and are far ahead of France in that respect. Those with whom I have talked sem to feel that the Italian situation is probably the most critical of any in Western Europe.

Est mats are being prepared of what Europe needs. I saw some figures the *ther day indicating that Italy figures an immediate need of about $650,000,000. I was to a considerable extent for coal, where the situation in Italy is undoubte: most critical; even their public service corporations running from hand to T ith with but a few days' reserves, and this of course is made worse by the Eh coal strike and practically no exports for the moment from England. Ie French estimate varies greatly, but is something over $700,000,000 and some Sz.ns are a billion dollars. These I believe are both from official sources and I ** *k can be completely disregarded. Mr. Hoover says that $3,000,000,000 will take care of the European situation and I think his figure can be disregarded. The farts that no one can possibly state a figure, which, in the case of food, for sace, can be altered by probably hundreds of millions according to the extent to wich political unrest and incapacity to trade develops between eastern and western Europe and the extent to which the neutral countries like Holland will er slits for the sale of food products, etc. I have rather come to the conn that the immediate pressing necessities of Europe, somewhat in the order Lami, consist of fats, that is packinghouse products, grains, cotton, copper, #za", and coal. The last named everyone seems to agree cannot be furnished fsi America without the withdrawal of shipping to such an extent as to menace the transport of necessary food supplies, and further that we haven't the loading at our ports to ship coal in anything like the quantity required. There a. Lowever, no doubt that as to the first five named, some steps should be taken very promptly to get things moving and open credits that are long enough to

subsequent embarrassments when payday arrives. I am not yet prepared that I have any particular program in mind, although I am beginning to get Le ideas that I will either bring home with me, or, if I am delayed, will send tentatively and with the usual reservation of the right to change my opinion, but there is no doubt whatever that immediate aid is needed, that the credits must be fary long and that the amount required is very large. If political conditions in eastern Europe quiet down, the amount will be reduced; if they do not, they will be much larger, but these five articles should be on their way over here before

I cannot help feeling that a part of the problem can be dealt with on a business has and a part of it must be dealt with on an eleemosynary basis. I am also ervireed that we will do better in the long run by settling all disputed questions and all open accounts between Great Britain and ourselves and then tackle the je in partnership. The reasons for this I will explain when I return.

Just as an indication of what is going through my mind I would like to ask you te ersider a few points: 1st, will the United States Government adopt an arative constructive policy toward the restoration of Europe and its pro4.tive capacity and will its policy justify our assuming some political respon

ties as to the new countries in eastern Europe as well as economic responsites for the whole or Europe, or only the latter; 2d, will our Government give any direct aid out of its own treasury or will it give only affirmative support to of its made by our citizens to restore trade with Europe and extend credits, or it not even do the latter (if our Government does neither I feat some parts dF „rope will starve as has been prophesied); 3d, will our Government authorize a generous adjustment of our present loans so that immediate payments are not red for interest and a very light burden of amortization adopted; 4th, will ear Government consent to a readjustment of debt so that we may accept in payment of at least some part of the debt of England and France some of the bent which the other Allies now owe to them; 5th, will the United States consent to have the finance ministers or at least equally responsible representatives of the 1 principal nations come to Washington and negotiate the adjustment of the erating debt and arrange a policy for the future, or at any rate give it a clear prt re on the ground of their needs; 6th, would our Government join hands with the British in a reconstruction policy?

Wat I am driving at in asking you to consider these points is to impress upon , what has become quite clear to me, and that is, that out Government must take an affirmative or a negative position on some of these questions very shortly. Without any desire whatever to embarrass, I want to illustrate my doubts about to ►own, Government's attitude in some of these matters. I was told by a respone man in our Army here that, subject to ratification by the French Chamber, I believe, they had ccn. luded a trade for the sale of all the Army plant in Frence

to the French Government for about $400,000,000. The terms of the trade, so far as I heard them, impressed me as admirable, although I have no knowledge of what the property cost or is worth. It adds $400,000,000, however, to what France owes us, and I presume they will give a fairly long time obligation if the transaction is concluded.

Now I learn (this is most confidential) that Mr. Hare has come to Europe representing the War Department, with a commission to sell something like two and a half billion dollars of material owned by the Department which has never been sent to France. Some of this stuff is probably food and maybe other things which are urgently needed, but if any such sale were made over here just now I should think it would be little short of a calamity. These people cannot afford to buy more than their bare necessities for the present until they develop production. With this I am enclosing a memorandum on that subject which Mr. Hoover handed me which has had some vogue in private circulation among Government officers, and which, frankly, impressed me most favorably. This leads to a little discussion of Mr. Hoover, whom I have seen twice for quite long discussions. Last night I was at his house at dinner when we had a nice quiet talk. I hope I shall not do him an injustice. He has undoubtedly done a magnificent piece of work over here and I know of no one who could have accomplished what he has. His relief organizations comprises about 900 people scattered all over Europe and he has plunged at the job with an energy that is magnificent. On the other hand I can see for myself, and he frankly admits to me, that he has taken some very long chances if one considers the money involved, but I believe it is literally a fact that he more than anyone else saved this part of the world from a breakdown immediately after the armistice. Now the trouble with Mr. Hoover is that he develops a state of mind, particularly under resistance, which might be dangerous to the development of sound plans. His head is filled with a mass of figures and statistics, the reliability of which I am inclined to doubt. He personally states, and I nave no doubt thoroughly believes when letting off steam so to speak, that unless the United States steps in with some magnificent scheme of immediate aid, political and social disaster will break out all over Europe, bolshevism will spread, and that a complete collapse of credit, banking machinery, and transportation, with consequent curtailment of production will ensue. He also seems to think that if we do not market our own surplus production in Europe to meet this situation promptly, we will have a breakdown in prices at home that will be equally disastrous to us. On the other hand, when I came to question him in detail as I did last night, I do not think he was able to substantiate his beliefs. I could give you a list of statements which he made which were most encouraging as to various parts of Europe. Furthermore, in five minutes he took out his pencil and showed me that the total required of the five articles I have named amounted to $3,350,000,000, and that I positively cannot believe and do not think it can be substantiated by our own experience of his estimates and of what Germany needed in the way of foodstuffs. One cannot help but admire his energy and courage and his ability to get things done under pressure. It has been simply amazing over here and he is entitled to a vast amount of credit, but when it comes to cold blooded, deliberate judgment of what Europe needs, I think he expresses in over strong terms an impression which he gathers from a great mass of misleading statistical material gathered from sources which in many cases are quite unreliable. And yet with it all he is the man that has done the trick and I have a much greater respect for his ability than I had before learning of what he had done and before meeting him intimately.

In conclusion let me say that aside from any material or other advantage that we may gain from stepping in or getting out of this situation, I think we at home must recognize that if we withdraw politically and take no risks financially in connection with the restoration of Europe, we are going to be thoroughly despised abroad and will do ourselves needless harm. So my hope is that some method may be found by which those things which we can do will be done at once and the things which might be most difficult to do under our present political conditions will at least be attempted in part and possibly accomplished in part. I only wish you were here yourself.

Since the first part of this letter was written we have traveled over the devastated regions of France, visited Brussels and Amsterdam, and returned to Paris, a trip of absorbing interest and developing a further knowledge of this situation that cannot be obtained in any other way.

First, let me say as to Mr. Hare's work that Mr. Kent has written you fully, and I believe cabled you as well, and I sincerely trust that it will be arranged that

thew sales of army material will be confined to those things which are essential and adequate time be given for payment, and that as much as possible a market te found where payment is easier than it is at present in either France or Belgium. I want to give you a brief further review of the situation as Mr. Kent and I wet, which may in some respects modify what I have already written. The crops throughout all of France (except the immediate devastated region), is quum, and Holland are magnificent. The wheat, and to some extent, the oats,

5 course of harvesting, but a very large amount of this work is being done by me women, both in France and Belgium. You would be impressed as I was at ww.g the women working in the fields as long as daylight lasted, up to 9 o'clock Certainly the women of France deserve every praise that can be given te% for their magnificent response to the need of this terrible situation. Mr Hoover was under the impression that Holland had a large surplus supply eattle This I find is not the case. In the early part of the war they did, but cattle are a part of the crop rotation in Holland. When the war broke out they nuet, increased their herds and introduced a good many hogs. Later imported fotser could not be obtained, the herds had to be reduced and the hogs practiaval slaughtered, so that Holland is practically without hogs now and the is only slightly above normal. During a part of the war fodder was so deent that animals were producing only 25 percent of the normal supply of milk. They have now been restored to condition and the herds look in magnificent Asp but they will still need to import fodder and they have not a large amount of esttle for export and practically no hogs.

Begim in normal times has only produced about one-third of the food requireTents of the nation, France slightly more than that proportion, and Holland somewhat more. Outside of Holland the food production has been impaired by the war and all three countries will need to import foodstuffs: France and Belgium, fat; Holland, grain and fodder. The amount of grain required for France and hegam cannot possibly be determined now with any accuracy, but in general * age amount will be needed.

the depressing sight in all three countries is the large number of men still in *m. The French are discharging their men as are the Belgians, as rapidly 1- claim as possible, but I doubt if they are doing it anywhere rapidly enough. bery town we visited in the devastated area was filled with soldiers, some of them working on reparation, and in one city I noticed French soldiers, German tr«ners, African troops, Chinese, Japanese, and British. In general, it is my ‚":"wion that there are altogether too many men in uniform at the present e and that while in uniform they are not inclined to hard work as they would t of restored to civilian duty.

My picture of the situation, which can only be briefly summed up here, is ut as follows: Draw a belt through the war area wide enough to cover the Seld occupied by the Germans throughout the war. Through the center ft belt draw a line representing actual battle areas, including such places as Verin, Chateau Thierry, St. Mihiel, Rheims, the whole territory of the Somme, the Chemin des Dames district, and so on north through Lens and into Flanders. Where resistance was strong and battles were fought the devastation is complete. Ane leaves this center line he finds the cultivation encroaching in some cases nant into the ground which has been torn apart by shells and trenches but already restored. The evidence of restoration of the soil is the most encouraging thing but there are nevertheless vast belts where the ground is so torn up that take another year or two to get it back in cultivation and the effort to over such land filled with shell craters six and eight feet deep is too great • the peasant owner and must be undertaken by organized labor and enging; but the most depressing spectacle in this area of destruction is the constir of cities, towns, and industries. Most of the small towns are flat and the large cities destroyed or so damaged as to be useless for a long time as centers 4 poplation. I think we must have driven by automobile through 500 miles of the ground over which fighting occurred, and in northern France I saw smoke ong out of only two chimneys and two other plants in operation. They were cement plants and two brickyards. A few plants were being repaired, but mary of them are utterly beyond repair. We saw evidence in many places * there had been no fighting, of a destructive character, but where, neverthes, plants were completely destroyed by bombs or fire or the contents had been removed. Sugar mills, foundries, etc., were quite useless. In Lens, the fester of a valuable coal area, I believe not one pound of coal is being produced. Mary of these cities and towns of from a few thousand to 108,000 inhabitants, in the case of Rheims, have a small scattered population of hardy natives who

have returned to repair their homes-in the case of Rheims about 8,000-the balance being the soldiers clearing up the rubbish.

So you may consider that throughout this area of France the losses have been tremendous. The agricultural recovery will be fairly prompt, but the industrial recovery and the recovery of civil losses very slow indeed. In Belgium the period of occupation permitted a great deal of repair work to be done, and I was delighted to see what had been accomplished. The Belgians we saw assured as that the industrial recovery was now making good progress. I should say the agricultural recovery is well nigh complete. To complete the picture I should say that while the industrial and civil losses in the devastated are are shocking and almost irrecoverable, outside of that in both France and Belgium there is great evidence of prosperity. The farmers have made a great deal of money; many war profits have been realized, and the real problem is the actual area of devastation and the restoration of their industries.

What Europe needs is production of goods of all kinds and as much as possible for export. To bring this about credits must in some way be arranged to feed the people for this winter, to give them raw materials for their plants, and to get their plants in operation again.

One of the greatest difficulties that has been reported to us many times is the exchange. At present rates it is possible for the French and Belgians to buy machinery and other requirements in Germany very much cheaper than in America, and they are most insistent that the provision limiting the application of the proceeds of loans to purchases in America is most burdensome and impossible to comply with.

Simply to illustrate this, the Belgian Prime Minister, Monsieur Delacroix, told me that of the $50,000,000 credit arranged for Belgium $14,000,000 only had been drawn and I think only three or four million actually used, that the credit is a great expense to them and without benefit because it is not long enough and cannot be expended outside of America. They want a loan of $100,000,000 at once, and they have handed me the enclosed memorandum of what they would like. They say their requirements are covered into September, but thereafter the Government alone must buy $5,000,000 a month in the United States and they should be in position to buy foodstuffs in Argentine and machinery in Germany and England.

I spoke above of the possibility of suggesting some program. I should think that this must be very sketchy and a policy rather than a program, but my present thought is something like this:

1. Capitalize the interest on loans made by our Government to the Allies for a period of three to five years, preferably five.

2. Graduate the amortization so that the earlier amortization payments are small and increase with the later payments.

3. Work out some plan to furnish England with cotton on long credits, say three years, and certainly two. I believe no other credit will be needed there. 4. Ensure that Belgium gets a credit right away of $100,000,000. with the provision that some part of it may be spent outside of the United States.

5. Require the French to state their minimum requirements. They are all figuring now on maximum requirements. At first, it seems to me, somewhere from $250,000,000 to $500,000,000 applied carefully to things absolutely required would give an assurance that would make subsequent business much easier.

6. Arrange some cooperation with Holland, I should say preferably between their bankers and ours, for credits for fodder and for some credits to buy grain either in the United States or in the Argentine. These need not be very long credits, as Holland's colonial exports should enable her to pay promptly. 7. I can say nothing of Italy, not having visited there.

8. With some reluctance and only because I know it is in your mind I suggest still another important matter. I think we should arrange with England and France to accept in settlement of some part of their debt the obligations now owing to them by other governments. I know the difficulty of working out any such plan, but it will go a very long way toward restoring peace of mind, confidence in the future, and the willingness of get back to work. It will indicate a sympathetic attitude by our country which will be of inestimable value, as just now the thing we are dealing with is only in part material. As we have frequently said, the whole situation here is neurasthenic; they are worn out with anxiety and work; they are worried about labor; the production of coal is so short as to be a menace, and in a word a large part of Europe needs more than anything else to be sent to a hospital for a rest cure.

9. One most important item of the program is to ensure that such credits as are extended shall not be wasted on luxuries. That matter we cannot control by restricting our exports, and it should be insisted that these governments effect

the sun troi by an embargo on imports. I say this with great emphasis, because In that in both France and Belgium there is extravagance beyond anything best fire known, by those classes which have profited by the war. In two Lnges in Brussels the man who drove us was told that they could buy at once 435 Cadillac cars, for which they had customers. One of them had just purased a second-hand Cadillac worth 23,000 francs. In other words, this is ather case where the rich have grown richer out of the war, and that very fact, g their extravagances, results in the poor being poorer, and the poor to * I refer are the industrial classes rather than the agricultural. Those are the people to look after and to look out for. If, directly or indirectly, those who tave mis le fortunes out of the war are permitted to buy at will, those who have at money in the war cannot get back to work.

14. In connection with this whole program I think our Government must as»e a definite and constructive attitude in regard to the situation in the new *tries of central eastern Europe. Not having been there I cannot speak event by hearsay, principally of people in London and Paris, but I am sure con

will not be restored for a long time unless some sort of fraternal intervenis elected rather promptly, and it is undoubtedly a fact that they are willing at i rea iv to trust us and probably no one else.

11. Now, as a practical means of dealing with these matters, I have already geted in a previous letter a conference of finance ministers at Washington to nore the center of financial gravity where it belongs, and where a program can eveloped to cover the whole situation and not a piecemeal treatment of it. I Davison makes progress with his plan I hope it will be in general in conformity with the above suggestions. I am satisfied that the amount of money which can test promptly is limited, as we have frequently discussed, but I am equally at that the amount to be furnished for foodstuffs must be furnished promptly A further practical suggestion that I have had much in mind and disred with Dr. Vissering is to have a meeting of the heads of the state banks wy privately, unofficially, and informally. Cokayne, of the Bank of England, a" : Vissering, of the Nederlandsche Bank, are both men of great ability, and an eva: ge of Views at such a meeting without any expectation of making a program *d be of great value. Possibly I can arrange it before returning.

In eneluding this part of my letter let me repeat that no one can understand the station without coming over here. It is not as desperate as has been repre***-1, but it is serious and prompt action, particularly in the matter of food, is > w needed- particularly promptness-and for that result I believe our Governm.st take a pretty affirmative position. Once the wheels are started I am *** neovery will be more prompt than anybody has been willing to forecast. Anther consideration with me is the general attitude over here towards Ater. a. We are not popular and unless we do something now we are going to e regarded as selfish, even inhuman, in abandoning Europe to her fate after the

14 Won.

Nw, a to my trip to the East. People here have urged me very strongly to ↑ with General Harbord to Constantinople and Tiflis and possibly a little further. The men in the State Department can tell you all about the objects of the trip: I ave been led to do it, first to meet their emergency, which was very urgent for ther revsded a practical banker with them, and, second, to give me some oppor* to complete the picture of the situation. This commission will have an zpied opportunity to get information, and I believe it means that to miss therance would be to throw away an important benefit from my visit. We v. Gearn a good deal there about central eastern Europe. It will detain me until Ang toward the first of October, or, if a cable from the bank makes it seem poble, I shall stay a little longer. You must not feel concerned about my leav

1

I am proposing to write you again from the steamer, supplementing this er and filling in the gaps after I have read it over and studied it. For your sirmation please ask Governor Harding to let you see a copy of my letter to M: Treman about the handling of the gold matter, which I believe is in every tod shape. I cabled about the possibility of a renewal of the September ma5. as Mr. Hare might be able, within the period of another renewal, to make *the sales in Spain which would obviate the necessity of buying pesetas, which jat now seems unfortunate.

Hoping that this letter will be helpful and that I may be able to give you still fater help on my return, with best regards,

Sincerely yours,

Hon RUSSELL C. LEFFINGWELL,

Assistant Secretary of the Treasury, Washington, D. C.