Benjamin Strong Jr. to Russell Cornell Leffingwell
Title
Benjamin Strong Jr. to Russell Cornell Leffingwell
Creator
Strong, Benjamin, 1872-1928
Identifier
WWP18727
Date
1919 August 21
Description
Benjamin Strong Jr. writes to Russell C. Leffingwell about the financial conditions in post-war Europe and the condition of European markets
Source
Benjamin Strong Jr. Papers, New York Federal Reserve Bank
Language
English
Text
Hotel Ritz, Paris
PERSONAL
My dear Russell:
I wish it were possible for me to write you fully, but I have been driven to death with letters, cables, calls and trying to arrange this gold matter, so that part of the time I have been obliged to work late evenings. I really need an office force here.
My last long letter was a very sketchy affair containing impressions, and I am constantly gaining new ones, involving no change in my general views but some change in detail.
For one thing, notwithstanding the admirable appearance of the crops in northern France, I understand the wheat condition is not up to previous years, at any rate in some parts of the country, because of early drought and later rain, and that they do not expect a full crop by any means. In other words they must import wheat as well as meats.
In fact, the present need for this winter really seems to be food supplies, including sugar, and, with that satisfied, if it can be, there is undoubtedly a very great need in France for assistance in restoring industries which have been so terribly destroyed by the Germans. Mr. Oellier told me today that they did not leave one whole sugar plant in the country.
I also omitted to refer in my former letter to another matter which is much in my mind. We have never repaid France the amount of money which she loaned us when we gained our independence, and I wonder whether this is not the time to recognize or, at any rate, credit France with a sort of moral debt that we owe her. I do not know anything of the history of that debt; what it amounts to; how it was dealt with by treaty, or what that amount of money would value at today, etc., etc., but at any rate it would make an excuse for a gift of some sort in the case of France, which would not apply to others, and the sentimental effect I believe would be tremendous. No one has ever mentioned this to me nor have I ever mentioned it to anyone until this letter,
I probably gave you a shock by my cable announcing my trip to Constantinople. The arrangement for moving the gold from Belgium and Holland to London is all complete and Mr. Kent was to close up the details regarding insurance in London, and there seemed no reason why I should not go, prolonging my trip possibly two or three weeks on that account, when your cable came about the peseta payment which led me to abandon the idea and cable you at one. Kent now advises that the Bank of England representatives have gone to both Brussels and Amsterdam to start the gold shipments on Wednesday. I have informed him fully about the peseta situation and between us we will do the best we can to handle matters, even if I am obliged to bulldoze Pallain into accepting gold in Brussels temporarily in place of gold he must ship, but they do not like it because it shows more gold held abroad and the Bank of France statement just now is scrutinized very critically.
This water will have gone over the dam by cable before my letter reaches you, so I shall not go into detail except to enclose confirmations of my cables already sent.
The rupee matter I am satisfied cannot be argued out either by cable or letter, but the picture presented to me is quite different from what I gather you and Strauss see as indicated in your cables.
Ever since the Pitman Act was passed the Indian government has been selling rupees in our market, as I understand, considerably above exact gold parity, and naturally as the price of silver advances the price of rupees advances and the value of gold in relation to the price of rupees is reduced. Therefore our gold shipments buy fewer rupees, and I cannot see how that situation can be changed unless the Indian government is willing to sell rupees to our importers at a rate below the cost of making rupees by buying silver.
In other words, so long as we continue to buy goods in India those goods become correspondingly more expensive to us, and if made too expensive India's export trade to the United States would decrease.
Naturally our market is protected against shipments of gold by English importers of jute desiring to buy rupees in our market, because of the premium on dollars at present rates for sterling.
If the Indian government, on the other hand, marks down the price which they are willing to pay for gold in India to a point which we would regard as unreasonable, then the arrangement concerning which I cabled should be discontinued.
I distinguish between the situation in India and the situation in Spain by the fact that in India the depreciation on gold and the premium on rupees is brought about by the rise in silver, whereas the situation in Spain is a purely arbitrary one, the Spanish government or the Bank of Spain simply reducing the price at which they will buy gold, for the sake of profit or possibly to curtail their exports.
I would regret very much if I embarrassed your discussions with Blackett in the slightest degree, but I do think that in some of these matters we must recognize the tremendous difficulties and pressure which now rest on the British government and do our best to strengthen them by every reasonable means in our power.
The situation over here is a most difficult one, and possibly I am influenced by the exceedingly generous response which is made to every request which I have made for aid in handling our business.
Now, regarding my cable about discussions with the British and French governments on the subject of their debt, we at home, busy as we have been, nevertheless do not understand the tremendous preoccupation of all the English government people with domestic affairs, and I do not know that free from criticism ourselves in the matter of representation abroad, where today we are without a minister in either Holland or Belgium, most of the principal parties have left the Mission organization in Paris, and Hoover’s relief organization which has done the lion’s share of the work in saving a collapse throughout Europe is now pulling out.
Just between ourselves I never felt so sorry for anyone in my life as I did for Frank Polk yesterday when I took a short automobile ride with him and found him quite worn out and realized, although he was not complaining, that he is overburdened, largely because he is underorganized.
After I had written and cabled you Stettinius returned to Paris from London and I asked him whom he had seen over there and what he had learned. He told me he had talked with the Chancellor, among others, and that not only the Chancellor but bankers with whom he talked, all of them referred to the menace of the American debt. They feel, as I wrote you, that it is a sort of sword of Damocles hanging over their heads, and you have made a very wise and constructive move in taking steps which will at any rate put us straight in that matter.
One thing that has impressed me here very much, as well as in England, but not so much in Belgium, is that they have no plan, no definite centralized leadership for dealingm with economic matters. If I were the boss of the whole job--and thank Heaven I am not--I would devote my energy toward persuading the Allied governments to declare a moratorium on all political, boundary, territorial and military discussions and require the whole organization to get busy at once on economic and financial problems. They are all engaged in needless and most difficult discussion of these boundary matters, trying to keep these jealous, bellicose people in Eastern Europe quiet, when the government organizations should be devoting every energy toward the restoration of production, transportation and finance.
I cannot believe that it is our fault, but they nevertheless all look upon us as the rich partner and seem to expect us to take a hand in all of their difficulties and do the major part of the financing as well.The contrary view of the boundary question is of course that in the absence of a League of Nations organization which is really functioning, if the Peace Mission organization does not deal with matters, each nation whose interests are involved will and must of necessity look after its own interests solely.
A great deal of emphasis has been laid upon the necessity for free credits in America, when I have had discussions with various people, and I suppose it would be wise to grant a certain amount of free credits, provided the amount is reasonably limited so as to protect us from an undue drainage of our gold to the smaller neutral countries where facilities for getting credit based upon additional gold reserves do not exist, like the South American countries, Scandinavia, etc., etc.
At present rates of exchange our markets are more expensive to buy in than other markets, and of course you realize, as I do, that this is really a reversal of the arbitrage position which gave us so much concern during the war.
But in general a reasonable amount of free credit would be most helpful and would enable some of these countries to buy in Germany, which they badly need to do, and of course that would help the German recovery by so much.
We must not also overlook the fact that we really have not established a free gold market unless we are willing as well to have a free credit market.
I was told the other day the terms of the Paine, Weber & Co. loan in Belgium, which did not materialize. It struck me as being extortionate.
I wrote Governor Harding a letter about the Belgian currency situation which I hope you will read, but notwithstanding that curiously stupid blunder of which the Belgians were guilty, I cannot help but feel that Belgium is well ahead of France in getting on her feet again, and in some respects is considerably better off than England. In fact, my personal belief is that a Belgian loan is probably good, barring of course the complete breakdown in Europe which some people still prophesy.
Let me say in general that conditions here are really improving slightly and slowly according to my best judgment, but the danger is that this may be temporary and cannot be maintained after this crop and Hoover’s meat supplies are exhausted and after the winter conditions of life, particularly being without coal for heating, become annoying and possibly distressing.
My most important recommendation to you is to come over here. I would give anything if you were here now. In fact, when Frank Polk and I were discussing matters yesterday he said he had been on the point a number of times of cabling you urging you to come, and I was obliged to confess to him that I had had a cable in my mind of that sort for some time.
Enough for now. If I ever get cleaned up with mail and telegrams I will write you a carefully prepared review and something more definite in the way of a suggestion than was done in my last letter.
With best regards to all in the building
,Hon. R. C. Leffingwell,Assistant Secretary of the Treasury,Washington, D. C.
PERSONAL
My dear Russell:
I wish it were possible for me to write you fully, but I have been driven to death with letters, cables, calls and trying to arrange this gold matter, so that part of the time I have been obliged to work late evenings. I really need an office force here.
My last long letter was a very sketchy affair containing impressions, and I am constantly gaining new ones, involving no change in my general views but some change in detail.
For one thing, notwithstanding the admirable appearance of the crops in northern France, I understand the wheat condition is not up to previous years, at any rate in some parts of the country, because of early drought and later rain, and that they do not expect a full crop by any means. In other words they must import wheat as well as meats.
In fact, the present need for this winter really seems to be food supplies, including sugar, and, with that satisfied, if it can be, there is undoubtedly a very great need in France for assistance in restoring industries which have been so terribly destroyed by the Germans. Mr. Oellier told me today that they did not leave one whole sugar plant in the country.
I also omitted to refer in my former letter to another matter which is much in my mind. We have never repaid France the amount of money which she loaned us when we gained our independence, and I wonder whether this is not the time to recognize or, at any rate, credit France with a sort of moral debt that we owe her. I do not know anything of the history of that debt; what it amounts to; how it was dealt with by treaty, or what that amount of money would value at today, etc., etc., but at any rate it would make an excuse for a gift of some sort in the case of France, which would not apply to others, and the sentimental effect I believe would be tremendous. No one has ever mentioned this to me nor have I ever mentioned it to anyone until this letter,
I probably gave you a shock by my cable announcing my trip to Constantinople. The arrangement for moving the gold from Belgium and Holland to London is all complete and Mr. Kent was to close up the details regarding insurance in London, and there seemed no reason why I should not go, prolonging my trip possibly two or three weeks on that account, when your cable came about the peseta payment which led me to abandon the idea and cable you at one. Kent now advises that the Bank of England representatives have gone to both Brussels and Amsterdam to start the gold shipments on Wednesday. I have informed him fully about the peseta situation and between us we will do the best we can to handle matters, even if I am obliged to bulldoze Pallain into accepting gold in Brussels temporarily in place of gold he must ship, but they do not like it because it shows more gold held abroad and the Bank of France statement just now is scrutinized very critically.
This water will have gone over the dam by cable before my letter reaches you, so I shall not go into detail except to enclose confirmations of my cables already sent.
The rupee matter I am satisfied cannot be argued out either by cable or letter, but the picture presented to me is quite different from what I gather you and Strauss see as indicated in your cables.
Ever since the Pitman Act was passed the Indian government has been selling rupees in our market, as I understand, considerably above exact gold parity, and naturally as the price of silver advances the price of rupees advances and the value of gold in relation to the price of rupees is reduced. Therefore our gold shipments buy fewer rupees, and I cannot see how that situation can be changed unless the Indian government is willing to sell rupees to our importers at a rate below the cost of making rupees by buying silver.
In other words, so long as we continue to buy goods in India those goods become correspondingly more expensive to us, and if made too expensive India's export trade to the United States would decrease.
Naturally our market is protected against shipments of gold by English importers of jute desiring to buy rupees in our market, because of the premium on dollars at present rates for sterling.
If the Indian government, on the other hand, marks down the price which they are willing to pay for gold in India to a point which we would regard as unreasonable, then the arrangement concerning which I cabled should be discontinued.
I distinguish between the situation in India and the situation in Spain by the fact that in India the depreciation on gold and the premium on rupees is brought about by the rise in silver, whereas the situation in Spain is a purely arbitrary one, the Spanish government or the Bank of Spain simply reducing the price at which they will buy gold, for the sake of profit or possibly to curtail their exports.
I would regret very much if I embarrassed your discussions with Blackett in the slightest degree, but I do think that in some of these matters we must recognize the tremendous difficulties and pressure which now rest on the British government and do our best to strengthen them by every reasonable means in our power.
The situation over here is a most difficult one, and possibly I am influenced by the exceedingly generous response which is made to every request which I have made for aid in handling our business.
Now, regarding my cable about discussions with the British and French governments on the subject of their debt, we at home, busy as we have been, nevertheless do not understand the tremendous preoccupation of all the English government people with domestic affairs, and I do not know that free from criticism ourselves in the matter of representation abroad, where today we are without a minister in either Holland or Belgium, most of the principal parties have left the Mission organization in Paris, and Hoover’s relief organization which has done the lion’s share of the work in saving a collapse throughout Europe is now pulling out.
Just between ourselves I never felt so sorry for anyone in my life as I did for Frank Polk yesterday when I took a short automobile ride with him and found him quite worn out and realized, although he was not complaining, that he is overburdened, largely because he is underorganized.
After I had written and cabled you Stettinius returned to Paris from London and I asked him whom he had seen over there and what he had learned. He told me he had talked with the Chancellor, among others, and that not only the Chancellor but bankers with whom he talked, all of them referred to the menace of the American debt. They feel, as I wrote you, that it is a sort of sword of Damocles hanging over their heads, and you have made a very wise and constructive move in taking steps which will at any rate put us straight in that matter.
One thing that has impressed me here very much, as well as in England, but not so much in Belgium, is that they have no plan, no definite centralized leadership for dealingm with economic matters. If I were the boss of the whole job--and thank Heaven I am not--I would devote my energy toward persuading the Allied governments to declare a moratorium on all political, boundary, territorial and military discussions and require the whole organization to get busy at once on economic and financial problems. They are all engaged in needless and most difficult discussion of these boundary matters, trying to keep these jealous, bellicose people in Eastern Europe quiet, when the government organizations should be devoting every energy toward the restoration of production, transportation and finance.
I cannot believe that it is our fault, but they nevertheless all look upon us as the rich partner and seem to expect us to take a hand in all of their difficulties and do the major part of the financing as well.The contrary view of the boundary question is of course that in the absence of a League of Nations organization which is really functioning, if the Peace Mission organization does not deal with matters, each nation whose interests are involved will and must of necessity look after its own interests solely.
A great deal of emphasis has been laid upon the necessity for free credits in America, when I have had discussions with various people, and I suppose it would be wise to grant a certain amount of free credits, provided the amount is reasonably limited so as to protect us from an undue drainage of our gold to the smaller neutral countries where facilities for getting credit based upon additional gold reserves do not exist, like the South American countries, Scandinavia, etc., etc.
At present rates of exchange our markets are more expensive to buy in than other markets, and of course you realize, as I do, that this is really a reversal of the arbitrage position which gave us so much concern during the war.
But in general a reasonable amount of free credit would be most helpful and would enable some of these countries to buy in Germany, which they badly need to do, and of course that would help the German recovery by so much.
We must not also overlook the fact that we really have not established a free gold market unless we are willing as well to have a free credit market.
I was told the other day the terms of the Paine, Weber & Co. loan in Belgium, which did not materialize. It struck me as being extortionate.
I wrote Governor Harding a letter about the Belgian currency situation which I hope you will read, but notwithstanding that curiously stupid blunder of which the Belgians were guilty, I cannot help but feel that Belgium is well ahead of France in getting on her feet again, and in some respects is considerably better off than England. In fact, my personal belief is that a Belgian loan is probably good, barring of course the complete breakdown in Europe which some people still prophesy.
Let me say in general that conditions here are really improving slightly and slowly according to my best judgment, but the danger is that this may be temporary and cannot be maintained after this crop and Hoover’s meat supplies are exhausted and after the winter conditions of life, particularly being without coal for heating, become annoying and possibly distressing.
My most important recommendation to you is to come over here. I would give anything if you were here now. In fact, when Frank Polk and I were discussing matters yesterday he said he had been on the point a number of times of cabling you urging you to come, and I was obliged to confess to him that I had had a cable in my mind of that sort for some time.
Enough for now. If I ever get cleaned up with mail and telegrams I will write you a carefully prepared review and something more definite in the way of a suggestion than was done in my last letter.
With best regards to all in the building
,Hon. R. C. Leffingwell,Assistant Secretary of the Treasury,Washington, D. C.
Original Format
Letter
To
Leffingwell, R. C. (Russell Cornell), 1878-1960
Files
Collection
Citation
Strong, Benjamin, 1872-1928, “Benjamin Strong Jr. to Russell Cornell Leffingwell,” 1919 August 21, WWP18727, Benjamin Strong Jr. Papers, Woodrow Wilson Presidential Library & Museum, Staunton, Virginia.