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FEDERAL OF NEW, -,AR1K dinabaikrwaiie 111,118.104.22.168F 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 I o% I li r...i t 150 , I. I ti I %, s I I ipl i t s I I , 1 A I % y 1 V / I t /r t \I. V 100 t . ...,/ A \ i 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 and he is as unstable as the organization which solicits his patronage. The Brookmire Service as you know is based upon a mathematical composite of six fundamental factors, and as a protection to you as an investor in helping you choose the most reliable advisory service on investments, we want you to take seriously the following statements:- yBrookmire's method of forecasting is entirely /I scientific. It is based upon fundamental economic factors only personal opinions being entirely eliminated. It's basic chart is the most scientific of its kind produced by any similar organization, and is the only one in existence which indicates the exact monthwhenua.change in the direction of should // n point of time Brookmires' forecasts anticipate changes in the direction of prices, earlier than any other service - frequently months earlier indicating our forecasts are never influenced by those of any similar service. Last but not least, can be made more //safely :afelyetljuurVislymTlcolwinf tdheiB:colokmire n pri.-6 gralter_zoilts We appeal to you therefore as an investor who prefers an honest service, scientifically constructed, to try the Brookmire investment Service. A six month's subscription at $50 entitles you to renew 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 other methods, we suggest your serious consideration of the following facts: Brookmire's methods are entirely scientific; our forecasts are based only upon underlying economic factors and all recommendations are This method inintended to cover the long cycle swings of the market. sures GREATER SAFETY because securities are bought only after a long Liquidation in the market when prices average the lowest. It insures GREATER PROFITS because all securities purchased are held until the long upward swing is exhausted. 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 Now, market. Our fundamental indications are very definite - new opportunities are occurring every day. We hope you will not pass them up considering the small fee involved. Yours truly, AK-CC ifSales --e ManageL.1 uaRe OriainalSzistem of Forecasting fromEconomic (.1e.s" 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. There is inspiration; there are suggestions and advice on investments, work and how to get the most out of life. There are business and financial forecasts and reviews of the trend of business and finance. There are new 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. FREE "MAKING GOOD IN BUSINESS" See Other Side "Making Good In Business" Regular Departments in Every Issue By Roger W. Babson You can get this book FREE by subscribing to a' yearly subscription to Forbes Magazine NOW. "All That's Left" We will send this book to you or to By Marcus One of the most interesting regular features of this Magazine is a cartoon by Marcus, who has become famous through his picturization of men and events in the New York Times. In every issue you get some timely editorial in cartoon form,on some phase of the current business and financial situation. These tell a story better than can 1,000 words. The greatest tribute to these cartoons in Forbes is that they reprinted in newspapers, magazines and house-organs. are widely anyone you wish. This means, that we will send the book and the Magazine to one address or to two addressesthere- by enabling you to make a valuable gift of the one or the other to some friend or relative without extra cost to you. Paul P. Harris, President Emeritus, International Association of Rotary Clubs, says:"How shall we appraise a book? Very much as we appraise other things, perhapsby its usefulness. There may be a great deal of gold in a mountain, but it will not be of much interest to the prospector unless the gold can be found there in paying quantities. `Mak- ing Good in Business' Digest of Corporation News Fact and Comment By B. C. Forbes Inspiring and refreshing accounts of business, successful men of affairs and human nature. In this issue, Mr. Forbes handles some of the big, broad questions of business and human relations as they exist in the West. Some of the comments are: "Why Western People Are Different from Eastern" "Important Concerns Build Plants in the West""Don't Hold Aloof from Activities of the Community""Has 48,000 Stockholders, Nearly All at Home." Stock Market Outlook By J. G. Donley Managing Editor, Forbes Magazine Coming events cast their shadows before them. What you may expect in the stock market. Several reasons why the Fall rise should go much higher than the Spring boom. Some suggestions to the trader. A discussion of securities in the public eye. Wall Street Pointers Some of the highlights in the stock market. When the leaders in any bull market go ahead, the market goes ahead when they hesitate, the market hesitates. Some of the leaders analyzed in brief, pithy paragraphs. Opportunities for Investors R. V. Sykes presents some bonds and preferred stocks that should claim investors' attention. In every issue of Forbes' Magazine you will find suggestions for investment in easy, digestible form without confusing detail. Bond Market Outlook This page tells the current story of the bond market. A survey in chart and comparative form shows you the classification and standings of various bonds. Brief, terse paragraphs, showing the earnings, business, dividends and new developments in over forty corporations. Significant News Here are compiled all the significant news items of the dayabout men, events, markets and national and international affairs. This department does for the reader what he lacks time to do for himselfseek and find the news of the country that is interesting and essential to himself and his business. SPARKS-from Tom Dreier's Anvil Tom Drier is a lovable personality. He has worked out a unique career for himself, interpreting other people's successes and failures. He is one of the few men who can say what they feel and make money doing so. His writings are a combination of prose, poetry and oldfashioned common sense. You will like Tom Drier. occupy a will permanent place in American business literature because of values to be found between its covers in paying quantities." The New York Herald says:"A message that will strengthen many a halting step along the difficult road to success. Unlike many of the 'success book' authors, Mr. Babson has himself achieved a distinguished place in America's industrial and liommercial progress. He has created, fIn nothing, a sta- tistical and advisory service tions , merce for which executives in all parts of the world pay him something like $2,000,000 annually. Hence, `Making Thoughts on Life and Business Good in Business' has authenticity to ideas and thoughts that make for greater happi- support its claims for attentioHenry S. Dennison,-,A Dennisod Manu- QUILLOSOPHY-Better Letters facturing Co., says"Give a copy of this book to every one of your em- A page of inspirational quotations that reflect ness and more humane business success. By Nelson C. Durand Mr. Durand has spent twenty years studying correspondence of various corporations and firms. You get no rules of grammar or principles that you must painfully learn. Mr. Durand leaves that to the schools and to text-books. His articles take up no more space than a half-page in each issue, but they are meaty, brainy and they make you think about how to make your own routine correspondence more profitable and interesting. Forbes Magazine will stimulate you to greater efforts, will broaden your vision, will furnish you facts and forecasts, will show you how to get more fun out of your work. Once you read a single copy, it will be indispensable to you. ployees and they will become MONEY MAKERS." Prof. B. W. Robinson says:"Tele best advice since Ben. Franklin." 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Name Send the Magazine to: Send the Book to: Name Name Address Address City and State City and State Digitized for10-902-D FRASER condi- affecting manufacture si com- -Business and Position 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- mental conditions is evident. Baboon's Reports not only keep you posted on current conditions In every field of business activity but forecast coming conditions for you so that you can see what's ahead and govern your- self accordingly. A single forecast will enable you to make or save more than the cost of the whole year's service then it goes right on paying for Itself a score of times a month. Report on Request If you want to see just how Baboon's Reports can be applied to your business tear out the and hand it to Memo now your secretary when you dictate MEMO f I for your Secretary Write Babson Statistical Organization Wellesley Hills, 82, Mass., as follows: "Please the Memo , astorObligation Babson' - Oct bot vide Ap Net Rai Ti pros In TiBali folio BI Pur Tere bet, flee char Bt reap A T2 all V to r of 1 (for name see check mark below)" as follows: the Report No.11W3 copy of 32 page booklet Increasing Net Profits, and special booklet Scientific Purchasing D Outlines a method of purchasing that is saving an average of $102 on every $1000 spent for commodities. A. Reducing Labor Costs D A practical method of outlining ccsts without cutting wages. What's Ahead for Your Industry 0 You can now know present and conunaconditions, not only in your own line but in those industries CI you buy from and those you sell tol Increasing Sales In 1922 fTearOut Cos send me without charge or obligation sample of recent the morning mail It will bring booklet "Increasing Net Profits" and sample of current forcast, gratin His be r The utter folly of running blind- fold without a thorough and !Bei A plan that cut selling costs for a Missouri firm from 20.3% to 9.7% In 90 d vs] Can be adopted without changing present campaign. Check In 0 the one you wish and hand memo to your secretary. UN Tb bac.4 able hold Sep' U/S1 A Con bac, payz Stoc nese. Cc TI per of 192:: of boo ma tlrn are Ss AU, T, thr sto ). thisasassassimmossisaas...-.,anm ei Service for Executives No ore o'c do- cc etc, 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. 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PFBryant ems.sofis REPORTS A/though obtained from sources believed accurate, our reports and opinions are not guaranteed Moreover; they are given in strict confidence for the use of subscribersonly. (!) 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 ENCE FFI DATE To F pA 4/0\ e/4 Cel&4 SUBJECT ?hi ),"? %LA,- 141 /41( 961or "6e t4-4571, 17 C)r. VO4,14-4-4,9/ 1/ r 67Z atA /1":1- 4,644 eik kt,f/tA) /741, 4t r Cle '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 ,,,:::' ..11 ..,:a looy. .1-k..rif bc talir Teex ter'd Nk f . i 1 .C.errn ws cht Ap.sef I14; .4 4* cAr, . 16 .1) ' 44 L3117 /-( 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 v howi?9__ati,o . -)1/1.A5L x c,4 W-00666 /7-t k 7(7cP11 g)-ct-cj x ko-a _a=fzei ;/vt( rariA Clayton A. Penhale Xtiv tAtrAV ,C-et(x ct kYovt- 1,QJ 0-1AJ dzi/v0 fret-er--1/3- Gte , A4_ lae6 6-1,J 0,v-otZget-6-ea - P.14e S'1,4f2a )/ziAL OL, 8-eatA) jotAi2. te9 "XQ 4/ /44,6L/ 7y4v2ix 40-?J /\-41-61 CO-yfit , t/T/LA5L-7A A- 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 IrA * ktitL out_ 33V130110983PRO3 : Jac o . o rfJ. r'0j .r. o, o ": nt. rin".q) fix 10 iq7Iu SE,: Lj, oaf' o ITO . 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.