EXHIBIT No. 3168 PARIS, 4th August 1919. NATIONAL BANK OF BELGIUM, Brussels, Belgium. (For Strong from Ginn.) Following received from Leffingwell. "Treasury 1170. Your T-1 received Treasury is ready to discuss funding demand loans whenever the British Govern ment desires to take the matter up. This the British Government knows. It has had neither ambassador nor high commissioner here for months. There is nothing that the American Treasury can do about the matter. If British bankers are worried why don't they request their Government to act? I do not understand that British Government shares any fear that there will be difficulties on account of interest payments in the autumn." DULLES, Am. Mission. 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. really need an office force here. I 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. În 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. Cellier 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 once. 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 bees in our market, as I understand, considerably above exact gold parity, and ay as the price of silver advances the price of rupees advances and the value of good in relation to the price of rupees is reduced. Therefore our gold shipents buy fewer rupees, and I cannot see how that situation can be changed the Indian Government is willing to sell rupees to our importers at a rate the cost of making rupees by buying silver. In other words, so long as we continue to buy goods in India those goods besome correspondingly more expensive to us, and if made too expensive India's tort trade to the United States would decrease. Naturally our market is protected against shipments of gold by English imported, .te desiring to buy rupees in our market, because of the premium on ars at present rates for sterling. if the Indian Government, on the other hand, marks down the price which new are willing to pay for gold in India to a point which we would regard as asonable, then the arrangement concerning which I cabled should be disCost laed. I stinguish 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 1e, the Spanish Government or the Bank of Spain simply reducing the price at wch 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 t' *ghtest degree, but I do think that in some of these matters we must recogThe the tremendous difficulties and pressure which now rest on the British Govement and do our best to strengthen them by every reasonable means in our Ie s.tuation 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 zate for aid in handling our business. Now, regarding my cable about discussions with the British and French Govrments on the subject of their debt, we at home, busy as we have been, neverLess do not understand the tremendous preoccupation of all the English Government people with domestic affairs, and I do not know that we are free criticism ourselves in the matter of representation abroad, when today we a without a Minister in either Holland or Belgium, most of the principal parties lave,eft the mission organization in Paris, and Hoover's relief organization which Las cote the lion's share of the work in saving a collapse throughout Europe is Sa piling out. 1st between ourselves I never felt so sorry for anyone in my life as I did for Fra Polk yesterday when I took a short automobile ride with him and found ate worn out and realized, although he was not complaining, that he is overDesert, largely because he is underorganized. After I had written and cabled you Stettinius returned to Paris from London disked him whom he had seen over there and what he had learned. He told The Lad talked with the Chancellor, among others, and that not only the Francellor but bankers with whom he talked, all of them referred to the menace the American debt. They feel, as I wrote you, that it is a sort of sword of Dam eles hanging over their heads, and you have made a very wise and con** ♬ ve move in taking steps which will at any rate put us straight in that thing that has impressed me here very much, as well as in England, Lot so much in Belgium, is that they have no plan, no definite centralized erstop for dealing with economic matters. If I were the boss of the whole and thank Heaven I am not-I would devote my energy toward persuading thead Governments to declare a moratorium on all political, boundary, tentorial, and military discussions and require the whole organization to get te at once on economic and financial problems. They are all engaged in needjess and most difficult discussions of these boundary matters, trying to keep these yana, bellicose people in eastern Europe quiet, when the government organizatots should be devoting every energy toward the restoration of production, in gortation, and finance. I cannot believe that it is our fault, but they nevertheless all look upon us as the rch 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. 2923, August 22d, 7 p. m. From Leffingwell for Strong, care Morgan, Harjes and Company. Your 04. We do understand importance of refunding demand loans and have urged it upon British and French representatives. I cannot make progress without the presence here of some one authorized upon their behalf to discuss it. 2923. LANSING. EXHIBIT No. 3171 COMMISSIONER PLENIPOTENTIARY OF THE DEAR BEN: Just a line to thank you for your note. I am sorry you are going bme, but in view of the attitude of the British I think it would be very much ter if we all went home. Why the British should feel that they have the to say, without consulting anyone, when the conference should begin and is beyond me. The Lord knows I want to go home, but I am not prepared to go when it suits the convenience of the British Prime Minister [Lloyd George]. Leking forward to seeing you soon and wishing you a safe trip, Yours faithfully BENJAMIN STRONG, Esquire, Ritz Hotel, London. Penaled notations enclosed in brackets. (Signed) FRANK L. POLK. EXHIBIT No. 3172 TREASURY DEPARTMENT, MY DEAR MR. STRONG: Arrangements have been made under which the Fetish Government through Messrs. J. P. Morgan & Co. will on Wednesday, the art instant, make to the Federal Reserve Bank of New York on account of the ement of certain matters which have been pending between the British Try and this Department, a payment in the amount of $16,695,063.91 by teck drawn to the order of "Federal Reserve Bank of New York for credit eral account of the Treasurer of the United States." To make this payment Betish Government will use a like sum which it will receive from the Italian Sment. In order to enable the Italian Government to make such payment the British Government, the Treasury has arranged to make to the Italian vernment against its duly executed obligation in a corresponding amount an advance of $16,695,063.91. When Italian obligations in this amount have been ved and the warrant has been signed and endorsed on the morning of the Stant, the usual instructions will be given you by telephone and telegram tarze said amount in the Treasurer's general account and pay the same to Messrs. J. P. Morgan & Co. for the credit of the Government of the United Angdom of Great Britain and Ireland by order of the Royal Italian GovernIn accordance with my conversation with Mr. Scott over the telephone 13 understood that the transfer from the Treasurer of the United States to Mr. J. P. Morgan & Co. in the manner above-stated is not to be made except temporaneously with payment to the Federal Reserve Bank of New York for t of the general account of the Treasurer of the United States by Messrs. JP Morgan & Co. on account of the British Government of said sum of $55,063.91. As soon as this payment has been made to you by Messrs. J. P. Yaz & Co. for the British Government, will you be good enough to telephone be that the payment has been made and the amount, and to confirm such telebe advice by letter and telegram? The amount so paid is to be credited by Federal Reserve Bank of New York in the Treasurer's general account. arate certificates of deposit on form no. 1 should be issued in the name of the Ved Kingdom of Great Britain and Ireland through Messrs. J. P. Morgan & Co. as follows: 1. For $15,265,504.26 of said sum, on account of repayment of principal of obligation of the Government of the French Republic, 5th series, dated November 15, 1918, for $40,000,000 face amount held by the United States. 2. For $1,429,559.65 of said sum on account of interest on $15,265,504.26 of the principal amount of obligation of the Government of the French Republic, 5th series, dated November 15, 1918, for $40,000,000 face amount bead by the United States from May 15, 1919, to March 30, 1921. The above mentioned certificates should be forwarded to the Treasurer of the United States in due course. Yours very truly, BEN: MIN STRONG, Esq., (Signed) N. KELLEY. New York, N. Y. Governor, Federal Reserve Bank of New York, 83576-37-pt. 30———7 DEAR RUSSELL: I have just finished reading your address before the Academy of Political and Social Science, and it is hardly necessary for me to advise you how much I am in agreement with almost everything you said. The so-called World War debt refunding bill I fear contains possibilities of no end of trouble, simply because it has done much to create an expectation that uncollected debts will be collected. I have never favored an outright declaration of forgiveness of the debts, nor, in fact, of a policy of forgiveness without consideration in return. But the duties imposed upon this commission are so impossible of accomplishment as to make its efforts futile and render ultimate failure, I fear, a cause of criticism and embarrassment. DEAR MR. GILBERT: The resignation of the British Cabinet is no more than I expected, and as I telephoned you a few days ago, it was forecast in a cable which I received intimating the probability of a further delay in negotiations for the funding of the British debt. This delay will afford opportunity for the making of certain investigations which we discussed (if this work has not already been done), and I am taking the liberty of outlining something of what is in my mind in a letter to you rather than to Mr. Wadsworth because we have had opportunity to discuss it at length and I have not been able to do so with him. While what I am writing is directed especially to the British situation, it applies in greater or less degree to the situation of all the debtor governments, and I refer only to the British debt because that happens to be the one which is next to be dealt with. One of the most serious difficulties encountered by the French Government in dealing with the adjustment of reparation payments by Germany arises in my opinion from the fact that the people of France have never been fully informed upon the subject of reparations, that the sentiment exists in France that Germany can pay and must be made to pay, and that no government can remain in office which proposes a compromise or adjustment of reparations which does not in a general way conform to a well crystallized public opinion on that subject. In view of this political situation, the Government of France has been forced to resort to the threat of occupation of the Ruhr and other sections of Germany in the event of a default, a course which would be disastrous to the French because of the costs involved and because an army cannot collect reparations. My best opinion is that this situation has arisen almost entirely from timidity by the French Government which has led to an unwillingness to disclose the true facts and that it would have been wiser at the outset for the Government of France to squarely face the question of reparations upon the theory that Germany can be made to pay only within her capacity to pay and no more. These remarks are intended to draw attention to the rather parallel situation in this country. Our people have been led to believe (as the result of statements which are based upon inadequate data-and some of them inspired by political motives) that in general most of the debts owing to this country by the debtor governments are collectible. They cannot state the grounds for this belief, but are simply repeating what they have heard in a general way from various sources. It is certainly time that a careful painstaking investigation of the debt situation upon a basis of capacity to pay should now be conducted, and laid before the country at the proper time and in the proper way. In order to establish |