Benjamin Strong Jr. to William G. McAdoo
Title
Benjamin Strong Jr. to William G. McAdoo
Creator
Strong, Benjamin, 1872-1928
Identifier
WWP18504
Date
1915 September 2
Description
Benjamin Strong Jr. writes to William G. McAdoo regarding foreign trade.
Source
Benjamin Strong Jr. Papers, New York Federal Reserve Bank
Language
English
Text
My dear Mr. Secretary:
Various inquiries have been addressed to me as to the attitude of the Administration in respect to credits which may be asked from our banks and bankers, by belligerent governments and their citizens.
You have doubtless noticed the reports in the Press that a Committee of English and French officials and bankers is about to visit this country for the purpose of discussing with American bankers what measures can be taken to correct the present disarrangement of the foreign exchanges, such disarrangment resulting, as you are aware, from the unprecedented increase in the amount of this country’s export trade balance. The necessity for undertaking some comprehensive plan which will accomplish this, becomes apparent by an examination of the statistics of our foreign trade for the period commencing January first of this year as compared with similar figures for the same period last year, which are enclosed.
The difficulty of in arranging payment for our mounting balance of exports is evidenced by the current prices of exchange on various foreign markets which are now as follows: (Quotation of September first).
Sterling: 4.51 | representing | a | premium | of | 7.32% | for | dollars,
|
Marks: 80.75 | representing | a | premium | of | | 15.25%| | for | dollars, |
|
Francs: 6.01 | representing | a | premium | of | | 15.96%| | for | dollars, |
|
Rouble s: 34.25 | representing | a | premium | of | | 33.41%| | for | dollars, |
|
Guilders: 39.87 | representing | a | premium | of | | 6.25| | for | dollars, |
|
Kronen: 15 | representing | a | premium | of | | 25.97| | for | dollars, |
|
Lire 6.55 | representing | a | premium | of | | 26.38| | for | dollars | |
This exhibits a complete reversal of the conditions which prevailed less than a year ago when the British Government at your invitation sent Sir George Paish and Mr. Basil B. Blackett to this country to discuss methods of correcting the disararangement in exchanges which then existed.
Various suggestions have been made for overcoming the difficulties of the present situation, (which will react seriously upon our export trade unless they are promptly corrected), and while some of these various steps can no doubt be taken, and to some extent are being taken from time to time by our bankers, none of them will be effective in the writer’s opinion, without the early consclusion in addition of a comprehensive plan by which a large credit, or credits, can be successfully placed in this country in the near future.
The writer recognizes that our government can have no part in transactions involving the manufacture, sale or export of articles which are contraband of watr. The various communications of our government, (notably the President’s proclamation dated August 4th, 19114, the circular of the State Department dated October 15, 1914, Secretary Bryan’s letter of April 21st, 1915 addressed to the German Ambassador, and Secretary Lansing’s letter of August 12th, 19145, addressed to the Government of Austria - Hungary), have, however, made clear that the sale by our citizens of articles which are contraband of war is lawful trade and will not be interfered with by the Federal Government. The present danger to our commerce lies in the fact that the addition of this vast trade to our usual normal export trade, is making it increasingly difficult for the foreign customers of citizens of this country to make payment for our exports without paying prohibitive premiums. The belligerent nations will continue to buy those articles required for war purposes: munitions, food stuffs, motors, horses, etc. If payment cannot be made for all that we are exporting, however, the reduction in our export trade wioll not be in munitions, but in those articles which are not necessary for war purposes. The loss will fall on those who have nothing to do with trade in contraband and upon classes probably, least able to stand it. The loss will, in fact, fall on the normal export trade of the country. The question, therefore, arises as to whether loans negotiated by belligerent nations in this country, to enable these payments to be made, would be a violation of neutrality or would be contrary to any wish expressed by the President or other officers of the government.
The enclosed memorandum contains a summary of statements of policy which have so far been made by officers of our government bearing on this matter since the outbreak of the war. During this period, loans estimated to be in excess of $300,000,000 have from time to time been negotiated in this country by various foreign governments. Practically all of these loans were publicly announced throughout the country and those to France, Germany and Canada were advertised for public subscription. Those made to belligerent governments, which also includes Russia, are all reported to have been for commercial purposes and to enable those governments or their citizens to make payment for commodities being purchased in this coutryntry, the whole proceeds of these loans, therefore, being used to further American trade. The amounts, however, have been far from adequate and, as stated above, the approaching visit of a Committee from England and France to deal with this matter makes it highly important that the bankers of this country should have a clear understanding of the law which would apply to business of this character and of the policy announced by the Executive officers of this country.
You will appreciate that the expressions so far published are rather indefinite and hadrdly furnish a guide to our bankers in conducting negotiations with the Committee. The matter is of such vital importance to the commerce of the country that I am taking the liberty of addressing this letter to you for the purpose of ascertaining whether, in the opinion of the Administration, there is now any reason either of law or policy, which makes it inadvisable for our bankers to undertake the negotiation of loans to any belligerent nation or nations.
Very truly yours,
Various inquiries have been addressed to me as to the attitude of the Administration in respect to credits which may be asked from our banks and bankers, by belligerent governments and their citizens.
You have doubtless noticed the reports in the Press that a Committee of English and French officials and bankers is about to visit this country for the purpose of discussing with American bankers what measures can be taken to correct the present disarrangement of the foreign exchanges, such disarrangment resulting, as you are aware, from the unprecedented increase in the amount of this country’s export trade balance. The necessity for undertaking some comprehensive plan which will accomplish this, becomes apparent by an examination of the statistics of our foreign trade for the period commencing January first of this year as compared with similar figures for the same period last year, which are enclosed.
The difficulty of in arranging payment for our mounting balance of exports is evidenced by the current prices of exchange on various foreign markets which are now as follows: (Quotation of September first).
This exhibits a complete reversal of the conditions which prevailed less than a year ago when the British Government at your invitation sent Sir George Paish and Mr. Basil B. Blackett to this country to discuss methods of correcting the disararangement in exchanges which then existed.
Various suggestions have been made for overcoming the difficulties of the present situation, (which will react seriously upon our export trade unless they are promptly corrected), and while some of these various steps can no doubt be taken, and to some extent are being taken from time to time by our bankers, none of them will be effective in the writer’s opinion, without the early consclusion in addition of a comprehensive plan by which a large credit, or credits, can be successfully placed in this country in the near future.
The writer recognizes that our government can have no part in transactions involving the manufacture, sale or export of articles which are contraband of watr. The various communications of our government, (notably the President’s proclamation dated August 4th, 19114, the circular of the State Department dated October 15, 1914, Secretary Bryan’s letter of April 21st, 1915 addressed to the German Ambassador, and Secretary Lansing’s letter of August 12th, 19145, addressed to the Government of Austria - Hungary), have, however, made clear that the sale by our citizens of articles which are contraband of war is lawful trade and will not be interfered with by the Federal Government. The present danger to our commerce lies in the fact that the addition of this vast trade to our usual normal export trade, is making it increasingly difficult for the foreign customers of citizens of this country to make payment for our exports without paying prohibitive premiums. The belligerent nations will continue to buy those articles required for war purposes: munitions, food stuffs, motors, horses, etc. If payment cannot be made for all that we are exporting, however, the reduction in our export trade wioll not be in munitions, but in those articles which are not necessary for war purposes. The loss will fall on those who have nothing to do with trade in contraband and upon classes probably, least able to stand it. The loss will, in fact, fall on the normal export trade of the country. The question, therefore, arises as to whether loans negotiated by belligerent nations in this country, to enable these payments to be made, would be a violation of neutrality or would be contrary to any wish expressed by the President or other officers of the government.
The enclosed memorandum contains a summary of statements of policy which have so far been made by officers of our government bearing on this matter since the outbreak of the war. During this period, loans estimated to be in excess of $300,000,000 have from time to time been negotiated in this country by various foreign governments. Practically all of these loans were publicly announced throughout the country and those to France, Germany and Canada were advertised for public subscription. Those made to belligerent governments, which also includes Russia, are all reported to have been for commercial purposes and to enable those governments or their citizens to make payment for commodities being purchased in this coutryntry, the whole proceeds of these loans, therefore, being used to further American trade. The amounts, however, have been far from adequate and, as stated above, the approaching visit of a Committee from England and France to deal with this matter makes it highly important that the bankers of this country should have a clear understanding of the law which would apply to business of this character and of the policy announced by the Executive officers of this country.
You will appreciate that the expressions so far published are rather indefinite and hadrdly furnish a guide to our bankers in conducting negotiations with the Committee. The matter is of such vital importance to the commerce of the country that I am taking the liberty of addressing this letter to you for the purpose of ascertaining whether, in the opinion of the Administration, there is now any reason either of law or policy, which makes it inadvisable for our bankers to undertake the negotiation of loans to any belligerent nation or nations.
Very truly yours,
Original Format
Letter
To
McAdoo, W. G. (William Gibbs), 1863-1941
Files
Collection
Citation
Strong, Benjamin, 1872-1928, “Benjamin Strong Jr. to William G. McAdoo,” 1915 September 2, WWP18504, Benjamin Strong Jr. Papers, Woodrow Wilson Presidential Library & Museum, Staunton, Virginia.