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JOURNAL July 21 to September 20, 1919. At Liverpool Monday afternoon and found that British Monday, July 21: ersury had sent instructions to facilitate my landing, but delays on the dock held the steamer train for some hours, so that we only reached Euston Station after 11 o'clock at night. Mr. Montagu Norman, Deputy Governor of the Bank of England, was at the station to meet me and I went straight to I his house at Campden Hill. We sat up until nearly 2 o'clock tall-ing and consequently reached the Bank quite late Tuesday morning. Tuesday, July 22: Governor Cokayne and Sir Gordon Nairn gave me a very warm welcome and were good enough to place the library at my disposal to use as an office, giving Mr. Vaughan a separate room. They have even been good enough to put a telephone at the desk and a card with my name on the door, something which I have no doubt is without precedent in the history of the Bank. I lunched with the directors of the Bunk on Tuesday and enjoyed a most interesting general discussion of what was taking place here. future. There is undoubtedly a very blue feeling here in regard to the It seems based in part upon the huge governmental expenditures, which still continue largely in excess of revenues; the early maturities of short government obligations, wich aggregate between nine and ten billion dollars within eighteen months; the existence of the huge foreign debt, principally to the United States, which they would be glad and relieved to see reduced to more definite terms; the government policy of continuing unemployment wages; and,more particularly and fundamentally than anything else, the general unrest and dissatisfaction of labor throughout the country, just now evidenced by very serious coal strikes in York, where deep mines are being allowed to become flooded because even the protective officers decline to operate the pumps. Sir Eric Geddes has been given complete authority to deal 2 with the whole situation and is taking engineers from the fleet to work the we and protect the property. Spent a pleasant afternoon and evening with Norman. Wednesday, July 23: 110 Mr. Kent joined me at the Bank and we arranged for some meetings to discuss the Indian exchange situation and other Indian matters which are now being considered by a special parliamentary committee, which is now engaged in taking statements from various people as to how the Indian rupee should be dealt with. The Indian government is facing the menace of inconvertibility,and of course the reduction of our imports from India will result in reducing India's imports of gold or silver from us, cutting off the principal means heretofore availed of for replenishing the stock of silver rupees for redemption of their paper currency. Thursday, July 24: By appointment drove to the Embassy to call on Am- bassador Davis and arranged passports to go to France on Sunday. Ambassador Davis was very glad to see me and expressed a desire to do everything possible to facilitate our trip, etc., etc. He is also anxious to talk matters over on my return from the Continent to get a little line on what is going on there. Had luncheon at the Savoy, where Mr. Kent and I were joined by Sir S. Hardman-Lever, who brought up Sir John Bradbury,with whom a luncheon engagement is to be arranged in the near future. Governor Ookayne tells me that the Chancellor wants to have a meeting with me on Thursday, for what purpose I have no knowledge. I was also informed very confidentially of the sudden death of Sir Edward Holden under somewhat distressing circumstances which have not yet been made public. Wednesday evening Mr. Norman invited Mr. A. M. Kiddy, whose name is mentioned in Mr. Vanderlip's book, to join with us at his house. Mr. Kiddy 3 is the financial man of the Morning Post and correspondent of the Evening st of New York. Both Governor Cokayne and Norman stated that he is a thoroughly responsible, reliable, high class man, who enjoys the confidence and respect of everybody in the City and is one of the best informed men in the City on that account. I had previously met him at a dinner given by Sir Edward Holden when I was in London in 1916. Mr. Kiddy was very frank in his criticisms of the present government in England, particularly their policy in the matter of paying unemployment wages, this criticism seeming to be general among bankers and business men who are well informed. He took a rather pessimistic view of the future of British finance and trade and expressed the view that I hear from a number of people, that much depends upon our attitude in America in helping along reconstruction. The only particularly important statement that he made was in regard to Great Britain's debt to America. In his opinion, the greatest cause of uneasiness in financial circles in London at the present time is the uncertainty as to what would be done by the United States in regard to requiring payment of this debt and the interest upon it. Thoughtful and reasonable men do not believe that the United States will exercise the power which this demand obligation gives our government, but it is nevertheless regarded as a sword of Damocles hanging over the nation and a menace to its financial security. Aside from credits maturing in Argentina next year, it is the only external debt of any moment that Great Britain owes. The feeling of anxiety is greatly accentuated by the fear that interest payments which have heretofore been made out of the credits extended by our government actually cannot be made this fall, at any rate, at reasonable exchange rates, and that the whole sterling market will be thrown into further disorder with ser- sous consequences if something is not done. With dollars practically unobtainable except at severe penalties, the lur possibility that the British government would be required to pay $100,000,000 or more of interest this fall is really a source of great anxiety. Norman confirmed this view without reservation and stated that it was the one black cloud now hanging over London outside of the strike situation, which has been more or less chronic for quite a period. There was some discussion of forgiveness of the debt, which does not appeal to either Norman or Kiddy as a reasonable or feasible thing. While it is latent and must be inferred by implication from statements made, there is no doubt in my mind that many Englishmen still feel that our sacrifices in the war have been slight, our profits imlaense, and that the balance, if all things were taken into consideration, would represent a heavy debt by America to the Allies. Friday, July 25: After further talk with Norman and Governor Cokayne, I decided to send a cable through the Embassy in the Embassy code to Leffingwell, giving the substance of what I gather to be the sentiment about this intergovernmental debt, having however made no intimation whatever of what would be the attitude of our government nor disclosing that I was sending such a cable. Took luncheon with Mr. Hartley Withers, who said he was delighted I had come over to look about cnd have a visit with some of his blue countrymen who were just now suffering from a great state of nerves and were allowing their fears to make them very unhappy. We had a considerable dis- cussion of the strike situation at York, the gist of which is as follows: The old labor leaders are in general taking u reasonable attitude toward 4-a the Government and are willing to treat with the government officials con- 11Lrning all grievances, in a fairly reasonable way. The younger elements in the unions, however, are disposed to break away from their leaders, and Promise has been made by the government particularly so in the coal strike. that working hours will be shortened, which has the effect of automatically increasing pay to those working for fixed wages and necessitating an adjustment of the rate of pay on piece work. in a demand for a large increase. Investigations by the men resulted They were offered ten per cent. was finally compromised at 14.3 per cent. It The government refused to agree to the compromise and offered 12-1/2 per cent., which was not wholly satisfactory to the workmen. The difficulty was accentuated by an order in- creasing the retail prict, of coal, which had no effect really upon the profits of the collieries, although it was made the excuse for the demand for a generous readjustment of the piece work scale. Unfortunately the men succeeded in inducing the protective workers such as those who operate mine pumps, etc., to quit. As the mines in that district are all deep they are in danger of being flooded; some of them have actually been flooded, others being protected by the loyalty of men who were willing to disregard the strike order, others by having mine officials operate the pumps, and in the last few days further protection has been afforded by sending Sir Eric Geddes to take charge and he is manning the pumps with men from the fleet. This has rather accentuated the grievance than otherwise. It is generally felt that the time has arrived to have a test with the workmen and this is particularly due to the fact that the labor unions are now proposing to use the strike power for political ends, their demands including the abandonment of conscription and the withdrawal of troops from 4-b Russia. Alt It is undoubtedly a difficult, and possibly a dangerous, situation, but having heard these stories for some years past I rather feel that they will work out of it without a complete breakdown all over the country. Withers is moat critical of the government's policy of finance, particularly of the extravagance of the present goverament,and most complimentary in what he says about the courage displayed in the States in levying taxes for war purdoses. After luncheon I stopped' in for a few minutes at the Law Courts, where Lord Reading was presiding with two Justices at a trial, and I was unable to see him. At 4 o'clock went to the Houses of Parliament with Norman to keep the appointment with the Chancellor. He gave me a very warm welcome and ex- pressed his satisfaction that he had time for a discussion of matters of mutual interest. His first inquiry was as to conditions at home. I ex- plained in a general way how our financial program had worked out and the outlook as to borrowings, etc,, in substance the statement which Secretary Glass addressed to Senator Penrose at the end of the fiscal year. The Chan- cellor said that he regarded our scheme of finance and the policy of avoiding too heavy a burden of short maturities as a great achievement, in which we could take great satisfaction. He spoke of the coal strike and said that the time had come for a test of strength and he thought that thisstrike would have to be fought out, although he did not fear the very serious consequences that some people do. He impressed me as being more hopeful in that than others with whom I had talked. We had some discussion of the possibilities of ratification of the Treaty by our Senate, in which he displayed the keenest interest. I told 4-c him that I thought it would be ratified and that the question would narrow down on a pretty close vote to ratification with some reservations or to a 4111 complete ratification with a resolution of disapproval as to some provisions of the Treaty, but that no one could now say which course would prevail; that in general, however, the people of the country, without even having read the Treaty, favored ratification and favored the League and that the President's influence with the country had to be reckoned with by the opposition. We had a very frank talk about the future and I expressed some fear lest a failure on the part of our government and his to make suitable upointments of men of great ability and statesmanship to the important positions arising out of peace would result in difficulties, delays and bad feeling; that the most important appointments were the British Ambassador to the United States and our representative and theirs on the Reparations Commission. He ex- pressed a very full appreciation of the importance of these appointments and said that the position on the Reparations Commission had been offered to a man who possessed excellent qualifications for the work, who had had both government and business experience, had a judicial temperament, a good knowledge of banking and economics and a pleasing personality, in fact he felt sure that if he would accept the appointment it would be received with sat1110 isfaction by us. He said such a man as Earl Reading was the type they had in mind, but that he wished to continue as Lord Chief Justice. I asked him specifically if there were existing causes of dissatisfaction between the finance department of his government and ours at the present time, and he said that everything had been cleared up in very good shape so far as he was aware. One cause of difficulty in the past had been our tendency to send men abroad to represent the Treasury without authority 4-d to do things, then sending others to succeed them, and so on, without really getting anywhere. I explained that this was natural and unavoidable; that Great Britain had been operating ships, conducting banks and trade and administering colonies and dominions at long range for generations and had learned how to do it; we h,d never had such responsibilities and consequently had never learned how to operate at long range from home or to train men to go abroad to represent us; besides that, our system of statutory limitation made it difficult to get the necessary powers, all of which difficulties he said he appreciated. He spoke particularly of an instance where the Brit- ish government was called upon to pay interest on borrowings from us from the date when the debt was created, whereas army indebtedness created in England waich had been running for some months h. d to be adjusted without interest because no provision had been made in the appropriations bills to pay interest and there was no fund for the purpose. All of this was said in the most friendly spirit, but I could see that it was difficult for an Englishman to understand such a situation, and I imagine that such matters have occasioned quite a lithe annoyance. I was rather expecting him to refer to the debt, but,as he volunteered, I was glad to learn that there were no open questions with the possible exception of the debt and its definition. He said of course that was true and it would be a great relief to have the terms settled, but in that matter he felt that the creditor should make the first move, and it would be rather unbecoming of the debtor to make any suggestion. We had a consid- erable discussion of what could be done to straighten out the exchange situation and to arrange to draw on American credits for the work of reparation. I pointed out the difficulty, with our Government no longer 5 extending credit, and when first-class obligations like the secured United Kingdom notes and the Anglo-French bonds were selling on a seven or all eight per cent. basis, and when American investors were so un_ccustomed Alb to making investments in foreign countries and when investments at home now paid such very large returns. * This he seemed to h,ve already under- stood pretty thoroughly, but took the view that the difficulties must be met in some way, as the dependence of Europe on America was now almost complete. I told him that not being an officer of the Government and having no authority whatever, I could simply express my personal views and gave him a general outline of the thought which I had expressed to Leffingwell in regard to political considerations involved in the treatment of the new countries lying between Germany and Russia. I think that he seemed to agree very largely, but pointed out the difficulty under which the three principal Allies, and particularly Italy and France, would labor in affording any assistance whatever. He seemed to want more specific sug- gestion as to what should be done, and I asked him if it were not a fact that during the period of the Peace Conference the center of gravity financially had been transferred to Paris, and now that the treaty with Germany had been prepared might it not be wise for the principal Allied governments to send competent, responsib:.e representatives to Washington to 0 take up these matters on the ground. He said that of course it was true that the borrower should approach the lender and much progress might well be made that way. Speaking of the British government's financial position, he expressed great regret that they had such a large floating and short-maturing debt ' 6 and particularly that their expenditures did not seen to decrease as they should; that he had the greatest difficulty itymaking any estimate for the budget which would balance; that he had hoped, out of the proceeds of the Victory Loan, to reduce the floating debt, but had not been successful to any great extent, and that borrowing must continue. After spending about an hour and a quarter with me he ex- pressed a very keen desire that I should call on him again on returning from the Continent. My general impression from the interview is that the British government now wants two things: first, that America should assume a considerable share of the financial burden of rebuilding Europe and starting industry going again; that the Government would like to have their debt to us dealt with proMptly and generously with some possible treatment of the inter-Allied debt generally so that the bulk of it would in some way be reduced all the way around; that he feared the necessity for some sort of a capital tax; that some arrangement should be made if possible to put the exchanges in more stable condition, but, more than anything else, and in this he frankly stated that such views were strongly expressed at cabinet meetings, that Great Britain and the United States should have a friendly partnership together in working out these matters. Sir Robert Kindersley dined with us in the evening and we had a most interesting and frank discussion of some of these matters. Nor- a man explained that Kindersley is a bit of an idealist and/most generous and warmhearted fellow of the highest integrity, whom it is sometimes dangerous to follow but interesting to talk with. dear friend of Norman's and a director of the Bank. He is a 8 swayed by his heart, that he had ideals that were impracticable, but was one of those chaps that everybody loved but could not follow. Spent the morning at the Bunk and had a short Friday, July 25: visit with Grenfell, and at 1:30 had luncheon with the directors of the Bank, who had invited me to meet Sir John Bradbury, Secretary of the Treasury. During luncheon when the directors were all present the conversation was general and nothing very interesting developed except an amusing incident bearing on Mr. Vanderlip's New York address before the Economic Club. I at next to Mr. Cole, who was Governor of the Bank prior to Lord Cunliffe. Mr. Cole was discussing the serious- ness of the coal strike in York and in typical British fashion said, "You know Englandmay have a her hands any day". It was almost exactly in the words used by Mr. Vanderlip, and, as he lunched atthe Bank when he was in London, I cannot help but feel that he may have taken this typical British statement literally. After the other directors had left Cokayne, Norman, Sir John Bradbury and I spent the afternoon until about 4 o'clock discussing the Treasury's policy, particularly about the Indian exchange. to get the ity They are very much disturbed at the inabil- situation under control without apparently a very large 9 of time to test the effect. They undoubtedly all fear that the paper ru- pee may become inconvertible, the political effects of which would be serious as the natives would lose confidence in the government general- a 10 Sir John Bradbury impressed me, however, as one of the most intelligent men I have ever met. He has been 37 years in the service of the Government and seems to know every wrinkle. http://fraser.stlouisfed.org/ whatever Federal Reserve Bank of St. Louisfrom I heard no suggestion him that America should forgive the debt, and he seemed 11 lit London City and Midland Bank, a Scotchman, who I believe had been in business in Yorkshire for many years. Mrs. Grenfell was with us at dinner, but after dinner we settled down to a. general business die- ., cussion which was rather profitless because Mr. Darling advanced the novel idea that if the British Empire, including the Dominions and Colonies, could be covered by a glorified Bunk of Englund with one bank reserve, the British nation as a whole would be able to eliminate the premium on exchange within the Dominions and probably with the rest of the world. None of this appealed to Sir Charles Addis nor to Grenfell, but the discussion occupied much of the evening. I was interested, however, to learn that Mr. Darling held strongly to the view, as did Addis, that Great Britain should discontinue foreign borrowing entirely, and, as Mr. Darling suggested, should work, economize and pay their debts. Sir Charles said it would be a magnificent thing if the American debt could be in some way eliminated, but one of those things not possible in the world as now constituted. He thought a definition of the terms of the debt at an early date would be most helpful, also that some adjustment of the debt between the various parties should be effectea so as to reduce the gross amount. I am inclined to think that Kindereley expressed a 1111 purely sentimental view of the situation, which does not reflect the general opinion of Englishmen of importance. Saturday, July 26: I joined Sir Brien Cokayne rat the Bank at 12 o'clock and drove with him to his house at Roehampton where we had family luncheon. After short visit with the family, Lady Cokayne went wit us to the Bunk of England Sports Club grounds, where a field day was 12 given for all the employees of the Bank. It seems the Bank recently purchased 15 or 2n acres on which they built a large records building for obsolete papers, etc., and a small clubhouse for the Sports Club. 13 of the situation. Crossed on the bout with these gentlemen and Mr. ill Harris, who represents the Canadian industrial interests in the Canadian Mission at London, and Mr. Dudley, who is the Relief Administrator for England.of practically the whole German-Austrian, Czecho-Slovak, Jugo- http://fraser.stlouisfed.org/ Slav, St. Louis Federal Reserve Bank ofArmenian and Southeastern Europe territory. We reached Paris 14 1 desire rather than of minimum requirements. The Italian program calls for $660,000,000 of American supplies, principally food; the French for from $750,^00,000 to $1,00C,000,C00. He thinks generally, as a re- sult of talks with the British, that $250,000,000 are required for the 111 new countries and Central Europe, but after long discussion he said generally that if we could see $500,000,000 available at once to start matters going, he had an instinctive feeling that the situation would ease up. Stettinius feels very strongly that the European situation is not understood at all at home and sees little hope of arranging a program of general assistance unless the American government not only gets behind it with its influence and support, but in some form, directly or indirectly, lends its credit, and I am personally rather inclining to that, view at the moment. Stettinius says that Hoover has done a magnificent piece of work over here and that his influence is immense. He believes the whole reparations protsion of the Treaty must be rewritten and that, in an economic sense, the fate of Europe depends very much upon the character of the men who undertake that work, and particularly those representing America and Britain. He thinks that in general all efforts undertaken to restore stable political and economic conditions must be undertaken jointly by the British and Americans, that the Italians must by all means be excluded and that it would probably be better to exclude the French. One thing is obvious in talking with him and with the British, and it does no good,- that is the way reports are flying about on the one hand that the Americans are sending trade expeditions to the various parts of Europe to capture British trade, and that the British, while calling for American aid for Europe, are at the same time develop- 5 1 ing plans to use us to pull their chestnuts out of the fire and get the I am convinced that 99 per cent, of all of this is trade themselves. baseless and that a few isolated instances of transactions such as the sale of cotton to Poland caused all this talk. Stettinius tells me that the French have closed contracts with English machinery manufacturers for machinery to equip plants in northern France destroyed by the war, to an aggregate amount of $2(X,000,00, the terms of payment being spread over a period of from six months to two years or even more. At the conclusion of our discussion I asked Stet- tinius if he did not believe that the best way to make progress would be to pick out the comparatively few fundamentally essential articles now required in Europe and make special plans to finance their Immediate movement, leaving the future sum to develop automatically. He agreed that this was the fact ana tnat wheat, packinghouse products, copper, cotton and sugar were tile prime essentiais, if we excluded coal, which could hardly be moved from America on account of inadequate shipping and loading facilities. We are to meet 1-ter at dinner and continue our dis- cussion. Stopped at the Mission to meet IcCoy and went with him to Gen. Per shingls residence in Ogden mills' Paris house, loaned to Gen. Pershing 16 were there. In the evening Harrison, Sterling and Logan joined me at the Cafe 41/ de Paris. Logan explained in considerable detail the conspiracy which had been started over here to get everyone to join in a recommendation to the President to ask me to serve as the American member of the Repara- tions Commission, and I rather gathered that they thought the matter had been pretty well arranged, but without the slightest knowledge on the part of anybody as to whether I would accept. Logan says that the American member must run the show ..nd dominate the conflicting interests or we will be all at sea, and that there will be no difficulty in doing it if we start right. He is very much afraid that a bad appointment will be made, both by the British and by the Americans. After dinner I went out to Logan's apartment with Logan and Sterling, and we sat there until nearly 1 o'clock, during which time Logan recounted their exper- iences in dealing with this whole situation, which is surely a romance, and one cannot help but feel admiration for the courage and energy with which these fellows have taken a tremendous responsibility and gone I ahead to do the job without regard to questions of authority, etc., etc. Logan was very insistent about the arrangement as to the Reparations Commission. Tuesday, July 29: Capt. Robert Masson called in the morning. seemed very glad to see me and we arranged luncheon together. He Later called on Monsieur Pallain to pay my respects and ex:,lained that I would be back later on my return from the north to have a real visit with him. He looked to me exceedingly seedy and seemed to have lost a good deal of A-1 RIDER A: Monday evening Logan, Sterling and Harrison dined with me at the ikCafe de Paris, the evening being entirely social. From there I went to Logan's apartment with the morning, I listening for most I eat up until tales of th o'clock in Logan and Sterling and Logan and of the time to 1 experiences he and others had had in the Relief organization. is a romance of the first order. the following: It truly One hears from these men such tales aS Learning of the need of supplies along the Black Sea coact, Hoover sent a ship down loaded with miscellaneous goods, principally obtained from the Army,-agricultural and household implements and utensils, cloth, clothing, meat, etc., etc., for which he paid $500,000. His people went back into the country and bartered this stuff with the natives for a cargo of wheat worth $3,000,000, which he brought back and sold in parts of Europe where needed. In another instance he heard of a large over supply of eggs in northern Europe, where thero was no transportation, and he arranged to swap two old locomotives which could just limp along, which I believe he got from Armenia, for 2,000,00'1' eggs. Then again the Serbians wanted a steel bridge very badly, which he got in German Austria in exchange for 50,C00 tons of wheat, of which he had a I surplus, and 18,000,000 kroner of Austrian paper money (printed for the purpose, which he pointed out to the Serbs they could stami, for circulati in their own country, and which they gladly accepted). No comment on th financial morals of this transaction is needed, but, as he said, it reli the fact of the He said that/the bplehevist countries, that is the situation both ways. Hungary with Bela Kim in control, and Russia, bordering on almost all these new countries, has resulted in constant warfare, little ware now be ing active in twenty or mnre different piaces. A,2 Col. Logan painted a very gloomy picture, indeed, and said that he, 1114 did his chief, saw no possible outcome except by United States govern- mental relief. He gave me some photographs showing some of the Russian bolshevist horrors and said that some of our own men had a mamas film which they top',: in northern Russia shoring the whole operation by the bolsheviks of executing eighteen people who were summarily shot after having their shoes removed, without pretense of trial. Logan finally said that while conditions were undoubtedly desperate he thought they would be immensely relieved if the United States government would step in affirmatively with immediate help, and that political conditions would then quiet down. He is just about to start on a trip to Warsaw with Mr. Hoover and wanted me to accompany him, which I felt unable to do. 17 flesh and to be much older than when I saw him three years ago. After- ward lunched with Masson at the Club at 80 Avenue des Champs-Elyses, established by the French government for the use of the Peace Mission, a most magnificent affair, where most of the formal dinners have been given. Masson was most frank for a Frenchman, in stating his feelings about the situation in France, and particularly as to the situation betWeen France and America. He says that it is not to be expected that America will make a great gift to France by forgiving the debt. thing to do, but impracticable. It would be a fine That is now needed is to effect an ar- rangement by which some part of the debt can-be reduced by America accepting from France as payment the debt which, say, Belgium, Serbia, Rumania and Italy owe to France and then arranging to defer payment= of interest for three years. He practically admitted that France could not now pay interest without tremendous sacrifices, which would be disorganizing. France needed to build up her foreign trade. To do so would require raw materials from America, which should be furnished on long credit. He said that in his opinion the terms of reparation with Germany were not practical. Germany could not pay the amount involved and it would be hazardous to attemptto restore German industry to such an extent as would enable her to pay, as it would involve a serious impairment of the French foreign trade as well as the other Allies. he thought Germany's best means of payment was her coal production and the products of her forests and, to some extent, steel and iron, which she could ship to the East; that steps should also be taken to mobilize German credits abroad, etc , etc., for the purpose of reparation payments. He saw grave danger in building up Germany, which had a splendid capacil; 18 for organization, as the great industrial and commercial rival of the rest of the world. He feared political appointments on the Reparations Commission. Masson's general theory of the position of France is simple enough, but he offered no solution. France had suffered an immense destruction of property in the way of plants, houses, etc., etc. The reparation would be represented by instalment payments to be made by Germany over a long period of years, which would not be sufficient for immediate use in reconstruction, therefore the German reparation credit should be made the basis of immediate credits in America and the neutral countries which could afford to extend credit, and the proceeds used for the absolutely essential things. were. He agreed with Stettinius as to what those essentials In general, I should gather that he believed it would be most difficult to arrange credit to the extent required in the United Statee unless our government was willing to assist in some form. He thought the War Finance Corporation and the Grain Corporation might be made the instruments for doing so. future of France. Masson, however, watsnot in despair as to the He believed the shock of war was over. her people would get back to work when I um reminded at this point of a statement made to me in London and afterwards stated again by Mr. Dudley Ward, that investigations conducted by the English in Germany disclosed indications that the German people had been underfed for the past two or three years to such an extent that their physical ability to work had in fact been greatly impaired. Many people were suffering from boils and carbuncles and from the general lassitude induced by malnutrition, a very inferior quality of food and an inadequate)supply of fats. There has been a tre- 19 Appmendous reduction in the birthrate in Germany and the children born during the latter years of the war are generally afflicted with rickets, many of them permanently impaired, the insufficiency of fate resulting in poor bone structure ll which it is expected will produce a large number of de- fectivee when these children reach maturity. Physiologists from England who have studied the matter state that it will take at least two years to overcome the physical deficiencies of the average German of moderate or small means, brought about by war conditions. Masson told another story indicating one of the details of the diffi- culty which was encountered between the Americans and the French and which had proved most embarrassing. General Pershing issued an order when the forces arrived that the men were not to be allowed to visit houses of ill fame, in fact military police were assigned to the work of Freventing it. The French protested against this, claiming that health protection of the men could be better amfaxsail effected by freedom than by this restriction. General Pershing, however, was obdurate, and Masson said that this had resulted in turning our men aloose on the female civilian population of France to some extent, a good many of whom were young girls. In general, the peasants, shopkeepers' daughters and even the servants in hotels had succumbed to the lavish use of American money, and, furthermore, under these conditions control of disease was more difficult. He cited an instance in one town where this trouble had developed, where the daughter of one of the leading citizens had presented a thousand-franc banknote to be changed, and, ae tLese notes are rare birds in the country, suspicion was aroused and questioning disclosed how she got it. The offender, a young American officer, was questioned 20 d his general attitude was that he had the money and she was quite willing to accept it. I gather from Masson's attitude in recounting this tale that the French felt that we completely misunderstood their system of views in these matters and failing to accommodate ourselves had caused a good deal of unhappiness. I talked over these matters at great length with Masson and he finally admitted that the general behaviour of the American soldiers in France was more than admirable. The complaints about overcharging, etc., were true enough and he regarded such a development as inevitable when these boys were furnished so generously with money. McCoy maintains that our boys were the best behaved of all troops from abroad and that in general they made friends with the French and that the wholesome way in which the average American soldier treated French women and children established a bond of friendship which the English were incapable of developing. McCoy says that the feelings which became strained at one stage of the Peace Conference are now much improved. He also stated that of all the troops which took part in the review of the 14th of July the Americans made the best showing. They were a handpicked lot from the whole of the Third Army and no finer body of men had ever been assem- S bled for parade purposes. Just before lunch I called for a few minutes on Baron de Neuflize, had a little chat with him about his son's work in America upon which I complimented him, and agreed to dine with him on returning from Belgium. He said that Monsieur Pallain was not at all well, carried his responsibilities with him too much, and, in consequence, had broken down his health. From lunch called on Ambassador Wailace, who was very glad indeed to see me and explained at some length his difficul- 21 ties in getting along in a country where he did not speak the language. 111, He said that he had finally adopted the policy of requiring everybody to speak English. C yl i2. .b.e et tvtx_ s./ He, as are all other Americans with whom I talked, is most interested as to the chances that the Peacd Treaty would have in the Senate. He surprised me very much by stating that before the President left for home it had been pretty well understood that he would ask me to take the job on the Reparations Commission, but the unwillingness of the Foreign Relations Committee of the Senate to authorize an appointment would delay matters, and in the meantime he had heard something of the discussion about Mr. Baruch's appointment. I told him that it would not interest me at all, except that some emergency developed that made it seem a duty, and even then I doubted very much if I could bring myself to take a job that would expatriate me for some years anyway. I promised to spend some time with him on my return from Belgium and he was most cordial inaskin_ that I call upon the Embassy for anything that would facilitate my trip. From there called on Logan, Taft and McKnight at the Relief organization headquarters. Arranged with Logan to get a car to make the trip along the front and to Brussels and Amsterdam, with a French officer to go along. Mr. Taft is most anxious that the settle- ment for the gold should be effected as promptly as possible. He said that they had five more in an American cruiser in the Mediterranean which had been received four months ago from the Bulgarians, which they were proposing, if possible, to ship direct to New York, which I told him we would be glad to attend to on arrival. Frank McKnight, who acts as Comptroller of the Relief organization, explained the many difficulties of the work of the organization in getting 22 together competent personnel, etc. He was most enthusiastic about Mr. tA Hoover's work; says that his heart is very much in the situation, and that Mr. Hoover fears that unless America does something affirmatively and generously at once we will go down in history as a selfish,self- I/ centered people with all Europe against us. He feels that during the latter days of the Conference the old influences around the President, such as Col. House, Hoover, etc., had lost their infiuence with him to some extent and that he became subject to the influence of a lot of college professors and theorists and practical ideas. idealists who were lacking in Hoover and McKnight are now working on a plan to sulbmit for the creation of a large corporation with a federal charter, with 31,000,000,000 of capital, one-half preferred stock to be taken by the public and one-half common stock to be taken by the Government or the War new Finance Corporation or the Grain Corporation, this/corporation to issue debentures for additional funds and then to operate somewhat along the lines proposed by Davison. He is anxious for me to have a chat with Mr. Hoover about it, which I agreed to to today, but unfortunately Mr. Hoover is leaving on Thursday and I was unable to arrangeto dine with him Thursday night on that account. After talking with McKnight and learning, rather to my consternation, that the Relief organization is pulling out all over Europe and winding up its affairs, I had a little talk with Col. Logan about our automobile trip, which he undertook to arrange for me, giving me his car and a good driver and a French officer who knew the country. Mr. Hoover came in while I was talking with Col. Logan and I had about half an hour's chat with him. ge twOr. ft very gloomy view of the C.lhation in Europe. He said that the five essentials needed, aside from coal which we could not 23 supply on account of inadequate tonnage and port facilities, were fate, S grains, cotton, copper and sugar, and he roughly figured the total of these five articles alone at $3,350,000,000. He said that the situation in the new Eastern countries was really disturbing on et ant of debased currency, no banking facilities, no credits, no exports, little transportation, no credit abroad, very little effective governmental machinery, and, outside of Finland, hardly anything in the way of a tax system. They were all more or less at war with each other, on very bad terms, fighting still going on in many areas, and they needed both social and political tranquility, raw materials and more stable government. Mr. Hoover was very critical of not only various individuals but of the attitude of foreign governments and somewhat of our own. He said the only solution that he saw was direct government aid to Europe; that he was most strongly impressed by the need of building up Europe's productive capacity at once and had prepared a memorandum on that subject which had attracted the attention of the officers of all the foreign governments, and of which he handed me a copy. In his opinion Germany would recover among the first because of better organization, greater desire to work and closer application to the job; that she would gradually extend her activities in trade and otherwise with the new countries on her eastern border and help stabilize conditions there. He thought the Treaty, and par- ticularly the re7aratione slaneee, quite unwoOkable but possibly quite as good as could be expected, but now tint- feat jolh was to have the I.( u. of Nations stabilize political conditions and the Reparations Commission wisely administer that part of the Treaty entrusted to it. heard something of He had Mr. Baruch's possible appointment, and, while he did %. 24 tiarhe had cabled the President strongly urging that the foreign finance min- ster° should be invited to Washington for a conference, not, if you please, to develop plans or strike bargains, but to create an impression which would awaken America to the peril in which Europe stood. I All that he said was most interesting, particularly when he explained that he had taken very long chances indeed in some of the things that he had done. 1 In one instance he said that the hazard of the failure of the Germans to sign the Treaty would have imperiled $100,000,000 of supplies which he had scattered all over Europe and over which he probably would have lost control resulting in losses of possibly $25,000,000. marked up his prices all around and realized a profit by way of interest which had now become real, as he had pretty well liquidated his supplies. Through his efforts and various trades he had made, etc., the work of the Army and the C. R. B., he estimated that $850,000,C00 worth of food and supplies had been poured into Europe. He agreed that to use credit in America would aggravate the present tendency to slackness in effort, but nevertheless immediate relief in food das essential. He said the English investigation of the physical condition of the German people was conducted by a crank whose report should be disregarded, but his own re- port made by Dr. Taylor convinced him that the Germane on the average had lost 20 pounds in weight and that the lack of fats had developed lassitude and high nervous irritability, but he was convinced that three months good supply of fate would restore them to normal. They were even nod consuming only about one-third, at the increased ration, of what we consumed at home. It is impossible to recount the many interesting and tragic stories which he told me, but my impression from this conversation was very die- 25 tinct that Mr. Hoover was a good deal of a plunger and took kigk long chances; that he had immersed himself in a great maze of statistical figures, calculations, formulae and estimates which had really somewhat 4.6 beclouded his judgment. 41, On the other hand, his own story and the stor- ies I hear from others, both in his organization and outside, convince me that he has done a magnificent piece of work which could only be conducted successfully by a bold and adventurous spirit with limitless courage and, in some instances, little regard for either methods or consequences. I should say that Europe probably owes more to him than to any other man, for jumping into the breach with food and supplies, with sympathetic relief, all properly administered with the firm hand of a dictator. Mr. Hoover has had an organization, he tells me, of about 900 men scattered all over Europe, largely drawn from the Army, some of them philanthropists of various sorts, and I gather some of them very efficient while others are quite inefficient. He has assumed all sorts of powers accord- ing to his own story in advising and directing and regulating matters in these new countries, and has probably done it with a great deal of skill, but I left him with some feeling of anxiety lest he mislead himself and possibly other people by his own tendency to paint the picture in lurid colors. He is one of the most interesting men I ever met, with a con- 110 siderably developed ego, but his accomplishment overshadows everything that may be said in qualification. On returning to the Hotel de Crillon from Mr. Hoover's office I found Gen. McCoy trying to find me to go to a reception at General Pershing's house. General Pershing is occupying Mr. Ogden Mills' house, one of the most beautiful in Paris, with an unusually fine garden in the rear. The reception was held outdoors and was an altogether gorgeous affair. I met 26 General Pershing, General Bliss, General Harbord, Marshal Foch and quite a number of other distinguished people whose names I do not recall, and there werealso a number of Americans there that I knew, including Mr. and Mrs. Harjes, Mr. and Mrs. Stettinius, Mrs. Borden Harriman, Col. Quekemyer, who is one of General Pershing's aides, etc. It was largely made up of officers in uniform and their wives, Ambassador Wallace and his wife, and a considerable smattering of the American colony. Wallace was receiving with General Pershing. Mrs. I returned to town with General McCoy and from there went to the Hotel Majestic to dine with Sir William Goode and a party of Englishmen partly made up of Treasury officials. Mr. Dudley Ward was there, Mr. Butler, who has charge of the Southeastern relief work with station at Vienna- , a Mr. Water- low, whose name I recall after inquiry as being the same man who has occasioned a good deal of trouble to Warren Greene, and quite a number of others attached to the British Peace Mission, mostly the younger men. They were a very attractive crowd, but most of my talk was with Sir William Goode and Mr. Butler, who sat on my right. In passing I may say that I inquired of Mr. Hoover about Butler and learned from him that he was regarded by the Americans as the joke of the Continent,apending most 27 so that one could hardly conduct financial transactions with any sense of security. He spoke as though his people in Vienna were having a good deal of difficulty in getting food at times and mentioned particularly the political unrest as being a barrier in the way of economic recovery. Three trains a week are running through from Paris to Vienna, but they are slow and liable to considerable delays. After a while I was asked to give a description of our new banking system, which I did, and it led to some discussion as to the part the United States would play in reconstruction work, most of them taking the position that while Great Britain would get along without heavy borrowing, they were not in position themselves to make loans to assist the Continent. I could see an under- lying feeling, although with one exception they were most polite, that America had immensely profited by the war and should now step to the front in assuming the burden of reconstruction and political responsibility. Waterlow was inclined to be a little offensive in his manner, rather than in what he said, and I was a good deal impressed with the way the others at the table either ignored him or sat on him or changed the conversation. They seemed determined that nothing unfriendly or in the slightest way of fensive should be said by anyone. I got out of the meeting a very strong 1 29 ion of the disputed coal fields, where they still are. Mr. Balfour was much interested in discussing ahat position the United States would probably take in regard to the new countries along Germany's frontier, but spent most of his time discussing it with Mr. Polk. We broke up at 5 more plclock and I left him/impressed than ever with Mr. Balfour's charm and the particularly careful, accurate w in whic he conducted even the T3h most trivial conversation. Drove in with Frank Polk, feeling far from well and was very much worried in regard to the disputes if in the East. He insisted that/we should accept the mandate of Turkish Armenia and Trans-Caucasia it would lead to an impasse, as he could not He was also a good deal feel that our folks at home would stand for it. Czecho-Slovakia concerned about the dispute between Poland and a016-46faif& which was causing ructions with the Mission. He said he had got a bad cold, was not feeling well, was tremendously overworked already and needed help. I spoke of my meeting with Hoover and told him he would probably hear some urgent appeals from that source, and warned him to check up on Hoover's That night I drove out figures, which struck me as a bit imaginative. together Mr. McKnight, Mr. Taft and to Hoover's house for dinner/with Mr. Kent. two or three others were there, as well as Mr. Hoover. Mr. http://fraser.stlouisfed.org/Hoover Federal Reserve Bank of St. Louis During the dinner indulged in a good deal of reminiscence concerhing the work 30 sending men inland he succeeded in getting rid of the goods in exchange for a cargo of grain worth 0,000,0°0 Mich he brought west and sold. In another instance he heard where there was an oversupply_of eggs, but no locomotives, and he got a couple of out-of-repair locomotives which could 1111 still run, and sent them up there in exchange for 2,000,000 eggs. In another story he described how he made a trade of 50,000 tons of grain, of which the Serbs had a surplus, in exchange for a steel bridge that he got in German Austria and swapped, together with 80,000,000 kroner of paper money, for the grain. The paper money was printed for the purpose of the transaction and was shipped to Serbia where it was stamped and put in circulation. After dinner Mr. Hoover and I sat down in'a corner and for over two hours I questioned him about European conditions, particularly in the East. (Here take in part of letter to Mr. Leffingwell Which covers this conversation) , I t RIDER A rerk by Mr. Balfour 411 to omit. Wal I called at complete the B a picture of London that is too good k of England and they told me that building and had assigned the li- they wanted meto occupy a brary to me, I was . of course, gratified, because no ci 4111 such intrusion by a stranger the Bank. ever before occurre for They even had my name printed on a card and affixed to the dot and at once said that they would arrange to have a telephone put on my desk, although it might take a little time, as the Telephone Control made it necessary to get a special permit. put in while I was at lunch. They insisted they would have it When Mr. Kent and I were lunching at the Savoy Hotel, Sir Hardman-Lever joined us and almost the first thing he said was to jokingly remark that he understood I was to have a private tek phone on my desk at the Bank, having apparently learned of it at the Treasury where the permit was required. A day or two later when I was lunching at the Bank with the directors and Sir John Bradbury, he asked if the arrangements for my private telephone hid been completed all right,- also with a laugh. It occurred to me that this private telephone was causing some commotion, but later when I called on Mr. Austin Chamberlain, he also inquired whether the arrangements for my telephone had been satisfactor- .46 ily completed. To cap the climax, when I was lunching with Mr. Bafour in Paris, he stated to me that he heard that arrangements had been made in the Bank to instal a private telephone for me. this sequence means. http://fraser.stlouisfed.org/ tary of Federal Reserve Bank of St. Louis One must consider what Word first reached the Parliamentary Under Secre- the Treasury, then the Secretary of the Treasury, then the Chan- 51 Thursdays July 31: This morning I went to Morgan, Harjes & Company and spent an hour with Stettinius going over his cables and getting a line on his plans and explaining and discussing Kent's memorandum. By this time I had been gradually developing a feeling that Stettinius himself had become infected with the general atmosphere of depression, particularly about Italy. He seems to have made up his mind that nothing but government aid will meet the immediate needs, and I gather that he thinks a start should be made with a credit of about 3500,000,000, principally for Italy and France, but that ultimately from two to three billion dollars will be required. He insists, however, that all of the officials with whom he is talking prepared estimates that are quite unreliable; that they are somewhat inspired by the fear, each that the other will get more than he does, and he thinks theyare packing their estimates with no expectation of getting credits for what they submit. In the case of France they have $40,000,000 for railroad equipment, and he says that plenty of cars and locomotives are in FrJr.?.c if they will only go to work preparing them. Kent and I debated his plan at great length, and from He there we all went to Voisin's for luncheon, where we met Col. Logan. told us more stories of conditions in the East and gave me a set of postcard pictures of atrocities in northern bolshevik Russia. It seems that the American Expeditionary Forces up there got a moving picture film of the execution of eighteen Russians by the bolsheviks, which have been suppressed but which they say is the most gruesome thing he'ever saw. We returned to Morgan, Harjes and had a further talk with Stettinius, and that night Kent and I dined at the Ritz. 32 Friday, August 1: This morning dictated and packed and at noon Kent and I went to lunch with Harjes, Stettinius, Cellier, who is an Under Secretary of the Treasury, and an interpreter, as Celier spekks no 4 English. This was one of the most interesting meetings we had. impressed me most favorably. Celier He is a comparatively young man, and Stet- tinius says belongs to the young group of Frenchmen who -re gradually getting a strong and constructive influence in the government and seem to be making some progress. It was awkward carrying on the discussion entirely through an interpreter. Almost right away Celier asked whether the American govern- ment was going to extend credit in some form to France or the French people. I explained to him who I was; that I was not an officer of the government, simply had relations with the Treasury in connection with its business matters and was over here quite unofficially, but was anxious to know about conditions, and that I would prefer to ask him a few questions before answering his. We then discussed at great length the criticisms in regard to the policy of taxation and keeping so many people in the army and out of employment; of the political difficulties in the East,in which France was interested; of the disappointment France would experience in the matter of reparation, and, finally, that France could not buy goods abroad unless the people would get to work and produce goods for export, and that it was very easy to undermine the morale of a nation by making credit too easy, just as it was to undermine the credit of an individual by paying chomage, which promoted idleness. He seemed to be quite in accord with the views expressed by Stettinius, Kent and myself on these matters; admitted that the food situation was not so bad in France, but " cLeP- /tze eeir21/14 34 of them recovered from Germany and from Alsace-Lorraine, and doubtless sale of it French equipment which the Germans had captured and which has since been restored. I promised to see Celier again on returning from Belgium, as well as to meet Klotz. I returned to Morgan, Harjes and had another little chat with Stettinius, and that night dined with Ambassador and Mrs. Wallace. They had a large formal dinner party. Among the guests were Messiers Pichon, Minister of Foreign Affairs, Leygues, Minister of the Marine, Marechal Foch, General Bliss and General Harbord, Mr. and Mrs. Polk, Mr. Venizelos, of Greece, and Mrs. Francis Lawrence, of Boston, whom I took in to dinner, Mr. and Mrs. Stettinius, and Miss Marbury, who sat on my left. There were a good many other people there whom I did not know,- probably thirty at the table. tuous meal, eves for France. six kinds of wine. It was a most sump- There were six or eight courses and five c Mies Marbury, who is over here giving recitation40 the soldiers, impressed me as a rather disagreeable woman, most aggressive; she talked incessantly, principally about herself, and wound up with some very biting criticisms of the French, who she said were squealers, thor http://fraser.stlouisfed.org/ unreliable, oughly Federal Reserve Bank of St. Louis had lots of money themselves and were simply begging 35 the American Senate would ratify the Peace Treaty. He said that neither the treaty with France nor the covenant of the League of Nations me his opinion violated our constitution and he would class them with the executory treaties in each instance where a war situation arose, recognizing that Congress had to be put in motion to give an affirmative approval to any act which was equivalent to a declaration of war. Alto- gether he impressed me as one of the most interesting seriousminded men that I have ever met, as a man of very strong opinions and a very wide range of knowledge. His familiarity with American affairs was particu- larly impressive. Saturday, August 2: We left Paris at 8:30 this morning. , Col. Lo- gan had given us his army car, a firstrate Cadillac limousine, and, besides Mr. Kent, Mr. Vaughan and myself, Mr. Bancharel, a French officer, and a driver accompanied us. Bancharel says he is 42 years old, was 52 months in the army, part of the time in the infantry and later as liaison officer with the American Field Service. He knew all about Ben's organi- zation and their work, of which he spoke very highly. The driver has been attached to the A. R. A. driving for them and Mr. Hoover's people in different parts of Europe. We left by Rue Lakayette, passed through Lagny, Meaux and La Ferte, at which place we made a detour to Jouarre to visit the Chateau de Perreuse where young Wold is buried. The country through which we passed seemed to be well cultivated, and, outside of Paris, the roads were pretty well crowded for a distance with carte bringing in vegetables, straw, provisions, etc. At Meaux I noticed a great many idle freight cars, some of them German. no evidence of lack of cultivation in that district. At C:.ateau Pereuse we found the caretaker's daughter, who showed us the graveyard on the 36 grounds where 72 French and 18 or 19 American soldiers are buried, and off in the corner two Germans. The place was beautifully kept; crosses 46_ at all the graves with the names and a little tricolor, and all of them 411111 planted with flowers with little box borders,which showed evidence of the most perfect care. I gave the caretaker, who had joined us, some money and left impressed wit the fact, which our courier exjained, that in France the graves of the soldiers are regarded as sacred. We then followed the Marne toward Chateau Thierry, and when we got within a short distance of it, at Chezy-sur-Marne, the countryside begun to show the effect of shell fire, many trees along the road having been cut off by shells. Our approach to Chateau Thierry was over a road where Ben had worked. On the right bank of the river the destruction artillery fire was plainly evident. occasioned by The town was pretty well shot up by the Americans before they got possession, but the bridge had been restored and people were already there doing business and starting to rebuild their houses. The destruction is nothing like as severe as places we saw later. The five of us lunched at the Hotel de Jean de la Fontaine, a rather poor little place, but had a fair lunch which cost 30 francs. The lunch con- sisted of soup, dark bread, no butter, some sort of a pickled fish and some meat (the meat was not very good, but edible), and a bottle of rather sour wine. There were a number of young American officers in the place, as well as some English. After lunch we followed the road to Fere-en- Tardenois, every part of the way having been fought over, the village of Fere-en-Tardenois being almost completely shot to pieces. The next town, Fismes, was almost completely destroyed, and there you could pick up any quantity of trash, rifle and machine gun cartridges, and even helmets in 37 the rubbish heaps, and I noticed in a good many places you could hear the rattle of fragments of shell under foot, which had become discolored and taken the shade of the dust. Just before reaching Fismes we made a de- ll. tour to the Bois du Chatelet and saw t-e foundations of the gun which was used to shell Paris. It was approached by a siding from the railroad track, and the gun was run into the foundation, jacked up and fired, and then run out again some distance away, presumably to protect it from being located. The foundation was a huge affair of steel and concrete, I should say about 30 feet across, the platform operating on huge ball bearings which must have been eight or ten inches in diameter and which, I was told, weighed 66 pounds apiece, the whole being operated by a big crank which enabled the gun to be pointed in any direction. The jacks for lift- ing the gun off the railroad carriage were there, but the platform had bean destroyed by the Germans with bombs. I noticed that the railroad track approach was also torn up, either by French shellfire or by bombs, it was impossible to say. From names we followed the Vesle river*xxkigkxxmit to Rheims, through a country that was all fought over. There is evidence on every hand of artillery destruction; hardly a building untouched, many of them completely destroyed; ammunition dumps with shells piled up, and here and there in the woods alongside the road crosses where soldiers had been buried. Notwithstanding this, however, the peasants had gotten the farms pretty well in cultivation. Aside from a few army cure we saw no automobiles and very few vehicles of any kind, but there were some cattle in the fields here and there and the people were returning to their homes. Rheims itself is a terrible spectacle of destruction, the cathe- dral standing out above everything, although damaged beyond hope of repair. 38 The front is now boarded up and sightseers are not allowed inside,- probably very wisely, as stones in the tower are hanging by the reenforced lle and in places looked as though they might tumble at any time. We drove out of the city to the German and French lines where the fighting had been the worst. The Germans had approached within three or four miles of the city and there the countryside was entirely torn up by shell fire, filled with shell craters, unexploded shells and the litter of fighting still being there. There were three huge German tanks pretty well rusted up which had either been struck by shells, or in one case mired in a trench. We passed Fort La Pompelle, which was practically destroyed and annihilated. All of the ground hereabouts was covered with lines of trenches and shellproof dugouts, some of them very deep. In the distance we could see Mont Blanc, Mont Sans Nom and Mont Cornillet, just beyond which the Germans had long been stationed with their artillery. The French had literally shot the tops off these mountains, one of them showing nothing but the white chalk. Much of this ground had been used for vineyards, but not a ves- tige of agriculture or viticulture remained. We were told that there were about six or eijrt thousand people again in the city of Rheims, but the task of restoring the town would appear to be the work of years. The principal streets have been cleaned up so that one could get up to the cathedral without trouble, and they were removing the rubbish from other streets, but undoubtedly many of the walls were unsafe, as we were obliged to make a detour where one street had been shut off. From Rheims we fol- lowed the Vesle river through Livray, gradually running out of the area of the worst fighting, past Revigny, and on into Bar-le-Due. On the way we passed the canal which the French used for a species of small gunboat which 39 they would run up to a given position during the night, bombard the German lines and then run off again before they could be located. All through Alpis country there was a good deal of camouflage still hanging alongside the road, and although we were close to the point where fighting had been active, there were graves alongside the road, most of them French as we were on the French side of the lines. Just back of the canal there had been a large number of French guns, which were placed under very substantial dugouts and the approaching road was apparently screened with camouflage. In thio region there were a good many trees cut up by shell fire. We reached Bar-le-Duc rather late and spent the night at the Grand Hotelde Commerce, having driven 189 miles. It was a poor little hotel and the town was filled with French soldiers, as was the case in almost every one of these villages and cities. Bar-le-Duc seemed to be pretty active and thriving, and our courier said that the people of the town had made a good deal of money on account of the trade with both French and American soldiers who came there at every opportunity to blow in their money. town was intact. The The railroad station had been largely destroyed by aeroplane bombing and in many other places in that region the scars of aero bombing still showed. Bar -le -Duc was one of the places which the Germans attacked by that method throughout much of the war. Mr. Kent and I shared a wretched room together, the beds having on them the conventional down mattress. Sunday, August 3: We left Bar-le-Duc at about 9, taking the road through Vavincourt, being part of the chemin sacre, to St. Mihiel. we saw the effect of the American attack. oughly shot to pieces. but restored. Here The town had been pretty thor- The bridge across the river had been destroyed In all this region the roads were not very good and showed 4o the effect of heavy usage and shelling. The main masonry bridge over the river had not yet been restored, the greater part of it having been lipwn up by the Germane and a large span is completely gone. From St. Mihiel we followed the right bank of the Meuse through a country which had been altogether devastated to Verdun. The trees along the road had been largely destroyed,- some of them very large trees,- shot off with the ends simply splintered and standing up a few feet above the ground. All along this road following the river were endless dugouts, and in some places along the canal an almost continuous line of sunken canal boats. The countryside was pretty well littered with war material; here and there broken caissons, the remains of trucks, etc. Scattered in the woods and along the roadside were crosses where soldiers had apparently been buried as they fell. We entered Verdun, one of the really fine old picturesque cities of France, by the Porte de la Chaussee and a beautiful old bridge. kmkkkiliguasmihoux The town of Verdun shows the effect of more or lees constant shelling, pretty much all the walls being scarred by shell fire, but the buildings seem to be quite intact. Here and there a building not would be completely destroyed, but the town did/look nearly as badly as the others we had seen on the way in. We went right through the city, which is completely surrounded by a big moat, with forts, etc., constructed by Vauban, and out to Fort Douaumont. The road to this fort was protected by camouflage pretty much all of the three or four miles and had a narrow gauge railroad alongside. This entire area, as far as one could see, has been literally shot to pieces, the trees pretty much all killed and destroyed. I understood from our courier that it had been pretty much coy- red with forests before the war. The big fight having taken place three years ago, the ground was covered with grass, weeds and scrub, but it is no exaggeration to say that every foot of the ground from outside of ilpydun to the Fort and from the Fort three or four miles beyond to the Ger man lines, consists of shell craters, many of them filled with water. its Every shelter where dugouts could be built for protection from German fire had been utilized, and over all of this country there was a litter of shell fragments, grenades, unexploded shells, leather harness, etc., etc. The growth of weeds and grass has completely covered this and one would think at first glance that the place had been cleaned up, but a more careful examination, particularly in the shell craters, shows no end of arms and war material. In one shell crater I noticed some bones sticking out and all over the countryside are crosses where men have been buried. Many of them, however, have doubtless been torn up again by shells. Fort Douaumont, once a hue solid concrete and stone structure dug right out of the living rock, has been so shot up that its outline is hardly discernible from the outside. Inside it is all underground tunnels apparent, had been ly running to a great depth and/lighted by electricity, where the men slept and lived. From these underground caves openings were made to the top, where they had steel or concrete lookouts, machine gun emplacements, etc., etc., which seemed to have weathered the shell fire pretty well. There was also one gun turret made of heavy steel, flush with the concrete on top, except that the turret could be raised when the gun was to be fired. This was scarred pretty much all over by shells and immediately on top could be seen the marks of where shells had made direct hits but failed to crack the steel. There were signs warning visitors not to pick up things nor to leave the beaten paths, a warning doubtless needed as there were no pit end of unexploded shells lying about, and in one place we saw a 42 filled with hand grenades, mostly covered with water. Standing on top of Fort Douaumont one could look for miles in every direction and see nothing the waste of war. In one place some miles away the top of a hill had been completely shot off and, as at Ptieims, showed only the white chalky soil and stone. saw in France. It was the worst picture of destruction that we We left Verdun by the road to Clermontl and 3t. Menehould. This road, for much of its length, has graveyards where the French killed at Verdun were buried, and there is one very large Red Cross hospital plant on the road a few miles back of Verdun. The banks alongside the road are also perforated with dugouts for much of the way. St. Menehould. We stopped for lunch at The city is very little injured and is supposed to have been protected by reason-of the fact that it was the headquarters of an elaborate German spy system. They claim to have got a good many of them and shot them, one or two quite recently. Our courier explained that the headquarters of a French army was located in a certain building there; whin the Germans commenced to shell it they moved to another place whereupon tie enemy artillery directed its. fire there, and again a third tine, all of which theyatributed to signaling by these spies. intact. But the city is almost We lunched at a little restaurant run by Marie Pignon, 58 Rue I Chanzy, who was already known to both our chauffeur and courier. It seems the place had been run by some Americans, who turned it over to her when they left. She was very friendly and a very attractive little girl and gave us a fine luncheon, consisting of soup, pats, tongue with spin- ach, good bread, a good bottle of wine, and some pastry and hot coffee, altogether the beat meal we had since leaving Paris. From there we drove through Varennea, starting to make the trip through the Argonne. The 45 The whole approach to the woods where our men did their fighting was one continuous string of dugouts in the banks alongside the road and in the 'ods, and through the woods were no end of crosses over graves. was literally a city of cliff dwellers. It On both sides one could see the dugouts which the French had occupied for nearly four years and until our men took over this sector.. At this point the lines had been undisturbed since the Battle of the Marne. Here again we saw a good deal of litter of war, cartridges and shell fragments along the roadside, even helmets here and there, and in the woods a good many graveyards and isolated graves. As we worked up the valley toward Dun -sur -Meuse we could see on our right where the forest had been literally destroyed by shelling and nothing left but stumps and bare ground. Our men had worked their way through these woods for a good many miles, driving the Germans before them over a long wide front, and, while the undergrowth had grown up and covered a good deal of the effects, yet trees were shattered and toppled over all through the woods alongside the road. The road here was very bad, having been only recently patched up, and one could see that the shelling had followed the road right along. We passed through what once had been a little village, Four de Paris, where a little glass industry had been in operation for some centuries, but there was not a vestige of the place left. One could not even see the foundations of buildings, so concentrated had the shelling been there. Varennes was completely destroyed. We got a good picture of a fine old church, part of the walls of which were still standing. Between Varennes and Dun-sur-Meuse we made a detour to Armagny, where the American cemetery is located. Our courier told us that there were 29,000 graves, in which only one soldier is buried who 44 has not been f_dentified. It was apparently in charge of some French soldiers who received us with a great deal of friendship, but there were lir.. some American troops there. At Dun-sur-Meuse there was a fine old church on top of a hill which had been pretty well shot to pieces. From Dun-sur-Meuse, after driving possibly fifteen or eighteen miles through the woods and out into the open country over which our men had driven the Germans, we passed through Stenay and Mouzon on to :',edan, where we had hoped to spend the night. There was some little cultivation along this road after we left theArgonne forest. All the way the trees along the roadside had been cut down by the Germans, say one in every 4, 5 or 6, to impede the American advance, but in general this section did not seem to have recovered very fully from the fighting until we approached Sedan. The German retreat was so rapid that the country showed nothing like the damage which appeared in the region of Varennes in which the Argonne attack started. Sedan was jammed with people and no end of French soldiers as in all the other cities we passed through, but did not appear to be much damaged. From there we passed on to Mezieres, which was also crowded, and across the river to Charleville, where we spent the night at the Hotel du Nord. At Mezieres I noticed a huge collection of freight cars on the tracks, many of them from Germany and from Alsace-Lorraine, and many of them French. siding. long. None of them were loaded and they appeared to be on a It was at Charleville that the Kaiser had his headquarters so He occupied a chateau immediately in the rear of the hotel and used the latter for his cooking, etc., and it was largely occupied by his people. The woman who ran the place said that they behaved well enough until the Crown Prince came, but that he did not behave well at all. The 45 hotel was connected with the Kaiser's headquarters by a passageway and it was here that they had a meeting of the various princes of the German 44Wtmpire at a big dinner on the Kaiser's birthday. All the way to Sedan practically every bridge that we crossed had been destroyed and repaired, but only in a few places did we see much in the way of wire or trenches, the retreat beyond Dun-sur-Meuse and Sedan apparently being too raildd. Allalong the road, however, were the marks of shell fire and in the fields where doubtless the American artillery was trying to reach the retreating Germans. Here and there rolls of barbed wire lay alongside the road or in the fields, but in no such quantity as in the trench warfare areas where the mass's of barbed wire in places were tremendous. The entire length of the main road to Sedan and beyond had been obstructed by the Germans by chopping down every fifth or sixth tree on both aides of the road. The trees have now been r&aoved and are lying a.,ongside the road. Mr. Kent and I shared the same room at the Hotel du Nord at Charleville, there being no bathroom, and in general the accommodations were rather primitive. The meals were ordinary, but good and wholesome, with apparently everything one could want. L The hotel seemed to be fairly well ballot filled and again there were many soldiers in the city and a few here, as in other towns, we noticed/American troops as well as some British. We had covered about 160 miles in our trip from Bar-le-Duc to Charleville. Monday, August 4: Leaving Charlesville at 9 o'clock for the Belgian frontier we again followed a road over which the Germans had entered Frans* and later retreated, and hereabouts the Germans still had troops when the Armistice was signed. My general impression in passing through France to 46 this point was that the many German prisoners we saw at work in the fields d on the roads were a pretty lazy lot, doing mighty little work but looking very well fed and contented. They seemed to be given a great deal of freedom, their camps always having detachments of French soldiers there, but the German prisoners, nevertheless, working alone on the roads and in the fields without guards. They all wear a distinctive uniform which doubtless was relied upon to prevent their escaiie. I also gather- ed the impression that there were altogether too many French soldiers loafing about France. Of course many of them are working at various tasks, restoration, motor transport, garrison duty, guarding prisoners, and so or but the impression was strong, nevertheless, that these ablebodied men should be at work on the farms and in the industries and not loafing about in uniform. The first important town after leaving Charleville was Rocrai, a very old French town, which fortunately was not greatly injured by the war and is a most picturesque little place. The roads were in much the same condition as those we had previously gone over, the approaches having been destroyed and restored and trees felled along the road. At Fumay we reached the great forest of the Ardennes. Here in several places there were German helmets alongside the road and occasionally material which had been left by the retreating Germans, but aside from that little evidence on the road of a passing army. The trees had still been feded about every fifth or sixth tree, on both sides of the road. There was, moreover, evidence of wanton destruction by the Germans, as the larger, more important private dwellings and business establishments seemed to have been deliberately bombed inside and badly damaged or completely destroyed. There were occasionallyplaces where the poorer 47 Entering Givet there were ouses did not appear to have been touched. ,any more trees chopped down, the bridge over the river had been destroyed and replaced with a temporary steel structure. Vie crossed the frontier into Belgium at Givet, where we were asked to show our passports but were given no trouble whatever. In general, the cultivation in France appeared to be very complete and the crops excellent right up to the immediate area of active fighting,except, of course, where the land is timbered. Where there had been protracted fighting, however, the recovery of agriculture seemed to be slower, a good many fields not being cultivated. There are some cattle in the pastures, but nothing like what I have formerly seen in France. In general the crops looked in excellent condition, the wheat being ripe and partly cut and in shocks; oats not yet ripe; potatoes, beets and garden vegetables all green and fine. It was very noticeable, however, that there were practically no pleasure automobiles whatever on the roads, and the only trucks were army vehicles. There were also very few horsedrawn vehicles, those we saw being practically all for transport for business purposes. Approaching the Belgian frontier and over the frontier was a magnificent exhibition of crop conditions. On the road to Dinant the crops looked perfect; the roads were perfect; houses which had been injured in the German advance in 1914 had very largely been repaired alongthis road. We took the highroad on the right bank of the Meuse, which was one of the most beautiful drives I have ever made, the prettiest view being at Freyn overlooking the chateau of that name. At Lesse the bridge had been destroyed and replaced with a steel structure and here many buildings were patched and yet a good lnany entirely unrestored, as the Germans seen to have done a good deal of damage here in 1914. We crossed the river at Leese into Dinant, where a 48 stone bridge had been destroyed and restored with steel. Further along river a narrow footbridge, but quite long, had been destroyed and not yet replaced. In general Belgium throughout this part looked At Annevoie the bridge had also been de- businesslike and prosperous. All through this part of stroyed, this being a roadway bridge only. Belgium we had met no pleasure vehicles to speak of, just as in France, but on approaching Namur, where another bridge had been destroyed, we discovered some cars. The city showed little efrect of war damage, the forts which were destroyed by the Germans being on top of the plains back of the town and the river. As the day was a national holiday, many of the stores were closed, but practically all the houses that had been injured in Namur seemed to have been completely repaired and the bridge restored. We had lunch at the Hotel d'Harscamp, and at no place, New Yoric London or Paris, have I ever had a better luncheon. Everything was beau- tifullyprepared and served and there was not the slightest evidence of war grub such as one has in France. The bread was white and served with butter. We had had but litt,.e breakfast at Charleville and were all hungry. Luncheon consisted of oxtail soup, sole saute meuniere, sirloin steak, mayonnaise sauce, potato chips, white bread and butter, crepes and The lunch, however, was expensive by Continental reckoning, burgundy. costing 163 francs. But it was one of the best meals I ever had. shop windows were well stocked. candy, chocolate, pastry, etc. the car. The We saw a number of windows with sugar, We also got 100 liters of gasoline for Leaving Namur, the trees had still been felled about every ICO yards or so on the road toward Brussels. There was much more traffic, more motor cars, more cattle in the fields and the crops everywhere looking to be perfect. I sever saw better. We passed through Gambloux 49 The road all the way from the Belgian frontier was perfect to Wavre. 1411 and as smooth as a table. Shortly before we reached Wavre we caught up with a car which had just escaped a serious accident. The steering rod was broken and the car had just grazed a tree when the wheel collapsed. We carried one of the party into Wavre to get help. way to that city the trees had been felled. All the Passing through Overyssche I noticed a good many very excellent draft horsesand here we encountered more Flemish names on the stores. All the greenhouses in this section, where they grow a good many grapes for the table, seemed to be intact and flourishing. Brussels was very quiet, as it was a holiday, celebrating their independence. It is a curious holiday because it is the day on which the Germans invaded Belgium, and, as I understand it, is celebrated because by that act the old regime of German neutrality with the overlordship of the treaty of guaranty ended. The city shows no sign what- ever of the war, although a good many bronze and brass sign plates have been removed by the Germans. Many of them seemed to have been replaced with signs of a different character. I learned on inquiry, and found out myself, that many of the metal fixtures such as door knobs, plates, etc., even hinges and toilet fixtures, when made of bronze or nickel, had been removed and other fixtures substituted. One Belgian naively stated that as the Germans were paying fine prices for some of these things they were rather generally sold and those which the Belgians were unwilling to sell they quietly concealed, selling whatever material of that sort they could substitute. We stopped at the Hotel Astoria, on the Rue Royale, which I would class as something of a morgue. As we arrived around 4 G'clock, *At after a bath Mr. Kent and I took a lithe walk through the city and found There seemed to be no lack of the streets crowded and the cafes filled. food of any kind in Brussels at the moment. )c Tuesday, August 5: *Norman I called at the Legation and found my friend Armour in charge in the absence of Mr. Whitlock. He was most cordial in wishing to facilitate our trip, took our passports to be visaed for the trip to Holland and secured for us a special automobile permit. From there we went to the National Bunk of Belgium and called on the Governor, Mr. Van der Rest, who received us most cordially and arranged that we should return after lunch to meet Director Janssen and Vice Governor Lepreux, the latter in charge of foreign exchange and the gold matter. We spent considerable time in discussing credits in America and two points came out very clearly: one was that credits for anything less than three years minimum would be of no service in Belgium. The $50,000,000 bankers credit now in operation has only been used to the extent of $3,000,000 and the restrictions as to the employment of the credit in America will probably render it practically useless and very expensive to the Belgians, as they are paying commissions and interest equaling 7-1/2 per cent. or thereabouts and -_,:etti:v but 3-1/2 per cent. on their balances. The other point was that they found our markets al- together too high in price to buy most of the things they need, and I gathered clearly from my talk with them that they expect theirbeet buying market will noon in nermarv. This of course is nortiv dile to the condition of the exchanges, but I believe they are confident that Germany will recover industrialigx production promptly and bo of conceggio,)@ to supply the demands here. to wake mli These ;;entlemen also stated what I have understood elsewhere, that the Belgians' cereal crop and food production generally, even in normal times, only takes care of their requirements for about one-third of a year, and they must buy ,;rains 51 and meat in other markets for an eight-months That wild be the itadition this year and they will need large credits to take care of their requirements. p Everyone agreed that what Belgium needed now was foodstuffs, raw material and means to restore industries destroyed or injured by the Germans, and an enlarged production of goods for export. They tell me that while some months ago they had between S00,,7,0.7, and 1,2,00,0+X, men receiving. chomage from the government this had now been greatly reduced and one gentleman said that there were now only about 400,00Z on the idle payroll. There is undoubtedly here, as in France and elsewhere, an undercurrent of feeling that America has made great wealth out of the war and should come to the assistance of Europe and little Belgium with large amounts of credits. They have great confidence in their recovery and various conversations I have had, confirmed likewise by Mr. Kent, would indicate that conditions are better here by far than anywhere else in Europe. The people are getting back to work more prompt- ly and they are only handicapped by the lack of machinery and plant facilities which the Germans injured. This destruction seems to have been systematically directed against industries which competed with the Germa.i. industries, particularly iron and steel. The coal mines are all intact and producing large amounts of coal, but I heard one gentleman say that the Belgian reserves were not large enough to justify their exporting any thing like what Europe would absorb, asthey would impair their future economic independence. stored. It seems that industry at Ghent is rapidly being re- Antwerp,which suffered little destruction, has been put back in rather flourishing condition, but in the sections where they had foundries and steel plants they still have a large population receiving chomage and 52 ware unable to get their people to work, having no employment for them. Mr. Armour illustrated the haphazard way in which some of this work was being directed by calling attention to te fact that the bridle path which extends all around the city of Brussels Ras all being picked up by hand and broken and screened and replaced so as to make a soft footing, in which about 600 men are now occupied, a rather useless waste of labor if other employment could be found. We had dined Monday night at the As- toria where the table d'hote was so poor and badly served that we tried Mr. Kent and I h. d an excellent dinner the Cafe Savoie Tuesday night. there, everything one could desire, with sugar, etc., and a bottle of claret, the whole costing 80 francs including the tip,- at the present rate of exchange about $4 apiece. The five of us lunched at a little cafe of a more ordinary type, where we had a simple lunch of soup, omelet, potatoes, fruit and wine, which coat about ;2 apiece. We worked until after midnight on mail, cables, etc. Wednesday, August 6: Kept an a_pointment at the Bank with Vice Gov- ernor Lepreux, at 9 o'clock. I had been a little bit discouraged the day before in regard to making arrangements for moving the gold to London. It appeared to me, and was confirmed by Mr. Vaughan's understanding of a conversation in French, that they were quite anxious indeed to avoid any responsibility for the shipment. Director Janssen had taken us all through the Bank Tuesday afternoon and I was very much impressed with its size and organization and with the huge vaults. These contained what ap- peared to be a vast quantity of foreign securities held on deposit for customers,with a large staff of clerks handling them and the Belgian government bonds. Our gold was stored in the safe under what appeared to 55 !Poe ample security and aafeguard, and I left with a feeling of assurance as to its condition. It is stored in steel vaults, nothing like as se- cure as ours, and operated with keys on which there are a number of different controls as carefully explained to me by the custodian. After going all through the Bank we were asked to prepare u memorandum of just what we would like to have done about the gold, which is what kept us up so late Tuesday night. At the meeting with Vice Governor Lepreux on Wednesday he indicated at once a strong desire to discuss the exchanges. I described to him in some detail the difficulty of placing loans in the United States, the unwisdom of drawing credits with the banks which could not run for a long enough time, which inflated our position where the bills were not eligible for discount at the Reserve Banks and where the hazard of failure to find exchange to meet them at maturity was too great; that it was desirable to avoid inflation as it simply advanced our price level and made America a bad buying market; that what Belgium required was to strictly limit her imports from America to absolute necessities such as food, raw materials and the machinery needed for injured industries; that they should get their people promptly back to work, increase their production as rapidly as possible and build up their exports. 410 illustrated the point by referring to the case of a merchant who sold indefinitely on credit, which might result in the insolvency of both himself and his customers. I thought Mr. Lepreux grasped and agreed with the general proposition,but nevertheless he and Mr. Janssen, who had joined us, both insisted that Belgium would need credits, and after some discussion together they seemed to agree upon $200,000,000 as the figure. Mr. Kent discussed with them the sale of army materials of an essential 54 aracter up to $50,000,000 value, on three years time, which Mr. Lepreux said would interest him very much and that he would like to have details. This part of the discussion ended by my statement that America desired to help in any way in its power, but that it was impossible for our government to continue indefinitely these advances to all the nations of Europe; it was unwholesome and did not promote good business or good relations, and that the business should be directed through Wiliness channels I on an investment business. I then submitted u letter stating that we should first endeavor to have the Bank of England take entire charge of shipping the gold on storage here just ks they had done with the British government gold. much to my Very surprise, on Tuesday, Mr. Janssen had handed me their com- plete dossier covering both the British and the American gold matter, containing original documents and orders, which he permitted me to take to the hotel overnight to read. This has been most useful 48 it contained the British memorandum of their method, and, based upon that, with modifications, I have drawn up a tentative program for handling the matter in unwilling case the Bank of England is xmatig/to do so. In the course of our discussion they sent for the man who had charge of the matter, who spoke 41, English, and I gathered that he seemed to find no objection or obstacle in the way of their handling the matter except they were unable here to prepare the right kind of boxes. This man, after asking of Vice Governor Lepreux permission to do so, stated to me with some pride that upon the conclusion of their handling the British gold they had received most complimentary commendation from the British on the way they had done it, and rather intimated that he would like to handle the job for us. 55 Thinking the time was opportune to do so I stated to these two gentle- men that of course we had a surplus of gold at home and were not anxious that this gold should be added to our stock; that we had to send it to England in order to have it treated to ascertain the fine value and to settle the accounts with Mr. Hoover and the Germans, otherwise have been glad to make some other disposition of it. we would At once an active discussion took place in French between Janssen and Lepreux, which result- ed in their stating that in the course of time when exchanges improved they would need to buy about 100,000,000 francs gold for their reserve and they would consider it quite an accommodation if we would be willing to leave that amount on deposit for safekeeping, suitably earmarked, with the National Bank of Belgium, shipping the rest to London. I said that personally I would be very glad to do so and would cable my Bunk submitting the suggestion. Things brightened up from that time considerably and I finally stated that as we had contemplated and hoped to establish relations with the National Bank of Belgium, it might be quite proper that we leave part of the gold in their custody, and suggested that we might leave 90,000,000 marks, a little more than they had suggested, taking the other 22,000,000 marks to London. Whether it was the reference to leaving the gold or our general discussion, both Mr. Kent and I noticed a very marked change in their cordiality thereafter. We h_d accepted an invitation for lunch at 12:30 to meet the directors of the Bank and the Prime Minister, who is,also, I believe, the Minister of Finance. We then went to the Legation where I arranged with Mr. Armour to send'a cable through Ambassador Davis to the Governor of the Bank of England and another, No. 9, to the Bank in New York, as well as letters to both in the Legation pouch. 56 ey called him up from the Bank while I was there, inviti him to luncheon. This luncheon turned out to be quite a state affair, the party consisting of the officers and directors of the Bank, there being five of the latter, together with the officer of the government who represents the government in the management of the Bank, Monsieur Edgard Rambouts, Administrator-Director General de la Tresorerie et dela Dette Publique. It was a most interesting luncheon and the party was a typical assembly r of the heads of the old guild system of Flanders and Belgium. Mr. Kent, Mr. Armour and I all received the same impression, that it was undoubtedly a most substantial company. For a land which had suffered the ravages of war, the luncheon was a surprise. The lunch consisted of soup, filet de sole meuniere, filet of beef served with stuffed tomatoes and peas, chicken, lettuce salad, pastry, candy, three kinds of wine, coffee and cigars. The aid Governor, old 0 who seemed to be a most kindly/gentleman, when the champagne was served, made a few remarks about my visit, which the gentleman on my right said would require the briefest possible reply, which I stumbled out as the possibility of a talk had never entered my head. the meeting room off the Governor's office. LI Luncheon was served in I eat next to Mr. Ed. Bunge, who spoke English perfectly and said that he was an Antwerp merchant, who did a large business with South America and some with North America and many years ago had lived in New York for a couple of years. It seems that he entertained both Vanderlip on his last trip and Hemphill in 1915 when they were here. He let it out that he thought that Vanderlip had made quite a break in his pessimistic talk when he got home, the impression here being that it had cost him his position with the City Bank. also stated that Mr. Vanderlip advanced some of the most extraordinary He 57 He found him a most interest- and novel ideas when visitng his house. ing and entertaining gentleman, but thought his ideas too far advanced, one plan that he advocated being the confiscation by the State of all estates in excess of a small amount, say $50,000, to be allotted to each descendant. He had in his own mind put Vanderlip down as a socialist. Mr. Bunge took a fairly optimistic view of the future of Belgium and said that a year or two would see them pretty well restored in industry and commerce, but that in the meantime they would need considerable credit in America, and he likewise said that this credit should be made available for purchases in other countries than America. statement about Antwerp and Ghent and spoke at ?ome length of the conditions in the iron district and the coal areas. He wanted to know something about the American banking system, concerning which he was quite ignorant. minded. He impressed me as being a most intelligent man and fairHe referred to a transaction which the Belgian government under- took, which has impressed me us being the height of folly. The his- tory of the currency issues under the German regime constitutes one of the Germans' worst financial crimes. They demanded issues by the Nat- ME ional Bank which the Bank refused to make. I Then finally the right of issue was revoked by the Germans and an arrangement made for note issues to be made by the Societe Generale. A large amount of paper was issued and a good many German marks were put in circulation. When the Armistice was signed the Belgian government let it be known that they proposed to take up this currency at the fixed rate of one franc 25 centimes per mark. The National Bank issued its own notes in exchange to the extent of nearly 7,000,000,000 marks, the Belgian government indemnifying the Bank, and 4 58 liten an effort was made to effect an adjustment of this debt at the Peace Conference. As the German mark is worth about 50 centimes in Belgium the transaction, reduced to its bones, looks to me in this way: Germany with the German army took vast quantities of goods from Belgium for which they paid in depreciated issues of paper money. The Belgian government, through the National Bank, then took up this money and issued its own at the rate of 1.25, being in effect a loan to Germany,without interest, of 7,000,000,000 marks, the proceeds of which had been used by the Germans to buy goods in Belgium, to be sure at immensely inflated prices. Unfortun- ately notice was given of the intention to effect the redemption and the frontiers were not closed during the period so that there is a strong suspicion, doubtless well grounded, that a flood of German currency came in from Holland and over the German border which never should have been redeemed in Belgium. At any rate, we saw vaults filled with this currency in the National Bank building and stacks and bags of the German zinc coins which were put in circulation and many of which are still circulating. The period of redemption has expired and now the National Bank must sit on this mass of currency until something is done to effect a settlement with Germany. http://fraser.stlouisfed.org/ One might Federal Reserve Bank of St. Louis indulge in some reflections here as to what currency 59 AL. After luncheon the Prime Minister, who speaks but little English, urged that I notify him immediately upon my return from Amsterdam so that we might have a conference, which I promised to do. Mr.Janssen also spoke rather enthusiastically of our willingness to leave some goldwith them and went on to say that he had been thinking a good deal about the possible relations between the Federal Reserve Bank and the National Bank of Belgium and had made up his mind that the beat thing they could do just now was to make a close arrangement with us. He wanted to come to America this fall and wanted to know if I would help him to get an understanding of conditions and was particularly anxious thiL I should send him two complete sets of literature about American banking and the Reserve system, one for the library at Louvain with which he is connected and which they are working to restore, and one for his own use preparatory to his visit to America, which I promised to do. I had a little chat with Mr. Armour after leaving the Bank and he exWhat plained some of the difficulties of our situation. / he told meTuesday and Wednesday together impressed me a good deal as to the incapacity with which our government's t:oreign affairs are handled. He says they are tremendously overcrowded with work at the Legation, the American Minister p. has returned home, the First Secretary of the Legation does not exist, and he, the Second Secretary, is in charge during one of the most important periods of the history of the Legation; the President had promised to raise the post to an Embassy on his visit to Belgium and this halipeen ratified by the Senate, but still we have no Ambassador here. No one knows who is to be here, the general impression being that Mr. Whitlock will go to Rome. Ileanwhile the French have established a huge force, they and the English making their reiresentatives ambassadors, and the French having, 6o Illw in addition to an ambassador, a minister counselor, at least three secre- taries und , large staff, all of whom are active in promoting French interests. He said that Americans were conscious of the fact that the Belgians went to the Peace Conference determined to talk poor and ask for help, and they undoubtedly did need help, but in his opinion they were improving in Belgium faster than elsewhere in Europe. Belgians generally had felt that the Americans had worked against them at the Peace Conference and Mr. Davis had given considerable offense by his blunt statement that America would not accept German reparation bonds in settlement of American loans made since the Armistice, and they could take those terms or we would not send them an ounce of food. I must say that this kind of an attitude toward these people strikes me as grossly unfair and little calculated to produce the results we want. The same objects can be z'erved by more di- plomatic methods such as these people are accustomed to and they really misjudge our intentions when our methods are rough and brutal, as they sometimes undoubtedly are. The picture I now have of conditions in Belgium is about us follows4 First, they will need, say beginning in January, to make large purchases 61 1 tion with their wool industry; fourth, they should be relieved of im- mediate payment of interest on the American debt; fifth, although it was not mentioned, I believe they will likely need some phosphates from America and probably nitrates from South America; sixth, in making loans to Belgium in the .:rifted States, we should not stipulate that the entire proceeds must be spent there, as our exchanges will never get back to normal if that is to be our unfailing policy; seventh, we need a closer personal contact with these people, and I believe we will find them practical, intelligent and reliable if we deal with them by right methods, but I believe they feel they have been rather hardly treated and that they are a bit suspicious of us and think us selfish. As to their domestic situation, unemployment is being rapidly reduced, but they should be persuaded to fix a date beyond which chomage will not be allowed. One of the worst features in their domestic situa- tion is the currency inflation. They have probably added a billion and a half dollars, or thereabouts, to their circulation since the war started and they should take steps to reduce it. I have been rather reluctant to discuss this matter with them, asthey are sensitive and still feel the sting of direction by the Germane in all these matters. They should be induced to send more of their people to America, particularly those who speak English. to the National Bank of Belgium. The government should reduce its debt I also have the general impression that their discount rates are too low. While in Brussels Mr. Kent and I had a number of talks with Mr. Jacobs, of the Credit Anversois, who seemed to take a far less pessimistic view of conditions in Belgium than some of the men in the National Bank. 62 Mr. Kent gathered from him that the Belgians had not suffered so seriously by the introduction of the German paper money as some people thought. This had been used by the Germans to buy supplies and other things at tremendous prices and the loss was not ,oing to be so great after all. My personal view is that no profit on the sale of commodities could compensate for the inflation of the currency of such a small country by no less than a billion and a half dollars. Thursday, August 7: first through Malines. We left Brussels at 9:1C in the morning, passing I noticed throughout Brussels a great many build- ings where door knobs, door bells and brass signs had been removed, which I understand was general throughout Belgium, although the brass, copper and bronze taken was confined to articles of sufficient weight to justify the expense. I was told that where such things were taken from the poorer people the Germans had paid, but where taken from banks and rich institutions they did not take the trouble to pay. saw some evidences of business activity. At Malines we There was one 5-barge tow pass- ing through the canal, but along the road a number of big factories were idle, although some in operation, among others a large cement plant that I saw. I believe most of the flour mills are in operation. the people look busy. Certainly The bombardment of Malines,I believe,destroyed the fort and did some damage to the town which was observable as we passed through, but the buildings had all been restored. We passed close to the fort that the Germans bombarded and in that immediate neighborhood the scars on the buildings are considerable. We passed through Contisch, where no damage was in evidence, and all along this road the farms, principally truck gardens, looked in splendid condition. The forts approach- QM= 63 ing Antwerp appeared to be undamaged. They were covered with grass.and although as I recall Antwerp offered some resistance it wasmostly outside the city and the Germans entered without doing very great damage and without setting the city on fire as in some places. no sign of great damage, though, again, door knobs and laa,J- e ludldings on the outskirts which had been injured n repaired. In passing through Antwerp we en- in the nature of a funeral procession to commemo- been lost in the war. ying wreaths of flowers. It was principally comThe city in general d by Mr. Bunge, a director of the National Bank, at luncheon, that the business of Antwerp had d. When the Germans left the American fleet re and insisted on having the docks cleared up tisfied with conditions in the city. Certainly, All along the waterfront there were marks of e was directed to the railroad tracks. We fauns all the way to the Dutch frontier, largely sels we were told by bankers that tke Belgium had men on the idle payroll until the last month or on was that the number had been reduced to e frontier at Esschen, where there was some little he Dutch officials at first being inc_ined to er, who simply had a letter from Mr. Hoover. tly overcome and we went on through Rosendul st, but finally made our way to Willemstad, just Certainly there is 64 missing the 12:30 ferry. well kept. Holland looks as always, prosperous, clean and Wemade arrangements to have theboat make a special trip for us for 17-1/2 guilders, meantime h-ving lunch at the Hotel Bellevue near the ferry. Lunch for five cost 8-3/4 guilders. All the boys in Hol- land seem to want to ride on an automobile, and, if they cannot ride on 4, to shout at the occupants and make some gesture, and we had quite a crowd around the car as we left the hotel. The boat arrived at 2 o'clock and our driver gave an exhibition of skill in putting his car on the boat, which was just about the width of the car, at the rate of about 40 miles an hour, and stopping in the space of about an inch or two, a bit spectacular and dangerous. Here we crossed the Meuse river to Numansdorp. Beyond this place it was really Dutch, the children largely wearing wooden shoes and the older women the conventional white flowing cap with gold curls in front of the ears. We next crossed a little river on a rope ferry, being a scow operated by two men who pulled us across with a wire and cable. The trip through Rotterdam, Delft, The Hogue to Amsterdam was through a typically Dutch farming country, along canals, but nothing of special interest. The country certainly looks fine and prosperous, the crops good and lots of cattle. up at the Brack's Doelen Hotel. We reached Amsterdam at about 7, putting That night we ran into Mr. Van den Berg, of the Javische Bank, who was stopping at the hotel and said he was expecting us, having heard of our coming from Dr. Vissering, and he arranged for luncheon at the Club Friday noon. Friday, August 8Yr. Kant and I called on Dr. Vissering Friday morning at 11 and he displayed the utmost delight at seeing us; said he had freed himself of all business obligations for the length of our stay and was 65 looking forward to a fine visit with him. sociates, Mr. Two of his directors and asand Mr. joined us and we s;fent the morning discussing matters with these gentlemen. At 1 o'clock we lunched with Mr. Van den Bergh at the Business Merle Club, right opposite the Queen's palace, and from there I returned to the Bank with Dr. Vissering and we spent the rest of the afternoon until half past five talking business, Mr. Kent having an engagement to see Mr. ter Meulen, head of the Netherlands Overseas Trust, about foreign exchanges and other matters in which they were interested. From my talks with Dr. Vissering I gather about the following: have a very great mistrust of conditions in France. They They seem to think that France is without leader hip of any kind, that the affairs of the nation are in the hands of a lot of professional politicians who are incapable of making plans and are playing their hands for politics rather than for the nation. They say the French peasant and workman has been spoiled by too high wages and by life in the army. that they felt that the enormous inflation of the French currency and the large amount of government borrowings, particularly in short obligations, would make it necessary for France to effect a readjustment of her domestic 444 66 11 necessary food, machinery and raw materials to enable them to start up business again. It was a rather gloomy picture. Throughout the con- versation Mr. Kent and I both detected at times a rather German leaning, not so much sympathy as possibly greater confidence in German ability and capacity to make plans and adopt a consistent national policy. Dr. Viasering, I would gather, holds this opinion a little more than some of his associates who were with us. In regard to Belgium, I was interested to find as I had imagined that the Dutch hold the Belgians in considerable contempt, that they do rut think they are honest, do not trust them, _Jad it was difficult to get much out of them about the Belgians. T. think, however, they hold the view that Belgium is going to come out of the war on the whole pretty well. They spoke of theredemption of theGerman currency as though it had been foolishly handled, and referred to the fact that the Belgians would do anything for money, one of them saying that they were always ready to tun a dishonest penny. We tried to get something out of them about conditions in Germany, They did say that there was a but it was not a particularly easy task. and tremendous amount of idleness in Germany/ that their coal production had been falling off at a tremendous rate because the German people would not work. After considerable discussion of this point, I think they agreed that this might be due to physical debility caused by lack of food, partic- ularly fats, and to the nervous shock of reaction from the outcome of the war. They told us that the Belgians were buying paper marks in very large quantities as a speculation, one of them saying that every servant and carpenter in Belgium owned some marks, the poorer people carrying the 67 actual Reichsbarik notes, and those of larger means having balances in German banks. The same thing has taken place in Scandinavia, and, more striking still, they said that Americans were buying hundreds of millions of marks, they thought for speculation. They did not think that it was an effort on the part of Germany to get foreign credits at present rates of exchange by this thoroughly unsound method. Since we left Paris there has been a sharp reversal of the exchange position. Apparently coinci- dentally with these transactions in marks Dutch exchange has fallen from the rate of 42 cents per guilder to 36 or 37 cents per guilder, quoting dollars here at a premium of about ten per cent. Dr. Vissering said that he would like to let some gold go to America, only he feared that it would be purchased by the Germans for the sake of the premium and then resold in America to realize a higher premium elsewhere. I do not think his theory is sound, but he asked us to think it over and see what could be done about it. This speculation by Americans in paper marks might explain it were it done at the instigation of the Germans. It occurred to me that Ger- many might be selling paper marks in all the neutral countries as well as in America, and, with the proceeds of the sales in neutral countries, be buying dollar credits in New York for the purpose of fitting raw materials. http://fraser.stlouisfed.org/ It would be Federal Reserve Bank of St. Louis a very expensive operation and one which I find difficulty in of his and where they put an embargo on the importation of gold. T all agreed that if the United States and neutral countries attempted force contraction under present conditions it might lead to disaster world over. checked. They did agree, however, that further expansion should I suggested that this might be done by agreement between 68 principal central banks in some way, and Dr. Vissering took to the i was greatly interested in discussing the subject of inflation and of the once. This led to a discussion of whether closer understandings an It appears that his experience and responsibility of the central banks. policies could not be worked out between, say, the Bank of England, ours have been identical. He has been attacked by government officials, Bank of France, the Banque Nationale de Belgique, the Nederlandsche and particularly by college professors, for being responsible for the the Federal Reserve Banks and, possibly, ultimately, the Reichebank, in this Dr. Vissering seemed greatly interested. We had some talk arrangements for checking unnecessary shipments of gold after the wa situation had quieted down, and that also Dr. Vissering wished to con and we are to have a further talk about it Monday. About the German gold, I found myse_f greatly embarrassed as a of our having imposed a charge for handling the gold which we have f ness hours. He said he would regret to see the gold melted, and I gather that he rather expects us to leave it with them. I explained the diffi- culties about our reserve position and finally it was understood that on Monday morning we would talk the whole subject over. I have rarely spent a more interesting time than with Dr. Vissering, whose mind is keen and alert and who has a most thorough knowledge of what he is talkingabout. We met Mr. ter Meulen at dinner at the hotel and he joined us in our sitting room after dinner. Mr. ter Meulen was exceedingly pessimistic ado about conditions in Europe in general, and in France and Italy in particu- S lar. He.says that the outlook for coal is really appalling and he fears will cause considerable trouble next winter. We asked him, as well as the gentlemen at the Bank, about the condition of the Dutch herds tatit droves of of cattle andelogs/and were sur,Jised to learn, quite contrary to what Mr. Hoover had told us, that the herds which had been allowed to increase when the war started were now about buck to normal in the case of cattle, and as to hogs they had largely disappeared, Holland never having r-ised large numbers except for war purposes. In other words, there will be no large amounts. His description of what took place at nomic Council meetings in Paris was most amusing, t English and Americans did not understand French having understandings and bad feeling. possible. There seemed to be n Mr. Davis, who was presiding, did the best 7C great tact and patience, but ull had their own axes to such surplus in Holland as Mr. Hoover was figuring upon, and, furthermore, Both Mr. ter Meulen and the B agreed upon anything. I do not know how the Germans could ever pay for purchases here without that some sort of action and nationwide plan for deali heavy penalties on account of the exchange. situation to facilitate the resumption of trade is abs We asked Mr. ter Meulen about the German borrowings in neutral 411 countries. I suggested that if the principal belligerents would He did not say how much was in Holland, but he thought the program, the lesser countries and the neutrals would h as their exchanges would fall in due course and right all agreed that that was so. In general the views o pretty pessimistic about the future. until about 10:30. Mr. ter Meule Z-1 71 Mr. ter Meulen stayed with us until about 10:30. Saturday, August 9th: Spent the morning writing mail,and,after Z-2 72 of a good many bolshevist agents and the point for dissemination of their propaganda and that they were quite active among the Dutch laboring classes. There was a good deal of uneasiness in Holland, and, as a re- sult, they erected some barbed wire barriers around the exposed approaches to the Bank court and adjoining buildings. They had a special guard of 130 picked solders for the protection of the Bank, wireless apparatus erected on the roof to communicate with the government, and a plan by which all bridges approaching the block (which is surrounded by canals) could be immediately raised. He says that most of the Bank's employees are ex-soldiers and reservists and that they have throughout the Bank standards of arms for their use in case of need. He said the government was very energetic in hunting out these agitators and getting rid of them, beyond and that/all question any danger of disturbance by bolshevists had passed. We discussed the question of terms for the custody of some gold to be left in Amsterdam, Which Dr. Vissering was very anxious to have us arrange, believing it to be uneconomical to melt up the coin and hoping it would result in closer relations betweei the two institutions. I told him that for the present, pending a determination of the payments to be made and the amount of gold to be returned to Germany, we would ship the 240,000,00C marks that was to be roughly verified and for the present leave the 200,000,000 marks with them pending advices from the office. The embarrassing thing in discussing terms was due to our having charged the Nederlandsche Bank for holding gold earmarked for their account. We agreed that what we had charged them should be returned or they should make a corresponding charge in one sum to us and thereafter the custody be free of charge, which was certainly reasonable. should Dr. Vissering took us 7 It certainly was being carefully done. He gave me every assurance that Z-3 we need have no uneasiness about the reports. 4 He and the others ex- pressed complete showed us that the coin was being represented and all through the vaults and confidence where the gold was all as examined. that so much of it had now been examined that we would be perfectly safe in accepting the result of the weighing of the small bags contained in the larger sacks, which he was sure would be accurate enough , after esti mating the weight of the box and seals, to be conclusive within one-half of one per cent, and this we agreed to do. The Bank is working on the erection of a large modern vault in the court of the building, for the storage of gold for customers, and Dr. Vissering said he would be glad to take charge of the custody of gold for us and we could feel every assuran that it would be safe. After lunch with Mr. Kent we were joined at 2:50 by one of the directors of the Bunk, whose name I do not recall. us for an automobile trip through the Haarlemmer Meer. He too At Nieuwkerk we were joined by the burgomaster of that district and with him we visited three most interesting farms. They all looked exceeding prosperous, wit fine herds of cattle, good crops and thoroughly neat and orderly. One farm was operated by one of five brothers, whose father and mother are still living, old people nearly 90 yeareold, and he had 15 children, the entire family now living consisting of 140 people. The cattle on these farms are largely purchased in Friesland and brought down to the farms t be fattened, and are later sold either for dairy purposes or for slaughte They also breed very fine horses, the stallions being furnished in ma cases by the government. A general discussion with these people dis- closed the fact that Holland would need, more than anytA.ng else, good 74 Z -4 sup2liee of fodder, principally oil cake, largely from the United States. Mr. Hoover had told me that the Dutch herds had been very much increased and that there were considerable su,Jplies of hogs in Holland. 411 I learned on this trip that the hogs had all been slaughtered because the fodder supply was inadequate, and that the herds, which earlier in the war had been largely increased, also had to be reduced for lack of fodder. There was a time when the herds were so thin and poorly nourished that they were giving but 2, per cent. of the normal supply of milk, many of them being so weak that they could hardly stand. One cannot but gain the impression that in a country like Holland, made up largely of small farms owned by the farmers, a stolid, unemotional class devoted in tieir attachment to the soil, there is little likelihood of serious bolehevist trouble. While Holland still has about 400,000 men on the army payroll to some extent unemployed, the number is being rapidly reduced and these gentlemen with whom I talked, feel every assurance that there is no serious unemployment problem ahead in Holland. We visited one of the oldest regu- lating pumps in Holland, the engine having been built in England sixty or seventy years ago. nals. It is still operated occasionally to pump out the ea- It was a picturesque scene and one not likely to last as there 411 are only three of these pumps left in Holland and they will probably be dismantled or put out of commission within a few years. From there we went to Bloemendaal, which is Dr. Vissering's summer home, where he has a beautiful place on high ground, and where we had tea with his wife and two daughters. From there we drove to Noordwijk, where we were joined at a little country club on the shore by two of the directors of the Bank, by Mr. ter Meulen, of Hope & Company, by one of the managers of the Amster- 75 dumsche Bank, and by one or two other bankers and the chief of the govern- ment board directing economic affairs, all of them very interesting and apparently able, well informed men. It was an exceedingly interesting evening, the discussion being about general economic matters with a good deal of reminiscence about the difficulties of conducting business in Holland during the war. They confirmed the general impression which I have gathered, that all of Europe is looking to the United States to shoulder the heaviest part of the burden in restoring Europe. They all speak rather hopefully of the German recovery barring difficulties with labor and bolshevism, and seem to think that they must do their share in assisting in the recovery particularly of Germany, because that country already owes them large sums and they are interested in collecting their debts. We did not leave the club until half past eleven and reacted the hotel at Amsterdam at 1 o'clock in the morning. Taesday, August 12: Left the hotel at 8:30, retracing our former road through Haarlem to The Hague, Delft, Rotterdam, and crossed the same rope ferry and the same steam ferry at Numansdorp, lunching at the same hotel, principally on eggs, very good bread, coffee, jam and cheese. We then followed the same road via Rosendaal across thefrontier into Belgium at Esechen, again without any very serious difficulty with the guards. The Dutchman in charge did, however, complain of the unreasonableness that passports into Holland should all be visaed in every language but Dutch and that they were required to be able to decipher them and were punished if they-ma&e a mistake. ----g Impressed with the peacefulnes of destruction. One could not leave Holland without betry and its fr;dam from war 76 I noticed in passing through Malines, after leaving the frontier at Esechen, that the town was a good deal more shot up than appeared on our trip in. This was particularly the case in the neighborhood of the old cathedral, which we were unable to pass before as the road was blocked. 410 The cathedral has been somewhat chipped and injured but it struck me as not being injured beyond restoration. The evidence of artillery fire here indicated that it was directed at the strategic points, the approach to the town, the roads and the cathedral. I also noticed in Malines that there had been a more complete cleanup of brass signs, door fixtures, etc., than at either Antwerp or Brussels. Antwerp, along the docks, look- ed busy and bore out Mr. Bunge's statement that it was recovering its port business rapidly and satisfactorily. We stopped at the Palace Hotel, Brussels, instead of the Astoria, and found it crowded with a good many soldiers passing through, but none of the regular tourist crowd such as one has heretofore seen at Brussels. Wednesday, August 13: Dined with M Called at the Legation at Brussels to arrange about our passports, which I had been unable to do in Holland for lack of time, so had we picked up our passports which had been lefton our way when only seen Mr. Gunther, the charge d'affaires, at the Legation at The Hague the day before. Mr. Armour had our passports fixed up very promptly and from there we went to the Bank and I had a very satisfactory chat with Mr. Van der Rest and one of the directors who joined us and who spoke English very well. We explained what we needed in connection with the gold, which seemed quite satisfactory to him. relationship with the Federal Reserve Bank. holiday. He seems to have close Mr. Janssen was away on a In the afternoon I called on Mr. Rombouts, who had arranged 77 meeting with the ?rime Minister and Minister of Finance, Monsieur Delacroix. Mr. Kent and I had quite a long visit with both of them, first in Monsieur Rombout's office, then with Monsieur Delacroix, and later with Monsieur Rombout, who called in one of his experts to join us. I endeavored to explain at considerable length the various difficulties of arranging loans in America. Delacroix said that the govern- ding $5,000,000 a month in America and would need to hat what Belgium wanted was a loan of 41C0,000,000 for ms of which he would furnish me in writing and which was y Mr. Rombouts. They insisted very urgently that the be over firmxparxzem 5-1/2 per cent., but could be sold d that they must have free credit to make some purchases the United States. They had only been able to use a rs of the bank credit of $50,000,000, having drawn of which is very expensive. I think they contemplate land and Germany, particularly the latter. foodstuffs and machinery. They empha- I told him that I would ex- on as he stated it, on my return home. On the whole, not particularly satisfactory except in developing that ic proposal in mind and I gathered that they were willing price for credit in America. ght. Mr. Kent and I dined at It impressed me as being a pretty gay place and a r a good many questionable characters. I noticed in the door knobs and heavy fixtures had been removed and re- r zinc fixtures in many cases. 7e Thursday, August 14: We left Brussels at 9:47, the day being fine and clear, our route taking us through Hal, where we saw practically no damage to the town, although I saw none of the small industrial plants in o,.eration. Leaving Hal the trees had been felled along the road by the Germans, I gather in 1914, many of the trunks still lying in the ditch. We passed a good many small industrial plants on the road to Enghien, one of which I noticed was undergoing re airs and one Portland cement plant in operation. All of them bore the marks of shells or of aeroplane bomb- ing and unquestionable signs of damage in the interior or the removal of machinery. In Enghien there were shell marks on the buildings, but what serious damage had been done was practically all repaired. The cellars, however, still bore German marks left from the period of occupation. Ap- proaching Atli we passed long stretches of road underoing repairs by.Ger- man prisoners and a good many British soldiers in this section, the signs and directions for motor lorries on the road being all in English. In Leuze we saw no damage from bombardment, 'nit the industrial plants all seemed to be closed and probably had been damaged. At Tournai, however, the city showed the effects of considerable shelling, the principal damage being in the neighborhood of the fort which we passed in entering the town. 110 In this region I noticed two cement plants in actire operation and two brick- yards, apparently therequirements for cement and brickfor rebuilding having started these up. There were a good many piles of heavy shells in the region, but I was impressed with the fact that the town itself had not been seriously injured. All the approaches had been blown up and tem- porary steel spans replaced them. In leaving the town the damage ap- pe-red to be a little more extensive, isolated buildings being completely destroye d. At 13aisieux, about half way to Lille, we struck the fron- 79 tier and were passed without hluch trouble, neither the Belgians nor the French looking at our passports but only at the travel orders. encountered a puncture. http://fraser.stlouisfed.org/ man signs indicating Federal Reserve Bank of St. Louis Here we All alon6 the road the houses still bore the Ger the number of men and horses to be quartered, etc., 80 every fie or six, or else lying only on one aide of the road, having been felled by the Germans. Through this country we saw the harvesting work being done almost entirely by women. damage was not bad. Carvin had been shelled, but the The town, however, looked deserted. of barbed wire began to show up again as we approached Lens. Here the piles I noticed 4111 at one time the stacks of ten industrial plants without any smoke. As we approached Lens it gave us a picture of destruction of factories and bridges, and the nearer we reach the city the greater seemed to be the destruction, the number of plants in ruins, with evidences of warfare, trenches, barbed wire, shell craters and destruction .pn every hand. With quite a number of miles of the city there were no crops to speak of, although much work of restoration appeared in evidence on the broken up roads and in the fields, all of which had been pitted with shell holes. Here the trees were completely blasted by shellfire, the railroad line destroyed and only patched up. the Somme. flat. This was the margin of the battlefield of Approaching Lens we found the city a complete ruin and almost It was in many respects the worst scene of devastation that we wit- nessed on the entire trip, in many cases the buildings being literally ground up and the industrial plants in and around the city masses of tangled steel and iron and broken stone. There was a reconstruction camp and narrow gauge tracks laid throughout the region for the removal of rubbish, but it w_s sad and depressing thing to see hardly a living tree, nothing but bare and shattered trunks, the people living in improvised huts in many cases and in partly restored houses. Surrounding the city the shell holes are con- tinuous and it is a picture of waste and weeds. We passed through Gi- venchy, still no crops and continuous shell craters, trenches and dugouts. 81 Here there was a large cemetery, and in this region the roads were still in shocking condition. On all sides, under every available shelter, were deep dugouts where apparently all troops were obliged to take shelter. We passed Vimy Ridge on our left,- nothing but shell holes and weeds,- and 411 Souchez on our right, the same. for the Canadians. Here there is a fine monument erected The fields are filled with piles of ammunition along the road, but they are literally torn u; art by shell fire and there did not seem to be a level foot of ground. Approaching Arras there seemed to b., some cultiv4tinn !_n In the atty. nearly every building had suffered some damage and a great many abdiima of them had been completely destroyed, but the destruction was not as complete as at Lens. Nevertheless the city was a sad ruin. In this region there seemed to be a vast litter of war material, a ;treat many wagons and trucks, but in and around the city the work of restoration seemed to be very active. The railroad station is being rebuilt. Throughout this section, for a distance of about 52 or 35 kilometers, all was shell hole, 1-nrbed wire, trenches, dugouts, and not a tree with foliage, most of them in fact being completely destroyed. There was a big explosion of ammunition some miles distant, throwing a column of smote some hundreds of feet into the air. The work throughout the suburbs of Arras and along the road seamed to be done by Chinese, bl dks, French, Japanese, 4nglish and Germans, all in uniform. Damaged and rusting tanks were in the fields and it was one long vista of shell craters, corrugated iron,, piles of shells and barbed wire, various smashed war material, with one large and one or two small cemeteries. There was a great predominance of large shells piled up alon.; the road. Jai the left Mouchy, a few miles out of Arras, had been so completely destroyed that not a sign of the town wag left. Nowhere did we see more tremendous accumulatione of smashed up war material, but it wee 11P being rapidly cleaned up. Vie-en-L.rtois, oa the road, is completely flat and nothing left of it; German prisoners were working in this region. Here there was another big- ammunition explosion as we paesed. I noticed 410 that about 1.7., or 20 miles outside of Lens the fields were in some culti- vation, which disappeared as the citywae approached, only clearing work being done as the land was quite beyond cultivatinn except with a great dell of filliag in work. The trees along the road to Gambrai had all beat cut anU moat of the trees in the region blasted. We saw another explosion near at hand on our right as we 4,,proached Merquoin, but itwca, to determine whether these explosions were n-,-idental or otherwise but we had road in the. newspapers that four or five explosionshad taken plate the day before in Belgium which were atributed to the intense heat. Throughout all of this country there were immense piles of shells along the roadside. Marquoin did not appear to be as badly destroyed as Lens, but appeared to be almost completely deserted. with foliage on them. Here there were some trees There was another explosion on our right at some distance and we noticed in the fields groups of women filling shell holes in many places. Cambrai is very badly shot up, but not completely destroyed. deal of repair work is going on here. but temporary spans replace them. A great All the bridges had been smashed, Leaving for Per skirts of Cambrai badly destroyed, but the crops looked much better. It is most astonishing to see the amount of ammunition lying along the roil). Every small village on the road from Cambrai to St. Quentin had been de stroyed. At Masnieres, which town was absolutely flat, the roadside and e3 all the points of vantage were filled with dugouts, sr.)me of them quarried out of the solid rock and apparently very deep. explosion of ammunition ahead of us. Again there was a large At Te Catelet, which had been com- pletely smashed, they were actively at work cleaning up the rubbish and many German prisoners under English supervision were engaged in the work. Between Le Catelet and St. Quentin the road had been mined and blown up at many places, principally at cross roads, and, as we approached St. Quentin, we passed miles of trenches and burped wire with absolutely no evidence of restoration or cultivation. The road had been oadly shelled for miles, all tne trees had been destroyed, there was very little or no work going on in the fields, and a great vista of war paraphernalia. St. Quentin was a sad sight of ruin from a distance, the cathedral standing out on the hill top in ruins, with the city around it pretty much destroyed. There was more destruction in the * neighborhood of the ca- thedral, it appeared to me, than elsewhere, but the city was full of people, many of them hard at work patching up -that homes. We left St. Quentin for Montdidier over a road which had been shelled for miles, surrounded with huge mine craters and in some cases the mines which had destroyed the roads being so extensive as to require detours around the temporary fills. Heretkere was no cultivation at all and practically no trees standing. The town of Roupy outside of St. Quentin was coppletely destroyed and deserted. Approaching Ham the fields here and there had been newly ploughed and again there were some living trees. The town of Ham was pretty badly smashed up, but there were some people and again the usual narrow gauge road as in all of the larger towns,liid for the purpose of clearing away rubbish. Leaving Ham the amount of cultivation increased. There were more trees, and approaching Nesle there appeared to be pretty good crops. Here the women and old men were working in the fields at 7 o'clock in the evening. This town was considerably damaged, but a large part of it had escaped. The church had been completely destroyed. some people in the town and the usual narrow gauge road. There were Approaching Roye crops appeared to be better,and along this section we saw many German graves in the fields. few people there. The town of Carrepuis is practically gone and very In Roye for the first time I saw an old cemetery which had been badly smashed up by artillery fire. The church was completely destroyed, but we saw the only bridge,- a stone arch affair, badly damaged,- which had not been destroyed completely; it was still in service. There were very few people in Roye and the usual narrow gauge road. Our courier, Bancharel, pointed out fields after we left Roye, where, notwithstanding that a battle had been raging a year before, there were fair ly good crops growing, but all throu,_]h this section the trees were badly torn by shell fire,and there was an endless accumulation of wire and many unfilled trenches. Montdidier was practicaily flat, the destruction al- most complete, but the work of cleaning up seemed to be well advanced. In passing through the city I saw but one house with a roof on it. Here again there was a very large German prisoners camp, and the work at Montdidier appeared to be businesslike and active. In the distance on the right is Cantigny where the First Division had their first big fight. There was very little cultivation around Montdidier; the de- struction had been too complete. Leaving the city to go to Beauvais, wh we would spend the night, we passed one rather small forest which had been absolutely shot away, not a tree having a leaf on it, but on the 85 other hand three miles outside of Montdidier the crops were appearing again and evidence of a good deal of restoration and cultivation in the fields. 1110 The contrast between war destruction and an untouched area was very marked. Leaving Montdidier, for three or four miles out ur the city everything had been pretty well smashed, all tne trees bore marks of shellf ire, many of them had been shot down, but then gradually this disappears. Shell craters and trenches are further apart, the accumulation of wire and wire entanglements is less, and while the roadway' have been shelled for five or six or seven miles outside the city, the fields and country still looked the old France without any evidence of war. Here and there reserve line trenches appear, with the wire piled up in the fields, but as we approach Beauvais one's strongest impression was of the active work by the peasants in the fields. We saw peasant women hard at work as late as 9 plclock at night, as long as light lasted. We reached Beauvais at about 9 o'clock and stoped at the Hotel Continental, a nice, quiet little hotel run by a woman w..c knew Bancharel and who spoke English very well. There were very few people in the hotel, but we had a good dinner and a comfortable night. Beauvais seemed to have been left practically untouched except that I understood that it had been bombed by aeroplanes and a little damage done. Friday, August 15: We left this morning shortly after 9, retracing the road as far back as St. Just, through a country looked flour- ishing with fine crops, the only evidences of War being piles or barbed wire along the roadside. St. Just was an old Army headquarters. The town seemed to be practically untouched, with the exception of some bombing. We turned off the main road to Maignelay, here approaching the area of active fighting, and although the town had not been bombed, the 86 increased amount of wire and trenches, etc., indicated the approach to the fighting area. We made a short detour and stopped at a little cemetery where a friend of Bancharel'e is buried. He was a lieutenant in command of an American Field Service ambulance unit. had been shelled a good deal. Approaching Tricot the road There was less cultivation and it was here at Tricot that the German advance was checked in June, 1918. Tricot is badly shot up and the roads are in bad condition, but the trenches in the vicinity seem to have been pretty well filled and the work of restoration proceeding. There were great accumulations of barbed wire and shells lying along the road to Le Ployron. Here we took the road to the right through the remains of the town which had been most completely destroyed and was deserted. While the roads had been pretty well cleaned up there was still a good deal of wire lying about, shells, etc., although the trenches had been filled. There were some crops and a good deal of ploughing for fall planting, but neverhtless much of the country was in weeds and here and there we flushed a number of coveys of quail. Le Tretoy was completely shot down although the peasants were wor'Ung in the ruins. the country i From here on entirely ruined, filled with dugouts, smashed trees and telegraph poles and wires. A little ploughing had been done and a few fields planted, but there was a good deal of litter lying about and as we approached Rollot the ruin seemed to be complete. Alongside the road was a great crater caused by a very recent shell explosion. Rollot was pretty well shot apart, the walls of a few houses were still standing and the road through had been cleared. Nevertheless, it was a terrible ruin. From here to Reasons there was little cultivation, although German prisoners were (.18-aged in filing the trenches. The trees and woods had been 87 smashed by shellfire and on the left we passed a small forest showing the effects of artillery fire, during which a whole French division had been surrounded and destroyed or surrendered. It was surprising to see the extent to which the trees had already thrown out new foliage. did not seem to be so severely damaged. There were some houses standing 4110 almost intact, but in this region not much work of repair had been done. There were many unexploded shells noticeable and a good dead of litter. German prisoners were engaged in clearing it up and here and there we no; ticed freshly filled trenches. near Reason. There was even less damage immediately The town had been damaged but was standing, and, while near- ly deserted, a few people were working in their ruined houses. This town had been captured by the Germans although they did not get much beyond it. From Reason to Compiegne conditions in the fields and along the road seemed to be much better until we approached Margny immediately outside of Com- piegne, which was badly destroyed, but neverhtlese the peasants had planted crops this year and they look well. I noticed in place had not been so badly injured it seemed to have been a tremendous ammunition base. There were acres of ground covered with piles of large and small shells and boxes of small arms, ammunition, with many danger signs warning people away. At Breuville, while the damage is not very serious, a sugar factory had been completely blown up and the ing on the ground. neighborhood. Here and thre brick works wer Entering Compiegne there was some shellfire, but not serious, and much was repaired. bore some scar. The city as a whole seems but sli there a building being completely destroyed by a bi 88 over the river had been destroyed and replaced with steel girders. I 0+ understand the big bridge was blown up by the French in 1914. ComSO piegne is at the end of the Oise valley, and from there we turlied down the valley of the Aisne into a beauti-ul country practically undamaged IorMany miles by the war. Through the forst of Compiegne railroad tracks have been built and a great accumulation of stores left out in the woods. Approaching Attichy the river and railroad track were on our left and here the Germans had reached the railroad with artillery fire, all the big trees along the road being scarred, fences badly damaged, etc. that the Germans cut the railroad line and the main road. It was at Atticly The little vil- lage of Vreuil was undamaged save for a few shell scars on the Soissons side of the village. We were now approaching the area of fighting around Soissons, however, and Lamotte had been somewhat shot up, but the trees showed serious damage from shellfire and the remains of camouflage lay along the roadside. The railroad had been considerably damaged. Near Soissons on the right a forest had literally been shot away and the same with u small forest a mile or two distant on the left. We saw some trees, probably two feet in diameter, which had been shot clean into with one OIPshell. There was an enormous camp at the roadside with a vast accumulation of war material, wire, etc., and beyond Lamotte little cultivation of the soil had been possible. The road had been badly injured by shells, but it was well repaired, although the roadside was stilllined with wire, pill boxes, piles of shells, etc. Approaching there were acres of war material,- old wagons, locomotives, shells of every description and smashed war paraphernalia. We entered Soissons over a bridge that had been destroyed and repaired, and in the city of Soissons itself I was impressed with the spotted character of the damage,- in some places complete 89 destruction, elsewhere a building standing in fairly good shape. lunched at the Hotel de la Croix d'4, We the lunch for five costing veal, ,-*"" 42-1/2 francs and consisting of melon, fish, fiist, fruit, Bordeaux and mineral water. The hotel had been somewhat damaged. the street the houses were completely destroyed. Immediately across In general, the city iia terrible wreck, and, having had a ,-ood many large buildings in it, the wreckage looks more appalling in some ways than in the smaller towns. In fact, with so many walls standing but with the interior of the buildings smashed and fallen in, it is in some respects more impressive than the smaller towns which have been completely destroyed. Soissons was filled with people, many of them sightseers, and the little hotel restaurant where we lunched was crowded. I gather it is a central point of interest to tourists on account of its accessibility to Paris, from which they run reglk lar lines of buses for sightseers. Leaving Soissons after lunch by the road that originally led to Laon, we drove up on the top of the Chemin des Dames as far as Fort Malmaison and a very short uistance beyond. All the way up to the top of the hill and all the surrounding country is completely which makes destroyed and one continuous mass of shell craters now covered with weeds,/ the road to Malmaison almost impossible for automobiles ani beyond that point quite 80. This Ls one of the most desolate of all the scenes at the front,- buildings, trees, roads, everything had been torn to smithereens. Wreckage lay along the roadside, quantities of shells, hand grenades, etc., and all points of vantage had been used for the construction of deep dugouts on the surrounding hills. Many unexploded shells are supposed to make the ground dangerous nere, and in walking across the broken ground it was not difficult to step on a shell if not careful. In fact, one was 90 impeded in the path to the fort. Here again the dugouts were deep and There was of course no culti- .6,min many cases quarried out of the rock. Every- vation anywhere, but in one place a little hay had been made. thing was weeds, wire, corrugated iron, railroad iron, etc. In one place where the forest had stood there were a few bare shattered trunks standing. Bancharel pointed out where some small villages had stood, which we could only distinguish by some heaps of brick and stone. One little town where Ben had been stationed, Laffaux, had completely disappeared. The only sign of a building anywhere in eight was the rusty remains of an old mill that had been completely smaah'd to pieces. Fort Malmaison is about four kilometers hayamIxtkaxxammixy from the approach to the Chemin des Dames. I understand that for 20 kilometers beyond the country is in the same condition and nothing left but shell craters with subterranean caves and bombproof shelters. river beyond. You could see the Ailette Fort Malmaison had been completely mashed up but the subterranean works were still there. Returning, along the roadside the driver picked up some American ammunition belts with the ammunition still in them. Along this road we saw a few tourists and sightseers and at the entrance to the hill there were three Y. M. C. A. trucks with sightseers. Otherwise we saw no one; only miles of barren country. This road had been marked by a magnificent growth of trees along Loth sides which had completely disappeared. Returning to Soissons we crossed the bridge alongside the park where Ben had been stationed and drove out to the location of his camp which is now covered with a lumber yard contain lag all sorts of material for reconstruction and barracks for workmen. The bridge had been repaired with steel girders. One building in the city which seemed to have escaped serious damage was the Hotel de Ville. IWorking in Soissons we saw many African or Indo-Chinese troops and there was a considerable air of activity there, probably due to its nearness to Paris. Leaving Soissons for Paris by way of Villers-Cotteret we rapidly ran out of the area of severe damage around Soissons and into a country with splendid crops. On the way we passed a large American cemetery at Ploizy, being No. 593, which seems to be well cared for, the graves marked with white crosses, a tall flagpole with the American flag acid two large artificial wreaths standing at the front of the cemetery. A large number of men of the First and Second Divisions are buried here. Across the road were immense piles of shells. there was some damage, but not very bad, At Villers-Cotteret anu a large number of soldiers, in fact altogether too many for a country needing work done. Almost the whole length of the road to beyond Munteuil was paved and the run to Paris, while through a beautiful country, was fairly uncomfortable on account of the cobbles. We reached Paris at about 5 o'clock, having cov- ered in the neighborhood of 150 miles. The period from August 15 to September 2 was spent in meetings at different times at luncheon and dinner, with a large number of Frenchmen and some Englishmen and Americans, including the following: Monsieur Pallain, Monnet, Vilgrain, Celier, Avenol, Sergent, Simon, the Paris representative of the Ottoman Bank (largely owned by the French) Whose name I do not recall, most of our representatives in the Peace Mission, various members of Mr. Hoover's organization and some of the representatives of the British Treasury organization. I also attended a meeting of the tem- 92 porary organization of the Reparations Commission, at which Monsieur Loucheur presided. The result of these various discussions is summar- vowized in the following report sent to Mr. Leffingwell and the cabled paraphrase of the same: 10 93 Tuesday, September 2: Mr. Vaughan took the morning train to Brussels JAL with the trunks and I left at noon with Col. Logan in his car, going by way of St. Denis, Ecouen, Luzarches, Chantilly, Senlis, Compiegne, Noyon, Ham, St. Quentin, Cambrai, Valenciennes, Conde, where we got off our road and lost nearly an hour returning to the main road, to Mons, Soignies, Hal, Brussels. The country was much as we had seen in the earlier trips except that we passed through one of the most important of both the French and Belgian mining districts, in that section around Valenciennes and Mons the coal mines seeming to be pretty heavily in operation and in general industrial conditions considerably better than in other parts of France which had been occupied by the Germans. Unfortunately there were long stretches of paved road which, while ih good enough repair for commercial purposes, did not enable us to make good time driving and we did not reach Brussels until about 11 o'clock at night. Wednesday, September 3: Mr. Vaughan arranged for our passport visas and we then stopped at the CredTAnversois to get some money and had a talk with Mr. Jacobs' secretary, Mr. Jacobs being out of town. He had been good enough to make a collection of photostatic copies of the communal currency of Belgium and was engaged in getting specimen originals. At 2 o'clock went to the Banque Nationale and spent the afternoon with Mr. Janssen and later with Mr. Hankar. Mr. Janssen stated that lie ma* ex- pected a position with the Belgian party going to attend the convention of Chambers of Commerce in the United States and was anxious to prepare himself with information, etc., so I gave him a list of seven or eight subjects that he would find useful to be posted on and suggested that he go to the Bank in New York, and that, as I would be back before he left 94 America, I would arrange for him to meet the bankers of New York, Chicago, Boston and elsewhere, as well as the Treasury officials. I had learned in Paris, wnicn taese gentlemen confirmed, that the Belgians had now figured out their food and fodder requirements for this winter to be about $84,000,000 from America, and they are exceedingly anxious to conclude a government loan, part of it free to be spent elsewhere than in the United States, as promptly as possible. I explained to them the situation in regard to shipping gold to London and that we might have to move it all, they which they understood, and/explained that as yet the Bank of England had not otarted shipping our gold as their men were handling sou: :: guld that was already there for the account of the Bank of Englund, but that they would take up ours next. talk withl.Lr. Han;itr and Mr. Janssen fur- ther confirmed my feeling that Belgium is likAkir. 7 Aid :Drogreas toward re- covery and will not reed very large credits in America, but should have them fairly promptly, that they should be reasonably long and some portion free for use in other countries. I think they were a bit disap- pointed that we could not arrange to leave some of our gold earmarked with them, simply as evidence of our confidence. Thursday, September 4: there at a little after 3. Took the 7:30 train for Amsterdam, arriving The train was rather crowded and by the time it reached Amsterdam, with additions, was prey`,,; long, but there was a good diner attached. We experienced little difficulty with passports and customs, the diplomatic vise relieving us of any trouble. baggage was opened. at Amsterdam. 4 o'clock. at None of our Called up Dr. Vissering on arriving at the hotel He was waiting to see me and I joined him at his office From him I learned that Mr. Warburg had been here on his 95 way to Hamburg, and Dr. Vissering and his associates who joined us explained at some length various discussions they had with Mr. Warburg as to plane for financing our exports to Europe. Warburg, strange to say, was now keen to establish either a largo investment trust or possibly a great accepting bank on which bills would be drawn for acceptance at say six times its paid-in capital, such bills to have various renewals and to be eligible for discount with the central banks. This impressed me as a notable change of attitude on Mr. Warburg's part. Dr. Vissering had also prepared a plan for a great combination of the neutral nations and the United States for the purpose of financing Europe during the period of A reconstruction, to a total of $5,000,000,000, of which the United States was to furnish #4,000,000,000. HI proposes to furnish me with a trans- lation of this plan. I found that two shipments of gold had already been made to London. Others were on the way. The entire amount of our gold had been weighed and reported to check very closely with the German figures and they were satisfied that everything was in good shape. These gentlemen were all very much disturbed at the lack of progress in arranging credits, the depreciation in all the European currencies as against dollars having apparently made a great impression on their ;Ands since I last saw them. personally, I am not so sure that it is not a pretty good thing, but with guilders at from eight to ten pr cent. discount they are rather anxious. They stated that they had just received a call from an important German banker whose name they did not mention, who had stated that if Germany was able to purchase abroad a sufficient amount of animal fodder he was under the impression that they would need little if any outside supplies of food for their population, as they had a very good crop, but 96 he said th,it the people in Germany were not working; there really was not work for them until they could get raw materials. They needed, for in- stance, silk in order to finish up various expensive electrical machinery and plants which could be immediately exported as soon as they had the silk, and other things in like fashion; but there was, nevertheless, insufficient work for the people and a great disinclination to work. The whole nation apparently was discouraged and disheartened and looking at the future vainly They were trying ftaxiWto get credits in with great apprehension. neutral countries, and, while some snail credits were privately arranged, nothing of great consequence. The Dutch private l August 15th by arrangement could not be extended and had to be paid at The German mark severe rates of exchange. was now quoted at 12 cents Dutch, the equivalent of about 5 cents in New York, but there was atill a great speculation in German currency in Holland and probably considerable amounts of it coming in. They all take a very gloomy view of the situa- tion in France, where they say politics outweighs every other consideration; that politics is rotten and that they are without strong leadership; that tie government debt is so hugs and the currency circulation so tremendous and the lack of adequate taxation so dangerous that they look to the future of the French with great alarm. They say the Belgians are getting along first- rate and they look to see them work out of their situation. That night Mr. ter Meulen joined me at dinner and we sat up until midnight, in the course of the talk Mr. ter Meulen confiding to me that he had no use for Mr. Van - derlip's plan or Mr. Warburg's plan or Dr. Vissering's plan; that the only plan ahich he thought could be worked for the buropean situation was a strong definite American leadership, with American credit, and that once America 97 took the lead the neutral nations could be relied upon to follow, under American leadership and largely under American control, but he thought the United States government would need to take a very strong position He is rather and possibly give some aid itself directly or indirectly. apprehensive more kapemi/than anyone with whom I had talked in regard to what is going to happen in Europe this winter if we do not get ready,- with the possible exception of Mr. Vanderlip and Mr. Hoover. He says that the situation in Austria is going to be appalling, in his opinion. Nearly half of the population of the country lives in Vienna, where there is little work and less food. When I told him that I did not take quite as gloomy a view of the outlook as he did, he seemed to be tremendously pleased and was most anxious to get every detail of my observations on which that view was based. He, as well as the gentlemen at the Nederlandsche Bank, em- phasized very strongly the need for supplying fodder, that is, maize, seed cake, etc., as being more important evetthan wheat and meat, as the herds of cattle could be fattened and built up so rapidly If fully supplied with food and it would protect the grain crop against being fed to animals, which was the greatest source of loss of bread grains. Friday, September_2: Went to the Nederlandsche Bank at 11 and was joined by Mr. ter Meulen and he, Dr. Vissering, Mr. and I spent the entire morning continuing this discussion. Dr. Vissering, and I went over the river for lunch. Mr. At 3 o'clock Mr. ter Meulen joined us and we continued the discussion until going over all sorts of plans and possibilities. I find them all pretty discouraged, principally because of the failure of some positive plan developing in America. They repeatedly reiterated, and most posi- 98 tively, that Holland and the other neutral countries would join in almost 4any reasonable plan that the United States would propose and that, in their opinion, the only hope for this winter, in which they saw a desper- ate situation developing, was for the United States to really take a very complete command and control of the economic situation. They even go so far as to believe we should create a special government organization to deal wholly with economic matters in Europe, and not matters political, which shouiu in efiect 0.0minate the Reparations Commission, which they regard as more a political than an economic organization. They repeatedly urged that I should formulate some definite specific plan of procedure so that they could get their government, their bankers and their business men to at once take steps to join us,and it repeatedly developed in the conversation that they feared American sympathies would be so strongly directed to the relief of France, Belgium and Italy that Germany, Austria and Eastern Europe would be neglected and that there would be a =piste breakdown, great disorder and bolshevism in that section. Dr. Vissering is rather wedded to the idea of some great government loans,or possibly investment loans if the former is not practicable, to be secured by uniform pledge by all borrowing nations of their customs revenues. Both ter Meulen and I felt that impossible in France, Belgium and Italy, but might be quite feasible in Germany and the East. They said that their conversations with German bankers convinced them that Germany would dive anything and everything she the had to get/credit needed in America, pledging any of the government revenues, giving any preferences, and even giving the endorsements and obligations of their banks and business concerns, mortgaging public buildings, etc. Dr. Vissering had telephoned and telegraphed to Hamburg in an effort to ascertain whether Mr. Warburg could join us and had ascertained that he -410 99 was in Baden-Baden, but would be back on Wednesday of next week and ready I promised that if I found my boat leav- to come to Amsterdam at once. 14 ing later than expected I would return to Amsterdam to meet Mr. Yarburg, otherwise it would be impossible. Warburg has been devoting considerable time to studying conditions in Germany and I am anxious to hear what he has to say and report to Mr. Polk. Saturday, September 6: At 9:30 Mr. ter Meulen and I joined Dr. Vis- sering at the canal by the Central Station and from there went by motor boat through the locks into the Zuyder Zee and north to a point near the island of Maarken to witness the start of the regatta, which waamost interesting, combining various classes of American-type boats which they call "sharp boats" and the Dutch type of yacht, or round boat, which follows in general the lines of the Dutch sailing vessels of light draught and full bows and stern. After they got away we went on north to the is- land of Maarken and spent half an hour looking over the settlement, which is quaint in the extrme, composed entirely of fishing people, who fish principally in the Zuyder Zee and in the North Sea, transferring their catch to steam vessels which come out and buy the fish on the spot, carrying the catch to Amsterdam and other cities. The land is so nearly at water level that at times it has been completely submerged when they have strong gales. The inhabitants have maintained their old customs and costumes, the men wearing loose, baggy knickerbockers and the women full skirts and tight waists, practically everybody wearing wooden shoes. They did not impress me particularly well, and I am told that inbreeding has reduced their physical quality tremendously, with much tuberculosis on the island, and they have become so 100 habituated to visitors that the children, and even the women, are more or less beggars. -"'"04 Certainly they did not appear to be a very affable or particularly goodlooking lot. From the island of Maarken we went to Volen- dam, a similar fishing settlement although considerably larger, built on the mainland, and here there was a striking difference in the appearance and I/ character of the people. sturdy looking race. They were a cheerful, friendly lot, and a pretty The town is known for its good looking people and has attracted a little settlement of artiste who are there pretty much the year around. They also maintain the old Dutch costume here, although the men wear a loose baggy pantaloon that is tied the knee. around the ankle instead of Much of this town is built on the dike, although a few years ago when the dike broke just south of there the whole town was submerged except houses standing on the dike, and they suffered pretty severe losses. We had a very good lunch at a little hotel and returned by the same route through the locks into the main canal late in the afternoon. Dr. Visser- ing and Mr. ter Meulen frequently reiterated their opinion that if the United States took the lead Holland could be relied upon to do a consider- able share in financing food and reconstruction requirements in Europe and they are most anxious to join us, but they are pretty blue as to the outlook unless something is done promptly. We took the 8 o'clock train for the Hook of Holland and after some little delay fussing with passports, baggage, etc., got pretty comfortable accommodations on the boat to Harwich and had a very smooth uneventful trip, starting ,xt daybreak the next morning. The train landed us in London the middle of the afternoon, at the Liverpool Street Station, where there was no end of difficulty in getting a cab. Monday, September 8: I went first to Morgan, Grenfell's for mail and 101 learned from Grenfell that they were expecting me at the Bank, where I was still regarded as a member of the family. I Mr. Morgan came in, although I had no opportunity for a chat with him as he was just starting for ScotSpent the rest of the day at the Bank where I had lunch, the others land. present, outside of the directors, being Lord Sumner, Sir John Bradbury and Mr. Morgan, quite an unusual event to have so many outsiders. Lord Sumner and Sir John Bradbury were there for the purpose of discussing the program on the Reparations Commission, on which Sir John had just been appointed to represent Great Britain. After lunch they got at me about ale possibil- ity of my serving on the Commission. Sir John Bradbury holds the view that the American member should act as chairman and that it will vastly facilitate working things out. On returning to the hotel that evening I ran into Col. House, who asked me to stop in to see him the following morning. Dined alone. Tuesday, September 2: After cleaning up some mail with Miss Ericson I spent about an hour with Col. House, who at once opened up the subject of the Allied governments'debts, which he said,to his mind,was a menace to international goodwill and international solvency. He said that he had just had a long talk with the Chancelor and had suggested that some scheme should be worked out for dealing with the debt which would insure everybody against possible disaster and reduce the possibility of friction in the future. He asked me if I had any scheme and I then suggested a plan for canceling debt waich was duplicated and further reducing it as between the Allied governments by substituting German reparation bonds, the theory being that if defaults must occur they should be confined to defaults by the Central powers. He was enthusiastic about the possibilities in some such ar- 102 rangement. He also stated that he had been working on a dispatch to the President urging him to use the economic argument somehwat in his speeches regarding the Treaty and the League of Nations. would prepare something for him. He wanted to know if I Stopped at Morgan, Grenfell's to see about steamer accommodations and spent the rest of the day at the Bank, except for about an hour which I took to call at the Union Discount Company, where I found that Mr. Nugent was away, but had a chat with Mr. Stephenson and then went to the London Joint City and Midland Bank where I had a little chat with Mr. McKenna. Dinealone at the hotel. Wednesday, September 10: In the morning Mr. Raymond Fosdick called to discuss the preparation of a cable to send to the President. later to show me a memorandum that he had prepared and a draft of a cable that was being typewritten. Took a short walk with Col. House, who said that he was returning to Paris for a few weeks, but was determined to get back home early in October °y in if the President objected. Lunched at the Bank and had a long talk with the officers in regard to the policy of the British government and of the Bank of England in regard to money rates, also as to the melting of the gold coming in from Holland and Belgium. Sir John Bradbury dined with me =A at the Ritz and explained at great length his views in regard to the work of the Reparations Commission. He is very urgent that I should accept the appointment if the President offers it. Thursday, September 11: At 10 o'clock I joined Col. House and we spent about an hour walking and principally discussing the plan for dealing with the Allied debt. He asked if I would be at the Hotel at about 5 o'clock, when Earl Grey and Sir William Tyrrell would be there to discuss the matter. 103 a_ About 11 o'clock Fosdick called with drafts of his memorandum and dispatch and we had quite a discussion of the difficulties bound to arise if the economic argument is emphasized at home by the President. spent the rest of the day at the Bank. Lunched and At luncheon Sir Chdrles Addis announced, much to my surprise, that there was a premium on gold in New York, which apparently arose out of the experience of his bank in endeavoring to ship gold to China through one of the national banks in New York and being unable to do so because the national bank preferred to make the shipments itself and furnish the Hong Kong and Shanghai Bank with taels at a premium, which he had interpreted as a Famium on gold. After lunch Sir Brien Cokayne proposed an exchange of gold on the Continent to enable the Bank to make some payments and we discussed the feasibility of releasing gold in London against sales of rupees in New York by the Indian government, which he said he would suggest to the Indian government. called to go over the gold figures and estimate the outcome. Mr. Kent At 5:30 I joined Col. Houso)Earl Grey and Sir William Tyrell at the Ritz and gave Col. House a memorandum outlining the principles which might govern the treatment of the Allied debt on the scheme which I discussed with him. Earl Grey seemed to grasp the point at once and suggested that if I would transfer from the Baltic to the Mauretania it would give him an oppor- tunity to talk it over further and get a better understand'ng, which I said I would do if the British government could arrange the transfer of accommodations. Met Sir Robert Kindersley and Monnet in the Ritz at dinner. Monnet advanced the rather radical theory that the only thing that will cure Europe of its present disease is pain and suffering and that the best way is to have it promptly and get through with it, letting down the bars 104 Iliall around and forcing people to a realization that the war has entailed losses which can only be recovered by hard work and economy. It struck me that his ideas were a bit fatalistic. Friday, September 12: Called at Morgan, Grenfell's and afterward spent the a,day at the Bank, taking lunch there. Sir Charles Addis said that he had started inquiries in regard to the gold premium in New York, of which he had learned not only in his reports from New York but in some government publication. Also, had a long discussion of the theory of absorption of the remedy or abrasion of coin when dealt in between nations or between central banks. Mr. Kent came to the Bank after lunch to go over the gold figures with the Chief Cashier, Mr. Harvey, and at 5:30 I took the train with Lord Cunliffe to Epsom to spend Sunday with him. Saturday, September 13: I had a most enjoyable visit with Lord and Lady Cunliffe, two of their little girls being there, and 'aturday afternoon Mr. Blackett turning up. Much of our time was spent in the orchard and going over his grounds, park, etc. Went to church Sunday morning and our evenings were spent in discussing Blackett'a new work in the Treasury, Lord Cunliffe's plan for an international exchange security and the rupee situation. They are a delightful family, have a beautiful place and lead a simple country life. After spending twenty odd years in building up his property, culti- vating it and planting it, he now feels that the war situation necessitates the most rigid economy and he is leaving a good deal of it to grow up in weeds and spending as little money in upkeep as possible, which it struck me was about as painful self-denial as he could practise. Monday, September 15: Spent the day at the Bank, coming to the City 105 'kith BlackeW by the early morning train. At lunch Sir Charles Addis admitted that he had been completely deceived in regard to the gold premium at New York and was rather indignun-c, that the British government had ' published an irresponsible article on the subject, consisting, as I understood it, of a quotation from some foreign financial magazine. having returned, Norm.n I had tea in the Governor's room and we went at the sub- ject of discount rates hammer and tongs. The Bank of England, it seems to me, is getting ready to put the limit of pressure upon the Treasury to get money rates up to reduce their short borrowings and to put the Bank in position to control the market. I pointed out to them that so long as they maintained their rates at present levels any effort Which we undertook to bring about liquidation of lower prices by marking our rates up would make their situation worse and we would prefer to work out a friendly policy in cooperation. It developed that, folloWeig my earliertalk with Sir John Bradbury on this matter at dinner, a meeting had been held at the Treasury or at the Bank with the Chancellor, Sir John Bradbury, Sir Brien Cokayne and Mr. Blackett, and that Sir John Bradbury had repeated to the Chancellor something of the views I had expressed to him at dinner and apparently indicated to him that a cooperative policy between the Bank of England Lnd the Federal Reserve Bank could not be brought about by our reducing rates, but must result from the Bank of England increasing rates, and consequently the goverlent submitting to increased rates. see what results. It will be interesting to In the evening Kinderaley and Grenfell dined with me at the Ritz and sat up until midnight having a most interesting discussion, principally on the international relations between Great Britain and the United States and the difficulties ahead of us. I suggested the wisdom of Governor Harding coming to London and getting a bit better acquainted 106 where, which they thought would be an excellent thing, but it was quite apparent that they wanted to look him over pretty carefully before giving him board and house room at the Bunk. Tuesday, September 16: Spent the morning and lunched at the Bank, and at 3:30 called on Ambassador Davis. He appeared to be rather blue about the Treaty, feeling that every day's delay and possible failure to ratify the Treaty by the United States was gradually developing a situation which would lead to bad blood between Great Britain and the United States. We discussed it at some length and he seemed particularly interested in discussing the capabilities of the various men in the British government, Lloyd-George, the Chancellor, etc., and had apparently given considerable that thought to the possibility of /the gradual dissolution of the Coalition idea would force Lloyd-George to align himself definitely with the Labor or some socialist political element in the country. Mr. Davis, like almost all Americans that one meets over here, appears impressed with the desirability of an Anglo-Saxon understanding in economic matters, if not political, and it is noticeable that this should be true of those in France who have particular contact with the French people, as well as those in England. Sir Brien Cokayne picked me up at the hotel and I spent the night with him at his house at Roehampton. I discovered that business and the Bank of England was taboo in the family. He apparently makes it a practise never to mention the Bank when he gets home nor his business, and Lady Cokayne, he says, is densely ignorant on that subject, and it is one thing which gives him relief from the anxiety of his work. 107 -IV Did some shopping for presents to take home, Wednesday, September 17: etc., went to the Bank spending the morning and lunching there. opportunity for a very nice talk with Lord Revelstoke. After lunch called on Sir Vassar-Smith at Lloyds Bank and found Mr. Bell away. has been ill for some time. I had the He apparently He, like most of the other men in the City, is tired of"letting George do it." They have somewhat adopted our expression. He seemed inclined to the view that some of the better element in the Labor Party would get a strong hold on the government and possibly control it. He looks forward to very troublesome times in finance in Europe. From there I stopped to see Sir Seymour Kix,g, who was very glad indeed to see me. He spoke most positively of the wisdom with which the British gov- ernment was handling the Indian financial situation and thought it would wak out. Nevertheless, the natives and their hoarding proclivities were a men. ace to the world for the present, until their trade balances could be handled otherwise than by withdrawing gold from bank reserves. He thought the disturbances in northern India were due to monetary rather than political causes and was satisfied that anything in the n-ture of monkeying with the currency would have serious social and political effects. Called on Sir Charles Addis at the Hong Kong and Shanghai Bank and had a very nice talk with him, principally about India, and he asked me to read a book on money and currency just published by a man in the Treasury which he said was interesting as presenting a moderate view of the possibilities of getting along without gold. Norman dined with me at the hotel. He had handed me earlier in the day a very confidential report on the relation of certain matters in the Bank, which I had read with interest and returned to him. It was most enlightening as to the views of the Court of the Bank in regard 108 tt the Bank's future. I think for the first time since I have been here Norman frankly stated his conviction as to what was ,:oing to happen in Europe, concerning which he seemed to have no doubts whatever. Thursday, September 18: Stopped at Morgan, Grenfell's to say good-bye to Grenfell who was leaving town; spent the morning at the Bank and lunched there. Thursday was the semi-annual meeting day of the shareholders of the Bank, at which they had expected some difficulty to develop as some of the shareholders had been complaining that they were not getting the war profits of the Bank, which had been very large. I am not advised of the details, but apparently some scheme has been worked out by Which the excess profits go to the government, either as a present or tqsame way in adjustment of their accounts. The meeting passed off without any disturbance, however. The directors having understood that I was sailing on the Baltic, were most cordial, in fact more cordial and outspoken than I have yet seen them. In regard to my visit, they urged me to come back and really exhibited a spirit as though I were one of the Court. At 3:45 Hartley Withers called and I explained to him a plan for the regular publication of the Federal Resystem serve Barik/figures in the London papers and asked hta if he felt willing to prepare a series of articles for the Economist in regard to the Reserve Banks, etc. He said he wanted to do it, but it wasprincipally a question of time and material, but he agreed to dine with Norman and me to talk it over Friday night. Had tea with Mrs. Straight at Claridge's and dined with Sir Frederick Huth-Jackson house, 64 Rutland Gate, only his daughter being there beside ourselves. http://fraser.stlouisfed.org/ He feels Federal Reserve Bank of St. Louis very strongly that the worst roblem ahead of us now is to 109 build up Germany and let Germany tackle the problem of the new countries to the east. He apparently did not appreciate the difficulty of arranging any such plan in America, particularly in view of the reparation clauses of the Treaty. He is coming to America in October. Friday, September 19: When I saw the Chancellor on my first stop in London he asked me particularly if I would call on him again before returning to the United States. A few days ago I askedSir Brien Cokayne if he thought it would be desirable for me to do so, and he said by all means, that he thought the Chancellor expected me to and would be disappointed if I failed to call. So Mr. Norman having yesterday arranged an app:intment at 11:30, I called at the Treasury at that hour. The Chancellor was most particular in asking what impressions I had gathered on the Continent and I spent possibly fifteen minutes in explaining generally the way I felt about it. In brief, I said that the encouraging points were the resumption of agricultural cultivation and the apparent failure of labor disorder to reach organized violence; that the discouraging feature was disordered governmental finance generally and the tendency of the people to expect the govern- ment to solve every difficulty resulting from the war without a necessary interval of hard work, depreciation, poverty, etc. statement in regard to the situation in England. He then made a long He said, as to labor, he thought the London police strike, the Liverpool police strike and the experience in the York mining strike had all demonstrated that the country was really not behind the strikers in their extreme demands and extreme measures and that if matters reached a crisis he did not know but what the wisest attitude would be for the government to say that they would appeal to the 110 liountry as to whether they wanted the lawless element to rule or an orderly element to rule. He was confident of the outcome of such an appeal and thought that the extreme labor forces would not get sufficient support for any radical program to result otherwise than in discrediting their motives and methods. He said, as to the Government's finances, that they really were improving. He expected to collect 000,000,000 sterling on the Excess Profits Tax, a large part of it at the old rate of 60 per cent. on account of the delay in making returns of payment as of the financial year in which the tax arose; that there would be still further large recoveries from the sale of materials by the Army and Navy, and he hoped next year to see a budget fairly in balance, although it would be very large, containing many extraordinary war items which could not be eliminated under another year. so referred to the necessity for deflation. He al- He himself felt concerned as to the Ways and Means advances but less concerned as to the Treasury bills, both of wlich had been reduced. He expected later to be able to establish higher interest rates and possibly check further expansion, but he feared that too great a deflation would be disastrous in that it would possibly produce less money than the Government required and in an economic sense the Government would have to pay a debt incurred in an inflated currency by borrowings under deflated currency conditions, which would have the effett of tremendously increasing the actual volume of the debt to be paid, and his general view of the future was that deflation and debt amcrtization must be a very gradual process. I pointed out that historic periods of great in- flation and expansion and elevated prices generally found their readjustment in a smash and the problem was to avoid the smash; that it did not usually 111 occurso to speak, years after the maximum inflation had occurred,about world, until some living upon the stimulation which had brought the the artificial prosperity. He asked me what I thought were the particular points of danger in the outlook and I said it struck me there were three: IP 1. A default and collapse of government credits in Europe. 2. Defaults and collapse of private credits, which would interfere with trade throughout the world; and 3. Possibly, as a consequence of either 1 or 2, a period of poverty, lack of food, unemployment and disorder in the centers of population. He said he thought this was correct, but said he relied upon the ability of the people in most of the civilized countries of Europe to bring about a change of government by vote rather than by violence, which had al- ways been to my mind the great safety valve in Great Britain and possibly in some countries on the Continent. This led him to say that he felt that the future as to government credit de:ended very much upon the method employed in dealing with the Interallied debt; that Great Britain was in a position where if its debt was paid it could pay its creditors; if its debtors did not or could not pay, then Great Britain could not. He said he was proposing to send a Treasury representative to Washington to discuss 111 this matter and would like to talk it over with me. I referred to Col. House having brought the subject up with Earl Grey and having mentioned to me his conversation with the Chancellor on the subject, and asked if it would be quite clear to him that I had absolutely no authority to discuss this; that I was not an officer of the government and whatever I said would be ex cathedra an ight be completely repudiated were it referred to. This he said he thoroughly under- stood, and I pointed to the analogy of the situation which arose when the Anglo-French loan was negotiated. Feeling sure that this was made perfectly 4 112 clear I assented to Mr. Blackett joining us and with them discussed the matter for possibly three-quarters of an hour. ally http://fraser.stlouisfed.org/ the substance Federal Reserve Bank of St. Louis I explained very gener- of my talk with Col. House and Lord Grey and I stated my Digitized receive and continue for FRASER 113 to hold a considerable part of her share of the reparaT 114 write off 010,000,000,000 and the British government would write off net )10 four or five billion dollars, nor, further, that theoretically the British debt of ia8,000,000 sterling to the United States was good, II/ whereas the greater part of the 131,600,000,000 sterling owing to the British government might, and probably would, prove to be worthless, particularly the b520,000,000 sterling owed by Russia. At the conclusion of our talk he saidthat he could not avoid the conviction that the existence of this debt over an indefinite period of years, possibly for generations, would be a constant source of international irritation. Every nation having payments to make to Great Britain and the United States would hold an annual budget or financial discussion in their parliaments, keeping the subject alive and probably bringing to the surface all other causes of irritation which might exist at the moment, and for his p,,rt, in the interest of better international relationships, he thought that we all would be much better off, and certainly the British government would be, for an immediate disposition of the matter. I pointed out to him the possibility that the pressure felt by all of these governments to make their payments abroad might develop a situation throughout the world where governments would use every economic weapon possible to secure advantageous trade positions as against competitors, which had been a fruitful source cf dispute and war in the past and would likely be in the future; that I had heard many statements made and read papers indicating the belief that the League of Nations, under clause 19 of the covenant, would deal with these matters, but I did not consider that practically the document intended the League to do so )r that it would be advisable to do so in this world as at present constituted; that the League organization would be preoccupied r ,1111=..-- Data to be appended to Journal relating to Mr. Strongts trip abroad in 1919. MEMORANDUM The economic argument in support of the League of Nations which OAK IV should appeal to the American business man seems to me to be the following: Our modern systems of industry, transportation, communication and credit/ have bound the nations together in an economic unity, with almost complete interdependence one upon the other. Natural resources and the abilities of the people of one nation enable it to produce food, raw materials and goods which cannot so well be produced by other nations, so that the lives and well being of congested populations the world over are actually dependent upon the continuity of the exchange of foodstuffs, raw and manufactured materials and credit, which, if discontinued for a considerable itriod, would reduce parts of the world to starvation and disorder. The immediate interest of ail nations, and of the United States more than any other, is to see that this interchange of goods and credits is promptly resumed so that Europe shall not become bankrupt or starve or break dorm into political, social and financial disorder. Should such a calamity occur, it would destroy the buying power of a large section of the world, which has been our best m-rket for everything which we can best produce for export, and would also reduce Europe's ability to produce those things which are likewise essential to our own wel- fare and industrial progress, and which they must be able to ship to us if we are to maintain our export trade. We are now in the position of a large producer or manufacturer whose most important customer, because of some sudden calamity such as fire or earthquake, has lost his plant or his credit or his courage, and 2 who, on that account, is not only unable to resume 2roduction but cannot pay his debts. The wise business man, under these conditions, will fur- nish his customers with credit for materials needed to reconstruct his plant and help him restore his buying and producing power, otherwise not only is a good customer lost but a debt becomes uncollectible. While Europe now needs food and raw materials and long credit, still more it needs the steadying hand of our great nation which has emerged from the war substantially unimpaired and still has u great surplus production of materials now urgently needed by Europe. To start the economic cycle, we must not only furnish these goods and extend credit, but we must also ensure, just us in the case of an industrial reorganization, that a firm and wise hand is Introduced into the mana ement during the mriod of recu- peration, in order, indeed, that both the old investment and the new capital may be wisely used and not lost. The distinguishing difference in an economic sense between an individual and a nation is that an individual is the master of his own success, limited only by his cad -city to plan, to work, to produce and to save. A nation is limited in this respect, because it is governed by representatives who cannot always direct the nation's energies solely with economic objects in view. Political considerations interfere. Governments employ economic advantages or economic weapons of many kinds to ramote the development of their own economic position in the world, sometimes ruthlessly to the disadvantage of commercial rivals, and war has usually been the result. The American business man who desires to preserve the foreign cam 3 merce of his country, to free it from the menace of disorder in Europe and to prevent the use of economic weapons by foreign competitors who may be driven to create unnatural advantages and discriminations in the trade between nations, must recognize at once that an international organization in Which American representation will have a stablizing influence must prolktly be created through the League of Nations. If America refuses its au port to this necessary organized work of reconstruction, she will be regarded us the world's most dangerous and selfish business rival, and all the nations, as soon as the power to do so develops, will be forced to _arm themselves with every economic weapon at hand against her. MEMORANDUM The following program might be considered for dealing with the gov ernnent debts between the Allied nations, for the present excluding Russia, and subject to modification should the United States government Ilk join the plan: 1. Interest upon the net resulting debt of the Allied nations to be funded by each creditor nation for a perioa of from three to five years and the creditor nations to agree to defer capital payments except as provided in paragraph 5 hereinbelow, for from five to eight years. 2. The discharge of a part of the debt between the various gov- ernments to be arranged by transfers of qame portion of the indebtedness whic.L. causes duplication:- if France has made loans to Italy, Serbia; Greece, Rumania, etc.- Great Britain to accept some portion of the indebtedness of France in the obligations of those debtor countries; all such transfers to be effected in accordance with a formula, if possible The British government to acce t some portion of the Reparation expressed in percentages, insuring an equitable adjustment. 3. Bonds received by the other Allied governments, in settlement of a perced Age of the remaining Allied debts. 4. 4110 If and as soon asthe Reparations Debt is defined at a practi- cable amount, the sca_ing of the nominal obligations of the Central Powers to be effected between all the Allied nations. 5. The definition of the terms of the various inter-Allied debts should allow sufficient f_exibility so that payments could be required whenever necessary to correct the foreign exchanges should they become adverse to any creditor nation. 6. From the stand oint of Great Britain such a plan would have the followinz effects: 2 2. The United States (and possibly Great Britain) to fund he Inter- eat on the net resulting Allied debt for a period of from three to f*.ve years, and to agree to defer capital pigments for from five to eight. years. 3. The discharee of u ?art of the debt between the various govern- ments to be arranged by tr-nsfere of some part of the indebtedness which 11, ceases a duplication;- for instance, Great Britain to accept from France obligations of the eovernments of Serbia, Rumania, etc., held by France; the United States to accept fro Great Britain and France obligations of the other debtor nations, etc., all in accordance with a formula to be reduced to percentages representing an equitable adjustment. S 4. The United States (and possibly Great Britain) to accept some portion of the Reparation Bonds received from Germany, in settlement of a percentage of the remaining Allied debt. 5. If and as soon as the Reparations debts of the Central Powers are defined at a practicable amount, a scaling of the nominal reparations obligations to be effected between all the Allied and Associated nations. 6. The definition of the terms of the various inter-Allied debts should contemplate payments whenever the foreign exchangee became adverse to any creditor nation. 7. From the standpoint of the United States such a plan would have the following effects: 3rd PR )3F. 28th May 1919 DRAFT SCHEME FOR THE REHABILIT4TNI OF 3COUOUI0 LIFE. To have created and handed over to an International :rust 5 :iold Bonds by the fallowing enemy states for the amount specified:- lemony 4750,000,000 Austria Hungary 120,011,)00 'salgaris 65,000.000 Turkey 65,)00,000 1,15),))),000 The ilonis to be identical in their terms with the other 1:eporation Bonds, to be Jointly tend severally guaranteed,but to have Priority as to principal end interest; to be n first charge on the revenues find cue - toms of the enemy states and to be free of all taxes. £ 1,101,010,001 to be dealt vith by the Trust forthwith as follos, the remaining Z150,000,030 to be held in trust for the purpose of funding interest in case of default. -2- The interest,namely 5,-;, to be paid in gold quarterly in London to the Trust. Lech enemy state is entitled, up to one-fifth of its share (as above) of the amount of the bonds oreated, to 21-.1 Bonds to be issued by the Trust and to be used for the purpose of the purchase of food and row materials,and the payment of armies of occupation. The whole or any part of its share of thy debt may be paid off and extin- uished by any enemy state after its liabilities under reparation have been -3- F)RMTION OF nN INTEI:NATIONAL TRUST. An International Trust shall be set up with a "Court" oomprised of seven members: one French, one one Great Britain, one Italy, one Dutch, one Jaenn, one representing the other VOD members of the 'frust. The Trust shall receive and hold the aforesaid 2115) million 570 Gold Bonds with the interest thereon as and when paid and anw further sums that may from time to time fall in. The Trust shall oreate,issue and distribute 21:, Mold Bonds among the allied states that have suffered raptorial and industrial damage during the war for the rehabilitation of their industries, the purchase of raw materials,f)od etc. - The Bonds will become the absolute property of such allied states an may be sold by them outright or used as collateral f)r loans obtained in the money centres of the world. -4- The distribution shall be effected by a Commission of the Trust and one object xt shall be the making good of any debt balance there may be oting Jn prewar trading debts after they have been settled as far as pos:Able by available set offs. Again it shall be within the power )f the Commission to allocate sums, not exceeding one-fifth of the amount guaranteed by the particular enemy state, towards the payment for the armies 3f occupation, food supnlies, purchase of ray, materials for the enemy states when the liquid assets of three states are -5Franca 42,500,000 per annum. Holland 2,510,000 " U.8.A. 2,500,000 " Italy 2,511,100 " Japan 2,501,001 " Great Britain 2,500,030 " Belgium 1,250,010 " Spain 1,350,000 " Switzerl!LInd 1,250,000 " Sweden 1,250,030 " Denmark 1,)00,000' " Argentina 1,))),001 " Brazil 750,100 " Chile 500,010 " China 500,130 " Portugal 500,000 " 1 ft r! ft ft -6The difference in interest bettecn the to be and 21-,; Bonds, namely retained and held by the Trust t a fund arainst any default in provide rincipal or interest by the enemy states and thereby' to provide for the payment of the interest on the 21T 3onds. The accumulated funds, if anyi, to be invested in % 1 securiti's by the :rust, after Providing for the expenses of the Trust. 3oth the 5; and 2},-, Bonds to be free of all taxes throughout the world. All Btate Banks, Bank of England and Federal i.eeerve Bank to accept the ,nds as collateral at their face #