Benjamin Strong Jr. to Russell Cornell Leffingwell
Title
Benjamin Strong Jr. to Russell Cornell Leffingwell
Creator
Strong, Benjamin, 1872-1928
Identifier
WWP18742
Date
1919 October 8
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
PERSONAL:
My dear Russell
Our discussions in regard to expansion, prices, interest rates, etc., did not, and probably could not, result in anything in the nature of a conclusion, and the situation has so many complexities that I doubt if anyone is justified in assuming to have a settled conviction at all.
On the other hand, I cannot escape a feeling that there is a tremendous responsibility in this matter now resting upon some one; whether it be the Secretary of the TreasuryCarter Glass, or you, or the Federal Reserve Board, or this bank remains to be seen. This is one of those cases where the adoption of no policy may have just as important and far reaching consequences as an affirmative decision may have.
On two points I am afraid we are not in agreement:[One is as to the function of the Federal Reserve System. Your views seem to be that the Federal Reserve System was designed for the purpose of providing cthe means by which credit and currency would expand as trade demands increase and that when trade demands diminish the volume of credit and currency would automatically contract, without eemploying rate changes to influence either movement. This, I believe, is contrary to accepted doctrine in regard to credit, currency and prices; contrary to the experience of the world in central bank practice; and I would be most regretful to feel that we differed materially on such a fundamental matter as this.
The second point relates directly to the first and is more a matter of judgment than of theory. You believe, as I understand it, that an increased production of goods, possibly coincident with a reduction in our export trade, can be relied upon to bring down prices and that this will bring down the volume of credit without any stimulation by rate change. That I do not believe will prove to be the case, at any rate permanently.]
I am not going to write a long letter with arguments on these points, but I am going to take the liberty of sending you a personal word or two which I know you will understand: Don't take all, or too much of, the responsibility upon your own shoulders in determining what the policy of the Treasury Department is to be in the matter of rates, nor, if you please, permit yourself to relieve the Federal Reserve Board and the Federal Reserve Banks of their necessary share of this responsibility!I am writing this with two objects in view: -- the first to suggest, if it can be arranged without inconvenience, that we have a little discussion of this matter, if possible with Secretary GlassCarter Glass and Governor Harding, prior to the conference of governors to be held on November 12th; second, that you share this responsibility with others just as fully as possible by making it a part of the program for discussion on November 12th, in which you will yourself participate.
I can marshal many arguments in support of these recommendations, which, probably, are not necessary, but which are naturally inspired by my personal desire that so long as you are in the Treasury, no stone be left unturned by either of us to make the record a perfect one.
B.S.
My dear Russell
Our discussions in regard to expansion, prices, interest rates, etc., did not, and probably could not, result in anything in the nature of a conclusion, and the situation has so many complexities that I doubt if anyone is justified in assuming to have a settled conviction at all.
On the other hand, I cannot escape a feeling that there is a tremendous responsibility in this matter now resting upon some one; whether it be the Secretary of the TreasuryCarter Glass, or you, or the Federal Reserve Board, or this bank remains to be seen. This is one of those cases where the adoption of no policy may have just as important and far reaching consequences as an affirmative decision may have.
On two points I am afraid we are not in agreement:[One is as to the function of the Federal Reserve System. Your views seem to be that the Federal Reserve System was designed for the purpose of providing cthe means by which credit and currency would expand as trade demands increase and that when trade demands diminish the volume of credit and currency would automatically contract, without eemploying rate changes to influence either movement. This, I believe, is contrary to accepted doctrine in regard to credit, currency and prices; contrary to the experience of the world in central bank practice; and I would be most regretful to feel that we differed materially on such a fundamental matter as this.
The second point relates directly to the first and is more a matter of judgment than of theory. You believe, as I understand it, that an increased production of goods, possibly coincident with a reduction in our export trade, can be relied upon to bring down prices and that this will bring down the volume of credit without any stimulation by rate change. That I do not believe will prove to be the case, at any rate permanently.]
I am not going to write a long letter with arguments on these points, but I am going to take the liberty of sending you a personal word or two which I know you will understand: Don't take all, or too much of, the responsibility upon your own shoulders in determining what the policy of the Treasury Department is to be in the matter of rates, nor, if you please, permit yourself to relieve the Federal Reserve Board and the Federal Reserve Banks of their necessary share of this responsibility!I am writing this with two objects in view: -- the first to suggest, if it can be arranged without inconvenience, that we have a little discussion of this matter, if possible with Secretary GlassCarter Glass and Governor Harding, prior to the conference of governors to be held on November 12th; second, that you share this responsibility with others just as fully as possible by making it a part of the program for discussion on November 12th, in which you will yourself participate.
I can marshal many arguments in support of these recommendations, which, probably, are not necessary, but which are naturally inspired by my personal desire that so long as you are in the Treasury, no stone be left unturned by either of us to make the record a perfect one.
B.S.
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 October 8, WWP18742, Benjamin Strong Jr. Papers, Woodrow Wilson Presidential Library & Museum, Staunton, Virginia.