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F.D. 12A.3 9



Federal Reserve Bank


District No. 2
Correspondence Files Division



Ntis -re fru




?#113: R S

. 10


December 7, 1923.

My dear Governor:

sending you the enclosed copy

of the Secretary's annual report for 1923.
Vary truly yours,


Und r SEicretary of tile Treasury.

Benjamin Strong, Esq.,
Governor, Federal Reserve Bank,
New York, N. Y.






January 4, 1924.

Dear Mr. Case:

I have your letter
the brokers

of January 3rd in connection with

who handle purchases of securities for Government

account through the member banks.

This is

hibit of the smooth working and fair
of handling

Government purchases.

a most excellent ex-

distribution of your system

We shall bear it in mind when

Ile come to a reconsideration of this subject some tine this

Very truly yours,


Garrard B. Winston,
Under Secretary of the Treasury.

J. H. Case, Esq.,'
Deputy Governor,

Federal Reserve Bank,
New York, N. Y.


March 22, 1924.

My dear Governor:
Call money in New York has dropped to a very low figure.

Of course,

during the early part of this week the Treasury was partially responsible because it had an overdraft with the Federal Reserve Banks, but collections
promptly reduced this overdraft, and last night we were out of debt.
Liberty bond market, as you know, has been booming.


Our certificates, which

we issued at 4 per cent and considered by kr. Case belcw the market at that
time, are quoted at a good premium.

I see by your daily letter that open

market operations have been very active and your holdings are now $175,000,000
with some $6,000,000 purchased for future delivery.

I would appreciate very

much if you would let me know what you think of the general money situation,
and particularly the effect of the investments in Government securities by the
Federal Reserve Banks.
Very truly yours,
(Signed) Garrard B. Kinston,
Under Secretary of the Treasury.

Benjamin Strong, Esq.,
Governor, Federal Reserve Bank,
New York, N. Y.

sty 29, 194.



acknowledge your confidential note of day 13th with reference to the minimum amount which it is expected will be 1;e1 id in

aold, cash or available funds on the interest coming due under the
3ritish Debt Funding Agreoment on dune 15th next.

if prior to

that date it should becwse convenient for your aovernment to make

a larger paylat in Lecurities than is contemplated in your note,
it would not incoLvenience the Treasury at this time, and the

Treasury would accept less ti wt thirty days' notice f the amount

of cash to be paid. Inforbotion of any change in yeur Govenisent's

plans in this respect if received by the Treasury on or before
Thursday, dune 12, 1,L4, will give Sufficient ti:e to arrange the
Treasury's financing of June 16th without diaconvenience.
-Very sincerely yours,

.. oo-letary of tilt:

Sir tsme Bayard,

traordinary and Plenipotentiary,

British ,4;mbassy.








JIM 3 - 1924

June 2, 1924.

Dear Governor Strong:

I enclose a copy of a letter which the Secretary
has received from Mr. Wills, of the Federal Reserve Bank
of Cleveland, in connection with the lease of certain space.


truly yours,

ct--7 JL
Garrard B. Winston,
Under Secretary of the Treasury.

Ben:iamin Strong, Esq.,

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

1 enclosure







elf r


May 29, 1924.

Hon. A. W. Mellon,
cio Treasury Building,
Washington, D. C.
My dear Mr. Mellon:

Chairman Adams, of the Republican National Committee, called at
my office today and informed me that you were somewhat concerned about
the effect of the Republican National Committee occupying offices in our
building. He asked me to write you the circumstances surrbunding the
occupancy, which he felt sure would convince you that the committee used
good judgment in seeking and obtaining this location and that this bPnk,
instead of being subject to criticism for making the lease, waald have
been subject to just criticism if the transaction bad been refused.

We are renting space to the public on the fifth, sixth and seventh
floors of our building, to which there is separate access than through our
banking room, there being a building entrance on SuperUor Avenue leading
to the building elevators.
It so happens that our building is situated across from the headquaxters hotel, and between the headquarters hotel and the public
auditorium. The offices of the three leading newspapers in Cleveland
are also in the same square with our bank. Consequently, it was very
natural that the local Arrangements Committee shauld obtain space in our
building for their executive and clerical force. I might say that this
committee is a citizens' committee and is non-partisan in its make-up.
Later, at the suggestion of this citizens' committee, the Republican
National Committee applied to us for space for their clerical and accounting force, and we rented them space in the same manner as we had the local
Arrangements Committee. The sole reason for their coming to our building
was on account of its location, and both committees are meeting our requirements with respect to rental on a short time basis, which includes
payment for partitions, etc.

There are five other tenants on the same floor with the Republican National
Committee. It was purely a business matter and was passed on by our
Executive Committee and our Board of Directors, and we felt that, having
the only desirable location for these people, we would have been remiss
in our duty towards the interests of the bp** as well as the community in
not renting this space, from which we are glad to receive an income and
which is better suited to their needs than any other space in Cleveland.


hope that this information will dissolve any doubts that
are in your mind.
Sincerely yours,

WT. 15 75M-12-23












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JUN 1 9 1924

June 19, 1924.

My dear Governor:

This is simply to confirm the meeting of Mr. Owen

D, Young at a dinner to be given by Mr. Mellon at his apartment

at 7:30 p.m., June 24th. I understand this has already been
given your Secretary over the telephone.
Very truly yours,

Gar girl B. Winston,

leer Se retary of the Treasury.

Banjanin Strong, Esq.,
Governor, Federal Reserve Bank,
Nam York, N. Y.

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JUL 1 7 1194
July 16,1924.


Dear Governor:

I have your letter of the 15th in connection with Mr.
Saunders' interest in John Guilfoyle,

formerly head of

ing Division of the Bureau of Engraving and Printing.

head of that Division for over

to run it properly.

cipal sore-spot in

to years.

the EngravGuilfoyle

He has been uneble

From what I can gather it has been the prinan organization not too sound throughout.


we are ever to get our currency on a proper basis we must get the

Bureau of Engraving and Printing

functioning with some degree of

Since Guilfoyle couldn't run his Division there is

nothing else to do but to get rid of him and try someone else.

I, of course, have no interest in the

matter at all except the

responsibility which the Treasury has to see that its currency
printing program


some margin of safety.

We have none


Very truly yours,


U der
Benjamin Strong, Esq.,
Governor, Federal Reserve Bank,
New York, N. Y.

rard B. Winston,
cretary of the Treasury.

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August 7, 1924.

My dear G vernot


receiVed_eraiii your secretary

the book

Taxable Capacity", by Stamp,

which you recommended that I read for my education.

I will

be glad to do so.

I appreciate your thought-

fulness in remembering the book.
Sincerely yours,

Benjamin Strong, Esq.,
Governor, Federal Reserve Bank,
New York, N.Y.




A ljG e 114






Dear Governor Strong:

,* ,DEC. liS


I have asked Mi*. Elting, Collector at the Port, to

get in touch with you direct so that we can handle the arrivals
an the 26th expeditiously and circumspectly.
Very truly yours,

rard B. Winston,
retary of the Treasury.


Strong, Esq.,
Governor, Federal-Reserve Bank,
New York, N. Y.


ek1/44 -44





CD (7ebruary 24, 1925.

My dear Governor:
I am sending you under separate cover
an autographed etching of Mt. Mellon.

Mr. Mellon

was a bit too modest to send these out himself,
but I know that you will appreciate having a picture of the Secretary in the bank.

Will you

acknowledge receipt direct to Mr. Mellon.
Very truly yours,


rard B. Winston,
etary of the Treasury.

Benjamin Strong, Esq.,
Governor, Federal Reserve Bank,
New 'Turk, N. Y.

9 31 slA



ii,trg 1925



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JUN " 1 1925



May 29, 1925.

Dear Ben:

I have your letter of Lay 26th.

The Special Delivery

Section of the Post Office reports no trace here or at the
New York office of that letter which I sent you.
know what has become of it.
Very truly yours,

Benj. strong, Asq.,
Federal Reserve Bank,
New York, N.Y.

I do not




JUN -I. 1925

WT. 15 75M 12-24







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June 3, 1926.

JUN - El 1925

Dear Bent

I have your letter of June 1st and have taken the matter up again with the Post Office Department.

Please note that my house address has been Changed to
2026 R Street, N.W., telephone North 8081.
Let me know when you receive this letter.
Sincerely yours,

Benjamin Strong, Esq.,
Federal Reserve Bank,
New York, N.Y.



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August 10, 1925.

Dear Mr. Case:

I acknowledge r ceipt of your letter of

August 7th enclosin copy of letter from Governor
Strong, giving

the elgian

financial situation.

This is exceedin v interesting to me.
Very truly yours,

G rard B. Winston,
IlnderOcrebary of the Treasury.


J. H. Case, Esq.,
Deputy Governor, Federal Reebrve Bank,
New York, N. Y.



Apolitical platform states its principles in such a general way
that it is somewhat difficult to determine the cost to the country of the
application of those principles to specific legislation,

Many planks in

the program, however, carry with them by necessary inference certain items
of expense or increase or decrease in revenue which can be fairly accurately
estimated and their effect on the Federal Budget determined.

The LaFollette platform, so far as it affects revenue, may be divided
into planks (1) increasing expenditures, (2) decreasing revenues, (3)
creasing expenditures, and (4) increasing revenues,


The net result of

these estimates applied to the Receipts and Expenditures of the Government
would be the cost of the adoption by the country of the LaFollette program.
Increased Expenditures.

Public ownership of the Nation's waterpower and the creation of

aNational super waterpower èystem

supply light

The value of existing waterpower plants in the country is estimated at

(Federal Power Commission).

The Government has already

spent $114,000,000 with $51,000,000 more necessary to complete the Muscle
Shoals project.

It is quite obvious that the expenditures which might be

incurred if the Government entered into this field are practically limitless.

In view of the result to Government finances of specific planks



program, expenditures for this indefinite purpose are not considered.
Public ownership of the railroads.

It is estimated that


value of the railroads as of December 31, 1922, determined in accordance
with legislation originally recommended by Mr. LaFollette, was $18,828,582,000
(Bureau of Railroad Economics) and to this must be added the capital


improvements to date.

The LaFollette program demands the reduction of

freight rates to approximately pre-war levels.

Since the net operating

income of these railroads in 1923, an exceptionally good year, wag only
a little over 5 per cent on this valuation, money borrowed to purchase
the railroads would not earn interest with decreased freight rates, and
anything like $18,828,582,000 of Government bonds could not be financed.
It is assumed, therefore, that immediate public ownership is impracticable,
but that the


does mean public operation.

The cost to the Government

of the 26 months of Government operation and the 6 months guaranty period
was $1,696,000,000, or $636,000,000 a year.


(House Document No. 148

The cost of Government operation now, *hen the full effect of

the increase in wages is felt, would not be lees than during the war, or,
say, $636,000,000 a year.
Legislation for the relief of the American farmer.

There were various bills pending in the last session of Congress for this
purpose, running from $1,000,000,000 (H.R. 733), through $500,000,000
(H.R. 566), and $305,300 ,000:(S, 185), to $200,000,000 (H.R.


Assume.$200,000,000 as the cost.

Postal Salary Adjustment Measure. (S. 1898).


The estimated cost of this bill was $68,000,000 per year.
immediate cash payment of the bonus.

The presentlaw is of the insurance type condemned by the LaFollette program.
It will cost the Federal Government about $150,000,000 a year.

The bill

vetoed by President Herding, which also was an insurance bill in its main
feature but with more liberal loan facilities, was estimated to cost about
$250,000,000 a year for the firs


average b

of the


veterans* adjusted servide certificate under the existing law is $382,
and the average face value of these certificates is $962.
entitled is 3,038,283 men.

The number

(Conference Report to Congress).


LaFollette program does not consider the bill in the form vetoed by
President Harding as satisfactory, since it is insurance.

The extreme

position, of course, would be the payment within the next few years of the
face value of the adjusted service certificates in cad', about $3,000,000,000.
If, however, it is irtended simply to pay the base of these certificates,
which average $382, in the next two years, the cost would be $1,150,000,000
plus $65,000,000 for those who died or had small credits.

This would mean

$610,000,000 a year, less the estimated payment under the existing law of

$150,000,000, an addition to expenditures of $460,000,000.


Decreased Revenue.

Drastic reduction of the exorbitant duties
McCumber tariff legislation.

rovided in the Fordne

The Fordney-McCumber law increased customs

revenues from $308,000,000 in 1921 to the present figure of $545,000,000 for

A drastic reduction would probably bring the Governmentts revenues to

what they were before the present law, a loss of $237,000,000.

Reduction of taxes on individual incomes and leJtimate business,
and immediate reductions IMOD moderate ircomes.

To decrease individual

income taxes by 50 per cent where the income is moderate, that is, less than
$10,000 a year, and by 25 per cent where the income exceeds $10,000 a year,

would mean a loss of revenue of $146,000,000 a year (based on estimates
furnished the Finance Committee of the Senate).

A reduction of 50 per cent

on the income of all corporations earning less than $50,000 a year -- presumably


"legitimate business" -- would reduce revenue by $40,000,000.

of Income - 1921).

This would be a total loss of revenue of $186,000,000.

Reduced Expenditures.



Curtailment of the


now annually expended for the

Army and Navy in preparation for future wars.

The cost of the Army and

Navy for 1924 (Budget - 1925) was $655,000,000, not $800,000,000, of which
$59,000,000 was for non-military purposes, such as river and harbor improvements, the Panama Canal, and hospitals and soldierst homes, and $15,000,000
of the Navy's expenditures was for scrapping the naval vessels in accordance
with the Reduction of Armament Treaty.

There was

therefore, $581,000,000

subject to curtailment.

What constitutes "preparation for future wars" is

difficult to determine.

The citizens and reserve officers training camp,

West Point, and Annapolis require less than $10,000,000.
the Navy requires $57,000,000.

The increase in

To reduce the military forces of the country

and at the same time to carry out the requirements of the LaFollette program
(a) collection of accumulated interest on foreign debts; (b) revision of the
Veribilles Treaty, and (c) international guarantee of public referendums On
peace and war, is obviously impossible.

Assuming, however, that these parts

of the program are abandoned, the Army and Navy have pretty well been out to

the limit, and if we are to have simply a police force adequate to our
responsibilities as a nation, it is unlikely that further cuts exceeding
$100,000,000 could be made.


Increased Revenues.

Recovery of money on fraudulent war contracts. and. oil leas.
.ts have been brought and diligently pushed on alleged war frauds, but


the Government

has as yet

been unable to obtain revenue from this source,

and it is unlikely other counsel will be more successful.

The revenue

would be most uncertain and, if recoverable at all, long postponed.

Collect accumulated interest on the $11,000,000.000 owing us

by foreign governments.

Great Britain, .Fin/and and Hungary, owing us

some $4,587,000,000, nearly one-half of this amount, have already adjusted
their debts, and the interest is beirg received.
interest due from those nations.

There is no accumulated

We are also being paid current interest

on certain obligations received from the sale of surplus war supplies
aggregating $437,000,000.

Eliminating the Russian war debt of $187,000,000,

the principal interest items consist of those due on the obligations of
Belgium, France and Italy.
worth about 6 to the dollar.

France borrowed from us when the franc was
It now requires about 20 francs to buy a

When Italy borrowed the rate averaged 12 to the dollar; it is now

25 to the dollar.

In other words, France would have to pay over 3 times

and Italy twice in their own currency what they borrowed.
is similar.

Belgium's case

It is quite plain these countries cannot give us better terns

than England, and in all probabilities, not nearly as good.

The past due

interest on the British debt was funded, that is, added to the principal,
and then the whole bears current interest at 3 per cent.

If agreements

similar to the British were made, there could be no accrued interest and
the total annual current interest from these three nations would be $194,000,000.
Under the Dawes plan Germany will not begin to pay the Allies as much as this
sum and the British interest until after 1928.

It is therefore probable

that any agreement will involve a postponement of even current interest payments, and a most liberal estimate of additional revenue would be $100,000,000

- 6 -

current interest from the three nations for the next few years.
(3). Large increase in the inheritance tax rates on large estates.
The estimated increase in revenue from an increase in inheritance tax
rates from 25 per cent to 40 per cent is $12,000,000 per year,

To raise

the Federal tax rate to 75 per cent might increase revenue in the first
year by $30,000,000 (based on 1921 returns, the latest published).

75 per

cent Federal tax rate, plus the various State rates to which property of a

is subjected, plus the loss in realizing the cash with which to

,pay these taxes, would probably amount to more than 100 per cent of the

75 per cent is, therefore, the limit, and such Federal taxes could

not be levied without deprivizg the States of the revenue they have heretofore derived from this source.

Excess profits taxes.

The excess profits tax when first

levied in the war year of 1918 yielded $2,505,000,000 revenue.

From that

figure its yield steadily and rapidly decreased until the last year of its
existence, 1921, it produced only $335,000,000, a reduction of about 87 per


three years,

in the first year.

Its probabl9 yield if re-enacted would be $350,000,000

T 7


A summary of the losses and gains to the United States
Treasury from the adoption of the LaFollette program is as


Increased Expenditures.
(none allowed for)

Public ownership of waterpower
Public ownership of railroads
Relief of the farmer
Postal salaries
Cash bonus





Decreased Revenue.
Customs Duties


Individual and legitimate
business taxes




Reduced Expenditures.


Army and Navy


Increased Revenues.

War contracts

$ 100,000,000

(none allowed for)


Foreign interest


Estate tax


Excess profits tax


Net Loss .




The best estimate today indicates a $25,000,000 Governmental
surplus in 1925 but the President has insisted upon saving an additional
$83,000,000 in expenditures making a surplus of $108,000,000, (President's
address June 30, 1924).

to the surplus after

Applying the net loss on the LaFollette program

making the saving, would result in a deficit of

In other words the LaFollette program is not within a

billion, one hundred million dollars of


practical on present


This program includes the collection of all taxes possible from large
inheritances, and excess profits, the reduction of ircome taxes and customs
duties, and is opposed to a sales tax.

With such limitations on getting

additional revenue the money could not be found to adopt the program and
still to pay the ordinary costs of government.

Since a government can only

pay out from what it takes in and if it wants to spend more it must collect
more from the people, it is obvious that the LaFollette program is not
irtended for actual use.

An application of the simp]e rule that two and

two make four is the best test of a political promise.


August 27, 1925,

Dear Mr, Oases

Mr, Ripolit Gliwio, Marge 410 Affaires of the Polish Legation,

was in to see me toslw,i as to the attitude of the Treasury on credits to
be extended to the National Bank of koland by the Podera,1 Reserve Bank of
New York similar to those extended to the flank of T.Jacjand

It is expected

that negotiations on this matter will be begun in London with Governor -3trong,

I told the gentlemeaa that Mr. Mellon would take no position with respect to

such oredits until the matter had. been negotiated with Governor 3trig and
the entire matter came to Lir. Mellon in concrete eliare

'Nhen next you are

writing Governor 3trong let him know that the Treasury declined to take any

position in this matter until it heard from him, for it is po3sible that
the report may get out of Treasury approval, "I have known such things to
happen with other diplomats,
Very truly your s,


Garrard. B. Winston,

Undersecretary of the Treasury,

J. H, Case, Laq,,
Deputy Governor,

Federal Reserve Bank,
New York, N,



January 19, 1926.

IJ ,;).0

B. S.
Dear Ben:

Just as a matter of record, I am advised

by Mr. Hamlin that the Federal Reserve Board, by
a vote of 4 to 2, determined to make no recommen-

dation for the repeal of the 15-day provision for
loans secured by Government bonds.

The previous

vote had been 3 to 3, the Governor changed his vote,

and Dr. Miller spent most of the morning arguing
that the Governor was inconsistent.
Sincerely yours,

Benjamin Strong, Esq.,
Governor, Federal Reserve Bank,
New York, N.Y.






ov..I 03 .


February 12, 1926.

001/Q, 31 y
Dear Ben:

We are exceedingly busy, but there does not seem to be
The Senate will pass the tax bill to-day

very much change.
or tomorrow.

After maintaining a bill in fair shape until a

couple of days ago, the Senate broke down and repealed every tax
in sight.

As it stands novrwe would be over 300 million dollars

in the red next year.

I never saw a more childish performance.


,reminds me of some spoiled child who comes in and throws all of his
belongings around and expects the nurse, in this case the House of
Representatives, to pick them up and put them in shape again.


a deliberative body with the reputation that the Senate is supposed to
have legislating on a fiscal matter without regard to finance!

We are going to have considerable trouble with the Italian
settlement in the Senate.

It looks like the Democrats would make

a party issue of it and will, of course, be joined by the Radical

It seems to me poor politics, but it is politics.

Ku Klux is at the bottom of it.


The ostensible purpose is to find

some issue on which the Administration can be licked.

As of possible

I enclose a copy of a letter which the Secretary sent the

Iinterest yesterday, which expresses our views of a failure to ratify

the settlement.

I also enclose a quotation from a letter from Fred


Sterling in London of a report he had from one of the Times correspondents.

I lunched with Kemmerer and the Polish Minister the other
week, and got Kemmerer's views on the Polish situation.

They need

about $20,000,000 to stabilize, but they apparently are contemplating borrowing $50,000,000 to $100,000,000.

Kemmerer said he thought

it was a mistake to borrow any money beyond their crying necessities,
and I put in a word along the same lines.
and Schacht.

We discussed you, Norman,

The Minister said that you were the only member of the

triumvgrate whose views were sincere; that Norman looks at matters

only from the standpoint of the Bank of England, and Schacht from that
of Germany.

My awn impression of Norman rather bears out this criticism,

and, of course, it takes a long time for any
that his motives are unselfish.


to convince us

I feel that the strength of the situa-

tion lies in the Pact that these men are intelligent as well as


ally selfish, and intelligent selfishness works for the end you are after-the fiscal stabilization of Europe.
We sent the Greeks back.

The Yugoslays are still with us.

I think we can come to an agreement along a


which seems to me

fair--the payment on the same basis as the Italian for the first 15
years, but with somewhat easier terms during that period, then to mount
rapidly to a 3110 interest basis at the end of the 25th year.

It is true


the country is greatly impoverished.

Their total foreign war debt,

if settled on the British-American basis straight, would not exceed
$10,000,000 a year, and their share in German reparations is $20,000,000
a year.

If the country cannot recover in 25 years, settlement is not

worth much anyway.

Their indebtedness to us is $61,000,000.


we can effect this settlement until the Italian matter is out of the
Senate, I don't yet know.

When Italy is through I think we can then

approach France, and with that matter cleaned up there is nothing more
to be done with foreign debts--at least for the next decade.

A committee from the Federal Reserve Banks presented the Secretary yesterday the plan for a pension fund for Federal Reserve Bank

This, as you will recall, does not have the approval of the

Board, but Mr. Mellon is in favor of it.

It is proposed to arrange to

have a bill introduced.
I have heard nothing at all about ally-plans for myself.

you come back good and strong.
Yours sincerely.


Benjamin Strong, Esq.,
Oasis. Hotel,

Farm Springs, California2 enclosures.

I hope



'Volpi said to him that the United States Government
had a mistress, and like a true gentleman, although he did
not bow to her in public places, he slept with her at night,
and his mistress was called Wall Street; Parker Gilbert
was put where he is to-day by Wall Street and not by the
United States Government. Wall Street has recently formed
an International Club, the members of which were Strong and
Norman, together with a servant named Schacht, who is being
given members' privileges. The Club wanted Volpi to join,
but he refused until France was elected a member as well.

The United States Government considered it necessary
to collect the debts, but it was a very foolish and shortsighted policy, since what happens in reality is that when
that Government makes an agreement, Wall Street immediately
pumps back all the money into Europe by making enormous
Italy settled, with the United States and immediately
obtained a large loan; and who knows -whether Italy can continue
paying? In his opinion it is very.I/oubtful if England is
going to get her ;A millions a year.

The United States believes she has a strongle-hold on
credits, and for the time being she has, but given a little
time the Allies must and will get together and cooperate
successfully in combating this performance".

February 10, 1926.

Dear Mr. President:

In connection with our discussion of possible opposition
in the Senate to the Italian debt settlement, I should like to call
your attention to some practical factors which are involved.

Until comparatively recently, I think it has been the

general impression in Europe that interAllied debts would be cancelled or in some way cleared against the German reparations.


think this was particularly true in Italy, where until Mussolini took
charge the Government has let the people believe they would never have
to pay their war debts.

At one time aaso there was quite a respectable

body of opinion in America that we should cancel these obligations.
To dispel this belief in cancellation and to bring about
an adjustment of the mar debts as commercial obligations there were
three influences which, in my opinion, were persuasive upon our debtors.

The first, and perhaps the strongest of these, was the belief that an
international obligation must be met so that a debtor would retain its

credit among its fellownations and in its next emergency be able to obtain financial aid.

This is a little more selfish than the purely moral

view that irrespective of future benefits one ought to pay one's debts.

Once a nation, either through expediency or idealism,
recognises the desirability of paying its debt, it is necessary that it
come to a funding agreement with its creditor.

It is quite obvious that

none of our debtors could pay their debts in accordance with the
terms of the obligations held by our Treasury, which are payable on

The debt has to be funded, within the capacity of the debtor,

over a long period of years, and in order that its budget may be

balanced and its currency stabilized, the debtor must know exactly
how much each year it must pay out of government revenues in the
satisfaction of the debt.

In other words, not only must there be an

extension of time for the payment of the entire debt, but the expendi-

tures on this account for the next few years must be definitely ascertained.
About a year ago we began pressing our debtors for set..

At about the same time, England announced its intention

of restoring the gold standard.

As an essential element in its pro-

gram the London market had to be closed to foreign loans because such
loans mould have meant a drain of gold upon England which would have
made a maintenance,of the gold standard in its eatlier months uncer..


There was onlione other large market for foreign loans in the

world, the market in this country.

As a matter of administrative

policy it was determined to deny recourse to our money market by the

debtor nations or their nationals until the nation negotiated a-settlement of its debt to the United States.
These three influences

which have brought about debt settle-

ments are, then, the desire of the debtor nation to be able to say
that it recognized its international obligation and agreed to settle

within its capacity; the necessity for determination, particularly
in the earlier years, of the revenue requirements of the debtor
nation to meet its foreign obligations; and finally, the desire of
the debtor nation to obtain new capital abroad for the stabilization of its currency and for the reestablishment of its industries.

Assuming that the Italian debt settlement is not accepted by the Senate, I should like to consider what arguments can

be presented to Italy which would influence it in negotiating with
us a new and more onerous settlement.

Italy came to America with a

representative delegation and with a very thorough preparation of its

The delegation presented Italy's case to a bipartisan American

Commission, composed of three members of the Cabinet, a Senator, two
Representatives, and two members of the public.

After thorough dis-

cussion a settlement was arrived at which in the opinion of the American

Commission fairly represents Italy's capacity to pay.

The settlement

was approved by you and was passed by the House of Representatives.


now the Senate failed to approve the settlement, I think it mould be
obvious to the world that the reason was political and not fiscal.

Italy, within its capacity, has met its international obligation in the view of the expert American Commission.

Neither in

America nor Europe would her moral Credit be hurt if then she refused
to repegOtiate.

No government could stand in Italy which undertook in

a new settlement to pay more than the expert American Commission had


said was fair.

The Government, therefore, could safely assume that

its budget was balanced if it provided on its books for the amount
called for by the American settlement.

The Italian Government has

borrowed in the American market the $100,000,000 that it needed for
Government purposes.

The closing of the American money market

now would simply mean that Italian industries and municipalities

would go to the London market, which is now open to foreign flotations.

It is my conclusion, therefore, that the only practical

effect on Italy of a failure to approve the debt settlement would
be that Italy 'mould be relieved, for the present at any rate, of any

payments and no settlement more favorable to the United States would
likely be made in the future,
I have spoken of Italy alone because that is the immediate
I feel that a failure to approve the Italian

question now pending.

settlement would render doubtful the possibility of an early settlement with France.


would certainly be placed in an undesiratle

light in urope and we might retard the reestablishment in that Continent of sound fiscal systems.

Here in America we can ill afford to

hamper the customers which alone permit our large exports.

Without a

market to dispose of our surplus, our own prosperity would be threatened.
Faithfully yours,
(Signed) A. W. Mellon,

Secretary of the Treasury.
The President,
The White House.


-444 "..X"--





























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1!>-,?.- A


















June 22, 1926.

Dear Ben:

My guess that the Bank of France was not preparing any plan and
do not want any plan has been confirmed by the report that I received
authoritatively to the effect that the disagreement on the experts
commission is on the part of the Bank's representatives on that commission.

This is probably just a little more of the narrow viewpoint

which to us is the most disturbing feature in the French situation.
I understand that our debt ratification is in a rather bad way
in Paris just now.

The hardest thing to contend against are these

volunteer Americans who tell France that she should not pay anything
or that she might make reservations.

Our Senate definitely will not

ratify the agreement until France does and will not ratify any agreement with the reservations I have seen suggested making payments contingent upon German payments.

The Finance Committee had Dwight Morrow before it all day Friday.
I was asked to appear but did not go on the stand.

The Democrats

were trying to get some campaign material out of Dwight, but they
were not very successful.

In the course of his examination he said

that his firm would be unwilling to loan money to France if it did
not ratify the debt.

He did not specifically mention credit.

I feel,

however, that our bankers will be slow to advance credits except contingent upon ratification, since the bankers might find it impossible


to sell a loan funding the credits.

If I was to guess at the ultimate

outcome, I would say that France will ratify the debt agreement without reservations.

Any other course will prevent it attaining monetary

stability and monetary stability it must have.

Harrison came down the other day and the two of us went over your
four letters on France and Italy and explained the general situation
to the Board.

I do not know how much they understood.

With the excep-

tion of Hamlin, I think the Whole matter is a bit over their heads.
It was, however, easier to explain with Miller absent because we did
the talking.

Harrison and I had a rather peculiar mixup.

He thought

I was going to raise the question of India and for some reason I
changed my mind and thought it inadvisable, and I had exactly the same
idea about him.

So we said nothing about India.

When we left the

meeting we straightened out our ideas, and to-day I saw the members of
the Board who are in Washington, Platt, Hamlin, and James, and gave them
a general description of the Indian situation.

I laid stress on the

fact that the entire matter had to be handled in the greatest confidence;
that it might be a very serious blow to this country, and that in consultation with Mx. Mellon he had asked you to see if something could
not be done for the good of this country.

I put it this way, as you

know, not because you did not have the initiative but because I thought
it was more politic if it should appear you were acting under the suggestions of the Treasury.

I also had a long talk with Senator Smoot and told him all you
have done to protect his silver interests.

The Secretary got a letter


the other


from a Mr. Reynolds, Tice President of the United States

Smelting and Refining Company, suggesting that the Administration make
some protest Against India going to the gold standard.

I wrote him

that we were thoroughly aware of the situation but that in view of
Indian politics the matter had to be handled with the greatest discretion.

I got a reply recognizing the hint and asking me to call on him

and Kelly and some other man if I was in New York.

If he is in touch

with Kelly I am sure that we will have no more fool suggestions.


would be a fine thing to have all the western Senators demanding that
India do what we want than to.

Congress is having difficulty in agreeing on adjournment.


is so much pork in the rivers and harbors bill and so much politics in
the farm legislation that the two

houses have

not agreed.

There is a

possibility they mill be here all summer - a pleasant prospect for me.
Our surplus this fiscal year will

be about 390 million and our

debt reduction about 850 million.

Glancing over your letter of June 7th, I might add that it will
be politically embarassing for your bank to advance a credit to France
before France ratifies the debt.

This is a delicate thing to handle

because the French resent pressure.

Benjamin Strong, Esq.,
C/o Bank of England,
London, England.


June 16, 1926.

Dear Ben:

I had two strenuous days in Paris after leaving you and I was

glad to get out of the town because I was afraid that the sidewalks
were getting so slippery if I walked around much I would fall down.
Berenger wanted me to see Briand, and I naturally having nothing to
say to him wished to avoid him.

My early departure prevented an ap-

I had an uneventful trip home with all of the Catholic

prelates, landed without publicity and came right down to Washington.
Newspaper men here, however, insisted on my saying something, and I
enclose a report of the interview which appeared in the Times.
not think I have hurt anything.

I do

Of course, the interview is much

more optimistic than any of us feel, but I do not desire to take the
attitude Houghton took with the papers on European conditions.
Harrison is coming down tomorrow and we are going before the
Board and tell them something of what is going on in Europe.

I am

told that both Cunningham and Crissinger are quite seriously ill and
nature may work out a solution of/difficulties on the Board. I understand that Wetmore suggested Dave Forgan as a possible member.


has not been a particularly successful banker but he has, as you know,
a delightful personality and probably some good Scotch common sense.
I wish you would give me the names of some desirable members.

We all

sit around and criticize but it is awfully hard to make constructive

The recent primaries have been a bit disturbing to the Old
Guard, but Mr. Mellon feels that it is nothing more than what usually happens in an off year.

It must be remembered that the Senators

now up for reelection were carried in on the high tide of the Harding

There has been a good deal of demand for farm legislation.

think Mr. Mellon put the last nail in the coffin of the McNaryHaugen bill in a letter copy of which I enclose.
I enjoyed being with you more than I can say and I hope that
sometime again soon we can take a trip with a little less work in

Take good care of yourself and do not come back until you are

thoroughly rested.

I think your subordinates are able to run the

bank during the summer.

Benj. Strong, Esq.,
C/o Bank of England,
London, England.

2 enclosures.






Dear Ben:

I have just received your letter of July lot.
has left Washington and sails tomorrow morning.

Mr. Mellon

He will tell you

the situation over here, and is prepared to discuss your relations
with the Board.
not consider it.

Complimented as I am by your suggestion, I would
Life ie too short to spend it listening to Dr.

The job I now have is much more satisfactory than the one

you mention.

I just want to let you have this information when you

are talking matters over with Mr. Mellon.
Things move so rapidly over on your side that it is hard to
comment on them.

I would be completely out of date when you got my


I have seldom seen such persistent effort on the part
of any European statesman to put this country in wrong as Churchill's.
He is gratuitous in his slurs on our harsh treatment of our debtors.
I should like nothing more than the opportunity to tell the facts
with reference to England's treatment of her relief del,tors and ours;

of England's confiscation of private German property; of England's


with France of the Russian gold surrendered by Germany; of

England's abstraction of our army costs paid by Germany..

I feel as

you do that the burden of the English debt settlement to America is a
bit unfair considering that England was the first to come up and set-


There may in the future come


an opportunity to effect a re-


I enclose a copy

of a letter of Mk.

Mellon's to Mk. Peabody;

who took occasion publicly to criticize our treatment of our debtors.
I purposely brought out England's situation as compared with the
others so that the subject


be better understood in this country.

But if Mr. Churohill believes that the American people will become
more friendly to England by his stirring up antagonism, I disagree with

As a matter of fact, England has treated no debtor as leniently as

we have, and her grandstand play that she is willing to cancel what
is owed her if we will cancel what she awes us, won't bear analysis.
Who would not be willing to release a bankrupt debtor if one's creditors
would release us in a like amount?
it is.


I do think England is

This may sound a bit wara tempered;
making a mistake, and in her own in-

terests ought to behave more friendly.
Sincerely yours,

Benjamin Strong, Esq.,
clo The Bank of England,
London, England.

1 enclosure.


June 14, 1926.

Letter of Secretary of the Treasury Mellon to Congressmen Haugen, Dickinson
and Anthony in response to their request for his views on one of the
Agricultural bills.
June 14, 1926.

My dear Congressmen:
In accordance with your request made on the occasion of your recent visit

to the Treasury, I am submitting my views on H. R. 7893, as amended and now
Pending in the Senate, providing for the establishment of a Federal Farm Board
to control and dispose of the surplus of certain "basic agricultural commodities".

The purpose intended to be accomplished by the bill is to raise the prices
of wheat, corn, cotton, and livestock above world prices.

A board known as the

Federal Farm Board, for which is appropriated $250,000,000, plus $300,000 for
inmediata expenses, is to arrange with cooperative associations and other dealers to purchase, store or export the surplus of these commodities beyond the
demand for home consumption.

The taking of this surplus off the home market

is to raise the price in the home market.

The surplus is to be sold abroad

even if the foreign price is belo7 cost.

The loss on the storage, or on the

sale of the surplus abroad, is to be paid in the first instance out of the fund
appropriated from the Treasury.

It is proposed to reimburse the fund



("equalization fee") or tax on all of these commodities sold by the farmer.

In other words, it is hoped to raise prices on part of the crop by taking
a loss on a smaller part of it; and the method by which this is to be done is
to divide the crop into two parts - the larger to be sold to American consumers
at high prices and the smaller part to be sold


cheaper prices or even below the cost of production.



consumers at

The loss incurred in giv-

ing this advantage to foreign consumers is to be covered by money from the


and from the higher prices paid

by American



It is, of course, apparent at once that the effect of the bill will be to

increase the cost of livirg to every consumer of the five basic agricultural
commodities in this country.

The %qualization fee", while it purports to be

paid by the farmer, will be included in the increased price of the commodity
and will, in the end, be borne not by the farmer but by the consumer.


net result will be that the American consumer will pay the increased domestic
price which of necessity must include the "equalization fee" or the loss incurred in selling the surplus abroad.

We shall have the unusual spectacle

of the American consumirg public payirg a bonus to the producers of five

major agricultural commodities with a resulting decrease in the purchasing
7ower of wages, and at the same time contributing a subsidy to the foreign
oonsumers, who under the proposed plan will secure American commodities at
prices below the American level.

European labor could purchase American

:?roducts at a lower price and could live more cheaply than AmericaA labor.

Foreign industrIal costs would be lowered and the foreign competitor
assisted, in underselling American products abroad and in our home market.

--I can see no permanent relief for American agriculture through subsidizing
foreign competition; and, that, in my opinion, is what the bill, if it becomes a law, will do.

The so-called "equalization fee" is in reality a tax on every bushel
of wheat or corn or head of live stock or bale of cotton sold by the farmer
in this country; and the amount of the tax is to be fixed, levied and collected by the proposed Farm Board.

The constitutionality of such a tax,

fixed not by the Congress but by a board, imposed in such a manner and for
such a purpose, is at least extremely doubtful and might render ineffectunl
any legislation embracing such a feature.

But in any event there would seem to

- 3 be insuperable difficulties in collecting such a tax.

The bill provides that

the Board may require every person engaged in processing or in purchasing any
of the five basic commodities "to file returns under oath and to report, in
respect of his processing or purchasing of such commodity, the amount of
equalization fees payable thereon and such otherfncts as may be necessary for
the payment or collection of the equalization fees; to collect the equalization
fee from the producer and to account therefor; and to issue to the producer a
serial receipt for the commodity".

Every person who fails to account for such

"equalization fee" shall be liable for such fee and to a penalty of one-half
the amount of such fee.

It is necessary only to remember the multitude of transactions which take
place each year in the sale of cotton, corn, wheat, cattle and swine, to realize
how vast would be the machinery necessary for the auditing of such returns, the
collection from the farmer of such a tax and for its transmission to the
"equalization funds" in the hands of the Farm Board;

The intricacies of the

income tax and prohibition enforcement appear simple by comparison.

That would be the net result of all this effort?

In the end, the fanner

might receive, if the plan worked successfully, a small increase in the price
of his commodities.

But in order to accomplish this result, the bill sets up

a cumbersome machinery, involving not only the fixing of prices by the Farm
Board, but a control on their part over the agricultural industry and a power
in levying taxes never before given to any board or agency of the Government
in this country.

The bill imposes upon the Farm Board the responsibility for determining
what is a "fair and reasonable price" for the five basic commodities and their
food products.

It is provided

that, in contracting with cooperatives or cor-

porations or other dealers in these commodities, no payment of losses shall be
.made by the Board unless the purchase is made at a price which, in the opinion

of the Board, is not in excess of a fair and reasonable price; and no sale shall
be made in respect of which a loss would be sustained unless such sale is authorized by the Board.

Furthermore, it is provided that advances by the Board shall

be payable on demand whenever the Board finds "that the market price in the principal markets of the Unitad States for the basic agricultural commodity, or its
food products, in respect of which the advance is made, is in excess of a fair
and reasonable price".

Under these provisions it would be necessary for the

Board to enter into or approve a vast number of contracts, nocessitating the
employment of an enormous bureaucratic staff of government lawyers, auditors
and inspectors.

From a practical standpoint, I am unable to see how any Board,

no matter how able or efficient, could possibly arrive at a proper determination of a "fair and reasonable price" and the many other complex questions
assigned to them.

This is particularly true in view of the variety in quality

and standards of products which must be dealt with under the terms of this

The purchasers and processors of farm commodities are to be reimbursed
for any "losses, costs and charges" sustained in removing the surplus from
the market and maintaining in this country a price in excess of world markets
This is in effect a guarantee by the Federal government against loss from
storage at home or sale abroad.

As our past average export

alone of the

five basic agricultural commodities has been about $1,500,000,000 per annum,

it is possible to got some idea of the extent of financial liability which
the Farm Board or the Government will incur under the guaranty provisions of

In the end it seems to me that the bill will defeat the
very purpose which it seeks to accomplish.

The chief obstacle to

farm prosperity is avowedly the disposal of the surplus.

The payment

of a subsidy or the levying of an "equalization fee" or the artificial
increase in any other way of the price of farm commodities, will
inevitably result both in stimulating further production on the part

of the farmer and in decreasing consumption on the part of the buying
Public, thus bringing about a still greater surplus of products%
Furthermore, if a subsidy of this kind is given to five agricultural
commodities, the Government could not logically refuse to give the
same treatment to the textile, boot and shoe, coal and other industries
which are finding some difficulty in disposing of their surplus products.
In general a surplus is taken care of by a decrease in
production or by an increase in consumption4.

The natural result of

the proposed bill wilt be to increase production through higher prices
for the particular .commodities dealt with in the bill, and for the
same reason to decrease demand.

That is, the bill proposes to correct

an economic condition by ignoring two of the most powerful economic

laws, .vhich

in the long run must control.

It seems to me that we can

advance further in aid to the farmer if we try to work with and not
against the teachings of experience.

- 6 -

A way out of the difficulties lies in the elimination of waste
between the producer and the consumer, so that the farmer
may receive a higher net rrice and yet the ultimate consumer
may not have to pay more.


purpose can be approached

through more orderly marketing and cooperation.

The second

way is to increase the demand for our surplus and thus raise
the price, not to our consumers alone but to the world.
Farming differs from most industries in that the output
largely fixes the price, Whereas in manufacturing the price
largely controls output.

For this reason, it would seem desir-

able to find some method not, only of adjusting production, but

of distributing and marketing products in the most efficient
manner possible.

Perhaps cooperative marketing to the extent

that it can be developed, may help to solve the farmer's difficulties.

There are, of course, many inherent weaknesses in

cooperative marketing, particularly when great and widely spread
industries, such as cotton, wheat, corn and livestock, must be

But it is along this line, in working out the best

methods of distributing and marketing, that the Government can
be of most

help to the


- 7 -

Same of the measures which have beer introduced for this purpose and are now pending in Congress attempt to place upon the Government

too much financial responsibility for organizing, capitalizing and
assisting business operations of doubtful merit.

If public funds are

to be employed, the same care should be exercised as muld be taken
by the average business man in using his arn capital.

They should

not be thrown away as a bonus or subsidy to promote enterprises which
could never succeed on their economic merits.
I believe there is a large field for the improvement of our
farm conditions in the improvement of world conditions.

An increased

demand abroad betters prices here without throwing the entire burden,

as the bill proposes to do, on our own people and in favor of the

War increased production in America but the after effects

have left many of the countries of Europe with currencies of rapidly
diminishing external purchasing power.

Europe is indeed our best

It is in the real interest of the American farmer that the

American Debt Commission has negotiated settlements with the debtor
nations clearly within their ability to pay.

This is but one step in

the restoration of monetary stability but it does represent a great

constructive work and one which the Administration has now practically

America's further aid cannot be governmental but depends
upon the intelligence and courage of our bankers and investors in giving
assistance to those countries willing to help themselves with a. sound

Program of stabilization.

I feel confident that within another year

many of the nations whose buying from us is now paralyzed by a demoralized currency will have recognized and adopted plans for permanent


8 --

restoration of stable money.

With this reform the purchasing power of

Europa should increase and with it the demand for, and the price of, our

In conclusion, I do not believe the principles contained in the bill
now under consideration are sound or that the plan proposed
workable or "beneficial to agriculture.

would prove


The unfortunate condition in which

many American farmers find themselves today will be aggravated, not improved,

by unsound legislation.

We cannot successfully oppose fundamental economic

Sincerely yours,
A. W. mELLaY
Secretary of the Treasury.

Hon. Gilbert N. Haucen,
Hon. L. J. Dickinson,
Hon. Daniel E. Anthony, Jr.,
House of Representatives..

July 14, 1926.

Dear Sir:
By reference from the President,

I have your letter of June 30,

1926, urging cancellation by the United States of the so-called war debts.

Your arguments are confused, but I believe your points can be fairly summarized as follows:

As a legal proposition, taking into account the message of
Presidentr Wilson, the debates in Congress and the First Liberty Loan Act

authorizing advances to our Allies, the United States made a gift and not
a loan and neither party expected repayment.

As an equitable proposition, advances were made while the
Allies were fighting our battle for us and before we could put an adequate

military force in the field, and, therefore, the loans represent part of
the cost to us of the war and should be cancelled.

As a charitable proposition, America being wealthy and prosperous and the European countries being poor and heavily taxed, we should in
the interests of humanity, cancel the debts.
The initial authority for the advances to foreign governments
occurs in the First Liberty Loan Act, passed just after we declared war.

As a lawyer, you know that the interpretation of legislation unambiguous on
its face is determined from its language and not from expressions in debates
on the floor of the Congress.

But even ignoring this rule of construction,

a reading of President Tilsonls message and of the debates showd no ground
for your arguments.

The most that can be said of any expression you quote

is a willingness on the part of the speaker to make the loans even if our

- 2 --

debtors may not be good risks.
of the advances.

This is far from an intention to make a gift

Lot us, however, consider the Act itself.

The law is de-

clared to be "for the purpose of more effectually providing for the national
security and defense and prosecuting the war by establishing credits in
United States for foreign governments".


A reading of section 2 is convincing

that loans and not subsidies were intended.

The United States is authorized

to purchase at par the obligations of foreign governments.

As to rate of in-

terest and other essentials the foreign governments' obligations are to have
the same terms and conditions as United States obligations (Liberty Bonds)
issued under the authority of the Act.

Arrangements are to be made for pur-

chasing the foreign government obligations and for the subsequent payment
thereof before maturity.

If United States bonds are converted into bonds

bearing a higher interest rate, the obligations of foreign governments are
likewise to be converted.

In section 3 of the same Act, the Secretary of the

Treasury is authorized to receive on or before maturity payment of the foreign
government obligations; to sell the obligations at not less than the purchase
price, and to apply the proceeds of any payments made on account of the obligations to the retirement of the debt of the United States.

It is clear that

when the advances ware made to our Allies they knew and we knew they were
loans, not gifts.

From the time of the original advances to date no responsi-

ble authority in the United States Government has suggested cancellation,

and each of our debtor nations, except Russia, has recognized the debt created
by the advances and has offered to pay.

The only question for discussion in

each settlement has been the extent of the capacity of the debtor to make payment of an acknowledged liability.

Your second proposition is that the Allies held the line with men
until we could deliver an army and, therefore, cash advances made during this



period by the United States were our contribution to the general cause of


the war and should- be cancelled.

I shall not dispute with you the exact

date when we became an effective force on the western front nor as to the
time or extent of our service at sea.

We will assume America as you infer

contributed nothing military or naval to the common cause but only gave
financial support.

Even then you will have to admit that advances made to

our Allies after the Armistice, when the war was over, cannot be considered
as a contribution pending effective entry into battle or as saving American

We can eliminate at once, therefore, loans made entirely after the

Armistice to Finland, Esthonia, Latvia, Lithuania, Poland, Czechoslovakia,
Hungary, Austria, Armenia and Rumania.

The Allies to which we did make ad-

vances while the war was on are England, France, Italy, Belgium, Serbia
and Russia.

As the figure,' I shall give will show, if we admit your argument

is sound, England alone is concerned.

The debt settlements have been negotiated on the basis of the capacity of the particular debtor to pay.
as called for by their terms.

Nona could pay its signed obligations

Accordingly, payment of the principal had to

be extended and the period of 62 years set in the British agreement has been
followed in all other agreements.

If the debtor nation paid the United States

a rate of interest on the postponed installments equivalent to the cost of
money to us, we would receive in present value payment of the full debt.
Since, however, such an interest rate is beyond the capacity of any of our
debtors to pay, the United States has, of necessity, accepted loss than the
full value of the debt to the extent the interest to be received under the
settlement is below the cost of money to the United States, now about
per cent.


Looking at the matter from the standpoint of the debtor nation,

the debtor has received a concession in its debt to the extent the interest
to be paid by it is below the cost of money to the debtor.

The obligations

- 4 taken by us from our debtors carry the interest rate of 5% per annum.



this rate is less than most of the debtor nations now have to pay for money,

the rate of 5% is certainly a fair measure of the real burden put upon them
by the settlements.

Let us see what relation the burden of our debt settlements bears
to our loans after the armistice.

In this way we can determine accurately

real contribution in money to the joint cause of the war.

In the case of

England, post-armistice_advances with interest amounted to $660,000,000, and
_ _

the present value of the entire debt settlement is $3,297,000,000.

It must


ba remembered that England borrowed a large proportion of its debt to us for

purely commercial as distinguished from war purposes -- to meet its commercial
obligations maturing in America, to furnish India with silver, to buy food
to be resold to its civilian purJulation,and to maintain exchange.

Out loans

to England were not so much to provide war supplies as to furnish sterling
for home and foreign needs and to save England from borrowing from its own

Francois after-the-war indebtedness with interest amounts to

The settlement negotiated by Ambassador Berenger with the

American Debt Funding Commission has a present value of $1,681,000,000.
Belgium's post-armistice borrowings with interest were $258,000,000,
and the present value of the settlement is $192,000,000.

In addition,

Belgium has a share of the German reparations sufficient to pay her prearmistice debt to America,

With Italy the situation is similar.

Its post-armistice indebted-

ness with interest is $800,000,000, and the present value of its debt
ment is $426,000,000.

It is the same as regards Serbia.


In view of these

facts, in what respect do you still believe America has been unfair to its

- 5--

The statement is made in your letter that the French debt settlement
takes annually about 60 per cent of the German reparation payments which
France is to receive.

I believe you are not correctly informed.

France, in

addition to reparations already received from Germany, is to be paid under the
Dawes Plan 52 per cent of a maximum reached three years from now of
2,500,000,000 gold marks ($625,000,000) after certain charges, about
$300,000,000 annually.

The maximum annual payment required of France under

our settlement is $125,000,000 reached after the 16th year.

I think

you will

find that the reparations receivable from Germany by Belgium, France and
Italy are more than the payments those nations have agreed to make on their
indebtedness to both the United States and to England.
I come now to your third proposition: that to preserve our selfrespect and retain the affection of fcfreign nations for America we must as a
charity cancel the debts.

A Creditor is never popular, but a debtor without

credit is not in an enviable position.

attitude when first of all others i

Englandls prompt and courageous'

sought a settlement of its debt seems to

me to have been rewarded in her present sound financial position, a rock in
the turbulent seas of monetary instability now washing over the other allied

Are you so sure that your policy of cancellation will mean a

happier future for a world which will enly continue to trust those who keep a
promise once -made?

When cancellation of debts is viewed from the standpoint of the
United States you fail to recognize that the Debt Commission, the President
and the Congress act not in their individual capacities according to sentiment,
but as trustees for those whom they represent, the American people.

If these

forein debts are cancelled the United States is not released from its obligation to pay the vary bonds which were sold to our citizens to make the advances to the foreign governments.

We must collect through taxation from our

- 6 -

people if our debtors do not pay to us what they can.

You call this a

"specious reason", but nevertheless, again as a lawyer, you must know the duty
of a trustee.

Ware these trustees as certain as you seem to be that their

cestui aai trusty. the American people, demand a cancellation of the debts, it

is within the province of popular government to carry out that mandate.


neither generally from the people, nor in the press, nor at all from the chosen
representatives of the people in Congress has cone this demand.
I have, as irrsr_e you, and every other good citizen, a profound sympa-

thy for the countries suffering from the after-results of the great war which
we in America have to a large extent escaped.

But I feel that a recognition

of their exterrvl obligations by the EnroT,ean nations and an undertaking

bravely to meet them within their capacity as each country has done, is a
moral force of great service to permanent prosperity in the world.
agree with you that England is on the edge of destruction.

I can not

It is most sound

of heart, as its recent solution of a general strike has shown to all.


countries are in monetary difficulties, but the very acuteness of the disease
has brought a clear understanding of the causes and of the proper remedies.

Dark as the financial appears, I believe Europe is to-day closer to
a permanent sound solution of its economic troubles that at any, time since
the war.

The danger is there, but with it the courage to fight.

despair of Europe.

Very truly yours,



Secretary of the Treasury.

Frederick W. Peabody, Esq.,
Ashbarnham, Massachusetts.

I do not

July 16, 1926.

Dear gr. Crissingart

Early last spring a situation arose which was fraught with
great danger to the mining industry of the United States and which

also threatened to depreciate the value back of an important part
of our currency. A political movement was started in India for
the aaoption by India of the geld standard and a Royal Commission,

consisting of Englishmen and Indians, began holding hearines in

i knowledge of the possibility of India's departing from

silver currency would have seriously depreciated the value of silver

and if India dtd actually go to a eold standard we might expect permanent cheapening of silver,. This would affect not only the silver

mines but most of the copper, lead and zinc mines in the United States
and with them the smelting industry. The Treasury vas particularly in-

terested because it holds nearly 500,000,000 silver dollars. Any publicity was then and-still is to be avoided. I did not feel at that
time free to discuss this subject except with those who must be used.
Informal request was made for American testimony at the hearings, and

I asked Governor Strong to make the best presentation he could to the
Royal Commission and to protect the Treasury and American interests.

I have been informed that Mr. Strong's testimony and that of the ex-

perts' he employed at my suvestion lure effective.
The expenses in this matter aggregate *13,883.35, and I have asked

the Federal Reserve Bank of New York, which thus incurred the ex-

pense, to charge the some to Fiscal Agency ExpensesNow-reimbursable.

This letter is to advise you of the charges on the books of the
Federal Reserve Bank of Kew York. Mr. Winston, who I understand has

already spoken informally to the meMbers of the Board on this sublect,
will be 77lad to give you any further information which you may desire.

Very truly yours,


Secretary of the Treasury.

Hon. D. R. Crissinger,

Governor, Federal Reserve Board,
Washington, D. C.






July 15, 1926.

Dear Mr. Crissinger:

Early last wring a situation arose which was fraught with

great danger to the mining industry of the United States and which
also threatened to depreciate the value back of an important part
of our currency.

A political movement was started in India for

the adoption by India of the gold standard and a Royal Commission,
consisting of Englishmen and Indians, began holding hearings in

A knowledge of the possibility of India's departing from

silver currency would have seriously depreciated the value of silver
and if India did actually go to a gold standard we might expect permanent cheapening of silver.

This would affect not only the silver

mines but most of the copper, lead and zinc mines in the United States
and with them the smelting industry.

The Treasury was particularly in-

terested because it holds nearly 500,000,000 silver dollars.
licity was then and still is to be avoided.

Any pub-

I did not feel at that

time free to discuss this subject except with those who must be used.
Informal request was made for American testimony at the hearings, and
I asked Governor Strong to make the best presentation he could to the
Royal Commission and to protect the Treasury and American interests.
I have been informed that Mr. Strongts testimony and that of the experts' he employed at my suggestion were effective.
The expense3in this matter aggregate t175,687-35, and I have asked

the Federal Reserve Bank of New York, which thus incurred the expense, to charge the same to Fiscal Agency Expenses - Non-reimbursable.


This letter is to advise you of the charges on the books of the
Federal Reserve Bank of New York.

Mr. Winston, who I understand has

already spoken informally to the members of the Board on this subject,
will be glad to give you any further information which you may desire.
Very truly yours,
(Signed) A. W. Mellon

Secretary of the Treasury.

Hon. D. R. Crissinger,
Governor, Federal Reserve Board,
Washington, D. C.




July 20, 1926.

Dear Mr. Jay:

With reference to Mr. Mellon's letter to Governor
Crissinger covering the expenses of the silver inquiry, I am
advised that the Board to,lay adopted a resolution the substance

of which is that the letter was received and read, that there
was some discussion as to the amount, but it was decided that
the matter was entirely within the discretion of the Secretary
of the Treasury.

I think thie is satisfactory.
Very truly yours,

(signed) Garrard B. Winston,
Undersecretary of the Treasury.

Pierre Jay, Esq.,
Federal Reserve Agent,
Federal Reserve Bank,
New York, N.Y.

Ambassador Berenger, of France, Is Here Shown Signing the French Debt Agreement, and the signatures Are Those
Of the Other Signers of the Agreement. Secretary Mellon Is Shown Seated at Ambassador Ilerenger's Right, and Undersecretary Winston at His Left

The Undersecretary of the Treasury
While the Secretary of the Treasury, Mr. Mellon, Is
Abroad It Is His Right Hand Man, Garrard B. Winston,
Who Commands the U. S. Treasury
tangled financial condition in

which so many European nations
THE themselves today inevitably infind

ment and for his untiring and successful
efforts to reduce the tax burden and to
evolve a better balanced tax system.
The third man to whom the country is indebted for the
smooth running of its governmental finances is the Undersecretary of the Treasury, Garrard B. Winston, of Chicago.
Mr. Winston is the secretary's right-hand man, in whose


vites comparison with the smooth manner in which our
Treasury at Washington is conducting the vast financial
operations of the United States government. At a time
when Belgium is forced to place dictatorial powers in
the hands of her king and to make a battle for the franc ability and resourcefulness the secretary has the most
as determined as the heroic stand which she made in implicit confidence. They make a great combination. On
1914 against Germany; at a time also when Italy is length- the one hand is the older man with his almost faultless
ening the hours of work and making strenuous efforts to judgment, as the result of years of experience in great
save the lira; and when France, driven by factions, is in financial affairs, with his keen insight into the heart of
desperate need of a strong man who can mobilize her un- the most complicated problem and his simplicity of landoubtedly great resources and stop the downward plunge guage and lucidity in statement, which make the most
of the franc, America is engaged in putting into operation difficult matters, such as taxation and war debts, seem
the second revenue law, greatly reducing taxes, within a simple and understandable to the average man. On the
two-year period, and is piling up a governmental surplus other hand, is the younger undersecretary, with his quick,
made possible by national economy and efficient financial brilliant and resourceful mind, trained to jump into a
legal battle and fight hard for the success of his client,
Who is responsible for this happy state of affairs? who in this case happens to be the Treasury of the United
Primarily, of course, credit must go to President Coolidge, States and the great body of American taxpayers.
who has made economy the watchword of his administraMr. Winston is still a young man; but when he came to
tion. To Secretary Mellon also must go the thanks of the the Treasury, he already had reached the top in the legal
country for the exercise of his unequalled financial judg- profession. After graduating (Continued on page 60)

The Trend of National Affairs
Congress reassembles in regular session in
December, following the special session of the
WHEN at which the impeachment of Judge EngSenate
lish will, by agreement, be taken up, fourteen measures
of importance which have been endorsed by President
Coolidge, will await its consideration during a period

of three monthsfor this is the year of the short ses-

sion, and unless President Coolidge calls Congress into
special session, vacation adjournment will be taken on
March 4, 1927.

Of these measures, one, ratification of the French debt
settlement, may be eliminated by refusal of the French
parliament to accept it. The President has recommended
coal legislation, giving the government greater power
in case of another national emergency; permission for
regional consolidations and marketing associations under
the supervision of the Department of Commerce may be
asked for. The Rivers and Harbors bill, which has passed
the House, provides a larger sum for such improvements
than has been carried by any similar measure in a number
of years. President Coolidge does not favor government
operation of Muscle Shoals in view of the unfortunate
experience of the government in other industrial operations. Some measure affecting this property may be
passed at the next session of Congress, which will provide for the production of nitrates and water power.
Some changes in the immigration law are anticipated,
not in the direction, however, of letting down the bars
to an influx of aliens. The immigration smuggling business needs more drastic regulation. Doubtless legisla-

tion will be had looking to the return of impounded
alien property to its owners, in connection with which
an investigation of the conduct of the Alien Property
Custodian's office from the beginning is in prospect. The
President will probably renew his recommendation of a

measure permitting reorganization of the departments
with a view to greater efficiency and economy in the
public service.

Radio legislation was left hanging in the air at the

close of the long session of Congress. The House passed
a bill providing for supervision of the radio by existing

agencies of the government under the Department of
Commerce, but the Senate is pressing for the creation
of a new bureau with a full set of high salaried com-

forth during the long session. From March until September, if nothing arises necessitating an extra session, Con-

gress and the country will have a long breathing spell.
delusion that the United States was enriched by

THE war is deeply rooted throughout the world.


spite the fact that official statistics explode it, this utterly
unwarranted theory, responsible for much of the hatred

of America existing in Europe, not only has been free
from attack by responsible American statesmen, but
has been approved by them in thousands of public utter-

This strange policy has worked immeasurable
harm not only to the United States but to Europe, since
the only hope of European recovery is through adoption

of the means whjch are actually responsible for the
great growth of American wealth.

It has been repeatedly pointed out in these columns
that the growth of our national wealth during the eight
year period 1904-1912 was over seventy per cent in dollars

of practically equal value, that during the succeeding

longer period 1912-1922 the increase was about seventy
per cent, but a report of the Federal Trade Commission
shows that the actual increase during the ten-year period

including the war was sixteen per cent in dollars of
equivalent value, so that our pre-war growth in wealth
was slowed down more than three fourths during the
war period. Since 1922 the growth in our national
wealth has been resumed at about the pre-war rate. In
the face of these indisputable facts, one wonders at the
effrontery or ignorance which attributes America's
growth in wealth to the World War, especially when we
are told that it has been at the expense of "impoverished
Europe." The national wealth of France increased more
than twice as rapidly, depreciation of the dollar taken
into account, from 1912 to 1922 than it did from 1904 to

Of all the sophistry dealt out to the American

people by statesmen and near statesmen during and since
the war this theory of American enrichment by the war
is the flimsiest.
America's growth in wealth is clearly due to one thing.

and one thing onlymore work, thought and enterprise
applied to the utilization of natural resources, more production under sound, stable institutions, and laws which
permit the existence of adequate rewards for labor and

missioners and employes. Additional railroad legislation enterprise. It is not even a matter of greater natural
may be urged by President Coolidge, permitting volun- resources, for the United States is comparable as an ecotary consolidation of railroads under the supervision of nomic unit only with the whole of Europe, and the Eurothe Interstate Commerce Commission. It is believed that pean nations, with their colonies, possess a larger store
such consolidation will permit the operation and devel- of natural resources than does the United States. That
opment of smaller lines by the bigger systems with bene- Europeans persist in keeping their continent a crazy quilt
fit to all concerned. Senator James E. Watson, of In- of rival, warring nationalities, with development stunted
diana, will succeed the late Senator Cummins as chair- and the peace disturbed by multiplied customs and other
man of the Senate Interstate and Foreign Commerce barriers, is not the responsibility of the United States.
Committee, and will have such legislation in hand.
A recent report of the Department of Commerce,
Farm relief is sure to be one of the dominant subjects quoted in the last issue of the National Republic, furof discussion in Congress this winter. The McNary- nishes the explanation of American growth in national
Haugen bill, or a similar measure, is sure to be back on wealth. With six per cent of the world's population the
the map. The President may have some suggestions in United States produces approximately fifty per cent of
his annual message. While there is talk of tariff revi- the world's utilized national resources. We have built

sionSenator Capper having stated that the farmers half the railroad mileage of the world; operate threewill demand an increase in rates on some agricultural fourths of the world's telephone equipment; make and
products it does not seem probable that this Pandora's use nine-tenths of the world's automobiles; our developed
box will be opened, although it is realized that in justice horse power is equivalent to the labor of three billion
to American producers there should be upward revision slaves in mechanical energy. In five years the generation
in a number of schedules.
The disputes which have attended the operation of the
government merchant marine will come before Congress.

President Coolidge believes that the Shipping Board
should be answerable to the executive, and assigned to
the jurisdiction of some department. Congress may be
asked to increase the authority of the governor general

of the Philippines, to the end that there may be no

further attempts by legislative politicos to hamstring

the administration of the islands.
There being no campaign in prospect in 1927, it is prob-

able that the short session will be characterized by

more business and less political oratory than was poured

of electrical power has increased fifty per cent. We have
600 industrial research laboratories. Average wages in
the United States are three times as high as they are in
Berlin or Brussels, four times as high as in Milan, Vienna
or Warsaw, and twice as high as in Amsterdam or London,
measured in the purchasing power of these wages.
In America industry has mixed engineering brains with
labor. Because of increasing efficiency in production the
output of our wage earners increased sixty per cent in
quantity from 1914 to 1923, while their number increased
only twenty-seven per cent. Secretary Hoover estimates

that while during the past twenty-five years industrial
employes have increased in number sixty-five per cent,



The Undersecretary of the Treasury
(Continued from page 7)

"We pay him
$100 a week"
he's worth every cent of it. Came

years ago asking for
44AND severalgot just thata small
a job. He
job at a small salary.
"Then I forgot about himhardly knew
he was on the payroll until one day I

got a letter from the International Correspondence Schools telling me that he had
enrolled for a course of home study. It
was remarkable the way he went ahead.
"We pay him $100 a week now and he's
going to be earning even a larger salary
some day. I wish we had more men like


HOW do you stand when your employer
...checks up his men for promotion? Does
he think of you? Is there any reason why
you should be selected? Ask yourself these
questions fairly. You must face them if
you expect advancement and more money.
One hour after supper each night spent
with the I. C. S. in your own home will
prepare you for the position you want in
the work you like best.
Mail Coupon for Free Booklet

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Without cost, please tell me how I can Qualify for the
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D Accountancy (including C.P.A. )0 Civil Service
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D Railway Mail Clerk
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Private Secretary
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LI Illustrating
0 French
D Architect
DElectncal Engineering
D Electric Lighting
[ Architects' Blueprints
0 Mechanical Engineer
0 Contractor and Builder
Mechanical Draftsman
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0 Machine Shop Practice
D Concrete Builder
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D Structural Engineer
0 Gas Engine Operating
Chemistry 0 Pharmacy
0 Civil Engineer
O Automobile Work
Surveying and Mapping
O Airplane Engines
0 Agriculture and Poultry
D Metallurgy
0 Mining
Steam Engineering 0 Radio 0 Mathematics





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from Yale, he began the practice of tically all the debtor countries. Debtlaw in Chicago and in a few years be- funding agreements have been made
came a member of the firm of Winton, with Belgium, Czechoslovakia, EsthonStrawn & Shaw, one of the greatest ia, Finland, France, Great Britain, Hunfirms in Chicago and well known gary, Italy, Jugoslavia, Latvia, Lithuania, Poland and Roumania, making
throughout the country.
During the war Mr. Winston left his the total amount which has been fundlaw practice and in August, 1917, was ed to date $11,521,850,000.
commissioned major of artillery, 0. R. Mr. Winston made a flying trip to
C. He later saw service overseas and Europe early in the summer and visithas a fine war record for his work in ed London, Paris and Rome, where he
commanding an artillery battalion. met various government leaders, inAfter the war was over, he went back cluding Mussolini. The war has made
to his law practice in Chicago. He re- America the greatest creditor nation
mained there until the summer of 1923, in the world; and the financial interwhen Secretary Mellon asked him to ests of this government and of the
come to Washington as his chief as- country generally are affected by consistant in carrying on the work of the ditions abroad, so that it has become
increasingly necessary for responsible
government officials to keep posted as
undersecretary is second in com- regards the developments taking place
THE and is the directing' head of from day to day in Europe.does Secremand
Mr. Winston believes, as
the department in the absence of the tary Mellon, that the debt settlements
secretary. During Secretary Mellon's which have been made with foreign
absence in Europe this summer, Mr.
Winston is in charge of the entire de- nations willEurope and to the greater
that, as
partment with all its bureaus and stability of become more and Euromore
offices. He is authorized to act for the pean nations
be able
secretary in any branch of the depart- prosperous, more will more of to absorb
our prodment and to represent him in dealings and pay for
and particularly our farm prodwith the Federal Reserve Board, the ucts, of which there is always a surplus
War Finance Corporation and the ucts, country. As regards Europe,
Farm Loan Board. He is charged with in this
the supervision of the finances, of for- the Treasury has pursued a construcprimarily, of course,
eign loans, and advances and loans to tive policy, looking the American taxof
railroads under the transportation act, to the interest forgetting that, in the
1920. He also has direct supervision of payer, but notthe American taxpayer
the fiscal bureaus, offices and divisions, end, not only
American 'producer
naincluding the Commissioner of Ac- but the a whole will benefit and the the
most if
counts and Deposits; Division of Book- tion as pursued promotes also the rekeeping and Warrants; Division of De- policy and prosperity of Europe.
posits; Treasurer of the United States; covery
Comptroller of the Currency; Federal As regards domestic policies, the
Farm Loan Bureau; Section of Statis- Treasury has urged lower and more
tics; Government Actuary; Commis- scientific income and inheritance taxes
sioner of the Public Debt; Division of in the belief that the load must be Eu
Loans and Currency; Register of the light as possible on the individual and
Treasury; Division of Public Debt Ac- also on business and industry. During
counts and Audit; Division of Paper the great fight which has been conCustody; Bureau of Engraving and ducted for three years for tax reform,
Printing; Mint Bureau; Secret Service Mr. Winston has made a number of
speeches; and, like Secretary Mellon,
Division; Disbursing Clerk.
As one writer recently said, in speak- he is particularly pleased with the
ing of the duties which the undersecre- achievement of Congress in bringing
tary is called upon to perform: "The about a reform of the taxes.
undersecretary must have sound judg- It is a great, constructive work which
ment, for he is one of the world's great- the Treasury is doing, with results
est financiers. Not only must he pur- which are already apparent in the
chase government securities for the prosperous condition of the governsinking fund, but with the secretary, ment's finances and of the country.
he must know when and how to float
new issues to carry through the govVACANT LAND AREAS
ernment's vast refunding operations in
such a way as not to disturb the busi- Vacant and unappropriated lands in
ness of the country. So smoothly have continental United States exclusive of
Secretary Mellon and Undersecretary national forests and other reserved
Winston conducted the Treasury's areas totalled 199,146,786 acres, accordgreat financial operations that the ing to a tabulation made public at
country has hardly been aware of how the Interior Department. The taburapidly we have been emerging from lation records that at this time tht
the period of readjustment which in- government has 142,109,401 acres of surevitably follows a great war."
veyed public domain vacant and unappropriated while 57,040,385 acres reSSIBLY the two outstanding main unsurveyed. A recapitulation of
achievements of the present admin- the public land by states shows that
istration of the Treasury have been the Nevada has the largest area with 5.3,reform of the tax system and the fund- 925,693 acres. Utah is second on the
ing of the foreign debts. In helping list with 26,872,218 acres and California

to carry out these policies of Secre- third with 20,667,431 acres. The state
tary Mellon, Mr. Winston has had a having the smallest area of public
very important part. As secretary of land is Florida with 4,458 acres.
CLASSLargest CatalogAND PINS the World War Foreign Debt CommisRINGS Issued Sent FREE
sion, of which Secretary Mellon is
Ring as shown with any one or two letters in chairman, Mr. Winston has taken part
No government, any more than an
center and HS, GS, or SS beside shield, suer
long be respected
more, St.5o each. Sterling silver. Samples in all the difficult and long-drawn-out individual, will
negotiations leading to the settlements without being truly respectable.
loaned class officers. Special orders filled.
GEO.P.WAY, Artif icial Ear DrumCo. (Inc.)

144,3offman Bldg., 2539 Woodward, Detroit, Mich.

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which have been arrived at with prac- Madison.

Save the Oldest Fort In America!
(Continued from page 54)
about 200,000 bricks. Some rough stone
and lime, of which a note will be given
by Major L'Enf ant."

Under the direction of Secretary

and Major L'Enfant, Fort
Washington was rebuilt practically as
it stands today. Major L'Enfant, by
the way, was the engineer who planned the city of Washington.
Early in 1861, when the dark clouds
of civil war began to appear on the
horizon, the first order issued for the
protection of Washington was in reference to old Fort Washington. Isaac
Toucey, Secretary of the Navy, directed Col. John Harris, commandant
of the marine corps, to send a force
of marines to Fort Washington to protect public property. The work was
turned over to Captain A. S. Taylor and
forty marines. It was occupied as a
fort during the entire progress of the
Civil War.
The old fort stood ready to do her
duty during the Spanish-American War
and the World War. She stands there

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today, grim and determined, not of You don't need a private teacher, this
great value as a fort under existing

conditions of warfare, but a constant
reminder of the heroic past.
It would be well-nigh sacrilege to
sell this historic spot to the promoters
of some real estate development or
for any private purpose.
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Gentlemen: I hereby enter my name in your NATIONAL ESSAY



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Teacher's name
Name of school


July 21, 1926.

Dear Ben:

I have your letter of July 8th.

Board on


The letter Mr. Mellon sent to the

for the silver inquiry, copy of which I sent you with

my last letter, was considered by the Board.

There was some discussion,

particularly I believe on James' part, as to the amount, but it was
finally resolved that the matter was one entirely within the discretion
of the Secretary of the Treasury.

I think this is a satisfactory solu-


In my letter to you of a few days ago I commented on Churchill's

As you have, of course, seen in the papers, he has now called

the Secretary a liar, but he himself did not have the facts.
a release showing how the money was actually spent in America.

I enclose
I think

we can safely assume that at least half of it represented exchange where
England got the sterling, food to be resold to British

civilian popula-

tion, commercial maturities, and silver, so I don't fear the accuracy
of Mr.



On the other hand, Churchill claims that the

British furnished three billion in America from their own individual
resources, which is not true. $1,853,000,000 of this three billion was

reimbursed ]gland at the time by the other allies out of money borrowed
from us.

Technically speaking, the only money they actually furnished

in America out of their own individual resources is some $700,000,000.
All this is most distressing.

If Churchill wants to start a fight


he will undoubtedly get one.

Senator Borah called me up last night

with the intention of replying to Churchill, but I asked him to wait
until he saw the figures in the paper which the Treasury had given out.
I have not heard from him again and I think possibly he will drop any

The British may be tired of paying their debt, and editorial comment rather accepts this view, but they are not going about getting a
revision in a very diplomatic manner.

The eastern seaboard may be-

lieve that we have treated our debtors harshly, but exactly to the
contrary is the general view once you cross into the Mississippi Valley.

You may have to consider some of this sentiment yourself.

As I

recall, the credit to the Bank of England runs out the first of next

I do not know thether the British monetary conditions mill re-

quire a renewal of the credit, but if they do it would be most unfortunate to have stirred up a hostile attitude on this side.

Benj. Strong, Esq.,
C/o Bank of England,
London, England.



July 20, 1926.
The Treasury issued today the following statement:

A statement of the British account with the United States in connection
with war loans shows the following reported expenditures in the United States:


Munitions including remounts
Munitions for other governments
Exchange and cotton purchases
Other foods
Other supplies




Food for northern Russia


Total reported expenditures
These expenditures were met as follows:
By reimbursement from the other
allies out of funds loaned to
those allies by the United States
By dollar payments by the United States
Government for British currencies
By proceeds of ruPee credits in gold
from India
By cash from Britain's "own independent
Funded in debt settlement with the United





From England's total reported expenditures in America from April
to November 1, 19209 there should be deducted the


6, 1917,


for Which Great Britain was simply the purchasing agent for the other allies
and for which Great Britain was paid by the other allies from money loaned to


This amount was not provided from England's "omn

than by the United States.
independent resources".

This leaves 45,366,000,000.

Of this amount,

419662,0009000 represents "Exchange and cotton purchases".

The greater part

of this expenditure was for the maintenance of sterling exchange not necessary
for purchases in America, but which enabled England to make purchases in other
countries at an undepreciated exchange rate.

4296439000,000 was for food and

A part of this item is probably included in the account out of vhiCh

England was reimbursed by the other allies and a part was resold by England to
its own civil population.

To the extant of this resale England avoided the

necessity of floating loans in its own country.

450796779000 was for interest

and principal of England's commercial obligations maturing in America.
$26190009000 was for silver.

The total principal advances to England after the Armistice were


July 17, 1926.

Dear Ben:

I had a

talk yesterday

with Mr.

Robertson, of the United States

Smelting Refining & Mining Company, on silver.

He is anxious to have

Europe resume the use of silver in subsidiary coinage.

I told him that

the first step must be monetary stabilization, because no country could
use any metal in coinage of a real bullion value so long as it did not

know ht/far its currency was going to slide, and that his association
would be most helpful in obtaining a sentiment in the


for reestablish-

ment of stability in Europe and for the participation of the Federal Reserve
System and American bankers.

This he is going to try.

I had not before considered this feature, but here is a thought
on which I should like your ideas.


real question

of currency stabili-

zation is psychological, the restoration of confidence of the people in
their currencies.

Now, from time immemorial silver has been a part of the

currency systems of the world; the people are used to silver, and even
though its bullion value is less than its original face valuesnevertheless,
there is a point in possible future inflation below which a silver coin
will not go.

It is cheaper,

it is

for subsidiary coinage, since the

true, to a government to use base metals

seignorage is

practically 100%.

Thera is,

however, a seignorage profit in any subsidiary silver coinage, varying,
with the silver content.
governments of the

The question which must be considered by the


returning to sound money is whether the

psychological value of vatting out silver subsidiary coinage is worth
the additional cost; or, to state it
of the additional seignorage profit.


way, is worth the loss

Our experience in this country

with shinplasters was not satisfactory.

If you agree with me that this question deserves consideration as a part,

although perhaps a minor one -- in the stabilization

program, you will undoubtedly have the opportunity to present the idea
to those who seek your advice.

You know better than anyone that the

silver industry is iaportant to America and anything that helps it
along helps all of us along.

I enclose a copy of a letter of Mr. Mellonts to Governor
Crissinger having reference to silver, which I am mare will interest

Sincerely yours,

Benjamin Strong, Esq.,
cio The Bank of England,
London, England.

1 enclosure.


August 19, 1926.

Dear Ben:
I have your two letters of August 3rd, and am glad to
hear what you have done in connection with the use of silver for
subsidiary coinage in Europe.

I won't discuss this subject with


I have read the report of the Royal Commission on the

Indian Currency, and I

agree with your cablegram that this is the

most that we could have hoped
that I could not find in the
with the surplus silver

for. As I wrote Burgess, the thing

report was what

coins. I assume

was going to be done

they will be sold as bul-

lion, and if so, this will have some direct effect on the price
of silver in addition to whatever

happens through Indian psychology

and sale of silver hoards.
George Harrison

comments on this


himself very well.

from people who know.

I have had

I thought you would be

glad to hear it.

Will you be good enough to keep ms posted on changes in
the financial


in Europe from time to time as they come to

your notice.

Yours sincerely,

Benlamin Strong, Esq.,
c/o Bank of England,
London, England.


August 30, 1926.

Dear Ben:

Mr. Jay has sent me a copy of your letter of August 11th

to him in reference to the Indian silver report.

I think you did

the best that you could, and certainly the best that ought to have
been done considering India's necessities.
the United States

which is involved.

It is India, and not

I have heard no criticism

of the report from the silver people, but its effect here is as yet
so little understood that it has not created, extensive comment in

It would certainly be well to have Professor Sprague

the papers.

analyze the report so that when you return it can be properly presented to the public.

I have a letter from the Secretary, and he seems quite
well and cheerful except that he must have been worried a little
about Ailsa.

This debt cancellation talk, it seems to me, is unfortunate.

I should like to see what Europe would say if there was

some one in this country with authority to make a statement on behalf of the United States about as follaws:
war we loaned you about ten billion dollars.
from our owl people.

"During and after the

We borrowed this money

If we are not repaid we will have to assume the

debt and collect it from our taxpayers.

We have always considered that

this money was a loan to be repaid, but in seeking to adjust the repayment we have entered into refunding agreements which in the opinion

of the American Debt Commission and of the representatives of
the debtor nation duly authorized to negotiate the settlement
have appeared fair and within the capacity of the debtor.


believe, therefore, that these settlements are fair both to you
and to ourselves.

the debts by force.

We will never, of course, attempt to collect
There appears, however, to be a feeling

in your country that the debts are not due or cannot be paid.
We will, therefore, abandon the agreements which your representatives have signed and leave it to you to determine what, if
anything, you believe you should pay on your debt to us".


such a statement could be made, I believe every one of our debtors
would recognize their debt and pay in accordance with their capacity, which would probably be on the basis of the existing debt

If a sentiment for debt cancellation arises in America
sufficiently strong to influence Congress, and we voluntarily
offer to cancel the debts

then I believe that we here could stand

the expense and that the world would be better off.

But this

pressure from Europe to force a cancellation, in its analysis is

simply a repudiation of the debts, and"with repudiation naturally
will follow a disinclination on the part of the American investor to


invest money with the defaulting nations.
I am glad to hear that you are coming back soon, because I want to hear all about your adventures in the financial
Yours sincerely,

Benjamin Strong, Esq.,
c/o Bank of England,
London, England.



25, 1926.

Dear Governor Strong:

am enel.'=ing a copy of the

National Republic for

tains an article abo

tober, 1926, which conUr. Winston.

Be would

never show it to yo and I know you will be ins

terested to read
I .,gine you are glad to be back

in the United S tes again.
Sincerely yours,

Benjamin Strong, Esq.,
Governor, ederal Reserve Bank of New *fork,
New York C ty.



January 27, 1927.

Dear Mr. President:

I hereby tender my resignation as Undersecretary of the
Treasury, and ask that it be accepted to take effect February 1,

For some time past I have wished to return to private


I feel now that the work with which I have been partio-

ularly charged in the Treasury is done, and I have made arrangements to resume the practice of law as a member of a firm
in New York.

It has been over three and a-half years since I came to
the Treasury.

I have found it a period of absorbing interest;

and I shall always count it the highest privilege to have had
this opportunity pf serving with Mr. Mellon and to have had a
part in carrying out the ideas and policies of your Administration.

Faithfully yours,



Undersecretary of the Treasury,
The President,
The White House.


January 31, 1927.

Dear Winston;

Your letter referring to your resignation is
Then you first told me that it would
oe necessary on account of your personal interests
to resign as Undersecretary and to resume practice
of your profession, I more than ever realized how
much your assistance and support and the association with you had meant to me in carrying on my
official work.
I have had all along a sense of satisfaction
and reliance upon your ready response and resourcefulness in disposing of the many problems always
before us.
Your clear analysis and facility of
concise statement have been invaluable.
I shall
most deeply miss your congenial cooperation and the
intimate association I have had with you; this intimate contact will always remain with me a very
You carry with you my very
pleasant memory.
warm reg.:rds and my best wishes for success and
I trust we
happiness in your new occupation.
may have frequent opportunities of meeting in the

Sincerely yours,


Hon. Garrard B. Winston,
Undersecretary of the Treasury.



February 1, 1927.

Dear Ben:

I have closed up here as Undersecretary
and I enclose copies of my letters of resignation
to the President and Mr. Mellon and their acceptance.
Next to the association with Mr. Mellon the
most enjoyable relationship I have had is that
with you and I am not going to let my severance
from the Treasury mean my separation from your companionship when you come back to New York. Perhaps
we might even motor around abroad together again
if we can find someone to lend us a car.

I have been delighted to hear from
Governor Norman how much better you are and I hope
that you will be back in New York in the Spring
when I start to work with Shearman and Sterling.
Yours sincerely,

Benjamin Strong, Esq.,
Biltmore Forest,
Biltmore, North Carolina.

1 enclosure.


January 29, 1927.

My dear Mr. Winston:
Your request to be permitted to resign as Undersecretary of the Treasury, to take effect on February 1st
next, has been received.
It is with real regret that I
accept it.
I realize however that, having served the
National Government for more than three and onehalf years,
you are entitled to relinquish your post.
In the discharge of your duties you have shown very marked ability
and rendered service of the first order.
It is a satisfaction to know that we had in office a man of your character.
The work which you have done in helping to refund
considerable parts of our national debt, settle the obliga_
tions due to us from other countries, take part in two
material reductions of taxation, besides the general work
of the Treasury, has all been discharged in a way as to
merit the highest approval.
I trust that in your new situation you will find
a great deal of satisfaction.
With kindest regards, I am

Very truly yours,


Hon. Garrard B. Winston,
Treasury Building,
Washington, D. C.


January 28, 1927.

Dear Mr. Mellon:

It is with real regret that I am resigning as your

Daring the years I have been with you

there have arisen many trou:olesome questions of policy,

some merely vexatious, solfe most perplexing, and some

dangerous to good government.

Always I have gone down

the corridor to you and found a calm, a wise and a certain

It has been a great training to learn from your

experience and to watch the application of your sound
judgment to the problems faced by the Treasury.

In all

our discussions together you have made me feel quite free.
I shall miss most of all my close association with


the happiest years I have known.

I have, Mr. Mellon,

the highest respect and the deepest affection for you.
is hard indeed to leave you,

Sincerely yours,


Eon. A. W. Mellon,
Secretary of the Treasury.



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