level of unskilled labor (180) corresponds somewhere near to the theoretical wage level.

The average weekly earnings of the workers in the New York State
factories appears to be somewhat above this theoretical level.
The average cost of living is very considerably below this estimated
level.

The level of prices at wholesale is apparently very close to the
estimated cost of living in a skilled worker's family.
The average of food prices at retail appears to be much below the
level of wholesale prices, and so much below that this discrepancy pi-obably
cannot long continue.'
If this be anywhere near the true picture of these relationships,
then we might perhaps infer the following:
As we are in an obvious period of expansion and upswing, the level
of wages and factory earnings would probably not be lowered.
If this be true, the cost of living and of both wholesale and retail prices will tend to rise to a level somewhat corresponding to the wage
level.

If there be no further expansion of bank credits, we might expect
wholesale prices to rise by another 20 per cent., and if this took place
this would probably mean something like a corresponding increase in the cost
of living.




MISC 3 I STAT.3600-10-.1.,,

FEDERAL RESERVE BANK

OF NEW YORK

OFFICE CORRESPONDENCE
Govarnor_Strong___
Fovr.

DATE
SUBJECT.

November 16,

192_2

Prices,_Wages_and Credit Volume

Mr. Snyder

I have put together the following, in an endeavor to get at, if
possible, the reasonableness of present relations between the volume of
outstanding bank credit and wages and prices.

In the ten years preceding 1915 the average rate of increase
of demand deposits, excluding Government deposits, appears to have been very
close to 3 per cent.
Yet this increase was sufficient to finance a mall
but steady increase in prices.
The Bureau of Labor's ennual average of
prices at wholesale, as now revised, stood at 88 in 1906, and for the three
calendar years of 1913, 1914 and 1915 at 100, 100 and 101.
This was an increase, then, of about 13 per cent, for the ten years,
The inference seems to be, thereor a little over 1 per cent, per annum.
fore, that an average annual increase of 2i- per cent. per annum in demand debroadly, be sufficient to keep the average of all prices on
posits would,
Anything in excess of this means rising prices.
a fairly even keel.

We have had, within the present year, an increase in the demand
In
deposits of the Reporting Member Banks of something over 10 per cent.
the same period we have had an increase in the average of prices at wholesale
exceeding 15 per cent, Bureau of Labor index (Bradstreet's and our 20 basic
from 22 to 25 per cent.).
This raises the question as to what is the present relationship beAs
tween bank deposits and prices and wages as compared with 1913 and 1914.
regards the latter, we have the following indices, 1913 or 1914 being taken
as 100:
Average weekly earnings in the New York
State factories
Unskilled labor in the Second Federal
Reserve District
Prices at wholesale, Bureau of Labor index
Cost of living, National Industrial Conference Bureau index
Retail food index, Bureau of Labor

200

-1

180
153 (September)

155
140

If we imagine that industry and trade has, in the last eight
years, expanded at about the same rate as in the preceding ten years, then
the credit requirements of the country would, in the eight years from 1914
This would mean
to 1922 inclusive, have expanded by about 27 per cent.
that the private demand deposits, as reported for July 1 of each year, would
have increased from 8800 millions to about 11,300 millions.




; FEDERAL RESERVE BANK

MISC. 4.1.

OF NEW YORK

OFFICE CORRESPONDENCE
I

To
?6,

Ocoternor_Strong_

DATE-

Novenber-15,

SUBJECT:

Mr. Snyder

We do not seem to have any very good account of the bitter
dispiate over the Constitution.

The attached from Prof. Charming is

rather mild (page 495).

The course of prices at wholesale before the war is given on
page 131 of the attached volume, "Index Numbers of Wholesale Prices in

the United States and Foreign Countries."




192 2_

116C 3 I S1,3.3600-10-31

FEDERAL RESERVE BANK

OF NEW YORK

OFFICE CORRESPONDENCE
Governor _Strong_
FRoM

DATE
SUBJECT

November 13,

192 2

DinnAr of Novemilar_23_

Mr. Snyder

idIf you lunch with Prof. Chandler on Friday, the i

,

there will be

Houston, Mitchell, Rorty and one or two others, so I have not included any
of these.

I suggest that you might make up your list from among the following,
and I should think it would make it a much more intimate discussion if you did
not ask more than six or eight:

)(
0.0000000"

David Friday

William Trufant Foster
Harold G. Moulton
H. J. Davenport
Warren F. Persons
or
Allyn A. Young

(LIPUgin(1/

Clyde King

E. W. Kemmerer
E. R. A. Seligman

?Z

iV3%/

aaaluiLLILLE61444,W
Sydney Anderson is expected at the Academy meeting on Friday afternoon, and if he were coming over might be added.
will occur to you.




Probably some other names

MISC.9 I STAT.3600-10-21

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
Governor Strong
FROM

DATE_Revember 10,
SUBJECT

1922

Bank_Rate Policy

Mr. Snyder__

With reference to your question yesterday, as to how far I was in
greement with the Christmas cable of December, 1920, I would like to draw
attention to a few paragraphs in the two attached memoranda.

I

You will see

that on October 26 I raised the question if the time had not come to reduce
the rate, and on December

1, in a still longer discussion, I renewed this

suggestion.

I would like especially to draw attention to paragraphs 8 and 9 of
the note of December 1, and paragraphs 4 and 5 of the note of October 26.
You will see that it was my belief that
64 4-t.

expansion was delayed until it was too lat

just as pressure against

etvg9"..,

f-e-g-1---4.-44errtrittrrriciTT.M`t

that the speculative bubble would have burst at about the same time in 1920,
whether there had been any Federal Reserve System or not, for the simple reason
that the collapse began outside of the United States and would have almost in-

evitablearTied with it a corresponding collapse here.

And secondly, that
64.4
pc
the-grtrffrare wastkept on too long, and *early after the necessity had passed.

It seems to me that these are matters now which we ought to consider
pretty carefully, if anything effective is to be done.







W.. 4,

FEDERAL RESERVE BANK

OF NEW YORK

OFFICE CORRESPONDENCE
Governor Straaz

To
OM

DATE
SUBJECT:

( k.k

9)\

Agricultural Situation_

Mr. Snyclor

This seeds to me a pretty bad piece of work, all through.

be glad to specify, if you desire.

I will

192

:FEDERAL RESERVE BANK

OF NEW YORK

OFFICE CORRESPONDENCE
_Gov arnarSintng_

To
JM

DATE
SUBJECT:

Hoven0r 6,

BiIZiIg Theory

Hr. Snyder

i should be extremely interested to know your opinion of

Mr. Rortyie little paper.
question in banking theory.




It seams to me that it raises a very important

1921




GFoi

FEDERAL RESERVE BANK

MISC 4.1,

OF NEW YORK

OFFICE CORRESPONDENCE
To
FROM

Mr. Snyder

DATE

rOV. 8, 1922.

SUBJECT:

Mr. Roberts

Miss Youngman quotes Governor Strong only once in the attached article. This was on page 423, and was in connection with a discussion of the
theories as to the nature of capital and credit.
As near as I can make out from a rather obscure argument, her observation is that the statements of the Federal Reserve Board have placed Emphasis on the interpretation of capital in the general economic sense of "goods",
with credit merely a reflex of the demand for such goods. It is in upholding
her view that for purposes of discussion of discount and credit policy, capital and credit should be considered synonymous, as in the money market sense,
that she quotes testimony of Governor Strong before the Joint Commission as
follows, "Credit is a commodity just as anything else that is bought and sold
and commands a price which is fixed by the laws of supply and demand."
It doesn't seem to me that anything has been said that would call for
serious objection.

192_

MISC 3 1 STAT.3600-10,1

FEDERAL RESERVE BANK

OF NEW YORK

OFFICE CORRESPONDENCE
To

Governor Strong

F", am

DATE

192;

Novueber 6,

German Situation

Mr. Snyder

SUBJECT,

As you know, I got the impression a year ago last summer, in

conditions in that

Germany, that industrial

country were steadily Im-

proving; and nothing I have seen since has changed this view.
be true,

then Germany's difficulties

currency difficulties and

are

almost purely

If this

governmental and

little more.

Of course I believe that the total amount assessed against
Germany by the

London

Protocol was absurd, and a flat violation of a

definite agreement at the Armistice, not to include pensions in the repa-

rations demand.
asked of

But, on the other hand, I don't

believe that the amount

Germany, as an annual payment now, was at all beyond her

capacity

to pay.

I cannot

get away from

uation was more or less

the impression that the whole

present

sit-

permitted by a set of crafty and customarily dis-

honest and bungling politicians, aided and abetted by a just revolt on the
pert of the German people against

the outrageous reparations assessment.

Now, if these are anywhere nsar the facts, is not the
Commission, including your friend, going at

the

matter

aeparations

in the wrong way,

and is not the real remedy in such a matter as this "pitiless publicity,"

with accurate facts and




figures?

MisC.3 I STAT.360010-21

FEDERAL RESERVE BANK

OF NEW YORK

OFFICE CORRESPONDENCE
To

r

FROM

DATE

November 3.

1922_

Mr. Smyth's,

JLj IL

SUBJECT,

foreign Debts-...3

Germany had a bad setback from the war, probably greater than any
other nation, and this may have largely cancelled her normal rate of growth,
which was probably very nearly the same as that of this country or of
England, an we know that the same growth was equally true of a country like
Sweden, i.e., about 31} per cent, per annum.
This rate of growth, compounded for eight years, would have added

about one-third of her total product. I find it hard to believe, therefore,
that in the clear and positive recovery in four years since the Armistice her
total product in not now somewhere near that of 1913.

If this be true then Germany's ability to pay anuld be about the

same as England's, i.e., her estimated income was somewhere around 11 billion
dollars, or around 44 billion gold marks.

Her estimated savings were around 15 per cent. of this, or 7 or 8
billions of gold marks. I can see no reason whatever, except the lack of a

stable and honest Government, why Germany should not pay this year, if her
people were willing to be taxed, somewhere near the 2 billion gold marks
that were required of her. All that would be required, it seems to me, would
be a strong and honest Government, a sound currency, and a sound and equable

systelof taxation.

It is nerfectly true that such an impost 'mould very seriously affect
her industrial growth and capacity to keep up with other countries; but we
are not now thinking of what is just or equitable, but of the simple question

of her actual financial ability to pay.

I know how widely such a view as this differs from all that has been
written on the subject, even by very able men like LcKenna, Keynes, Cassel,

and others, but I cannot help thinking that this is the true method of getting
at the Question and that, so far as Germany is concerned, the real condition
has been camouflaged by a weak, dishonest and hopelessly incompetent Govern..

ment and the disposition of her citizens to concur in the policy which has
been followed, in the hope that it may bring a more speedy revision of the treaty.

Possibly this WW1 the only feasible course that could have been taken,
in view of the position of France. But this does not seem to me a valid
reason why we should not understand very clearly just what is going on.

I should like ever so much to know if the above method of calculation
seems to you to be sound.




PAISC, I STAT,600.1021

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE

DA-rE Novanber

To1161101111.111111W
FROM

SUBJECT.

3,

192 2

Foreign Debts - -2

UrA_Snydor

would be slight and there would be the resultant gain to the whole world
from the willingness of England to sell her products at a lower price than
hitherto.
Any other view, it seams to me, would bA in effect to suggest that
or increased production, is a loss and a harm--an
argument very frequently used, it is true, but no sounder for that.

low-priced production,

If this be true then the
any given country, what is its income?

What is the disnosition

important question to know is, for

of its people to tax themselves?

Whatare their normal annual net savings?

What is the normal rate of

action on

growth?

Can this net saving be increased by any governmental or voluntary
the part of the people?

To take an example:
A number of different and very careful estimates before the war sethe so-called money income of Great Britain at around 2,200 million pounds,
say in round figures eleven billion dollars. And the corresponding estimate
of the normal savings of a modern inductrial state, like the United States,
:gland end Germany, is around 15 per cent. It is imnossible to fix this
accurately.
On this basis, then, the outside limit of ability to pay would be
something like 15
dollars.
Actually, of course, this
would probably be far beyond the capacity of the country.
But my own thought
Ins been that 5 per cent, of this estimated net income might not be impossible
to realize.
This would mean, say, for England around half a billion dollars
a year.
And for this purpose, as I conceive it, it would make relatively
what is now or has been abgland's nominal trade balance.
I conceive that her own internal development and the expenditures for these
far outweigh her investments abroad.

per cent. of 11 billion

little difference

III. It seems to me the same line of reasoning would anply equally
well to Germany, and even at the present time. Even now I have an idea that
Gereany is producing within 85 or 90 per cent. of her total product before
the war. This is only a guess, but I think it is better grounded than most
other




guesses.

Mit. 3 liSTAT.3600-10-21

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
SUBJECT

-.11IIIIIMP-111111111M
FROM

DATE

November 2,

192_2

Ilareign Debts

_11.r.aanyder

With reference to your letter to Mr. Gilbert, of October 20, I
should like to suggest the following, in order to have your opinion:

I. The ability of an individual or firm to pay a debt may rest
upon tfleir cash balances or their holdings of securities; but if it is a
long-continuing payment it will rest rather with the question of their income.
The amount which can be paid annually, say, will depend upon the
difference between the income and the expenditure, i.e., in part upon the
disaosition to restrict axnenditure, or as we may put it, to tax themselves.

Her ability to
Ts it not the same with a country!
Take England
pay an immediate debt, an, for example, i rance did in '71, would depend upon
But for a longher cash balances or holdings of her securities, etc.
continued payment, as proposed, would her capacity not depend rather upon her
total income and net annual saving as a nation, rather than upon any nominal
balances of her export trade, as Mr. McKenna and others have so repeatedly
and insistently declared'

To take an example:

available opal.
market, at, of course,
of

and,
than

Supposing that

England had a very great supply

Her production then would be limited

by the available

the price she could offer.

Now, supposing that the Goverament commandeers the opal produced
after providing for domestic wants, offers it abroad at a lower price

the

It might be able then indefinitely to expand its
purchase cost.
and in that way create huge balances in its favor.
True, it %mild
have to make up the deficit created by selling below cost, but this in turn
could be met by taxation.

market

Now, what aaplies to coal miftatisiply to all her industries.
In
lengland might commandeer herNmports and sell them at a lower
market, and meet the deficit
price abroad, and thus indefinitely expand
by taxation.

other words,

its

In this way it could create foreign balances up to the limit of
how, my point is: Is not this
the willingness of her people to be taxed.
not all the talk about
the true measure of a nation's
former or present export balances quite beside the mark!

ability to pay, and is

of course, be said that this would violently disrupt intertrade and be disastrous to other nations. But if it was done as
It may,

national
the result of a carefully mapped out and published policy continuing over a
series of years, the temporary disturbance to industry in other countries







RANK REPORTS SHOW
PROSPEROUS COUNTRk
Controller
77.1

Crissinger

Dec

es

"Ail Charnels of Cataierce
Appear to Be Active."
WASHINGTON, Nov. 5.All " chan-

of commerce appear to be active," and " there Is every reason for
the expectation that we are now at the
beginning of an era of prosperity."
Controller of the Currency Crissinger
declared tonight in making public an
analysis of the Sept. 15 condition of
nels

national banks.
As compared with September last year,
Mr. Crissinger reported an increase in
the total resources of the national banks
of more than $1,000,000.000 and an increase of deposits of more than $2,000,000,000. Continued Improvement in the

condition of the national banks as reflected In the September reports. Mr.
Crissinger declared, shows " that our
national banks have very materially
strengthened their conditions during the
past year and are now in a better position to respond to the financial needs of

our Industries than at any time since

the beginning of the deflation period."
Total resources of the national banks

Sept. 15 aggregated $20,926,099.000. an
increase of $220,089,000 since June. 1922,

and an increase of $1,206,919,000 since
September last year. Loans and discounts and rediscounts amounted to
$11,236,000,000, a decrease of $12,000,000
since June and a decrease of $446,000,Cash on
000 since September, 1921.
hand totaled $332,000,000, an increase of
nearly $6,000,000 since June, but a decrease of more than $25,000,000 since
September a year ago.
Holdings of United States Government
securities aggregated $2.402,000.000, an
increase of $117,000,000 since June and
of $540.000,000 since September of last
year, while other bonds and stocks held
amounted to $2,289,000,000, an increase
of nearly $12,000,000 since June and of
$316,000,000 since September last year.
The total deposits in the national
banks aggregated $16.598,000,000 in September. an increase of $278,000,000 since
June and of $2,037,000,000 since September last year. Surplus funds aggregated

a decrease of $6,000,000
since June but an increase of nearly
$1,042,000,000,

$15,000,000 since September a year ago,
while undivided profits aggregated $539,000,000, an increase of $46,000,000 since

June and an increase of $263,000 since
September.
The number of reporting banks Sept.
15 totaled 8,240. an increase of 85 over
the same month last year. while the
Percentage of loans to deposits was
1 07.00 Per cent, as compared with (38.92
in June and 80.23 In September. 1921.
Financiers Asked to Aid Hospitals.
James Speyer, Chairman, and Walter
Frew, Treasurer of the Bankers and
411,ers
Committee of the United
of New York have sent
jaoit
+
.nkers and brokers,
-greeters of any of
elonging to the
ral Committee
'

he Be'

UPTOWN Ornex-3/ Union Spare New ... I
n Orncirs--St. John's Place, Cypress Hill,, L 5erty
UGH Orricts--jamaica, Flushing, Long Islea d City, Far i
rk, Rockaway Peaua,Seaside,.thwerne,Ottone Park, Jackso

nond EN!, Elmhurst, Maspeth, Corona, College Pull
voodhaven,Brooklyn Manor, Ridgewood, Fresh Pond

Capital S5,000,000
(as and Undivided Profits $17,581,039

For the purpose of acco
the citizens of the State
From the Charter of

Loan and Trust G

FIILE the collection and dist

ment of income under a

might seem to lend its
no one knows better than
ries the satisfaction that
,utine is replaced by the sp.
accommodation.

141

FARMERS' LC
CRUST COMP
16-22 WILLIAM STREET
'E. OFFICE, 475 FIFTH. AVE., AT
President

JAMES H. PERKINS 110

AUGUSTUS V. HIV
AN
JAM A. DUNGAN
1.-`tOW1

air




FEDERAL RESERVE BANK

OF NEW YORK

OFFICE: CORRESPONDENCE
To

Governor Strong

Mr. Snyder

DATE

suBJEcIN

November 1,

Reed's Book_othe-Fed-eral Reserve

Syste0

I'd like very much to know your feeling about Reed's book on "The
Development of the Federal Reserve System," as I am going to write a brief
I want to give it any
review of it for The Evening Post Literary Review.
praise it deserves, but I noted several things that seemed to ma mistaken
ideas.




192k

;FEDERAL RESERVE BANK

MISC. 4.1.

OF NEW YORK

-I OFFICE CORRESPONDENCE
To

'Wm

Governor Strong

DATE

October 31,

SUBJECT:

Ar._Bnyder

I do not know whether this shoot in October was due to the

Treasury loan, but it was sure a shoot.




192 2

WSC,A.

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
To
vpRor.4

DATE

Governor Strong

SUBJECT:

Mr_. Snyder

November 3,

AAtc.ler_b2 "The Nation's

Business"

I wrote Mr. Bishop saying that the article should not be published

unless its source was distinctly given, and I attach his reply to the eame.
In a telephone conversation following this, I repeated this statement and
understood from him a distinct promise that it should be put in in that way.

I do not consider that the paragraph he inserted in the box is a fulfillment
of that promise.




1921

FEDERAL RESERVE BANK
OF NEW YORK

JFFICE CORRESPONDENCE
To

>got.,

Governor Strong

DATE

1921

November 1,

SUBJECT:

Mr. Snyder

I have been very much interested to note that in '94 and '95 the
tendency of prices was downward, and well into '96; i.e., there was no
"recovery" after the crisis of '93.
After 1907 there was a decline from the high point reached in 1907,
And then in 1909 and 1910 a recovery to
of about 7 per cent. (97 to 90).
99.

But the general direction of prices in the latter period was upward,
while in the former it was downward, i.o., the long swing, so that
does not
seem that we may ascribe the present rapid rise in prices to any mere "recovery"
from the slump of last year.

it

Just because the general price le el has fallen seems to establish
for expecting that it will have a reaction, as, for example, in the
stock markets.

no reason






WS, 4,

FEDERAL RESERVE BANK

OF NEW YORK

OFFICE CORRESPONDENCE
To

Governor Strong

DATE
SUBJECT:

M

October 31,

1922

albert's Letter

Mrk_ Snyder

Gilbert's letter is in substance the snme as

Mr.
nrepared for him

by

the material

Mr. Riddle last June.

No one suggested that the great increase in deposits since
tst Tebruary was difficult to analyze. Vhat I tried to say was that it
was largely due to the greatest buying movement, so far as our records
extend, in securition by the banks, that we had ever known, and this was
the main source of supplies for our tremendous bond market of the last
year.
That this great expansion of deposits is already having its

effect very strenuously in the commodity marltete is sufficiently

evident,

day by day, first in such daily paragraphs as I have sent to you, and
secondly in the continuous rise of our index of 20 basic commodities,
whieh is, I believe, the best barometer of prices which we possess.

W.,,

.FEDERAL RESERVE BANK

OF NEW YORK

OFFICE CORRESPONDENCE
To

GnvArror Strnng

itAqm

DATE

Ortnber 30,

SUBJECT:

Mr. Snyder

The Harvard Economic Service now has over 1500 subscribers, at
$100 a year, and goes to a very high class of people.
They are extremely
friendly to the Federal Reserve, and, aside from all this, I think it would
be a pleasure to meet and talk with Prof. Bullock.
When I was over in Boston, Prof. Persons also suggested,that it
would be a great pleasure to meet you, and he is a worth while,wari.

5100



1921.

;FEDERAL RESERVE BANK

4.1.

OF NEW YORK

'OFFICE CORRESPONDENCE
Governor Ilnkng

To
OM




DATE
SUBJECT:

October 31,

The_Fr_mch Symposium

Mr. Snyder

This seems to me very interesting.
\k

value to other countries, but not to France:

Deflation might be of

1922

;FEDERAL RESERVE BANK

OF NEW YORK

OFFICE CORRESPONDENCE
To_(0_VllrtlCtr_Str0rlg_
FIRPM

DATE
SUBJECT:

October 30,

English Bank Borrowings

Mr. Snyder

CD

pr
(H

Is it

correct to say of the English banks that "the reserves of
te banks consist largely of credits on the books of the Bank of England?"
. Reed, "Development of Federal Reserve Policy," p. 234)

I suppose he means "deposits" instead of "credits." My understanding is that the joint stock banks and others borrow at the Bank of England only
in extremis--?




BROOKMIRE ECONOMIC SERVICE
I NCOR PORAT ED

eonsulting 6conomistS
EXPERT ADVICE ON FUNDAMENTAL
BUSINESS AND INVESTMENT PROBLEMS

C25 WEST 45TH.STREETv NEW YORK

ALEXANDER KU E LLE
SALES MANAGER

August 17th1 1922.

KELLOGG FRANKLIN
ASST. SALES MANAGER

AN HONEST APPEAL.

Startling or sensational statements regarding movements of individual stocks are not a part of our service scheme for investors.
Get-rich-quick opportunities appeal only to the uneducated speculator
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The Brookmire Service as you know is based upon a mathematical
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any other service - frequently months earlier indicating our forecasts are never influenced by
those of any similar service.
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for :35 - making a year's subscription cost not more than :85.
Very
-

AK-CC



Sales Manager.

"Ne Original ystem of Forecastiry from Economic Cycles" 63;_

,




(

he

_

BROOKMIRE ECONOMIC SERVICE
INCORPORATED
eonsulting 6conomistS
EXPERT ADVICE ON FUNDAMENTAL

BUSINESS AND INVESTMENT PROBLEMS
ALEXANDER KUELLER

'25 WEST if5TH.STREETE NEW YORK

SALES MANAGER

HELLO 0. FRANKL/N

October 28, 1922.

ASS'T SALES MANAGER

THE SAFEST AND MOST PROFITABLE GUIDE
FOR INVESTORS

For the past eleven years we have been publishing a Service for
Investors - a Service which we dare to call "The Safest and Most Profitable Guide for Investors."
We realize in making such a broad statement we are challenging in a
sense the effectiveness of every other similar agency or individual investment expert, but as you undoubtedly have had occasion to investigate
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sures GREATER SAFETY because securities are bought only after a long
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The following illustrates our point.
recommended and the profits to date:

Note the stocks, the time

Date

Stocks

Re corn.

Rails
Railway Equipments
Standard Oils
Automobiles
Steels

June
May
July
May
May

27, 1921
30, 1921
24, 1922
30, 1921

Profit Oct. 14th

42%
63%
40%
70% 30, 1921
40%

lualtalajzjans

differ widely as to the future course of the
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ifSales

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11

BusinessFinanceInvestment
ManagementIndustrial Relations

"His Knowledge of the Big Men of the
Country Is Positively Amazing"
Said John M. Siddall, editor of the American Magazine, in speaking of B. C.
Forbes. Mr. Forbes has made a reputation as a man who can get closer to
"big men" than any other writer. He has a knack of getting under a man's
skin, and his gentle art of persuasion leads even the most modest and silent of
our American men into making interesting confessions.

"Won't you have lunch with me at one o'clock tomorrow?" one of the
"big men" wired Mr. Forbes the other day. And then there followed one of
his famous interviews.- "I played golf some time ago with John D. Rockefeller.
The other day I played with Chas. M. Schwab.
I learned something

methods and perhaps you will too.

My golfing experience with these two

business giants has made me think. And I believe the facts here set down will
interest you." That is a typical introduction to the remarkable interviews B. C.
Forbes describes for you.
In every issue of Forbes Magazine, which is edited by B. C. Forbes,

you are taken behind the cold public view of the Rockefellers, Schwabs,

Edisons and other leading business and financial men of America. Their achievements, their advice, their methods,
the fact-romances of the huge industries they built are revealed to you.
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lights cast upon old, perplexing business problems, and articles and editorials by right-thinking, feet-on-the-ground
successful business men.
You will find Forbes Magazine indispensable once you read a single copy.

A NEW SpIES BY A MAN WHO IS PAID OVER $2,000,000
A YEAR FOR HIS ADVICE
Tit(

by

an

ho is so

ss executives

Roger w. Babson.
of vital importance
man; the - are r ,

gnally honored
nd investors is
is messages are
o every business

Mr.

Babson's

ideas and

laws,

with

which he had struggled twenty years
ago, have gradually been accepted by

CI Chic-

the business and financial world. Hence
activity in both fields is rapidly coming

He is the author of a most remark-

taking shape in its exact science which

fully, and ta
ablf
Fm

eries

e

of

thOligh I

of much.

articles on

Business

aentals,"What Makes a

Suc-

cesstul Business--Man,"which he wrote
for Forbes Maga,zine exclusively.
As a young man Mr. Babson was
obsessed with the idea that people were
suffering tremendous loss and needless
misery, due to economic causes. 'While

a student at the Institute of Technol-

ogy, he had found that physics, chemistry and the other sciences were reduced

out of entangled guess work and is
deals with facts, formulating certain
results.

Says Mr. Babson: "Through all my
experiments, investigations and experience, I have found that there are only
a few laws that are really fundamental.
With these in mind a man can approach
any industrial or commercial problem
the administration of almost any business or the solution of almost any
financial difficulty. Therefore, a man's
possibilities for success are limited only
by his skill in the application of the

to an exact basis, so that one could
tell ahead of time what would happen
if he did certain things. But he had principles. I am going to try to set
found business to be on a catch-as- forth these few fundamentals of success
catch-can basis.
in this series and hope they may make
In his search for information on what your efforts to succeed more fruitful
makes a successful business man, he
studied wages, prices, bank clearings
and other fundamental business material

over a long period of years. As he
went along, he was trying to account
for a sort of a wave motion which
seemed to run through each. He was
trying to find some law of action and
re-action that had anything to do with

this economic wave motion.

Finally he found what he wanted and
reduced the various factors in business
to a definite law.
This law made it possible
forecast the various features of the business
cycle,the business and financial periods
of prosperity, decline, depression and
improvementwith remarkable accuracy.
Since then the law has been applied to
hundreds of factors involving almost
every phase of the business world. It
has been applied to the stock market to
solve the enigma of fluctuation and has
been worked out in forecasting the
trend of human relations.

that they may save you from unnecessary loss and grief. These fundamentals
apply to every one at some stage of his
careen Every man who succeeds employed them, whether he knows it or
not, and it is safe to say that you will
'get there quicker' if you know where
you are going."
Roger W. Babson has written into this
series his own personal experiences
the causes of success of leading business men and investorsand the result
of a twenty-year investigation by his associates of 100 years of business.
to
Mr. Babson presents
In this
series
twelve

time-tested

and proved

funda-

mentals through which you can forecast
changing conditions for yourself. There

practical and tested methods and
plans to avert loss in business and inare

vestments and increase your profits.

Commenced in the September 16th issue
Continues in nine consecutive issues.

The Entire Textile Industry
In Review

By V. E. Carroll, Editor Textile World

A non-technical article for the consumer, retailer and manufacturer of textiles and other
merchandise. This is the sixth of a series on
"The Outlook in Industry," written by Industry's key men. These articles present complete, comprehensive and intelligent surveys of
conditions in, rani prospective future nf each

of the leading Industries. Mr. Carroll here
reviews every branch of the Textile Industry
and forecasts what is ahead. He pictures the
raw materials markets, speculative influences
in raw materials, manufacturing problems,
labor problems, the cause of high prices in
the face of deflation in materials and takes
us behind the counter with the retailer. He
also discusses the movement on the part of
cotton goods manufacturers to remove the
center of manufacturing to the South from the
North and the effect on the Textile and other
industries.

How to Save $150,000,000 in Packing
and Shipping
By M. C. Krarup

Over $150,000,000 is needlessly lost in ship-

ping merchandise in
this country.
How to
save this staggering loss is shown by Mr.
Krarup, who gives practical and definite remedies. Mr. Krarup, as a consulting engineer,
is intimately acquainted with every phase of
this problem.

"Optimism Rules Throughout the West
and that Optimism is fully justified," says
B. C. Forbes in his current forecast.
Mr.
Forbes is now on his way back after an extended trip to get first hand business conditions in the Middle Western and Pacific Coast
States. He tells here the progress that has
been made in the Westthe advance in business over last yearand how the Western
States are manufacturing merchandise and
equipment which they formerly bought in the
East. Eastern, as well as Western business

mentake note!

Why Rents Should Be Reduced
By John Oakwood
Rising costs of materials will not block downward revision of rents. Mr. Oakwood points

out a new normal that is being reached in
building. The mortgage marketthe labor
situationthe public's attitude and actions
the building supply marketand the building
records analyzedthese are some of the subjects discussed and
clarified
so that home
owner or renter may judge where they stand
and where they are going.

And other feature articles of Inspira-

tionHuman InterestInformation.

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81.18

Corr
Doc

ther

investigation covering over 400 concerns

in the 26 major divisions of
ARECENTof business profits business shows that
but 43%
is due to individual
competitive efficiency 57% is due to changes in fundamental business conditions. It means this:
If you are operating in accordance with fundamental conditions
the profits from your own efforts are more than doubled! The truly

great businesses of America have been built on this single principle.
If you try to run cross current or counter to the fundamental trend of
these outside conditions the profit from your individual effort and
skill is more than wiped out.

accurate knowledge of funda-

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In every field of business activity
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astorObligation

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What's Ahead for Your

Industry 0

You can now know present and
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Increasing Sales In 1922

fTearOut

Cos

send me without charge or
obligation sample of recent

the morning mail

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His

be r

The utter folly of running blind-

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In 90 d vs] Can be adopted without

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UN
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bac.4

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Con

bac,
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Stoc
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Cc

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of
192::
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boo

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AU,

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thisasassassimmossisaas...-.,anm

ei

Service for Executives

No

ore
o'c
do-

cc

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TB

Your Inquiries Incited
Send for copy of our

ANGES

"Trading Suggestions"
Please Mention A-200

BALTIMORE.
Stocks.
H1gh.Low.Last. Sales.
393k

75
60
50
110

891/4

39
75
60

40 Hous 0 pf .. 92
10 Mt V M pf.. 52
70 Mfrs Finan. el

75
60

50

130

8914

65% 65% 65%
119

119

60
25

60

112

52
61

60

25

Bonds.
98% 98% 98% 1,000 Md El By its 96

96

96

92% 92% 921/2 1,000 North Ballo
99
Sly its
fI9
99
1101% 1101% 11014
105% 105% 105%
500 Un By 6s,'27 98% 98% 11.8%
110% 110% 110% 1,000 Do l's, '49 103 103 103
921/2

103

92% 1,234
103

103

Members Consolidated Stock Exch. of N.Y.

New York I

62 Broadway

Telephone Whitehall 1964

4 Marc T & D.216% 216% 216%

10 NewAmsCas. 32% 52% 32%
10 Nor Cont RR 79 74)
79
80 Un Sty & El. 21% 21% 21%
6 U S Fid et G142 142 142
25
20W B & A By 14% 14% 14%

119

.

92
52
61

WILSON & CHARDON

130 Md Casualty 92 91% 92
150 Merch Bank. 21% 211% 21%

109% 110
891%

High.Low.Last.

20 Flnan Co Am 351/2 351% 35%

391/2

4

1,000
11,000

Do 1st 48
Do inc 45

77
59

SafetyCarMALt.
BoughtSoldQuoted

77

Stone, Presser &Poly

58% 118%

11152 William St., N. Y.

77

Hanover 77231

99% 99% 991% 6,000 W B & A 1:11
85

Ry Os ..... 80% 8034 80%

85

85

CHICAGO.
Stocks.
High.Low.Last. Sales.
IlIgh.Low. Last.
72
25 Pick & Co.. 26% 26% 26%
72
72
100% 99% 100%
550 Pig Wig A.. 44 43 43
12% 12% 12%
53 Pub Service 100% 100 100%
5
10 Do pr
02% 92% 92%
5%
5%
61/2
6% 6%
25 Quaker 0 1)6.200 200 200
320 Bee Motor... 13% 13% 131%
7%
7%
7%
20 Stand Gas.. 201% 201/2 20%
2% 235 2%
160 Do pf
48% 48 48%
130% 1301/2 130%
10% 10% 10% 1,000 Stw Warner 52 50% 511%
257 Swift & C,o 108%, 108% 108%
109% 109% 7093/4
24
1,875 Swift Int
23% 23%
05 105 105
50 ThompsonJlt 411%, 49% 40%
86
86
86
1,329 Un Carbide. 6214 61% St%
15
15
15
25thi L & 1%. 68 68 68
261/2 36% 26%
50 Do 6% p6. 77% 77% 74%

Radio Stocks
Inquiries Invited

FRANK 1% STANTON & CO,
Specialists in Wireless Securities Since 1915

35 Broad Street

New York

Phone Brood 1670-3641-5819.

229

23

741/2

48
8
48

741/2 74%
40
48
77/a

8314

48
831% 83%

23

'

Do 7% pf. 80% 79% 80%,
6
68 17n Lt rts
6
6

22% 22%

2214

48

96% 00% 98%
8

23
8

39% 391% 39%

60

10 1.7 S Gypsum 57% 571% 57%

60 Vesta Bat
150 West Knit

25
25
25
59
58% 5834
8%
8
8
3)11 Wolff Mfg 20
28% 28%
180 Wrigley
1061/2 1061/2 106%
769 Yel Mfg B 109 196
1,325 Yellow Taxi 741/2 73 74

350 Wahl

Bonds.
511% 51% 5134

5s
v

The

26% 25% 26%

Wall Street Journal

DETROIT,
Stocks.
High.Low.Last. Sales.
1,100 Packard
10
101,4 10
235 Do pf
2434 24
2434
400 Paige
.13 413 413
6%

196

6%

6%

825 Reo

...

HIgh.Low.Last.
14 14% 14%
911/ 90% 91
22% 22% 22%
131/2

13

181/2

MONTREAL.
Stocks.
figh.Low.Last Sales.
High.Low.Last.
73
20 Dom Textile.173 173 173
73% 71
500 Laurentide.. 95 94% 95
' 63% 621% 63
22
242 Montreal P.. 98% 97% 981%
22% 22
115% 116
950 Natl Brew.. 56 54% 55%
16
25 Ottawa Pow 92% 921/2 921/2
14% 43% 434
600 Price Bros.. 45 43% 43%
33% 34
15
3% 13% 13% 230 Quebec By.. 261% 261/2 261/2
SO RIordon P&P 8
16% 35% :15%
.7%
8
791/2 81
7% 76% 77% 255 Smith P & P 81
77 Shawinigan .113 113 113
59% 59%
.0
,111% 108
106
1.070 Spanish Sly 116 95 95%
1,240 Do pf
105% 104 105
;51/4 55
55
27
V% 705 Steel of Can 77
75% 75%
'71%
10 Toronto
84
84
84
'8
68
68
7
37
153 Wayagama'k 62 61%37 811/2
60 Tuoketts Tob 53 53
53
41/2 741/2 741/2

is the central gatherer
and distributor of the
facts, figures and factors in any way affec-

ting security values.
Its articles are construc-

tive and authoritative.

It is indispensable to
the well-informed.

.




AMMO

Date._

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BABSON'S STATISTICAL ORGANIZATION
INCORPORATED

REPORTS ON BUSINESS AND INVESTMENT CONDITIONS

WELLE S LEY. H ILLS. MASS
SUBURB OF BOSTON /

BUY SECURITIES!

While slight declines may come in
some stocks, yet right now is the time
to buy certain Coppers, Rails and Industrials.
In fact, statistically, the long
swing investor now faces his final
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With the business cj'cle only one
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There are still furtl4er substantial
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(!)

FEDERAL RESERVE BANK

4.1.

OF NEW YORK

DFFICE CORRESPONDENCE
To

Governor Strong

rRom

Mr, Snyder

DATE
SUBJECT:

Ooiober 25,

International Conference of World

Bud_nekarten

The Library has only bum able to obtain these three copies, but
also saw the Boston Post, which was very much on the order of the IhisEgo
Examiner.

1921




FEDERAL RESERVE BANK
OF NEW YORK

W..4,30M10-V

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FFI

DATE

To
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SUBJECT

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'FEDERAL RESERVE BANK

OF NEW YORK

JFFICE CORRESPONDENCE
To

GO Vern° r Strong

FROM

DATE

October 25,

Mr. Snyder

SUBJECT:

practically full

If we are nearigg
employment of labor, and our
transportation systems are at capacity, how are we to produce or move a much
greater volume of goods than now?
Yet I believe that prices would and will
go on rising without any further expansion of bank deposits.
Which seems to me proof that the outstanding volume of bank credit
finance prices at a much higher level than now.

will prove sufficient to




192 2

6

regularity of a cycle.

A year ago Mr. Axe published a tentative endeavor to portray the
general trend of business.

His line showed the volume for 1920 much above

the line of estimated normal growth, end 1921 very heavily below it--at the
extreme for several months, 25 per cent, below this estimated normal.

All

in applauding the industry and ingenuity involved, it seems to me that we
now have very strong evidence that such curves are very far from representing facts.

Indeed, if I were forced to put down in set terms an estimate

of the real amplitude of variation

in

the

nation's

business, I think I should

imagine it isleitemiatg more than 5 per cent. (for a whole year) above the normal

line of growth, even in the late war, end rarely if ever more than 5 to 8 per
cent, below the normal, with accent on the 5.

And this, it is agreeable to

find, is something like Professor Persons' view.

That there are marked and often curiously regular cycles in particular industries there is no question.

That these ever coincide in suf-

ficient number to produce a marked and regular rhythm in the total of the
nation's activity I very much doubt.
It is from this point of view, it seems to me, that we have great
need of a thorough revision and review of the cycle idea.

Professor Mitchell,

Professor Moore, the Harvard group, Mr. Axe, and others, and more recentlyr
Professor Ogburn, to mention only some of the more recent workers, have made
notable contributions to the subject.

But their results,unfortunately,

have not such a concordance as to enforce general acceptance.

Moore finds

an eight-year cycle, Persons a three-and-a-half-year cycle, Axe and Ogburn

a wholly irregular wave movement, that bears little relation to the other
Iwo.

It seems to me that this might well be the subject of a very interesting

discussion at the next meeting of the American Economic Association.



5

1920).

It seems to me that, in selecting a few basic items which are subject

to the widest variation and the deepest depressions, and assuming that these
are r %resentative or barometric of the whole, we have been very much misled.
I am quite sure that neither the stock market nor the pig iron

market nor any such of these are an accurate or reliable index of national
trade.

Now if this be trie of what was, on these same barometrics, a year
of sharpest depression in perhaps hal

t

a century, does

not this suggest an

equal caution in accepting the pictur s that have been drawn of years of preNious crisis and depression.

And if this be true, and if the things I have

here set forth are true as to a year of such sharp depression as 1921, shall

we not be led to similar reserves as to the amplitude of and the importance

of the so-called business cycle(

After a good many years of what I hope

has been fairly patient attention to the subject, I have found it more and

more difficult to discover any such clear rhythm or wave in business activity
which would justly answer to the idea embodied in this phrase.

It seems to

me that we have latterly been carried away by a tempting and seductive catchword.

/14;464,144,
That there are, inearriktin lines

such alternating phases of activity

and often fairly rhythmIC, such as has been so ably set forth in Professor
Mitchell's classical, work, and in the splendid work of the Harvard Bureau,

must be evident to anyone.

And I yield to no one in my admiration of the

work done by Professor Persons and his coadjutors in this field.

But my

feeling is that the careful and cautious cauiusions derived from this work

have, by other workers, been carried to what seemed to me a rather unjustifiable
extreme.

I doubt very much if we have as yet adequate data to demonstrate

that any such amplitude of movement is true of the nation's business as a
whole, nor that this movement has any such even rhythm as to suggest the



4

building and all; but I think there is very good evidence to suggest that it
is relatively small, possibly on the order of not more than 10 or, at the outside, 15 or 20 per cent.

And yet these make up a large part of the total

of our manufacturing activity.

We seem to have assumed that a measure of

this manufacturing activity is a fair measure of the total volume of the nation's
business.

I think this is a mistake.

But even when we consider manufacturing activity we meet with some
equally surprising facts.

When comparing the two years we find that the pro-

duction of anthracite coal

for example, in 1921 was equal to that of the pre-

vious year, and petroleum and gasoline some 4 or 5 per cent. above.

Cement

was slightly above and so were meat slaughtered and sugar meltings.

Wool con-

sumption was 12 per cent, higher, wheat flour milled 18 per cent. more, end
silk imports, to take but an example, 40 per cent.
Even the average of about fifty of the most important products, including

crops, for which quantitative measurements are available, showed a

decline of only about 14 per cent. in 1921 from the previous year; and I

believe if we could know the facts that we should find that the production of
these basic materials forms a minor and not a major part of the colossal total

of the nation's trade, and in extreme years may not needfully be any reliable
index of that total.

And to consider only two conspicuous items, I would point out the
fact that, in this year of supposedly deep depression, there was a tremendous

outburst of building activity; and in this same year the nation still had a
capacity to purchase a million and a half of motor cars and motor trucks, to

add to its existing stock of over ten million

care.1

t seems to me that, in
I-... ...

the face of all such facts as these, there is something wrong with the current
picture of the depression of 1921 (and, if you like, also of the boom year of




3

the total quantity of goods in the department stores of the East that pass over

the counters, not measured in dollars but in yards and pounds and pieces, was
1011, considerably larger in 1921 than in 1920.

Of course we do not know that

the sales of these large department stores are fully representative of all
retail sales.

But we have now, in the New York district, sixty-four of the

largest stores reporting their dollar sales, month by month, and it is beyond
any question the best evidence we have.

But we have also now figures for over 130 of the largest wholesale
establishments in the New York district, sending their goods all over the country.

These also are reporting their dollar sales, month by month, and here again the
evidence seems clear that, making oal*-ii.minimum----

allowance for the

1^4A/tre-P-42-atdifference in prices, the total of shipments at wholesale, the actual quantities,
in 1921 were up to if not inweh above 1920.

But it will be objected, this may all be true of sales of drygoods

and groceries and other necessities; but consider the drastic slump in, for
example, railway traffic, the sharpest in 1921 of any year in a record that
extends back nearly half a century.

But here again we have clear evidence

that, in what may be termed the necessities of life, freight shipments in
1921 were above those of 1920 rather than below.

The great slump was in coal

and coke and various products and ores and the like, mostly things that are
C./.44,vi, CU-GP

used rather in

ccan

anc2e4aolmt

nstruction than in immediate consumption.

Shipments of

products, of live stock and of merchandise, and less than car-

irt"A
load lots, were heavier in the year of so-called depression than in the year
of great prosperity.

T do not know and I do not think we have any way of determining how
krge a part in the total of the nation's transactions is formed by the production and transmutation of mineral products and the like, construction and




2

no way of measuring the average level of all prices, including wages, rents,
salaries, securities, etc.; and so we have no index with which to allow for
the influence of the fall in prices, for example, in the total of bank clearings.

Studies we have made have led us to the idea that, in the so-called
hd.A.4

cost-of-living

Itgaret,

we have a very crude approximation to this average

of all prices, to be taken with due reserves, but certainly far more trustworthy than, for example, the average of wholesale prices.
this cost of living index and correct,

Now, if we take

as we ,say, bank clearings for 1920

and 1921 in this way, we find that, relatively to 1920, the total volume of
transactions outside of New York City, in these reporting centres, was only
7 per cent. less in 1921.

Of course if we use the average of wholesale

prices this difference would disappear and we should have the total for 1921
above that of 1920.

Now it is well known that

in

these bank clearings purely speculative

transactions play a considerable if unmeasurable role.

If, in a year of

riotous speculative mania, as in 1920, we estimate this at but 10 to 20 per
cent, of the total, we shall hardly exaggerate.

But if we estimate that the

difference from 1920 to 1921 amounted to no more than 10 per cent, of the
total, then we should be forced to the conclusion that the actual volume of
t

strictly business transactions, after co-LIest.tag( for the difference in prices,

was actually greater in 1921 than in 1920.

Or if not actually greater, at

least of no measurable difference.

Now if this were true, we should expect to find at least some supporting evidence in, for example, the volume of retail sales.

We do not

know what these were for the whole country, but we do have accurate figures
as to these sales in New England and in the New York and other Federal reserve
districts.

And here we meet with the very remarkable result that even if

we make the smallest possible allowance for the difference in retail prices,



NEXT YEAR'S BUSINESS--AND LAST YEAR'S

Next year's business, it is trite to say, will be much influenced
by this year's business, as this year's business was by last year's, and so
onywithout

end.

It is of very great interest, therefore, that we should

know quite definitely just what last year's business was, and this year's

business is; and the astonishing thing to find is that we have no conclusive
data upon which to found an unquestionable opinion.

Measured in many ways, we have been energing this year from one of
the severest depressions we have known.

If we take indicators like the pro-

duction of pig iron and some other important products, the fall in railway

traffic, in the volume of bank clearings and much else, we might consider
this depression the sharpest in at least fifty years.

Y

official figures which were given out as to the degree of unemployment last
year.

Yet a patient study of the known facts will strongly suggest that
if we could eliminate the influence of speculation and confine ourselves to
the actual volume of goods sold and services rendered, we

ct

dze-Ct ;

find war reliable,,evidence

that the

total of

should

fail to

trade for the country was

measurably less in 1921 than in the boom year of 1920.

As this is so direct-

ly at variance with popular ideas on the subject, let me set forth the grounds
upon which this conclusion is based.

We had, beginning in 1920 and

continuing

through 1921, a tranendous

fall in wholesale prices and, to a lesser degree, in retail prices.




We have




MSC. 4.1-120 M-1-20

FEDERAL RESERVE SANK

OF NEW YORK

)FFICA CORRESPONDENCE
V/016
FR

.1'7/-)- e-xi 41
de

.

qi,

DATE

192,

SUBJECT.

1

04-y,pt,
r

MIS.C.3 I S1AT.3600-10-21

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
To

63-1'7

_Go verno r Strong

SUBJEC

Snyder

I have been

In

pondering

this question:

all essentials the ideas of economists like Cannan, Keynes,

Cassel, Lansburgh, and, to take only two or three in this country, say

Kemmerer, Sprague

and

King, are practically the same, differing only in

minor details.
And, in turn, their ideas are essentially the same as those, let
us say, of Bagehot in "Lombard Street," Stuart Mill, and Ricardo.

And the

remarkable thing of it is that neither Bagehot, Mill nor Ricardo were college
men--Mill all his life as an active business man in the East India Company,
and Ricardo, as you know, a City man making a fortune before he was thirty,
and trained in City ways of thinking.
But these are nowhere the ideas of typical bankers, eay like
Schuster, Leaf, Strakosch, Norman, nor, for the most part,
bankers in this country.

those of

And they seem never to have been.

the bankers in hie day and Mill in his and Ricardo in

even able

Bagehot fought

his.

Is this division implacable and insuperable?

The point is, in my mind, that the bankers have their hands on the
throttle, and going full tilt, and they are going to run the open switches
exactly as they did in 1919.-20 and in endless times before, and with the same

results--at least so it looks to a man up a tree.




FEDERAL RESERVE BANK

MISC. 4,

OF NEW YORK

....iFFICE CORRESPONDENCE

DATE
SUBJECT:

FRC'

Ontober_17,

192_2.

t

Mr. Snyder

Miles memorandum is interesting, but it seems to me to represent
rather the reaction of the similar class of business men, which in Gemany
were always and normally easily disturbed and upset, pessimistic and gloomy-and never satisfied.

Add in the ruin of the larger part of the "rentier" class and the

natural 0Loom which pervades Germany as to the outcome of the reparations
settlement, and an obviously weak and floundering government, and I think

the picture is scarce to be wondered at.

But the other side is that the vigorous, aggressive type that made

modern Germany is driving ahead now as well as it can under obvious difficulties; and I would venture to guess that Krupps, Stin_nes, and heaps of them
were employing more men today than a year ago.




(3_
FEDERAL RESERVE BANK

MISC. 4.1.

OF NEW YORK

--JFFICE CORRESPONDENCE
To

Governor Strong

FRG

19a_

DATE_DLatober_12,

Mr. Snyder

SUBJECT:

I did not know until the other
conclave which Mr.

Jay,

day that any notes of

Mr. Morgan and I attended last year

the famous

existed.

It

is rather interesting to see how nearly unanimous last' year was the belief
that recovery
years.




would

be

slow and

that we might get back to normal in ten




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/-(

FEDERAL RESERVE BANK

MISC. 4.1.

OF NEW YORK

JFFICE CORRESPONDENCE
Governor Strong

To

DATE

October 13,

192_2

SUBJECT:

r. Sktyrier

FpPv

Is it not surprising that a bank like the Chemical would put out
such a statement as this?

>v.

But this is on a par with the credit Chart on the next page, where-

in it is conceived that deposits and investments are to add.
Afty

Clayton A. Penhale

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howi?9__ati,o

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Clayton A. Penhale

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4




FEDERAL RESERVE BANK

MISC. 4,

OF NEW YORK

OFFICE CORRESPONDENCE
To

FROM

novernor Strong
Mr. Snyder

DATE ____04tober
SUBJECT:

11,

Mr. Psnhele's Letter

You may like to see this little note, as an evidence of the
direction that close observers' minds are running.




1922_

FEDERAL RESERVE BANK
OF NEW YORK

WFICE CORRESPONDENCE
To

Mr. Jay

FROM

DATE Pctobler

9,

1922.

Control of Inflation - 5.

Mr. Snyder.

SUBJECT!

There is much to be said against the policy of hoarding a monumental
mass of gold in the treasury, that is idle and doing no work and serving only
to excite the cupidity or the imaginations of the predatory and the ignorant.

It has seemed to me for a long while that this might be an ideal
time for the unification of our vonole currency syutem by the retirement of
all the old greenbacks and silver certificates and national bank notes, and to
have only two kinds of currency, namely gold notes and Federal Reserve notes,
and the latter to be, as it seems to ma was clearly the original intent,
simply emergency currency, to be retired as soon as the emergency had passed.




-

1 STAT.9500-10-21

FEDERAL RESERVE BANK
OF NEW YORK

iFFICE CORRESPONDENCE
To _Ur. JaY
FROM

DATE
SUBJECT

October, 9,

192 2

Control of Inflation,- 4.

Mr. _Snyder.

An increased discount rate As the great bulk of bank loans are upon commercial paper, tie
present 4 per cent. bank rate is a direct encouragement to the banks to reIn the present situation surely this
discount when good paper is offering.
spread ought not to exist, for nothing is clearer, it seems to me, than that
the present volume of bank credit will sustuin a level of prices probably
considerably higher than the present general level and at least 20 per cent.
Any encourhigher than the present level of commodities at wholesale.
agement of rediscounting new, therefore, is a direct encouragement to renewed
speculation for a rise.

I doubt very much whether, with the present rising tide of business,
there would be any violent opposition excited by, or even very much attention paid to, an increase of the bank rate from 4 per cent. to 5 per cent.
valid in England for half a
the reasons that have been
century, the discount rate should certainly moire in steps of a full per cent.
or three-quarters)
and

(For

not in halves

An increase in the bank rate to 5 per cent. would encourage many
banks now borrowing on government securities to close out these loans and in
that way reduce rediscounts to the lowest possible point.

Reduced investments It seems probable that there could scarcely be a more propitious
time for the Reserve Banks to reduce their investments steadily, with the idea
The effect of this
of retiring them wholly say within the next six months.
would be to countetact all prbbable gold imports during this period and to offer
a salutary check to an overly speculative securities market.
Such a course
would probably also have the effect of driving some of the banks to rediscount, and this increase in rediscounts, especially if a 5 per cent. rate were
established, would disclose conclusively the pressure that actually exists.

kaylaz

out gold -

I should like to renew my suggestion of nearly a year ago, of not
allowing the gold reserve of the banks to be further increased, and that it
might be the part of wisdom very considerably to reduce this gold reserve by
the paying out of gold certificates, instead of Federal Reserve notes. There
seems little reason to suppose that these certificates would be hoarded any
more than Federal Reserve notes now, since gold is to be had for the latter
without restriction new, and they are to all intents gold notes.




I STAT.3000-10-21

FEDERAL RESERVE BANK
OF NEW YORK

,)FFICE CORRESPONDENCE
To

Mr. Jay

DATE
SUBJECT

October 9,

192 2.

Control of Inflation - 3.

FROM Kr. &Oder.

Renewed hortation - ?

1

Would it be unwise for the Federal Reserve Board to put out 4
memorandum setting forth these facts and the reasore for caution, and drawing attention, furthermore, to the fact that a large part of the increase in
It
deposits has come from the heavy buying of securities by the banks?
seams to me that if such a memorandum were well worded and of a character
such as to secure the approval of the best economic minds of the country it
could not fail to be of great weight and lay the feundations for the acceptance of a rational rate policy, both by the banks and by the business public
at large.
It seams to me that this Should come in the form of a rather elaborate statement coming from the Board and not merely as the personal utterance of the Governor of the Board, i.e. it should be an offocial document
stating definitely the declared policy of the Board to check any wave of wild
speculation with any reasonable means in its power.
If at the present time it was not deemed wise that such a memorandum
should come from the Board itself, might it not be very well formulated by the
governors of the twelve Federal Reserve Banks as a memorandum to the Board
itself, setting forth the dangers which exist and urging the need for the deIf then such a memorandum were followed
claration of a definite policy?
by a brief rescript from the Board, giving full
and emadherence t(
phasizing the difficulties of the situation, perhaps this might have even more
weight than a single memorandum from the Board.

This idea might be extended still further.
At the present conference the twelve Federal Reserve Governors might very well formulate a brief
succilctly setting forth the sivation as it exists and submit these questions,
let us say, to a committee of twelve of the ablest economists of the country.
To avoid any invidious distinctions, these might be chosen by taking one from
each of the -Weave leading universities of the country.
This would almost
automatically secure at least six or eight of those of the first rank.
Then when this committee of twelve had submitted its report, which it
could do in very short order, say in a fortnight, the twelve governors could
then transmit this report to the Board with their own recommendations upon the
findings there given.
If then the Board, in turn, should give its judgment on the briefs submitted, it seems as if this could scarcely failto be of
tremendous weight with the couOtry and enlist the cooperative sploport of practically all the sound and conse*Wative business men of the country.

It would be easy in this memorandum to dwell upon the various difficulties which a heavy rise in prices immediately entails as, for example, railway congestion, frantic over ordering of goods and supplies, mushroom speculation, etc.
It should be carefully documented and have sufficient length to
be impressive and persuasive.



I ST1.9000-10- 21

4

FEDERAL RESERVE BANK

OF NEW YORK

FICE CORRESPONDENCE
Mr.Jay

o
m

DATE
SUBJECT.

Ciao b

er9 ,

192 2

The Control of Inflation-2

Ir. _Snyder

But it is not so easy to determine just what is at any given time
the general average of prices.
Many economists and most writers upon the
subject have been led into very serious error by aesuming that the average
of wholesale commodity prices in such times as the present was a reliable
And this mistaken idea has been thought
Index of the general price level.
by many to oast doubts upon the validity of the orthodox theory of money and
prices.
But it is now clearthat the ,general level of prices most represent
practically the average of aJ.1 purchases and payments, and this would, therefore, include retail prices, wages, salaries,
payments, and the like.
But to strike such an average or obtain any kind of reliable index of this
general price level is an almost hopeless undertaking at the present time.
Some investigations made by this department have led me to believe that the
nearest approaeh to any such index at the present time is perhaps the index
of the so-called cost of living; but this is admittedly only a very crude approximation.

interest

that, just as

the prices, at wholesale, of
But what is clear is
individual commodities, as grain, cotton, pig iron, rubber, etc., may fluctuate very widely about the general average of wholesale prices--may have a
very wide "scatter," as the phrase is--so wholesale prices may at times swing
much above or muds below the general average of all prices.
this difference: There are no really reliable price indicators among the individual commodities, i.e., a rise in cotton or pig iron does not needfully
But it is certain that a long and sustained rise
signify a general rise.
of prices at wholesale must, in the long run, carry with it a corresponding
rise in retail prices and eventually, therefore, in wages, rents, 6GC.

This is universal experience.
Therefore, it seems to me that, in any attempt to check another
'AIM of speculative furor, the test must be the commodity price index.
And
the facts here are that. during the present year the Bureau of Labor index has
rieen(in seven months) l2 per cant., and from the lot': point of last year
per
Bradstreet's has risen 1Ti per cent., and our index of twenty basic commodities,
20 per cent.
This rise has been too prolonged and too general to be regarded as
a mere "rebound," and the further practical fact is that it has been accompanied
by a oorresnonding expansion in bank deposits, i.e., ultimate purchasing power.
It seems clear, therefore, that unless
expansion of purchasing power is
checked this rise in prices must continue.




this

3 I STAT.3600-10-21

FEDERAL RESERVE BANK

OF NEW YORK

iFFICE CORRESPONDENCE
To
FROM

_Mr. Jay

DATE
SUBJECT'

Alctober. -9,

_1922

The Control of Inflation

Mr. Snyder

The situation is obviously very difficult, in view of the fact that,
almost alone of all the great basic commodities, grain prices have so far had
The result of this, of course,
no great rise from the low levels of last year.
is great depression and discontent on the part of the fanners, and, on the other
hand, relative Cheapness of foodstuffs with a consequent effect upon the average
cost of living.
It is only when farm prices undergo a heavy rise that the
situation for the whole country will become acute, with a renewed irruption of
strikes, demands for higher wages, etc.
But if the Board waits for this ao-called "adjusteent," it will then
be too late for any kind of effective actlon; and secondlyattempt to take any
such action would then arouse just as violent opposition from the farming
classes, almost, as it would now, and would be interpreted possibly as aimed
directly at them.
It is my belief, based upon a long-time analogy, that the adjustment
for farm prices will take place rather quickly, within say the next six months
or so, and that effective action by the Board and the Reserve Banks now would
In other words, the circumstances which
not materially hinder this recovery.
bring about the present low prices for grain will, I believe, not long continue,
Therefore, it
and they are rather independent of the course of general prices.
scams to me that the following proposals would be just as opportune, politically,
now as later; and if there is much delay time it seems to me there is much
danger that any practical measures will become quite inadequate to meet the situation.

hat

Shall be the Test?

The second difficulty is that of determining when inflation is taking
place.
This has been a very serious difficulty heretofore, but it should be
no longer.
The indices of production worked out by Prof. W. W. Stewart, now
at the head of the Division of Analysis and Research; of the Harvard Bureau of
Economic Research; and of our Research Department here, have established clearly
that the average rate of increase of the total product of the nation cannot
very much exceed
to 4 per cent. and that the variations from years of depression to those of boom are not very great.

S

it

seems clearly established that the effective agent in deNext,
termining the purchasing power of the country is bank deposits, and that it is
the relation of brink deeosits to the total production which determines the
general price level.
This seems to have been established beyond all question
in the World War, when there was no rise in the general level, even of wholesale
prices, until twelve or fifteen montl5s after the war had begun, and not until
the great influx of gold had begun to stimulate a huge expansion of bank loans
and therefore of bank deposits.




- 3 -

In other words

factory workers end the urban

population

generally are

and, in a

large number of

cH.seq, higher wages without any increase in the cost of living; the

fanning popula-

now enjoying

a

return of prosperity, improved employment,

tion, except in the South, being correspondingly depressed.
general

or social

clear that the

affects of this rising tide of prices have not as yet been felt by

the population at large; there is always a normal lag.

But this must surely come if

there be no check to the further expansion of bank credit,




It is

. 2..

Other confirmations of this may be gained from theeteady increase in the
volume of check transactions; the very marked and in some cases quite unprecedented
Improvement in the indices of production; in the heavy volume of railway traffic;
in numerous and important wage increases, and in the reports received by the Federal
Aeserve Banks as to retail and wholesale trade.

From all of these it is clear that

the volume of goods moving at the present time is considerably heavier than a year
ago, in spite of all the losses due to the coal, railway and other strikes,
.

3ut most characteristic of all has been the swift and, for peace times,

almost unprecedented rise in wholesale prices.

The Bureau of Labor index of

commodities at wholesale shows, for July and August, a rise from last January, which
was actually the lowest point, of some 17 points (138 to 155 on the revised index),
or about 12

1/2

per cent,

The Federal Reserve Board's index of one hundred selected commodities at
wholesale shows an increase from the low point of last year,. to September, of
about 16 per cent.

while this bank's index of the twenty great basic commodities

shows to date a rise of nearly 20 per cent.

to

the twenty years preceding the great rise in prices which began about
October

1915, such an increase in prices was unheard of.

In these twenty years
IIn

the average increase was about 2

1/2 per cent, per annum, and yet this aroused by

1912 such a protest that the so-called "high cost of living" was even then a subject
of very anxious inouiry.

And this soon must be the case when this rise in prices at

wholesale is reflected, as it must be in time, in prices at retail.
There is a phase of the situation which may readily make this increase in
retail prices the more acute; and that is the very low prices prevailing still for
food products.

While, for example, pig iron, cotton, wool, and other products

have risen from the low point of this year or last by from 75 to 100 per cent.

the

great cereal products of the country are still greatly depressed and average now
some 30 per cent, below the average of

all

commodities at wholesale.

This is a

condition which can scarcely continue for long, if the present expansion of production
 and of


business activity receives no severe set-back,

CONFIDENTIAL
October 2, 1922

THE RISING TIDE

The wave of optimistic sentiment which has been so strongly in evidence
in the last month or two is clearly a reflection of improved business conditions;
and business conditions, in turn, are themselves a reflection of a much improved
financial situation.

In the last year or more, as these pages have notcid, there has been a

very heavy liquidation in the loans and discounts of the banks, amounting for the
Reporting 'member banks to something like 3 billions, and hence, for the whole
country, something like 5 or 6 billions.

As here set forth, last June, this

liquidation has been to a considerable extent simply bookkeeping; there has been,
especially during the current year, a very heavy increase in the investments of
the banks, amounting for the 800 Reporting Member Banks alone to over a billion
dollars.

To a very considerable extent the frozen credits of last year have been
-funded into short or long time obligations, and the market for these has been in
some part created by the banks, either directly through the purchase of industrial
and other securities, or of Government securities already existing.

The effect in

the latter case was very much the same.

In consequence of all this there has been a corresponding but considerably greater increase in deposits.

From the low point reached last February, the

net demand and time deposits in the Reporting Member banks have expanded by over
a billion and a quarter, and while this rate of increase apparently has been greater

than in the mailer banks of the country, it is safe to estimate that the total increase in deposits has been not less than 2 billions.

This increase in deposits has been accelerated by the enormous imports
of gold, and apparently also by an actual return of currency in circulation outside of the banks; and from the fact that this increase has been steady now for the
past seven or eight months it may be taken as a real turn of the tide.



FEDERAL RESERVE BANK

MISC. 4.1.

OF NEW YORK

)FFICE CORRESPONDENCE
To

Mr, Jay

FRC:,

DATE_O Cteb er 9,,

Mr .Srlyter

SUBJECT:

1 & 2. The attached charts show the decline in the socalled

commercial loans and the increase in investments in the Reporting Banks from
the beginning of 1921. Back of this we can only estimate.

Deposits of all banks, except for a long period, are depicted

on the accompanying chart.

Indices of production attached herewith.
5 & 6. Range of prices depicted on same chart") )-_,/ys.3
7. We have no chart of grain prices. Attached is a chart from

the Harvard service, showing some of the principal commodities.




192_2

3 I STA7.9000-10-1,

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE

DATE___Cpelober4ic1922
SUBJECT:

noverner -Strong-FRC

2

heuest
Monthly Average

_1221...or 1922

31. Brick*
32. Lusher
33. Steel Dims
34. Rides
35. Leather
36. 'tubber

37. Paw

38. Sulphuric Acid
39 Linseed Oil
40. Tobacco

Sept. 30, 1922,
Price

tt17.50
15.106

1.38
.098
.288

.1407

350

14.00
.606
.267




Increase

f`.2.0P 1_17%.

"20.60
24.75
2.00
.22
.29
.1525
3.'75

15.00
.88
.275

Average, emitting coke

Not monthly average but lowest daily quotation.

Per cent.
Jr- 17.7
k- 63.8

4 44.9

-i- 124.5
+

0.7
8.4

4

7.1

i-

.-t- 45.2
4.

3.0

+ 37.2

192_

INISC 3 1 STAT.3660-10,1

FEDERAL RESERVE BANK
OF NEW YORK

-)FFICE CORRESPONDENCE
SUBJECT:

Governor--Strong
FROM

192 2

D AT E___Ober -6-,

r.-Snyder

Below is
basic commodities,
months of 1921 and
the percentages of

given a comparison of the prices in forty of the principal
between the lowest monthly average price for any of the
1922 to date, and of those of September 30, 1922, with
increase or decrease.

It will be noted that, eliminating coal, coke, and pig iron, there
are still increases ranging from 50 to 125 per cent., while the average increase for the whole forty, omitting coke, iS 37.2 per cent.
The question in my mind is whether such enormous and general indoes
creases in prices can be considered as simply a "rebound," or whether
not show clearly that inflation is now well under way.

it

Sept. 30, 1922,
Lowest
onthly Average
Price
1921 or 1922
1.

Wheat

2.

Corn
Oats
Flour
Hogs
Steers
Coffee
Sugar
Eggs

3.
4.
5,
6.
7,

8.

9.

10.
11.
12.
13.
14.
15.
16.
17.
18.
19.

Butter
Pig Iron
Steel, bass.
Steel Bars
Copper, elec.
Copper, Sheet'
Lead, Pig
*
Lead, Sheet
Zinc
Tin

20. Coal, Bituminous

$1.0635
.45
.327

6.88
6.94
8.36
.06
.049

.242
.318
17.75
28.00
1.38
.1188
.195
.0408
.0775

4,18
26.19
1.862

21. Goal, Anthracite )ir

7.75

22.
23.
24.
25.
26.
27.

2.75
1.00

Coke
Petroleum
Gasoline
Cotton, Raw
Cotton, Print
Wool, Raw

28. Wool, Serge*
29. Silk, Raw
30. Cement



.24
.12
.043
.83
2,35
5.50
1.50

Per cent.
Increase
From Low
2.8
43.1

$1.09
.6438
.4012

J

6.22
9.30
10.10

-- 9.6
4 34.0
4-20.8

4-

-+. 12.7

.10

1-66.7

.0625

+27.6
k 90.1
+38.4
+91.5
442.9
+44,9
+17.8
+10.3

.46

.44

34.00
40.00
2.00
.14
.2150

.0665
.0875
6.80
32.75
4.50
8.25
12.00

1.25
.25

.2035
.0675

1.295
2.50
8.05
1.60

I. 63.0

+12.9
-I- 62.7

4 25.0
* 141.7
6.5
-i1- 336.4
-,25.0
4.2
4- 69.6
4-57.0
-k- 56.0
6.4
-I-(--

.4-46.4
-4- 6.7

FEDERAL RESERVE BANK

MISC.

OF NEW YORK

)FFICE CORRESPONDENCE
7c,

Governor Strong

FROM

DATE

October 6,

1922_

Mr. Snyder

SUBJECT:

Just as an example of clear thinking and clear writing,

you may

like to look at the translation, on page 109, of an article by Dr. Lansburgh-whom Mr. Max Warburg refers to as "em n gelehrter nichtwisser," i.e., a highly
educated know-nothing.




FEDERAL RESERVE BANK

WS. 4,

OF NEW YORK

OFFICE CORRESPONDENCE

DATE

ia "

SUBJECT:Ct
FR,

Mr._anyder

(90

Ootoler6 ,

192

Indices of Economic Conditions

lq

N,

,H.eremith find 30 copies of the photostats of the economic indices
of the-fiVe-year pre-war period from 1909 to 1913.
I was led to make these comparisons, noting the unusually even
growth of bank deposits through this period, as compared with any previous
or subsequent period, and the well-known fact of the prolonged stagnation of
the stock market. I have an idea that there must be an intimate relation
between the two.




2

FEDERAL RESERVE BANK

MISC. 4,

OF NEW YORK

FFICE CORRESPONDENCE

''--

%veinier Strong

To

Fr.

_

DATE

Oct. 3, 1922

192_

SUBJECT:

Mr.__Snyder_
C.

I have verified the fact that there was no error in the chart

comparing our 20 basic commodities with the Bureau of Labor index and the
Harvard Bureau's 10 sensitives.

1 493

I am trying to work out a plan whereby we can still include coal,
which is such a tremendously important commodity, and still not have it
throw the index off the track as it did in the summer of 1920 and would
have done again this summer if we had continued to include it.




FEDERAL RESERVE BANK

OF NEW YORK

C..)FFICE CORRESPONDENCE
To

novernor Strong

FP

DATE_

Sqtember 29,

192_2

Mr. Snyder

SUBJECT:

German Production

As further confirmation of the came-back in German industry,
please note pages 167 and 11519.

A curious phase of the Hamburg trade is that it has been in large
part in British vessels and not German.
For an analysis of German export trade in terms of 1913, see page

123.




FEDERAL RESERVE BANK

MI.. 4,

OF NEW YORK

)FFICE CORRESPONDENCE
To

Governor Strong

FF

Mr. Snyder

DATE___AIDWIWr_64___

1922_

SUBJECT:

995

Now I suppose the heavy tide of buying which has brought about

railway congestion will bring a further sharp rise in prices, and that this
will be wisely ascribed to the congestion, as in 1920 (Federal Reserve Bulletin,

and about one million other editorials, articles and speeches).




IMISC 3 I STAT.3300-10-21

FEbERAL RESERVE BANK

OF NEW YORK

iFFICE CORRESPONDENCE
To

Governor Strong,

DATE
SUBJECT:_____Th

erk

1922

Edison-Plan

_Mrs_ Snyder__

I think the sketch attached is excellent so far as it goes, and
drives straight at the vital weakness of the idea. Of course from another
angle almost an equal objection would be that it provided for no sort of
control over the total volume of purchasing
this means.

power that would be

created by

Dr. Uilliam T. Foster has a quite admirable article on the Fordnumber of "The Atlantic
Edison, Loucks, and other panaceas, in the July
Monthly," and I am getting a copy to sand down to you.

I hope that such articles as this, and such a letter as you have
here, can find very wide circulation under the publicity plans of The American Bankers As so ;tie tion




MISC 3 I STAT.3600-10-21

FEDERAL RESERVE BANK
OF NEW YORK

FF I C E CORRESPONDENCE
To

Go_verno_r-Strong_

FR, .4

September 28,_

DATE

1922

Mr . Snyder

SUBJECT:

War Demand and Prices

In running through our charts of commodity prices, I have been
very much struck with the fact that by far the largest number showed practically no advance until the middle of 1915, and in a great many cases were
well below the 1913

level until that time or later.

Of the thirty-odd principal commodities, basic to all industry
as follows:

and to prices, which we have listed, the division stands
Compared with 1913

Higher in 1915
Sugar
Wheat

Wheat Flour
Copper
Wool

Hides
Zinc

About the Same

Below 1913

Corn

Hogs

Paper

Bituminous Coal
Petroleum

Sulphuric Acid
Sole Leather

Cotton

Steers

Pig Iron
Silk

Lead

Cement

Linseed Oil
Eggs

Lumber

Rubber
Tobacco

6

Steel

Tin

9

Coke
Gasoline
Coffee

Butter
16
Same

6

22-9
material

This explains why the general level of prices did not show any
advance over the 1913 level until in October and November of 1915.

titr4
6,4,



MISC 31 ST/1,3100-10-21

FEbERAL RESERVE

BANA,.w

OF NEW YORK

OFFICE CORRESPONDENCE
To

vein* StIong_____

DATE
SUBJECT,

September_264

192 2

The German Situation

//

FF

Mr, _Snyder

The attached article, which is from the pan of Mr. Robert Crozier
Long, the Berlin correspondent of the London Economist, gives careful facts
and figures as to the recant industrial development in Germany, confirming:

Very much what you were saying in your proposed address.
Precisely what it seemed to me was the case/
investigation of last summer, and from all
the exact and reliable information which I
have been able to find out since.

How long must the fiction of an impending "collapse" of Germany
be continued?




FEDERAL RESERVE BANK

OF NEW YORK

.JEFICE CORRESPONDENCE
To
FRC

Governor Strong

S
SUBJECT

tember 27,

192_2_

American Bankers!__Canvention----

l_irs_SnYder

It seems to me that the evidence confirms

to

the full

That you

said as to the general trend of industry in Europe, and I feel as though
it was so important that it would very materially add to the weight of it
to add a paragraph or two of specific reference to Germany and other
European States.
In another few months I think the general rise in
prices all over the world will be sufficient to prove the case up to the

hilt.




FEDERAL RESERVE BANK

W.. 4,

OF NEW YORK

JFFICE CORRESPONDENCE
To

Governor Strong

FRC

DATE

September 26,

New name for Stable Money League

Mr. Snyder

SUBJECT:

We are having a deuce of a time trying to get an appropriate name
for the reorganized League. Catchings and horty have proposed "Lioney and
Credit Association," and Asher has agreed to this. But it seems to me

very colorless and to lack in distinctive impreseiveness.

Do you think that the group who were present at Mr. Warburg's
dinner would find any objection in a name like:
Association for a Stable :Aonetary Standard

Does this not get far enough away from the objectionable associations of the present name! Surely no reasonable person would stand for an
unstable monetary standard.




Any suggestions would be welcome.

192!

FEDERAL RESERVE BANK

OF NEW YORK

FFICE CORRESPONDENCE
Governor Strong
'ROM

DATE604_ 25,
SUBJECT:

192_

Arti_eis_on New Building,

Snyder=--_

Attached is the little article on the new building, for the

October hunber of The Journal of the American Tiankers' Association. They
go to press very soon, and the Editor would like very muc.h to have the copy

today, if possible.

This goes with the out of thm Liberty Street fe.crule, such as was
used in the last Annual Reptirk, and as they iant only a very brief article
think

5-law has done an extremely good job.

lould you look it over and do you wish it under your signature
or without!




FEDERAL RESERVE BANK

OF NEW YORK

)0ICE CORRESPONDENCE
Governor Strong
Rom

DATE

september_41. 1922_

SUBJECT

Mr. Snyder

This was completed at 1:30 and given to the boy, John, who

waiting here for it to take up to you immediately.

was

It is now four o' clock

and he has not yet returned and I on, therefore, sending you the carbon copy,
as I do not know what has become of the boy.

This has been very hastily revised and runs to rather over 4,000
vords, so there is ample room for the carving knife.




I am sorry as to the delay.

FEDERAL RESERVE SANK
OF NEW YORK

Sc. 4.1-120 M-1-20

rTICE CORRESPONDENCE
3

j-7-)

crLA

DATE

SUBJECT.

?Om_

VJA.
A7,L,Nra\JAZt




s

0

\/ ,9.0)(,
'.---cLAN,

/

192 2------

MISC 3 1 STA7.3600-10-21

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
To
F

DATE

Governor Strong
m

SUBJECT

Mr. Snyder

Sept._24

192 2

Policy.

Factors in Federal Reserve

553
As a possible contribution to the discussion at Washington, I
attach a picture of economic conditions in the five years preceding the
war.
You will note that the price level, even as reflected in wholesale prices, Department of Labor Index, varied less in these five years
than the variations in that same index in the last five months.
Oorrespondingly you will note that there was an almost even
growth in the volume of production (lower red line), and amazingly little
variation from year to year, even though this was heavily weighted by farm
products.
Similarly, individual deposits in banks, either in
in National Banks, moved up at almost the same even pace.

all banks or

And there was, likewise, extraordinarily little variation in the
average of prices on the stock market, compared with previous and subsequent years (in fact, great stagnation).
Taken as a whole, I doubt if any five years, since perhaps 1850,
would show such a high degree of industrial and economic equilibrium.
Now.

This was the condition in the five years preceding the

war and preceding the establishment of the Federal Reserve System.
Question: If, in the establishment of the Federal Reserve System,
the primary object was a greater degree of stability and equilibrium than
had previously been attained, Is it not reasonable to think then of these
five years as a norm which must be surpassed if the Federal Reserve System
can be considered to have achieved its object.




EN

0Ci
cj.

4

FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-120 M-1-20

OFFICE CORRESPONDENCE
To. GnvRrnor Strong
FROM_(di R S)

DATE

September 16,

SUBJECT

K. D. Frankenstein_
At Mr. Snyder's request, I am sending you this summary of an

article in the latest number of "Die Bank," to which Dr. Lansburgh referred

in his recent letter to Mr. Snyder.




192 2

branch banking exists in every country of any financial strength.
In the United States, greatest progress has been made in California
which has more than 300 branch tanks, and where the requirements of agriculture,
mining and manufacturing are such as to cause a continuous demand for banking
service which a system with a chain of branches at many points is especially
well fitted to supply.
The advocates of branch banking claim many advantages for it. Those
accruing to the public include the benefits of expensive "equipment service"
of a large organization, the installation of better banking practices in small
communities, increased protection to depositors in the large capital and surplus of a system, and better service in general through the greater flexibility
of a branch system and better utilization of resources.
Among the advantages to the banks themselves may be mentioned greater
earning power from economy in operation, improvement of accounting and auditing
methods, elimination of duplication, retention of valuable employes through
greater opportunities, more diversification and better distribution of risk,
and the creation of more paper eligible for rediscount. It is urged that a
properly conducted branch banking system bwould be a Federal Reserve System in
miniature, and would function in about the same way, except for the right to
issue notes.
It may be predicted that branch banking will stand or fall upon the
extent and quality of service it can rive the public and upon the decision
whether it is equally or more profitable, compared with unit banking.

ECONOMICS AND FINANCE - THEORY

Something wrong with prices
The Bankers Magazine (America:Elk

1

CV: pp. 394-5, Septetber, 1922

Prices are being kept up from a variety of causes, among them, the
,
spirit of extravagance engendered by the War, high rages in several lines of
industry and inefficient and costly means of distribution of some products.
A factor not, perhaps, given due weight is the weakening of the
So far as members of the Federal
actual cash reserves of individual- banks.
Reserve System are concerned, these reserves must all be. in the form of loans
to the Reserve banks, to be in turn partly loaned out again. The State banks
also hold their reserves largely in credit in one form or another.
So long as the reserves of the banks of the country consist largely
of credit, there will be inflation and violent fluctuations in price movements.
One way
Prompt and effective action ought to be taken to stabilize prices.
of doing this would be "to get our individual banks squarely bank on the gold
standard of value from which they were unceremoniously thrust by the FederalReserve Act."
Allowing for all these factors, the principal cause of the continued
high prices is probably the excessive desire for gain on the part of far too
many who are engaged at some point in the production and distribution of goods.

The world's currency problems
Statist, C: pp. 12-16, August 1C;, 1922

To the long list of schemes for solving the present currency
problem of the world, the Statist adds another, which it suggests might
The principal
be administered by the Comittee of Central Bankers,.
feature of the plan is an international gold loan, to be raised among
the sound financial nations, in assigned quotas, and allotted to the'inflationist countries from time to time in amounts corresponding to their

(continued)


ef(rU.
'02

411

(4

7/
A,et

(4,77-

/0 (A)-CL(

Lt15_,,J
ik-C,

w-

3O

1A)

47/4.. ,,c/-c,P 7-74a, cle.-6,4

ce4
yo/
M/

i'"-/AAA

0,(,te,, a,




LAe
0_,(y7,71




r-D

e-

ue,)

Io

LAf

6t/
)--C

/ 6-7AV .

0-ve y
tz-74c
7L

.ceA_

(r6

FEOERAL RESERVE BANK

4.1.

OF NEW YORK

FFICE CORRESPONDENCE
To
FPCM,

Governor Strong

DATE
SUBJECT.

Sept. 11,

19241

Gold rlow an Prioop

-11-10-1.---3nY4,11/

T am sending down this little bit as a curiosity.
that by e.ving

You will note

about an equal swing to the two lines between l913 and 1920

you have an approximate parallelism up to the present time.

And I

have an

idaa that this may be coatinued fcx soma time, i.e., that as prices re
1rurther some of this gold will again flat outwards.




FEDERAL RESERVE BANK
OF NEW YORK

MMC.41420M-1-20

OFFICE CORRESPONDENCE
To

Governor Strong

FRiov.A

DATE

Augnst,25,

Mr. Snyder_

SUBJECT.

Time_Deposiis

The ratio of time deposits to total deposits in the National Banks
and in the Reporting Member Banks does not appear to have very greatly
changed.

I should not attach a great deal of importante to the difference

in percentage in the Reporting Member Banks between last May and August 16,

as that may be merely temporary.




FEDERAL RESERVE BANK
OF NEW YORK

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

it- FICE CORRESPONDENCE
To
Frkcot:A

SUBJECT:

oovennor Strong

Lansburgh__Afticle
"91C'

Mr. SnyciAr

The

att..eed

interesting passages are taken from an article by

Dr. Alfred Lansburgh, in "Die Bank" of last April.




Oct\

3C. 4.1-120 M-1-20

FEDERAL RESERVE BANK
OF NEW YORK

-4

.FICE CORRESPONDENCE

DATE

Au set 24,

ToJ

Governor Strong

SUBJECT:

Fr'm

Mr. Snyder

1922_

Regarding America.' e Attitude"

On page 4 of the Statement, paragraph two, line two, Ofa creditor
country" should. read "a debtor country."




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-120 M-1-20

CITICE CORRESPONDENCE
Governor Strong

To

DATE
SUBJECT.

Aug.iist 25

earde I R CO 1.1 A (Arid

WO

rk

FRG

Ricardo's Collected Works are a,3arently quite rare,, and we were

offered a copy last week for $750

I have been trying for some time to

get one for the bank, and think we had better send to England.
The one you had was a private copy I picked up in Portland.

The

larger. -next was uncut because I had the "Principlee in a smaller and more
convenient form.




Vt.




RE, Leer072
4ilt.;

25

3 OS P2 22
liAILL-777

BAtir

OF i.Y.

FEDERAL RESERVE BANK
OF NEW YORK

MISC.4.14201M-1-20

OFFICE CORRESPONDENCE
To

lir. jay
k

FROM

(Copy to Mr. Morgan)

DATE

August 24,

1924-

SUBJECT:

icr.5nydar

hope you have not forgotten the famous Gamlen of the twentytwo, at the Maohinery Club last November, when it was agreed, twenty-one

to one, that there would be no great business revival and no material riee

in prioes this year.




FEE5ERAL- RESERVE BANK

MISC. 4.1-120 M-1.20

OF NEW YORK

-3FFICE CORRESPONDENCE
To

Gv7evaor Gtroag

F Rditt

DATE__ August-24,

_192-2

Mr. -Snytte

SUBJECT. 5tatementRegardiagAmtvi-telis-

Herewith a first draft of the stateciekit, probably pretty crude,

but it will possibly serve as a beginning.




NIISC.3 I STAT.3600-10-2I

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE

DATE_August 23,

To

advernor Strnrg

SUBJECT.

FROM

Mr- srydgr

192

Attitude--4

Statement Regarding Amertea's

the forced or excessive expenditure of the people of Europecunder the conditions of practical capital confiscation,)which is the invariable result of
The stoppage of this injurious financial policy would
currency inflation.
result in the restoration of normal conditions in international trade, and
eventually the redistribution of the world's gold among the different countries, according to their several needs.
step towards this redistribution the United Staten, no longer
dLtArfe.l. As
a creditor country, has since the war loaned to other countries a sum in
This is at a rate never before witnessed
excess of 2 billions of dollars.
There is every disposition on the part of this
in internationel affairs.
country to continue these loans where they may be judiciously made, to the
utmost extent possible, but it is fair to say that in existing financial conThe absolute
ditions in Europe such loans are made with great difficulty.
essential, therefore, to the continuance of these loans, and especially to
the countries of Europe, is a restoration of their finance and their currenTo continue these loans at
cies and their trade to a condition of health.
the present time would be simply to perpetuate the existing chaos.
Every interest, therefore, financial and otherwise, would seem
(4)
tn demand an immediate settlement of the reparations question upon some practicable basis, a reasonable agreement as to the interallied debts and a contractual agreement among the several nations to reduce their military expenditures to a purely police basis, that will leave no further threat or conWith the reparations question settled,
venitnt opportunity for waging war.
with thorough-going disarmament agreed upon, and further disturbance of the
international equilibrium to the utmost extent relieved, it would be but a
brief time when the complete economic recovery of Europe could be effected.
One of the outstanding facts of history is the rapid recovery of devastated
nations from the effects of war when once their economic and financial policies
are established upon a sound basis. ut is clear that the actual damage to
industrial plant and equipment in Europe, occasioned by the war, has been groIt is equally clear that the amount of restoration altesouely exaggerated.
With a return to sound governready achieved has been surprisingly large.
mental and economic policy, that restoration could be quickly completed and
the normal industrial and social progress of Europe, arrested by the war but
still more by the conditions growing out of the war, could be resumed.
Such, at least, is the widespread belief of most Americans who have
intelligently studied the Questions at issue; and in this apparently they have
the support of most economists of neutral countries.




2

M1SC SI STAT.9800-10-21

FEDERAL RESERVE BANK

OF NEW YORK

OFFICE CORRESPONDENCE
To

Gm:m.1er Strong

FROM

DATE

Au gus2a,__-

1922

SueJect_statemeat_Re g-ardingAmorica's

Mr. Snyder

accruing from the war.

To ask the eeople of America to shoulder the full burden of this
debt, and to cancel it without any equivalent, is to ask than to assume a
burden practically equal to the entire amount, exclusive of pensions, asThis seems a large
sessed against Germany as reparations for the war.
order.
But the People of the United States are ardent believers in peaceful
and friendly relations with other countries, and the great majority of than
believe that the cataclysm of the great war would have been impossible had
it not been for the huge standing armies and monstrous expenditures for military purposes which were characteristic of most European nations before the
war began.
It may be said further that the people of this country have a vital
economic interest in the peace of Europe, as well as of the rest of the world,
The maintenance of great armaments by other
and this is in a double sense.
nations comnels a corresponding expenditure by our own Government, deeply as
the people of this country deplore and detest the purpose for which this exAnd in its trade relations it is with the people of
penditure is made.
We have then a
Europe thet our own people find their largest customers.
deep financiel interest both in a prosperous and solvent Europe and in a reduction of armaments.
Towards this end a Peace Conference was called by this Government,

and treaties looking to the substantial limitation of expenditures for naval
warfare agreed upon, but not yet ratified by all the attending powers.
If it were now Possible for each of the principal nations to agree
upon a further end more drastic limitation of land armaments, this would go
a long way towards relieving some of these governments of their present
It is further
financial difficulties and conditions of practical insolvency.
evident that the manifest inability of some of the countries to repay the
United States at the present time is due to these huge military expenditures,
and that to ask the United States at the present time to cancel these debts
is practically asking a corresponding contribution to these war expenditures.
At least, so it seems to our people.
Post-war financial conditions have produced for the United
States a large excess in her customary trade balance; and this excess has been
settled in gold.
This has resulted in piling up in the banks of the United
States a store of gold far beyond any possible needs of the nation.
But this
excess of trade balance, in the judgment of moot economists, is due either to




(3)

pi,4

MIS C.3 1 STAT.3600-10-21

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE

DATE

To

Governor Strong

SUBJECT:

FROM

Mr. Snyder

Auguat_23,

1922_

Attitude--2

Statennt _Regarding _America' -s-

Allied Governments could agree upon this compromise, the central point of
difficulty would be removed. LAS it stands, in four years the reparations
payments that Germany has madehave been slight and probably not equal to
the payments which it has received from other countries through the purthese by foreigners of its Paper currency and German securities.
In
other words, on balance Germany has thus far paid nothing.
And it appears
that the reauisite for any real payment is a government strong enough to
raise by taxes and by loans the sums that are required. L,It seems extremely doubtful if any government strong enough to carry out its agreements
financially and otherwise can gain or hold Dower in Germany so long as the
central point at issue is not adjudicated.
At the present time the German
Government is practically bankrupt and exists only through the surreptitious
form of taxation found in printing unlimited Quantities of paper money.
It would seem to be the Dart of wisdom that some reasonable compromise should be effected, and that Germany should pay what it feels it is
able to pay, and should be reasonably assisted to that end, rather than that
the present financial and governmental chaos there existing should continue.

In").

(2)
A question of almost equal importance is that of the interallied
Leaving Russia out of the picture, it remains that, from its Allies
in the war, there is owing to the United States some 10 or 11 billions of
dollere, advanced to these countries by our Government.
This money was for
the purchase of food, munitions, and supplies at a time when these countries
were in desperate straits; this money was spent wholly in the United States,
and the goods it paid for sold at topmost war prices ranging from 100 to 400
per cent, above the average of prices obtaining before the war began. Llhese
loans were contracted in dollars, and since that time the currencies of several of these countries have undergone a violent depreciation, so that in
some, to attempt to exact the full payment of these loans now in gold, and
under the purchasing Dower of the currencies of the debtor nations, would be
to make our Allies pay twice or more the actual amount which they received in
goods, and nut this country in the position of profiteering heavily from its
former Allies and friends.

debts.

It remains, nevertheless, true that the people of the United States
subscribed 10 billions, to the average amount of aboutn 500 for each family
in the United States, in actual money, in order that these loans might be made
to Europe, and through taxes assessed this country is now paying the interest
on these bonds.
This sum, with the accrued interest, is now equivalent to almost
the entire amount of actual damages assessed as reparations against Germany,
i.e., nearly 50 milliard gold marks; and is equal at current rates of exchange
to more than 133 milliards of francs, or about four times the entire amount
of claims for damages so far filed by the citizens of France for damages




MISC 3 I STA7.3800-10-21

FEDERAL RESERVE BANK
OF NEW YORK

OPFICE CORRESPONDENCE

DATE

To

Governer Strang

SUBJECT:

FROM

Yr.Snyder

_AJIgUStai___

1922

Attitsde.

iitatement Regarding America's

Nearly four years have now elapsed since the war, amid universal
rejoicing, mune to an and; and it is probable that, throu41 reduced production, depressed trade, and the disturbance of international amity, these
four years have occasioned almost as great an economic loss to the world as
the four years and three months of actual war. L_This is a situation that
seems to belie= intelligent direction of international affairs; and probably in this each of the principal countries concerned would agree.
But
each nation would probably hold a view of this situation widely at variance
with the others, and it is just this lack of a common meeting ground and
common understanding of economic conditions that is largely the source of
difficulty.
Where such a wide divergence of opinion and policy exists, it is
probable that each is extreme and that a meeting ground is possible only by
a modification of these extremes.
In the belief that America, more distant
from the scene and less vitally affected by the struggle, and before the war
on terms of equal friendship with all the warring nations, might view the
problem more dispassionately, and in the spirit of an umpire, the following
suggestion of a via media is offered:
(1)
The central noint of disturbance in the last four years has
undoubtedly been the question of reparations.
So long as this remains unsettled, Europe may remain unsettled and its recovery to nornal and productive
health be inhibited.
And in the reparations question the central point at
issue is the auestion of nensions for those injured in the war.
In the
final assessment under the Versailles Treaty, as fixed by the London protocol,
5n milliards, or billions, of gold marks were fixed upon as adequate compensaticn for damages, and a further 80 milliards, or billions, of gold marks
for pensions.

It is the contention of Germany that this award for pensions was in
violation of the Armistice agreement, and(furthermore)that it imposes upon
Germany Penalties beyond her capacity to bear.
The German Government has
offered officially to undertake the payment of 50 milliards of gold marks,
providing it be given sufficient time, and(that)the award of 80 milliards
for nensions be cancelled.
In this contention, both that the award of 80 milliards for pensions was in violation of a definite agreement, and second, that it is beyond
the economic capacity of Germany to pay, many careful students of the question
in England, in America, and in neutral countries are inclined to agree.
If
Germany would in good faith undertake to nay the full amount of actual damages assessed, and were allowed at least one or two years in which to extricate itself from the financial morass in which it is now struggling, and the




AT 3800-10-21

FEQERAL RESERVE BANK
OF NEW YORK

JFFICE CORRESPONDENCE
To

aovarnar_Stron R

FRoA

Mr-

DATE
SUBJECT:

August 22,

1922

The _Europ_ean,_prob1 col

Snyder

To try to get a line on average sentiment, I have talked in a
very general way with a number of people in the last week, about the debts
and renarations and what this csuntry might do--with a couple of lawyers,
with a newspaper owner, with Mr. George E. Roberts, etc., and it seems to
me clear from what almost all of them say that there is no particular senOn the other hand, as
timent favoring cancellation in this country.
Mr. Roberts pointed out, there is no very strong opposition, except in
certain quarters like the bonus people, who would like to utilize the debt
interest as a fund.
The general sentiment is of complete indifference.
Likewise, I have found that almost none, even among well-posted
people, know that two-thirds of the German indemnity is for pensions, or
anything about the history of the assessment; and I can't help thinking that
if the facts were generally known it would make a very considerable differSo I have been wondering about an idea like this:
ence in public sentiment.
Would it be feasible to attempt to organize in each of the principal
countries, and maybe some of the neutral countries, among the more fair-minded
type of people, a committee of say a hundred or two hundred very representative
and highly respected citizens, as a kind of Committee of Conciliation, the
list to include some distinguished bankers, economists, editors, writers,
business men, college presidents, etc.--maybe even Henry Ford and Edison.
Similar committees in Great Britain, France, Germany, etc.
Supposing, that ten or a dozen of the right kind of people were
chosen as a nucleus, and that the committee should then grow by nomination and
Then, when organized, the committee
approval of this nominating committee.
name two or three delegates each, who might draw up a statement for the
might
approval of the whole committee, and these in turn might be circulated among
the committees of the other countries, with a view to meeting on a common
ground.
Do
Complete exclusion of politicians and Government officials.
As I talk it over with experienced people
you think it might do any good?
it seems to me more and more doubtful that the politicians in control of each
of the principal countries will be an effective stumbling block to any kind
of intelligent action,, unless their hands are forced by some outside agency
of high standing and influence.




August 22, 1922

ear Governor Strong:

Last sprtag, when I came up to
see you at your apartment, I intended to

bring up a volume of the "Collected Works
of Ricardo" (one moiume); but I cannot remember whether 1 did or not.

I an sorry to trouble you, but
it was a hard book to find and I should
be greatly indebted if you could just take
a look and see if it was there.
Sincerely yours,

Benjamin Strong,
Governor, Federal Reserve Rank,
New York City.




mlb,.6151,7 0000-21

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
To

Ur- anyder_

FRoM

Colanel Ayres

UATE

SUBJECT.

August 21,

192 2

International_Debt

2

When England takes that step she will render her debt to us morally uncollectable.
It seems to me highly probable that we are confronted by a situation
involving the welfare of most of the civilized world, and of so very difficult
and complicated a nature that we cannot hope to collect at any time that we
can foresee, the vast sums that we loaned during the war.
Since conditions
as they exist probably make these debts impossible of collection, and since
England will probably take steps that would render it even more certain that
we could not collect payment, it seems to be the part of wisdom for us to
take the initiative in a general and cooperative movement for the common good,
rather than to stand apart and finally be compelled to accept our loss with
ill grace and with no compensating gains.




Sincerely yours,

(

cz,4

f

VA,t4,tsi.k

-

)
a.

ST AT.360.,..1

--EDERAL RESERVE BANK

OF NEW YORK

OFFICE CORRESPONDENCE
To
F

Mr. Snyder
)Ni

DATE
SUBJECT:

August 21, _1922

International Debt

Onlonel Ayrita_

Dear Mr. Snyder:

In thinking over our conversation of this afternoon, I am left with
the conviction that the opportune time has arrived for some person or group
in America to make a statement outlining the situation with regard to international indebtedness and the relation of the United States to the troubled
It is probably true that Americans
fiscal problems of the other nations.
in general are now less interested in this matter than they were some months
ago, for the returning prosperity has convinced many business men that the
purchasing power of Europe is a less potent factor in our own well being
If hard times had lasted a little
than it seemed to be some months ago.
longer American sentiment in favor of constructive and helpful action would
Moreover, our Congress
have been stronger and more general at this time.
is apparently about to enact a pretty drastic piece of tariff legislation,
and we have already created a Debt Refunding Commission bound down by trammels
of a sort that are not at all friendly in their aspect, from the European
Point of view.
Despite these difficult elements, it seems probable that the time
has arrived for a well-reasoned statement from some American source, telling
what our attitude ought to be and proposing methods by which genuinely better
It is probable that there no longer
conditions could be brought into being.
exists in this country any general conviction that the debts of the European
nations to the United States can be paid in the near future, and increasing
numbers of thoughtful men believe that large parts of the indebtedness can
Because of this realization there is, I think, a
never be paid us at all.
growing sentiment favorable toward a rethission of the indebtedness, if we
could secure in return certain conditions and agreements that would be of
large value to us.
They would include,
These conditions are probably of four sorts.
Followin the first place, a further reduction of land armaments in Europe.
ing this would come definite steps looking toward the balancing of budgets,
The
which would result in the betterment of fiscal and currency conditions.
the probthird consideration would be a definite and feasible settlement of
lems of reparations, and the fourth would be a general adjustment of European
international indebtedness.

Among other reasons why it would be timely to initiate such suggestions in this country and among ourselves is the realization which is
growing among thoughtful people that if we do not take such steps England
The financial problems of Europe will have to be
will take them without us.
The world cannot tolerate their indefinite
settled before very long.
If we make no move toward cooperation
dragging out in their present status.
in the adjustment of international debts, England will almost surely, sooner
or later, take the step of remitting the debts that other nations owe to her.




FEDERAL RESERVE BANK

OF NEW YORK

OFFICE CORRESPONDENCE
To
FROM

DATE
SUBJECT

Governor Strong

-Mr. Snyder

la,

192 2

Analysis-wf- Investment- Accounts--

of -Bankv--

Herewith is

of Government
total

August

presented the

highest and

securities held and all

deposits (i.e.,

lowest

amounts in each year,

other, and the total investments and

net demand and time and Government deposits.

You will observe

that, from the low point of last year, the

increase

in total investments by all Mational banks has not been very considerable,
that is, less

than half a billion,

while in

the 800 Reporting Member

Banks the

increase has been on the order of about 1300 million.

In the National banks this increase in investments has been fairly
distributed between

to two,

whereas in

has been in
all

Government and all other

in

the

proportion of

the Reporting Member Banks, over a billion

Government

about

of the

three

increase

securities held and only a little over 300 million in

other investments.
Of the

increase in investments of

near ,c one-half is from the

the 800 Reporting Member

New York district alone, and this increase is al-

most wholly consigned to Government securities.




Banks,

FEDERAL RESERVE BANK
OF NEW YORK

SC.4.1-120M4-20

OFFICE CORRESPONDENCE

DATE

Aligns+ 18,

To

anvernor Strong

SUBJECT.

F

Mr. Sryder

1922_

Bankers' Association

AddresR before Adirondck

I am to speak at the meeting of the Adirondack Bankers' Association
at -IftiterTIVird on September 2, and I was wondering if there was any special

slant that would be of interest or value.




'21

UAW 74Pfr

ftE . 'tivE17713
58 PM
18 .1

4i)G

BMW
INCOMING
RESERVE
OF N.Y.

F. RAI.




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-120 M-1-20

..)FF ICE
To

Fir

COR7SPOND NCE

DATE

Governy Strong---Mr, Jay
Mr. aSe---Mr. GidneyL,//
Mr. Snyder

Before the war a rise of

SUBJECT:

Ri E. 0

August 18,

192.2_

in Average of nole.ale

Prices

3

0

per cent. in the average of wholesale

prices in six months or a year was considered notable.

Even the great rise

from 1896 to 1912-13 averaged only a little over 2 per cent. per annum.
If this continues will it not soon eventuate in another great wave of
speculative excitement as in 1919-20?




I ,TAT

e00-10

- EDERAL RESERVE BANK

OF NEW YORK

OFFICE CORRESPONDENCE
To

Governor Strong

FROM

DATE
SUBJECT:

_August 18,

19S

__Tha_Europaan Problem

Mr. Payder

Is it not doubly clear now that the key to the settlement of
Europe's financial and economic problems is the reparations question, and that
until that is reasonably solved economic and bankers' conferences must be as
barren and fruitless as the Genoa Conference and all the rest?
And is it not also clear that, in the solution of the reparations
question, the position of the United States as to the cancellation or adjustment of its debt is a very vital factor; and could be made a very powerful
lever in any settlement if our Government were to go further and announce that
it would look with disfavor upon any further foreign loans in the United States
or any credits of our citizens to any countries of Europe involved, until a
settlement had been reached that would be no longer disturbing to the economic
and financial equilibrium of these countries!
I have been turning over this question ever since a visit from
Walter Lippmann last month, and I come more and more to the view that it would
be impossible to elicit any general approval of a programme of cancellation
or long-time adjustment in this country unless it could be made to include
some powerful emotional appeal, such as world peace, and the settlement of the
European problem, or the like.
If so, is not the logical thing for this Administration to carry
on its programme for the Washington Conference of last winter, in the direction
of further limitations of armaments and military expenditures, and to make this
a part of any settlement of the foreign debt?
In talking over this question with the most varies types of minds,
from economists like Mitchell and King and others, to business men, there seems
to be an almost universal sentiment that there should certainly be no cancellation unless we can drive what seems to us a very good bargain, i.e., no canNow, is not this the opportunity?
cellation without full quid pro.
I should like very much if you would read again the statement given
out by Senator Borah a fortnight ago, which I attach, and which, as I understand it, was a sort of feeler or beginning to a very definite campaign.

To your knowledge, was there ever any kind of an estimate made as
to the total expenditures by the several nations during the war, in the United
States, and if so is it possible to get this expenditure by years, i.e., in
order to estimate the approximate price average level at which these expenditures
wero made?
It seems to me that this is a vital item in any consideration of the
adjustment or cancellation of the foreign debts to the United States.




FEDERAL RESERVE BANK
OF NEW YORK

ICE CORRESPONDENCE
TO

Governor Strong

(DATE_

SL1BJ ECT

Aug. 18, 1922

The European Problem

Mr. Snyder

FROM

I did not mean to attempt another Disarmament Conference, but

simply thst a statement of the American banking position in the matter would

be effective only if it set forth clearly that American sentiment lould be
decidedly opposed to cancellation of foreign debts unless there mere a

quid pro in the shape of pretty definite contractUal guarantees for peaoe
between the contractin countries, a radical reduction of military expenditures,

and equally definite agreements as to further printing of money in order to
meet government deficits.
Would very much be gained by not meeting squarely\the facts as they

exist and stating them explicitly and in detail?

CS.MM

att.




_

STAT.9600-10- 21

FEDERAL RESERVE BANK

'-

OF NEW YORK

97FICE CORRESPONDENCE
To

Go v ernor_Strong_

FM

D A T

192?

Mr. _Sn y (Ler_

SUBJECT'

RIAR Action of 1919--4

satisfaction of a vindication in subsequent events. Ibelieve that this record
ought to be made public, with all that goes with it, especially if a new emergency should arise; and if such an emergency comes I hope that you will be at
the helm; for the memory of the people is sho rt and what they are able to learn
seems slight.




INISC 3 I ST AT 3600-10-21

FEDERAL RESERVE BANK
OF NEW YORK

O'FICE CORRESPONDENCE
To

Governor Stra g

FROM

DATE

August 17,

1922

Mr. Snyder

SUBJECT __RateaLction of 1919--3

was not one of them who would have denied the probable effect of, let us say,
a 10 per cent. bank rate, or, to make it still more clear, of a 12 per cent.
rate.
And yet we find Secretary Glass in opposition to a higher bank rate,
because "it could not attract gold or have any effect on our exports."
As
if the mdral, and monitory, effect of even a 7 per cent. bank rate would not
probably have been all that could have been wished for.
It is a singular thing, the extent to which even clear thinking men
were swept from their mental moorings by the. war's emotions.
Does it not
show clearly that, after all, we think what we wish to think and that, for all
practical purposes, logic is but a "fable convenu"?

And the far more appalling thought is: Have we learned anything
now?

Tor example:

In the war a child could see that what the Government wanted and
needed was men and materials, goods and man power, and not money; that then as
always money is but the counters in the exchanges made; that then, as always, goods
and goods,alone could be exchanged for goods and services for services. Yet
the whole financial policy of the war seemed to be dictated by the idea that
what was wanted was money at a low rate, not goods at low prices.
In the war as out of the war, a child could see that we could not
make and sell 1,700,000 automobiles as we did in 1917, at a cost of perhaps a
billion and a half of dollars, without a corresponding diminution of the GovThe purchase of a billion
ernment's capacity to obtain goods and services.
and a half of needless stuff could only have been achieved through an enormous
A child could underexcess of purchasing power in the hands of the people.
stand that a policy directed. towards increasing that purchasing power would
cripple the Government's capacity to obtain goods, rather than promote it.
Yet, I fear that if a new war were to come today we should do the
same old thing in the same old way.
Arid so today, if great prosperity comes to us again, as now seems
so strongly indicated, who will there be to preach clearly that prosperity cannot be increased by a great expansion of bank credit?

In 1917 and 1918, with every mill and factory strained to the utmost
to produce goods, with the railroads so congested that goods could not be moved,
with the whole nation wrought to a fervor to produce, the banks went on pouring
out new money and new credit.

If the same thing comes again in 1923, how many people will there be
to remember or to understand the lesson of those years?
The position of this bank under your leadership, as revealed in
these pages, is an enviable record and I hope the time will come when that reMeanwhile, you and your associates have at least the
cord may be known to all.



mISC 3 I STAT.3000-10-21

FEDERAL RESERVE BANK

OF NEW YORK

iler

0-FICE CORRESPONDENCE
To

Governer Strang

Fe,,m

DATE

-A.14111,d_13_,

1922

Mr. Snyder

SUBJECT:

Rate-Aetian of 1919-2

I have been especially interested in Mr. Leffingwell's contemptuous reference to "the economists," in his letter of February 12.
Sprague,
Fisher, Kemmerer, Hollander, Bogart, "Willis, and Miller, whom we both know,"-"I have the measure of these fellows":
And they are all of them wrong;
Mr. Leffiagwell alone is right.
And "when a merciful Providence relieves me
of my present job I hope to find time to give a real account of our war finance,
and incidentally have some fun with the critics."
I remember very well the occasion at Atlantic City when Mr. Leffingwell
spoke before the American Economic Association, in defense of his war policies,
and his almost cringing supplication at the end, to "give them your support."
I doubt very much if there is an economist of standing in this country
now who shares Mr. Leffingwell's views, or approved them in the war.
He says
that "I have, since college, been more interested in economics than in any other
subject;" but the teachings of those whose advice he spurned were but a restatement of the teachings of Smith, Ricardo, Mill and the rest, for whom, let us
hope, he had more respect.
Of especial interest is the naive belief of Mr. Leffingwell and
all the rest that keeping down the rate for money in the war, and floating loans,
Is
at a "favorable rate," was a benefit to the Government or to the people.
it not now clear that a far wiser procedure would have been to make these loans
for a short term, from five to ten years at the most, at a high rate of interest,
discourage banking inflation and the purchase of bonds by the banks, and thus
keep down the level of prices and hence the cost of the war?
Most of the things for which the Government paid out money--food and
munitions and ships, rose far more than the 100 per cent, or so of the general
The average increase, I should
level of wholesale prices reached in the war.
think-, was nearer 200 per.cent.
And I am of those who believe that, had the
banking policy of the country been wisely conceived, this increase might easily
have been less than 50 per cent.
For is it not now clear, as an incontestable
fact, that there can be no great rise in the general level of prices unless
there be at the same time a corresponding increase and diffusion of purchasing
power among the people?

All the demands in all the world, from WINV beggar or bankrupt, cannot increase the price level.
That increase can only t
And so we see that, in spite of all the war's
is behind the demand.
demands in this country, the general effect of the war was slightly to lower
Icredit
the general level even of wholesale prices for the first twelve months after the
war had begun.
I was especially interested to discover your staunch faith,
I have wondered
throughout the whole period, in the efficacy of the bank rate.
if all those who, like Leffingwell, Glass and Harding, were denying the power
Surely there
of the bank rate, over considered the implication of their view.



3119C 3

I 37A7.3800-10-21

FEDERAL RESERVE BANK
OF NEW YORK

0-FICE CORRESPONDENCE
To

Governor Strong__

FPM

DATE

_Auglat 17,

1922

Mr. Snyder

SUBJECT

___Bate_Action of J..919

I have been very deeply interested in going through the memo., with
the correspondence, on the question of bank rates and policies in 1919 ff.,
more interested than you could know.
In November of 1917 I participated with Prof. Hollander, Dr. Miller,
and Mr. Noyes, in a discussion at a meeting of The American Academy of Political
and Social Science, on the question: "Do Government Loans Cause Inflation?"
I attach herewith the volume of Proceedings, and would like to draw
your attention to the marked paragraphs on page 143 and the little note on
page 145.
part of an address b .,ore The Economic
Asyfurther exhibit I
much the same tenor a the above.
Club of Bosto, in October of 1917, to//
attac,)

T am very much gratified to find how closely my own thought apparently ran with yours, even to the extent of much the same type of illustrations.
There would have been some divergence as to the wisest policy after our entry
I wrote a great
into the war, but none as to that following the Armistice.
number of editorials in the latter period, for the Tribune, which were nearly
identical with the general views expressed in your letters, and I attach copies
of two articles which I saved, and I should like to draw your attention to the
very mild predictions in that of February 17, 1919, suggesting that the direction
of prices might more likely be that of a sharp upturn than that of a continued
I know of almost no one else at this period who clearly expected this
fall.
possibility.
As to the memo. on Bank Policy, and your letters:
A sufficient time has now elapsed, it seems to me, to show that
(1)
the policy advocated by you was the only sound policy, and that the vast expansion and subsequent collapse, the post-Armistice boom, was largely brought
on and encouraged by the policies advocated by Mr. Leffingwell and the Treasury.
And I think it would be worth while to read into the record that this expansion,
measured by the increase in bank loans and the almost exactly parallel increase
in prices, was without precedent in this country, so far as we know, and likewise the extent and violence of the ensuing collapse.
In twelve months we had an expansion of bank loans exceeding 26 per
cent. with an increase of the index of prices at wholesale of around 30 per cent.
Nothing like this in peace times had ever been known in the history
of this Republic, and it was only made possible by the low rates of interest
prevailing and the sanction of the Treasury and of the Federal Reserve Board to
this expansion.




MISC. 3.1 STAT. IM 3-21

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
To

Cnvernor Strong

FROM

DATE

August 16,

1922

Mr. Snyder

SUBJECT

Inventories

I have gone over the matter of working up inventories from the
financial statements in the Credit Department, with Mr. Morris, and he tells
me that, for the most part and especially for the large companies, these
statements are the same as those published in Moody's Manual, etc., each year,
and for the most part they are of last January 1 or some months previous, and
that very few of them are of much later date.
Are they not then rather stale for purposes of estimating the current
Lair

P trend in this regard, if this is what you desire?

Are they not too much past

history?

this connection I attach a very interesting letter from Mr. Nevin,

iIn

of Cleveland, regarding the tire situation, from which it would seem to appear
that production has not been excessive in that field.




AMONIMIIMINIIIPOPT.011

aeW- &TA.,

&16r-




401.4.4/c




FEDERAL RESERVE BANK
OF NEW YORK

MISC 4,100M-6,1

OFFICE CORRESPONDENCE
To

GOver,ior St ,,Ong

FRO/1;r

Mr.-741111a-

DATE
SUBJECT:

August 14,

American Federation of Labor Report,

June 12, 122

Dpn't you think this is pretty good as coming from the Federation
pf Labor?




1922

FEDERAL RESERVE BANK

41,.. 1.1 10.4 II-2I

OF NEW YORK

OFFICE CORRESPONDENCE
To

Gcvernor Stramg

FROM

Mr. Snyder

DATE
SUBJECT:

M

July 214

°rand= on "Gold Pdliey"

0010';

If it had not been for your sug stion this would not be offered,
and I have really only tried to formula
seems to me bound up in Query No. 9.




the problem.

The whole of it

1922_

AVAILABLE OlkL SUPPLY
(Memorandum by Mr. Page)

The figures contained in the attached memorandum are in the main
correct, with the exception of that quoted as weekly consumption (6,000,000
tons)

which in

my opinion should be somewhat reduced.

By reason of the high selling price then prevailing, the consumntion
of bituminous coal throughout the abnormally active year 1917 was, in all probability, nearly identical with production.

For the period April-June of

that year this amounted to 135,700,000 tons,'or at the rate of 10 200 000 tons
per week, which figure we may accordingly adopt as likewise weekly consumption.
For the purpose of comparison and as a measure of industrial activity,

we have for the period April-June of 1917 and 1922 respectively:
April-June
1922

1917

Pig Iron Production
Coke Production
Freight Ton Mileage

10,021
13,902
104,507

6,739
8,743
85,488

Ratio

67%
63%
82%

Ut.

4.5

Weighted mean

1.5

134
63
123

320

2
1

71%

Assuming that coal consumption varies as industrial activity, we then
have for weekly consumption throughout the period April-June, 1922:
10,200,000 tons x 0.71 = 7,200,000 tons
'

As supporting this view, it may be stated that production of bitumin-

ous for the period January-March, 1922, during which period the major portion
of the 70,000,000 tons in stock April 1 was assembled, amounted to but
129,000,000 tons.

Consumption for this period was, therefore, in the neighbor-

hood of 59,000,000 tons, or 4,500,000 tons per week.
It is highly probable that wagon and river mines, the product of which
is not recorded by the U. S. Geological Survey, have served materially to assist
and relieve the coal situation.

The use of fuel oil has also become general,

as shown by the increased demand for this product at steadily rising prices.




Complaint3of shortness of coal have not as yet become frequent.




FEDERAL RESERVE BANK
OF NEW YORK

MISC 4.1-100M-6-21

OFFICE CORRESPONDENCE
.0

Governor Strong

FROM -

DATE

August 14,

192 2

Mr.. Snyder

SUBJECT.

Available Goal Supply

I attach a careful memorandum from Mr. Page which indicated what I
think there is much tonntgief3t- is the fact, that the available coal supply of

the country is very much higher than the estimate given.

While it is true

that large stocks of bituminous coal are not feasible., it is none the less a

matter of observation as to the astonishing amount that is always lying around
in consumers' stocks.

Memorandum:
J. D. A. Morrow, Vice President of the Uational Coal

Association, figures that at the beginning of the present strike
approximately 65,000,00

tons of coal were in storage and pos-

sibly 70,000,000 tons. (Assume this was all bituminous.)
If we add to this the Geological Survey figures of
bituminous output for April, May, June and July 74,000,000,
we have a total of 144,000,000 tone.
The Coal Bureau of the Chamber of Commerce of the
,United States figures the country's weekly consumption of bi-

tuminous at approximately 8,000,000 tons - say, 128,000,000

,.-\S

tons for the four months.
%

These figures would indicate 16,000,000 tons of bituminous storage coal on hand August 1st as compared with
20,000,000 tone as estimated by Mr. Hoover's office.

There is practically no anthracite coal in storage-

and practically none being produced/
F.E.V.

Aug. 8, 1922.




1..b,060




Ii%CcY7"

,

7

vo.

- 2 'ress urged to consider subject of internationalE...tabilization of silver.
Chronicle 115: p. 4-98, July 29, 1922.

The attention of the United States Senate was recently called to
a resolution adopted at a conference of mining interests which convened in
Thenver June 22-28. Believing that the rehabillta:,ion of business and finance in Europe, and in the entire world, will be expedited by the increased
-,:.se of silver for monetary purposes, and that under existing conditions

international transactions in silver are subject to private manipulation,
to the detriment of both producers and consumers, the conferenee urged
The
Congress to consider the international stabilization of silver.
resolution was referred to the Committee on Banking and Currency.

/7'

The Conference of the Banks of Issue, Dr. Alfred Lansburgh,
Die Bank, No. 6, pp. -477-489, June 1922.

Editor-in-Chie%

Dr. Lansburgh' s point of departure is the statement on the
London memorandum for a central bank-conference that, on account of
their large budget deficits and unfavorable trade balances, it will be
years be fore many European countries can return to the gold standard.
To make this admission is, he thinks:, to deprive the conference in advance
of the chief value it might possess.
Dr. Lansburgh strongly denounces the attempt to cover budget
deficits by note printing, saying that a state oversteps; the line between honor and dishonor when it resorts to the printing press in order
to conceal its bankruptcy. There is at pretent, he declares, no country
in Europe, even including Russia, which could not meet its deficit by
means of internal loans, - and voluntary ones.
To postpone currency reform until budgetS have been balanced;
- as the London program advises - is to postpone it indefinitely. Cur-.
rencies must firSt be reformed, and then budgets and trade balances will
right themselves.
As middle ground between the gold redemption standard and the
gold exchange standard, the writer recommends the aJtoption of what he
calls a "gold margin standard," providing for a currency backed by gold
to an extent sufficient to settle each unfavorable trade balance by gold
payments. This currency, which will tend to become a real gold currency,
need not at first have more than a 20 per cent, gold cover in countries
pursuing an honorable financial policy.
As to a disturbance of the world gold market by a reform of the
currency o f the Central Europeal state s,there is little danger, on account
of the financial weakness of these countries and their inability to make
effective any considerable demand for gold.
The paper concludes with the recommendation that the articles
on the London program which create difficulties instead of solving them,
be "thrown overboard" immediately.
Paul M. Warburg Views as Inconceivable Insistence of United States on Payment of
War Debts by Alliee Unable to Pay.
.

.

22.219/21...c12,LTILi_i_l_pp. 596 - 598, August 5,

1922.

Paul M. Warburg, in discussing "The Rehabilitation of Europe" at
the Institute of Politics at Williams College on July 31, deprecated our
policy of aloofness toward Europe.
The United States is helpless to assist




(Continued)

MISC 3 I STAT.3600-10-2I

FEDERAL RESERVE BANK
OF NEW YORK

JFFICE CORRESPONDENCE
To

Ghvernor_Strolu;

DATE
SUBJECT!

AgttsL1O,

1922

Law burgh_ lirtizle-

!

FR6m

Mr. Snyder

This article by Dr. Lansburgh, which I have marked, is that to
vilich I drew your attention in June, in the Berlin correspondence of

Mr. Robert Crozier Long in The Economist.
As the article seems to me important, especially as miming from
a German, T am having it translated entire.

He makes some very definite

suggestions regarding the conference and the way back to the gold standard
in Europe, that seem well worthy of careful consideration.

For example,

Sir Josiah Stamp's recent work on "National Taxation" brings out very
clearly that there are very definite limits to the amount of taxation which
a nation can bear.

The present deflation policy of England practically

doubles the burden of their war debt at a time when their general taxation
still remains very high.

I have been wondering whether Sir Charles Addis and the rest who
have so doggedly determined upon this policy have ever seriously considered
what it might mean to the economic position of England and the welfare of
her people in the next twenty years.
See Stamp, pp. 136-7 and 169 ff.

I point out that after the

Napoleonic Wars, for nearly a generation, English trade was very severely
depressed, in spite of the industrial prebminence she then enjoyed.




,AVER INFLATION A:,,,SAILED.

erman Economist Believes Public
Oans Could Solve Whole Problem.
l!'pyright, 1922, by The New York Times Compa,
Special Cable to TIM NEW YORE TimEs.

, BERLIN, June 17.Considerable s,
as been made in the currency
udget, discussion by the declaration
he well-known economist Alfred L.
burgh, editor of the newspaper
!bank, to the effect that every Europe.
I

.

State, even including Russia, could ea,

balance its budget by means of

which should stop the increase in floaL-

ing debt and thereby check inflation.

Lansburgh characterizes as " moral in-

sanity " the statement on the London
program for the central bank confer-

ence that some European States cannot
return to gold currencies for years.
It, says Lansburgh, currency reform
waits until budgets are balanced and
foreign trade balances restored, it will
wait eternally. The proper way out of
the difficulty is the immediate stopping
of currency inflation by means of funded loan. When this is done budgets and
trade balances will automatically be
restored.
In his concluding comment Lanshurgh
declares that this blunder in principle
in the program for the bank conference
threatens to vitiate the whole proceedings.




IL_

ri

MUNICI
40 WALL STRCET

Power and
offer lnvestmen

WE Light Securitie
and
We extend the facilitie
those desiring detailed i
any of the companies wit
Correspond

Electric Bond
(Paid-up Capital a

71 Broadway




FEDERAL RESERVE BANK

MI.. CI IN 421

OF NEW YORK

OFFICE CORISPONDENCE
To

'Ir. Jay

FM

DATE

August 3,

1922

Possible Bank Lon Expansion

Mr. Sny

SUBJECT:

I see nothing to change the calculation we made, that the potential
expansion of the Member Bank loans, on the basis of each dollar of gold, is
This supposes that the general ratio of demand deposits
from 10 to 11 times.
to the total amount of currency in circulation will keep to the ratio of about
But Mr. Riddle makes the interesting point that part of the Federal
5 to 1.
reserve notes go to constitute the reserves of the non-member banks, etc., and
that, therefore, the real potential expansion is a little larger than this; but
I think his figure of about 12 to 1 is too high, since not all the states allow
Federal reserve bank notes to be counted as reserves.




6a40,47,
1

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33V130110983PRO3
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.

FEDERAL RESERVE BANK
OF NEW YORK

WIC. 4.1 14014421

OFFICE CORRESPONDENCE
To -

Govenlor Strong

FROM

DATE

August 3,

192k

Mr. Snyder

SUBJECT:

Mr. Breck, of the San Francisco bank, asks if the figures on brokers'
att.'irktkAA )

loans are to be published hereafter,Aand if so would like to know if we could
give him previous figures.

at.-px.e,cvoy

)14,'
0,19_:%-

Ativ\u,

a4Z




gorrio ectal

1c21AA4-v frvs
.14




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-120 M-1-20

Ok

A

'ICE CORRESPONDENCE

To

Mr. Snyder

FROM

DATF

March 6, 1922

192

Governor Strong

SUBJECT.

I have Tritten to the Nar College advising that I shall be unable to
deliver a lecture on April 15.

The acoustics in the hall are so bad that I

mould be afraid to speak until later in the year; so that the revision of the
address can be postponed, and I gill give you good notice of any imminent
danger of my being called on to speak later on.

BS.FV1




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-120 Mr1-20

OFFICE CORRESPONDENCE

DATE

Ymrch 7, 1922

192

Mr. Snyder
SUBJECT:
FROM

Governor Strong
Referring to the attached article by Professor Kemmerer, I went over it

with Dr. Miller, and think he is convinced that the Board is on dangerous ground in
making such an absolute statement as appeared in the Bulletin for February.
Will you please have some one keep an eye on both the Bulletin and other
publications to see what is developing.

BS. MM

Att.




FEDERAL RESERVE BANK
OF NEW YORK

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

OFFICE CORRESPONDENCE
Mr. Snyder
FRc,

192

DATFMarch 7, 1922
SUBJECT.

Governor Strong

Referring to the attached strictly confidential correspondence we have
just had, I wish you would bring it all down to me on my return from Miami.
want to talk it over with you.
stable money league attached.

BS.D241

att.

The same applies to your memorandum about the

I




OF ICE CORRESPONDENCE
TO

Mr. Snyder

FRC

DATE

March 20, 19n192

Gvertr-r Strong

The attached explains itself.

SUBJECT.

I hope I am not burdening you

unduly vith the revision of my former tddress.

BS.MM

at t.

4ar College Address

INI9C.3.100M-1-20

FEDERAL RESERVE BANK
OF NEW YORK

r-WFICE CORRESPONDENCE

DATE

March 20, 1922

Mr. Snyder

TO

SUBJECT

Governor Strong
FROM

I have read the attached tith a good deal of interest, and am tilling to
admit your argument on certain points but not on all.
real question to examine is first what are the present surplus reserves

of member and nonmember banks in the United States, and to that extent are they able

1The

to expand their loans and deposits without resorting to loans at the reserve banks?
The minute they resort to loans at the reserve banks our rate comes into play.

I am

not sure thether politically we can count upon our making an effective rate sufficient
to Control expansion until the present criticism of the reserve system subsides.

In

other words, until business improvement sets in and some Inflation takes place.
If there is no great surplus of reserves held by member and nonmember banks
to-day, how then are they going to inflate, except to the extent that net importations
of gold permit?
Do not forget also a practical consideration about our paying out gold.
4e do not /rant to be in the position of the famous surgeon silo replied to an inquiry

about one of his patients by saying that the operation was successful but the patient
died.

I do not think to 'sant t43 control expansion to the point where the Federal

Reserve System

till

go overboard as did the Second Bank of the United States.

Suppose

ye all began to pay out gold certificates, as the United States Treasury is not pro-

posing to do, the country 4as flooded tith yellow-backs, the netspapers took it up and
made a great point of it, and then some of our critical Senators or Representatives
agreed that ye *ere obdurate, determined deflationists, that ye had suffered no
change of heart, that we 'fere now even going to the point of

in order that 48 might have excuse for maintaining high rates?

dissipating ou
Has it occurred to

you that there is just as much danger in paying out our gold reserve as there is in
'keeping it, allowing that a 15% reduction in the reserve percentage of the System,
say from 75 to 60%,might indeed reduce the size of the shot piece in the glass case




M.C.A.00M4-20

FEDERAL RESERVE BANK
OF NEW YORK

EWFICE CORRESPONDENCE
Mr Snyder

TO

DATE

March 20, 1922

SUBJECT,

Governor Strong
FROM

and thereby reduce the sentimental demand for low rates in the minds of some people,
but, on the other hand, it sould subject us to the charge of an attempt at wilful
deception.

You turn a sharp seapon against me then you quote Mr. George Roberts.

I

have such a great respect for his V18118, and almost always have agreed sith them,

but don't

forget that he may have some respect for my vies and if he heard them

he might not feel as strongly as he does on some of these points.

That being the case I think you might arrange with him to reserve a little
time on lednesday, say prior to our lunCheon, shen is can have a chat on the subject.

You might bring dogn the attached memorandum, because in it you are pretty yell sewed

up in writing, and it might be that Mr. Roberts and I could upset your vies a little
bit; in other fords, that I might turn the very sharp weapon against you.

I am reudy

to

this york at any time.

BS.MM
Att.




go over the york that you and your colleagues have done on
Please arrange an appointment sith Mr. Beyer.

.




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-120 M-1-20

PWFICE CORRESPONDENCE
To

March 10, 1912 192

Mr. Snyder

FfiL,M

DATE

Governor Strong

I agree with you that thisis a good bit of reading.

It is not

that it says so much as that what it does say is well expressed.

Is it not stating a truism as to credit conditions which invariably arise in a new country with nem land and resources to develop.

68. MM

att.




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-120 M-1-20

OFFICE CORRESPONDENCE
Mr, Snyder

FRM

DATE
SUBJECT.

Referring to the questions and anssers, I
read them, hut sill try
slow.

ES.MNI
at t.

Questions and Answers about

the Federal

Governor Strong_

and do so

over this seek-end.

March 24, 1922 192

have

Reserve System

not yet had time to

I am sorry to he so




FEDERAL RESERVE BANK
OF NEW YORK

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

C 7FICE CORRESPONDENCE
Mr. Snyder
3

DATE

March 24, 1P22 192

SUBJECT:

Governor Strong

Referring to the attached, I am sorry to feel that the addition of the
new material in the early part of your letter makes it longer than I had hoped it
would need to be, and not as simple and direct as it was.
about sending the letter.

Mr. jay ishesitating

I think the Scott episode indicates the need for

sending an answer, and I would very much regret if he did not send one.

BS.MM
att.




FEDERAL RESERVE BANK

MISC. 4.1-120 M-I-20

OF NEW YORK

CFFICE CORRESPONDENCE
.o

DATE

Mr. Snyder

March 24, 1P9.2 192

StfeJECT.

Governor Strong
FR,,M

I read the attached
great

improvement

Jay and Mr.

att.

over anything that had as

Shepard Morgan a few comments,

already seen.

BS.Waif

before leaving

for Miami, and it struck
yet been submitted.

me as a

I sent Mr.

however, which possibly you have




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-120 M-1-20

;CFFICE CORRESPONDENCE
To
FROM

DATE

March ?7, 19V192

Mr. Snyder
SUBJECT.

Governor Strong

Could some one in your department read through the attached communication, advise me if there is anything of special importance in it, and prepare a
suitable acknowledgement.

BS.MM
att.




MISC. 4.1-120 M-1-20

FEDERAL_ RESERVE BANK
cirg;,, NEW YORK

OFFICE CORRESPONDENCE
co

FR

Mr. Snyder

DATE

March 27, 1922

SUBJECT:

Governor Strong

<",!;)

These Dearborn 1.40ependent articles strike me as bosh.

BS.MM
att.

45

192_




iTh.illebnegebai a/vdTee111 eaedl

mm.aa
B

MMC,A.90M4-20

I FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE

DATE

March 94, 19??

Mr. Snyder
SUBJECT:

TO

Governor Strong
FRO.,

Referring
advance

to

the attached, the reason why prices did not generally

after the war started, until the fall of 1915, was not because the

demand for certain war goods did not cause an advance, but because this

vas so

greatly offset in the case of goods in general, and of mar goods in particular,
in certain instances by the decline in 4Witother kinds of demand.

The shock of

the mar almost stopped business in certain directions, and it was a good while
in picking up; in other words, mar demands did not come into competition with

normal demands until after the shock of the war had subsided, and until after
arrangements for method of payment had been worked out, and further until after
contracts were not only let but until production started and the influence upon
wages was felt.

Do not forget the tent order.

ES.MM
att.




MISC,3.1.011.1-1-20

I FEDERAL RESERVE BANK
OF NEW YORK
DATE

OFFICE CORRESPONDENCE
Mr. Snyder

March

1

9

SUBJECT

TO

Governor Strong
FRO,

I am arranging with Mr. Beyer to hand to you an accumulation of documents
and correspondence relating to reparations payments by Germany.

I would like to have

you designate some capable person in your department to regularly read the reports,
of which you have a number, and of which a fresh batch accompanies the whole file.
As new ones come in, they should be read and a digest sent to me, the digest, of course,
covering only the most important matters and reduced to the fewest words.
Nhoever undertakes this work should be familiar with the entire file and I
mould now like to have the file examined for the purpose of obtaining, if it is there,
the following information:

(1) That is the amount of the German national debt, divided between
the debt to the Reichsbank,
the domestic debt to the German people,
the debt owing by Germany abroad.

(2) It has been recently reported that Germany has extinguished entirely the
debt of the Imperial Government, including the pre-war debt and the war debt.

44.411

If that

is so, how much was it, and how was it done?

(3)

HOW

much in paper marks has the German Government paid up to date in

order to make reparation payments?

I just want the total figure.

(4) That estimate does the Reparation Commission make of the amount of socalled exported capital of Germany?
(5) ghat has been the balance of German trade, as estimated by the Reparations
Commission?

This should include visible and invisible items, if possiblet

Thoever undertakes to go through the documents should become so familiar with

them that I shall be able to call from time to time for other information as the need
for it arises; but they should all be kept in my confidential file under Mr. Beyer's
charge.


http://fraser.stlouisfed.org/
BS.KM
Federal Reserve Bank of St. Louis

11

MISC. 4.1120 M-1-20

FEDERAL RESERVE SANK

OF NEW YORK

OFFICE CORRESPONDENCE
To

Mr. Snyder

FR om

DATE

April 3, 192?

192

Governor Strong

SUBJECT:

I cannot claim that my suggestion was very serious because my
OAM

plans are exceedingly indefinite.

I would like to do just what I suggested.

As to the exchanges; we must not turn a 1? inch gun on a sparrow.
The great problem is sterling; the others will come along easily enough if
sterling could be dealt with.

ES. MM

att.




M9C.3.190M-1,0

I FEDERAL RESERVE BANK
OF NEW YORK
April ?

OFFICE CORRESPONDENCE
TO

Mr. Snyder

lg.??

DATE

SUBJECT:

London Conference

Governor Strong
FROat

It is not at all settled that I shall go to London; nor is it settled as to
how much of an organization will be required; nor what sort of material should be taken.

I am starting, however, to make a list, just by say of precaution, so that if the trigger
is pulled, and when it is pulled, I can give you good warning.

I wish you yourself

would begin to consider what you think I will need in the way of material as well as
assistance, in case I should go.

Also sometime between nos and leaving, and probably

during the second week in May, I mould like, if possible, to have a meeting sith some of

_

the nearby economists shose opinions are most orthodox and most reliable, upon the subject

I
of currency and the exchanges.
Ihen I say "most orthodox" 1 mean that I am not going to surrender my own
convictions to any one, and my Conviction is that we must get back to the gold standard,

and that se can only do so by pursuing methods which have been tested and tried for the
last 100 years, and are known by experience to be sound.

In other words, if I am to

have anything to do with the business it will not be in the nature of administering a
"fake patent medicine to the sick man."

I think it would be most helpful to get together

three or four of the best there are on this subject and have a chat with them, and probably
get them to prepare some memoranda.

That I have in mind to consider particularly is
,

',what effect could be expected, say, in France, by the adoption of a new monetary unit,
say, a. franc of one-half the intrinsic gold value of the old franc.

A discussion would

bring out the points to be considered and it struck me that we should have such

kreadily
a discussion before trying to get anything in the nature of a formal paper from any one
of them.

This is all most tentative and preliminary, and I do not see that anything can
be done until after I get back from Sashington.

ES.MM
att.



419C. 4.1100M B-21

FEDERAL RESERVE SANK

OF NEW YORK

OFFICE CORRESPONDENCE
To

Mr.Snyder

DATE

April 28,

r'?

192

SUBJECT:

FRom Governor Strong

Referring to the attached papers, please turn to my memorandum of
March 28 and note that paragraph (2), due to some mistake in dictation, appears
to be a very stupid exhibition of ignorance.
The report that I heard as that
the pre-var debt, and possibly a large part of the funded /far debt, had been
extinguished by the operation of certain lavs permitting the payment of inheritance
taxes and other taxes in these bonds. Of course, some 230 or 240 billion marks
or more of the present debt is really floating debt, about one-half being held
by the Reichsbank and the other half, I presume, by banks, investors, and the
public generally.
BS.MM

att.




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1 10044 1,21

.,

April ?8, 19V,

OFFICE CORRESPONDENCE
To

Mr. Snyder

QOM

DATE

Governor Strong

You

SUBJECT:

Nil'

be interested in looking over the attached printed

record of the arbitration of certain coal matters handled by my
friend, Mr. Logan.

EiS.MM

att.




192

FEDERAL RESERVE BANK

MISC. 4.1 .M 8-21

OF NEW YORK
April ?,8, 10??

OFFICE CORRESPONDENCE
Mr. Snyder

To

DATE
SUBJECT:

Governor Strong

:OM

The little book that I recently sent to you should contain the information desired in regard to the economic agreements between the Scandinavian
countries.

It was, I think,

in

lormegian or Smedish, and mill need to be read

by some one familiar with the language lho can give a very brief digest.

ES.MM
att.




192

OF NEW YORK

DFFICE CORRESPONDENCE
To

Mr. Sny-Jer

DATE

May 15, 1922

192___

SUBJECT.

Benj. Strong

FROM

Raports from Genoa, snd what I hear in Washington, indicate the

probability of delay in the bank meeting, so please hold matters in abeyance

for a bit.







May 8, 1922.

Governor Strong begs to thank the Secretary of
the Financial Committee of the League of Nations for

the receipt of a very interesting paper by M. Janssen,
on the plan of an international clearing house, which

he will read with very great interest.

rt IA I

vs. v c-

1-3.

tc,

F NEW YORK

FFICE CORRESPONDENCE
To

Mr_ SnydAr

FROM




DATE

May 25, 1922

SUBJECT.

I'

I am sorry we cannot get something ore on stocks of commodities

It wculd be most helpful if we had some reli b/e figures.

BS.MM

att.

Li BRAkY
otua 2

1222

FEDERAL RESERVE BAN?.

ute

YL)11.14...

192

1,,,Arsi

I/




OF NEW YORK

"IFFICE CORRESPONDENCE
Mr. Snyder

To
FROM

DATE

May 25, 1922

192

Su BJECT.

Coverr nr

Sfrn ng

Thank you for the attached memorandum in regnrd to the investments of
National and reporting banks.

What I am anxious to see is the condition of the

surplus reserve accounts of the banks of the country.

In other words, what is

the lending power of our banking system before recourse is had to the Federal
Reserve SysteL?

BS.NBZ

att.




rcu=r-tim- KESERVE BANK
OF NEW YORK

)FFICE CORRESPONDENCE
at

To

DATE

May 25, 1922_192

SUBJECT-

Governor Strong

FROM

I am interested in the attached memorandum and its bearing upon what
Prof. Chandler said to me in regard to the present trade of England
Italy (not Germany).

Have you talked with him about it?

France and

It looks to me as

though, roughly, the trade of that part of the world is very littleabove one-half
of what it would have been at this time had there been no war, which means that
trade must either be developed or standards of living must inevitably be reduced.

att.

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE

DATE

June 1, 1922-

Mr. Snyder
SUBJECT

TO

Governor Strong
FROM

Replying to your memorandum regarding surplus bank funds, I think there
is a contradictory statement in both the memorandum sent to me and the one sent to
the directors, vhich is noted on the office correspondence sheet.

If the banks

of the country have no surplus reserves they cannot increase their loans (and of

Lrarmu4'
course at the same time bank deposit liabilities generally) )0.4, borrowing from the
reserve banks.

If the deposit account increases, reserve requirements increase

and they must borrow.

Of course the currency requirements

will

also induce

borrowing, but even aside from that, the increase in the required reserve vill
impose borrowing upon the banks if any considerable expansion in loans takes place.
That is the reason why I have all along stated that what controls is our rate.
The banks will not need to borrow an amount exactly corresponding to the expansion,
but they

will

inevitably be required to borrow the reserve which they require, plus

that portion to be expressed in bank notes as distinguished from bank deposits.

BS.DEVI

att.







FEDERAL RESERVE BANK

MISC. 4.,

OF NEW YORK

OFFICE CORRESPONDENCE
To
FROM

Mr. Snyder

DATE

June 1, 19?2

SUBJECT:

Governor Strong

Referring to Mr. Platt's address, at least you should be gratified
at the evidence shich it contains, that there is some seakening on the part cf
0

,

the Federal Reserve Board in their -eimesimiams as to the amount of current debt

owing to the people of this country by the rest of the world.
I do not feel willing to make any comment directly to Mr. Platt because
they all know now pretty fully how I feel about this matter.

att.

192

I FEDERAL RESERVE BANK
OF NEW YORK

FFICE CORRESPONDENCE

June 1, 1922

DATE

Mr. Snyder

SUBJECT

TO

Governor Strong

FROM

Replying to your inquiry about silver, it seems to me that there are three
principal influences to be considered:
Buying by the East when the balance of export trade of India and other
Eastern producing countries becomes decidedly favorable.

They are likely to buy

silver and sometimes their purchases are in immense quantities.
they frequently sell silver and buy gold.

When silver is high,

The recent heavy decline in silver resulted

in sales of gold and purchases of silver, but no one can forecast what that development
will be.

The completion of the repurchase of silver sold under the terms of the
Pittman Act will deprive the American producer of that market and the reaction will
be decidedly unfavorable unless I an mistaken.
Probably the most important influence to cause a reduction in the value

of silver is the one you mention.. Token coins and small denomination paper money
will for many years be used in place of silver coinage, and should we have a coincidence
totl

of

110

purchases of silver by the East, or even sales by the East, with the discontinuance of

purchases under the Pittman Act, I should say we might see very much lower prices for
silver.

On the other band, do not forget that silver has fooled the world more than

any other commodity.

So far as I know anything about it at all, and it is

little, my judgment would coincide with yours for the above reasons.

BS.141V.


http://fraser.stlouisfed.org/
att.
Federal Reserve Bank of St. Louis

precious

! FEDERAL RESERVE BANK
OF NEW YORK

FFICE CORRESPONDENCE
Mr. Snyder

DATE

June 1

1922.

SUBJECT

Governor Strong

ROM

I have read your attached memorandum of May 26
and want to ask you now just one question.

with great interest,

Mat is the money upon which you

base the statistical evidence which supports the absolute quantity theory?

Let me illustrate the question so that it will not appear to be a
trap - (far be it from me to suggest that you would ever fall into a trap on
this sutject).

Let us assume that a

bank like the Bank of France issue

francs of notes by one or another device, of which 5 billions were in circulation
and the other 45 billions were immediately hoarded by the French people.

Nould you

consider that the 45 billions had as great an influence on prices as the 5 billions?

Or let us suppose, for instance, that of the $30 billions of bank deposits
in this country, one-half should suddenly be subjected to the terms of an injunction
which prevented the owners from drawing any checks on those balances.

Nould those

bank balances have the same influence on prices as would the other half?
I need no conversion to the quantity theory, but there are a few little
refinements in regard to the quantity theory which a good bookkeeper needs to have
explained away, before he call swallow it 100 per cent., and the principal qualification in my mind is - shat money. is effective and That is not effective in influencing
prices?

B3.MM
att.




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-120 M-1-20

OFFICE CORRESPONDENCE
).'
To

Mr. Snyder

June 5

1927

SUBJECT:

Governor Strong

From




DATF

From the

attached I should imagine you

infer

surplus reserve of moment carried by member tanks.

reserve in which

FS.MM

att.

that there is no

It is the surplus

I am especially Interested, as I sometime ago explained.

192




MISC 4.1,120 M-1-20

FEDERAL RESERVE BANK
OF NEW YORK

WFICE CORRESPONDENCE
To

Mr. Snyder

DATE June 9, 1922

SUBJECT
Governor Strong

FROM

You made me a statistician by putting me in the Association.

They have a dinner on the 16th of this month, but I shall not be able to
attend it.

engagements.

RS.IX

I hope you understand the limitations upon my evening

192




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-120 M-1-20

OFFICE CORRESPONDENCE
To

Mr. Snyder

192_

June 9,1922

SUBJECTGovPrnnr

FROM

DATE

Strnne,

I shall read Dr. Macrosty's article at the first opportunity.

Did you know that your Miss Rose nearly cairied off the James
C. Cannon prize at the American institute of Banking Commencement last nitht?
She got f7ret honorable mention, and one of the judges told me that they had
the dickens of a time in determining whetler she or the winner had submitted
the best paper.

I am not a bit surprised after what I have seen of her work

in digesting a lot of dry as dust material that she seems able to model into
something worth looking at.
BS. M1




FEDERAL RESERVE BANK
OF NEW YORK

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

LFICE
To

CORRESPONDENCE

DATE

June 9, 1922

SUBJECT.

Mr_ Snyder

Gzvernor Strong

FROM

Referring to Dr.

on the autonomy of

the

Eernburg's

comments in the Economist ot May 20,

Reichsbank, please ask Mr. Beyer to show you a

letter villich I wrote to Mr. Norman on this subject a number of months ago.

It will interest you.

BS.Miv

att.

192

-140M-1-20

I FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE

DATE

Mr. Snyder

SUBJECT

Governor

:OM

I believe

Strong

that with a little tact it would not be hard to get regular

reports of stocks of certain of the important commodities such as those upon
which you base the bank's index number.

I talked with kr. Agassiz

the other day, - he is Quite sympathetic, and I think would be glad to take a
crack at the copper situation - pig iron is another item - steel products another and so on.

4e might apply it to wool, silk, etc.

It is

simply a question

14

treating the information with sufficient confidence and discretion, and I must
leave it to your imagination and experience to devise the means for attempting
it if you think it is worth while.

All of this is brought out by considering

that equation - that quantity of goods multiplied by price equals credit.
know the

4e

volume of credit - Te know the price - but we don't know the quantity.

We can only get a limited line on the quantity, but then a limited line is better
than none at all.

BS.ni







FEDERAL RESERVE BANK

MSG.!,

OF NEW YORK

FICE CORRESPONDENCE
To

Mr. Snyder

DATE

June 1? 192.9,

192_

SUBJECT:

Governor Strong

1-ROM

I am greatly

interested in the memorandum attached.

consistent sith the way you feel in regard to a boom?
the memorandum is the knowledge that you

are

Is it altogether

That pleases me about

thinking on this subject constantly

and keeping me posted on your thoughts.

It is our principal job j
to

size things up and act accordingly.

I am sending you Prof.

BS. MM

att.

Friday's reply.

Nhat do you think of it?

mISC.3.1-90M-I-20

I FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE

DATE

June 15, 19?2

Mr. Snyder
TO

SUBJECT

Governor Strong

FROM

Referring to the Brookhart memorandum attached.

Of course I do

not 4ant to minimize the importance of the movement - in fact I personally
believe that the radical movement in this country to-day is second in
seriousness only to that of 1896; but behind thi. I think ye have considerable

evidence that the farmers of the country, and to some extent the laboring
people, are awake to the dangers of unsound money.

That I do fear is that

some of the reserve bank organizations may become too closely associated
'nth various movements yhich may be construed as political in character and
yhich may subject us to the very dangers that Biddle encountered in the
Second Bank of the United States.
in keeping out of

BS.MM
att.




anything

le have got to use the utmost discretion

that appears to be political activities.




FEDERAL RESERVE BANK

WS. 4.1.

OF NEW YORK

OFFICE CORRESPONDENCE
To

Mr. Snyder

DATE

June 15, 19?2

SUBJECT:

Governor Strong

FROM

Replying to the attached about a "boom.

I have reiterated about surplus bank reserves.

to be the controlling factor.

ES. MM

at t.

Don't rorget what

It is now and will continue

192_




W.. 4,

FEDERAL RESERVE BANK

OF NEW YORK

OFFICE CORRESPONDENCE
Mr. Snyder

To

DATE

Junr 21

192?

1 92_

SUBJECT:

uovernor Strong

FROM

I attended a meeting of the gentlemen interested in the Sound Money
League last night, and got from them a reaction as to the proposed pamphlet which
we- discussed at luncheon yesterday.

They all thought it would be an excellent

thing to do if done in quite a skilful may.
Aon't you take this up with Mr. Jay immediately on his return and discuss the desirability of preparing a careful and comprehensive ouestionnaire

to go to all of the reserve banks, which would furnish the information upon which
such pamphlet would be based.

I would like to look over the proposed questionnaire

before it goes out as I have a few ideas of what it should contain.

ES.YM




FEDERAL RESERVE BANK

MISC. 4.1.

OF NEW YORK

1 OFFICE CORRESPONDENCE
To

.

Mr. Snyder

DATE

June 21, 19 2,2

SUBJECT-

Governor Strong

FROM

Mr. Frame is an old friend of mine.

some rather queer and cranky notions, but
Had I the time and

energy I would

He

has now and then.

is a most likable person.

correspond with him now and then,

but I think It is a. little dangerous to run the risk of publicity.

att.

192




FEDERAL RESERVE BANK

MISC. 4.1.

OF NEW YORK

OFFICE CORRESPONDENCE
Mr. Snyder

To

DATE

June ?A, lo??,

SUBJECT:

Governor Strong

FROM

'

nth this I am sending you the report of the Financial Commission

of the Genoa Conference, ..Which I vill be glad to have you read carefully and

return to me 4th any comments that occur to you, or possibly discuss it at
the first opportunity.

.

BS. !VIM

att.

1

92_




FEDERAL RESERVE BANK

MISC. 4,

OF NEW YORK

OFFICE CORRESPONDENCE
To

Mr. Snyder

DATE

June 21, 192?

SUBJECT:

Governor Strong

"ROM

I have read Governor McKelvie's letter attached.

He has

had a. very active and at times rather disagreeatae correspondence
relation

with Governor Harding, and. I think itwould be unwise for us

to get in touch with him direct.
it seems to require no reply.

FS.MM
att.

As this is only a circular letter

192




t
&La_

ci

It

(e:AL

/-..)

1

7)If

ct

tre

rte._ -47!




"JEMIL-1`.

.

OSI.JCE A:0) COMMERCIAL BT7LLETI

Wholesale Prices Up Sharply in May
(Bureau of The Journal of Commerce.)
n the
WASHINGTON, June 25.The index number of wholesale pric
United States, compiled by the Federal Reserve Board for the purpose of
international comparisons, showed that prices during May increased 9 points,
or 6.0 per cent. Imported goods advanced 4 points to 119 and domestic goods
increased 9 point,s from an index of 146 to 155. Raw materials rose 14 points,
producers' goods 8 points and consumers' goods 4 points.
Index numbers of wholesale prices in the United States (average Price
for 1913=100):

1921

May

June
July
August
September
October
November
December

ConProGoods
Goods
Goods
Raw
ducers. sumers'
produced. imported, exported. materials, goods. goods.
148
140
143
144
144
143
142
140

111

126
126
127
149
146
143
141

1922

January
February
March
April
May

130
141
144
141
155

145
140

195

102
103
104
106
107
108

139
110
111
115
119

142.

144

144

134
133
198
140
141

140
141
145
147
150
164

136
133
133
132
128
127

152
154
162
167
162
158
157
153

127
127
126

150
155

129
137

156

145
142
145
146
146
145
145

110
146
147
149
158

The index number is compiled from 100 wholesale price quotations for
representative commodities taken in leading United States markets.

cases weekly quotations are averaged to obtain the monthly figures, and
these in turn are weighted according to the importance of the commodity
before the index number is constructed. Part of the quotations used are
'9.,

Tnished by the Bureau of Labor Statistics, the rest are compiled from trade
,rials and private firms of recognized authority.




In m

44t
ND COMMERCIAL BULLETIN
MONDAY, JUNE 26, 1922. -TWENTY PAG1

irth Acts to Protect Republic;
Wiedfeldt May Succeed Rathenau
BERLIN,

June

25

(by

Associated quite orderly.

The chairman of the

Press).At Saturday evening's srosion of majority Socialist and Independent
he Reichstag Chancellor Wirth, reading Socialist parties and a number of trade,
the call to the country from the Imperial unions sent a message to Chancellor
overnment, said the Government's Wirth, according to a Cassel dispatch,
recommendation to the President of the demanding dissolution of the Reichstag
Reichstag was that steps would be taken and new elections, with the following
to insure the safety of the State and the Programme: First, a democratic relives and representatives of the State. public; second, transformation of the
The Government, he added, expected the reichswehr and police into trustworthY
German people to back up the Govern- republican forces; third, dissolution of
all reactionary organizations.
ment.
A Presidential decree issued to-day de- Intervening in to-day's debate in the
clares that all meetings, processions or Reichstag on the Government's measproclamations may be forbidden which ures for the safety of the State and
may be contrary to law or incite to the State officials, the Chancellor delivered
destruction of the Republican Constitu- a speech, of which the keynote was
tion, to any acts of violence against that the chief menace threatening the
present or past members of the Repub- republic emanated from the Rightists.
lican Government, or to rouse the coun- He announced that he himself had
.1,raa tening lett,




MISC.3.1-9014-1-20

FEDERAL RESERVE BAN
OF NEW YORK
July 12, 1922

,FFICE CORRESPONDENCE
Mr. Snyder
TO

Governor Strong
FROM

From the attached I gather the following:

That

1.

our index number of 20 basic commodities has risen from
V
127 in April.) to 143.6 in Julyg- an increase of +8; per cent.
That the index number of 20 basic commodities in England has

j 2.

risen La'

per

cent. since April 1, 1922.

5.

That wholesale prices according to

the Federal

figures have risen 9 points between April and May,

Reserve Board's

and 16 points since last

)41-

December, and that living
the low point

established this year.

This strikes

also impressed

costs as of May show practically no increase from

me as a perfectly natural development, but I an

with the fact that from now

costs which might indicate

etc. are important

something of

the

on, the various

indices of living

range of retail

prices,

rents,

figures to watch.

I hope you will send me the figures regularly in a pre-digested
pill form so that I won't have to read too much.

(itt,

/Yr

BS. MM

att.




4;11:/7

FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-30M 10-21

OFFICE CORRESPONDENCE
Mr. Snyder

To
FROM




July 26, 1922

SUBJECT

Governor

-

DATE

Strong

Referring to the
a speech which he is

weeks from now, in

attached note from Mr. Gilbert, it

proposing to make

which

to the Montana

he mill endeavor to

I am anxious that be should

easily understood statement of the way

refers

bankers a few

expose the

incorporate in it

Ford money
a

plan.

concise and

inflation - and sutsecuently

deflation - bears most heavily upon the laboring man, the Jags earner
and the small

producer.

Could you get up something for re to send to him?
BS.MIff

att.

to

192_

FEDERAL RESERVE BANK
OF NEW YORK

1-3001 10-21

OFFIPE CORRESPONDENCE
To

Mr. Snyder

192

SUBJECT:

Gvernur

FROM'

DATE July 31, 1922

Strung

gill you have prepared and sent to me a statement showing the total gold

holdings of the Bank of
department, by
reserves
say eight

behind the

or

from abroad.
partment

weeks.

SO

England,

divided

between the issue

and

the

banking

And a similar statement alongside of it shoving the total

currency notes.

I would like to

ten - and to have the figures sent to

Possibly a statement could

comparison.
I would like the same
Bank of France and the Reichsbank.

have this go

me every

be prepared which

that the figures each week are simply

PS. MM



department

added to

figures on the same

back for some weeks -

week regularly *hen

can
the

be

gold

sent back

received

to the de-

old figures for

ready

statement, if possibTe, for

the

FEDERAL RESERVE BANK
OF NEW YORK

4.1-90M 10-21

OFFICE CORRESPONDENCE

DATE

August 11

19.??,

192_

Mr. Snyder

To

SUBJECT:

FROM-4

Governor Strong

Nill y611 be good enough to read over the attached correspondence

mith Professor Sprague, and have some one prepare the tables described in my
letter.

There is no particular hurry about it.

0(909'

ES.MM




66Utd-

1çr

icedsa

/4rfi(4_,;';)

cf4ottit

W.

FEDERAL RESERVE DANK
OF NEW YORK

'.w
OFFICE C6WRESPOI DENCE
ro

Mr. Snyder
Governor Strong

I would ilke to read the Lansburgh article when it is fully

translated.
There is

just a slight difference between you and me in our

understanding of a balanced budget.

I think

Lyself

that &iiostic loans must

be resorted to by some of the European nations for a good
taxation

cannot be

and trade.

currency inflation.

to be treated according to

printing must stop
pos1hie *




it.hout

inevitably stifling proucton_

France is a. good example of financing of budget def1cjt

without actual

each case

bolly relied upon

thi3e and that

These are all

questions of

degree

its special circumstances, but note

before any rrve towards a

return to the gold standard is




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-302A 10-21

OFFICE CORRESPONDENCE
To

Mr. Snyder

DATE

August 10, 192? 192_

SUBJECT:

Governor Strong

FROM

Please note the attached memorandum regarding the available supply

of coal and my letter to Mr. Hoover on the subject.

119.MM

att.




FEDERAL RESERVE BANK'
OF NEW YORK

MISC. 4.I-30M 10-21

OFFICE CORRESPONDENCE
To
FROM

Mr. Snyder
Governor Strong

DATE

August 14, 1922

SUBJECT:

The attached confidential statement from Mr. Hoover is rather

interesting in regard to the coal supply. 41

BS.MIVI

/116-"jal

192_




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-90M 10-21

OFFICE CORRESPONDENCE

DATE

Aug. 14, 1922

SUBJECT

Mr. Snyder
Governor Strong

FROM

Replying to the attached, I think that Mr. Page's test is interesting

and has a good deal of value, but of

course it is no more than a test

because we kncN so little about the variations in

consumption under such

conditions as have arisen since April, Nhen the strike began.
plaints of shortness
I am mistaken.

of coal, I

Something like 40 furnaces have been shut down for //ant

small manufacturing

plants in

Paterson had to close for lack of fuel.
Your can Ileep the attached figures for future reference.

att.

to com_

think they are grnwing very rapidly unless

of coal deliveries, and only to-day 16

ES.MM

As

192_

FED,i

rOFFIC,

Ill"

NK

EvRoVRE-_,

N DENCECO

Mr. Snyder

R

DATE

Aug. 14, 1922

SUBJECT

Governor Strong

FROM

I sould like to see an analysis of the investment accounts of

of the
already

country for the period of la

year past, or if the

the banks

figures happen to be

prepared for a longer period.

To give a picture of what has been going on, I think we should see

comparative figures of the reporting banks at not too frequent intervals, dividing
their investments between Government obligations and other

forms of investment,

Wow.,

and that we should introduce the figures

for all

the banks from the

January and July which the Comptroller get/twice a

reports of

year.

It would be interesting to see just how fast the

banks of the

country

have been absorbing investment securities in order to keep idle funds earning

something, and




what.

kind of investment securities they

are taking.

OF NEW
ATE

NCE

IC
. Snyder

SUBJECT

Governor Strong

Have you ever considered sending some one to look over the financial

statements in

our credit

taking place in the

department to get an indication of what changes are
I suppose we have 20,000

inventories of large concerns.

or 50,000 statements in the credit departnent, going back now for a number of
years, where inventory comparisons would be possible for large industrial and

trading concerns, or even for groups of concerns representiug
This of course would merely show

the trend, but you

was disclosed by examination of

the

different trades.

will recall that the trend

these statements

for the sears 1918 .7.

1919 -

1920, was exceedingly significant as indicating that the country was getting over-

Iwhich

stocked a bit at high prices.
but

the

financial statements

Of course,

factor cannot be corrected

will nevertheless disclose in

important trend as to inventory.




the price

some

industries an

FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-SOM 10-21

OFFICE CORRESPONDENCE
To

DATE

Mr. Snyder

Aug. 16, 1922.

SUBJECT

Governor Strong

FROr

Mr. Nadsworth mou]d like copies

articles, if you have spare copies.

the translations of Lan sburgh s

ould you /et me have them to send to

Nashington?

The one I have I want to keep for the present.




192

FEDERAL RESERVE BANK

MISC. 4.1-30M 10-21

'OF NEW YORK

.OFFICE CORRESPONDENCE
To

Mr. Snyder

FROM

Governqr

DATE

Aug. 16, 1922

SUBJECT:

ftrPng
CONFIDENTIAL

I am sending you heremith memcrandum on rate action of 1919
of the Federal Reserve Bank of Nem York.

I mould be interested in

having your comments after you have read it.
Nill you be sure that no

and that it is returned to me.

BS.MM
att.




one sees the memorandum

but yourseif.,

FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1.30/4 10-21

OFFICE CORRESPONDENCE
To

Mr. Snyder

Aug. 17, 192?

DATE
SUBJECT:

Governor Strong

FRON

\

Thank you for your memorandum of to-day in regard to our

policy of

I think myself that some data

1P19.

does not appear, especially that relating to the

in July.
keep the

Also, some

should be

inserted shich

proposal to

advance rates

correspondence which I have at my home.

memorandum in my file

rate

I will

together with your comments, and net seek

I hope you will not mind taking a look at the additions yourself.

Thank you for

the papers

you sent, which I read sith interest,

and return herewith.
h

BE.MM

att.




-2.,

I

Qe-P-0/
ow

744441

192_

FEDERAL RESERVE SANK
OF NEW YORK

CE CO

SPONDENCE

ATE Aug. 18,- 1922

Mr. Snyder
Governor

RU 8J EC,

Strong

FROM__

Thank you for the

attached.

It

is all doubtless very true and I

can go along qith you in /hat you write except on one or tat)

points.

One is

1111Ethat I do not think anything 'rapid be gained by shutting off foreign loans.

It would just make bad blood and vould be something in the nature of biting
off our economic noses in order to

spite

our economic faces.

Also I have a little doubt as to hether it Arould be possible to
success-Pully engineer another Disarmament Conference.

by the last eonference have not been

ratified by

as yet, and I have a suspicion that failure of

ratification

embark upon a competition of being disagreeable to each

enc.




produced

most of the other nations

is simply a lever Ihich they are seeking to apply to us.

.MM

The Treaties

in some cases

I do not cant to
other.




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-30M 1.21

OFFICE CORRESPONDENCE
To

Mr. Snyder

191_
SUBJECT:

Governor Strong

FROM

If you will drop into my office some day soon, I will show you

the notes that I used at Oneonta to give you an
which struck me as

close

BS.MM

at t.

interesting

attention they gave

to country

to what I said.

idea of one sort of a talk,

bankers, at least judging by the




FEDERAL RESERVE BANK
OF NEW YORK

.. 4.1,90M 10-21

OFFICE CORRESPONDENCE
To

Mr. Snyder

Pug. 24, 1P22

SUBJECT:

Governor Strong

FROM

DAT

"Afealth and Taxable Capacity"

Chapter four of this book, dealing Nith the limits of taxable
capacity,struck me as very excellent, and I should think that it should he
brought to the attention of the Treasury Department.

ES.10

at t.

192._




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-30M 10-21

OFFICE CORRESPONDENCE
TO
FROM

DATE

Mr. Snyder

Aug.94

1_029

SUBJECT

Governor Strong

It seems to me that me should folio
sometime age as to
I am anxious to

the

up the figures that we made

incre se in time cl.. sits

see just

aha

effect

t/ t

and bring them

is having upon the

&an to date.

reserve position.

FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.14014 10-21

OFFICE CORRESPONDENCE
TO

Mr. Snyder

DATE

Aug. 24, 1922

SUBJECT

Governor Strong

FROM

I am returning Ric dots works, part

read, hut I found the greater art of the
mould ask you if some one in
volume for me personally whi

pages and to keep the book o

BS.MM

att.



which I was anxious to

ume uncut, and decided that I

e Libr y could not look up a copy cf this

uld purchase, as I hesitated to cut the
of the Library as long as I would need to do.

192_

ANK
FEDERAL RES
OF NEW YORK

CORRESP

Aug. ?5, 19.??,

DENCE

Snyder

SUBJECT

Governor Strong
FROM

I have read the two memoranda attached, *ith much interest.

Colonel Ayres' statement is clear enough and sound enough, except in possibly
There is no very

one reepect, which is touched upon in your own memorandum.

strong sentiment favoring cancelletion, nor on the other hand is there probably
'

any very strong sentiment that would demand full collection, that is, "the
That is needed is the right kind of leadership in forming

pound of flesh".

Your program would undoubtedly be helpful in that direction;

public opinion.

but it would re( uire the support of the most influential men in the country, and

I do not think

that

it should be associeted with

similar committees in other

countries which are debtors to us, or in fact in any other countries.

would be interpreted as propaganda for selfish purposes.

I

It

am not altogether

sure that I favor outright cancellation myself on any terms, but any adjustment

of u generous

nature which I

would strongly favor,

must necessarily be

based

such

upon someAconditions

as outlined by Colonel Ayres.

has been that if these debtor nations would only
contact

vith

the

My own notion all along

send people over here and

.Commission, they should be able

to

furnish us xith

a body of facts so convincing that the Commission could in turn go to Congress
through the voice of the President, with a definite and concrete

restablish
would carry

great weight; - but would political factors

no one can judge, although I

doubt if

they would if

a definite and constructive leadership.
treatment of the debt has been
note.

BS.NIM


http://fraser.stlouisfed.org/
att..
Federal Reserve Bank of St. Louis

the

proposal

interfere?

that

Of that

Administration would take

The whole ouestion of a generous

definitely set

back by

the

unfortunate Balfour




September 5, 1929.

Dear Mr. Snyder:

Thank you for put note of Friday.

gas very sorry

to rise se.sing you bafore you left for your holiday, but business
in lashington kept P. e tied up as tight as a drug.
I am trying to arrange a meeting with Mr. Strauss some

day this /eek.

Things in lashington are not as black as they look, I at
very gls.d -to say.

Yours sincerely,

r. Carl Snyder,
/o Colonel George 4. tqxter,
Liake

ES.MM

York.




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-30M 10-21

OFFICE CORRESPONDENCE
Tor. Snyder
FROM

DATE

Sept.

e, 122?

SUBJECT

Governor Strong

I vant to have a chat with you about the statement cf

America's attitude, on your return to the bank.

ES.VM




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.140M 1,21

OFFICE CORRESPONDENCE
To

FROM

Mr. Snyder

DATE

September 21. 19221.2_

SUBJECT:

Benj. Strong

Referring to the attached summary of Dr. Lansburgh article,

don't you think it would be a good plan to send this along to Wadsworth
in the Treasury.




NOSC3A400M4,0
I

FEDERAL RESERVE BANK
OF NEW YORK

DFFICE CORRESPONDENCE
Mr. Snyder

TO

SUBJECT:

Governor Strong

FRIT4,

During the year 1919 or 1920 (I think the early part of the latter),

I sent some very short paragraphs to the Federal Reserve Club Magazine.

I

wish very much you would read them over and get a general idea of their
character, or at least

the thought which inspired them, and help me out by

writing a set of twelve good wholesome paragraphs to be published in each
of the next twelve numbers.

If you can't dig up twelve at once, won't you

write a few for me.

--

I'll promise to change them without mercy!

On the other hand

I send you my sincere apologies for this cowardly way of answering Mrs.

Gibson's

request.

subject,

and I know that you can help me and will be glad to do

BS:MM

I simply have not got the time to do justice to the
&D.

FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-30M 10-21

OFFICE CORRESPONDENCE
To

SUBJECT:

Snyder

FRom

DATE Sept. 30, 102,2

Govornor Strong

I am returning the Journal of Commerce and Comreroial 3ulletin
containing KeyneS'article on the theory of exchange explained in relation to
doctrine of purchasing power parities.

32 JODI!

at t.




192_

.

I FEDERAL-RESERVE BANK
OF NEW YORK

,

E 'CORRESPONDENCE

ATE

Sat-i EC,

'Mr. Snyder

Governor Strong

A few months ago in a leisure moment in the country I
'

started to

rite out by hand some comments on Mr. Edison'S idea of money and finished

only a draft of the first chapter.
r?fs the complete plan.

Edison's scheme by

In the meantime, will you refresh your memory r's. to

reading

Garet Garrett's comments upon it,

draft and let me know if you think
weak point.
up.




Sometime I want to finish a discussion

and then read my

the idea correctly catches his

I think it does, but I would like to have you

schemeits
check it

EIDERAL RESERVE BANK
OF NEW YORK

Oct. 5, 1922

ENCE
Snyde

9 U BJ ECT:

Governor Strong

Referring to the attached, if the five year period to which you
refer can be considered a

basured,

standard by

which future conditions should be

then you are adopting a standard which it seems to me would be

uitable for an idealist to reflect about, but not for a distressed and dis-

ordered world

to

expect to realize.

The water is going to be agitated for

a long time, and the most skillful policy in the

world by

the Federal'

Reserve System, it seems to me, would be incapable of overcoming the influences
of which we may be the involuntary victims for many years.
But it's a good thin., to have in mind, and I am going to ask you if
-

this chart cannot be reproduced in sufficient numbers to enable me to pass
it ;around in Washington among some of the Governors so

that

they may thin'.

about it.

The curves will need to be explained a little more elaborately, or
they may not be

understood;

what each curve means.

att.




so I suggest the

addition of a

legend

explaining




FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
To

. Snyder

DATE

Ont._

1022

SUBJECT:

Governor Strong

FROM

Thank- you for the attached_

The chart is very illuminating.

The difficulty with it arose fro my being color blind rather than
frorr the lines being wrung.

BS.KM

att.




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-90M 10-21

OFFICE CORRESPONDENCE
To

Mr. Snyder

DATE Oat. 6, 1922.
SUBJECT:

Governor Strong

I am sending you very confidentially a communication from my friend
Mr. Basil Miles, and an interesting report on matters in Germany.

Please

read and hold it in strict confidence, and return the enclosure to Mr. Beyer
for my confidential file.

BS.DU
att.

1111111MIr

FEDERAL RESERVE BANK
OF NEW YORK

IDENCE

F-

ATE

Mr. Snyder

TO

Ocr.t. 194 1922

SU IEIJ ECT

Goveraor Strong
FEW

.

Replying to your memorandum, the following thoughts occur to
me:

There is no especial virtue in not having a University

education any more than there is special virtue

in having one so far as

knowledge or wisdom goes, but I would rather incline to the view that a

University, like

anything else, is a good thing if not

overdone;

so that

I would be inclined to put men like °amen, Keynes, Cassel, Lansburgh,
Kemmerer, Sprague and King in a little different class from Bagehot, Mill,

Ricardo, et al, because certainly the toner have stuck-to their

University

Uniyersities and

three

atmosphere

longer than did

any of the last

named.

The division is neither implacable nor insuperable, but is
rather to be described as natural.

MIL,

differentiation here, but
atmosphere,

the

the

I am not attempting a definition or

real point is that a man reflects

environment and system in which he lives.

are rarely practical.

Men of

Between the two we rock along,

but it may be well to reflect that were all men both practical
-"

thoughtful we wouldn't rock at all but we might stand still.
I think again I must suggest your rereading Emerson's
_essay on Compensation.

BS.MM

att.


thought

Practical men who are engaged in making money in a

competitive system are rarely thoughtful.
'

the

and

A




FEDERAL RESERVE BANK
OF NEW YORK

MIIIIC. 4.1-30M 10-21

OFFICE CORRESPONDENCE
To

Mr. Snyder

DATE

Oct. 19, 1922

SUBJECT

Governor Strong

FROM

-120a,

I am not going to Boston, but Professor Sprague is coming
to Aiew York Friday night.
sometime Saturday.

BS.MM

I may want you to join us in a little discussion

How are your engagement?

11111111119111.1111111111.111".
FEDERAL
1

RESERVE BANK
OF NEW YORK

ISFFICE CORRESPONDENCE
TO

Mr. Snyder_
Governor Strong

Referring to
of prophets,

Colonel Ayres views attached, I am always

afraid

and this is illustrated by the two items which I have marked.

How does he know that the money circulation will rise, and

bank loans will rise?

that

In other words, how does he know what we are

going to do about our rates and credit policy?

I am afraid of these prophets as I say, and I believe they
do harm.

He might be correct in every one of his

if he really knew

anything about those two

suspicion that we know a




contentions, however,

items, and I

little more here than

have a lurking

anybody else.

I do not receive the regular reports from the Department cf
Statistics and Research of the Bank of Japan.

The one received October 17

contained a statement of much importance, andI should. appreciate your giving

directions that these should always be sent to me.

In this connection, can you have prepared for me a table showing
the

fluctuations in

first,

together with

between japan and

Japanese exchange for this year beginning with January
any information which we have as to golcl_mmements

this

country.

I would also like to have the monthly figures for this year.of
the Japanese foreign trade
called upon to inquire of

that caution is used in

balance,-imports and exports. In case we
some of our




Japanese friends, please be sure

doing so and that it is simply made as a regular

routine inquiry for the use of

BS .KM

are

our Statistics Department.




,tisc.s.I -20 )1.4-9,0

/

FEDERAL. RESERVE BANK
OF NEW YORK

iE

F10E CORRESPONDENCE.
Mr. Snyder

1Q22

SUBJ ECT

Oovernor Strong

ill9A,..----(104---20,

The Control of I

lation

LI rAl4ko.

I am retaining your memorandum because I want to look
at it later.
In fact

But in the meantime we are not far apart - if at all.

I think I now have a pretty definite idea of what I

roiild

like to see the Boston, Nev York and Philadelphia banks do and on
the whole I would be quite satisfied to 'lave the other reserve banks
do noLhie,1-:;

if- the three banks named could adopt the policy which I

expect to be able to propose sometime during November.

S. WA

,,

0M-11

FEDERAL RESERVE SANK
OF NEW YORK

COR

PONDENCE

r. Snyder

EU BJ KCT:

Governor Strong
FROM




read

I have/the notes of your Harvard address and see
nothing unsafe at all.

That

I do, however,

at this impression:

it may leave in the minds of some of your hearers the feeling

that you are attempting to demonstrate that there was not a
s4g4Lic.4o-4.14-'variation in volume of business over the recent period

of expansion, depression and recovery, whereas people lAho suffered
(-eat losses will be reluctant to admit that.

It is a little like the surgeon stating that the
operation vas successful but the patient died.

In

other words,

the argument, it strikes me, would be more complete if you frankly
stated that there was no very great change in the volume of business

done but there was a very great change in the level of prices
which that volume .took,place.
bring *out, but

if

at

Possibly that is in your mind to

INOt
not you 4.444 havIkto use the soft pedal in tbi54...,

spect of the matter out of deference to the views I have expressed
dtWata.Q.LutIr
of the dangers of

inflation.

3S .MM
attt.

1

MISC.

FEDERAL RESERVE BANK
OF NEW YORK

.1-311M 10-21

OFFICE CORRESPONDENCE
To

Mr. Snyder

DATE

Oct. 30, 1922

SUBJECT:

Governor Strong

F",

I should be delighted to meet Professor Bullock as well as
Professor Persons any time that it can be arranged.

all to you.
BS.MM




I leave

it

192

FEDERAL RESERVE BANK
OF NEW YORK

MISC. 1.I-OOM 10-21

OFFICE CORRESPONDENCE
Mr. Snyder

To
Fr

DATE

Oct. 30, 1922

SUBJECT

Governor Strong
A

I think Mr. Reed must mean "credit balances".

So far as I am

aware the large joint stock banks never discounted at the Bank of
except to a limited extent when the war started.

BS.IG
att.




eand,

192_

FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-90M 10-21

OFFICE CORRESPONDENCE
Mr. Snyder

To
Fr

DATE

Oct. 30, 1922

SUBJECT:

Governor Strong
4

Please read the attached comments from Mr. Gilbert and return

to me with anything that occurs to you.

BSAM

att.




I think that he is about right.

192

FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.140M 0-21

OFFICE CORRESPONDENCE
TO
Frk

DATE

Nov. 1, 1g22

SUBJECT

Mr_ Snyrier

i

strong

I surmise that your assumption stout the increase in loans
in October is only partly correct - and part of it may have been due to
shifting; but I think the explanation of most of the increase is the
Treasury loan.

It is one of the vicious things about this scheme

of payment by credit, but I don't see how it can be avoided.

att.




192_

FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.1-30M 10-2I

OFFICE CORRESPONDENCE
To

Mr. Snyder

DATE

Nov. 1, 1922
192

SUBJECT

Governor Strong

FF

Please read the attached copy of a letter which is very
confidential, that I
letter

sent

just received from
Whenever

att.




to Mr. Gilbert, and

Mr. Wadsworth in

this

a

connection with it.

Mr. Jacobson cores to New York we must

prepare for discussion of

BS.MM

some days ago

whole subject.

,

.

FEDERAL RESERVE BANK
OF NEW YORK

M..4.140M10-21

OFFICE CORRESPONDENCE
To

r.Snyder

DATE

-

2t 1922

SUBJECT:

Governor Strong

FP

am just reading Feed's book on the Federal Feserve System
and making notes on the margin of matters that call for comment.

It will

be some days before I finish and then I will let you have the result.




FEDERAL RESERVE BANK
OF NEW YORK

MISC. CI-30M 10-21

OFFICE CORRESPONDENCE
Mr. Snyder

To

DATE

Nov. 2, 1922

SUBJECT:

Governor Strong

F

I do not know who Mr. Drummond is, but if it is proper to do so,

possibly you could prepare a letter for me to sign, thanking him for sending me
the publication and expressing some opinion about it.

ES. MM

att.




192

9 20

FEDERAL RESERVE BANK
OF NEW YORK

CORRESPONDENCE
Pnyder

SUBJ ECT:

Governor StronF:

P, OM

Feplying to the attached memorandum, my recollection is that the

generl tendency of prices - hich as you say was downzard in the

cos -

did

turn upward until somwhere between 1901 e 1903, from which time it.
t continuous until 1920.

In considering what is now

Eider

aking place, I think we must carefully

the relation between the movement of goods, on the one hand, (-bleb

0-14-7,12.1.4

u d include of course ,roduction)and the price level
As

.

'

The reports of car loadings would indicate a much larger movement

1'

goods,

would :robably indicate increase in prQducticn of goods, qnd the question is
whether,the rise in prices nos taking place is a natural and wholesome recovery
from subnormal or whether it

is

th't character of advance which can be

described

gE the conve'rsion of a Dermal .expansion into an unsound inflation.

In my talk with Professor Sprague, I gathered quite definitely that he
felt that the present course of production and prices was legitimate, hut, that it
needed watchireE end that sometime within the next few months Ae might need to

tale affirmative action t 'tighten u) supplies of credit.

everything

I21n,:l?.d t: heve

that you send me and anyTng that you can send me

throwinz light on this matter.

whic'' eill aid in

Please observe - as you doubtless have - that our

policy in liquidating investments, which ha- 'he

effect if'

to discount with us is indeed no less than a tax

forcing the member banks

)n bank earnines; that, it

is ')ein,_ felt; that the general level of interest rates ti.eL, pdvanced from

3/4 of




I

per cent, at lea.et, if not in some departments fully 1 per cent: that

eculetive avance in the stock varket seems for the

,oment to have been

t bond values have considerably declined; and the onl'
olicy whidb ee are no,

executi

-

effeetive in

-n

MISC.3 1-200M-0-10

FEDERAL RESERVE BANK
OF NEW YORK

WFICE CORRESPONDENCE
TO

OLJ.J £CT:

Governor Strong

FROM

2

speculation, or whether we must soon resort tb increased liscount rates.

I an

still on the fence, but ready to jump at any time ,Ahen the conviction justifies
,/
loing so.

att.




FEDERAL RESERVE BANK
OF NEW YORK

M13,4.1.30M10-21

OFFICE CORRESPONDENCE
To

Mr. Snyder

SUBJECT:

Governor Strong

of Buffalo
Mr. Walter P. CookAis a very warm friend of mine.

He sends me the

attached newspaper account of an enterprise in which he is interested, and if

it calls for a nice letter of congratulation or soffething of that Dort, won't
you have one prepared for me.
BS.MAI

att.




FEDERAL RESERVE BANK
OF NEW YORK

MISC. 4.I-30M 10-21

?FFICE CORRESPONDENCE
Snyder

TO

F

DATE

Nov. 3, 1922

192_

SUBJECT:

Governor Strong

Am

The attached reprint of an article by Anna Youngman reaches me in
an envelope which indicates that Miss Youngman is employed by the Federal
Reserve Board.

This is the first I knew about it.

I have not read the

article, but if in any respect what she quotes from me is not correctly
commented on or interpreted, I want to write her about it.

it
BS.MM

att.




read with this in mind, and greatly oblige

Will you kindly

have

FEDERAL RESERVE BANK

4.1-30M 10-21

OF NEW YORK
,

OFFICE CORRESPONDENCE
Mr. Snyder

TO

FROM

DATE Nov. 3, 1922
SUBJECT:

Governor Strong

I am attaching a confidential letter from Mr. Gilbert with an
important memorandum on the subject of the gold reserves of the
Government, which you might

read

papers relating to this matter

and then pass through to the file where
I believe are filed together.

have occasion to refer to it again before very long.

BS.MIVI

att.




Soviet

We may

192

FEDERAL RESERVE 'BA NK
OF NEW YORK

'

'

DATE

ICE CORRESPONDENCE

Nov. 6, 19g2

Mr. Snyder
Governor Strong
FRD,R,

I have read your memorandum of November 3, attached, and will ask
you to return all the papers to me after considering the following:

You have I believe confused,* things.

One is the nation's true

people by

income and the extent to which that income may be taken from its
taxation.

And the other is the ability of that nation to convert a bearable

fund of taxation into a foreign payment.

Every foreign payment made by a government must be provided ultimately
out of taxes, even though it pay temporarily

be financed by

loans placed in

foreign countries or even at home.

But a nation might w

make foreign payNents to the extent required to meet foreign obligations, even
though its people at home were capable of paying domestic taxes which would

nominally cover foreign payments, of course, I mean would cover the foreign
payments at some given exchange rate which was within the bounds of reason.

One could assume a

greater

nation developing

domestic prosperity

with a large national income and a high standard of living, and a large capacity
its people to pay taxes, but nevertheless with a stone wall around it which
was so impenetrable to foreign trade and financial intercourse that it would be

Liof

incapable of making any considerable foreign payments without seriously
.0..............._---4---wa,---,

depressing the exchange.

Such conditions, for instance, having arisen in
AL*,

*443mL4--

other countries like Brazil at_thel.present timed',

condition

can be

considered to have arisen in

the

I think somewhat the same

Philippines and

in

Cuba in

recent times.

As I view it, the capacity of a nation to make foreign payments

,

.

dependsauponitwofthingsevoneois theecommandtofncreditlinrforeignocountrieshich




IEL.,

00M --20

,

I FEDERAFI-NRESERV

13ANK

I

FF10E CORRESPONDENCE
Mr. Snyder

111111111111111011,11
DATE

Nov; 6, 1922

SUBJECT

Governor Strong
2

we are all familiar, and second, the capacity of the nation to pay taxes which
are equal to the

requirements of the

government to buy these foreign credits

with the amount of domestic taxes so collected.
Would not the picture be a little clearer if we assume that Germany,
for instance, with two billion gold marks a year to pay abroad, collected taxes
from all of her people ratably in domestic currency for domestic payments and

in foreign currency for foreign payments!

If the taxes were equitably apportioned

it would tean that all of those who acquired foreign currency as the result of
trade or other transactions which would give them profits, would pay to the
government the

tax

in the foreign currency in which the profits were received,

and that the rest of the tax ratably would be paid by those who derived profits

from trade and otherwise from their domestic business; and under those circumstances
would not the limitations upon the bearable amount of taxes be the amount
foreign currencies which German

citi?ens could

of

command as the result of their

foreign transactions?
c

Any other theory would suppose that a nation could make foreign

payments out of domestic currencies without any regard whatever to the amount

of foreign currencies which the cithens of the country acquired as the result
of trade, etc., and that I think we are assured is a fallacy.

In other words, there are two limiting factors upon the ability of a
nation to make foreign payments - one is ,capacity of the people to pay taxes;
in other words, the limit which relates to the

whole of the national income.

And

the second is the limitation which is imposed by the natural and inevitable
limitation of the country's trade and Laroweoleeo with the rest of the world, which
'

is what produces credits abroad.


http://fraser.stlouisfed.org/discussion
Federal Reserve Bank of St. Louis

would convince MP 4,

At least so it appears to me unless a

II II

Co(

3A6.-4-22

FEDERAL RESERVE BANK

OF NEW YORK

Nov. 15, 1922

OFFICE CORRESPONDENCE
To

Mr.

Snyder

192

DATE
SUBJECT

Goveruor Strong

The correspondence

that I am sending you to-day from Mr.

Gilbert, also discussions which I have had with him, with members of
the

Federal Reserve Board

and with Mr. Stewart in Washington, my talk

had with

with Professor Sprague, and again the discussion we

Professor Bullock, all indicate the

real need - in

fact bile

urgency -

of a better and more comprehensive analysis of what has been going on
in the whole credit situation during the past twelve

months.

I was

interested in the suggestion that Professor Young was proposing to take
this up right away.

How

would it do for you to

arrange a

meeting with

Professor Young and Mr. Stewart when the general outline of an investigation

could be discussed and
progreive work that

then go at it and do it

we would get the

thoroughly, but by such

benefit 9f the work or some part of

it in the near future, so that we might have a 44111 guide to our credit

"--

policy.

BS.MM
Att.




This is the sort of work which is

most helpful to us.

wsc.4.1-nowl.

FEDERAL RESERVE BANK

OF NEW YORK

OFFICE CORRESPONDENCE
To

_Governor Strong

FROM

Mr. Snyder

DATE
SUBJECT

142

A m

War Col

NOV. 244_ 1924

Add ess

,

157

I appreciate very much the suggestion.

things inevitably use up a lot of valuable time, and secondly I feel that
they would much prefer hearing someone new to them.
If no other name presents itself to you,
Prof. Chandler might undertake it.

;k8.6

Nov 24 1924



MISC. 4

I

FEDERAL RESERVE BANK

113111M 3 33

OF NEW YORK

OFFICE CORRESPONDENCE
To

Mr. Snyder

DAT

Nov. 26, 1925

SUBJECT:

Governor Strong

FROM

The attached correspondence with Colonel Simonds of the Tar College
explains itself.
lecture.

This affords opportunity to prepare a very interesting

I would like to deliver it personally myself, but hesitate to promise

to do so on account of my voice.

You will note that the topics afford opnortunity for an interesting
development of the subject.

in my plce?
me get it out.
BS. MM

att.



Won't you let me know who should make the talk

Would you care to do so?

In any event, I must have someone help

M1SC, 3.1 60M-4-22

FEDERAL RESERVE BANK

OF NEW YORK

OFFICE CORRESPONDENCE
To

Mr. Snyder

DATE

Nov.

0

19 22

SUBJECT

Governor Strong

FROM

I certainly would not reply to the attached inquiry.from

the

New York University, which strikes me as being about as unintelligent
as any that I

have seen on

this subject.

Might it not be a good plan to get in touch with sore one
in that organization that you may know, and try to get them to escape
be pitfall towards which they
I would like to

see

seem to be headed?
what they produce whenever it is produced,

just as a matter of curiosity. On the basis of this questionnaire it would.

be of no




value whatever.

192_

MISC, 3.1 60M-4-22

FEDERAL RESERVE BANK

OF NEW YORK

OFFICE CORRESPONDENCE
Mr. Snyder.

To

DATE
SUBJECT:

Dec. 1, 1922

192_

Prices, Wages and Cre-ditVolume----

GovernorStrong

FROM

I have read your memorandum twice.

My thought is that, given a stated

quantity of goods and a stated volume of credit, the question in which we are interested then becomes a rather simple one, namely, what changes in these two factors
are to be anticipated which may affect the price level?

Obviously, changes in the

relative levels of prices of different classes of goods and services
time to time;

can change from

for instance, the prices of foodstuffs will advance, whereas the

prices of building materials may decline.

But speaking of the general price level,

what influences will affect it provided no change in the volume of credit takes place?
Is it not fairly obvious that there are two most important factors involved?

The

principal one is the attitude of people generally; whether they become optimistic
and want to buy goods; or whether they become depressed and want to sell goods.
the first instance, there will be a pressure for a larger volume of credit.
second instance, there will be a reduction in the volume of credit.

In

In the

But if we keep

the credit volume unchanged, assuming that we are able to do so, then will we not see

simply the fluctuation of prices within a rather narrow range, allowing always for
the readjustments in the prices of classes of things referred

to,

and that the only

large swing of prices for which we could accept any responsibility would be due to
some change in our policy which would make borrowing easy, on the one hand, or which
might require contraction, on the other hand?

This is vary clumsily expressed, and

I would like to talk it out with you;,but it is in general my reaction from your
memorandum.

This leads next to your memorandum of November 28, and the subject of the
Annual Review.

present

The price changes there referred to appear to my mind roughly to

composition of,




MIS. 3.1 60M-4-22

FEDERAL RESERVE BANK

OF NEW YORK

OFFICE CORRESPONDENCE

DATE

ToMr. Snyder

192

SUBJECT:

Governor Strong

FROM

December_l, 1922

-2

First - The reaction from a decline which brought many basic commodities
out of line with the general price level;

Second - The influence of gold imports;

and

Third - Some influence - how much one cannot possibly estimate - due to
establishing the volume of credit in the banking system at a figure which is represented by a total of earning assets fixed, say last spring, at round a billion and
a quarter.
In other words, if we had made no investments, the Aeserve Bank's earning assets

might bp-day be one-half of what they are.

Or, in other words, the liquidation

would have gone further than it did go, the general price level would have been
established lower than it was, and in consequence the hardship of further price
readjustments would have been more serious to the country as a whole than it has
been this year.

If the quantity of credit and currency is in the long run so important to
prices - as I think you regard it (possibly more than I do)

then we should regard

present prices as reflecting the volume of credit which has been maintained at so
steady a level recently, represented by the total of our earning assets ($1,250,000,000),
plus the influence of gold imports.

And going a step further it means that a price

stabilization is taking place at a level permitted by a total Of earning assets of
say a billion and a quarter, rather than a total of one_half of that or twice that.

If prices are to be stabilized at some level, then our credit volume must be stabilized
at some level.

If we arbitrarily say a billion and a quarter, then we must accept

the consequences of some price advances from the abnormally low level which was at
one time out of line with that volume of credit.

Again this is very rough and of

course leaves out of consideration a good many influences, especially the change from
despondency to hopefullness.

In other words, why not let our credit volume remain

unchanged and keep it so, and let prices take care of themselves?


BS.MM

att.

They will anyway!

7(

FEDERAL RESERVE BANK
OF NEW YORK

SC. 4.1-20M 10-21

OFFICE CORRESPONDENCE
Mr. Snyder

DATE

Dec. 1, 1.922

SUBJECT:

Governor Strong

Om

I think you ought to read the enclosed co
Colonel

logan if you have time, and p ss it o

to diget the same, and then return

BS.MM
att.




pondence from

o Miss Rose as she may want
Beyer for my confidential file.

192_

Oroj

ffEDERAL RESERVE BANK

MISC. 4.1-30M 10-21

OF NEW YORK

OFFICE CORRESPONDENCE
To

Mr. Snyder

DATE

Dec. 1, 1922

SUBJECT:

Governor Strong

Aom

I suggest

the figures in it
BS.MM
at t.




keeping Mr. Barnes'

Detroit

address, as some of

are certainly interesting, to say the

least.

192

,
I

PIIIIIVO'FTIM E

101

MC=CMV.,

OF NEW YORK

CO '' ''ESPONIDENCE

Mr. Snyder

TE-- Dec., ig, 192
IIIU 63J ECT:

Governor Strong

OM

I have reed the attached memorandum which I understand Comes
from Mr. Stewart.

It seems to be a re-hash of much of our recent dis-

cussions and especially the discussion that ook place at the recent
hashington conference.

I am not sure that it calls for any comment from us, but probably
Ir. Jay would like to read it and

he may indeed want to comment upon it.

Does Mr. Stewart expect to hear from

att.




The

about the memorandum ?

AMI,

FEDERAL RESERVE BANK
OF NEW YORK

Dec.
DATIL_

ACE CORRESPONDENCE
Mr. Snyder

ROM_

19, 192

SU DJ ECT,

-Governor Strong

I have read the attached with a good deal of interest.

Aside from any other condition, it seems to me that the almost

complete absence of unemp1oyme4 coupled with the transportation
situation, where we find that facilities are taxegtto the limit,
is a pretty complete exhibition of the fact that production is well
up to the top.

My own mind is about made up as to what we should

do, and I am hoping to take it up with our friends in Washington
very soon..




-1!JILTEEINIII!"

FEDERAL RESERVE BANK
OF NEW "ORK
ATE.

E CORRESPONDENCE

Dec. 26, 192

SUBJECT

Snyder

Governor Strong
ROM

CONFIDENTIAL

Your friend Mr. Commons' paper does not impress me at all
The following comments explain why:

favorably.
(1)

In writing to Mr. Ford, one should not refer to the gold

standard in the bare terms that he uses.
about the gold standard.

Mr. Ford does not know enough

He probably looks upon it with the same

intelligence that ignorant people display towards ghosts.
tp

(2)a

Mr. Commonssreferenoes/the Federal Reserve Board are

stupidly superficial.
-

He ought to know by this time that the Federal

Reserve Board did not run the Treasury and it was not superior to the
Government.

These comments under (2) can be extended. through abcdeand f;
all presenting a wholly unfair picture of the Federal Reserve System,
addressed to one of its chief enemies and well calculated to do more harm
It strikes me as peculiarly stupid to pin this whole situation

than good.

upon the Federal Reserve Board.

You certai

to realize that such a letter as this is bound to do harm.
(3)

Again Mr. Commons shows complete lack of understanding of

what happened in 1919.

Inflation was brought about by the system of

finance employed by the Treasury.

In other words, through selling

certificates of indebtedness to banks, which created bank deposits and

which in turn were used for all sorts of business purposes which promoted
inflation.

http://fraser.stlouisfed.org/
Federal11111111111111L
Reserve Bank of St. Louis

._

FEDERAL RESERVE SANK
OF NEW YO:RK

COR

PONDENCE

Mr, Snyder

.

DATE

Dec. 26, 1922

SUBJECT

Governor Strong

Suth a general statement about the policy of the Federal
Reserve System is not justified by the facts.

The only case where the

action of the Board was too slow was after the end of the war when it was
not their action at all but really the policy of the Treasury.

If he

thinks that we are too slow in changing our rates now, I would like to
have him submit evidence which would be convincing to the country that

anything in the nature of inflation of prices due to an excess supply of
credit furnished by the Federal Reserve System had in fact arisen at all,
unless indeed within the last few weeks, and I doubt if it has even then.
He says he would not call it inflation when prices are
rising to the point where all labor is fully employed.
exactly what has been happening recently, and has not the full employment

of labor only been accomplished in the last thirty days or so?
I do not know what he means by the difference between
access to markets afforded to farmers and to manufacturers on borrowings
of from one to three years.

If this were somewhat

understand it.

The intimation that the Federal Reserve System had been
guilty of artificially inflating prices outrageously cannot be sustained.
If prices were outrageously inflated as the result of inflation of credit,
the Federal Reserve System was not responsible.
Where did Mr.. Commons get the authority or qualification
to say what has been in, the minds of the Federal Reserve Board as to prices?

http://fraser.stlouisfed.org/
So
Federal Reserve Bank of St. Louis

far as I am aware the Federal Reserve Svster har never der4

the

FEDERAL RESERVE BA
OF NEW YORK

FICE C

41111111r Dc. 26, 1922
ATE

ONIDENCE

Mr. Snyder

11111

SU BJ EC,

Governor Strong

-3-

FROM

important relationship between the volume of credit and prices, but has
always taken the position that the direct responsibility of the System
was as to the volume of credit, and if the volume of credit were kept
stable then that portion of responsibility for price changes which rests
upon credit will have been dealt with by the policy of the Federal Reserve
System and the other factors which enter into prices would operate as they
always operate;

and all of those other factors are largely beyond the

control of those responsible for credit.

On the whole, Mr. Commons, letter impresses me as exhibiting
an unintelligent prejudice against the Federal

eserve System, very

little knowledge of what transpired, and convinces me that he is a

dangerous man to have at the head of your organiation or to correspond
in a representative capacity with such a man as Mr. Ford.




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