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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)

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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

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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

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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,

[6]

[7]




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

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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

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-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.







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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.




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