Benjamin Strong Jr. to Russell Cornell Leffingwell
Title
Benjamin Strong Jr. to Russell Cornell Leffingwell
Creator
Strong, Benjamin, 1872-1928
Identifier
WWP18735
Date
1919 August 31
Description
Benjamin Strong Jr. writes Russell C. Leffingwell regarding the international financial situation.
Source
Benjamin Strong Jr. Papers, New York Federal Reserve Bank
Language
English
Text
Secstate,
Washington.
3963, August 31st 1:00 a.m.
For Leffingwell from Strong. T 9 August 30.
After careful consideration and submitting to Polk am sending following paraphrase of memorandum mailed you today.
1. In general both political and economic situation is so vast and complicated that one comprehensive plan of restoration is impossible for an undertaking requiring years of hard work production and economy.
2. Political. There is lack of leadership and plan as people in authority are exhausted apprehensive and relaxed. With the termination of hostilities and common danger cooperation and leadership are superseded by individual and conflicting interests greatly delaying the completion and enforcement of treaties. During the President’s presence a certain control was exercised through our influence which is gradually disappearing now that the German treaty is formulated. One result is the disorder in Silesia, Rumania, Hungary and elsewhere whcich discredit the principles of the treaty. Delay by our Senate in ratification will surely retard return of quiet and result in either a barren league or one incapable of harmonious action with out stabilizing influence absent. This also delays the formation of the committees and commissions which must be promptly organized to deal with both political and economic problems and in the absence of properly functioning organizations the new nations of Eastern Europe are struggling in doubt disorder and anxiety and appealing to us for help. The gradual withdrawal of our mission and relief organizations will remove a needed stabilizing influence both for political progress and in organizing food distribution and improving transport and communication.
3. Labor and Social Conditions. War strain and relaxation combined with underfeeding have left the people neurotic and sensitive. There is danger of too much paternalistic government control of all activities reducing initiative and delaying recovery with reduced inclination to work. The Hopeful exception is the agricultural class which has returned to hard work and production throughout Europe but the extravagance of those enriched by the war combined with unwise government finance currency expansion and like evils has seriously increased the living cost for wage earners and those of fixed income who must be ensured tolerable living conditions this winter.
4. Financial and Monetary Conditions. Excessive short borrowing government loans from central banks and currency issues and with the exception of England insufficient taxes have caused such currency deptreciation and exchange disorder particulatly in eastern Europe that trade is difficult and frequently impossible but no wholesale measures for immediate currency deflation would be safe because of enormous readjustments entailed unless general throughout Continent. Some scheme of gradual treatment of this matter must be devised to avoid even greater trade difficulties.
5. Agriculture. Recovery is continued and satisfactory and another year will see probably all but the most seriously destroyed areas of France restored to cultivation. Western Europe this year will not produce more than seventy five per cent of pre-war crop and needs fertilizers.
6. Industry Vary8ing greatly in the different countries the immediate necessities are labor tranquility, greatly increased production of coal, restoration of industrial plants in France, Belgium and southeastern Europe and large supplies of raw material. These supplies can be distributed over period of time and immediate shipments I believe are much less than some reports indicate.
7. Transportation and Communication. There is ample railroad equipment in western Europe but roadbeds badly need improvement. Canal transportation in northern France slowly improving but not yet restored. Wagon roads generally in good shape. Telephone and telegraph lines and mail service slow, innefficient and bad. A large part of eastern Europe requires equipment and motive power and renewal of river transportation now interrupted by political conditions.
8. Food. This is the serious and pressing problem which can only be solved by credits in the United States. Holland needs fodder for cattle and six to eight months supplies of foodstuffs for which she should have no difficulty in arranging payment. Estimates for Italy vary from three hundred and fifty to six hundred million dollars. For other countries figures vary so greatly as to preclude attempting detailed estimates. Based upon a combination of opinions partly official partly from Hoover’s organization I should estimate that the United States should furnish from one billion to a billion and a half in fats and meat grain sugar and fodder to do no more than alleviate intense strain this winter. The German official statement of requirements indicates a great deficiency in fats but I believe their food figures are exaggerated.
9. Foreign Trade. I cannot see any prospect of early resumption of large exports from Europe and believe following measures are essential to ensure avoiding too great impairment of European buying power.
A. Imports must be restricted by direct embargo or credit control to bare necessities.
B. Political tranquility restored in eastern producing sections to ensure exports of surplus grain.
C. America must allow reasonable freedom for use of our creditxs in buying in cheaper markets than ours.
D. Restrictions upon trade with Germany imposed by treaty must be partly modified or suspended during period of recovery.
E. Inland transportation in eastern and central Europe must be improved.
F. Plans should be made now for gradually progressive reduction of inflated currencies.
10. Foreign Exchange. The recent sharp decline in exchange has had a depressing effect upon people and government credit but is developing a realization of necessity to work and produce. As United States is now dearest buying market the importance of long credits together with relief from immediate payments of existing debts and restrictions upon unnecessary imports is greater than ever.
11. Debt to America. My previous recommendations on this subject are renewed. The moral effect of some early announcement of arrangements for deferring interest payments would be most helpful.
12. Reparation by Germany. The theory of the treaty if ruthlessly applied will so retard German recovery as to hamper recovery throughout Europe. It is essential that the Reparations Commission should be promptly appointed develop its organization and formulate the reparation procedure along some line which will ensure prompt restoration of destroyed industries and defer unnecessary exactions during the early period of restoration.
13. Neutrals. The uneasiness of neutral countries concerning Germany’s debts which are now subordinated to reparation requirements of the treaty could be removed by an understanding with neutrals which would encourage them to throw their economic weight into the work of restoration and furnishing food.
14. Favorable Factors. During the summer improved food conditions have brought considerable improvement in the general situation principally the following:
A. Restoration of agricultural activity and the stability of the agricultural population who will present a strong resistance to the spread of Bolshevism and who have the advantage of adjustment of price of their production to advanced cost of living.
B. There are numerous evidences of waning of the Bolshevist movement.
C. It is increasingly obvious that the efforts of labor do not ultimately result in organized violence.
D. There is growing appreciation of the necessity for financial and monetary reform.
E. There is growing conviction that recovery depends upon increased production and thrift.
F. Unemployment and unemployment wages are gradually decreasing having been reduced one half in Belgium and being further reduced in France this month.
15. I believe our position is now as follows: Once we were forced into the war we brought it to a conclusion upon the basis that governments would be established upon principles of self determination along natural and historic lines as formulated by our president. In consequence new nations have been created and new governments formed for old supported by material evidence of our attitude such as a generous treatment of debt and early extension of needed credit will have and immediate quieting effect and vastly aid recovery. It would be hazardous to predict developments next winter if food is not supplies. The margin of safety between present conditions and revolt and disorder is narrow enough and will be further reduced with cold weather. While my present opinion is that there will not be the complete collapse and disorder which is predicted for this winter Europe nevertheless faces a period of intense suffering the hardships and duration of which depend upon the degree to which the United States extends or refuses aid.
16. If feasible the following program would probably meet the situation.
A. Limit the use of any available government credit for necessary food supplies to centers of population of middle Europe if required by emergency or by failure of other plans.
B. Enlarge powers of Grain Corporation to sell on reasonably long credit and if possible include other food products particularly meat and fats.
C. War Finance Corporation principally to furnish credit for raw material needed for essential industries.
D. Banking and investment credits directed particularly to furnishing industrial capital.If through these sources one and a half to two billion dollars could be furnished in the next six or eight months it would give us all needed influence to insist upon settlement of many pending disputes and I believe the peril of the winter situation would be largely removed.
17. Would greatly appreciate cable to London giving as full information as possible regarding situation at home.
Strong.
3963.
Washington.
3963, August 31st 1:00 a.m.
For Leffingwell from Strong. T 9 August 30.
After careful consideration and submitting to Polk am sending following paraphrase of memorandum mailed you today.
1. In general both political and economic situation is so vast and complicated that one comprehensive plan of restoration is impossible for an undertaking requiring years of hard work production and economy.
2. Political. There is lack of leadership and plan as people in authority are exhausted apprehensive and relaxed. With the termination of hostilities and common danger cooperation and leadership are superseded by individual and conflicting interests greatly delaying the completion and enforcement of treaties. During the President’s presence a certain control was exercised through our influence which is gradually disappearing now that the German treaty is formulated. One result is the disorder in Silesia, Rumania, Hungary and elsewhere whcich discredit the principles of the treaty. Delay by our Senate in ratification will surely retard return of quiet and result in either a barren league or one incapable of harmonious action with out stabilizing influence absent. This also delays the formation of the committees and commissions which must be promptly organized to deal with both political and economic problems and in the absence of properly functioning organizations the new nations of Eastern Europe are struggling in doubt disorder and anxiety and appealing to us for help. The gradual withdrawal of our mission and relief organizations will remove a needed stabilizing influence both for political progress and in organizing food distribution and improving transport and communication.
3. Labor and Social Conditions. War strain and relaxation combined with underfeeding have left the people neurotic and sensitive. There is danger of too much paternalistic government control of all activities reducing initiative and delaying recovery with reduced inclination to work. The Hopeful exception is the agricultural class which has returned to hard work and production throughout Europe but the extravagance of those enriched by the war combined with unwise government finance currency expansion and like evils has seriously increased the living cost for wage earners and those of fixed income who must be ensured tolerable living conditions this winter.
4. Financial and Monetary Conditions. Excessive short borrowing government loans from central banks and currency issues and with the exception of England insufficient taxes have caused such currency deptreciation and exchange disorder particulatly in eastern Europe that trade is difficult and frequently impossible but no wholesale measures for immediate currency deflation would be safe because of enormous readjustments entailed unless general throughout Continent. Some scheme of gradual treatment of this matter must be devised to avoid even greater trade difficulties.
5. Agriculture. Recovery is continued and satisfactory and another year will see probably all but the most seriously destroyed areas of France restored to cultivation. Western Europe this year will not produce more than seventy five per cent of pre-war crop and needs fertilizers.
6. Industry Vary8ing greatly in the different countries the immediate necessities are labor tranquility, greatly increased production of coal, restoration of industrial plants in France, Belgium and southeastern Europe and large supplies of raw material. These supplies can be distributed over period of time and immediate shipments I believe are much less than some reports indicate.
7. Transportation and Communication. There is ample railroad equipment in western Europe but roadbeds badly need improvement. Canal transportation in northern France slowly improving but not yet restored. Wagon roads generally in good shape. Telephone and telegraph lines and mail service slow, innefficient and bad. A large part of eastern Europe requires equipment and motive power and renewal of river transportation now interrupted by political conditions.
8. Food. This is the serious and pressing problem which can only be solved by credits in the United States. Holland needs fodder for cattle and six to eight months supplies of foodstuffs for which she should have no difficulty in arranging payment. Estimates for Italy vary from three hundred and fifty to six hundred million dollars. For other countries figures vary so greatly as to preclude attempting detailed estimates. Based upon a combination of opinions partly official partly from Hoover’s organization I should estimate that the United States should furnish from one billion to a billion and a half in fats and meat grain sugar and fodder to do no more than alleviate intense strain this winter. The German official statement of requirements indicates a great deficiency in fats but I believe their food figures are exaggerated.
9. Foreign Trade. I cannot see any prospect of early resumption of large exports from Europe and believe following measures are essential to ensure avoiding too great impairment of European buying power.
A. Imports must be restricted by direct embargo or credit control to bare necessities.
B. Political tranquility restored in eastern producing sections to ensure exports of surplus grain.
C. America must allow reasonable freedom for use of our creditxs in buying in cheaper markets than ours.
D. Restrictions upon trade with Germany imposed by treaty must be partly modified or suspended during period of recovery.
E. Inland transportation in eastern and central Europe must be improved.
F. Plans should be made now for gradually progressive reduction of inflated currencies.
10. Foreign Exchange. The recent sharp decline in exchange has had a depressing effect upon people and government credit but is developing a realization of necessity to work and produce. As United States is now dearest buying market the importance of long credits together with relief from immediate payments of existing debts and restrictions upon unnecessary imports is greater than ever.
11. Debt to America. My previous recommendations on this subject are renewed. The moral effect of some early announcement of arrangements for deferring interest payments would be most helpful.
12. Reparation by Germany. The theory of the treaty if ruthlessly applied will so retard German recovery as to hamper recovery throughout Europe. It is essential that the Reparations Commission should be promptly appointed develop its organization and formulate the reparation procedure along some line which will ensure prompt restoration of destroyed industries and defer unnecessary exactions during the early period of restoration.
13. Neutrals. The uneasiness of neutral countries concerning Germany’s debts which are now subordinated to reparation requirements of the treaty could be removed by an understanding with neutrals which would encourage them to throw their economic weight into the work of restoration and furnishing food.
14. Favorable Factors. During the summer improved food conditions have brought considerable improvement in the general situation principally the following:
A. Restoration of agricultural activity and the stability of the agricultural population who will present a strong resistance to the spread of Bolshevism and who have the advantage of adjustment of price of their production to advanced cost of living.
B. There are numerous evidences of waning of the Bolshevist movement.
C. It is increasingly obvious that the efforts of labor do not ultimately result in organized violence.
D. There is growing appreciation of the necessity for financial and monetary reform.
E. There is growing conviction that recovery depends upon increased production and thrift.
F. Unemployment and unemployment wages are gradually decreasing having been reduced one half in Belgium and being further reduced in France this month.
15. I believe our position is now as follows: Once we were forced into the war we brought it to a conclusion upon the basis that governments would be established upon principles of self determination along natural and historic lines as formulated by our president. In consequence new nations have been created and new governments formed for old supported by material evidence of our attitude such as a generous treatment of debt and early extension of needed credit will have and immediate quieting effect and vastly aid recovery. It would be hazardous to predict developments next winter if food is not supplies. The margin of safety between present conditions and revolt and disorder is narrow enough and will be further reduced with cold weather. While my present opinion is that there will not be the complete collapse and disorder which is predicted for this winter Europe nevertheless faces a period of intense suffering the hardships and duration of which depend upon the degree to which the United States extends or refuses aid.
16. If feasible the following program would probably meet the situation.
A. Limit the use of any available government credit for necessary food supplies to centers of population of middle Europe if required by emergency or by failure of other plans.
B. Enlarge powers of Grain Corporation to sell on reasonably long credit and if possible include other food products particularly meat and fats.
C. War Finance Corporation principally to furnish credit for raw material needed for essential industries.
D. Banking and investment credits directed particularly to furnishing industrial capital.If through these sources one and a half to two billion dollars could be furnished in the next six or eight months it would give us all needed influence to insist upon settlement of many pending disputes and I believe the peril of the winter situation would be largely removed.
17. Would greatly appreciate cable to London giving as full information as possible regarding situation at home.
Strong.
3963.
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 31, WWP18735, Benjamin Strong Jr. Papers, Woodrow Wilson Presidential Library & Museum, Staunton, Virginia.