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2. Addresses and Articles by strong, 1918-1923 C' a) War Loans vs Business as Usual (6 typed p ges for North American Review April 1918 and in Interpretations(edited by Burgess), pp.65:62) Address at Liberty Loan Meeting at Carnegie Hall, April 3, 1918 (3 drafts) Address at Bond Club, Apr. 5, 1918, on Liberty Loans. Address before a women's club on Liberty Loans(undated, two drafts) Program and introductory words for George Wharton Pepper, at Liberty Loan Meeting, in Carnggie Hall, Apr. 11, 1918 op< Address on Liberty Loan at Carnegie Hall, Sept. 25, 1918 1-)Address at Liberty Loan Meeting, at Metropolitan Opera House(as well as President Wilson's) Sept. 27, 1918 (Included in Interpretations, pp.48-54) / Introducing Carter Glass and Rear Admiral Sims, April 3, 1919(an outline of remarks, the portion introducing Glass was included;in Interpretations, pp.63-67) 1..)War Finance, a,lecture delivered before Army War College, April 11, 1921 ]1q) / 0..) Banker and Existing Financial Situation, a draft prepared by C. Snyder,Sept.19, for delivery before Executive Council of the American Bankers Association, October 3, 1922. The speech, as given in Interpretations differed from this. 10 Prices, prepared by Snyder for Strong, Apr. 25, 1923(Included in Interpretations pp.22)4-234) L/ LW--e 1E-44.1 41-4 11 ,60-L4,-) FEDERAL RESERVE BANK OF NEW YORK M ISC. BB .2- 4/67 OFFICE CORRESPONDENCE IDA To FROM SUBJECT- )tv? )ea 61ill 't,td--e; A° 4), ! i';#0)1 f.,41-1,1,4,/ .....a...-,-.........04.4.......,,,-.., WAR LOANS V$..kiJAP144.4 AS USUAL, Two great Government war loans have now been issued, whioh have gathered into the Treasury 45,800,000,01)O, and, in addition, our Government had outstanding over 41,200,0-00000 of abort notes, together representing 41,000,000,000 of war borrowings concluded in six months, in addition to taxes from our citizens amounting to many hundreds of millions. People are beginning to ask how these loans and tax collections may continue at such a pace during a possible long war when the estimated national saving is but somewhere about c.,(mo,000,000 year. In general it may be said that after the Government has borrowed all the fund of savinge, further loans must rest upon bank expansion and inflation of currency issuer., else borrowing must stop. creased savings means The conclusion is obvious, that a corresponding curtailment of in- expansion, a sounder loaning and financial condition for the nation, and, even more important in the long future, nabits of individual thrift. But what is the relation between thrift and war loans, and how may thrift be practiced without imposing great lossoc uyon merchants and menu-..:'acturers who would both pay taxes and buy bonds if they were prospering under the influence of the illusive slogan "Business as Usual"? To answer this, we must ac- cept as relative some very obvious conclusions as to a nation'e wealth and how it may be diverted from the uses of peace to those of war. The wealth of a nation is not alone its natural resources, for, were it so, this country would have enjoyed greater wealth before its discovery and settlement than at present, since we have consumed much of its natural resources in the last 440yeare. Nor is it population alone, for, in that case Ohina, India or Russia would enjoy wealth far greater than OUTS. The wealth of a nation is what it produces from its natural resources, by the application to them of the labor of an enereetio population so that their products may be used and enjoyed; this, of course, leaving out of account the less important -2- wealth represented by investments, or services rendered, in foreign countries. time of peace, the production of a nation is what it uses in its foreign trade. In roughly equal to its oonsumption, plus when war comes, production must be increased to meet the appalling wastage of war, and, if the war is extensive and long, the amount of labor required for production of both peace time consumption and war con- sumption is insufficient, and is soon reduced by withdrawal of men for war making. the demands of those who want consumption as usual, meaning "business as usual" mean confliction of peace oonditions with war conditions, mean competition of the individual consumer in the markets for labor and material with the Government which needs labor and material. Whe "wealtarof the nation will not prove sufficient to meet the demands of both. The time soon arrives when unnecessary consumption must be reduced or stopped, else this bidding of individual against Government will advance prices of labor and materials to prohibitive levels. Expansion in bank loans and deposits and inflation of currency issues will be a necessary acalompanyment, and the 'whole economic structure will be undermined. This is economic exhaustion. Various means of minimizing these evils are possible, and we must set about employing them. Our reward will be certain in later years. Tho more important steps to be taken area Pirst: Reduce the oonsamption of luxuries Seoond: Avoid waste in the consumption of necessities Develop more effective application of labor to production Third: Pourth: Bring women into productive occupations lifth: emonomizo the supply of credit But some one will at once say that by this program his business, say that of manufacturing musical instruments, is ruined because he produces a luxury. And the grocer maple e-aithing profits if hie trade in luxuries is stopped and in staples curtailed; and the laboring man see lower wages if his work is made more productive and women employed in addition, and the banker see less interest profits if he eurtails loans to customers of the "luxury"class. This is all true enough - in fact so true that it appears as though here must be the root , or some of the many roots, of the evil. But these changes and adjustments can not all be brought about at once. Just now, with general economy the theme of every lecture, we hear many cries of protest, each indioating in turn "whose ox is being gored." If every change ultimately necessary were instantly accomplished, no harm would result to anyone; possibly some personal discomfort due to self denial would result, but labor would find new kinds of employment, manufacturers new kinds of production, traders new articles of trade, and banks new customers. once and others allowed to wait, our Were only a few readjustments made at plight would resemble that of at boat Whose passengers all rushed at once to one rail. excursion It might capsize. Melee war readjustments should proceed as rapidly as possible, each at a rate so adjusted that labor will be labor, so that each manufacturer constantly walleyed, but with no shortage of can adjust his affatrs and apply his power, his maehinery and his organization to some war need; old lines and Introduce new and essential elaoh affected trade liquidate each bank reduce loans for un- ones; necessary purposes as it expands loans to Government and customers for war purposes. Of course no such ideal readjustment is detail. possible in its entirety and in Some injuries will occur, losses will be sustained, the balance of employ- ment and supply of labor will not be ezaetly preserved. rather than a personal view of the matter, do AV Only when we take a national, see that our problem is to both prosecute and win a military war, which, if lost, may mean our destraction, and to oonduot an economic war, which, if lost, might well cost us as dearly as the lobe of the military war. ?or, to preserve our eoonomic strength, ;"iola is fundamentally the ability to produce goods and finance their production and dietributioncheaply in the wor/db competition markets, iecludine our own, will give us the comforts. of a future free of so heavy a war mortgage that we can at once go about our bueiness without the usual post war prostration. If the soienoe of Government were so perfected that this ideal transforma- tion could be brought about, the following consequences might be assumed: iiret: The consumption of raw materials would be limited to the manufacture of personal necessities and war materials. Second: The product of labor would furnish in part or wholly net increased consumption caused by war. .Third: There would be little, if any, Shortage of labor, for it weele toz only be more effective, but women would replace men drafted into the army and navy. eourth: Advancing prioes would be checked, both for labor and materials. ?Ifni Credit required for production and distribution of luxuries and to finance waste would be saved for the Government's needs. elxth: The "wealth" of the nation, destroyed in war, would more largele be furnished out of economies practiced. eeventh: The Government would need to borrow less as its supplies would cost less, and would pay less interest because the supply of credit would not be burdened with the load of "business as usual." It is claimed, as maw be true enough, that even so visionary a program would not enable the "wealth" of the nation to meet the demands of war. Then, in- deed, we must accept a carefully safeguarded plan of expansion to maxe up the balance. Our people must to that extent mortgage their future "wealth", the product of their future labor applied to our resources, and do it cheerfully. That mortgage on our labors of the future will largely be the loans made by our Government and the loans of individuals to enable them to pay taxes and to buy bonds of the Government. With the mortgage kept at the smallest possible amount, we may con- fidently expect that greater efficiency of labor, a lower price level, and stronger bank reserves than other nations, will allow us to emerge from the war, weakened to be sure, but no exhausted, and stronger than most others. There seem to be four proceedures immediately necessary, some of which are already under way: First: Control of raw materials by the Government. Second: Eduoation of the public as to how they should not spend their incomes. to where they should Third; education of laborers as work. tourths 4ducatio2 of bankers as to what loans should be gradually reduced or discontinued. The effect of the fourth item of the program is the only one to be considered here. Usual." it directly relates to the contest of "War -nuance vs. Businees as If the bankers of the country were able to curtail unnecessary and waste- ful borrowings by their customers, loans the prOweede of which are used to build or improve homes, extend plants and business pertaining of amusement, and for many other purposes solely to luxury, build places which I purposely refrain from enumerat- ing, all of theee bankers would have surplus credit to employ in loans to the Government or industries vital to its war needs. Those from whom credit was so withheld would be reetrained from the employment of labor and materials, many would liquidate some part of their inventories and not replace them, so also saving labor and material. and, equally important, the lessend use of credit would reduce loans and deposits, inoreese the ratio of beak reservoe, reduce interest rates and facilitate the Government's financial program. A ceutious but deliberate and voluntary poliey along these lines would be safer, more equitable, and, probably, as effective as the only alternative, which is higher rates of interest, along with higher prices for everything. The natural check to expansion in time of peace is the prohibitive intereet rate, combined with over production induced by rising prides. In war times, the operation of eebarrasing because of the excessive rates whioh the this law proves Government must pay for loans, and the corresponding ehrinkage in security values sold in competition with Government bonds. rates. Other serious dangers accompany the elevation of pricee and interest In a long war it may seem to become an endless race with the dog chasing his tail in a circle. These problems must not only be faced courageously, but dealt with intelligently. The fathers of young men who are serving their country in the army and navy are proud of the sacrifice. Too often, however, when the sacrifice ap- -6 - pears at the altar of business, Where we have so long worshipped kalse values, we shrink and protest. Some,unfortunately, muet sacrifice their sons, others some part of their business prosperity, and still others may face the ordeal of a double sacrifice of both. It is one of the awful consequences of war. Let us devote ourselves to avoiding an unnecessary sacrifice of both boys and business by ordering our affairs 80 that we are not consuming the supplies at home whioh our armies need at the front. MISC. BB .2- 4/67 FEDERAL RESERVL ib/9091r, OF NEW YORK OFFICE CORRESPONDENCE DATF TO SUBJECT FROM /11 --- L..-(_ Pyk-- _ 6,4 cu4 4fer iv AJatt,10 c' Address by BENJAMIN STRONG, Governor of the Federal Reserve Bank of New York, at the Liberty Loan Meeting at Carnegie Hall, Wednesday, April 3rd, 1918. Fellow members of the Liberty Loan Organization: OBJECT OF MEETING This meeting has been arranged in order that those who now compose the financial army of our Government in every possible preparation this district may make every possible preparation for the third great offensive. The organization of Liberty Loan committees has now become so extensive that it would ten buildings take ten buildings as large as the one in Which this meeting is held to accommodate all of those who are now Contact enrolled in our committees. Correspondence must, unfortunately, be largely by correspondence, but if Contact with headquarters it is possible in later loans, the disaslyar/tEes of this limited personal contact among the various branches of the service will be overcome by holding meetinEs_skilar to this in all parts of the district. SPEAKERS You will hear speakers to-night from whom you will 112121La:L12n encouragement my parr-- gain inspiration and encouragement. But my part is rather to discuss some of the Lnillal:Llfs which we believe aid should be observed in the conduct of the great financial glorious success operation which we are about to undertake, in the hope that it may aid you in concluding the campaign with a glorious success beyond your best expectations. THE BATTU same time battle at stake hangs balance our troops This loan is to be placed with our people at the same time that the greatest battle of all time is raging in Europe. So long as that battle is.undecided, everything that we value is at stake and hangs in the balance. The presence of our troops in large numbers in France has developed in the minds of our people a new and intense anxiety as to the outcome; a personal interest in the venture far beyond anything that has existed since the outbreak of the war. conscious at war 1,800,000 families For the first time we are actively conscious that we are at war; for the first time we realize that we have a personal, human investment in the war. One million eight hundred thousand families in the United States have sons, husbands, or brothers in the nation's service either in France or in training in this country or in the navy. Throughout every part of the country our people are watching military ley2loyments with breathless anxiety. so much the lighter. Your task is by Those who are seeking securiLL for their own flesh and blood will not withhold the dollars needed to insure victory. This should be the ..eynote spirit keynote of our campaign. TERMS OF LOAN It is, of course, desirable, in fact essential, that understand every subscriber to a Liberty bond should understand precisely precisely the terms of the loan. In previous loans, unfortunately, the enthusiasm of those selling the bonds has occasionally led to their making statements not altogether accurate not altogether accurate as to the various provisions of the law under which the bonds are authorized. misunderstanding dissatisfied bondholder instructions Some misunderstandings have occasionally been caused as to the privilege of conversion, or as to the tax exemption, or other features, which, possibly, could not be avoided. But every dissatisfied bondholder is an obstacle to overcome when the succeeding loan is placed. So to the extent that the terms of the loan are discussed, great care should be exercised that accurate information is given, and, for that purpose, all necessary instructions will be issued from the bank. Just now subscribers to these bonds are not betraying anxiety as to rates of interest, dates of maturity, tax exemption provisions, or conversion rights. Their anxiety is that the money they subscribe be promptly and effectively spent by our Government to insure victory to our troops and their safe return. GOODS AND SERVICES contribution war materials Do not let the notion become prevalent that buying war bonds is simply a financial transaction. It is far more than that; it is a contribution of war materials and of labor to produce war materials to enable our armies to win battles. It has been estimated that prior to the war the annual production and turnover of the country had a value of 50,000,000,000. This may now have increased to $60,000,000,000. TheaLlp.propriation bills passed by Congress represent requisitions made upon the labor and industries of the country for not less than $23,000,000,000 in value of goods and services. It is no lorwer a question of whether we can produce -4- speed these war materials, but of production. it is a question of speed Industries and labor loaded with the production of everything required to enable us to live as we were in the habit of living before the outbreak of the war cannot produce $23,000,000,000 of goods in time to equip the armies now so urgently needed, unless our people withdraw some part of their demands and give the Government right of way. To the extent that we indulge in unnecessary expenditures, by so much we retard producticn of war materials; to the extent that we thereby delay the presence of fully equipped armies in Europe, we jeopardize the outcome of the war. QUOTAS You have been advised of the arrangements as to quotas. 900,000,000 In this loan the Second Reserve District is asked by our Government to sell nine hundred million dollars of bonds. patriotism We must continue to maintain the standard of patriotism which has been displayed in this district in other previous borrowings of the Government, for our quota of every loan, whether of long bonds or short certificates of indebtedness, which our Government has heretofore offered,has been heavily oversubscribed. explanation But this matter of quotas requires some explanation in order to avoid misunderstandings and dissatisfaction. When our Government sells an issue of bonds, it does not require from the subscribers that payment be made in gold or currency. transfer Payment, in fact, is made by checks on banks, which simply effect a transfer of bank balances from the credit of subscribers to the credit of the Government. equitably apportioned Therefore, in order that the amount of the loan be equitably apportioned among the Federal reserve districts, and among the various communities within the districts, consideration must be given to the amount of bank balances in the respective districts and communities which will, in part, be transferred to the Government. data A committee of our organization has secured data from all banks in the district and based upon this data secured especially for the purpose, has effected an apportionment. savings accounts duplications foreign accounts It is based upon the resources of the banks, after allowing for savings deposits, for duplication of bank balances, and foreign balances. The gpportionment of quotas is, as far as can be made by experienced men, fairly based upon accurate data. dissatisfaction In every community where dissatisfaction arises as to the apportionment, it should be explained that the utmost care has been exercised to assure a fair determination of this matter, which, at best, is most difficult to arrive at. WHERE TO SUBSCRIBE questions are asked daily by intending purchasers as to where they should make their subscriptions.. Many of our industries and transportation lines have offices in one place, plants or investments in other places. Many business men have more than one residence or place of business. The spirit of emulation which actuates all branches of the organization, naturally and largest properly, inspires committee men to secure the largest volume :volume of subscriptions possible for their own communi- -6- ties. It is, however, desirable that this matter be governed by some fair principle, if one can be found, so as to avoid criticism. is a simple one. The real principle, after all, Asthealkantionment is based upon bank deposits, so the subscriptions should be based upon bank balances. Where a corporation or individual has more than one bank account, the balances carried in those accounts form the basis of the apportionment of quotas to the communities where the accounts are carried. Therefore, the subscriber should apportion his subscription according to the amount of balances carried in his various bank accounts, out of which his payments are made. EMPLOYEES' SUBSCRIPTIONS In every instance, however, where employers of labor arrange to secure subscriptions from their em- ployees, it is desirable that this subscription be made and financed made and financed at the place located. where the plant is The interests of the community demand this, and it is,,of course, only fair to the employees who are subscribing. Continue selling CONTINUE SELLING It came to our attention during the last campaign that in some communities when quotas had been completed discontinued work the committees discontinued work. If every organiza- tion adopted this policy, the loan would not be fully subscribed because in some sections quotas without relaxation not be filled. Hill certainly Your efforts should continue, without relaxation, until the close. We are not simply raising 0 money for the Government; we are enlisting a great army of bondholders whose moral support is needed to win the war. war spirit Every additional bondholder becomes an addition to the war spirit of the country. Let none esca. SAVINGS BANKS Many questions have been asked as to the attitude of the Liberty Loan organization towards depositors in savings banks. The answer presents no difficulty. It is not expected or desired that depositors in savings banks should withdraw their deposits in order to subscribe for these bonds. selves buy the bonds.. alt_LaylEE!_i_o_taLs should themSubscriptions made by those who customarily have savings in the savings banks will, interrupt flow naturally, somewhat interrupt the flow of savings deposits to that class of banks. Canada abroad But it has been the experience in Canada and abroad that the placing of war loans even at higher rates of interest than those allowed by savings institutions has not caused withdrawals from such banks to any dangerous extent; suspension in fact, has had little effect other than to cause a temporary suspension of new deposits. Our own experience is similar. Even the postal savings deposits, which bear a much lower rate of interest than is borne by our Government bonds, have increased during the entire period of the war, notwithstanding the large sales of Government bonds. DELIVERIES Probably no subject has caused quite so complaint much corn- plaint as the failure to deliver bonds promptly to the -8- .0 r make clear We have endeavored to make clear through subscribers. the press, by circulars and otherwise, that delays of that character are unavoidable. show consideration Our people must be asked to show consideration to the officers of the Treasury,who are doing their utmost to meet a situation variety of dif- quite unprecedented in variety of difficulties. f icult ies Facilities have not heretofore been adequate to prepare the enormous amounts of bonds required to be issued. The Bureau of EnEiravino' and Printing has been taxed to utmost capacity its utmost capacity to prepare no less than forty-four million pieces of bonds up to date to meet the needs of the Government. The bonds can not be finished until terms known the terms of the loan are known. bill not passed present issue, the bill authorizing the bonds has not yet been passed by Congress. prepare bonds in advance In the case of the In order to overcome this delay, it has been arranged to prepare the bonds in all -.particulars in advance except as to printing the text. I am told that there are thirteen milliau_ieces in the except text Bureau of Engraving and printing completed,except for the addition of the text, and that the instant the bond bill is signed by the President these bonds will be put on the presses and turned out as rapidly as human effort can do so. This is one of the details of an operation of great magnitude -which will frequently interfere with out of proportion. the success of our plans far out of proportion to its importance; but after all, subscribers to the bonds have usually adjusted themselves to the necessity for a little delay in deliveries, which I hope will not be necessary on the next issue. In the last two loans our -9(Th $10,000 books show that we have only $10,000 of unadjusted sub- scriptions by subscribers to nearly two billions of $3,000. bonds in this district, and a balance of less than $3,000 owing to subscribers who have defaulted in their payments. LOANS One of the Qreatest difficulties to be dealt with policy by our organization is the establishment of a policy in regard to borrowing on Liberty bonds. Every bond pur- chased with borrowed money produces bank expansion so lon7 as such loans remain unpaid. How much therefore, we should encourage subscribers to buy bonds with borrowed money must be determined First - by whether it is necessary to encourage to insure success that process in order to insure a successful loan, and, Second 7 by some knowledge of the extent to which the finances of the people of the country are equal to absorbing Government loans without mortgaging future earnings. available savings That is a very difficult question to answer. There are various estimates of the amount of the avail- able current savings funds, and it is important to determine to what extent those who hold these savings are willing to invest in war bonds. Probably if all the people of the country up to the present time had been willing to appropriate all of their savings to the purchase of the bonds so far issued it would not have been no borrowing necessary for the banks to lend one dollar to subscribers. As it is moderate the amount of borrowing by subscribers to the first and second Liberty Loans is exceedingly moderate,. fr -10- and it is our hope that the present outburst of patriot- () ic enthusiasm for the war will insure a very large subscription to the third Liberty Loan, without the necessity for heavy bank borrowings. In EnEland it has been found quite safe to discourage subscribers from seeking accommodation for the purchase of war bonds be- yond a period of six months, upon the theory that a new six months loan will be offered every six months, and thus the subscribers should confine their subscriptions to their current savings, or to what they expect to make within the succeeding six months. this policy would be safe for us to pursue, but it is explicit statement expected that an explicit statement will be issued before or in the course of the campaign which will be a guide as to the policy to pursue. SELLING One unfortunate effect of excessive subscriptions by those who are unable to liquidate loans out of say- heavy sales decline ings, has been heavy sales of bonds on the stock exchange and their consequent decline below-the issue price. This would not occur, certainly not to the extent to which it has occurred, if subscribers to the bonds took firm intention economies them with the firm intention of holding them, even though the economies necessary to do so were severe enough to In general, we think subscribers should be en- hurt couraged to borrow where it is not the intention of the subscriber to promptly dispose of his bonds and where he has the means to repay the loan in a reasonable per hurt. FARMERS You have frequently heard the statement made that the farmers of the country have not generally subscribed unpatriotic to the Government loans; bad citizens and that in various ways they are bad citizens. that they are unpatriotic; I do not believe that they are unpatriotic, neither do I believe that they are bad citizens, nor is it a very good way to sell bonds to abuse the prospective buyer. organize personally reached agencies Our difficulty in the past has been to so organize that the farmers could be personally reached and through agencies in which they have confidence. Our plans have now been arranged to take the farmers into our organization. The Farm Bureaus, Granges, and the Dairmamis Organizations are cobperating with us,and we hope, by separate records encouraging them to keep separate records of the amounts subscribed by the farmers of this district, that they will completely emancipate themselves from any of the charges which you have heard. PERSONAL SOLICITATION advantage Too 'much erahasis can not be laid upon the advant- age of personal solicitation. Prospective subscribers should be approached, if possible, with some knowledge of what amount they should subscribe. MAPS maps To assist in this work throughout the district, maps are being prepared and furnished which will enable the local committees to deal with every resident of their respective territories. -12- EYTENSES You will aureciate that no small pert of the burden of conducting this campaign is the regulation and control of expenditures. The Congress_proxides that a certain percentage of the proceeds of each loan may be used for expenses, but, as you know, the expenditure of surrounded funds of the Government is surrounded, necessarily, by safeguards certain safeguards and rules Which it is necessary that rules advanced reimbursed we should strictly observe. All expendi vanced by the Federal Reserve Bank and only reimbursed by the Treasury upon the submission of satisfactory vouchers which conform to the rules of the Department. I hope that g.,reat care will be exercised by all members of the organization to see that in this matter we are protected extravagance waste effective protected against charges of extravagance or waste, and, on the other hand, that money which is spent shall be spent most effectively. Carefully prepared rules are furnished to every committee on this point. OPTIMISM As the campaivn approaches, it is necessary that the entire organization shall be somewhat of the same uniform spirit and purpose frame of mind, undertaking the work with a uniform spirit and avoid mistakes which have been made clear to us by our past experience. It is a_great mistake to undertake the placing of one of these great loans with too much magnitude assurance of success. No undertaking of this magnitude is accomplished without hard work, and, if the idea that the loan is a success before the subscriptions are actually received, should become general, it might -13- seriously indeed seriously injure our prospects of success. injure FRAUDS On one or two_yoints I am led to speak a word of warning serious warning. We must be*careful that the public is not imposed upon by dishonest people who pose as being parts of our organization, but who, in reality, are perpetrate fraud seeking to perpetrate a fraud.. public aroused The propaganda under- taken is so extensive and public opinion is so aroused as a result, that it may indeed become possible for designing persons to take advantage of this and prac- tice despicable fraud, particularly upon ignorant people. Every organization should watch for this with scrupulous care and, at the first indication of any development of that character, it should be brought to the attention of the proper offiders of the law. MORALE work begin And now begin; ladies and gentlemen, our work is about to our armies are at the front fighting; they not only need the supplies which the proceeds of this loan encouragement stimulation courage will provide, but they need the encouragment, the stimulation, the courage that they will gain by the knowledge that they are supported at home. News from home to the soldier at the front is what makes the spirit of the army. thousands undermine morale Suppose the men of our army were permitted daily to receive hundreds of thousands of communications from agents of the enemy, directed to undermine their morale, who can say what the result would be? They do, however, receive hundreds of thousands of letters from home. What a difference it will make 0 -14g encouragement ( depression to them if those letters contain words of encouragement rather than depression. lia_greatly will they be encouraged and heartened when they hear, as they will, that the greatest of war loans has been successfully at home abroad placed at home in order that they may be victorious abroad. CONCLUSION patriotism self-sacrifice Everything _depends upon a spirit of patriotism and self-sacrifice by the American people. We may find in this country the same determination as has just been expressed by a patriotic Frenchman'. He says that "to fight Germany France will sacrifice "all her sons, and when the men are gone the women will "rise up, and when the women are gone the children will "rise up, and when the children are all gone the dead will "rise up to defend France; for France has determined to "be free or die, and France will live." committed armies people Allies This task is now committed to your hands. in France, our people at home, the people of the nations with which we are in alliance are awaiting new evidence of the spirit of the American people in the war. disappoint reward victory Our armies must not disappoint them. tory of our army. We Your reward will be the vic- Fellow members of the Liberty Loan Organization. OBJECT OF MEETING This meeting has been arranged in order that those who EVERY POSSIBLE PREPARATION now compose the financislasmy of our Government in this district for the third great offensive. may make every, posjzi.ble TEN BUILDINGS The 2ImaLlakiza of Liberty Loan committees has now become so extensive that it would take ten buildings as large as the one in which this meeting is held to accommodate all of those who are CONTACT now enrolled in our committees. CORRESPONDENCE unfortunately, Contact with headquarters must, be largely by correspondence, but if it is possible in later loans, the disadvantages of this limited personal contact among the various branches of the service will be overcome by hold- VIttotio ing zettLREE similar to this in all parts of the district. SPEAKERS You will hear speakers to-night froth whom you will gain IN inspiration and encoursmatat. But ENCOURAGEMENT my_aark is rather to discuss some of the principles which we believe should be observed in the MY PART conduct of the great financial operation which we are about to AID undertake, in the hope that it may aid GLORIOUS SUCCESS Deign with'a glorious success beyond your best expectations. in concluding the cam- THE BATTLE SAME TIME This loan is to be placed with our people at the same time BATTLE th!,t the greatest battle of all times is raging in Europe. AT STAKE lclnE as that battle is undecided, everything that we value is at stake HANGS BALANCE OUR TROOPS and hangs in the balance. So. The presence of our troops in large numbers in France has developed in the minds of our people a new and intense anxiety as to the outcome; a personal interest in the venture far beyond anything that has existed sinne the outbreak of -2CONCIOUSAT WAR the war. For the first time we are actively concious are at war; 1,800,000 FAMILIES- that we for the first time we realize that we have a human investment in the war. 12saual., One million tight hundred thousnnd families in the United States have sons, husbands, or brotherq. in the nation's service either in France or in training in this(country or in the navy. Throughout every pert of the country our people are watching militarycleyeloamatt with breathless anxiety. Your task is by so much the lighter. Those who are seeking security for their own flesh and blood will not withhold the dollars needed KEYNOTE' SPIRIT to insure victory. This should be the keynote of our campaign. TERMS OF LOAN It is, of course, desirable, in fact essential, that every subscriber to a Liberty bond should understand precisely the UNDERSTAND PRECISELY terms of the loan. In previous loans, unfortunately, the enthus- iasm of those selling the bonds has occasionally led to their makNOT ALTOGETHER ACCURATE ing statement noLaLtagathes_accurate as to the various provisions of the law under which the bonds are authorized. MISUNDERSTANDINGS Same misunderstand- ings have occasionally been caused as to the privilege of conversion, or as to the tax exemption, or other features, which, possibly, DISSATISFIED BONDHOLDERS could not be avoided. But every dissatisfied bondholder is an obstacle to overcome when the succeeding loan is pinced. So to the extent that the terms of the loan are discussed, great care should be exercised that accurate information is given, and, for INSTRUCTIONS that purpose, all r.11.42...ilistaas.Uszawill be issued from the bank. Just now subscribers to these bonds are not betraying anxiety as to rates of interest, dates of maturity, tax exemption provisions, or conversion rights. Their anxitly is that the -3- money they subscribe be promptly and effectively spent by our Government to insure victory to our troops and their safe return. Prtvm, cr 366 6 CONTRIBUTION ------------ GOODS AND SERVICES AL;- _ Do not let the notion become prevalent thet buying war bonds is simply a financial transaction. It is far more than that; it is a contribution of war materials and of the labor to produce WAR MATERIALS war materials to enable our armies to win battles. It has been estimated that prior to the war the annual production and turnover of the country had a value of $50,000,000,000. increased to $60,000,000,000. The auEmEwIla bills passed by Congress represent requisitions made upon the labor and industries of the country for not less than $23,000,000,000 in value of goods and services. iti.poloarati.: a question of whether we can Produce these war materials, but it is a question of speed of proSPEED duction. Industries and labor loaded with the production of every- thing required to enable us to live as we were in the habit of living before the outbreak of the war can not produce $23,000,000,000 of goods in time to equip the armies now so urgently needed, unless our people withdraw some part of their demands and give the Government right of way. To the extent that we in ..1. expenditures, by so much we retard production of war materials; to the extent that we thereby A2lay the presence of fully equipped armies in Europe we jeopardize the outcome of the war. QUOTAS, You have been advised of In this PNIEM -loan the arrangements as to quotas. the Second Reserve District is asked by our Govern- $900,000,000 ment to sell nine hundred million dollars of bonds. PATRIOTISM tinue to maintain the standard of patriotism which has been displayed in this district in other previous borrowings of the Government, for -4- ouri.A....ilta. of every loan, whether of llas bonds, or short certifi- cates of indebtedness, which our Government has heretofore offered, has been 21...emAlt_oversubscribed. EXPLANATION But this matter of quotas re- quires some explanation in order to avoid misunderstandings and dissatisfaction. When our Government sells an issue of bonds, it does not require from the subscribers that payment be made in gold or currency. TRANSFER Payment, in fact, is made by checks on brinks, which simply effect a transfer of bank balances from the credit of subscribers to the credit of the Government. EQUITABLY APPORTIONED Therefore, in order that the amount of the loan be equitably apportioned among the Federal reserve districts, and among the various communities within the districts, consideration must be given to the amount of bank balances in the respective district and communities which will, DATA in part, be transferred to the Government. organization has secured date from all banks in the district and, based upon this data, secured especially for the purpose, has effected an apportionment. SAVINGS ACCOUNTS DUPLICATIONS FOREIGN ACCOUNTS It is based upon the resources of the banks, after allowing for savings deposits, for duplication of bank balances, and foreign balances. Theaorta_.j.on_ment of quotas is, as far as can be made by experienced men, fairly based upon acDISSATISFACTION curate data. In every where dissatisfaction arises as to the apportionment, it should be explained that the utmost care has been exercised to assure a fair determination of this matter, which, at best, is most difficult to arrive at. WHERE TO SUBSCRIBE Questions are asked dail where they should make their subscriptions. by intending pur yt3aL21_21a/.:_klcluirtraas and transportation lines have offices in one place, plants or in- e -5- vestments in other places. Many business man have more then one residence or place of business. The spirit of emulation which actuates all branches of the organization, naturally and properly inspires committee men to secure the largest volume of subscripLARGEST VOLUME tions possible for their own communities. It is, however, desir- able that this matter be govered by some fair principle, if one can be found, so as to avoid criticism. all, is a simple one. The real principle, after As the apportionment is based upon bank deposits, so the subscriptions should be based upon bank balances. Where a corporation or individual, has more than one bank account, the balances carried in those accounts form the basis of the apportionment of quotas to the communities where the account are carried. Therefore, the subscriber should apportion his sUbscrip- tion according to the amount of balances carried in his'hrious bank accounts, out of which his payments are made. EMPLOYES' SUBSCRIPTIONS In every instance, however, where employers of labor arrange to secure subscriptions from their employes, it is desir- MADE & FINANCED able that this subscription be made and financed at the place where the plant is located. The interests of the community demand this, and it is, of course, only fair to the employes who are subscribing. CONTINUE SELLING It came to our attention during the last campaign that in some communities when quotas had been completed the committees DISCONTINUE WORK discontinued work. If everx_orgailization adopted this policy, the loan would not be fully subscribed because in some sections quotas will certainly not be filled. WITHOUT RELAXATION Your efforts should continue without relaxation, until the close. We are not simply raising money for the Government, we are enlisting a great army of bondholders -5whose moral Ift, SPIRIT support is needed to win the war. Every additional bondholder becnmes an addition to the war spirit of the country. Let none °scam. SAVINGS BANKS asna...ete.EJ:...t.i n have been asked as to the attitude of the Liberty Loan organization towards depositors in savings banks. The answer presents no difficulty. It is n that depositors in savings banks should withdraw their deposits in order to subscribe for these bonds Subscriptions themselves buy the bonds. The savinas banks should made by those who custom- arily have savings in the savings banks will, naturally, somewhat INTERRUPT FLOW interrupt the flow of savings deposits to that class of banks. CANADA - ABROAD But it has been the experience in Canada and abroad that the placing of war loans, even at higher rates of interest than those allowed institutions, has not caused withdrawals from such banks to any dangerous extent; in fact, has had little effect other than by savings SUSPENSION to cause a temporary suspension of new deposits. is similar. Our own exzerijtise Even the_postal savings deposits, which bear a much lower rate of interest than is borne by our Government bonds, have increased during the entire period of the war, notwithstanding the large sales of -Government bonds. DELIVERIES COMPLAINT Probably no subject has caused quite an much complaint as the failure to deliver bonds promptly to subscribers. MAKE CLEAR have endeavored to make clear through the press, by circulars, and otherwise, that delays of that character are unavoidable. SHOW CONSIDERATION We people must be asked to show consideration to the Our officers of the Treasury, who are doing their utmost to meet a situation quite unVARIETY OF DIFFICULTIES precedented in variety of difficulties. Facilities have not here- -7- tofore been adequate to prepare the enormous amounts of bonds re- Irlaaxia4 quired to be issued. UTMOST CAPACITY The Bureau been and Printing hasof taxed to its utmost capacity to prepare no less than forty-four million pieces of bonds up to date to meet the needs of the Government. The bonds can not be finished until the terms of the loan TERMS KNOWN are known. BILL NOT PASSED the bonds has not yet been passed by Congress. In the case of the present issue, the bill authorizing In order to over- come this delay, it has been arranged to prepare the bonds in all particulars in advance except as to printing the text. PREPARE BONDS IN ADVANCE EXCEPT TEXT that there are thirteen_EL1111,921LxAscps in the Bureau of Engraving and Printing completed except for the addition of the text, and that the instant the bond bill is signed by the President these bonds will be put on the presses and turned out as rapidly as OUT OF PROPORTION human effort can do so. This is one of the details of an opera- tion of great magnitude which will frequently interfereSwith the success of our plans far out of proportion to its importance, but, after all subscribers to the bonds have usually adjusted them- selves to the necessity for a little delay in deliveries, which I hope will not be necessary on the next issue. $10,000 In the last two loans our books show that we have only $10,000 of unadjusted subscriptions by subscribers to nearly two billions of bonds in this $ 3,000 district, and a balenee of less than $3,000 owing to subscribers who have defaulted in their payments. LOANS One of the greatest difficulties to be dealt with by POLICY our organization is the establishment of a policy in regard to borrowing on Liberty bonds. Every bond rchased with borrowed money produces bank expansion so long as such loans remain unpaid. How much, therefore, we should encourage subscribers to buy bonds with borrowed money must be determined: -8First - T04"SURE SUCCESS la whether it is necessary to encourage that process in order to insure a successful loan, and, Second- b2 some knowledge of the extent to which the finances of the people of the country are equal to absorbing Government loans without mortgaging future earnings. very difficult question to answer. AVAILABLE SAVINGS There are of the amount of the available current savings4Und, and it is important to determine to what extent those who hold these savings are willing to invest in war bonds. ProbalaILif all the people of the country up to the present time had been willing to appropriate all of their savings to the purchase of the bonds so fur issued, it would not have been necessary for the banks to lend one dollar NO BORROWING to subscribers. As it is the amount of borrowing by subscribers to the first and second Liberty loans is exceedingly moderate, and MODERATE it is our hope that the present outburst of patriotic enthusiasm for the war will insure a very large subscription to the third Liberty loan eithout the necessity for heavy bank borrowings. In England, it has been found quite safe to discourage subscribers from seeking accommodation for the purchase of war bonds beyond a SIX MONTHS period of six months, upon the theory that a new loan will be offered every six months, and thus the subscribers should confine their subscriptions to their current savings, or to what they expect to make within the succeeding six months. I am not at all sure that this policy would be safe for us to pursue, but it is expected EXPLICIT STATEMENT that an explicit statement will be issued before or in the course of the campaign which will be a guide as to the policy to pursue. SELLING One un rtunate effect of excessive subscriptions by those HEAVY SALES who are unable to liquidate loans out of savings, has been heavy DECLINE sales of bonds on the stock exchange and their consequent decline be- -911, morals of the nation. (The time has come when we must change our way of living. These same habits in time of war are a menace to the security of the nation. Let me tell you, of an incident that was repeated to me in 1916 by one of the regents of the Bank of France illustrating the attitude of the French pesant. A This benkert is the mayor of a little town located in a forest district, where wood cutting and charcoal burning is an important industry. In the winter of 1915-16, the Bank of France, in behalf of the French Government, apnealed to the peasants to deposit their hoarded gold in the Bank of France in exchange for notes of the bank so as to build up the bank's gold reserve. The resnonse, notwithstanding the thrifty and rather suspicious habits of the French peasant, was a magnificient exhibition of their courage and patriotism. Hundreds of millions of dollars were poured into the bank. In this Particular town, the mayor appointed a day when the town crier would assemble the villagers in his office; when he would explain the plan and receive the gold and issue the notes, bringing with him clerks from the Bank of France for the purpose. As soon as the announcement was made, some of the women of the village privately advised him that his plan would not work. The women of France are the family treasurers; they did not want their husbands to know how much of their earnings they had been able to hoard and they were not willing to expose to their husbands the extent of their thrift. Privatel some of the men of the village told the mayor that the plan would not work; they did not want the wife to know that secretly they had been withholding a little of their earnings, so it was finally arranged that he would receive the villagers one by ono, have no one present, keep no record of the transactions and simply issue the notes in exchange for the gold as rapidly as it was left with him. -10- gri EXPENSES You will appreciate that no small part of the burden of conducting this campaign is the regulation and control of expenditures. The Congress provides that a certain percentage of the pro- ceeds of each loan may be used for expenses, but, as you know, the SURROUNDED expenditure of funds of the Government is surrounded, necessarily, SAFEGUARDS - RULES by certain safeguards and rules which it is necessary that we ADVANCED should strictly observe. REIMBURSED Federal Reserve Bank and only reimbursed by the Treasury upon the All expenditures are advanced by the submission of satisfactory vouchers which conform to the rules of the Department. Ihmetl_latige will be exercised by all PROTECTED members of the organization to see that in this matter we are pro- EXTRAVAGANCE - WASTE tected against charges of extravagance or waste, and, on the other EFFECTIVE hand, that money which is spent shall be spent most effectively. Carefully prepared rules are furnished to every committee on this point. OPTIMISM As the campaign approaches, it is necessary that the entire organization shall be somewhat of the same frame of mind, UNIFORM SPIRIT AND PURPOSE undertaking the work with a uniform spirit and avoid mistakes which have been made clear to us by our past experience. It is a great _mistake to undertake the placing of one of these great loans with too much assurance of success. MAGNITUDE undertaking of this magnitude is-accomplished without hard work, and, if the idea that the loan is a success before the subscriptions are ac- tually received, should become general, it might, indeed, seriously SERIOUSLY INJURE WARNING injure our prospects of success. FRAUDS On one or two pILEts I am led to speak a word of serious warning. We must be careful that the public is not imposed upon by CZ) dishonest people who pose as being parts of our organization, but, as_RElas.pla P-.42ETRATE FRAUD who, in reality, are seeking to perpetrate a fraud. PUBLIC AROUSED undertaken is so extensive and public opinion is so aroused as a result, that it may indeed become possible for designing persons to take advantage of this and practice despicable fraud, particularly upon ignorant people. Ever or anization should watch for this with scrupulous care, and, at the first indication of any development of that character, it should be brought to the attention of the proper officers of the law. ENEMIES Another word MORE SERIOUS LURKING of_mumkg on an even more serious matter. You know that there are lurking in our midst a certain number of disloyal people who are seeking to promote the interests of the enemy. They are careful indeed not to expose themselves, but you must not be led to believe that they are not there simply because IN SECRET their work is conducted in secret. The contact of our organization with all classes of people will, almost inevitably, disclose indiviDISLOYALTY dualswho may display disloyalty to our Government. REPORTED should be instantly reported to the bank. These cases I shall not refer to this in greater detail, except to state my conviction that the temper of the people of this country will not tolerate the activities SUBTERRANEAN AGENTS of these subterranean agentof the governments with STRIKE IN BACK which we are at war, who seek to strike us in the back. M1RALE WORK - BEGIN And now, ladies and gentlemen, our work is about to begin; our armies are at the front fighting; they notonlyneect the supplies which the proceeds of this loan will provide, but they need the enENCOURAGEMENT STIMULATION COURAGE sslammallt, the stimulation, the courage that they will gain by the knowledge that they are supported at home. News from home to the soldier at the front is what makes the spirit of the army. 7- -12- Suppose the men of our azaa were permitted daily to receive TH( SANDS hundreds of thousands of communications from agents of the enemy, UNDERMINE MORALE directed to undermine their morale, who can say what the result would be raeiclo,.1_jcurever_aressase hundreds of thousands of letters from home. ENCOURAGEMENT DEPRESSION What a difference it %ill make to them if those letters contain words of encouragement rather than depression. How greylly_yill_they_be encouraged and heartened when they hear, as they AT HOME will, that the greatest of war loans has been successfully placed at AF3ROAD home in order that they may be victorious abroad. CONCLUSION Everything depends upon a spirit of patriotism and PATRIOTISM SELF-SACRIFICE self-sacrifice by the hmerican people. We may find in this country the same determination as has just been expressed by a patriotic Frenchmen. He says that "to fight Germany France will sacrifice all her sons, and when the men are gone the women will rise up, and when the women are gone the children will rise up, and when the children are all gone the dead will rise up to defend France; for France has determined to be free or die, and France will live." COMMITTED ARMIES, PEOPLE, ALLIES The task is now committed to your hands. Our armies in France, our people at home, the people of the nations with which we are in alliance are awaiting new evidence of the spirit of the DISAPPOINT American people in the war. REWARD - VICTORY reward will be the victory of our army. We must not disappoint them. Your Mis,31 Office Correspondence FEDERAL RESERVE BANK OP NEW YORK Date To Subject From vtg 0i-ew----65-co")414;;,, .7"4.714-14,0 ,netrutif This meeting has been arranged in ordef thatAthose who now compose /4644_ , l'Acty 17tetp,e eeecif4, of our Government .e:--eveso.i~ for the third A 4n4rt-arrtrt/he organization of liberty loan committees A.,`- the financial army great offensive. 1149/0 has become co extensive that it would take ten buildinge as large as the one in which this meeting is held, to accommodate all of those who are now enrolled in4.4e-renki_af,--iyiee-5-eceend-Reeerve-44.44x1o.4. rucle ef tUe45ontact argr- egft61 4-es headquarters must,eteitervfmres, unfortunataly,/b" eAby eerat,-;" correspondence,AopelAth-IL **erre it is poseible,the disadvantages of this limited personal contact /U--71044e4o among 'branches oPthe service/ will be overcome by holding meetings err of similar tthis in all parts is launched next fall that so that each member the distriit. arrangements oftl...aI,ahart or of the-- can b inization will be in closer touch with those whA10,4"414'ee4dIrg 4I You will hear speakers to night you will gain inspiration and encouragement. d_49cia.A1.4 50-7-kz rather to -e4e4e a- few- from whom pat 410is the principles which we believe should be observed in the conduct of the great financial operation which we are about to under- take,in the hope that it may aid you in concluding the campaign with a ) glorious success beyond your best expectations. 44----eatta -- This loan is to be placed with our people at the same time that abe.C.---"tu5. the greatest battle ile-tiee--eeerri-eiri-egesery is raging in Europe. 4verything_.2 (that we value is at staker&ridao long as that battle is undecided;rhangs in the balance. The presence of our troops in large numbers in France atif-ltelAratte) has dove.:. -)ed in the minds of our people intense anxiety as to the outcome /` a personal interest in the venture, far beyond anything that has existed Misc-N Office Correspondence FEDERAL RESERVE BANK OP NEW YORK Date To Subject : From -2- Otn7)TA since the outbreak of the war. For the first time we are conscious that we /\ are at war; for the first time we ere-veicerivas that we have a personal human investment in the war. One million eight hundred thousand families in the ZettieS:0 United States have sons, husbands t I\ Or at 7 a 1141411p; Throughout every part of the-43ritd-'1Srlek -fi,e-- or in training in this country^ our people are task is by SthAd.,ek, or brothers in the ranks, either in France, watching militarygitl:eith & eh much the lighter. breathless anxiety. Your Those who are seeking security and safety 7LA.11. for their own flesh and blood will not withhold theWdollars to insure victory. Te-el-mieXis 11430eree-aily-f should be the keynote of our campaigni-414-444e-r--errgurnerrrtrb oleapnvo It is, of course, desirable) owe, in fact, essential that every subscriber to a Liberty Bond should understand pooWeeTrsiy the terms of the Loan. In previous Loans, unfortunately, the enthusiam, of those selling the bonds, has occasionally led to their making statements not altogether accurate as to the various provisions of the law under which the bonds are authorized. Some misunderstandings have occasionally been caused as to the privilege of conversion, as to the tax exemption aed other features, an.1-4-he-i-oranai which possibly could not be avoided. But every dissatisfied bondholder is ar obstacle to overcome when the succeeding loan is placed. So to the extend that the terms of the loan are discussed, great care should be exercised that accurate information is given, anu for that purpose all necessary instructions will be issued from the bankIust now subscribers to these bonds are not betraying anxiety, as .to rate;of interest, -Writ dato5 of maturity, tax exertion provisions, or conversion rights. Their anxiety is, that the money they subscribe be promptly and effectively spent by our Government to insure victory to our troops and their safe return. Misc.37 Office Correspondence FEDERAL RESERVE BANK OF NEW YORK Date To Subject : From -3- 11.44-q4 You have been advised of the arrangements as to quotas. In this Loan the Second Reserve District is asked by our Government to sell ninehundred million dollars of bonds. We must continue to maintain the standard of efficiency which has been displayed in this dietrict in other previous borrowings of the Government, for our quota of every loan, whether of long b./Te4/711g--- bonds or short certificates of indebtedness which our Government has offered hexata.ers, has been heavily oversubscribed, this matter of quotas requires some explanation in order to avoid misunderstandings and dissatisWhen our Government sells an issue of bonds, it does not require faction. GLOVU.,Y1-qe from the subscribers that payment be made in earh. Payment by checks on banksiwhich aimply have-44m affect 04-transfer ank balances from the credit of subscribers to the credit of the Government. Therefore, in order that the amount of the loan be equitably apportioned among the . , Federal Reserve districts, and among the various communities int the. disJIAdkoadt. triCts, tku4-consideration be given to the amount of bank balances in the 14)-ati t-k- 14W-tit-- respective districts and communities which 8:4-441 be transferred to the t\ Government. A committee of our organization has secured data from all banks in the district and based upon this data secured especially for the purpose, 4144-eenc.raTilrlree has effected an,appor4onnep. the resources of the banks afterAliminat of bank 411 g sayings It is b9.sed upon fo , eelt duplication CUArectilk4i.da-Mo. apportionment of quotas is, as far a6 can be mado balancesA IThe D-CAILle by experienced men, basedupon accurate data. dissatisfaction arises as to In every community where apportionment, it should be explained that the utmost cere has been exervised to assure a fair determination of this matter which, at best, is most difficult to arive at: ljuestions are asked 14°a" 147 redra" daily by intending purchasers as to where they should make their subscriptions. Misc-37 FEDERAL RESERVE Office Correspondence BANK OF NEW YORK Date To Subject From -4- Many of our industries and transporation lines have offices in one place, plants Many business men have more than one residence or investments in other places. or place of business. The spirit of emulation which actuates all branches of the organization naturally and properly ,inspires committee men to secure the communittas possible. largest volume of subscriptions for It is, however, desirable that this matter be governed by some fair principle, if one The real principle after all is a can be found, so as to avoid criticism. simple one, the apportionment is based upon bank deposits, so the subscriptions ih&OAA.0.4'00 Where a corporation or individual has more should be based upon bank depoaitm. than one bank account, the balances carried in those accounts, form the basis iof the apportionment of 4441- the communities where the accounts are carried. Therefore, the subscriber should apportion his subscription according to the amoun ltk.:. Aawm-t4tAl____ cent vitt:tele . &IAAsIn every-instance, however, whet---' of balanceacarried in his various bank _ accountsA" 0-004U. 4 Z _ employers of labor arrange to secure subscriptions from their employees, it is Ste6444-eet Itiaeueebie-etta-laa.uummow that this subscription be made and financed at the fatai-41-.-The interests of the community demand this, and it where the plant is located,. is of course only fair to the employees who are subscribing. -a gatri/ra-Ara Many questions have been asked as PZQ A o the attitude of the L organization towards depositors in savings banks. culty. The answe It is not expected or desired that depositors in sravings banks should iaXt--4-14.44-0 ,,0 or/440_4 7,Corvaaul/17 iierial, withdraw their deposits in order to subscribe for these bonds.A Subscriptions made by those who customarily have savings in the savings banks will naturally somewhat inter rupt the flow of savings deposits to that class of banks. But / 0-01-it has been the experience in Canada and abroad, that the placing of-hate loans even at )t higher rate9of interest than those allowed by savings institutions , Office Correspondence FEDERAL RESERVE BANK OF NEW YORK To Date Subject -5- From (6MAIAai: withdrawals from such banks to any appreei-arb-le extent; has notnot (2404 atAk-elvs4491,of in fadt, has had little affect other than to 844get a temporary mrsepe,ri.e new deposits. Even the postal savings Our own experience is similar. 4A.A. deposits, which bear a much lower rate of interest than wer borne by our Government bonds, have increased during the entire period of the war, notwithstanding the of Government bonds. A Probably no subject has caused quite so much compi4nt as the failure to deliver bonds promptly to the subscribers. We have endeavored to make clear through the press, by circulars and otherwise, that delays of that cheitacter are unavoidable. Our people must be asked to show consideration to the officers of the Treasury who are doing their utmost to meet tirfr situation, quite unprecedented in 40/Variety of difficulties. .a4411.4 )teve4.44 to be issued. Facilities have not fejeurrarto adequate to prepare enormous amounts of bonds required The Bureau of Engraving and Printing has been taxed to its utmost capacity to prepare no less than million pieces of bonds up to date to meet the needs of the Government. until the terms of the loan are known. The bonds cannot be finished In the case of the present issue, the bill authorizing the bonds has not yet ben passed by Congress. In order to overcome this delay it, l arranged to prepare the bonds in all particulars in advance, except as to printing the text. million, I am told that there are thirteen 6,71420.1 pieces in the Bureau of Engraving and Printing, except for the addition of the text, and that the instant the bond bill is signed by the President, these bonds will be put on the presAnd turned out asil.avidly as human effort can do so. This is one of the details of an operation of great magnitude, which will frequently interfere with the success of.-0*, plans far out of proportion to its importance; but, after all, subscribers to the bonds Misc-37 Office Correspondence To FEDERAL RESERVE BANK OF NEW YORK Date Subject From b7( adjusted themselves to the necessity Of a little delay have in deliveries which I hope will not be necessary on the next we C.1:1-r-be4,46-5--strai-1191-444**P\ PerT-14-4141-77 issue,_-"641rX have only $13,000 of unadjusted subscriptions by subscribers to nearly Two Billions of bonds in this district, and a lbalance r----- of less than $3.000 owing to subssFibers who have defaultod in their payments. """ a-Cra4Pv. One of the greatest difficultiee'to be dolt with by our organization, Cal361M3 is the 441:4nt oPipolicy in regard to borrowing on Liberty bonds. Every 91.04_ bond purchased with borrowed money produces bank expansion, so long asisloans remain unpaid. 05X014.14 How much, therefore, 441441.1d we encourage subscribers to buy bonds with borrowed money must be determined, first, by whether it is necessary to encourage that process in order to insure a successful Loan, and, second, 4 orA._ 12-xff7 117- keotzAl.<705077, Q t.4-wh-ei-exter are-the finances of the people of the country equal to 4 ab- sorbing Government loans without mortgaging tluture earnings/ difficulty quastion to answer. That is a very Thar's are various estimates of the amount is available and current sayings funds, and it ',important to determine to what extent those who hold these savings afe willing to invest in war bonds. Probably if all the people of the country, ,up to the present time, auoulel hali(jbeen willing to appropriate all of their savings to the purchase of the bonds so far issued, it would not have been necessary for the banks to lend one dollar to subscribers. As it is, the amount of borrowing by subscribers to the First and Second Liberty Loans is excedkngly moderate, and it is our hope that theAoutburst of patriotic enthusiam/ for the war will insure a very large subscription to the Third Liberty Loan, without the necessity for heavy bank borrowings. In England, it has been found quite safe to discourage subscribererfrom seeking accommodation/ for the purchase of war bonds beyond a period of six months, upon the theory that a new loan will be offered every six months, and this the subscribens'should confine their subscriptions to their current savings, or what they expecttomakai within Office Correspondence To FEDERAL RESERVE BANK 0 F NEW YORK Date -7- Subject: From the succeeding six months. I am not at all sure that that policy would be safe for us to pursue, but it is expected that an explicit statement will be issued before or in the course of the campaign which will be e guide as to the policy to pursue. One unfortunate affect of excessive subscriptions by those who are unable to liquidate loans out of savings, has been heavy sales of bonds on 4K01-04.A4a, the Stock Exchange, and their decline below the issue price. This would not occur, certainly not to the extent to which it has occurred, if subscribers to the bonds took them with the firm intention of holding them, even though the economies necessary to do so were severe enough to hurt. subscribers should In general, we think be encouraged where it is not the intention of tho subscriber to promptly dispose of his bonds 40.5 004114--I(e 4A 14 P71-zet-we t ittos,u, 7x7,- a rek4.4-44-4-6 660-.44 You have frequently heard the statement made that the farmers of the country have not generally subscribed to the Government loans; unpatriotic; and that in various ways they are bad citizens. that they are I do not believe 45R--- Imr they are unpatriotic, neither do it believe they are bad citizens, nor is it a very good way to cell bonds to. abuse the prospective buyer. Our difficulty in the past has been to so organize that the farmers could be personally reached and thrlugh agencies in which they have confidence. to take the farmers into our organization. Our plans have now been arranged Thel;rmOureaus,itrangets, and the Aairymen'eOrgenizatione are cooperating with us and we hope by encouraging them to keep separate records of the amounts subscribed by the farmers of this district that they will completely emancipate themselves from any of the charges which you hive heard. Toomuch emphasis can not be laid upon the advantages of personal solicitation. Proepeotive subscribers should be approached, if possible, with some meee7 Office Correspondence FEDERAL RESERVE BANK OF NEW YORK Date To Subject : -8- From knowledge of what amount they should subscribe. ALt42,0 _ To assist in this work throughout the e.eittel*Pr district/ maps are being prepared and furnished which will enable the local committees to deal with every resident of their respective territories. You will appreciate that no small part of the burden of conducting this campaign is the regulation and control of expenditures. The Congress provides that a certain percentage of the proceeds of each loer may he used for expense, but, es you know, the expenditure of funds of the Government is surrounded, necessarily,, by certain safeguards and rules which it is necessary that we should strictly observe. All expenditures are advanced by the Federal Reserve Bank and only reimbursed by the Treasury upon the eubmission of satisfactory vouchers which conform to the ruler of the Department. I hope that great care will be exercised by all members of the organization to see that in this matter we are protected against charges of extravigance or waste and, on the other hand, that money which is spent shall be spent most effectively. rules are furnished to every cemmittee on Carefully prepared this point. 6 As the campaign approaches, it is necessary that the entire organization . shall be somewhat of the same frame of mind, undertaking the work with a uniform spirit and avoid%mmistakes which have been made clear to us by our past experience. It is a great mistake to undertake the placing of one of these greet loans with too much assuuriance of success. Any undertaking of this magnitude not ieaccompliEhed before the without hard work and, if the idea that the loan is a success subscrictiors are actually received should become general, it might X62.dra4telo indeed seriously injurfour prospects of success. On one or two points I am led to speak a word of serious warning. We mean FEDERAL RESERVE Office Correspondence BANK OF NEW YORK Date Subject : 0 -9- From must be careful that people are not imposed upon by dishonest people who pore es heing parts- of our organization, but who, in reality, are seeking to perpetrate a fraud on the people. opinion is so aroused The propaganda undertaken is so extensive and public as a result, ing persons to take advantage of with should watch for this that it may indeed become possi le for I, ma Partriate, designtie this and PIA-eta: etc& Izt WI-ex organization -p.dee.pee4ee+.8-4.e.aeed. Every , scrupulous care and at the first indication of any development of that character, it should be brow, t to the attention of the Lex) , proper officers of the law. a. Another word of waning on an even more serious / ....-- matter. You know that there 60-lurking in our midst a certain number of dis- loyal perple who are seeking to promote the interests of the enemy. They are careful indeed not to expose themselves, but you must not be led to believe that they are not there simply because their work is conducted in secret. The con- tact of our organization with all classes of people will, almost inevitably, dis- close individuals who may display disleyalty to our Government. should be instantly reported to the bank. detail, except Those cases I shall not refer to this in greater to state my conviction that the temper of the people of this country will not tolerate the activities of those subterranean agents of the government with which we al* at war, who eee. strike us in the badWo And now, ladies and gentlemen, our task is about to begin; are at the front fighting; they not only need the supplies which the our armies proceeds of this loan will provide, but they need the encouragement, the stimulation, the support that wil Wie News from home to the by the soldier Suppose the men of our army knowledge that they are supported at home. at the front is what makes the spirit of the army. were permitted daily to receive hundreds of thousands of communications from agents of the enemy,. directed to undermine their morale, who can say what the result would be. thousands of letters from home. What a They do, difference however, receive hundreds of it will make to them if those Misc-3 FEDERAL RESERVE Office Correspondence BANK 0 F NEW YORK To Date Subject 10- From letters contain words of encouragement rather than depression. they be encouraged and s4tc'F6Wwhen How greatly will they hear, RS they will, that the loan$&A-44.4441-1.1 has been-succesefully placed at home in greatest eja401, 7rder that they may be eervizeudatar- errreeti.-.6.a win victorabroad.j This task is are the armies abroad, but the people of this with which we are in alliance, are about to be afforded of the not disappoint them awaiting spirit of the committed to nation your hands -- not only and the people of the nations sAArit-44.r.14u.s-1=isoes06.-this new evidence American people toward the war. -- Our victory will be your reward. We must FELLOW MRMBERS OF THE LIBERTY LOAN ORGANIZATION - OBJECT OF MEETINGS - 275 COMMITTEES - SIZE OF ORGANIZATION - FINANCIAL ARMY - UNDERLYING CAUSES OF THE WAR - WASHINGTON'S EXAMPLE - GOV7RNMENT PAYS NO COMMISSIONS - F. R. BANKS AND OTHER BANKS - FISCAL AGENCY - PAYING BY CHECK - JENS OF LOAN - AVOID MISUNDERSTANDING RATE OF INTEREST CCEPLAINT - PREM. & DISCOUNT DELAYS IN DELIVERIES INTAS BUYI7TG BONDS NOT ALONE FINANC IA L TRANSACT ION - DOCTRINE OF GOODS AND SERVICE'S - PERSONAL SERVICE OF EACH - OUR REWARD - THE SHIP ITS RETURN FEDERAL RESERVE BANK OF NEW YORK MISC. 3B .2- 4/67 OFFICE CORRESPONDENCE DATF To FROM SUBJECT. hE STATE LAW IIEPOR G COMPANY IPOOLWORTH MMHG NEW YORK CITY Nt Y. ADDRESS of HON. BEITIAMIN STRONG Governor Federal Reserve Bank, Yew York City, at Luncheon of TT l BON:0 CD.18, held in the Bankers' Club, 120 Broa,ftwkv, New York City, N. Y. Pridfv, April 5th, 1918. RAMILTON CANDEE, Chairman. Gentlemen, it is most appropriate that the Bond Club, I think, should assemble for a Liberty Loan luncheon. The Club was conceived during the first Liberty Loan campaign, and was born on the eve of the second campaign. I think you will all welcome a luncheon in that connection, and it is very pleasant indeed that we can have with us the same speakers, and the same guests lac, so successfully launched it on that occasion. This is more of a business meeting than any you have attended; and 'that THE =AIRMAN: you are to hear is inthe nature of instruction, and will be of great help to you in the tak. that is beitre you. I take great pleasure in introducing Governor Strong. (Applause) -OVERNOR STRONG: Fellow Members of the Bond Club, I still feel, at this meeting, as I did at the first one that I attended, that it is a matter of irony fot me to be asked to make an address to the members of this Club about selling (4 2 In the first place, I never made an address in my life before the first Liberty Loan, and in the second place, bonds. I never attempted to sell anything in my life except an automobile, a second-hand one, and I wound up by giving it away ( Laughte r ) You know a great deal more about selling bonds than o' but there are some things in this campaign that we are re to laun that I think we can di cuss with some profit just now, 0,1e-the members of the Club.Jj In all previous loans, we have added to what we might regard as.he official quota ...61 *ir hrti In this district, a sufficient sum,voluntarily assumed the A burden in this district of placing one-half of the entire loan offered by the Government. And it is a matter of pride with you, as it is with me, aa) well aft with everybody interas A /I` ested in this great CaitiW fin this district, that we have 6, to)) dcitim 61 not fallen down tn either of those loans. A We have offered the Government more than a half of the amount they asked the whole country, and we must not fall down this time. We are allotted in the Second District nine hundred million bonds, n this City. at means six hundred millions In roun figures4 mid AVplan has been adopted for awarding / flags, to these comrcunities that exceed thei r tirtAti. quota,.__Tuj=ittgatplan has made it, necessary fo us to make an official division among the communities the proportion of nine hundred millions instead of a larger amount, as hereQC' 44 3 tofores tut we must not re1azt our efforts,joot' try to get in former loans. as we afble ourAnd in that connection: while we are selling bonds and raising money, we are doing a much more important thingg laCM enlisting a great army of people in the ranks of bondholders actir real homestaying army, who are W.44411-going to make the sentiment that 41441 prevail throughout the of the Government, 41a4 are country in regard to the war. There was something over ten million subscribers in the last loan. I think we want to double it in this loan, as we did in the second loan over the first loan, and that means we ought to have twenty million subscribers. (Applause)) You will receive from the bank, or from the committee at headquarters, printed in great detail, various suggestions I will only refer iftetete41. here to one or about the work. 4 is about the two of those suggest lens . One, 4Lf e place where 'SO- subscriptions should be filed. This arrange- ment about the honor flag is going to start a spirit of emulation and rivalry, and we should have a fair principle to follow, if it can be devised, in advising the people where they should file their subscriptions. I do not believe in this district that we ndulge in any practice which would tend oward poaching on the other districts; but, let me suggest a plan, which will be printed, -- you understand, -3nd circulated, as a guide to a fair basis. The apportionment of the quotas, as you know, is based upon 10.pe bank deposits. 4 The reason is, very simply, that the "I.overnment receives payments for the bonds from the subsc There by checks on bonds allotted to, their bank accounts, and the amount tkr_e-do riVt.t.. any community should be the amount o bark accounts .darried--14A 64_0( La-4he-Lanks in theet community. The committee which sr- ranged the quotas in this district has secured data .taket has_heen.-a-ollected for the purpose Of eliminating4tiplioa4-ee..44 aivnITY .44.en-4.n savings cipois1 &ct other items, .ipon which the basis of allotment has been proportioned, and they have exercised their best efforts to see that the allotments are fairly made. Consequently, we are justified in ask.ing the 57-14...hC4-tir people to apply-44,-tebrsrripi-kens in the places where they Z:e.L.LJ keep their bank accounts 4nd4v-iiiirs445. 9\ in the proportion of the amount of balances kept in those accountS, and Which they propose to use in paying for the bonds. If that principle is not f owed, naturally the whole principle underlying the 4/r0 prervrttun of Alos quotas is itself unfair; and there is a /\. vary important object -eo be gained by pursuing this course in dividing the quotas among the communities. This is much more important to be done, than If it were based upon the principle of tgfrpopulation, or on an attem to ascertain the wealth of the different communities, wh44b would necessitate an immense shifting of bank acceunts, because there would be no rule for the subscribernto file his payment in the place vtere he has his deposits,, and would be bound naturally to result in a disturbance in the money mast, someIhiEg which would result 5 vs ry_iatarialy_ the re fr.sga. Now, as to the matter of the honor flag, I think we already in this district have three or four communities who have filed subscriptions at the bank, in excess of their quotas, and they all wart the first hono r flag; and s cme arrangement must be made to Gee that the adjudication of that question is fair, and not a cause of friction or hardship. But, there is another point: This is an official flag, issued to us under certain very specific rules, by the Treasury Department, and it is quite necessary that there should be no unofficial flags in circulatien, otherwise that scheme falls to the ground, and is of no value; and if we learn throughout the districts of any disposition on the part of the different communities to make their own honcr flags, that should be repressed, of course. Now, we just have heard from the bank that the terms have been somewhat changed in regard to the sales of bonds for cash. In' the lzt loan, you will all recall that the a.mount of cash sale was limited to one thousand dollars, for any one subscriber. That has been increased i this loan to ten thousand dollars, and we feel at the bank if we can get the bonds in time, it will be a tremendous assistance in placing the loans, to have the bonds ready f or immediate delivery to the subscribers up to sums of ten thousand dollars. But, the question is, will the bonds be ready? No matter has caused so much. cempleint in former loanz as the delay in the delivery of the bends. At the risk of repeating to you what you have already heard, no doub $01124Cii..getels rI want to sped of the tett/ situation in the Bureau.in Washington. The preparation of 4./.4 A CVO the bonds for the first loanc Ara task absolutely beyond the c.pacy of all the plants in this country, to make tti-C---6;t1M00 ,tg engraved bonds, There is a very limited number of men A capable of doing the engraving work; the supply of paver is limited; the number of presses is limited; and when the Bureau faced the task of preparing this immense number of bonds, they undertook to do something that was physically impossible to do, and get them out in time for immediate delivery. Now, they have in fact been called upon to prepare forty-four million separate bonds in connection with these three loans, -- an unprecedented task. In other to do so, they have got to set everything up, and have it ready actually before the terms a! the loen are known. The bonds cannot be printed until the bill is signed by the President, -and I believe it was signed last night, -- authorizing this issue, and prior to the terms of the loan being kno7n, the Bureau has gone ahead and prepared the bonds complete In all respects, except for the printing of the text; and I unaeketand now that there are somewhere between fifteen and 7 0 twenty million bonds in the Bureaa, complete in all respects, ry except the addition of the text, and the text is now being printed on the bonds as rapidly as the presses are able to do it; arftr I have a telegram today that shipments will start to the bank, or to the twelve Federal Reserve Banks, the latter part of next week. Mr% Anderson asked me to refer to thg=latterli". the question of the part-payment plan. Possibly you have been advised that in order to relieve the banks of the City of the immense amount of detail and clerical work involved in the handling of the part-payment subscriptions, on the plan formerly :adopted, we are going to issue a coupon book, and have all the banking and clerical work done by the Federal Reserve Bank, and thereby very much facilitate these small subscriptions for fifty wad one hundred dollar bonds, by a mechanical operation that will really impose a very small burden on the banks of the City. Now, of course, the preparation of those books is subject to the same difficulties as is the preparation of the bonds,. and we have made a struggle to get them ready in time. I fear they will net be ready until the latter part of next week, or the first part of the following week; and in the meantime we are proposing to issue a form of receipt that will be the equivalent of the coupon book, and that receipt will be surrendered and exchanged for the book, the book taking the place of the receipt as originally issued, just as soon as the fr 0 8 books ere ready. When the Last loan was placed, we had telegram from a number of communities in this dietrict, and we beard of similar occurrences in other reserve distr_cts, indicating that as soon. as a quota was filled, the local committee stopped No44 t is perfectly obviou's that every one of the Iwork. towns and cities in the United States is not going to fill its quota. Some 'Will fall down; and if every committee pursued that course, the loan wouldc ertainly not be fully subscribed; those that have the means ei4s.t4rtg for exceeding ?rimer their quota mclki.fig up the shortage of those unable to fill theirs. I\ And I em particularly anxious this time, in this District, that every committee and every organization should continue their welt until the curtain drops on the fourth day of May. he same 9444.vat ton is likely to arise in regard to the subscriptions among the various trades in the City, ,just /tZTGo as they are bound to arise between the communities, sem4i,-where subscriptions should be filed, and that question is bound to give rise to rivalry in the placing of these bonds. It would be unfol-tunate if disturbance or dissatisfaction peeeriey developed between the different branches of the organization; and many of you can understand, who are associated with the organizations of the trades in the City, that a fair e5k4a5D treatment of that matter stata4re to be observed, and I ate sure 9 you will all agree with me that it should be, all along the line. Every time we have a dissatisfied bondholder or ?1/4 committeeman, we erect an obstacle that must be overcome before the next loan; and I hope that a spirit of fairness will govern the procedure of the organization in that matter. When the first loan was placed, there was a great deal of rather loose discussion of the terms of the loan, I am sorry to say, particularly as to the conversion Taxiaet: oaetr,fh-ese bonds will not, by their terms, be made convertible into subsequent issues. That should be clearly made known to the eol who may have been reckoning, as in the other loans, on the the bonds of the Government debt., belprNg. convertible into subsequent issues. And the same thing should apply to all the other provisions of the law under which these bonds are authorized. We are proposing to send out from the bank a state- ment which will describe the terms of the loan in great detail, and directly charging every member to not only give this information in answer to inquiries, but to volunteer the information. hope you aro listeniz,g witil patience to this discussion, which possibly is entirely unnecessary, but which Is prompted entirely bytY.Le fact that it is directed to the answering of inquiries, and some complaints that have already 10 appeared at the bank, in the course of the placing of former Now, as to the terms which apply to thio loan: the re has been a great d_ e al of di. sous s ion particularly in regard to the inte-...est rate. There are certain features of this loan that are new --,..you-can vecure-ten-year_bends, 9tirk, 0 hich_bk.aomothing oLialue possibly beyorferthose of the-- previouelssires.--In the first place, they mature in ten years, and I thl nk most of us regard that as an advantage in the sense that if unfortunately any discount should develop subsequent to the is sue of the bonds, it naturally will be bonds much less than the discount which would arise with running for a longer period of years. There is also attached to the loan an exceedingly important provision which, as experienced business men, you can appreciate. The Secretary of the Treasury has authorized, or rather has been authorized, in every calendar year to purnot only chase one-twentieth of the entire issue of bonds, one-twentieth of the entire new issue, but of the previous issues, except the 3-1/2's. That places at his disposal a very large fund, the design being to correct what you generally describe as bad selling. 1E1 ow effective it will be, I do not know; but heretofore there has been no fund of any k able for use by the Government to take care of the selling that has unfortunately taken place, and which certainly must *41 -r 11 take place, for instance, with people who are disappointed in their expectations, or who require money unexpectedly/W*40k demands having been made upon them, and who have to sell their bonds, antic:Ler° should be a market for them, and a market is very material, because the energy displayed in placing the bonds originally has naturally result:d in a reduction of the buying capacity 9 theCiet5and in this my there is a fund to take care ofA, is bad selling. th Another very substantial change in the terms of the loan is the provision which permits the executors of the estate of toridholder to pay his Federal collateral inheritance tax to the Government by turning in these bonds at par and interest, provided the bondholder who dies, be owned the bonds for the period of six months. naturally, the most active market in the country just now is the market for bonds of the Government, and the tendency of cost executors would be to sell, these bonds, in order to pay the Federal collateral inheritance tax; and the use of the bonds for al)/fro-e-:6-0 As 'long as they aro above par; will undoubteda412.0 ly remove a considerable amount of bonc:. from 1 i au i deet on in the market. But the principal difference in the terms ts the interest rate which is increased to 4-1/4 per cent. .7 I would like to refer to th4t rather frankly. Pe ep1.5 have criticized the fact that the Government has not allicencl higher rate of interest. You understand perfectly well ' 40 12 that as the Government advances the rate of interest on its loans, the bond market readjusts itself to that change, end every time the Government advances the rate, the interest in other words, the basis of other securities advances, principal is marked down. There isanether feature '-of--tt and that is Whether the Government in time of war should deal with its citizens simply on the basis cf the investment value of its securities. Nola, I dal 't believe so; and you are going to find out that the very great majority of the people in this country are those who would finance this Government in time of war, regardless of *kr- rates of interest. (Applause) In fact, thesebonds could be sold if they bore four per cent interest, I am perfectly sure of it. (Applause) And, again at the risk of boring you with repetition that you have already heard me say, I do not believe that the people of tkd s country today are going to submit of to have their patriotism measured by premiums, or discounts on their Government bonds. (Applause) That is pretty much all I wanted to say, except to make a brief reference to the spirit with which this campaign must be conducted, ought to be conducted, which involves a little reference to Germanyi uoting from something I heard yesterday, which Impressed me very much, when I refer to Germany, I include Austria, just as -1--reule. when I speak of a dog, I would include the dog's tail. (Laughter) 43 c> 13 I was in Paris two years ago this time, and happened to be spending Sunday with a French family that I knew, andtilts man I was visiting asked me if I would go with him 0to tWb Cathedral ta-which he was a visitor- p on the top This Cathedral, built rather recently, has of Mont Marts. this peculiar feature, that practically every stone in that buiLling has .engraved olaitr_cut into it, the name of some peasant who has saved enough by accumulating sous from day to day, to pay for the actual cost of that stone. That I was in is the way this immense Cathedral was built. there during the morning service, about eleven o'clock, and the Iloor of this building wa9, covered with people on their They had little altars, and filled knees, on the flags. all parts of the building, -- it was jammed with these poor French peasant women, on their tares, burning candles for their boys at the front. Now, -that was justA4he scene in C Paris a few Sundays ago, ;enra nine inch shell dropped in there killing those poor women and children. I daa't know what we are going to do about it. It is something which makes me quiver to think about ,tet but I can guess, and it is in this spirit that we want to sell this issue of bonds. I believe; gentlemen, that we are going to send an army to France, and that we are going to take that man who calls himself "Kaiser" and claims to be in pertaership with God, and we are going to crush his power forever off this earth. (Applause) 14 We were all glad to wecome a TEE CEAIRMAN: number of the guests whom we have here today, and from whom we had expected perhaps to hear some remarks, but they tell me that they all came entirely unprepared to say anything I think you will appreciate that it is of much greater importance to have our bonds sold, and work carried out as planned, we believe that that is at the moment. However, of much greater Lmportaeice than to have the pleasure of hearing remarks, although tlicy would be very appropriate and highly appreciated. There are lust a few words I want to say, in regard to one thought that occurs to me. This is the only organization I know of that is actively engaged in the Liberty Loan work. We are not engaged as an organization, but we arc all working, although we are the ones who are without a quota, and all I can say is that we should each of us take home the feeling that the quota that we must reeech, as members of the Bond Club, and as good Americans, is the quota for the Second Federal Reserve District, and I hope we will all do it. An gentlemen, I can only ray we ell have no honor flag awarded us, but that flaz (indloating American flag) is the only flag for us all. (Applause) End of meeting. THE STATE LAW REPORIING COMPAHY WOOLWORTH MOM rEW YORK CITY, N. Y. FEDERAL RESERVE BANK OF NEW YORK MISC. BB .2 4/67 OFFICE CORRESPONDENCE DATF ow,, To SUBJECT. FROM )) 1,11?,frptcl/e4,4 It is a pleasure and an honor to be invited to address the members of this club. I wish it were possible for me to stir you with an appeal to your patriot- ism at this time when every heart is filled with anxiety, when the tension of the nation is growing under the impulse of this frightful battle in which it seems quite Ataitai° er-1powu4t irt- likely that maw sons and brothers will be engaged. I am not proposing t the members of this club to buy Liberty bonds. That duty has organization of tho women of this city, which includes many of your members. It does, however, seem necessary in connection with the Government's financing from now on to discuss frankly with the people of this country the reasons which have led to the adoption of certain policies and what they mean. Every address bearing directly or indirectly upon the Government's financial operations should be preceded by a statement of what is involved for us in this terrible war. I find difficulty in expressing this as concisely as I wish it were possible to express it. Saxon idea of government is at stake. It may not be inaccurate to say When the war broke out, circumstances led us to believe that Serbian independence was at stake, that the integrity of treaties was at stake, that the life of Belgium was at stake. We have been told that the direct cause of the war was an aSsination, or wse the refusal of the Czar of Russia to withhold an order of mobilization. Ott , C 14 Whatever may have been the immediate circum, -2- ctances surrounding the outbreak of the war, whatever hand may have been guilty of striking the spark that started this horrible confligration, the issues of the at/AA/Ale, war have now developed and center.' around one question and that question involves the national life of the great nations of Europe and of our own that we love so dearly. Your forefathers and mine many of them came to this country two hundred years ego or more determined to establish in this land a system of government which would perfect and perpetuate the Anglo Saxon idea of government to which I have referred and under which government they hoped would live in contentment and security. that they and their Since the °adoration of Independence was written and our constitution was adopted, we have in fact been perfecting a system of government which, with all its defects, has made this country a place of refuge and a prosperous and happy home for millions of people who have come here from abroad, convinced that the Anglo Saxon idea was right. During the last hundred years, end particularly during the last half. of those hundred years, a very different idea of government has bean gradually built up in Germany under the inspiration of the decendents of thoce feudal barons of central Europe who have always placed might before right. We now know that it was inevitable that the conflict of these two ideasof government would some day break out. calamity is now upon us. The We can not escape the consequences of the outcome one way or the other, and, facing this question honestly and fairly, it is for us to determine as individuals, -4eatviieeetieltetrim:netmerkeeeleeet, what sacrifices we are willing to make in order to insure the winning of partic ar part women may p i.e quest-", The the in working out the financial p swer is simple - there are th war. Y may ask what lems which bear on e ways by which we may lose this war: One is by direct military defeat birditriO, `t Another AiLly failure to,produce the material resources required Ycir the conduct of the war, and The third is by loss of the moral backing of the people. It is the mothers and wives of soldiers who, in regard to war. in large part, create public If their attitude of miniedas right, in general the mind of the nation will be right, and, were it left to me, I would take steps to insure that every woman in the country(Who has the time to spare and the strength should be promptly opinion engaged in some war work, no matter how small. to devote) Participation in this _great effort makes public opinion. But I am proposing, finally, to reach the subject of my address -- Can elAtio, titur rikr 14.) kw-) Because this matter of exponditure of money is the crux, the very heart, of the entire financial and economic problem of the nation and because every woman in the United States who underetands the im- portance of controlling expenditures can become a wqr worker, no matter what her iC6 CO .4, -4- other occupation may be. necessitates reference to unpopularity, stitutes a nation's waalth. the perplexing problem of You have heard discussion and subject which may have led you to believe nation is. has many pheeee of This dry subiect, and one which what con- read papers on this that no one knowellthet the wealth of a Staik4 It is nefe to answer that no one knows the annint of the wealth of a nation, but we do know what it is that constitutes the wealth of a nation, although we may not be able to measure its amunt. I refer our government hes now borrowed e currently underetnee -77ing +he+. +1 roughly $6,000,000,000. and it pores of this It would appear, nation to this because has recently been prior to the war was eta- ?nagm:f f4tg therefore, that we wore eiereeldeverwrewrr*"" ett, trA440 lexiaryeto our Government for war purpores tamt we mt, toying. stand this problem, we must not discuss the nation's savings of dollars, but rather in terms of production of It has been our habit to refer wealth in terms services of labor. to the almost limitless natural resources of 4541 United Staten ra.r..d--tee-easaadeiale.0.41seeteleseateeee.f that is to say, goods and or it our wealth. the Natural resources, tom wr,-4 great measures of coal,deeneineedie, oil fields of vest extent, A virgin forests, fertile soil, these things do not alone constitute the wealth of a nation. If that were eo, - this country was vastly wealthier four hundred years ago, before its settlement, than at present because we meantime so much of these resources. have consumed in the A couple cf million Indians, before this -5- country was discovered, would have been the wealthiest people in the isimile world -- -1 -749tte_P> 61 were wealth simply the natural resources of the nation, but these redskins ,14444epietbsr A died of starvation every winter succeeding a had crop. wealth for a nation. Wat Russia and India would be vastly more applied to convert its ductive things. Therefore, withdrew a great part eikr The wealth of e nation is what it produces by the wealthy than this country. energy of its people Neither is population alone natural resources into useful arid pro- when war arises and it becomes necessary for a nation to of its productive labor from farms, factories, mines and ir forests and send them out as armies, engaged not in producing anything but in destroy- ing materials, the conclusion is inevitable, the wealth of the nation is being reduced by the duce. reduction in its productive capacity and the destruction of what It is, fusithoogage, apparent t does pro- that if the nation continues to consume what it normally requires in peace time, and e44.-11_me.ai_,, in addition and not withstanding the tNof (-) reduction in availmble labor, producea vast amount of war materiels, some where there will be a failure -- there will not be enough labor and there will not be enough iad74, plamie to produce all those things required in time of peace plus the additional re- 241107^------ of lk.a. war. This ay be 11.tirstratlei in various we yf, (i)quirements i tion only, that the production A(' Otril nd turnover of goods immoberes nation prior to the &MO war goeletve valued at $50,000,000 0 consume in labor http://fraser.stlouisfed.org/ 1 Federal Reserve Bank of St. Louis and materiels for illustra- 0 and that we ,000,000, 00 for and our allies now p opose to the purpose of prosecuting #e ware -6- itAL 7EZ-Are"-e--- / our production from the thoetical value of must ,...afc-041-r-sa, epee IL $65,000,000,000 and I am p50,000,000,0 ble. cupations. nk to say that Nearly 2,010,000 men have already been woul t be withdrawn from productive oc- If those tlak are left, even with the addition of the labor of women, could be mobilized for the most effective effort poesible in order to make % A or)6, this Akat4611.4 $44,,000,0oo,0o0 of 041.4644,mme production, and -AI) years of int ens ive training4 it.,..ewreea.fttretnae,t'tftta4tawAee.4rreedue-eeeOieeaeeeted14ielestTel imiefamerew, the result would be disaster. in time if ....0.01111MMINIMEN. Met1/4, .-16 (VW duced In the first place, it would not be pro- we relied upon industries and labor overtaxed with the effort A of maintaining peace production at normal, not withstanding the loss of gket44444441 In the second place, it would involve such an slava- ove&men from employment. tion in the price level, such expansion of bank loans, such an inflation of the currency as would leave us, even after a successful war, economically and ly prostrated. financial- Heretofore, diecussionsof this question of economy have been 41111111111MMILSE11.1......5=W dealt with very largely by references to a way as I fear has not made t iktli et clear the expenditures of individuals in such 4)"riL that this problem is not alone ens of raising money, but is really the problem of winning the rer 14".4ormirmi*mg, not ultimately, A At not efter two years, but at once, every ounce of service by labor, every item of goods produced by labor for the uses of our men and the armies of the allies in - 7- France. Too greet emphasis can not be laid upon the It is not alone an economic a finencel prOblem. fundimentally military strategy. and equip our armies? fact problem. that this is not alone It is, in fact, How can we most promptly end effectively arm 4.MNI. Let me further illustrate this by presenting the same In time of peace all of the working energy of the matter in s different way. population of the nation is directed to produ9ing what is required for consumption, end, beyond that, ett.tOtt"'Te.tri 0414\C4,400 to 4101.140fitimorromms of production / so as to take care of the con- sumption of an increasing population end to increase the comforts and standards of Roughly, those goods which we living progressively in the future,overthe past. semaaw.t.mmosvegarmemamosemoranafto nroduce for export, and are not consumed in this country, are offset by the con- sumption of goods which sire imported in exchange, so that it may generally be stated that the labor of the country is entirely occupied during hours with producing simply what is required to demands. Our Congress, by appropriation normal working meet the nation's consumption bills, has requisitioned from the labor 4.1111111 and from the means of production of the country no less than $23,000,000,000 of services and goods for war purposes for ourselves and for our allies. Viewing the eeeeeemememeemie problem, therefore from the time standpoint of geom. o-f .1 qt0*d*WILL PT-0 production, rather than amount Amnia . of production, how our armies? olte44Ire take to expend these $23,000,000,000 in equiping The amount of time required to produce these materiels will be al- -8- most absolutely controlled by the willingness of our people to discontinue demands 11 upon labor and factories and farms for the production of things which they have been in the habit of consuming in times of peace but which they can get along with- out now that we are at war. If we are not willing to surrender any of the things samiss000MIMIMMINISMaaill. that we have been in the habit of thinking we needed, to that extent the speed with which the program of arming the nation can proceed will be retarded. If we re- luctantly and grud1 delay the curtailment of our expenditures, to that extent In view of whet is now taking place in France; we are delaying the war program. in view of the telegram from Lloyd George which Lord Reading read at the Lotos Club, who can deny that speed in training and equiping / 10.1, fact, be the determining factor re soldiers by this country may, in the outcome of the war. imrstwasearsoatwormilMO assume to suggest or imply that the women of this themselves anything that was victory. required country would hesitate to deny and which they know would contribute to That is not really the question that I am here to discuss. I simply 1110.00,00 want to point out how vital it is that this matter be understood, understood at once and be assumed as a personal war obligation by every woman in the country. Some can contribute more than others. how much, must be determined by each, not only as e matter of patriotism, but as a matter of conscience and as their contribution to the security of their own sons and husbands. The degree to which economies are practiced -9- can only be suggested by illustration and I shall assume to point out only one or two examples which may be considered to be extreme eases; economy will be undisputed. where the need services of A greenhouse which requires the for a number of men and consumes some hundreds of tons of coel in 4 winter in order to produce flowers and fruit and vegetables out of reason, in my opinion constitutes a direct There withholding of suppliee and labor required for the prosecution of the war. are fathers and mothers in this country who have cheerfully, in fact gladly, dedicate the lives of their sons to the defense of their are edaietaii0etelpientembe withholding from their country and who, without knowing it, own sons services of labor and supplies of material! which it may be will cost Ahem their lives if our armies are not Another illustration would be the equipped and on the ground in time. eeeeeeeeeeeeeeeumwseee construction of new clubs, of new homes, of improvements to which are buildings and just as unnecessary as are the greenhouses that I refer to grounds and which, when the aggregate is taken, will be just as disastrous to our war program as blowing up munitions factories and sinking ships loaded with shells and guns. 6t)t. a....., We WPO,I regret to say, a rather thoughtless and extravilent people in OIL the way we spend our incomes. ince the Civil War, ftsom..../Mawah A ,,, askall industrial end A transportation developments have been at such a rapid pace, wi have been living Piereee e. land of bounty, spending :Cake habits which have cogiv-i; its resources with a lavish hand vea.t.iteebabeeteielaieleipeoper those 0/1 ITreitatfre iterigt in been imposed upon te t\ the people of Europe under the menace of the 24k400 -10- furtki4 (440 WAVAP 410r APO ox go, notx.te). Ate'cr rk,Of These habits war cloud, which never seems to clear from the skies over there. A 44742-11 7n6-i-mer-ette are herd to change; they are iwilemposteful extraviganca5which retard the in- - duetrial developmentt and possibll undermine the morale of the nation,le-444..... Au kt Puke- ataftqt 64.0 Col:4 ploomen lotti eV 641.44 Thevame habits in time of war are a menace to the security of the nation. Let me tell you of an incident that was repeated to me in 1916 by one of the regeOts of the Bank of France illustrating the attitude of the French peasant. This banker is the mayor of a little town located in a forest district, where wood cutting and charcoal buring is an important industry. In the winter of 1915-16, .101. the Bank of France, in behalf of the /government, appealed to the peasants to deposit 41)-cla their gold in the Bank A of for France in exchange up the bank's gold reserve. The response, not notes of the bank so as to build withstanding the thrifty and rather a suspicious habits of the French peasant, waumagnificent exhibition of their courage end patriotism. lar town tti( ht421104, - Hundreds of millions were poured into the bank. A In this particu- the mayor appointed a day when the town crier would assemble the villagers in his office; when he would explain the plan and receive the gold and issue the notes, bringing with him clerks from the Bank of France for the purpose. As soon as the announcement was made, some of the women of the village privately wiallfte..111M.0 ?Th11.1. FAvised him that his plan would not wotk. The women of the_f1 are the family KuYeRePVAA,;-//D treasurers; .4-14y they did not want their husbands to know how much ofdeeke--f-eati+yeegeieete T had beleS able to hoard and they were not willing to expose tf, their husbands -11 the extent of their thrift. Privately some of the men of the village told the they did mayor that the plan would not work; pe*M4ly 5-717 they had been withholding a little villagers orranged that he would receive the no record of with a little chamois bag in Napolean. order He full of one by one, have no one present, keep required burner came gold coins thet dated back to the into his office date of the the mayor to.aesure him that France needed the gold to beet the Germans, and, with that out of earnings, so it was finally One old charcoal which appeared to be the accumulation almost of their the transactions and simply issue the notes in exchange for the gold ae rapidly as it was left with him. first not want the wife to know that of a assurance, he left 441re hundred years,o-fwslieg. the door, he returned to the mayor and asked if 4,500 francs, When he was eeeeeee..e.eeee* more gold would be needed later and when the mayor stated that France needed it all, he said, "I'll be back later for I have some more." In this little village of 300 inhabitants anomimalliNalle.a.ormal.E111.1112XIIMPOI in three weeks 273,000 francs in gold were turned over to the Bank We can not witness is deposited in banks; money is spent by drawing checks. e0( many men adOwdmen, take the trouble to keep I rather gold is Thiii-e checks are easy How many women, in fact how accounts and have a budget! Americans of means are willing to impose upon themselves a expenditure. France. such scenes in this country; to spend as long as the -bit.rik book is metehaueted. of fixed How many amount of monthly feel that the methods which should apply to a business -12organization, end which should apply to a Government, are equally, applicable to an individual, End the best suggestion that I can make to the members of thie club is that they keep books, keep track of what they spend and measure their spenditures according to a proportion of their income, conscientiously observing the rule the everything they can avoid spending should be divided between those necessary contributions to the work of war relief, to their normal charities, and PraAfact all of the rest be invested in Government bonds. The investment in Government t. bonds is not r money transaction so much as it is a contribution af labor and a contribution of materiels, clothing, food and supplies to our armies. hibmitw tert.t4. I have emphasized the importance, end not unduly, of speed - What does it mean, not alone to us, but to England, Belgium, France, Italy and to those neutral nations who still suffer the menace of this war. I don't think that any imagination ie capable of picturing the full strain of anxiety with which those people are waiting for us to come and help. It seems to be a fact that the *446 fr.frWirA4 4.4464444.11.apoareitertsymitiogrehar4ire problem picaree-r.-4-i-Et-em-t-t-e-&-pet.e. ships. 14% stricken people of Eurore ore waiting for our ship to arrive. can not possible express .better than in Longfellow's words: These -13 And some day that ship is coming home. It must not bear a defeated army. If wele: cA tricf, t,k) al.U) make this war4sek)our own personal obligation, the day will come when we will be I\ standing on the New York waterfront, watching for 7her return with straining eyes and throbbing hearts, bringing home our boys victorious. EF1.1011 or tb. PreVidencel ir ,,,,,ce liy It is a pleasure and an honor to be invited to address the members of this club wish it were possible for me to stir you with an appeal to your patriotism at this 711...,11/ time when every heart is filled with is growing under the impulse alaclgti, when the tension of the nation this frightful battle in which it seems quite likely that the sons, husbands and brothers of the women of the nation will be engaged. mI._a2k_ss000._R__ps to appeal to the members of this club to buy Liberty bonds. That duty has been entrusted to an organization of the women of this city, which includes many of your members. It does, however, seem necessary in connection with the Government's financing from now on to discuss frankly with the people of this country the reesons which have led to the adoption of certain policies and what they mean. Ever addresE bearing directly or indirectly upon the Government's financial operations should be preceded by a statement of what is involved for us in this war. Ifizciciifficu3.t.y. in expressing this as concisely as I wish it were possible to express it. It may not be inaccurate to say that the Anglo Saxon idea of government is at stake. When the war broke out, circumstances led us to believe that Serbian independence was at stake, that the life of Belgium was at stake, that the integrity of treaties was at stake. We have been told that the direct cause of the war was an assination, or the refusal of the Czar of Russia to withhold an order of mobilization. WhatevolLz2y have been the immediate circumstances surrounding the outbreak of the war, whatever hand may have been guilty of striking the spark that started this horrible confligration, the issues of the war have now clearly developed and centre around one question, and that question involves the national life of the great nations of Europe and of our own that we love so dearly. Your forefathers and mine, many of them, came to this country two hundred years ago 2 or more determined to establish in this land a system of government which would perfect and perpetuate the Anglo Saxon idea of government, to which I have referred, and under which government they hoped that they and their decendents would live in contentment and security. Since the Declaration of Independence was written and our constitution was adopted, D*61,01, we have, in fact, been perfecting a system of government which, with all 09zekl,yyv its defects, has made this country a place of refuge and a prosperous and 16-4-6a. happy home for millions of people who have come here from abroad, convinced VI/ that the Anglo Saxon idea was right. uring the last hundred years, and particularly during the last half of those hundred years, a very different idea of government has been gradually built up in Germany under the inspiration of the decendents of those feudal barons of central Europe who have always placed might before right. We now know that it was inevitable that the conflict of these two ideas of government would some day break out. The calamity is now upon us. alLelLimtemake the consequences of the outcome one way or the other, and, facing - this question honestly and fairly, it is for us to determine as individuals what sacrifices we are willing to make in order to insure winning the war. We must win this war or be content to see our Declaration of Independence and our Constitution along side of the treaty of Belgium neutrality, in the waste basket. And apeaking of sacrifices, two years ego I was in Paris when the battle of Verdun was in its most critical stage. Some French friends took me to the cathedral on top of Mont Martre. That building, you will recall, was aEllaw.. paid for by soux collected from the French pesents. Almost every stone was purchased by some poor family or some poor person and has the name of the purchaser cut into it. On this particular sunday the church Was crowded le- with kneeling women, dressed in black, burning candles at little altars a silent picture. required to sacrifice and suffering such as we have not yet been 4016011114 It was on such a. scene, in some unknown French cathedral, on last Palm Sunday that a 9 inch5Kman shell exploded. I am here to tell you what p.ax=t-i.44al-etr- part the women of the,aomparbyT may take, particular- ly in working out our financial problems, in order to send armies to France Ac/e to attack theVerman monster who perpetrated that crime, who calls himself emperor, and claims partnership with God, and whose power must be destroyed forever off the face of the earth. There are three ways by which we may lose the war, -i-re-4twaa-erf-artri-tir women is essential41 he cooperation of ' One is by direct military defeat. is by failure to promptly produce the material resources required for the conduct of the war,taimr- 66-01 Tha-4444rd is by loss of the moral backing of the people. It is the mothers and wives of soldiers who, in large part, create public opinion in regard to war. If their attitude of mind is ri,ht, in general the mind of the nation will be right, and, were it left to me, I would take steps to insure that every woman in the country (who has the time to snare and the strength to devote) should be promptly engaged in some war work, no matter how small. Participation in this great effort makes public opinion. But IEl_RnImplaa, finally, to reach the subject of my address -- "Can we spend money as usual and still win the war." Because this matter of expenditure of money is the crux, the very heart, of the entire financial and economic problem of the nation and because every woman in the United States who understands the importance of controlling expenditures can become a war worker, no matter what her other occupation may be. -4 nil_dia_sullect, and one which has many phases of unpopularity, necessitates reference to the perplexing problem of what constitutes a nation's wealth. You have heard discussions and read papers on this subject which may have led you to believe that no one knows what the wealth of a nation is. It is safe to answer that no one knows accurately the amount of the wealth of a nation, but we do know what it is that constitutes the wealth of a nation, although we may not be able to measure its amount. I refer to this because our Government has now borrowed $ 2.-Siboo,000, and it has amoOPPety been currently understood that the saving power of this nation prior to the war was roughly $6,000,000,000. It would appear, therefore, that we are making loans to our Government for war purposes in excess of what we are saving. n order to understand this m, we must not discuss the nation's savings or its wealth in terms of dollars, but rather in terms of production of goods and the services of labor. It has been our habit to refer to the almost limitless natural resources of the United States as constituting our wealth. Natural resources, that is to say, great measures of unmined coal, oil fields of vast 01.49 extent, virgin forests, fertile soil, these things(immumpt)aione constitute the wealth of a nation. If that were so, this country was vastly wealthier four hundred years ago, before its settlement, then at present because we have consumed in the meantime so much of these resources. A couple of million Indians, before this country was discovered, would have been the wealthiest people in the world were wealth simply the natural resources of the nation, but thousands of these redskins died of starvation every winter succeeding a bad crop. Neither is population alone the wealth of a nation. Were that so, China, Russia and India would be memiailywmore wealthy than this country. -5- The wealth of a nation is what it produces by the energy of its people applied to convert its natural resources into useful and productive things. Therefor, when war arises and it becomes necessary for a nation to withdraw a great pert of its productive labor from farms, factories, mines and forests and send them out as armies, engaged not in producing anything, but in destroying materials, the conclusion is inevitable, that the wealth of the nation is being reduced by the reduction of its productive capacity and the destruction of part of what it does produce. It is, therefore, apparent that if the nation continues to consume what it normally requires in peace time, and, in addition and not withstanding the reduction in available labor, must produce a vast amount of war materiels, somewhere there will be a failure - there will not be enough labor and there will not be enough factories to produce all those things required in time of peace plus the additional requirements of war. This may be shown in various ways. If the annual production or turnover of goods 07iIke *0, 6 Oaf oo of our nation can be estimated as valued at $50,000,000,000, the appropria- tion bills now passed by Congress contemplate a further consumption in velue of labor and materials of $23,000,000,000 for war purposes. To furnish that we must speed up our production from the estimated value of $50,000,000,000 or $60,.000,000,000 to a total of $75,000,000,000 or % $80,000,000,000. And I am frank to say that such an increase in production is not possible. Of the $23,000,000,000 now appropriated by Congress, only about $9,000,000,000 has so far been used this year, over one-half being advances to our allies, and, in round figures, $4,500,000,000 has been expended for our own equipment. Nearly 2,000,000 men have already been withdrawn from productive occupations. If those who are left, even with the addition of the labor of women, could be mobilized for the most effective effort possible in order to make this $23,000,000,000 -6- of increased production, and it required, say, two years of intensive training to do so, the result would be disaster. In the first place, it would not be produced in time to win the war if we relied upon industries and labor overtaxed with the effort of maintaining peace production at normal, notwithstanding the loss of men from employment. In the second plEce, it would involve such an elevation in the price lev expansion of bank loans, such an inflation of the currency, as would leave us, even after a successful war, economically and financially prostrated. Heretofore, discussions of this question of economy have been dealt with very largely by references to the expenditures of individuals in such a way as I fear has not made clear that this problem is not alone one of raising money, but is really the major problem of winning the war. We muct furnish, not ultimately, not after two years, but at once, every ounce of service by labor, every item of goods produced by labor, for the uses of our men and of the armies of the allies in France. Too great emphasis can not be laid upon the fact that this is not alone a financial problem. It is not alone an economic problem. It is, in fact, fundamentally military strategy. Let me further illustrate this by presenting the same matter in a different way. In time of peace all of the working energy of the population of the nation is directed to producing what is required for consumption, mad, beyond that, to enlarging the agencies of production so as to take care of the consumption of an increasing population and to increase the comforts end standards of living progressively in the future, over those of the past. Roughly, those goods which we nroduce for export, and are not consumed in this country, are offset by the consumption of goods which are imported in exchange, so that it may generally be stated that the labor of the country is entirely occupied during normal working hours with producing simply what is required 7 Zir/Irel to meet the nation's consumption demands, C et/4'V- VY14411,4- GnmouLt Our Congress, by appropriation bills, has requisitioned from the labor and from the means of production of the country no less than $23,000,000,000 of services and goods for war purposes for ourselves and for our allies. Viewing the problem, therefore, from the standpoint of time of production, rather than amount of production, how long will it take to expend these $23,000,000,000 in equipping our armies? The amount of time required to produce these materials will be almost absolutely con- trolled by the willingness of our people to discontinue demands upon labor and factories and farms for the production of things which they have been in the habit of consuming in times of peace, but which they can get along without now that we are at war. If we are not willing to surrender any of the things that we have been in the habit of thinking we needed, to that extent the speed with which the program of arming the nation can proceed will be retarded. IfilrelustartlyEncl.grudgingy delay the curtailment of our expenditures, to that extent we are delaying the war program. In view of what is now taking place in France; in view of the telegram from Lloyd George, which Lord Reading read at the Lotos Club, who can deny that s eed in training and equipping soldiers by this country may, in fact, be the determining factor in the coutcome of the war. Ladies, I would not assume to suggest or imply that the women of this country would hesitate to deny themselves anything that was required and which they know would contribute to victory. That is not really the question that I am here to discuss. I simply want to_point out how vital it is that this matter be understood, understood at once, and be assumed as a personal war obligation by every woman in the country. Some con contribute more than others; how much, must be determined by each, not only as a matter of patriotism, but as a matter of conscience and as their contribution to the security of their own sons and husbands. The degree to which economies are practiced can only be suggested by illustration and I shall assume to point out only one or two examples, which may be considered to be extreme cases; where the need for economy will be undisputed. A greenhouse which requires the services of a number of men and consumes some hundreds of tons of coal in winter in order to produce flowers and fvuit and vegetables out of season, in my opinion, constitutes a direct withholding of supplies and labor required for the prosecution of the war. There are fathers and mothers in this country who have cheerfully, in fact gladly, dedicated the lives of their sons to the defense of their country and who, without knowing it, are withholding from their own sons services of labor and supplies of materials which it may be will cost them their lives if our armies are not equipped and on the ground in time. Another illustration would be the construction of new clubs, of new homes, of improvements to buildings and grounds which are just as unneceveary as are the greenhouses that I refer to and which, when the aggregate is taken, will be just as disastrous to our war program as blowing up munitions factories and sinking ships boded with shells and guns. We have been, I regret' to say, a rather thoughtless and extravagant people in the way we spend our incomes. Since the Civil War, our industrial and transportation developments have been at such a rapid pace, we have been living in a land of such bounty, spending its resources with such a lavish hand, that we have given no thought to those habits which have been imposed upon the people of Europe under the menace of the war cloud, which never seems to clear from the skies over there. Taxes and war burdens in urope have been carried there in time of peace. These habits are hard to char; they are, in normal times, simply wasteful extravagances which retard the industrial development and possibly undermine the low the issue price. This would not occur, certainly not to the extent to which it has occurred, if subscribers to the bonds took FIRM INTENTION them with the firm intention of holding them, even though the ECONOMIES HURT economies necessary to do so were severe enough to hurt. Inaoricual, we think subscribers should be encouraged to borrow where it is not the intention of the subscriber to promptly dispose of his bonds and where he has the means to repay the loan in a reasonable period. FARMERS You have Legu_entfreard the statement made that the farmers of the country have not generaily subscribed to the GovernUNPATRIOTIC BAD CITIZENS ment loans; that they are unpatriotic; and that in various ways they are bad citizens. I do not believe that they are unpatriotic, neither do I believe that they are bad citizens, nor is it a very good way to sell bonds to abuse the prospective buyer. Our diffi- ORGANIZE ,culty in the Past has been to so organize that the farmers could be PERSONALLY REACHED personally reached and through agencies in which they have confidence. AGENCIES Our plans have now been arranged to take the farmers into our organization. The Farm Bureaus, Granges, and the Dairymen's Organizations are cooperating with us and we hope, by encouraging them to keep SEPARATE RECORDS separate records of the amounts subscribed by the farmers of this district, that.they will completely emancipate themselves from any of the charges which you have heard. PERSONAL SOLICITATION Too much emphaaa can not be laid upon the advantage of ADVANTAGE personal solicitation. Prospective subscribers should be approached, if possible, with some knowledge of what amount they should subscribe. MAPS MAPS To assist in this work throughout the district, maps are being prepared and furnished which will enable the local committees to deal with every resident of their respective territories. -10- C0 # a old charcoal burner came into his office with a little chamois bag full of gold coins that dated back to the time of the first Napolean. He required the mayor to assure him that France needed the gold in order to beat the germane, and, with that assurance, he left 4,500 francs, which appeared to be the family accumulation of a hundred years. When he was almost out of the door, he returned to the mayor and asked if more gold would be needed later and when the mayor stated that France needed it all, he said "I'll be back later for I have some more." In this little villace of 300 inhabitants, in three weeks 273,000 francs in gold were turned over to the Bank of France. gold is not hoarded, it is deposited We can not witness such scenes in this country; in banks; money is spent by drawing checks. &AGO ate-61S-4.. These checks are easy to spend as long as 44/11e4e.e4-40epie is not exhausted. lipajayta, in fact, how many men or women take the trouble to keep accounts and have a budget? How many Americans of means are willing to impose upon themselves a fixed amount of monthly expenditure? I rather feel that the methods which should apply to a business organization, and which should apply to a Government, are equally applicable to an individual, and the best suggestion that I can make to the members of this club is that they keep books, keep track of what they spend and measure their expenditures according to a proportion of their income, conscientiously observing the rule that everything they can avoid spending should be divided between those necessary contributions to the work of war relief, to their normal charities, and all possible of the rest be invested in Government bonds. The investment in Government bonds is not a money transaction, so much as it is a con- tribution of labor and a contribution of materials, clothing, food and supplj to our armies. embership plan) Ilmeen2h441132d the importance, and not unduly, of speed - What does it mean, not alone to us, but to England, Belgium, France, Italy and to those neutral nations who still suffer the menace of this war? No effort of the imaziatala is capable of picturing the full strain of anxiety with which those people are waiting for LIB to come and help. It seems to be a fact that the immediate problem is ships. Europe arewLtg better t for our ship to arrive. Their anxiety I can not possibly in Longfellow's words: And some day that ship is coming home. It mustnot - bear a defeated army. _ If we each make this war our own personal obligation, and discharge it at once, thc day will Come when we will be standing on the New York waterfront, watching for her return with straining eyes and throbbing hearn4 bringing home our boys victorious. Tho FEDERAL RESERVE BANK OF NEW YORK MISC. 3B.2-4/67 OFFICE CORRESPONDENCE DAT To /1 SUBJECT: FROM d1/4,-- ei 1 LIBERTY LOAN MEETING a CARNEGIE HALL THURSDAY EVENING APRIL 1918 AT 8.15 P.M. SPEAKERS THE MOST REVEREND COSMO GORDON LANG, D. D. The Lord Archbishop of York Primate of England MRS. AUGUST BELMONT GEORGE WHARTON PEPPER, Esq GOVERNOR BENJ. STRONG, Presiding IrentaintrivIIMMtrislWanfoltritillniltriwINAIMMIKAItistlracintil Minn triAlMrintantrentrallYinad n PROGRAM I. SELECTIONS - - a 15th Coast Artillery Fort Hamilton Band THE STAR SPANGLED BANNER Choir of the Cathedral of St. John the Divine Oh, say, can you see, by the dawn's early light, What so proudly we hailed at the twilight's last gleaming, Whose broad stripes and bright stars, thro' the perilous fight, O'er the ramparts we watched, were so gallantly streaming? And the rockets' red glare, the bombs bursting in air, Gave proof thro' the night that our flag was still there. Oh, say does that star-spangled banner yet wave O'er the land of the free and the home of the brave ? ADDRESS The Lord Archbishop of ONWARD, CHRISTIAN SOLDIERS Onward, Christian Soldiers, Marching as to war, With the cross of Jesus Going on before! Christ the royal Master Leads against the foe ; Forward into battle, See, His banners go. Crowns and thrones may perish ; Kingdoms rise and wane, But the church of Jesus, Constant will remain ; Gates of hell can never 'Gainst that Church prevail ; We have Christ's own promise, And that cannot fail. Chorus Onward, Christian Soldiers, Marching as to war, With the cross of Jesus Going on before. York t PROGRAM a At the sign of triumph Satan's host doth flee ; On, then, Christian Soldiers, On to victory! Hell's foundations quiver At the shout of praise; Brothers, lift your voices, Loud your anthems raise! Onward, etc. 5. a Onward, then, ye people! Join our happy throng! Blend with ours your voices In the triumph song. Glory, laud, and honor, Unto Christ the King; This through countless ages Men and angels sing. Onward, etc. ADDRESS Mrs. August Belmont 6. HYMN BEFORE ACTION} LIBERTY ANTHEM ADDRESS - - Four Minute Song Men George Wharton Pepper AMERICA My country, 'tis of thee, Sweet land of liberty, Let music swell the breeze, And ring from all the trees Sweet freedom's song; Let mortal tongues awake, Let all that breathe partake; Let rocks their silence break, The sound prolong. Of thee I sing; Land where my fathers died; Land of the pilgrim's pride; From ev'ry mountain side Let freedom ring. My native country, thee, Land of the noble free, Thy name I love ; I love thy rocks and rills, Thy woods and templed hills ; My heart with rapture thrills, Like that above. BENEDICTION - Our fathers' God! to Thee, Author of Liberty, To Thee we sing; Long may our land be bright With freedom's holy light ; Protect us by Thy might, Great God, our King. - The Rt. Rev. William Lawrence, D. D. Bishop of Massachusetts BUY LIB TY BUDS Ladies and Gentlemen: I have a message to read to this meeting, addressed to-Secretary McAdoo by the Commander of the American Forces in France, General Pershing: His message reads: "Every dollar subscribed to the Liberty Loan is a dollar invested in American Manhood. "Every dollar subscribed as the result of selfdenial means partnership in the hardships and risks of our men in the trenches. Every dollar subscribed will confirm the determination of our people at home to stand by its An overwhelming subscription army to a victorious end. tn the Third Liberty Loan will be a patriotic expression of confidence in our ability as a nation to maintain all that we hold dear in civilization." Those men are in France to perform their duty as soldiers of the United States, which is to beat Germany to her knees, and they will do it. And when the task is thoroughly done they will have performed certain other services for their country. One of them is to repay our share of the debt which civilization owes to the gallant nation that hell the gate - Belgium. And another is to repay our sacred debt to France. (I need remind you of the nature of this debt only by mentioning the names of Rochembeau and Lafayette.) And that will have performed another service for their country - They will have helped repay the debt which the civilized world owes to the British Empire; for we must not forget thote days when most of us in New York believed that our security from German attach depended upon the British fleet. That debt our soldiers will also help to repay. At no time in our history, either before or since we gained our independence, have the bonds been so close between the United States and England. Comradship in battle and those hallowed graves in France, shared by the heroes of England, France and the United States are ties that will never be forgotten. No one has made it more clear to the world that the war is being waged for a moral cause than has the President of the United States, Woodrow Wilson. It is therefore aparopriate thet we should have as our guest one who in his -2- person represents the spiritual and moral life of England. 721,69,0aft 4W'e-enLc frekm, During elierh; his too short visit irl..44111,00,43,0151005% all who have heard him have gained from his words confidence, courage and inspiration. I have the honor to introduce to you His of England. Grace the Lord Archbishop of York, Primate .ienthehietorofAnericeLsarticination_a_,_ in this war comes to be written, there will be proud chapters in which will be chronicled the noble work of the woman of the country. Ancii.nno.Aturtrnentofthatwork. has it been any more magnificent than in the aid which they have given to the bankere in pla i g the Government's loan . &au kakati41 tiwitttotpr Mrs. Belmont has just returned from Salo wee *here she waa:aalled in connecti n i h Irt". important Red Cross work. -AL:614,1. She gave usgenerous assistance in thei!aloan and has canceled other engagements in order to address this meeting. wiilinçnose and to share the burdens of Red Cross work with those of the Government loans is typical of the determination of American women to do their utmost in winning the war. LhEmegaai_pleasure in introducing Mrs. August Belmont. ,.-ne task of conducting these great financial operations for the Government has been 4OV made light, and indeed an agreeable duty, because of the generous aid which ha l come without asking. This is the third time that we have called upon Philadelphia to lend us the speaker who is now to address this meeting and the cordial welcome of which he is always assured in New York has been more than earned by his generous response. I have the honor to introduce Geaszetahaston Pepper. MISC. FEDERAL RESERVE BANK OF NEW YORK 4/67 3B.2-4/67 OFFICE CORRESPONDENCE DATE To FROM SUBJECT. /4-e d 1<.(' I. vt,- MORE LIBERTY BONDS, OR MORE INCOME? BY IC3Ft,..` STRONG kkAl Titazundour teilli thousands of kiericans epp re 6.3 puzzled do .line how many Liberty bonds they should buy. ;--------- 60t-1,-;011' ro nefirl-rete rules by which Olio inay ac- curately decide his duty in this matter. That decision must be made by 1TK:4 socipeh' individual according to his ability, his personal needs, and his But some light may be thrown on the subject by present- patriotic impulses. ing various aspects of the question which may not have occurred to the / reader. The 444ee4ion certainly involves perplexities wilir.11-44eay----vaa...are e - 2,44.u.rity markets -0overnment- .ion)----Needleas-totiEf't he find difficallt-y-irk-fseiving---t-o-tl'iaiFicirrislitti. fl 'inçi al of-ficars- .our .Government-ttrert' A'rotteriiiTh front,..0-tte- -clitterant-istandpoitt ,; h like perpleXitieS, individual is considering his own comforts, or, possibly, what he believes to is necessities. Eff- ecretary of the Treasury, is charged with the duty of borrowing a large part of the money required for the prosecution of the war but voira,, at the same time must so.- shape his 40,0 plant', i -the-11144;445-1.11,P06,34.---1Y-C "ac-ezia-szy-611. that count business -94-4414- proceed and even be ex- tended 144.141etre-terilt-treenpave../..,f4,a,-,16,4k,--44--crIM1. raised? But the money must be The rinanciai officers of our GovernmeEi-------difficult situatioi which they do not control endwieille4r.ontier *sivr7 have power to influence t slight extent. Expenditures are mapped out by the various departments of the Government, the largest now being by the war an navy departments; they are submitted to 'Congress and ap- propriation bil1 result, which authorize the expenditure of the various amounts demanded bSr the departments, as finally approved by Congress. At no point have the Treasury Officials any legal standing to control, and they can but slightly influence, the amounts of these expenditures, outside of those relating to the administration of their own department. The Treasury, therefore, is called upon to raise money, the amount of which it has no voice .1 determining, and the expenditure of which it has no means of evm4r.o.I.Li.ei,ft,,k, Its policy must be te,we,rilld, under themt...04ftic procedure which our Government ti-v-03,Amy 4$!'° follows, by very simple rules. Sound financing o4-411a..Zamaanaisam4'equi as large a proportion of war expenditures as possible be raised by taxation, but not so large an amount as to impair business enterprise, and particularly those enterprises which must be developed to high speed in order to produce goods required for war purposes. If, therefore, thee Treasury is provided by Congress with a given proportion, say,one-thirdof the expected Government outlay from taxation, whatever else is Spent must be raised by the Secretary of the Treasury through various forms of borrowing authorized by Congress at his requect. i Right here the attitude of the people of the country, even .4." itmore than the decisions of Treasury fficials, controls developments in future years which will be of vast importance to our welfare. If we are able to to pursue a policy of gradually increased taxation as industries are able to bear it, but never raising taxes to the point where essential business is injured, and if we can raise the balance of our war expenditures from voluntary subscriptions to bonds and the bonds are paid for out of savings, the country's financial condi0.14atter the war is over will be substantially unimpaired, 6,f4L, a certainly vastly better then that of some other belligerents. On the made, made, other hand, if thee voluntary subscriptions ere not, one for a moment wou_d assume that on that account we mutt stop fighting. The warmustte won and the funds must be raised to win it, even if bond issues fail. no FJ The failure of a bond issue simply meanefthat other methods must be employed, possibly methods less sound in.principle and certainly less palatable in application than those , 14,aiwrire,"11.10.1".. pursued. The choice of methods can not be said to rest any more upon Government O(fficials than 11,,44.4 ii upon the dziaion 114..w.4,e444R..d,a, Na,...patvrern --dITIIT/747re'Ver nis means, who can afford 11- upon to make large advances to the governip-ents which are allied against egorawyryirtternt5-Int-it-, prokagt.04, GOVUPWWn ' ,444.710.*9_49,relrtitrnitir.6, 0 rittar'IrenTrenTrttirTerforteirtrmli-ey-...f-.4444kapAr.444-,r y 54=w, rience disclosed at e mapped sult-4 -40 what rate war materi al s coln/ftryrnkreo4-,,iduk_144.aai- be actually spent. X S 4,41,u_ t . A .-14.14-r-ftsiTttettaL14, 444.,i4u nm e nt Is and our own e/ra-nlittrtes y the army and navy departments, have TirefhT11151-&-- etial'e----s*..., cert ainty how 1"trztfrel`. mu-c7177111-17r-dttlaUrrel-MrrErv'erT5MIttr-fr.bet,r-tlae-aklwa,,r4=44,14,s f in-anotrtrltitrr'reTrMl5Tr7rT?r7t*.n--wit4.-&k..-p..v.A-t-r-j-trdg'rrwtrt-eVrf'etft.rt'rtu-- 3 and that it j,e penditures will shortly amount to $2,000,000,000 a month, oweirrrIM'an'rrfiBtrtitrzr-tor,-.1,.444,24.401,-fltinregree.. /ror/ Assuming that ex- ...0' will produce a total of, say, possible for Congress to levy taxes $3,000,000,000 for this fiscal year, there will still remain $15,000,000,000 to be raised by borrowing. The success of these borrowing operations will depend primarily upon the extent to which our people are willing to economize and then upon the extent to which they are willing 'o. turn over the fruits of their economies to the Government. 14Q0,--.1---,,(1-eci income is generally repre,-. sented in this country by unused balances in the bank. Tlk&-krrervrrorr.dc- n23,ix4li.aA*.4Ai...ak,,,,ttaiaoaoiAois; The re f o re, sue cetssful borrowing by the Treasury will depend upon the amount of those idle bank balances and upon whether their owners will be willing to exchange them for Government bonds. CI; The bonds recently issued by the Government, known as the Third Li y Loan, bear interest at 4 1-4 d were offered at par. It was ,1 1-...Lexa.f.a;;;,e9,ffquite natural that anyone having idle funds in bank should ask him- .11 1 self the question, - Is it my duty to buy a 4 1 (Mt Government bond at par when 1 pay me a return of I can buy other good bonds and stocks ekiese -jor 3fry or even mor Ea 5:4-Inmeelie,,e,eeetAleelegel,k§_wi,41,age in ,422.441-ei4z, bet we en hi 7 duty teeeieipee-Geeeeesreetseetteere-ee_E-ereteekereiere4;te-ewerree,fe,-e,Zeteeiseea.at.i f".-trettireitteefirleretreetens-1-wreeepieieleesee*-44eeeere-ealeie4eee-escrive ' eee4elleeleseelpiegeolette d 'wtesereeeeeeerefeieerte-t4TereAettrr-lrfeeee}teee-fektersveeiee-is4.4uae-lzeY, Fj--"TralMTIT-'111(6'.-VIrnirriTiVir" f-etti inve sto r5 or IPossibly the first point to consid 4.11 choosing between a sbsic aerie" tion to Liberty bonds °et the purchase of other lionds or stocks 4.1.14--effesellie higher return( is whether an investment in some other security may aid or hinder the Government in the prosecution of the war. There is no choice 44_4 .4,,,,44v4 whatever between investing in the'tar bonds of the Government terin new leeuee, of securities made by enterprises *0400 /Orr4 engaged in operations ekei-cl -eeee of no assistance to our leer activities. 0 di when tha't in4 64. neeeelege-weee.laele..4.eaecereureatiao se s hat question has already been answered by our Government for every investor. Capital Issues Cotmittees have been appointed, qf Ger. r4 r, determine whether it is a= i.e.-4;44 in the public interent, to allow Rn y given issue of new sedurities to be offered to the public hieueele.aiekeerekee+eyerear-drTrMrairertised feel \ itrkotsgtrrittfrrWir"Mr-draliroTiirrMarl"tirtri.rutta,44- Nakr-1.11.t. L 2e Ere , howATrr!'", -67-rie-1;76-77 c1.r.g..zxhaazt;L_)o.y--f000004i-ei-icPg...e4tKrtz:-te-Lug.z44.s,a--Ihe,ir-zavirqf,a-Liao4-4it _tine yao,zanalot-aa-s40--- --ttiesi.lrri-fil4-443eerifirgt_44_,4,4dritianal-trittrsTe- inz91y4,4,,tLr44g,14,,t'.-ka,--Ayrtrrrlirrrlrfr-isen.tnr-=rrt4tSr'tlrctfr'at-er----i.r....,.. szi.tatkr,A.4.9,444,1,rait'ett'ffrr cer_a.,61,y,_ ..41itur,offee4-----.144,17: 01k-A-Tr.tretorirr'- But this does .ot answer the investor' s questio:G as to whether he may not purchase some existint- recurity which pays a higher return than Liberty bonds. example may bel...**641.14.. illustrate the state of mind of an investor who must contider his own personal necessities. He may be a poor man who has been dependent upon a small salary or a small income from a nest r egg of investments accumulated after long yearso 'T J !mall part of this in_COIT1C, or, possibly, some of his s rate of interest may have been repaid at maturity. he may hav-e sayecl e *e.3,4i.ag a high 014.0..4.44,16 A.,. He :6*...c.a.e.amaa.s...... it costs him more to live than it did before the war., Must he make the sacrifice involved in accepting 4 1-4%! interest instead of a higher rate, possibly even 6/or have been receiving until his old investments were repaid? /which he may Thie i ne of those doubtful cases where each man must decide according to his present needs er, - If economies can be practiced which will not interfere with the maintenance of his health, or that of his family, or with the education of his children, or with continued efficiency in his work, he is justified, and, possibly, required as a matter of duty to ,,,1,4;617oa port. arger income in order that his Government may have his By this sacrifice he assumes his share of the burden of the war. 4 is sua... On the other hand, if it really involves impairment of health, or efficiency, or the loss of education for his childrot warranted in making investments of a character that will pay a higher return el ". () ..,`"r"""trrt"1"1711%*1 Eia 01 UP 2 , sttrrtraierirt+rerr, But, in selecting an investment which pays a higher return, it is desirable, if passible, to pick out some nowligtue and, of course, a sound security, Lr-1:;17wituidaks, ,;;;;;;A4m4mie.Gwapproval of the Capital Issues Committeest 44.14,4k,roGiAgarpitireettetteirerlIg 'this is a fair statement of the position of a man with an.income of say, twenty-four hundred dollars a .4.ear,,who,is able to save two hundred dollarsA it is hundred from the Government. 'sti-ia hard to justify withholding his savings Two hundred dollars invested at 4 1 4. producee $8.50 a year and at 7 1-2)l5.00 a year. 15.00 He for/goes an additional income of 6.50 per annum, which even the poorest man can afford, and it must not be frQ overlooked that the income from his new investment is free of any taxes what= ever. This may seem an insignificent contribution to the Government's war effort, but 10,000,000 people Making an investment of this size can furnish the Government with $2,000,000,000, which is one-third of the probable amount of the Fourth Liberty. Loan. cp A-44.14ad class of investors, now a much larger one than in realized, comprises those patriotic men and women who have abandoned business or professional occupa ns to enter the army or navy or Red Cross, or other branches o; the service, oe oy XL. analpetTc44re-fry=roz-0, these men and women I-45)hae dependent children ta tat us take as an illustration a successful young lawyer who has built up a practice which has been paying him he has accumulated, say, $10,000 by economy and saving; $10,000 a year; has a wife and children. he In surrendering his practice to enter the Govern- ment's service, his income may be reduced to a salary of $2,000 a year or less. His income from his securities may bring this up to $2,700 a year. In winding up his practice hacollects outstanding bills from his clients totaling $10,000 and must decide whether to spend this money in maintaining his former standard of living or invest it in some security paying a high return mitigate or to buy Liberty bonds. A man of strong character, with a family loyal to the purpose for which he has rrio sacrifice74his .61141 practice, may be able to readjust his plan of living to an in- come of $2,700 a year, plus the $425tadditional income from the Liberty bonds that he buys, and still be pertrr44.14 happy and comfortable and feel that he is doing his duty both to his family and to his Government. On the other hand, he may be tempted to believe that in order to educate,children who are at school and college, and to maintain his own health and efficiency, it is necessary to obtain a larger income than is possible by the investment in Government bonds. There it certainly no reason why that man should be condemned -LI"( .---,.....,...o.,...,...,-., 4,41,14,04....,bis her,:1-Slt.r.4,,tieclining to make the additional sacrifice of income involved in the purchase of a 4 1-4% Government bond. \ sacrifice af,....g.r.4144-47,,u4f.a. amt he has already made a and while the nation can well afford to insure his efficiency by permitting him to obtain the largest income possible from an investment in some security issued by a corporation which is engaged in war work, the chances are that one who makes such sacrifices as this can be relied upon to make the small additional sacrifice of income involved in purchasing the war bonds of 4is Government. , type til..aamoo is the man of large income who spends but -6- 0 N a fraction of it and has large amounts to invest every year. T,1114-44voin dridoold have little difficulty in his decision 4 if it*a.i.m.engaged in some business directly promoting the prosecution of the war,.. seri 1 --f-tri° '-sev4str he should not, WS 8,e, of course, hamper the efficiency of his business by withholding from it the capital which possibly har-alonu_can furnish (This applies to the manufacturer of war materials particularly. On the other hand, if he is a retired capitalist, with an in- come beyond his needs, it im,unquestionably his duty to the nation to invest O every dollar of the surplus voi e.-tte.44iiiaWaWoes in -Woo bonds of the Govern- ment, beyond, possibly, a moderate amount in new security issues bearing the stamp of approval of the Capital Issues Committee The are only a 4w ,,loialakia.44.s-vto?-o4r.41,4er of a great variety of ties of possi vestors who ffce a decision 4Peil..ies-vita to the nati ea44 o ....they , t to simply for illustrative purposes. .... T ere are, hoy ver, i itrve.4444ae ur1derlying the ,hole queeti by investors in these war (times, whic of the pur d a in- referred . princiescsq..Istike444.- .aee and say of securities mhould be c nsidered by every investor betqre he de iderelchat he shall-a&-.with his savings. ell When one buys a security in the security market, it may be that the seller, in turn, will invest the proceeds in Government bonds. On the other hand, it may be that the person selling the securities desires funds for some purpose not at all related to the war sari- ,- le bu-. the seller( as to how the letter shall epen risk of th seller's intentions? can hardly the money, can he take the Of coal- e the existe ce of where invektment securities are bought and old is a f 15 acur ility which aids GovernMent financing, .and, deprived of that facili y -7- stipulati with , market many ways the Government aould ficu1ties which would not ariee ifecurity market did not unter N1/4 An act 'e mark etr where th.11, ownerzhiP of exi 0 secN441-,-eAtilrply iz.,...... deti e / shilfted fror one person to another i.e.--e of the mean ,,ley v...!1\. .,._lich those who to b , Trovernmai'it-ieveras, end are willing to sell exi etThrriTre",1144,,..., .,,,,,,,631........ f o r.\\:t1a23gittatfe-, es. N -4Ce t h -4,--elteirit r --441.414.4-41.4-6 o so v:i t ho u t cfellr an a 0 sale ociz.velet.satilt bonds and-vetreitit44_,I;ovreiCer, ' .retr ' althoug,WThesellitwf ers,,ot-IPPocetamierite-lroil u .known extent re suD.,,,: froVA--13.G.ut.,wto-htevv ac ctIcq.ulAte-d' thezz witho0,--#7crte4,41,9;w8117,1w5I-b0711, IrtVeiftrr on the Government places a Liberty Loan, all thoee who have money to invest are brought under the influence of a great campaign of education, which is, in fact, a greet selling campaign. Those who have accumulated the bank bal- ances by selling their investments are just as subject to the influence of the campaign as those who in the first instance accumulated 04 bank balances by thrift or otherwise and later transferred them to other persons in exchange for securities. It can hardly be claimed, therefore, that the available in- vestment fund of the nation is reduced as the result of such transfers of securities. The important thing is to reach all owners of idle bank balances, however those balances may have arisen, with the Liberty Loan propaganda and induce them to buy Government bonds4 those who can not aff,ord to invest in low0 0 rate securities makle, it possible for others laiLaii4.41f,f4dia to do so by ptet.----f / c-La.m.i.41g,from them the securities they are willing to sell. To illustrate this point, if we assume that the total value of all investment securities in this country aggregataw$50,000,000,000 at the time of a Liberty Loan offering; that at the same time the total of idle bank balances in the country, aggregates $6,000,000,000; and that the Government is inviting subscriptions to t6,000,000,000 of Liberty bonds, it makes no difference in the result whether the %5,000,000,000 is turned over to the Treasury in exchange for Liberty bonds -8- t-( / by those who originally accumulated the $6,000,000,000 or by others who have acquired those bank balances by selling the portion of the $50,000,000,000 they formerly owned. of securitiesr'*g. This p o "some extent, facili- shi, t there is another aspect of the B which security markets, could be bears on this matter, highly detrimental /here influences may ar se which /Suppose s borrowing program. to the Government/ I a large number of people with idle funds belle interested in the market in a speculative end because -ay3 they believed that stocks and bonds would advance, wete led to use their surplus income as margin for the pirchase of securities which they could not fully pay for, and, in consequence,/borrowed heavily from tie banks in order to carry them.' 'Such a movement/night gain speculative hadway and result in a general advance in security priijs, particularly those oe a speculative nature. People in this country onl titeto buy securities "for a rise/ too readily develop an 1.41sx Pie f The result of such appe.m. would be atfmovement : * speculators can borrow rqre money on stocks a great increase in bank loans; / as they advance in price, and florally do; bank credit tould, as a result, 1 be absorbed and the surplus e flings of many individuals/ which might have I he . Government bonds, would pe used as margin in applied to the purchase k speculative operations whi -would serve only to clog Ihe banking machine. This would clearly be a dversion of investment funds from legitimate illegitimate purposes wh n it curity market, where ity of financial a ietence of a spec considered that may, in general, needs those funds. good thinproba ia d to thernation is at war and thai the existence of a se- nvestment securities may be r adily bought and sold, is y even an essential thing in order to prsservethe stabilairs during war time; - but +1,4i nn t,he ex- ation which attracts capital to speculative operations is - 9 - M4,37 Office Correspondence FEDERAL RESERVE BANK OF NEW YORK To Date Subject : F -m DRAFT (2) POPULAR LOANS Great satisfaction was felt when it was announced that 17,000,000 penple had purchased bonds of the Third Liberty Loan. It was truly a popular lnan'. The country rejoiced at the evidence afforded that the war had taken a real grip on the minds of the penple; to equip our armies: that funds, even beyond expectation, were available and, possibly, even more, that the nation had addressed a defiance to the Kaiser, which he could not ignore, at the same time that our own armies and those of our allies were heartened and encouraged, The expense involved in the whole operation was probably less than in any other loan of comparable proportions in financial history. The business was, in fact, done at cost, and, in some respects, less than cost, because much of the work was performed by volunteers. But there was another cause for rejoicing, which was not en superficially apperent. Popular loans, that is loans which are subscribed by all the people in prnportinn to their means, will result in future years, in avoiding an unequal dis- tribution of tax burdens which might cause complaint and, possibly, social unrest, at the very time when unity and tranquility were important for realizing the benefits of peace. There was a time in England when bitter complaint was made by the poorer people of the country that the Government was being managed in the interest of Government bond holders, or, expressed differently, that Government bond holders were running the Government for their own benefit. That complai based on a real condition caused, at least partly, by failure or inability to distribute war bonds among all classes of citizens. In order to realize the signifizalce of this statement, we must consider some most important economic aspects of warfare and of the wastage and ruin which fol _a Misc-37 Office Correspondence FEDERAL RESERVE BANK OF NEW YORK Date 10 Subject : From low in its train. 2 - People very generally believe that when the Government borrows money to pay the bills, it postpones the cost to the mation of this great war. wastage of warfare cannot be postponed one day beyond the day of its occurrence. Men's labor is 'wasted when they are serving in the army; material occurs when that material is consumed; they are sunk. The the destruetion of war the loss of ships takes place when These wastes and losses cannot be postponed to future years. The drain on the nation's resources is coincident with the period of the war and stops substantially when the war is over. The rest of the operation, which we term "financial," is in one sense bookkeeping. The borrowing of money and collecting of taxes are the methods by which the burdens of meeting the wastes and losses are distributed among the people according to their means. Future accumulations of earn- ings are used to pay off bonds, but whose earnings shall be taken, and who shall own the bonds to be repaid! When the Government borrows money to pay war bills, it says to one group of its citizens, namely those who purchase Liberty Bonds, that it will undertake at a future date to pay off those bonds, and, in the meantime. will allow interest on the debt. But, at the same time, it says to all the citizens of the country, in- eluding those who do not buy bonds, that they will be taxed in future years to pay this interest and, ultimately, to pay the principal. Bookkeeping alone will not to pay off bonds - it takes the taxes of the future: 13uttheAmust be fairly kept: The problem of war finance is to raise money during the war by bond issues, when it cannot all be raised by taxes; and, in order to pay off the bond issues after the war, taxes must still be levied and\equitably distributed so that the lender may be repaid out of revenues collected from everyone. This may be made clear by simple illustrations. If there wera one person in the country with such a large income that he purchased all of the bonds issued during the war, no doubt the tax collections required to pay off his bonds when the Misc.37 Office Correspondence FEDERAL RESERVE BANK OF NEW YORK To Subject rom Date : - 3- war was over, would still be collected from all the people of the country and not solely from him. The converse of this is equally true. If only the wage earners of the country had purchased all of the war bonds and none of them were taken by rich people, graduated income and other taxes, which apply solely to large incomes, might then be employed to pay the interest and principal of bonds which were owned only by the wage earners of the country. Neither plan would be The ideal condition would be to have every citizen who enjoyed an income or earned a salary or wages, buy just that proportion of the Government's (measured, doubtless, by his income4 which he is fairly able to buy. debt If that ideal condition could be created, the burden of taxation which was later required to pay interest and principal, being likewise equally distributed over all classes in proportion to their incomes, would bear equally upon each individual and the burden of floating the war debt and of its later repayment would have been equitably distributed among all of the people according to their means. In a word, t11(3 problem of retiring the war debt is a problem of taxation,and the equity with which our. taxes are levied depends hardly more upon the scheme by which taxes are raised than it does upon the success with which bonds are widely distributed. After our entry into the war in April, 1917, consideration was at once required as to the character of the loans to be placed by our Government. Almost without ,exception. bankers and business men, influenced, in fact one might say blinded, by tradition, felt that the only type of bond which our Government should issue was that type which our Government had usually issued, namely a tax-exempt bond. The inequity of such terms for our bond issues becomes apparent when one considers the relation which those terms beag,to equitable taxation to be later applied to the retirement of bonds when the war is over. for the payment of taxes are willing to accept bonds bearing a lower rate of interest when that interest is tax-free, than they would be willing to accept if the income To be FEDERAL RESERVE Office Correspondence BANK 0 F NEW YORK Date Subject : To - From 4-- were liable to reduction by the payment of graduated income taxes. Conseouently, the Government is obliged to pay out less money for interest on these lower rate bonds, and, in turn, is required to collect less in taxes, but the injustice is apparent should one use the first illustration above cited. Again suppose that gtei aft /KIT one individual, or even one comparatively small class of individuals possessed eta-9-140:7 /t"I auf-C141.44-±Treert taxes. purchased all of these war bonds that were exempt from A Their income, then, would be subject to no tax levy in later years, so that all the rest of the country would be taxed in order to pay to them the interest on their bonds, and, ultimately, to repay the principal. The second example cited would be equally illustrative of the injustice which might be imposed upon rich men if such tax-exempt bonds were owned by wage earners and only the rich were taxed to repay them. In fact, so far as questions of equity are concerned between dif- ferent class of individuals, it makes little difference whether the Government issues a tax-exempt bond or a taxable bond, so long as the bonds are equitably distributed among all classes, because if they are so distributed, and only if they are so distributed, will an equitable tax levy affect all classes of bond holders equally and fairly.' Misc-37 FEDERAL RESERVE Office Correspondence BANK 0 F NEW YORK To Date Subject from 5 Looking at the Government's debt in still a different way; - taxes are simply confiscation. The Government's taxing power rests upon the inherent right of Governments to confiscate. Therefore, if all citizens contributed equitably their proportion of the cost of the war, ultimately the Government, upon an ideally equitable basis,- would repay them by simply discontinuing paying them. The Government could then say to each bond holder, "Your share of the contribution to the Government's revenue required for the retirement of the Government's debt is a certain proportion of your income, and that proportion of your income is a like proportion of the interest on your Government bonds, which have been equitable distributed according to the income of each." The Government would take beck by con- fiscation what it had promised to pay out of taxes, and save a lot of bookkeeping. Mis,37 FEDERAL RESERVE Office Correspondence BANK 0 F NEW YORK To Subject Date : From - 6Of all the advantages resulting from a wide distribution of Liberty bonds, the advantage of equity is certainly as great as any other. The efforts, so far made by the Liberty Loan Organizations have been productive of results far beyond expectations and aezt continuance of equally favorable results may be expected to make practically all American citizens American bond holders. citizens are American bond holders, American citizenship will be 4,4,-mtme valued. ',MOS every citizen. It is no exaggeration to state that no such campaign of educa- 411 tion has ever been conducted in this country, nor has any gained such striking and magnificent results, as has the campaign to sell Government bonds during this war. In the city of New York, during the Third Liberty Loan, there were over 800,000 subscribers to $50.00 and $100.00 bonds, on a plan by which the subscriber was permitted to pay one or two dollars a week. in this plan is, of course, considerable. $50.n0 or $100.00 bond sold, The labor a When the cost is figured for each it may be five times as great as the cost of selling bonds in large amounts, but who can measure the value of such distribution in a cosmopolitan city like New York in percentages; or in dollars and cents? Thousands of people who responded to the Government's appeal in the Third Liberty Loan no longer simply live and make a living in the United States; they are at last citizens of the United States and certainly citizens in a truer sense than ever before in their lives, It would be better for the country to sell $3,000.000,000 of bonds to 30,000,000 people than to sell $30,000,000,000 of bonds to 3,000,000 people. FEDERAL RESERVE BANK OF NEW YORK MISC. 3B .2- 4/67 OFFICE CORRESPONDENCE To FROM SUBJECT: ) NEWS LIBERTY LOAN COMMITTEE EQUITABLE BUILDING TWENTY-FOURTH FLOOR PUBLICITY DEPARTMENT 120 BROADWAY JOHN PRICE JONES NEW YORK Assiatent Director in charge Press Bureau GOVERNOR STRONG'S LIBERTY LOAN SPEECH AT CARNEGIE HALL MORNING PAPERS WEDNESDAY, 1918. SEPTEMBER n, 4 No. 110. At the Liberty Loan meeting in Carnegie Hall last night (Tuesday) Benjamin Strong, Governor of the Second Federal Reserve District, and Chairman of the Liberty Loan Committee for this district, spoke as follows: Mr. Secretary, and Fellow Members of the Liberty Loan Army; This is the second contention of our members. It is again my duty to remind you of the size of the undertaking entrusted to us by stating, as I did at our last meeting, that hardly 2% of our members can be accommodated in this building. The magnitude of the task of financing the creation and maintenance of our military army is indicated by the size of this financial army. But the import.nce of the work must be measured by other standards! Success will be another battle won and failure will be a retreat. These are not days, however, when American Armies are retreating. 4 No. 110. -2- Our experience in handling three loans has given us a better understanding of the work; has brought about a more harmonious and effective operation; knowledge of the technic. and; in the minds of us all, a better I shall not, therefore, as at our last meeting, review in detail all of the various technical matters with which we are now so well acquainted. During the next four weeks, we are about to undertake the greatest transaction in the history of finance and it is important that certain general rules which must govern our ;;ork should be frankly discussed and understood. These have been deliberately adopted in this district after careful consideration, and, in tne Opinion of experienced men, are best designed to bring success. We believe that successful sales of bonds of tne amount required must be based upon a thorough understanding by the public of the war; of the purposes for which we are fighting; and that this loan will be successful in proportion as the patriotism of the people is stirred and aroused. Impetus must; therefore, be given to the campaign by fublicity of the highest order, designed to reach the mass of the people through every possible.avenue. It is upon this preparatory work of education that a campaign for voluntary subscriptions rests. -3- 4 No.110 The selling organization, through various agencies, must undertake to reach every individual and corporation, the methods varying according to the size and character of the community, In this city many methods must be pursued. In some communities an individual canvass of every resident is possible and frequently proves most successful. But, so long as we employ publicity, and depend upon the understanding, sympathy and enthusiasm of the public, we must confine our campaign of solicitation to those methods which make the individual value the fact that he is a voluntary subscriber. He must, however, be shown his duty, Every person who subscribes by free choice,for patriotic reasonstis a better subscriber,more satisfied with his investment, and more contented to keep his bonds than one who purchases bonds under duress and whose first impulse,once the bonds are paid for, is to sell them. Our program, therefore, contemplates an intensive, dignified, and impressive publicity to reach every person, no matter what may be his means or what the country of his birth. We must not, however, lower the standard of a dignified campaign by permitting ourselves to indulge in sensational displays, extravagant statements or by employing methods calculated to a - rouse ridicule or bring reproach upon the organization, The enthusiasm of the members of the organization should not lead them to employ devices which will associate this serious undertaking with the methods of a circus or_of,a lottery. 4 No, 110 Performances of that character on the streets, in the theatres and in public places can not expect a sympathetic reception from those who have relatives, or who have lost relatives, in the battles in France. It is important to maintain enthusiasm at the highest pitch, and, at the same time, to restrain it within the limits required by the seriousness of the great enterprise in which this country is engaged. You are aware that bonds of previous .loans, bearing the same rate of interest as those now to be sold, are selling at less than par in the market, I shall repeat, with less fear of contradiction now than when I male the same statement at our last meeting--that with over a Million and a half of our American boys in the fighting line in France, whose victory depends upon the success of these loans, the American people will not subject their patriotism; their resOlutdbh tb Support that army, to be measured by a rate of inter- et or by a pr urn or discount on the bonds of their Government. But an important change has just been made in the investment position of Liberty Bonds by Act of Congress, to which I must refer in some detail, Since the last bond sale, Congress has been asked and loubtless will increase revenues from taxation from $4,000,000,000 to $8,000,000,000 a year. As the income from all but the 3 1/2% bonds of the first issue is liable for cur-taxes and for war profits and excess profits taxes, an increase in those taxes, naturally, reduces the net return on the bonds now to be issued. Congress; has, therefore, passed a law increasing tax exemptions, the provisions of which should be 'brought to the attention of every intending subscriber as well as to the attention of every subscriber to the first three is6U2s. 4 No, 110, -5- I shall read a summary of the act, which it is important that all should unaerstand. All of the exemptions originally applying to the earlier issues, of course, remain unchanged. The interest on not exceeding $30,000 principal of bonds of the Fourth Liberty Loan shall be exempt from graduated additional income taxes, commonly known as surtaxes, and excess profits and war profits taxes, now or hereafter imposed: The interest received after January 1,1918, on an amount of bonds of the earlier loans, excepting the 3 1/2s of the first issue, the principal of which does not exceed $45,000 in the aggregate, shall be exempt from such taxes; Provided, however, that no owner of such bonds shall be entitled to such exemption on an aggregate principal amount exceeding one and one-half times the principal amount of bonds of the Fourth Liberty Loan orginally subscribed for and still owned by him at the date of his tax return; The old bonds to which the exemption applies are all of those outstanding, including those arising from conversions, excepting, of course, the 3 1/2% bonds of the first issue. The exemptions provided in the bill are to continue during the period of the War, and for two years after the date of the termination of the war, as fixed by proclamation of the President. 6 To summarize: 4 No. 110 In addition to all tax exemptions now pro- vided by law, any original subscriber to bOnds of the Fourth Liberty Loan will be exempt from surtaxes and excess profits and war profits taxes on the incomes from not exceeding $30,000 Principal of bonds of the Fourth loan and, if he retains his bonds may gain similar exemption on the income from one and onehalf times that amount of the old bonds; the exemption to con- tinue for the period of the war and for two years thereafter, You will observe that the passage of this law will have the following effect, provided it is thoroughly and widely understood: FIRST: As to a holder of the existing bonds who is now liable to income surtaxHe may only enjoy the exemptions from taxation provided in this law in case he purchases and. retains bonds of the new issue in the proportion provided by the law. Therefore, every holder of bonds of the second and third loan, and of thse received through conversions will find it absolutely 'essential, in order to enjoy this exemption, that he shall 'buy and retain new bonds. NEXT: As to an intending subscriber to the Fourth Loan--It is plainly to his advantage, if he does not already own the necessary proportion, to purchase such an amount of bonds of the old issues as will enable him to enjoy the maximum tax exemption allowed, 4 No. 110. One may suggest that it is not desirable for an intending subscriber to purchase the old bonds, when he might, in fact, be tnduced to purchase only the new bonds. however, that the holder of the old It must be borne in mind, bonds who sells them does so in order to subscribe to the new issue and thereby gain tax exemption on. the bonds which he still has left. The effect of this new plan of exemption from taxation should, therefore, as it becomes generally understood, bring about a large subscription from holders of existing bonds. It should, likewise, provide buyers of bonds of the old issues which their holders may feel required to sell in order to subscribe for the new issue. Advices have been sent to the chairmen of all committees throughout the district that they will, upon request made to their district chairman, be furnished with lists of subscribers to former loans. These subscribers are so obviously interested in the terms of this tax exemption that it is desirable for local committees to obtain the lists and bring the matter personally to the attention of each subscriber to former issues. So few people read the details of statutes passed by Congressthat the effect of this most important modification of the tax provisions applying to Liberty ponds will not be fully felt, nor will the enjoy Government enjoy all of the benefits which it should from the adoption of this new program unless it is brought by you to the attention of everyone. Too great emphasis can not be given to the matter in connection with this campaign. . -8- 4 No, 110. As in the case of former loans, a description of the terms of the Fourth Loan, including a description of this tax exemption, will be furnished to all committees at an early date, together with tables illustrating the income value of bonds of the Fourth Loan when considered in connection with the tax exemption. But we must not overlook the urgent injunction which has now been spread broadcast for all owners of the Government's bonds to retain them. Emphasis should be laid upon the necessity of making no sales of present holdings of bonds unless it is imperative for the holder to do so in order to secure the benefits of the tax exemptions now provided. We can not expect to have the bonds of the Government sell at their real value if large numbers of people are induced, or even dragooned into buying them with the expectation of immediately selling them in the motet. The question is repeatedly asked, how may subscriptions be 'made by those who are pressed to subscribe but who have not sufficient ready ce3112, There is but one answert Those who must borrow money to make their purchase should do so in the expectation of paying their loans out of funds accumulated by the practice of rigid economy, rather than by selling their bonds. The greatest difficulty now encountered by our organization in selling bonds is caused by the failure of the people of the country to practice thrift sufficiently. I am confident that the only thing now needed is that every- one should know specifically and definitely what he is expected to do in this promptly matter; what his patriotic duty is, and he will do it. 4 No, 110. -9- We aere told that the Government needed gasoline for war purposes and that we should not drive automobiles on Sundays. Hardly an automobile is to be seen on the streets of New York City, or in the country, on Sundays. of patriotism. The response was a fine exLibition But, after all, a Sunday drive is not essential to health or war efficiency, so we must not over-value the self denial. We are told by Mr. Hoover that the economies practiced by the American people released food supplies sufficient to meet the recent crisis abroad. People were told what to do and they did it. are now asked to economize in sugar, and the result 4il1, doubtless, be a relief in the sugar shortage. If we are told definitely and specifically what to do; if what we are told to do is shown to be necessary; and if it applies alike to rich and poor, it will be done, and the time nas come to tell people definitely and to get it done. shall not burden you with the details of the mechanical operations required to prepare and deliver the millions of bonds which are issued for these huge loans. Most of the delay and con- sequent inconvenience in-delivering bonds in the earlier loans was due to the universal demand for coupon bonds. The machinery of the Treasury Department and of the reserve banks is now developed to meet an enlarged demand for registered bonds, and for effecting prompt transfers of ownership. It will be a great economy to the Government, a saving of labor and material, if those Subscribing to the Fourth Loan are, generally, induced to take registered, instead of coupon, bonds. organization throughout the district should ask The subscribers to indi". cate on the subscription blanks that they are willing to accept rag 4 No.1104 -10- istered bonds, In this form bond holders receive a greater protection against theft and loss than in the case of coupon void the inconvenience of collecting coupons, bonds, and they a- checks for the aa interest will be mailed to then, A modification of the honor flag plan has been adopted for the next loan, of which you have been duly advised. The development of the honor flag seemed to have had two effects in the course of the last bond sale, to which reference is necessary. In sonle cases it led com- mittees in certain communities to relax their efforts as soon as their quotas were completed. This was a serious mistake. It would result,if possible of exact application throughout the country,in no oversubscription. We must not set out simply to fill quotas, but to exceed them by the largest possible margin and to continue selling bonds until the close of the campaign. Another development was the tendency to divert subscriptions to places where they aould not naturally be made. A quota plan, as I stated at our last meeting,is based upon the thoroughly sound principle that as the Government receives payment for bonds by transfers of bank balances from the credit of subscribers to the credit of the Govern ment. Therefore,the minimum amount to be subscribed, that is the quota of each section or community,must be based upon bank resources. It is desired that subscribers file their subscriptions where their bank accounts are maintained,and out Of which the bonds are to be paid for,and,if the subscriber has more than one account,that'the subscriptions be divided in proportion to the balances maintained in the respective accounts. It is also desired that the subscriptions of emlaolres of industrial and other establishments shall be made in the places where the men work and live. - 11 - 4 No. 110. Failure to observe these rules causes an undesirable shifting of funds throughout the country and an unnecessary strain upon the money market. The local pride of suburban communities, necessarily, results in considerable numbers of subscriptions being made there by residents who carry their principal bank balances in near-by cities. Local pride and the enthusiasm of local organiza- tion should not, however, result in the piling up of huge subscriptions, of many times the local quota, at the expense of the cities which are deprived of those subscriptions and which are not able to fill their quotas, so that possibly, in consequence, the banks must be called upon to subscribe for their own account. Looking toward a greater and more efficient development of the two financial machines which have been created by the Treasury Department, Secretary McAdoo has undertaken to bring about a closer relationship between the Liberty Loan tions throughout the country. and the War Savings Organiza- This is a new task which will con-. front us when this loan is sold. the two organizations in this In the meantime, all branches of district have been asked to join in a great partnership to make the Liberty Loan a success. I am hopeful that it will be possible to create in our district, through the agency of these two existing organizations, the greatest sod most efficient army for financing a Government in time of war that has ever, been created. Its purposes will be two in character -- one to broaden the foundation for raising money for the Government by developing organized savings, as the 'Jar Savings Organization is now doing; -- the other, to effect the sale of all forms of Government Securities so that these savings, as accumulated, are swept into the Government's treasury. 're must reach the rich and the poor-- the corporation and the individual! 4 No -12- 110. In imagination I can picture the growth of an irresistible movemnnt under the influence of this army of workers which will capture public attenion; educate the people to a better understanding of what the Government expects them to do; and enable us, as required, to furnish even more funds than the Government calls upon us to provide for war purposes The members of our organization have been asked, and are expected, to accomplish things_ which be- fore the war would have seemed to be quite impossible,. They have exceeded expectations in what they have accomplished. The explanation is not hard to find, and should give us con- fidencein the success of this next great effort. 7e have sons, brothers, husbands in the army in France!. Thirteen million Americans have just registered for military service, and many of them will soon be in training camps. Our part in the war is to keep them supplied with everything that they need to enable them to kill and capture Germans -- and to do it at once -- and thoroughly, The supplies for that army will be created, shire to transport them will be built; and that army will grow just as rapidly as the resources of the country can be converted into ships and war materials. Te must raise the money to pay the bills. But our work depends upon the effect the new draft wil7 have upon the members of this organization who have registered for military service, Explicit directions have been sent to the chairman of all committees in this district describing what they should do in this matter, and those directions have been prepared in conformity with a general direction sent to us by Secretary HcAdoo. - 13 - 4 No 110, It must be remembered that while commonly described- as a draft law, the statute is, in fact, entitled "The Selective Service Act". The purpose of the act is to insure that the men needed for military service are promptly available, but equally important, that those needed in their present occupations shall be retained, We have felt that it was required of the members of our organization to claim, Or waive claim of exemption on personal grounds according to their own conscience. We have also felt that it was our duty, as an organization, to see that the question of exemption on occupational grounds for the organization as a who;e was fairly and intelligently presented to the proper authorities, That has been done and a policy has been adopted which is designed to protect the integrity of an organization essential to the prosecution of the war, and, at the same time, which will not deprice the military branch of the Government of the services Of those who are needed, and can be spared, for the army* and navy. I have referred at some length to the possible effect of the draft upon our organization for the purpose of emphasizing one thing in your minds. There is but one American Army! A part of it is privileged to fight in France-- Another, and an essential part, must work at home, Each depends upon the others We are of the home army. Do you realize the significance of what is now takingsplaoe. in France and what these dollars which our army is raising are really doing? The first wholly American Army is facing the German - 14 frontier; that frontier is opposite lietzl was French until 1871, 4 No 110. Metz stands on soil that Ey conception of the mission of the American Army in France is that of a victorious army marching through AlsaceLorraine, and never leaving until those provinces are French soil again,, I can not believe that the people of this country, much less our home army of finance, will tolerate the return to Germany of any part of France, the soil of which is made sacred to us with American blood and our soldiers' graves. When the work of that army is accomplished ( and you will have had a part in it) there will be illustrious American names as sacred to the memory of the French as with us are the names of Rochambeau and Lafayette. xxxx0xxxx MISC. 3B.2-4/67 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE DATF To FROM SUBJECT. OFFICE MEMORANDUM -J'jP4)111 LIBERTY 'LOAN C 0 M NWT ITEg/I 1V}13133a o COMPTROLLER TIME DATE sat ti" 64 FROM c cbg;Ar 'e-& Ctt-tt ff4 fLA-1-0, 72_,IA Lti LUL4 // ? 6 ...G. 6-4A.A A ti. e et r, 7&14.4. 4.Ae v reek cies, e- °A ) ...L % c, / tLA4, flu a 444:4_4A-4:4L&A.4;ef , AAA ,(LA ecrz. owl.° d..tf &L r. c4,6 e2-1.1E / j) 0Liberty Loan Meeting Metropolitan Opera House September 27, 1918 Addresses by President Wilson and . . Benjamin Strong Governor of the Federal Reserve Bank of New York Liberty Loan Committee Second Federal Reserve District F331 THE WHITE HOUSE WASHINGTON Again the Government comes to the people of the country with the request that they lend their money, and lend it upon a more liberal scale than ever before, in order that the great war for the rights of America and the liberation of the world may be prosecuted with ever increasing vigor to a victorious conclusion. And it makes the appeal with the greatest confidence because it knows that every day it is becoming clearer and clearer to thinking men throughout the nation that the winning of the war is an essential investment. The money that is held back now will be of little use or value if the war is not won and the selfish masters of Germany are permitted to dictate what America may and may not do. Men in America, besides, have from the first until now dedicated both their lives and their fortunes to the vindication and maintenance of the great principles and objects for which our Government was set up. They will not fail now to show the world for what their wealth was intended. GREAT meeting in the Metropolitan Opera House, September 27, opened the Fourth Liberty Loan campaign in the Second Federal Reserve District. President Wilson QAr addressed a throng that packed the house from floor to roof. His words will surely have a place in history. While President Wilson made little direct reference to Liberty Bonds, his straightforward definition of our war aims is the strongest possible plea for the full co-operation of every man and woman in the countrythe strongest possible argument for the universal and enthusiastic support of the Fourth Liberty Loan. 0 Governor Strong's Address Mr. President and Fellow American Citizens: During the next three weeks the people of this Second Federal Reserve District must pledge them- selves to furnish their Government with not less than $1,800,000,000 for the prosecution of the war. It is our share of $6,000,000,000, and it will be forthcoming. They will be the dollars of democracywhich have had peaceful employment in agriculture, industry and commerce, in education, art and science. From now on they must be dedicated to the service of the army and the navy, for they will be militant dollars; but when this war is finished, these dollars of democracy must be rededicated to works of reconstruction and mercy. But the mission of these Liberty Loans is not simply the raising of money. We could say to every resident and every corporation in this district: "Your share in this Loan is so much," and ask, or maybe require them to take it. But by that method we would lose the moral and spiritual forces which are behind the Loan, behind the war, and behind our men in France. We must not only sell bondswe must sell the war to all the people of the United States. This is a mission of the Liberty Loan Organization which is of equal or greater importance than simply raising money. We will not be wholly successful in our work unless every citizen become a bondholder and every bondholder become a more devoted citizen. So in embarking to-morrow upon this new and larger undertaking we must have clearly in mind what is to be accomplished for ourselves at home, as well as what these loans must do in their capacity as fighting dollars in France. One of our organization called at a little farmhouse in the hills overlooking the Hudson River to [51 inquire if the owner could not buy some Liberty Bonds. He was met by a woman, to whom3,,e explained his errand. She said that she livk t alone, that she owned a cow, and some pigs; that she had some potatoes and vegetables in the cellar, and that she was usually snowed in through the winter and could not get to the village, and so had little use for money. She was glad of the opportunity, however, of subscribing all that she hadand she gave the canvasser $4. After thanking him for the opportunity of helping, she explained that she was a widow and her three sons were in the American Army. This illustrates what is taking place in the nation to-day. That woman, who is snowed in in the winter, was thank- ful for the privilege of doing something moreand she had given her three sons. No one at this meeting can make as large an investment as she did. When we have examined our accounts, figured our income and expenses and decided the amount we shall takelet us at least double it. In the Third Loan we were asked in this district to raise nine hundred million dollars, and raised eleven hundred million. In this Loan we are asked to raise eighteen hundred million dollarstwice the amount. We must make the sacrifice, whatever it involves, of doubling what we did last time. In New York it is necessary that the literature distributed by our committee shall be printed in eighteen different languages. Meetings are held at which speakers deliver addresses in almost every tongue spoken in the city. In the Third Liberty Loan, 836,000 people in New York City alone subscribed $48,000,000 for $50 and $100 bonds, to be paid for $1 and $2 a week. These people were largely of foreign birth or parentage. We now have a great office in 44th Street, where in time of war it is too costly to run the public -TL would be better for this country, if, within the next three weeks, we sold $6,000,000,000 of bonds to 60,000,000 people, than to sell $60,000,000,000 of bonds to 6,000,000 people. The burden of paying the ultimate cost of this war must not fall unjustly upon any class. These great bond issues must some day be repaid. If poverty must follow in the train of destruction, how much better that those least able to suffer are best prepared to meet it! It would be a calamity were this nation to create a preferred and favored class of rich creditors, who, in the time of the nation's need, received insurance against the losses that should be shared by all in proportion to their means. It is therefore, desirable and just that those of small means should enjoy exemptions from taxation which those of large means do not need. This principle is established in the graduated income taxes, and applies equally to graduated exemption from taxes. A great thing is taking place in our midst, which may have escaped general observation. Many of the people who buy these $50 and $100 bonds came to us from foreign lands; some of them came to escape conditions which made them unhappy. They doubtless came to this country with some suspicions of their new surroundings. They had been accustomed to compulsory military service and to close Government supervision in most of their daily affairs. Here in this free country they have, until now, had little contact with their new Government. They recognize the authority of the policeman on the street, who protects them from injury and re- strains them from doing wrong. They know the postman who brings their letters, beyond that they have had too little contact with their Government. It has not sufficiently influenced their thought 350 clerks are employed keeping the accounts of that transaction. The statement has been made to or lives. me that the sale of Liberty Bonds by this instalment method is too costly. One might as well say that they have made homes, they believe in this country,   Those people came here to better themselves; and are happy here. We are now asking them to invest in their new country, and to become more worthy citizens. Liberty Loan. This is a part of the worlOr s goods; patched the fences; cleaned the wells; and ed-sto straighten up ruined cottages. .-,A6se men, hastily assembled and trained, with But the mission of the Liberty Loan is not only at home. The effect of this great enterprise must also be felt abroad. Germany, without provocation or warning, swept over Belgium and into France new and strange weapons in their hands, have leaving behind her armies a trail of horror and desolation too sad and terrible to describe. The most sacred cities and buildings in Belgium fighting! and France, historical monuments, farmers' cottages, and crops are destroyed. One of the most precious possessions of the French peasant, his These are the soldiers of democracy, raised in the same spirit in which we are raising dollars of democracy. The world has been waiting the test of the permanence of democratic governments ever since the Franco-Prussian War. The day of that test has now come. Our Army, hastily raised, under the provisions of the most democratic statute ever passed by the Congress, faces Prussian armies which have been educated and trained for the purpose of destroying the only power that Germany fearsthe power of enlightened and free peoples of whatever race. fruit trees, for which he cares as a part of his family, has been cut down in wanton rage. The extreme of devilish ingenuity has been applied, not only to the destruction of property, but to the infliction of needless anguish upon a helpless civilian population. These are the sights now being witnessed by the great army of democracy which we have sent to France. Let us consider the spirit with which our men view this awful spectacle and see whether it bears not some resemblance to the spirit of that woman on the banks of the Hudson. I have just heard it described. A few days ago I asked an army, officer what impression our men made in France. H is a grizzled old soldier, who has seen thirty years' service, a captain now in a section of the French Army which makes small claim to sentimentthe Foreign Legion. His reply epitomized the spirit with which this country entered the war. He said: "Of course, your men fight magnificently; in fact, they have not yet learned when it is time to stop fighting." And then he described the great thing they have done in capturing the hearts of the French peasants. When these refugees returned to their homes in sections now occupied by American soldiers, they were met by our men whistling and singing, who with smiles on their faces, tossed the children on to their shoulders; took up the bundles for the old and infirm; pushed the barrow loaded with household [81 smashed German troops that have been forty years in the training. Our boys do not learn readily when to stop In their spare time, they are employed in bringing joy and hope to hearts that for four years have been filled with misery and despair. This army of ours, once characterized as ridiculous, is there to meet the test. And is now on its way to Berlin! The time is coming when our great military effort will be crowned with victory. The work of a great army (of men and dollars) in the military sense will be concluded. When that day arrives, there will then be disclosed to the world at their true value those motives and purposes which, in the excitement and anxiety of war have not been wholly apparent. Our own purposes must be unmistakably made clear. An unselfish, generous people can well afford their share of help to rebuild a devastated Europe. The sorrows of this war will not disappear until cottages are rebuilt, farms are put under cultivation, and fruit trees are replanted. Cities must be restored and the opportunity must be afforded to those who have suffered the severest penalties of the war to return to their peaceful occupations with some hope of contentment. In part, we are charged with raising money to win the war, a greater conception of our work is to [9J make our people realize the bitterness of suffering that others have felt. Then, when the day-7 s our people will be glad to direct their energies \t, great mission of mercy. This is the message of the Liberty Loan Committee to the people of this district. They have not failed us in the past, and will not do so now! When these things that I have mentioned are done, the mission of the American Army, and the Liberty Loan Army, will have been gloriously accomplished. Introduction of the President By Governor Strong Germany and Austria have made many and vital mistakes, but their crowning achievement in stupidity was in their misjudgment of the people of this country. They must have analyzed our character by some intellectual formula which they use for a study of the German mind. What they should have used was a stethoscope, and they might thus have discovered the American heart. On April 6, 1917, this country entered the war, not as a military nation, not with a great army and navy, but with a moral force that is greater than either. And what we are doing now comes from that heart that Germany failed to discover. Great armies and great loans are being raised; ships built, and the business of the nation reorganized for war. This is being done in the spirit of a righteous crusade. And in the same spirit our nation is taking world leadership for humanity, and it is again in this same spirit that the war will be won. We have been led through a maze of difficulties into the presence of a greater and nobler nation. We have discovered that the altruism of America can survive the brutalizing effects of war. And this great conception of an unselfish people and of a nobler America has been revealed to us by the unerring vision of the President of the United States. President Wilson's Address to them. They were perhaps not clear at the outset Oley are clear now. The war has lasted more t an four years and the whole world has been drawn into it. The common will of mankind has been substituted for the particular purposes of individual My Fellow Citizens: I am not here to promote the loan. That will be doneably and enthusias- can stop it as they please. It has become a peoples' tically doneby the hundreds of thousands of loyal and tireless men and women who have undertaken to present it to you and to our fellow-citizens throughout the country; and I have not the least doubt of their complete success; for I know their spirit and the spirit of the country. My confidence is confirmed, too, by the thoughtful and experienced co-operation of the bankers here and everywhere, who are lending their invaluable aid and guidance. I have come, rather, to seek an opportunity to present to you some thoughts which I trust will serve to give you, in perhaps fuller measure than before, a vivid sense of the great issues involved, in order that you may appreciate and accept with added enthusiasm the grave significance of the duty of supporting the Government by your men and your means to the utmost point of sacrifice and self-denial. No man or woman who has really taken in what this war means can hesitate to give to the very liMit of what they have; and it is my mission here to-night to try to make it clear once more what the war really means. You will need no other stimulation or reminder of your duty. At every turn of the war we gain a fresh consciousness of what we mean to accomplish by it. When our hope and expectation are most excited we think more definitely than before of the issues that hang upon it and of the purposes which must be realized by means of it. For it has positive and well-defined purposes which we did not determine and which we cannot alter. No statesman or assembly created theni no statesman or assembly can alter them. They have risen out of the very nature and circumstances of the war. The most that statesman or assemblies can do is to carry them out or be false [ 12 ] Individual statesmen may have started the conflict, but neither they nor their opponents States. war, and peoples of all sorts and races, of every degree of power and variety of fortune, are involved in its sweeping processes of change and settlement. We came into it when its character had become fully defined and it was plain that no nation could stand apart or be indifferent to its outcome. Its challenge drove to the heart of everything we cared for and lived for. The voice of the war had become clear and gripped our hearts. Our brothers from many lands, as well as our own murdered dead under the sea, were calling to us, and we responded, fiercely and of course. The air was clear about us. We saw things in their full, convincing proportions as they were; and we have seen them with steady eyes and unchanging comprehension ever since. We accepted the issues of the war as facts, not as any group of men either here or elsewhere had defined them, and we can accept no outcome which does not squarely meet and settle them. Those issues are these: Shall the military power of any nation or group of nations be suffered to determine the fortunes of peoples over whom they have no right to rule except the right of force? Shall strong nations be free to wrong weak nations and make them subject to their purpose and interest? Shall peoples be ruled and dominated, even in their own internal affairs, by arbitrary and irresponsible force or by their own will and choice? Shall there be a common standard of right and privilege for all peoples and nations or shall the strong do as they will and the weak suffer without redress? Shall the assertion of right be haphazard and by casual alliance or shall there be a common concert to oblige the observance of common rights? [ 18 No man, no group of men, chose these to be the issues of the struggle. They are the issues cfmn and they must be settledby no arrangemAW or compromise or adjustment of interests, but definitely and once for all and with a full and unequivocal acceptance of the principle that the interest of the weakest is as sacred as the interest of the strongest. This is what we mean when we speak of a permanent peace, if we speak sincerely, intelligently and with a real knowledge and comprehension of the matter we deal with. We are all agreed that there can be no peace obtained by any kind of bargain or compromise with the Governments of the Central Empires, because we have dealt with them already and have seen them deal with other Governments that were parties to this struggle, at Brest-Litovsk and Bucharest. They have convinced us that they are without honor and do not intend justice. They observe no covenants, accept no principle but force and their own interest. We cannot "come to terms" with them. They have made it impossible. The German people must by this time be fully aware that we cannot accept the word of those who forced this war upon us. We do not think the same thoughts or speak the same language of agreement. It is of capital importance that we should also be explicitly agreed that no peace shall be obtained by any kind of compromise or abatement of the principles we have avowed as the principles for which we are fighting. There should exist no doubt about that. I am, therefore, going to take the liberty of speaking with the utmost frankness about the practical implications that are involved in it. If it be indeed and in truth the common object of the Governments associated against Germany and of the nations whom they govern, as I believe it to be, to achieve by the coming settlements a secure and lasting peace, it will be necessary that all who sit down at the peace table shall come ready and willing to pay the pricethe only price that will procure it; and ready and willing, also, [ 14 1 to create in some virile fashion the only instrumen- fitv by which it can be made certain that the 'lents of the peace will be honored and fulfilled. That price is impartial justice in every item of the settlement, no matter whose interest is crossed; and not only impartial justice, but also the satisfaction of the several peoples whose fortunes are dealt with. That indispensable instrumentality is a League of Nations formed under covenants that will be efficacious. Without such an instrumentality by which the peace of the world can be guaranteed, peace will rest in part upon the word of outlaws, and only upon that word. For Germany will have to redeem her character, not by what happens at the peace table, but by what follows. And, as I see it, the constitution of that League of Nations and the clear definition of its objects must be a part, is in a sense the most essential part, of the peace settlement itself. It cannot be formed If formed now, it would be merely a new alliance confined to the nations associated against a common enemy. It is not likely that it could be formed after the settlement. It is necessary to guarantee the peace; and the peace cannot be guarateed as an afterthought. The reason to speak in plain terms again, why it must be guarnow. anteed is that there will be parties to the peace whose promises have proved untrustworthy, and means must be found in connection with the peace settlement itself to remove that source of insecurity. It would be folly to leave the guarantee to the subsequent voluntary action of the Governments we have seen destroy Russia and deceive Roumania. But these general terms do not disclose the whole matter. Some details are needed to make them sound less like a thesis and more like a practical programme These, then, are some of the particulars and I state them with the greater confidence because I can state them authoritatively as representing this Government's interpretation of its own duty with regard to peace. First, the impartial justice meted out must involve no discrimination between those to whom we wish [ 15 ] to be just and those to whom we do not wish to be just. It must be a justice that plays no favorites. and knows no standard but the equal rights CA j several peoples concerned. Second, no special or separate interest of any single nation or any group of nations can be made the basis of any part of the settlement which is not consistent with the common interest of all. Third, there can be no Leagues or alliances or special covenants and understandings within the general and common family of the League of Nations. Fourth, and more specifically, there can be no special, selfish economic combinations within the league and no employment of any form of eco- will avoid entanglements and clear the air of the orld for the common understandings and the enance of common rights. I have made this analysis of the international situation which the war has created, not, of course, because I doubted whether the leaders of the great nations and peoples with whom we are associated were of the same mind and entertained a like purpose, but because the air every now and again gets darkened by mists and groundless doubtings and mischievous perversions of counsel and it is necessary once and again to sweep all the irrespon- sible talk about peace intrigues and weakening morale and doubtful purpose on the part of those nomic boycott or exclusion except as the power of economic penalty by exclusion from the markets in authority utterly, and if need be unceremoniously, aside and say things in the plainest words that can of the world may be vested in the League of Nations itself as a means of discipline and control. be found, even when it is only to say over again Fifth, all international agreements and treaties of every kind must be made known in their entirety to the rest of the world. Special alliances and economic rivalries and hostilities have been the prolific source in the modern world of the plans and passions that produce war. It would be an insincere as well as an insecure peace that did not exclude them in definite and binding terms. The confidence with which I venture to speak for our people in these matters does not spring from our traditions merely and the well-known principles of international action which we have always professed and followed. In the same sentence in which I say that the United Slates will enter into no special arrangements or understandings with particular nations let me say also that the linked States is prepared to assume its full share of r`esponsibility for the maintenance of the common covenants and understandings upon which peace must henceforth rest. We still read Washington's immortal warning "against entangling alliances" with full compre- what has been said before, quite as plainly if in less unvarnished terms. As I have said, neither I nor any other man in Governmental authority created or gave form to the issues of this war. I have simply responded to But I have responded gladly and with a resolution that them with such vision as I could command has grown warmer and more confident as the issues have grown clearer and clearer. It is now plain that they are issues which no man can pervert unless it be wilfully. I am bound to fight for them, and happy to fight for them as time and circumstances have revealed them to me as to all the world. Our enthusiasm for them grows more and more irresistible as they stand out in more and more vivid and unmistakable outline. And the forces that fight for them draw into closer and closer array, organize their millions into more and more unconquerable might, as they become more and more distinct to the thought and purpose of the peoples engaged. It is the peculiarity of this great war that while statesmen have seemed to cast But only about for definitions of their purpose and have sometimes seemed to shift their ground and their special and limited alliances entangle; and we recognize and accept the duty of a new day in which we point of view, the thought of the mass of men, whom hension and an answering purpose. are premitted to hope for a general alliance which [ 16 statesmen are supposed to instruct and lead, has grown more and more unclouded, more and more [ 17 ] certain of what it is that they are fighting for. National purposes have fallen more and more int the background and the common purpose of e ened mankind has taken their place. The counse s of plain men have become on all hands more simple and straightforward and more unified than the counsels of sophisticated men of affairs, who still retain the impression that they are playing a game of power and playing for high stakes. That is why I have said that this is a people's war, not a statesmen's. Statesmen must follow the clarified common thought or be broken. I take that to be the significance of the fact that assemblies and associations of many kinds made up of plain workaday people have demanded, almost every time they came together, and are still demand- ing, that the leaders of their Governments declare to them plainly what it is, exactly what it is, that they are seeking in this war, and what they think the items of the final settlement should be. They are not yet satisfied with what they have been told. They still seem to fear that they are getting what they ask for only in statesmen's termsonly in the terms of territorial arrangements and divisions of power, and not in terms of broad-visioned justice and mercy and peace and the satisfaction of those deep-seated longings of oppressed and distracted own. And I believe that the leaders of the Governsnrith which we are associated will speak, as /I've occasion, as plainly as I have tried to speak. I hope that they will feel free to say whether they think that I am in any degree mistaken in my interpretation of the issues involved or in my purpose with regard to the means by which a satisfactory settlement of those issues may be obtained. necessary in this war as was unity of command in the battlefield; and with perfect unity of purpose and counsel will come assurance of complete victory. It can be had in no other way. "Peace drives" can be effectively neutralized and silenced only by showing that every victory of the nations associated against Germany brings the nations nearer the sort of peace which will bring security and reassurance to all peoples and make the recurrence of another such struggle of pitiless force and bloodshed forever impossible, and that nothing else can. Germany is constantly intimating the "terms" she will accept; and always finds that the world does not want terms. It wishes the final triumph of justice and fair dealing. men and women and enslaved peoples that seem to them the only things worth fighting a war for that engulfs the world. Perhaps statesmen have not always recognized this changed aspect of the whole world of policy and action. Perhaps they have not always spoken in direct reply to the question asked because they did not know how searching those questions were and what sort of answers they demanded. But I, for one, am glad to attempt the answer again and again, in the hope that I may make it clearer and clearer that my one thought is to satisfy those who struggle in the ranks and are, perhaps above all others, entitled to a reply whose meaning no one can have any excuse for misunderstanding, if he understands the language in which it is spoken or can get someone to translate it correctly into his [ 18 1 Unity of purpose and of counsel are as imperatively [ 19 ] FEDERAL RESERVE SANK MISC. BB .2 4/67 OF NIM YORK OFFICE CORRESPONDENCE /1 DATE TO FROM SUBJECT: I 1 lo Mr. Secretary and Menbers of the Liberty Loan Organization - ,Of Your presence at this meeting, coming as many have from all parts of our district, confirms the assurances I have given to Secretary Glass that he can rely upon us to finish the job! He joins me in bidding your weloome. The terms of the loan have now been announced and are received with satisfaction. ph -fryto. But what a contrast is presented in the conditions under which this loan is to be placed with those confronting us in former loans. The outstanding fact is that the war is won. There is at last no uncertainty as to the possibility of continued huge borrowings by our Government for purposes of destruction. f The proceeds of this loan will e used to pay debts already incurred; A Will, in consequence, afford relief to the banking and credit situation; And the discontinuance of purchases of war materials by our Government will permit our industries to gradually resume their normal courses, with war borrowings liquidated and balance sheets clean. But the picture is larger than that, We emerge from the war with our vast industrial, commercial and transportation 1 , machinery not only unimpaired, but in many respects vastly strengthened. The nation's supplies of raw materials and food products are still inexhaustible; Our power of production is not only not reduced, but rather increased, And the productive energies of the nation, under the stimulus of war necessity have been developed to a point beyond anything heretofore known. * * In contrast with our own good fartune, we see a large part of the world with raw materials exhausted, stocks of food, manufactured 7/wkowilktle04 goods and even the machinery for their preeaetton greatly reduced , and impaired, And the need for things which this country is capable of producing greater than ever before in history. I would not suggest that we are justified in attempts to add to our wealth at the expense of those who have suffered disasters which we have so fortunately escaped. ,v/AP But the commercial activities of the nation may be directed towards f\ furnishing those things which Europe needs with courage and without apology. Their need for our goods is urgent, must be satisfied, and satisfied promptly if the world is to be restored to its former balance 2 of production and trade, and to conditions of peace and contentment. Bind these pictures we see a unified banking system; Its strength but slightly reduced by the effort of war iinance, And with a vast capacity to furnish credit to foreign customers and to our producers who sell to foreign customers during the period of readjustment and reconstruction. What more alluring picture can be afforded to an energetic nation of workers, supplied with bounteous reserves of raw materials; With unexampled means of production; And financial strength to carry on a great export business? tears are too frequently the product of imagination rather than reason, And this is no time to take counsel of our fears, But rather to address ourselves with courage to a new task of constructive value to the world, And to redirect the energies which have been applied to winning the war to the higher purpose of repairing the damages of war. 4tvrru/12/771 a/9 t pip The operation of selling a great loan necessarily combines preparation of the public mind, by publicity, and creating a great organization to conduct the sale. We must be sure that our committees are created and ready. IELF,GRAM 401,/ 3 7'XI.-(CrCt6C 5711'41 But the first step in selling the bonds is to sell them to our own organization. Unless we are enthusiastic ourselves, how can we expect enthusiasm from CD the public? No salesman can undertake his task with confidence, Nor can he have enthusiasm in his work unless he believes in what he is selling. be_2 PG, 44,, We have been successful in every preceding loan, when the outlook indicated that unlimited further issues might still be made, When considerable declines in the market value of the bonds had already taken place, And when other discouraging developments confronted us. It has occurred to me that the members of the organization are not themselves acquainted with the true extent and quality of that success. A few figures only are necessary to exhibit an operation in finance that is without parallel. In this district bonds of the four previous issues have been sold by this organization aggregating 45,000,000,000. let The actual selling cost which we have called upon the Government to pay A has been l/ 9,h of 1% of the amount sold. r ft Nor must this alone be taken as an exhibition of all that has been done. rctrttu. Ob-7)141\ ThG Government has required large temporary advances from time to time during all the period of the war, And to provide for these there have been sold in this district Treasury C. Certificates of Indebtedness, running for periods of less than a year, aggregating 48,500,000,0W. I can hardly expect you to believe me when I say that The total selling cost to the Government has been only 425,000. tah-Ct. c tiebr 1/2.0 t- /1/4 And these transactions have been conducted by the organizations of Which you are members! * This record can be maintained in the next loan, provided only that the task be undertaken in the same spirit of patriotism and of unselfish effort that has heretofore characterized your work. 'lere I to summarize in a few words a complete set of instructions to the members of this organization, I could only say that the success of the loan is the individual responsibility of each member of the organization. No great organized effort can ever succeed Where that sense of individual responsibility is escaped by passing it along to some other individual. My own vocabulary is quite inadequate to express the degree of confidence which I feel in the morale, In the personal loyalty to the work, Digitized And in the patriotism for FRASER of the men and women to whom this statement applies. Your familiarity with these campaigns makes it quite unnecessary for me to discuss our program in detail. I shall, therefore, refer to only one important point which we must bear in mind; An impression seems to have developed in some quarters that this loan is a bank loan, That the notes will be taken largely by banks And that efforts to distribute them to investors are, therefore, not quite so necessary as heretofore. There are four principal objections to leaving it to the banks to subscribe to the Victory Liberty Loan; FIRST If it is indicated that the banks are expected to take the loan, a corresponding relaxation in effort will result throughout the Liberty Loan Organization and interfere with good distribution, SECOND - Sales of the Government's bonds to banks result in direct expansion, that is to say, the bank acquires an investment which increases its assets and creates a deposit offsetting it, Which remains as an expansion of the banking position until the bank either sells the bond to an investor, (When both the investment and deposit accounts of the bank are reduced) Or until the Government actually collects taxes and pays off the bond. This is a form of inflation which raises prices and, at the same time, imposes a heavier burden upon the reserve system than would arise if loans were purchased by investors. TPTRD To some extent, investments in the notes by banks make it necessary for the banks to borrow money from the reserve banks. And, consequently, as banks do not like to owe borrowed money, it makes them less willing to extend accommodation to their regular customers for industrial, commercial or agricultural purposes. Thereby some curtailment of the accommodation required by the country's business may result. Grin' - FOURTH - When a bank subscribes for the notes the only way in which the account can be liquidated is for the bank to sell the notes. Commercial banks are not investment institutions And consequently, some day it may be expected that they will be sellers of the notes for which they subscribe. Of course this is not true of savings banks and strictly investment institutions. On the other hand, where an individual subscribes, even though he borrows money to do so, He is under strong pressure to practice economy, save and pay off his loan, Thereby providing automatically a reduction in the bank loan and deposit accounts. Subscriptions by investors, therefore, protect the market for the bonds - 7 - better than subscriptions by banks. But of even greater importance than this - - We must not abandon the great principal upon Which is which all of our loans have been placed, that they are popular loans, and that a wide distribution of the Government's bonds among all classes of people makes better and more loyal citizens. 2he nation has incurred a debt of honor. The bills which are now to be paid represent the money spent so lavishly and upon such a large scale that it was one of the determining factors in destroying the morale of the German nation. ozyt:D -7714.44., It is our responsibility, as a part of the Government, to see that those 49147-k) A bills are paid. And in part the money will be expended in bringing home a victorious army! You have observed the announcement that this is the last great Liberty Loan drive, And our work, therefore, is about concluded. We must finish it, thinking not of this transaction alone, but of our entire record. We propose, and you propose, that that record shall not be marred by any failure. -8- The credit, and the individual reward for the financial achievements in this district CBelong N. to you and to no one else. York State aivides the honors with a part of New Jersey and with a part of Connecticut. When you return to your homes from this meeting, will you not say, Each for his own community, what we propose to say for he people of this great city -- NEW YORK WILL SEE IT THROUGH. ?El/ olucti cerwe 07)\ - itm /Cm: cC424)til 1/ hiirAtte otth treed--64,,v, ,ctittit a cm t. 06-71. (Introducing aperetaq. Glass) It was our privilege until last January to work under the leadership of Secretary McAdoo. II_ courage, energy and resourcefulness were largely responsible for a sound and vigorous policy Which has permitted our great war bills to be paid without endangering our financial stability or the country's monetary system. We have escaped perils, the consequences of which are not realized because we have not been called upon to pay the penalties Of a weak tax policy, a disordered currency, gold premium, or burdensome restrictions upon credit. But the great success of his administration depended upon proper tools to work with And by good fortune, at the very outbreak of the war, we had inaugurated a reform of banking and currency in the United States Without which a sound and constructive policy by the Treasury would have been well nigh impossible. You are probably aware that this reform was brought about by the passage of the eederal Reserve Act in 1913. For the preparation and passage of that great piece of constructive legislation, (§AgylIvE glass) We are principally indebted to the present Secretary of the Treasury. It seems indeed a fortunate circumstance for the country that during this period when the problems of finance, When the whole economic development of the post-war period, will so largely center upon our financial system, 4611R -we should now have at the head of the Treasury Department, and as Chairman of the Federal Reserve Board, The author of the plan which will make it possible for us to meet the demands that will be made upon our financial resources. It is a very great pleasure for me to be able to introduce to the members of our organization Their new Chief'-- TEE SECRETARY OF THE TREASURY. (Introducing Rear Admiral Sims) During all of the past two years since our entry into the war There has been a great but silent force at work of which we have beard all too little - It is the United States Navy, In contrast with our knowledge of our army and its achievements, We are simply conscious of the fact that two million of our boys were transported to France in safety and kept supplied, That coasts and ports were patrolled and protected, Trade routes guarded And the submarine defied, We know little of how this has been done, but we do know that our Navy did it, And when we exult in the achievements of our soldiers in France We feel everlasting gratitude that what they were able to do was made possible by the United States Navy. During these twu years, when the American fleet in European waters has won the admiration of the European navies and aroused the pride of American citizens It has been under the command of the distinguished American Naval Officer who is our guest at this meeting - REAR ADMIRAL SIMS AV 31i J R3031 . ft e .041.taM 3310130140cle-35/ROD 301190 11TRia oT _.:TD:3$.11Ue Ii q-rq--LT e;.., For Daily Princetonia.l. What Princeton Can Do for the Victory Liberty Loan. By Benjamin Strong, Governor of the Federal Reserve Bank of Few York. The Government has asked The Victory Liberty Loan campaign is on. us to subscribe t4,500,000,000. to pay its war bills, offering us a double issue of securities: one bearing 4 3/4 percent interest, a better rata than any previous issue during the war, and with the absolute safety which Government backing assures -- and the other bearing 3 3/4 percent interest, entirely exempt from tares except estate and inheritance taxes. The question has been asked ma what college men can do to help the Loan succeed - specifically, what Princeton men can do. They can talk for the Loan. can do. There are three things they They can work for the Loan. They can buy Victory Notes. - spirit which I have a strong interest in Princeton, and I am sure the patriotic has been manifested by the men of the University in so many ways since we entered the war will come to its culmination ift-this last great task which the war has imposed on us. Floating a Liberty Loan - that is, disposing of the securities in such fashion that they have the wide popular distribution which the country demands - is more than a great financial operation. manship necessitating a tremendous amount or well-being or the It is a problem in sales- organization and detail work. There must be meetings, at which the investment features of the Victory Notes may be discussed, and the fact impressed on the audiences that this Loan is as much a part of our war as sending soldiers overseas and supplying them with munitions. ing, house-to-house, person-to-person solicitation, so There must be canvass- that no individnal in a community may lack opportunity to bay. In such work the men of princeton can and should participate. They ''OZT8 the knowledge and the skill to set before that portion of the public which they nm reach, the necessity for the success of the Victory Loan, impressing on prosps tivo Peg() (1) buyero the fact that until the Government's war bills have been paid, the state of ;business in the country mast be uncertain, manufacturers hesitant to embark on nerf k) undertaleings,and workmen suffering or likely to suffer from business uncertainty.- whereas when the bills have been paid, and the money the Government now MOS has been released to commercial uses, industry mnst frinatieh and the country thereby prepare itself for a period of prosperity which should eclipse any "boom period" in years. And what they may thus preach to the public, Princeton men caa also practice. They can buy Victory Notes, and they should. They could invest earnings or savings in no better security. Responsibility for the success of this Loan depends, not on the banks, as some argue, but on the people of this great and rich country of ours. Our war did not end when the fighting stopped last November. We have soldiers over there Ilho must be brought home. We have men who have been perranently injured who most be fitted by re-education to take their places again in the scheme of industry. We have men in uniform, or just out of uniform, for whom work must be found through Government aid. many other Government cormitments, demand money. These, and It must come from us - from the earnings and the savings of the citizens of America. ' As a business proposition, the success of the Victory Loan is to our interest, since it will launch the United States into long years of prosperity in which all will have a share. But this Loan is more than a business proposition. It is an obligation which we ace to our country, which, with its splendid history and reaeat glorious achievements, cannot be left in the ignominious position of a debtor. We have done too much already in this war, we owe too much to our soldiers, we have too much of the flaming zeal of patriotism, I know, to fail at this late day in any war activity. We must finish the job. Princeton can help, and will: FEDERAL RESERVE BANK OF NEW YORK MISC. 38.2-4/67 -,OFFICE CORRESPONDENCE DATEL.(11.14.1 To FROM SUBJECT. (Th CHERISHED GRAVES IN FRANCE A Visit to One of the Little Cemeteries Where Our Soldier Dead Lie Buried By BENJAMIN STRONG Governor of the Federal Reserve Bank of New York Reprint from the New York Times Sunday, April 18, 1920. I foun other We (Thl INCE the war ended articles have appeared from time to time in the daily papers relating to a project to bring home the bodies of American soldiers who were buried in France. I had wondered how the plan had originated, and have been told, although it may be that the statement is somewhat exaggerated, that there is some element of commercialism in the suggestion. Difficult as it is to believe, it is said that this agitation comes from some who hope by reason of their business to gain for themselves some commercial advantage or profit. It has led me to think that it may be of some interest to the parents and relatives of these boys who gave their lives in a great cause to read of an experience which I had last Summer in motoring along the front in France. Before sailing for Europe, I had received a letter from an associate whose only son, a Lieutenant in the Aviation Corps, was killed in the region of Chateau-Thierry in taker at onc judge 72 Fr and 1 This Ii ing ea group At every Th the lef lying s French Gallan be arin August, 1918, asking if I could conveniently visit the cemetery where his boy was buried and advise him of the conditions which I found there. I left Paris on August 2, 1919, driving up the valley of the Marne to Chateau-Thierry. After passing through a part of this beautiful country, just beyond the city of Meaux, we left the main road to make a short detour to the village of Jouarre, where my friend's son is buried in the grounds of the Chateau de Pereuse. It is a peaceful and lovely spot, on high ground, overlooking one of the most delightful scenes in France. The château had been occu- theAnc bla affixed bearing pied by the Germans before the Battle of the Marne and used for military purposes. It was not damaged perceptibly and was recovered by the French, who used it as a hospital. My friend's son was brought there after being shot down and died at the cluiteau. I was particularly interested in satisfying myself that the parents of our boys who lost their lives abroad need have no anxiety as to the respect and affection with which these burial places are cared for by the French. And what We brough1 caretak As tage fo I found at the Château de Pereuse I found likewise at three other cemeteries that I visited. )peared from time -; to a project to soldiers who were plan had originbe that the statee is some element fficult as it is to from some who a. themselves some of some interest 's who gave their ience which I had in France. ived a letter from t in the Aviation tateau-Thierry in tly visit the cemehim of the condi- We were met at the gate by the daughter of the caretaker of the place (the family being away). She took us at once to a little field on one side of the château, which I judge had formerly been an orchard, and here were-b-uried 72 French soldiers, 19 American soldiers, 1 French officer and 1 American officerthe boy whose grave I went to see. This little graveyard was laid out with the most painstaking care. Gravel walks surrounded each grave, and each group of graves, and had newly planted borders of boxwood. At the time of my visit the flowers were in bloom and every grave was covered with a mantle of flowering violets. The graves of all the French soldiers were grouped at the left, the American soldiers at the right, and between, lying side by side, were the graves of the two boy officers French and American. Over the grave of Lieutenant Galland was a cross, with the Tricolor and a little tablet bearing the following inscription: Sous Lieut. Galland, Theodore, 174th Infantry, 5th Coy. ing up the valley passing through 2yond the city of lort detour to the is buried in the is a peaceful and one of the most u had been occud the Marne and damaged percep- who used it as a there after being Mort pur la France. And over my friend's son's grave was a cross made of the blades of the propeller of his machine, to which was affixed the American colors and a small aluminium plate bearing the following inscription: Lieu tenant Pilot 1st Aero Squadron. Killed in Action August 1, 1918. We took it number of pictures, but the real impression I eying myself that lives abroad need brought home was that given in a conversation with the caretaker and his wife and daughter. 'ection with which ren ch. And what As we were leaving they asked us to step into their cottage for a few minutes' visit. I thought it was a simple act of courtesy with no other object. My companion, however, who had been an officer in the French Army, after a few minutes' conversation with them drew me one side and . asked if this boy was a relative of mine. I explained that ap; he was the son of a warm friend. He then went on to say that these good people were alarmed by my visit, fearing that it evidenced an intention to disinter the boy's body and take it home. They then told me that this little graveyard had been laid out by the peasants in the village; that every scrap of the work had been done by them on Sundays ; the grass had been planted and cut, the walks had been built, the box planted and the.flowers had been planted and cultivated by these people, who found this the only means of expressing their appreciation of what our boys had done for France and their affection for the country from which they came. They explained that to the French a grave is sacred. They regard the graves of these American boys as a sacred trust ; they want to keep them there, and they will be grievously hurt and disappointed if the bodies are brought home. My own son was two years in France and fortunately is safely home. Parents may view this subject differently, but after my own experience I believe as between the satisfaction of having a son who had given his life for his coun- try in France, buried in his own soil or left in France, I should instantly decide that my greatest satisfaction and , happiness would be to have his grave serve as one of those ties which perpetuate and immortalize international friendships. FEDERAL RESERVE BANK OF NEW YORK MISC. 3 B .2- 4/67 OFFICE CORRESPONDENCE DATF To FROM SUBJECT- 1// q r-rt4t4Le-e---(, Number of Copies 140 CONFIDENTIAL. Copy No. WAR FINANCE By Mr. Benjamin Strong, Governor, Federal Reserve Bank. Lecture delivered at the Gencri Staff Cullege, Waslq.clztun, D.C., Ap:11 11, STTFLY COTTRSF NO.51.0 9 In talking over with you the financial side of war, my mind ineviTably to the financial history of the late war, and the fashion in which this resembled, or differed, from previous wars, of which we have full knowledge. Without particularizing, I have formed a Profound impression. that from generation to generation,. so far as we can discover, the nations, and the financial heads of the nations, learn little, and remember less. runs While we are proud of our own achievement in financing this great war, on the other hand, we realize some of our mistakes, and we realize, even more clearly, the mistakes of others, because they happen to have been greater than ours, and we must attribute these mistakes principally to the little that has been learned of the history of war finance of past years. It seems as though that history had been pretty well blotted- out. in the minds of the present generation. There is however, one notable exception in the financial history of warfare, all the more remarkable because it occurred over 100 years ago. Without desiring to contribute to the common tendency of attributing to Napoleon, the qualities of a demigod, I should point out the striking fact that Napoleon fought his great wars, practically fought the civilized world, for 19 years. with sound money. In th6se same wars, England abandoned sound money, issued paper money which became irredeemable, and stayed upon an unsound paper basis for period of 21 years. France's prompt econoMic recovery from the effects of the Napoleonic wars is common knowledge Vhen we observe the chaos in finance which has paralyzed Russia, and is demoralizing Austria and Poland, and to a somewhat less extent Germany, and then consider that in the rapoleonic wars, France stood out against the rest of Europe for a period five times as long as did Germany in the late war, I think you will agree that a sound financial policy must have had scmething to do wtth this remarkable feat. Commenting upon this period, the late Ex-Ambassador Andrew D. White has the follewing to say: "When Bonaparte took the consulehip, the condition of fiscal affairs was appalling. The govern.. ment was bankrupt; am immense debt was unpaid. The further collection of taxes seemed impossible; the assessments were in hopeless confusion. War was going on in the East, on the Rhine, and in Italy, and civil war in La Vendee. All the armies had long been unpaid, and the largest loan that coleed for the moment be effected Was for -a sum hardly meeting the expenses of the government for a single day. 'At the first cabinet council, Bonaparte was asked what he intended to do. He replied, 'I will pay cash or pay nothing.' From this time he conducted all his operations on this basis. He arranged -2- the assessments, funded the debt, and made payments in cash; ard frem this time - during all the campaigns, of T!!arengo, Austerlitz T Jena: Eylaun Friedland, down to the peace of Tilsit in 1807 - there was but one suspension of specie payment, and this only for a few days rWhen the first great European coalition WRS formed against the Empine, Napoleon was hard pressed financially, .and it was proposed to resort to paper money; but he wrote to his minister, 'While I live I will never resort tn irvedeemabie paper,' He never did, and France,. urnlen this determination, commanded all the gold she When Waterloo came, with the invasion of .neuded, the Allies, with war. on her own soil, with a change of dynasty, and with heavy expenses for war and indemnities, France, on a specie basis, experienced no. severe financial distress," IA cannot RSSUMO that thisteolicy was distinctly of Napoleon It may have been the prodduct of his time and his personal creation. experience, or on the other hand, experience. drawn from the desperate period of the French Revolution.. As R young man, and even later as Generaln Napoleon hnd himself received his pay in a depreciated currency of constantly. nednced purchasing power, and it may be fkir to attribute n as a military man, R more just appreciation to his micresconc finnnce plays in ;successful warfnre, than is true of the importance of Finance Vinistens, who have noth71,ng to do directly with the feeding anm2nanG and maintepante Our own history, ..Crem the days of the Continental Congress until after the conclusion of the Civil War, contIins nn unbroken record of unsound finance, in which we experimented with every expedient which has been condemned by history and expern,ence. Prance, during the Revolutionary period, had sulZeled from vast issues of paper money, commonly called !'assignatoti VI e, during our revolutionary period issued our As Washington phrased it, it took R cartfamous Continental onnveney, load of the stuff to buy a pair el* shoes. You are doubtless familiar with the fact that the w:nnthlessiass .nf tY,s paper money gave rise to the 1 shalt. i-ninnn later to our own phrase., "not worth a continental n' experiences in finance in enntrast with those of the past war. Civil War With this brief suggestion, indicating my belief that a finance policr in war is too important to be overlooked RS an essential part of a well planned militany program I want to ask you to revise what may have been your previous ieleas of the position of a Finnnce Yinister in time of war. Look at wan finance as a problem in production of goods and employment of aabor, and consider. that the Finance Minister, and those serving him are simply the bookkeepers who are charged with the responsibility of making bookkeeping records of transactions in goods and labor. At the risk of going over elementary ground, with which you are thoroughly familiar, permit me to summarize by illustration, the great problem of the pryduction of goods, and the mobilization f labor for the purpose of conducting war. In a rather narrow sense, and for the purpose of this argument, I would like to divide all goods produced by labor into three general clauses. The narrow and not very exact, but useful for purpose of illustration. The clasees, I will classification is call: Productive, Useful, Wasteful and Useless. The illustration will be in the employment of, say, 1,000 tons of ore, which is taken from the ground, goes through all of the. processes of smelting and fabrication, and erection in the form of a Corliss engine., which is opabated in furnishing power for the manufacture of sewing machines, or for the spinning of cotton fabric, Here we have one illbetration of the most productive employment of a product of labor and of the material employed. Falling within the second class, useful but not productive, let us suppose that this 1,000 tons of ore is converted into a beautiful monument, illustrating some important event in the history of the nation. It is not productive, but it is distinctly yseful, in that it isl to some extent, educational; it has an aesthetic value, arid gives enoyment to those who look at it The economost recognizes that the employment of labor and materiml.in ways which provide simply healthy aesthetic enjoyment, is though it may not be distinctly productive. As illustrating the third class, let us suppose that this monument proved to be an ugly, grotesque .certainly, affair, which people went out of their way to avoid seeing. this would be neither a productive nor useful employment of material and labor. In the narrow classification, which en employing, it would be wasteful and useless. But, here we come to the fallacy as frequently deluding to even thoughtful people, in regard to this form of production. They say at once that those who are employed in producing this ugly monstrosity, nevertheless earn wages which enable them to support themselves and their families. That argument is wholly fallacious, and is demonstrated to be so, by reduction and absurdum. Suppose all of the people of the world became infected with some strange madness, which led men to lay down their tools, and devote their energies solely to the production of useless and ugly articles of ornament? The world would shortly aterve, there would be no food, clOtkibe or housing for anybody. useful, al- ' This rather fantastic illustration is intended to lead me to the point of stating, definitely, that in a narrow economic sense, the labor employed and the goods produced in waging war serve just RS wasteful and useless a purpose as WRS the case with this ugly monument. To be sure, in a political and social sense, warfare may be useful and necessary for the protection of people in the enjoyment of their liberty, and even in their freedom to produce useful and productive things, but in R narrow economic sense, I think we must accept the doctrine that the goods produced and consumed in warfare are in the main, and at the moment of use, sheer waste. Bit it goes even further than fare not only destroys things, but it calls for the production of an . .4. . increased qyantity of goods in order that they may be destroyed. Simple illustrations are_ in clothes, food, fuel,_ etc, Men taken from sedentary employment and put into the 'field for drilling,4ManeUvering and fighting, wear out clothes and shoes faster', and actUally eat more food, than when employed in peaceful occupations. A great' Ivar'. fleet patroling the oceans at high. speed. consumeer*re; fuel :in time 'Of war' than in. time of peace when anchored in port, or proceeding' lei-S-6'01Y .from'one port to another. so it goes through much of the actual .operation of armies, that not only must goods be destroyed, withoUt "produCtive ,Lresults, but an increased quantity of goods must be,produca0,4qr' this :destructive occupation. Theoretically, this demand for wa:e sUpplieS -in larger quantity, and of different kinds, than that required in ;peace time could be met were society .so highly: organized that the !could be promptly induced, ,or required,to..?o reduce their )demands : for geods and for ser- vices of labor, that StA,f4 ientv,lume of go'Ods' and a' suf f icient supply of labor ,w4uld released to SUPp'Or the operations of armies. , . . . . No sletem. of .govrnment, in fact nci..et;priiiitifp'..sytem, has yet been devised which would ,,cause.,.a civil .10opuYation:of the 'c6tintr'y to immediately reduce demands f orgoodsto, the point where could be itc&quately supplied without aome,4nor ease in production : Wire that se,. 'war, f inance Would be no problem. ..Look at this ,fromanoth01 point' Of vieki. Were it poisible for a government at war to levy OontribUtion'from labor and pro- ducers, so egitably and justly, that each would contribute'his fair share of the goods to be consumed,by armies in time of. War, Again, war loans and war taxes would disappear, .manufaC*urer. of 'spades, for example, would. turn 'over, . without pay, 10% or owe, percentage, Or' his production. The same with the farmer and. the, spinner, each tViiiiing out so much in of .War loans. Nor goods in lieu- of the:payment-of. taxes) or the is this suggestion so: fantastic as it app4ears, when it' Is recalled that . in the Middle' Ages, under despotic for", of government; Or more recently, in 'the days of' the feudal; ayetem,, ware was, conducted almost exactly by this Methodc *le King called his .0lights and ar6ns to ),Irris; each bringing with .him.,ab many men at arm and, each furnibhing so much of the 'required supplies; _ 4 under our Modern economic system, however pian's labor, and the product of his 'labor, belongs to himself,. .,Wilat war destroys in goods, or wastes in. labor, must be furnished during the war Period, and the only way in which the government can get control yoc this Product id . by process of law, that is, by conscription . in the c,ase .lfabor, and 'by 'taxation or borrowing in the case of goods or materials ;* 'What cqbriot-be paid for at once out of taxes collected -during the, war .period, must be paid for out of the fruits of the dnergy of 'labor and out. of the profits on goods, produced by later generations. We are. approaching, the point in this argument where the Finance Minister is 'called upon to keep the books. , . If you agree with me that economy, by. the civil 'population of the nation at war. will not certainly at once be. adequate to release the required labor' rind goods for war purposes, we must then assume that the nation at war becOrles a 'bidder for goods in competition with the civil population Military necessity. recognizes no economic laws when the r , winning or losing of battles depends upon the speed with which production of war material in adequate quantity can be effected., The Wen organizotion not ,only bids for goods and labor in competition with its own civil population, but in competition with other governments that are at War, and even with other departments of its own government. We know that is is the 5 or 10% surplus on 5 or 10% shortage of any kind of pro. duction which determines the price for the entire amount produced. So when the war demand for goods arises, failing R system Of direct confisce. tion end conscription of goods and labor, which is adequate and just, and is distributed fnirly, :felling a system which induces or requires economy by the civil population, we find the old rules of competition engaged in marking up prices. As prices advance, the cost of labor edvances. The Finance Minister, 'being the bookkeeper, id engaged in raising taxes and piecing loans to meet demands for goods, at a constantly increasing level of cost, and as payments are made for these goods, extravagance and waste.' develop. The classical theorY of the influence upon prices exerted by the quantity of money, or of purchasing medium in circulation, begins to operate. TM shortly get into the position where the "dig is chasing his tail." Higher prices induce higher wages, which cause expansion in credit end currency, which again raises prices and wages, end so this endless circle is gradually being enlerged"with all of the consequent evils af inflation, expansion, extravagance and waste. 0ne may well ask; hew can this all be avoided? It is, unfortunately, necessary to admit that the experience of the last war demonstrates that these evils are not to be wholly escaped; that. in war the choice of a policy by the Finance Minister is usually a choice of evils, rather than the selection of an ideal policy; end that the best that he can do is to mitigate a situation which cannot be fully controlled. Admitting, there:ore, that production must be somewhat increased, and that some bidding up of prices of goods, and wages of labor, is unescanable, the question is, how this increase can be best financed, first, out of the savings of the present, and second, by Rnticipnting the savings of the future. I think / can best illustrate how these difficulties of production of goods and employment of labor may be dealt. with in a financiR1 sense, by specific reference to the poliey of our government in this war, in contrast with the experiences of the Civil War. When the.Civil War started in Ap the finances of the United States Government were in excellent condition, its bonds were in keen demend, it had a very smell funded debt, and ample revenues. Within eight months, specie payments had been suspended, the country Wes in the throes of financial disorder, and Secretary Chase had paid as high as 12% per annum for temporary loans. Before long, the expedient of printing fiat money Was resorted to, I think, reluctantly.. on his part, but with that curious complowence on the part of Congress in financial matters, which has characterized the acts of legislative bodies in time of war, for generations. It seems as though regerded paper money. as a specie of "painless denistry" in war finance) which. might be employed without fear of serious consequence. We paid a penalty for unsound Civil War' finence.which it took 15 years from which to recover. We Saw gold selling in terms of paper money at 280%, prices . Referring first to methods of taxation, the subject is so Snvolved, opinions upon taxation differ so widely, and have produced so much controversey, that it would take too ltng in the present discussion to refer to that matter beyond the briefest outline. The important nrinciples to be borne in mind are; first; that)tax revenues, in order to avoid the imposition of hardshk.9 upon the poor, must be collected by direct taxation measured in proportion to the means of the tax-payer, and second, that the amount to be collected by taxes should not exceed that sum which the nation can pay, without crippling industry, and stifling enterprise. In other words, without curtailing production, As to the first principle it is easily illustrated; if a tax were, imposed upon bread, meat and other essential foods, and upon simple articles of clothing, and upon house rents, the burden imposed upon the working class would be outrageously unjust. The proportion of earnings of the laboring man expended on these necessities of life is very'gneat; with a man of large income, the proportion It is a form of direct taxation; with all the evils of inis trifling. direct taxation, which disregards the capacity of the individual to-pay the taxes. This same objection exists in most forms of indirect taxation, including the much discussed "tax upon sales." Probably the most just method of levyng a diPect tax is that found in the graduated income tax. One of the defects of the scheme of taxation devised by Congress in the early days of the war, was the fact that it was overlapping, or duplicating, that it had a cumulative effect. It taxed the profits of capital where engaged in industry and commerce) and then taxed the income of those who received the residue of profits of commerce and industry, after the original war and excess profits taxes had been callected. In some cases, hut not in all cases, these taxes probably did have some effect toward restraining enterprise and production, but not nearly so great, in my TOnlon, as had frequently been claimed. With these few words cn the tremerdnusly important subject of taxation, let us turn to the question of loans. Assuning that a sound and adnquate system of taxation, which provides the maximum revenue, without unjuntifieJ burden upon any class of people, and without restraining prodnctnn, is adopted, there will nevertheless, and inevitably, in such a war as we have just expeienced, arise the need for borrowing to meet war expenses in excess of what can be provided from taxes. The effect of a loan under three circumstances is simply to postpone the levying o.? taxes to a later date, rather than to impose them during the war period. It is anticipating the profits of future from people of means production in ordr that the the necessary purchasing power whereby to pay for the services of labor end to acquire the goods nequired for wR: . It is taking a share of the profits realized from nature production and spending them immediately. It would be unprofitable here to disnnss the narions theories as to the kind of borrowing which should be employed, that is to say, whether long or short time bonds; or perpetual annuities, or otherwise, and what the varims terms of such borrowings should be, except as to a few of the most essential points; first, as to tax exemption. Herein lies an evil, unfortunately, not wholly escaped in our own recent record, which is almost as dangerous in its social effects as is the "painless denistry of fiat money in its government1ti4 -E- economic effects. A government which borrows money for war purposes is asking those of large means to gave up nothing, but rather to" lend their credit te the,govetement it the expectation of full repayment with reasonable interest. ft-is ifot eueh-an act. 'of- confiscation as is taxation. If, in addition, that rAn of large means is exemption from taxation upon the inoome from the bonds' whiche,puechases, the opportunity is atfOrded to him, and to' all those or,nis tiass, to escape the real financial buoCen èí' the war, by enabling hilo to:conYert a lnrge paet of his propert7 into whellytax eXempt -seceities, and so eseape his just burden taxee. It ie dietinttly class legielation which ter 2e to throw the greReer share of the beeden of, war- C.1.0:7';'; upon the pooy4 It gives an nd7Ratage t.) those whe enjoy intOtes'Which they do not earn over those who gat their OreaTee feom gairN1 Ocaupationso and, in my opinion, is wholly viciolee end ,tneeveel, The 2.,extprenciple- to observe, is to avoid employing bank Leedit foe war,..oan'3; and'esek to'place. bond issues ih the hands of t'oe 320NOng eeb1::,c, :tn bon'Is ef as long maturity as may be juatified by 'ne, cio:emAacee of tte wae, and the government's existing debt and revenues, The -employment of barl'k ceedit, that is, either direct borrowiege, borrowings by the government from banks, is ft form f. inflation eeocoed only in its inflationary effects to the print:: ing of fiat money de net wish to be dcgmatic in this stateMent, and will only point out -..oat to the -eent bank :ones are expanded through these war borrowiega; j.eet to throt extent priceshave eisen or will the cost of ncreas, and the'Whole'econcmitsituation beecme: disordered ane. deereoanoze,J., One of the misfe7tures of our 'financial prooetim doring VaA wa'. lay in the tact that we were callad'upon'tofintince not on-ey oe*.:' own rel effort, but a considerate share of' thatof cur associate;' le zeooe be-eowing money by ole Tieasery.in aMounts fa: in excess of the ving ouleoeie of toe country; even after a maximum ot revenue had bean ees.izel. :rom taxes. On that ageount, after people had teat rise, invested the !:a.::tail.".rt of their collo ent en.7:.ngo in veie loans, we had to ask them to antieipa.oe savings of the Peture 'ey subecribing for loans which they could net at ,once ray for in full. We even exhausted this resource and it became oecnseary fpr-the Treesuey ta boorow money directly from the.ccouneecial the ceuntey tipr ewn short notes, It was in this laotee 7aetieel.Re. tnat he eOonemiss of the coleery attacked the Treasury pT('!greJoi, net eealizing in most cacao, that -the policy of the Treasury was one of tie norsequences of the eoercetitoe,t.T.which I have earlier refereed,' Veieh had the effeet of raising prieeo rather than being the cause oPez increase in prices, RS argiAe6."bo e'erse who adhere 1;,)o slavish4 to the geantity theory Cl In money. geeeeal terms, what haopened with uo darieg the war was thoi tee Treeyury chaaing rising prices by eaisiog ri..ecreasing amounts ef-Leees, seblieg constantly increasing amoun:6s of boee!e; and finally endee:the peeeeere of necessity, borrowing ineoeseieg amounts from 'the bank c' Had tna goods required been forthcoming, witeee'o competition, either as the'eesmit of voluntary economy, or RS the ieselt of some form of conseription of material and labor, prices wcu:d rot have risen,'and'the mateeiale required for war would have been feenCeer:, and the'amountof,boerowinga%.3uid have been moderate and wiShie the eaoecity of the inveoting public to absorb without so greatly antio57)etieg fuetre savings. TC-oho'eetent that the goods t5 be 0(3. purchased and destroyed in the war effort cannot be met out of current savings, we must, inevitably, in some form suffer inflation of the currency and thereby.add,to the tendency of rising prices. I wish I might illustrate with exactness this insidious Rnd dangerous process of inflation. It is almost Impossible to express it in words and figures without R chart to illustrate the process, and I shall ask you to accept my. statement, unsupported by amathematical illustration, that inflation, and itsevils, istthe invariable accompaniment of a war which cannot .be wholly conducted without,increased production and competitive buying. I do not wish to burden,you,with a MRSS of figures relating to the financing of the war, save for the purpose of illustrating the points which I have tried to make clear. The Federal Reserve Bank of which had to.cRrry the. heaviest part of the burden of raising this money, actually sold $6,234,000,000 of war bonds of the five loans, which was nearly 30% of the total,,and which represented. 12,373,672, separate subscriptionsv It also raised in the short loans, to which I have $3,000,000,000 pinci.pally through the sale referred $2,500,000,.0.0.0.to of.certificates,tpthe lanks. of the Second Federal Reserve. District;. this :being, in etrevolval,credit of constantly increasing volume. But, our.effort was diracted,. from the leginning,-toward effecting the widest possible distribution of the long-time loans to ectual investors, and,,' only where imperative that we shoUld do so, did we invite investors. to borrow money in order., to subscribe. Of the money raised on,short certificates in the .early days of the war, no less than 80% of the amount outstanding WRS at times owned by the commercial benks. The efforts which we have continuously made to secure a distrittWou of these certificates to the investing public has now reduced the percentage to very smell.proportions 3n OU2 district;.probably not move than 4% to 10% of the certificates outs'eandng are owned by r:URnk.se The amount of bonds and, certificates held by the banks is constantly being reduced. It part of the process ci deflation now, in /ull swing, . all ' re iacti t A most interesting feature of the financingeof the war was.th0 -machinery employed to..raise the.MOneY, 'Few,pe;ple realize that.anganization was.created Wh.ich meant thcCe for every soldier in France; even at the maximum .strenTLh, of our army, there was one person in the war loan ft is estimated that over tWo. orgRnizRtion rraising money at home. million people welremobiliz.ed. in this great effort, and the organization of which I WRS the.bend in-New York, WRS estimated to comprise about. 200,000 people, operating under the direction of about 3,500 committees, created and organiLe.4 very much along the lines ef the organization of a great .army. The,whole was preaided over by a cOmmittee of 14 men, who did no more than to. direct. policiep through ,a staff of officers assigned to duties j4St,RS,Sp00543,C RS those Rpplying to a military organiza. . tion. To illustrate the.exactneSs.withwhichjhis work was performed; out of the ,expenses and disbursementstaggeegating about $12,000,000,.. when theeaecounts were wOutld.up,:it was found that only $2,700 had been spert in such a.way,that itcOuld not be reimbursed . under the rather exacting requiremeints'.ofthe.Treasury Department, and of The entire expense of sale and administration of the the Federal eudit. debt, both long and short-time, amounted to something like 1/20th of 1% of the amount of money raised. To illustrate the efforts to observe sound procedure in distributing bonds to investors, our organization in New York devised 9 plan for selling bonds by instRllmsnts to poor peop)r and wage earners, which was operated during the last three loans, and which resulted in no less than 2,500,000 subscriptions, of which 90% were paid in full by the subscribers. It necessitated the employment of an organization at one time of 450 people to run these 2,500,000 accounts, and strange to say, it resulted in a profit through interest end other adjustments, Of something like $350,000 to the Federal Treasury after allowing for all expenses. _. -- This discussion would not be complete without. a few words upon the relation which should be sustained between the army organization and the finance organization. Summarizing the lessens in finance in the last war; as to the relations between the two branches of the government, it should be definitely understood as an established fact in connection with war, that no sound system of war. finance in possible, unless the methods of mobilizing industry, of conscripting labor, and of purchasing materials required for war, are based upon a sound understanding of war finance, and ct the dangers of unregulated competitive buying, without regard to the effect of that policy upon the financial program. With due respect to the ability of the personnel of the army, they should not be concerned with the financing of war, but they should be profoundly impressed with the difficulties of financing the war unless the program for producing the instruments of war are based upon sound principles. Without that, this bookkeeper, whom we call the Finance Finister, is helplessly engaged in making entries upon the books of the nation, which are simply a record of bad judgment and had methods.. This applies in so many directions, with which you are familiar, that I shall not enlarge upon the subject in any detail. It applies to the restraint by rationing, or otherwise, upon civil consumption of goods. It applies to the operation of practically the entire system of transportation and .communication of the country, both land and water. It applies, particu to the means employed in converting existing plants into war industry, rather than toduplicating plants, to become useless after the war ends. It applies to the method or selection of men for the army, with a view to maintaining production, without impairment of efficiency. It applies to limiting the use of bank credit only to those purposes which are essential to maintain the health and energy of the people, and the prosecution of the war, and no other purpose. As to the distinctly financial program, we have learned that the direct taxes, graduated .according to the ability of the citizen to pay taxes, is the soundest and fairest method raising war revenue. We have learned that government .borrowings should seek to impound the savings of the people and not to bank credit. We have learned that economy in interest rates temploy is a false economy, which makes it necessary to look to bank loans -rnther than to investment funds, for needed borrowings. We have learned ( that short loans must only be employed where the market for long loans is actually exhausted. We have learned that tax exempt bonds cost the government more in revenue than it can save in interest, and place an unjust burden on the poor. Possibly more important than any other lesson, all ' -40 ck9 we have learned that R sound system of 'inking and finance in time of war necessitates a non-political banking system, which will respond,. to the ,needs Of war financei-without being subservient, to those who advoo:a.te unsound financial policies4 In cOncluSion, I venture, with some hesittion, to express the opinion that preparation for war by this country c7n be .1/7641ee more effectiVe by the preparation of plans for organizing for, war than training end maintaining a.large r.,rmy in Galticipation.or. By this I Mean a iwli. stUdied prrygram of conscription based upcn past experience,, a well-studied:program-of preduction and transportrition :4,1sed.upon past, experience; and as a'complement to 'such. a.well sigdi'ed program'of finance worked out in such detail, end upon such sound kines, that the machinery fOr finanCing those 'strictly war .efforts 0.an,1).e "et Up immediately thA the ffienace,of war arises. , .I am informed that at the. conclusion of .such a:talk as this, 'it sometimes .becomes profitable to address questions. to , the speaker. I am in a frame of Mineto Antwor any questions that I onnand,to tell you frankly in case VOu.ask Me questions that I am .unable, to. -answer.. I should like to ask the question in the matter of financing a great vmr, is fixed in the mind of finenciers.as tcp Anything the definite proportion, say intho beginning of,a war, which should '.)e raised first by taxation, second by loans? it . , p.MSIZR: *I can only answer by referring to the e.xperience in this last' war and 'particularlystheexperience in Great Britain. .You know the care.:and.precision'with litich'the budget ,is prepared by .the Parliament. in Great 9riteinin tithe Of 'peace, Uhen this ,far started,there.7e.n possibility' of prep'aring a'budget...Mr. McKenna was ,Chancellor, I think, in 1916, two years after the war started, When the first budget in t4res: of money was submitted to the Parliament, so that at the outset, fOr both the wnr and navy departments a budget bill passed with the provision that there -as appropriated for'the:purpose of var, the sum of One hundred pounds and such further amount .asmight.be required r this WRS the famous blank check.drawn-in favor of the, Chancellor Ar. theyxchequer._ I really feel that the pro"gtnt Of division iletweenthess,two sources'. of revenue, that is taxation and loans, has to be determined by some under. standing of the magnitude of the war at its outset and whether it is to.. be a navel vluir or r: 1,nd war!. Our experience wou1d4ndioNte. that the .'-sound program would be to raise .e.Very dollar'thst the nation can: pay by .taXetion rather than by loan. T. do 'notthink that.a-generai!propartion could be fixed. The war with Spain was financed largely by, taxation and -ré 11,4, RS I recall, only one loan .of t200,000,000. gES'ION; -Would the Finance Minister-need from the Army an estimate, in dollars and cents as to what might be needed, in 's,y the first tlelve . -12.e months? That would be necesserily inaccurate. ANSWER: I suppose such an estimate could not be made. Certeinly it could not have been made in the lest war. It would be desirable if it could be made and would be e great help to the Minister of Pienecteele laying out his program. I may throw a little light on that by telling what was done during the lest war. It was found that the appropriations made by Congress were no guide, since they represented simply the curve of the rate at which the money Was authorized to be spent. After some months' experience it was shown that the rate of expenditute was constantly increesing, that is, the machinery of the country was being speeded up to provide the goods and men for the war effort and it was found that the rate of increase was 'approximately $100,000,000 a month, I think it Was in February or March, 1918 that it was estimated that during the summer of 1918 it would be necessary to raise loans at the rate of V150,000, 000 a month, and it worked out almost exactly at that figure but it did not last at that rate RS 16ng as we expected. I think that after six I very much weeks at that rate, the program was reduced to 1500,000,000. doubt whether the Army could so organize its scheme of purchasing and of mobilization and transportation so as to know At what rate the money would actually be required, QUESTION: May I ask to whet extent do you consider that price-fixing in the of war would. be feasible and to what extent would it remove the difficulty of finencing the war! beginning ANSWER,: That is a matter whic# has been investigated a little at the bank and while / have not the figures in mind, I think it is shown that, in general, the production of those articles on which prices were not fixed increased in volume more than those for which the prices were fixed. / think experience shows that it did not work very well during the war. 121§:IPN: Would it be to much to ask you to give your opinion of the present financial problem of paying our short time notes, the Victory notes, and raising the $7,000,000,000 we need, in the next few yeers; should that be done by taxation or by new loans? ANSWER: That is a subject which is now being studied. We have maturing between the present time and May 20, 192:3, in round figures, seven and oneehelf billion dollars, which includes the Victory Loan. That comprises, roughly, between two and two and one-half billions of floating debt, something over t250,000,00 of notes issued under the Pitmen ,ct, as well es VT er Saving Certificete6 and the Victory Notes. During the war, with this organization to which I have referred and with the war enthusiasm at fever heat, almost impossible things could be done in raising money. -13- raised over $6,00C,000000 in one loan but I think it is of very ,doi4tful wisdom to expect that the people of this country would refund in One,operation.sc, vast sn-issue RS four and one querter.billion,.which We ,wes.the.amount.of,thellictary.issue. I should hope that Congressi.under ..theleRdership of the Sctetary-of Treasury, would be disposed to look that subject conservatively 'and begin soon to redeem the Victory Loan in small amounts and so spread the maturity over the period between 1923 end 19274 Ultimately, these note issues must be refunded, they cannot be kept outstanding fdreVeri 'Again, if the nation's finances are to be kept in a defensive condition with' the possibility of ,a future ware. my own beliefie that -a -Certain ;6(51:Int of refunding could be conducted during the next threei four or five ye'ars and as much as possibleof the floating debt should be paid off out of taxes. at . . QUESTION: Vie have now something like ,200,000,000 in gold reserve. he has been defined a$ to extending'foreigri Oredit. The nations .heve,not the purchasing .pentrAlowand therefore'it must be done on credit. -Vouid it be a sound busiriees,pOlicY for the goVernment to finance credit or corporations extending.yeredit with the idea of raeasing our products and,getting the profit on them or'rould it he a better pplicy to allow that to take the natural trendof-the commercial praceSi? policy ANSITR: I expect that is .a question which vie are going to hear'discussed up at.the Capitol pretty soon,' T.'would like to answer that genetally'it may,., MS all have ourtheories.. about trade and in this country re have S particular theory abeutttadewhich I believb is a product of the many years during which our trade mas'developed under the protective. tariff, It has led to a:delusion. R.-.ople seem;tofeel that a natien ,gets rich out of its export trade. That is riot a tact; a nation does not get rich out of its export trade clone; it gets rich out of trade, by exchanging the products of the soil arid of the labor of its people for products which other nations produce. If we expect to continue any such foreign trade as we built up during the war, 'which created debts that have not been paid yet.Rnd wont be paid for generati6ns, it seethe that this country would be taking R position- similer-tb-that.of the country storekeeper who, invited people of the village to come-and buy from hinCwithout limit and pay when they pleased. He would last as-long as his batik 4ccount lasted and at the end of that time he would probably be bankrupt and would' bankrupt many of his customers. Consider the trade of nations es the trade of ons.business establishmet, Rules that-apply.to.that storekSepenftueiness Ste no different from the rules which must apply to the nations as a 'whole., ,I shoUld look with regret upon a-policy by this countty of exchanging bur .Commodities for, pieces of paper of uncertain payment. rfear-there-are.S.greet many people who think, we are going to get rich, by exchanging these good things that we produced in the United States for paper. .1bat we want to get in exchange for what we export are two things---onejrbelieve in the long run it will be. the principal:" thing we will get, ---will.be goods and, failing the goods, we want to get. good pieces of paper. We have so much gold now . upon which we are advancing, money in New York that it cennot be assayed ss fast. as we take it in. It .would appear that those who are buying goods from us in Europe have reached the limit under the present economic and political conditions of what they can buy and pay for with pieces of paper along. I shouldsuppose that within a reasonable period .now we will discover that trade arrangements cannot be effected with nations that are not solvent even to enable them to buy goods that are essential, with the expectation How is the exisLiing that ultimately we will be able to collect the debt. debt to be paid except by :goods? The Allied .nations owe us :00,000,000,000 which is more than all the monetary gold that exists in the world. And besides, we have more than one-euarter.of the monetary gold of the world right now. I cannot for the lifeoffme see how we may expect them to pay what they already owe and make a still greater debt for further goods unless we admit we must get something in exchange, that is, something they can produce to a better advantage than we can and which we need in the development of. our own .country. When I was recently traveling- by steamer. from the Island of Kin Shu a Japanese boy came up to me en. the deck, said he assumed I was an American When I end wanted to know whether I. would talk with him. a little while, expressed a willingness, with a certain Oriental shrewdness, he said he had four companions and would like to bring them up for a chat also. After telkingfor an hour or more, he asked me if I would express an opinion of the Japanese policy in China.' I said I might be able to do so but I had been very hospitably received in Japan and it might necessitate my seying unkind things about their. policy in China whi-ch I did not want to I asked him do, but would try and answer by Rskigg them some questions. whet Japan wanted in China. He gave the.perfectly correct answer that industry in Japan in order Japan Was over-populated and now had to build up. to create.things for export so as. to extend their foreign trade and I asked him how they were going to support their growing population. pay for the things they wanted from China and he said they would probably pay money. I then pointed out that all the money in Japan would be exhausted in a. shorttime br that plan and suggested to him that possibly a way to pay for those things was to ship them other things in exchange. He s.7kw that right.away. I explained that what Japan needs is the friendship of China so that they can trade with them, whereas. China was now boycotting Japanese goods so making it impossible for Japan to trade with China. That the friendship of the nations of the world is exactly what we need today At the present time we need about ten or so that we can-trade,with the twelve billion more of their goods than they need of ours. SEESTION: lecturers say that I em getting worried about this gold. we want to get all the gold :Of- the world and about the time I think we are doing pretty well, I reed the papers and see that too much gold is I being imported and that there. should be some scheme for stopping it. am up in the, Rir as to whether we should have gold. or not. . ANSWER: Before the war broke out we had Rbout.$1,8p9,p004000 of monetary gold in the United States which acted as a reserve far. bank credit. We increased that by many hundreds of millions before our declaration of war. . The effect of that accession of gold in the United States Wat5 to create an immense ekpRnsion in currency 'and bank credit. As I stated before, it is impossible to explain that Process of expansion Satisfactorily without e chart, but the consequence of, the increase was. an increase O'f about 70% in prices. That is the Penalty We'pRy for importing gold unless' we have a policy to offset the importing of" gold. The effect I refer to is the increasing of bank loans and the raising of prices. It is shown by the fact that commercial banks which make loans for the support of the country's business may increase their loans, say in the ratio of three, four, five or six times the amount that their reserve is increased by gold imports. Every time ,ee import a million dollars of gold we lay the foundation for building up a pyramid of credit of some millions and with that we stimulate trade and increase prices.' OeTheve, since the first part of Janunry, received at the port of New York about $1.50,000,000 to 200,000,000 in gold. It goes to our bank and is then 'gradually distributed throughout the country It also increases the capacity of the.msmber. to the other reserve barks. banks of the country to increase their loqn accounts unless that, is regulated or controlled by the Reserve Bank. We regulate it principally by the rate we charge for credit which at present is pretty high - seven per cent. Gold is like a thermometer. As you see the amount of gold increase you see the - delicate instrument which we cell the reserve ratio rise in the reserve banks. Your particular attentiOn is directed to the feet that conditions have now arisen in which men are.led'tC believe that they can make money easily. if they are allowed -to engage in speculations which they could not in fact engage in were the credit not available to enable them to do so. The existence of the gold in the country has some effect in increasing prides because that gold is paid ter by the Reserve Bnk by a check which is the same as credit. It increases the credit' fund of the country by 100% of the gold imported But if we alse reduce our rates., then the amount of credit might expand 2,.3, 4 or 5 times in yolume, compared to the volume of gold imported because it would be profitable for people to do more business on credit. QUESTION: You use the expression mind the Secretary of Treasury? lq!Anister of Finance". Do yOl& have in ANSVI/ER: Yes, I use the "Minister of Finance" because it is, in more common use. Then yoil believe that he is the one that should Start in now prepare plans for financing Passible wars that you'apok'cl of in your paper. tn ANSWER: I would feel so if the Secretary of the Treasury under this administretion had }led the experience of previous Secretaries of the Treasury: but under our government, with the changes taking place as a result of the election, we get an almost completely new personnel and the men who now hold or will hold responsible positions in the Treasury have not had the experiences -16- of the years 1917-1918 to enable them prepare R program. My thought would be thPt those who directed the operation of raising money during the war end those who studied and laid out the program for taxation and loans should be called upon while their memories are fresh to lay out and Prepare R theoretical progrRm.in which we would take advantage of ourexperience and perticulerly, take advantage of our mistakes, which are quite obvious. I suppose there are a dozen, fifteen or twenty men who know the subject from the ground up now RS we have never known it before. We should take the opprtanitj to get their experience reduced to a program, from e military point of - QUESTION: When you were speaking that thought occurred to me. The railroad men comes in end .says we should take advantage of the experiences of the war; the Council of National Defense man and the finance man say the same us howwe can go to work to bring this about? / see thing. Can you it is very important, e national thing. Could you offer. some suggestion by which the military man might be' able to produce some results in that line? tell ANsum: It seems to me there are two ways. One is to get the President to see the Secretary of War and Secretary of the Treasury and request those two cabinet officers to see that the heads of the War Loan organizations prepare such R program. Another way would be to cut out all red tape and go I can tell you right to the men who raised the money and get them to do it. and I think in apple-pie order as far now that in the bank in New York RS I can discover - we have an account in the most accurate detail of every dollar that was raised and of every penny that was spent to raise it4 We have bound copies of our records and skeletons of the organization of the district. We have whet we cell a "plan book" which describes how towns were to be organized; we have the maps that were used. Finance is e rather hazy sort of thing to the ordinary person and you would be surprised to learn of the exacting details of organization which were required in organizing for this effort. We took the military maps, prepared by the Army, of our district on which we had every house noted, R red line put around to show the geographical limits of S. given committee and they were required to see every person within that limitation. In a vast country like this it required a big effort which had to be done scientifically or there would have been a greet waste of effort. That has all been done once and generally with every I feel it is e loss to the nation to have those men pess out and success. die or disappear with knowledge such as this in their heeds without putting it in e. document of some kind with exhibits attached, telling the story of their experience, their successes and failures. I think if it were submitted to the right people, RS though this' nation might become involved in weer say in six months, the whole scheme and principles and outline of procedure relating to the financing of the war could be laid out in three or four months very effectively. FEDERAL RESERVE BANK OF NEW YORK MISC. BB .2 4/67 OFFICE CORRESPONDENCE DATF SUBJECT- FROM At4 t *4,7 9.22, e aosOilm4; THE BANKER AND THE EXISTING FINANCIAL SITUATION Because of a 622,4 i,(41e the very remarkable conditions now obtaining, in the United States and in the chief nations with which it has closest relations, there are matters of unusual import which it seams to me it is the present business of the bankers of this country to consider with the groatest care. I mean our relations as bankers to the economic, social and, I would even add, political welfare of this country. I need not remind you as to the nature of these present conditions, nor need we delay over questions as to how they have arisen. upon one point, and that is that, in an I would dwell economic sense, the four years which have elapsed since the end of the great war have been for the United States without any parallel in its history. It is usual at the close of a long war that there should be a large and often precipitate decline from the high levels of prices which modern wars almost invariably engender. the world war, no such decline. 1;Je had, following Contrary to the widest general expectation, instead of a decline we had, piled hit upon the enormous increases in the war, the greatest rise times. This in prices which this country has ever known in peace was accompanied, as is almost invariably the case, by a great wave of speculative activity which swept the whole nation. Then, following this post war boom, as it has been termed, came the most drastic collapse in prices, measured in percentages, which this country has ever known; and with this collapse an unusually severe decline in production and trade, in some lines probably beyond any previous precedent. 2 But this critical tense and we have now had, depression proved as short lived as it was in- from the lowest point of that deeression, a re- covery in the last twelve or thirteen months that is likewise probably without a precedent in its rapidity. In many lines, at least, this is a cer- tainty. need to remind you that in all these abnormal move- Now, I have no ments our banks and our bankers participated to an unusually intimate degree. The post-war rise in prices and the speculative boom that went with it was accompanied by perhaps the most rapid expansion of bank loans,in peace times, I think it is clear to everyone that, in its of which we have any record. extent, this post-war boom and this rise in prices would have been impossible Without dwelling upon without this corresponding expansion of bank loans. causes or upon axtenuations, these are the certain facts. Now, gentlemen, I venture to suggest to you that at the present time we stand in much the same position as, let us say, the late summer of 1919; but with certain very floating debt. Imperative necessities for Government funds do not now exist. vital differences. We have not now any huge and ominous We have gene General interest rates have undergone an extended decline. A large amount of bank loans through a period of very thorough liquidation. has been which funded and largely absorbed might have been desired. by investors, though \Our_banks have been heavy not to the degree within the present year, in Governmental and other investors, securities, especially and this fact has undoubtedly been a potent factor in arresting the precipitous decline which began in the spring of 1920. not only this remarkable the depths of the depression we have had recovery in production and trade but an equally notable rise in wholesale prices. are not an .F.11Tal authentic index In times of very wide fluctuations wholesale prices of the general price level, meaning by this the 3 general level of wages, salaries, rents, and prices at retail as well as Nevertheless, it is clear wholesale. prices precedes and determines prices are, eral price that the broad movement of the general level of all prices; and these some degree prophetic of the gen- therefore, barometric to and in level. The broadest index of wholesale prices which we Department of Labor, and I wish to point out to you the widest variation in wholesale prices, from low the five years which rise in preceded the opening of have i. that of the that this index, within the present year, has risen already 17 points, and in July the wholesale percentages more than to high, that occurred in Per the month of the world war. wholesale prices was one of the heaviest ever recorded by this index, and only a few times exceeded, even in the violent activities of the war. \_At_the Federal Reserve Bank we important commodities, basic maintain an index of to all industry, the twenty most and this index, which has clear- ly marked the tendency of wholesale prices in advance of any other, gives now no evidence of any arrest of this movement of must squarely face the implications recovery in been a steady though, for so-called commercial loans, that is Government to advancing prices continues production and newed demand for funds to finance industry. there has I believe we of this fact. It is A. B. C. that if this tendency it must, with the rapid rising prices. trade, soon lead For more than the last ter months, to say, and corporate bonds and stocks. loans other a year and a half than those upon This liquidation, as I have than a billion of gold since the summer of 1920, and in part by public issues degree taken by the re- very slow decline in pointed out, has been in part achieved by the inflow of more siderable to a banks themselves. to a very con- It is clear that the banks 4 cannot long continue to absorb these securities, and maintain a condition of healthful balance, nor can they continue to absorb Government funds. The damands of industry and trade will soon utilize all of the funds available. I think it is clear, likewise, that beyond this the banks inevitably wilVbe called upon to finance a higher level of commodity prices. And this, gentlemen, I need not point out to you is the beginning of the vicious circle. The banker understands clearly enough the simple mechanism by which prices rise and fall; but this mechanism is not clearly understood by the laity and is the occasion, as I believe, for a very large part of that unrest, social discontent, ill feeling, and violent propaganda which has in evidence since the war closed. If trade becomes unusually brisk, The mechanism, as we know, is simply this: and the retailer from his shelves, he is promptly alert to see order that he may serve his customers times he usually finds with the result that his findserchandise slipping that it is replenished in and conserve his trade. Now, in such that others in his line are doing exactly the same; deliveries are retarded. reduced and the mills must be speeded up obtain quickened bean so much to meet Jobbers' stocks are quickly the increased demand. To deliveries the retailer may offer or the wholesaler and the jobber may may suggest a Slight premitan for preference orders; or, simpler still, the jobbers first to fell the effect of this demand may advance their p T1 cos. At the same time they make increased demands upon the mills, and here again the pressure is not upon a single mill but upon all, with the resuit of an unusual derriand for labor. And if this demand for goods is sus- tained the result is the offering of hidier wages in order to attract more hands to the mills. his prices, and So the producer finds his costs advancing and increases this increase must be passed along to the retailer and by I. 9 5 in it, There is no mystery about it/ and, as you ,all gentlemen very well know, extraordinarily little of/this "conscienceless him to the consuming public. profiteering" of which we heard so much in and after the war. Now, it is equally clear that this unusual demand for goods will soon come to an end, first by the natural check of advancing prices but more distinctly by the consequent reduction in the purchasing power of the public large, unless there be a corresponding increase in this purchasing power. But this latter is impossible in our present-day money and credit economy, without an exactly equivalent increase in the outstanding volume of money and credit--for all practical purposes in the amount of actual currency in cir- culation and of bank credit extended by banks. Without conlidering activating causes, which is perhaps a barren waste of time, it is clear, and there is practically no one to deny, that in the final analysis the limiting factor in a continuing rise in the general price level is, for all practical purposes in this country, the of bank credit. total amount now For us the actual amount of the currency is/a very minor although still an important itam. It is perfectly clear that the movanent of the cotton crop, fiOm the cotton plantation through the mills and the shops to the final consumers of cotton goods, cannot be financed, as it be financed, with the same amount of credit, must with cotton at 20 or 30 or 40 cents per pound as against., say, 10 or 12 cents. Our vast wheat crop will require, roughly, twice the amount of credit to be moved from the farms through the mills and the stores to the ultimate buyer, at $2 a bushel, this it would at $1 a bushel, Special causes may operate and do operate to produce the widest oscillation in the prices of individual commodities, or even of great groups 6 of commodities, like the products of the farms. But it is clear that a general advance in the level of all prices, or even in the larger number of prices, cannot take place without a nation's purchasing power. corresponding You cannot sell the product valued, let us say, in 1913 at 25 increase in the total of the nation's billions, at, 60 billions in 1918, with but a moderate increase in the let us say, 50 to actual quantity of goorW exchanged, without a corresponding increase in the total of funds avail- able for these could be nurchases. which this miracle The business habits of our people are more achieved. fixed. We simply have no mechanism by The average turnover of goods or less from year to year appears to change The only thing that can and apparently does Change is the but little. total of circulating currency and the total of bank loans. Nov, if all this be reasonably true, and it seems to me incontro- vertible in the light of the out all known economic experience of history, then, the last ten years, if not through- gentlemen, it seems to me that, as an association of bankers in charge of the actual financing of the nation's at this time more than ever business, we must/cohsider our relation to and responsibility towards the general welfare of the whole people. LE_do not need to remind you that the present situation is radical)and vitally different from that which obtains in what we may ary times the banker portfolio, the call ordinary or normal times. has little to statements of In normal or ordin- consider beyond the condition of his own his customers, and the general banking position. In times of crisis, such as have been Characteristic with such curious regular- ity in our business life, the banker has, indeed, then a far wider responsibility 7 40essimmwholist and that is his duty towards the community and, in a =eider- able degree, towards all other banks. It seems to me that we have now a mush deeper responsibility, partly engendered by the steadily advancing importance of the banker in all our business and economic affairs, his increasingly vital eccnomic function, but directly precipitated by the extraordinery condition which now subsists. [Tor before in the history of this country did we ever, in the space of eighteen months or of twice or three times that period, im- port, as we did just preceding our entry into the war, a billion dollars of gold. Never before, in the history of this country, in the space of about year, or in two or three or four times that period, did we ever suffer a loss of more than 400 millions of gold as in 1919-'20. And never before in the history of this country, in pence times, did we ever import a second billion of gold, as we have done within the last two years. Ldo not need to review the conditions which have brought to us this huge and profitless accession of gold. And it has come to us at a time when, of all times, it was least needed and perhaps most dangerous. 6 At the present time the total of banking loans and investments in the United States is roughly double to that preceding the war. The average of all commodity prices at wholesale, on the Department of Labor index, is now but 55 per cent, above the 1913. If we combine all the indices we have of the averages of wages, retail prices, security prices, rents, the average cost of living and the like, it is certain that the average of all prices, the general price level, can scarcely be more than 75 per cent, above the pre-war level, if it be so high as that. It would seem therefore that the present volume of our currency and bank credit should be more than completely adequate to the full financ- a high pitch ing and carrying on of all our industry and trade, even at of activity. We now know, definitely and conclusively, that the total of the nation's physical product of goods, the total of all crops and coal and iron and lumber, with all the immense machinery for transportation, manufacture and distribution which these require - can increase but very slowly from year to year, and only with the increase of population and economic average rate of this increase of the whole product of the know to be very close, throughout the last half century cent per \al! and industrial efficiency and by ingenious invention. annum; and Vat momentarily in the nation we now and more to ai per this increase can rarely be greatly augmented save change from very slack to very active times and through an unusually abundant yield of the soil. stant general price levels the normal And miiiimipmeimammwamilikat con- credit and banking requirements of industry and trade can grow only at a slightly higher rate. Lio increase in the credit volume beyond this point can in time mean only a rise in the general price level. This rise will be reflected first in the average prices of the great basic commodities, next in the general average of all commodities at wholesale, then in prices at retail, then in wages, salaries, 9 rents and security prices. (--limitese seam to be the unequivocal and the experience facts which recent research of the last 50 years have established. that I now wish The thing to bring to your attention is, I be- lieve, almost the most vital of all. It is simply that any undue and needless expansion of bank loans and banking credit and of the currency as well, can take place now only through the medium of the Federal Reserve banks. The resources of the member banks of the Federal Reserve System now constitute about two-thirds of the resources of all the commercial banks, excluding the savings bank of the country. Neither in these member bankt:, nor in the 20,000 or 21,000 chiefly smaller banks which still re- main outside of the Federal Reserve System, are there any considerable cash reserves upon which to posit any notable expansion of credits. Practically speaking the banks of the nation now only needful till money and very little more. any large cash reserves as heretofore. keep in cash They no longer carry Practically speaking, the entire monetary reserve of the nation is now deposited with the Federal Reserve Banks. This means that no notable expansion is now possible without drawing upon this central reserve. To expand their loans and to obtain the needful currency which in the long run will accompany any considerable expansion)the member banks of the system must rediscount at the Federal Reserve banks, in order first to increase their required reserves, and secondly to obtain the needful supply of additional currency required. Beyond very modest proportions therefore the control of the financial situation is today to an unusual and, I would say unexpected degree in the 10. hands of the Federal Reserve banks. Now I have no need to remind you gentlemen that the Federal Reserve System was established as a merely for the safety vast cooperative institution, not and increased efficiency of the banks, but for )7-This requires the public good and for the good of the whole nation. for its working the active cooperation and the friendly support of the aa, larger part of the banks of the country. that any bank should be a member of this system. Any nations,/ bank that wished to decline this support could give up its charter as a national But, on the contrary, practically every bank. in the system and in addition more than 1600 banks and trust national bank has remained of the most important state companies which were eligible have become members. This vast cooperative organization, with resources now exceeding billions, was not created as a source of additional profit, but for mutual protection and for the public welfare. The Federal .44/444,4144 Reserve banks were sessied to hold the reserve and not to be a source of profits at all. As you know, all of their net earnings beyond the 6 per cent on the modest amount the member banks contribute as capital, and a small allowance for surplus, goes entirely to the Government. of a Into the hands Governmental body is given the final supervision and control of the system. And that body is appointed not by the shareholders, the member banks, but by the president of the nation. It was never in the conception of those who, for more than a generation labored to perfect and secure the passage of the act creating the Federal Reserve System, that this system should become an engine of needless expansion of credit, with all the demoralizing and disrupting industrial and social consequences which such an expansion invariably 11. entails. I may add that probably not line of those who labored towards of the curious situation one of the long and the creation of this distinguished system ever dreamed consequence which has been precipitated upon us, in first of the war, and secondly of the abandonment of the gold standard, by the chief commercial nations of Europe. The repercussion from the Europ- of vast natural resources have ean situation and our presented us with a problem such as the banking fraternity and the economic minds no other great be added that I think it may of this nation have never faced before. commercial nation could supply U9 with any precedent for our present guidance. But the war, not merely the actual participants but not participate, with no debts and no burdens, have after the the neutral nations which and the new nations which have been created fiatiiieus additions to the money supply. did out of the abundantly and overwhelmingly us with the proof that we cannot increase the real that would be necessary would the war and nations of Europe in old, supplied wealth of a people by could do that, then all be to chop our own paper dollars and our gold dollars in two, to double the product of our machines and of the 40,000,000 of our people gainfully anployed. It is so clear now that All this every he who runs may read. But it is not so clear, I think I may say, even to many of our bankers and our publicists and our statesmen difference cessive expansion of bank fect is essentially credit than as though we printed the same. billions of paper The ef- This is the tact which must become a part consciousness of all enlightened opinion in opment in this country. people by ex- Poland, and Germany and other states. so become because of the peculiar and unusual that it makes no substantial whether we increase the purchasing power of our money as have Russia, and of the sane man knew long ago. America. conditions It must of banking In other great nations like England devel- and Ger.. many and France and the rest, banking is carried on largely through the agenciTof a small number of great joint stock banks, with large numbers of branches throughout the several countries; In this powerful central bank. usually also with a country weamssa, as you know, OOPS 414.4 GO)2-- OSP* 30,000 individual bankslocally owned, locally managed, locally controlled, accustomed but little to cooperation or even to very wide mutual consideration. Of this enormous total of 30,000 banks, more than 20,000 of them are outside even of the cooperative new Federal Reserve System. influences which were created in the And in turn the support and maintenance of that system itself is dependent upon nearly 10,000 individual banks, scattered through every state of the union, and with widely varying interests, associations and prejudices. In other lands the influence of a experiences men, usually men pre-potent. In this of distinguished banks number of ability and training, is country nothing of the sort exists. from that between the different relatively small So far 13 there is often a wide divergence of policies and view and often a real feeling of antagenisa. The sc-called country banks have likewise a certain jealousy of the large banks in the larger cities, and these in turn something of the same sort of feeling towards the great banks of Chicago and New York. And there is always with US the universal appreheueion of the supposed influence of Wall Street and the ''money power." I need not remind you that Thomas Paine and Tho4as Jefferson were writing against this same money power even in those far days, and this sort of writing has never ceased from that time to Ahis,Te agitation against the imagined policies of the Federal Reserve Banks is but a part of a feeling that is an old as the oldest bank in this country. The second Bank of the United States certainly, and probably to a large extent likewise the first Bank of the United States, had its career terminated by the antagonism and jealousy of the State Banks which were then springing up in such extraordinary number, laying then the foundations for that powerful prejudice against any form of a central bank which for three- quarters of a century prevented in this country the adoption of a sound banking and currency system. Wide and eteadfast cooperation between ever:76arge portion of the 30,000 banks of the United States is, therefore, an extremely difficult matter. I will even add that I have found in my experience, even among Member Banks of the System, a certain prejudice, and almost a feeling of antagonism, towards the Federal Reserve Banks. And yet there never was a time in the history of the country, it seams to me, when a solidarity of policy and purpose, and that 1,0--a..0, CrrC policy and purpose one of enlightenment and high public spirit, than at the present time. 14 Gentlemen of the rb:ecutive Gouncil, it is my deep belief that your body and the Association of !mar-leen rakers has before it no more important function than the achievement of such a solidarity of policy and purpose, to the end that, in sc far as our banks say be a contributing factor, the proroundly agitating instability of our economic conditions growing out of the war and its consequences may again be reduced, as in the five years just preceding the war, fc the normal and utmost minimum. FEDERAL. RESERVE BANK OF NEW YORK MISC. 3B.2-4/67 OFFICE CORRESPONDENCE DATF To SUBJECT. .ott,jv FROM ft e4i -1 PRICES Opinions upon the important subject of prices and erica movements too freeuent- ly arise from the personal experiences or selfish interests of the individual. Laboring men, salaried clerks, teachers, all those in fact having small incomes, think of prices in terms of the cost of the neceesitiee of life, - food, clothes, lodging, etc; the manufacturer in terms of market prices for the materials he buys and the goods he sells; the speculator in terms of fluctuating priees of stooks, bonds and commodities that are actively dealt in; the farmer in terms of prices he may realize for what he grows; the banker, these days, in terms of index numbers of price changes which are vsricusly built up from price averages of from, say, twenty to possibly two hu4dred or three hundred important articles. But after all this is a narrow view of "prices". It only comprehends limited and specially selected subjects of experience or inquiry and exposition. The general price level is & much more comprehensive and complicated affair, some elements of which reach our pocket books by courses so devious as not to be directly felt, nor, in fact, to influence our views very much. There are, of course, rents and interest, the prices of such services as Insurance, transportetion, lighting and heating, education, medical and dentel treatment, lawyers fees, license fees and all sorts of brokerage charges; than we have taxes, and the cost or support of public institutions in great variety, - churches, hospitals, libraries and the like; even club dues, theatre and circus tickets. All these march up to the price bookkeeper and demand their respective places in the sum total of the seneral price level. The extant to which all these and many other things and services are within the reach of people generally, the extent to which the incomes of the greater number of all the people make the enjoyment of all these things possible, is in fact ulte largely the measure of what we call the standard of living, or, as I would prefer to ex- press it, is one of the important measures of the morale, intellectual and physical wellbeing of the people of a country. -2There are however two distinct points of cutstanding importance to keep in mind in considering prices; one is this general price lexel and its changes; the other is the variation in the relative prices of different things or different classes of things, which may take place at the same time, including wages and salaries. This discussion has mostly to do with the general price level. The movement of the general price level is a composrtion of all price changes which in total elevates or lowers prices as a whole, but as prices nowedaya are all me.Jsured by a common standard, - "money" - it has seemed to some convenient to speak of changes in the general price level as a change in the purchasing poser of money, and those folks, I fear, at times cause confusion in the discussion. On the other hand, there must be consider those puzzling and annoying changes in the prices of a few or even many things which, while not materially changing the genern1 level of prices, do, however, cause hardships to many people. Only now, or quite recently, we have been hearing the bitter and paite natural complaint of the wheat growers that their crop is being acid at so low a price es in cause actuas loss, and, at identically the same time, all the executive and legal majesty of this great Government of ours is being addressed to learning why raw sugar, anothor farm produce, is selling at so high a price, and hunting for a culprit, if there be one, ii order to punish him. Few indeed stop to consider that the human race is economically divid into two parts, - producers and consumers - and that the division extends into the 1 d%vidual himself. The wheat farmer now cemplains as a producer that his wheat sells at a ltlas, and as a consumer he growls that his sugar, and other things as well, costs him too mue0e While this may be offset as to a whole n,:tion by the profit and consoeuent satisfectiecn or the sugar grcwer who gets h big price for his sugar and buys his flower cheap, of coureWW It does the individual wheat farmer no good whatever. It is our habit in this country to hunt for the guilty party when things occur that harm or annoy us, punish him if we can, and, in eny event, to pass a law at once to prevent the injury occurring again. For centuries the world has been puzzling over this price affair and trying to "fix it" by laws end by economic systems and even by changes -3' political systems; often with clash of arms and blood shed. "Fixing prices" always failed in the and, just as fixing the blame usually falls, because such events are so much beyond complete control, however they may seem to be quite easy- enough to "fix." In the first place, what prices are to be fixed; before we come to "fixing" prices, we must first decide next, in the interest of which of our individual capacities and of sedat classes of our population are they to be "fixed" - consumer or producer - in other words are prices to be put down or up; and last, how are we going to do. it. To arrive at any policy we must first consider causes of price changes to sea whether they are by their very nature capable of being wholly or partly controlled. Ne may find that they may be somewhat influenced, but not wholly controlled, and that what we really need and want is a reasonably stable general price level. Viewing price changes in the light of recent occurrences, few will disagree that some of the most important and fundamental causes are the following i.e lex and political disturbances Inflated issues of all forms of money and credit instruments Increased or diminished crops by reason of weather and of social and political conditions and the efficiency of transportation systems Crop destroying parasites and insects 4idemic 8. and pestilence Conflagrations, earthquakes, and like unavoidable calamities New gold and silver discoveries or mine exhaustion, and conse,uent enlarged or reduced production The state of mind of the public - whether in the mood to buy or to sell, to go "long" of goods or "short" of goods; to "stock up" or "sell out" to "strike" or to "work". 1 9. IC. ; to "spend" or to "save"; Government fiscal policy And many others of price sovements. less importance in effect upon general Now let us be honest with each other and ourselves and admit that of all the causes listed, only the second and ninth are really capable of any prompt and real control, and even those are too fre,,uently subject to those varying moods or waves of public opinion which so regularly find expression also as in number eight. -4- And can it be mutter for sureriaa that price derangements arose when the three greatest of all cauecs for price changes arose at once in the world's greafeet and most devastating war, - the greatest flood or disturbances to crop credit instruments ever known, and the production and distribution ever So when the banker is charged with all reatest recorded. responsibility for price changes, let us also recall that weather and the crops, war and politics, the humor of the public and other things also exert important and fre,uently controlling impulses upon prices. Laws cannot be passed to uontrol the weather, or boll wevil, or earthquakes, and, while acme day a league, or 4 world court, or disarmam-nt, or higher intelligence and morality generally may eliminate war, 80 far it has not been done. It would exceed the limits of space in this article to consider price regulation beyond what is suggested in number two, which means credit control, and there is little need for wasting space upon a discussion of the other influences listed, as none of them, excepting number nine, is capable of much, if any, control. Nor need space be devoted to discussing price changes other than thegenerel price level', for to select any particular class to benefit and likewise to injur by a selective price control would be abhorrent to our American ideas of justice and e,uity, - at least some of us live to think so. Many people have recently stated that as prices are affected by the volume of money and credit, just let ue eogulate that and then the job is done. They turn to the vederal huserve3yetem to do it, and overlook that the banking system can do but a part of the job and at times possibly only a minor part. It has seemed to the writer, although realizing that others diefer from this view, (and they are personal and ,uite unofficial anyway) that when Congress created the Aeserve Banks it intended that they should influence, and to some limited extent actually regulate, the volume of credit. The ?losers to do so and the means provided are reasonably clear and explicit in the Act. clause does one discover any purpose in But nowhere from the caption to the repeal the mind of Congress that a group of men, or of banks, or both, were to he clothed with the power and responsibility of fixing prices, - ither of any specific thing or group of thin-s, or even the general level of ,,rices. -5sh & power of attorney never has and I hope never will be granted to boerds or to banks in this country. Humen beings, even Americans, have not yet been elevated, intellectuelly or morally, to thet God-like perfection of infeilability of wisdom and goodness, so he to stand the etrein and perform the duties of euch a position, But there are possibilities of throwing seme light upon that part of the price problem which is involved eith the credit policy of a banking system, and the views here expressed, which, as stated, are purely personal, may be worth passing thought, esprially they distinctly disclaim any hope or expectation or fear that the reseonsihility fee. \ fixine prices can or will be placed upon the heserve System. If, as is now universely admitted, prices are influenced decline by inerees:s or decreases In the total of "money" I include coins and to advance or to in eircul,tion, - snd as money paper money which pass from hand to band and bank deposits by checks, - than that part of which pass our price problem involved with credit or money is comprehended within the t:rms of the l*ederal .eserve Act, which created the means of regulatine credit volume, within certain limitations. That being so, as the writer personally maintains, then the Lek of the system is to maintain a reesonubly stable volume of money and credit, with due allowances for seasonal fluctuations in demend, for normal annual growth in the contry's development, business and populetion, and with such allowance as may be imposed by those greet cycles of erosierity and depression which we would all like to see "squared" but which never yet have been. First lot us see what has been done in that respect by the Federelheseree Syste:s. The total volume of credit, supplied te the banks of the country and through them to the public, is found by taking the total earning assets of all the Reserve Ceinke combined. Since the conclusion of the lieuidation which started in 1920, it will be ing assets have varied from the low point of $1,024,679,000 on of $1,339,42C,000 on January 3, 1923, and at the present time $1,15f0,9e7,000. found that the August 9, 1922, to a maximum (April le, 1923) amount to The average for the whole period has been $1,165M2,000 and te highest monthly average has been $1,2eP,4164 000 in i)scember and the lowest has been $1,040,S60,00 in August, 192. This is a remarkable record of credit stability, so far as the bank of reserve deposit and currency Issue is concerned, end would leave little to be desired were g_ Those are gold imports, and the conversion of It not for two other important factors. demand into time deposits. The former resiuires considerable space, but the latter can be dispatched with the bare aseertion that the present inducement to from e reserve of only convert demand into time deposits, arising 3% reluirod for time deposits, whereas demand deposits re-juire 7%, 101 .end is% according to the location of the bank, has already caused and will continue t o cause a certain amount of inflation of bank loans and deposits. The amount cannot be accurately stated. Gold imports and our large gold reserves on the other band are an imposing From the end of 192C to the present tire, we pkave problem, and one which must be faced. Imported '042,543,0e° net of gold and our domestic production ha e been $111,500,0001 and out of this arts and manufacturers have consumed and devitalized perhaps half of this latter. The net addition to our gold stock regularly goes into the bankinv, system by one or another channel, and the amount of this addition would be tbeoreticaly capable of oroducing an increase of bank deposits generally of around *1C,C0C,000,b0.0. period the actual in this net increase of bank deposits hus in fact been much lass; eten half of this lmount. That Is one aspect of the cold problem, and one in which the meon,t of o&rsetting and controlling expansion mistakenly think. and price changes are not as effective as some peole To a limited extent bank earning assets, which may they can be offset by a reduction of Keservo has the effect of reducing the reserves of member bAnks, exactly as gold imports incre,sa them. Than the gold problem has another side. This gold either goes into thlk \ reserves of the Reserve Banks or goes into circulation as gold certificates and by\the same &mount displacee reserve notes. Reserve Banks are enlarged. In both cases the Reserve percentages of the Some may aek ",hut harm does that dor and the reply is that it need do no harm if a misoided public opinion does not force the Reserve Banks to permit these large reserves to be the foundation for credit expansion, which simply is anther way of saying for a larger volume of money, which in turn moans more changes in the general price level, so far as increased volume of money and credit influences 1-; is really the story in a nut shell, tni possibly needs further elaboration really It is not quite 30 simple a point as one 4ould like it to be when on one point only. trying to elucidate it. Before the war, the gold banking reserves of the world were in whet Mieht be termed a state of eeuipoise. They had become iietributed among banks throughout the world as the revalt of natural and ,uite free exchanges of goods, services, credits aod other like trensections, and the ultimate settlement of the net differences in debits and credits between countries by actual shipments of gold coin and bers. When ear came, embargoee were laid upon gold shipments; trade became deranged and all sorts of cliscrders arose in the exchaives, currency systems and Government loan operations of the nations. The significant thing for us was a huge increase in our exports, so great as to enable us as a nation to pey what we owed ebroad, lend large Sums in addition, and ever then it was necessary for these fnreign countries to ship us a billion of gold beeides. The equipoise was destroyed. le received and hold more gold than we need; more than is good for us; and more than we can expect always to keep. In fact, over e third of the world's known au. ly of monetary gold is now in our bends. Before the war one of the chief guides and influences in moving the banks issue to raise and lower their discount rates was the state of their gold reserves, whether they were e lerTe or small percentage of their note issues and deposits. Here of all the eserve 3anks so vast that it amounts to are we with a mass of gold in the deposits and outstanding notes of the twelve Reserve Banks. The notes could be wholly about paid off in gold and still leave enough to serve -awl 42g reserve for the deposits of the Reserve Bunks; a reserve percentage even then larger than they had for both notes and deposits at the peak of expaneion in 1920. But as to priees which is the subject 4e are diseuesing, the important thing to observe is th:t if the ieserve Benks exeanded their loans to a point where the resorvec etocd at 40%, - about th legal minimum, - inateed of 75% as at present, we would lend three and three-4uarters billions in excess of whet we are now loaning, and this addition to banking reserves of 511 the banks of the country ould enable them in turn to expand loans and deposits by something like fifteen or ,ixtean billions. SO the reserve percentage is a bed and dangerous guide to a lending policy. But it will then be asked, "Whet shall be the guide if not the reserve percentage" and a chorus of answers will come back, - "Prices," or "An index number," and we egain get around to the point where, for the moment, some people think that prices should be the guide, which comes close indeed to thinking that the Reserve System can and should fix prices. Here is a way to distinguish. Just as credit is one of the Influences upon the price level, se the price level should be one of the influences in guiding a credit policy. There are other influences which affect prices, and so must there be other influences which affect a credit policy. Here are a few briefly suggested Is labor fully employed Are stocks of goods increasing or decreasing Is production up to the country's capacity Are transportation facilities fully taxed Is speculation creeping into the productive and distributive processes Are orders and repeat orders being booked much ahead Are bills being promptly paid Are people spending wastefully Is credit expanding Are market rates above or below Keserve Bank rates. That this country and the world needs is stability, - social, political and economic; stable thoughts, habits and methods. The contribution to be mede by our banking system just now can be but a part, though a helpful one, toward stability. Ite best policy is to supply enough credit and not too much, - enough for ligitimate enterprise, but not enough to satisfy those who want simply cheap and lieitless supplies of credit regardless of the conseeuences they are too blind to perceive. How much that supply should be will be vastly difficult to determine until the free play of international markets and exchanges and credit and gold payment is restored. It is slowly but surely coming and meantime it will be well for us to avoid http://fraser.stlouisfed.org/ riiüh Federal Reserve Bank of St. Louis to extremes, - such as price control itself is, - and, at least in our -9- banking policy, just do the best we own to avoid excess. Vc-e64, k6i)a-1 44' -711P 1444 0,il..9Z-47-(7-0( k.1 i /9 /71 iM-e-14/ 7). t. et_ --11 I / 92 2' Z' A-1""1 / dire*14,,,,,, 4'774 Three hundred years ago the establishment of a new nation on the Continent was commenced by the arrival of the pilgrims American in New England. Almost without interruption:for three hundred years down to 1914 when the war commenced, this pilgrimage to America 12==contiffaed. It was inspired in its beginning and practically throughout the entire history of the country by a desire to escape from conditions of living, principally in Europe, as well at other parts of the world, and to secure the enjoyment of advantages in a new country. The conditions which they sought to escape were many and 6"f kr varied, including religious persecution, political aproesityrr$ compulsory military service, heavy taxes, low standards of living, exhausted soil, poverty, and various other forms of distress. These people sought to in in the new country religious and political freedom; they desired to enjoy kkatqf''' security from the hardships and sufferings of warsand to better- their economic condition. In many if not a majority of cases they were living in countries in which the chief 4a4r. in their lives was the Government, its military service, its taxes and its various exactions and restrictions -ap-ta 6 u a, by which 4444NAMbs were surrounded. / In the new country Wo which they came, almost their sole contact with the Government was manifested in their -2recognition of the uniform of a policeman in the street and the uniform of a letter carrier who delivered their mail. They paid no taxes, they had no military service, there were-no complicated systems of registrations and control, and they had unlimited education for *Tetrchildren alr-w.9-44!-Iats-night schools for Even today two-thirds of the population of the United States is '40 adults. '11C471 CAGerditefiv comprised of people who were born in foreign countries A the end of the Wiiminitit Eighteenth-Century the colonies secured their independence and founded a new A coa, Yet. Government vei*Opila- one or two decades, the fundamental principles upon which this free people would live together were established in four important documents - The Declaration of Indenendence, the Constitution of the United States, Washington's Farewell Address, and President Monroe's Pronouncement, commonly known as the Monroe The fundamental principles of the Government were freedom Doctrine. of equality A of individual security against involvement in any European War and equal security against the reintroduction or extension of the European system of 0 ttifPett Government either of the American continents. From the establishment of the i Government until the present day, that policy has never changed. These immigrants who came principally from Europe very soon learned of the advantages of this C/442 security and freedom. Stetetarl' ,/ * _I- v) 10(41410, lA was partly the result of the political system and partly A -3- t."'" Arii.4./401°' the result of t.it geographical4421,Ba4iont. The great freedom of education made the children the teachers of the parents, for these were the simple truths about the freedom and security which were taught in their schools and carried on to their parents. With the growth of their prosperity, they brought relatives from their native countries and the trend of immigration swelled until we received over a million people here immediately nrior to the outbreak of the war. These people believed in their new country, they prospered and they were contented, but above everything else they were loyal. No further evidence of this is needed than their magnificent response in 1917 and 1918 under the demands of the Selective Service Act, but the inevitable consequence which was also the advantage of this policy so practically described as isolation was that we had no army, we had no great trained civilian reserve, we had no training camps, no military equipment, no military spirit, but rather the desire for peace. We had no reaction of alarm, indignation, resentment, when threats of war arose between the nations of Europe, such as those crowded nations fear not only when threats occurred against themselves but between their neighbors. We had made no plans for war, no preparation for war, we had no desire to engage in war and no intention to make war.; It is in fact the outstanding characteristic of the nast hundred years of our nations' lives that our policy was in every respect designed to -4- 10 enable us to escape from this very war Which has engulfed the world, and the scrupulous care with which this policy was observed from one administration to the next, from one Congress to another, and from one generation to another, which entitled us to believe that we would and could escape involvement from the European catastrophe. was possible. Efforts proved, however, that no such escape Unrestricted and military warfare by Germany imperilled our ships and the lives of sailors and passengers and proved to be an intollerable egression upon our nation's lives. of our country in this situation. In view of our history, what was the duty Might it not well have been claimed that it was limited to a declaration of war upon Germany and to the execution of measurements which would make our commerce upon the high seas absolutely secure from attack if that was the extent of our duty it could have been discharged and every fleet flying the American flag could have been protected from attack by the construction of an unlimited fleet of destroyers at a cost of probably one-tenth of what we expended upon the War, nor could any complaint have arisen that this limited participation in the war was on the one hand anything short of our duty to our own citizens or deficient in the discharge of our obligations to the nations of Europe. What we did do was known and resognized at the time -5-- but all too easily forgotten. War was declared upon Germany on April 6, 1217. The Federal Reserve System had already been prepared for the emergency of War. Congress then in session successfully passed the fol1owin7 legislation: War Loan Bills The Selective Service Act Trading with the Enemy Act War Finance Corporation Act Congress authorized the creation of the Capital Committee The Snipping Board The Fleet Corporation The President appointed a War Industries Board Before the armistice was signed, we had spent over$30,000,000,000 upon our own military effort and had loaned $10,000,000,000 to the Allied Governments. , We had dispatched a military force of 2,000,000 men to France and we had over 2,000,000 more in training at home. We had built and had in service million tons of shipping for war purposes. Probably never in the world's history, without warning or preparation following a hundred years of successful avoidance of war entanglements, did any nation throw its military and economic strength into a war with such energy, enthusiasm and success as did the people of the United States. American Governorment asked for no territory. When peace came, the They made no claims for reparations save those due to our citizens and the recovery of the cost of maintaining the army of occupation. Europe. We made vast loans to feed stricken The war left us with a gross public debt of $26,000,000,000, adding an interest charge of $ . We had assumed, without claim for recovery from the enemy, an annual charge of $ maintenance of disabled soldiers. for the We had enormously increased our taxes and been through the agonies of an economic disaster. The nations with which we fought the war ,and which had suffered more severely than we, awed us $10,000,000,000 of debts. ' 'For payment of these debts were held in suspense. years demands for the re- Naturally, the country 7 260.- was brought face to face with the decision, a public question which could not be escaped, as to whether these debts should be repaid or forgiven, and if repaid, to what extent and upon what terms. The decision has been mcide unmistakably clear that within the reasonable limits of the capacity of the debtor, without doing injury to its economic recovery, payment should be effected; not of the entire debt, but at least some reasonable part of it. The consequence of this policy seems to have been the development of bitter- ness of feeling on the part of the public, the press and even of political people in high office that the United States is a grasping and selfish people end that their demands ore unreasonable and unjust. There must be a reason for this feeling in view of the history of our participation in the war and one need not go far to seek it. Had the question been dealt with upon its merits, with due regard for the history and traditions of this country, of its Peculiar relation to the war and to Europe, I have no doubt that the results of negotiations would have been liberal, even generous, to a point which would have astonished the world. The unfortunate facts are, however, that even before the United States attempted seriously any proceedings looking to the fundings of the debts, it was intimated privately and of- ficially broadly stated and widely published by some that the money was not owing; by others that it was immoral to collect it; that we should have entered the war sooner; that we should have been more prompt military participation in the war and the like. were ever made against a generous people. in our No more unjust charges It absolutely killed the possi- bility of more generous settlements than those which have been reluctantly approved by the American Congress. this country that they were in The mere suggestion to the people of some way guilty of moral dereliction of duty was an offense against the true character of the nation, against their purposes in entering the war and against the success which our par- ticipation made possible ,which no high-minded people could ever forgive. There are many people in the United States today who in the early days of discussion of debt settlements WhIQ earnestly desired that the debt should be forgiven; others who earnestly desired that any settlement should be long deferred without interest accruing and others who desired that the settlements should be more generous than they are. Our Government was flooded for a time with requests, arguments and urgings along these various lines of argument. That has all ended. The charge of ungenerosity and of 9 doem some moral default has been too grave an offense to be forgiven easily and has done Europe itself the gravest possible injury.