Treasury - Morgenthau, Henry Jr., 1939

PSF TReasury Dept. HENRY MORGENTHAU, Jr. 1939 Make up two balance sheets, one as of March 4, 1933, the other as of January 1, 1939, showing assets and liabilities; the net amount of debt, deducting money loaned on the basis of being paid back. On the 1939 balance sheet give credit for $2,000,000,000 Soldiers' Bonus which was a debt in 1933, but not included On both sheets show the number employed - the number unemployed. The average annual wage paid to industrial workers in 1932. 11 11 11 = 11 11 " " " 1938. (Not simply the hourly rates for the two years). All other information that would be included in the balance sheet of a business with a statement from the President along the lines of the statement (2) made by the President of a corporation to the stockholders, which should include the number of people who were unemployed and who we must continue to take care of owing to the fact that relatives were not able to support them as they had in the past; the problem of unskilled labor, etc. 3 Show what has been done to stimulate and rebuild Foreign trade; effect of social legislation, not only at the moment but what it will do for the country in the future; CCC Camps should be looked upon as schools for citizenship, at which young men are taught verious trades, as well as preliminary training in the arts and sciences, in order to develop the proper ratio between skilled and unskilled labor, which is now very much out of balance on the side of unskilled labor, and which 18 our most serious unemployment problem. 4) 4 Annual Wage - following industries: 1. Railroads $1,735 2. Petroleum refining 1,688 3. Machine tools 1,656 4. Iron and steel works and rolling mills 1,628 5. Cash registere, adding and calculating machines, and other business machines 1,584 6. Motor vehicles (including bodies and parts) 1,578 7. Agricultural implements 1,572 8. Typewriters and parts 1,211 9. Building construction 1,180 10. Retail trade 915 11. Clothing industries 867 12. Textiles 807 IBM (Endicott - All wage earners) 1,877 IBM (All factories - All wage earners) 1,851 Talk with the President about: 5 I believe we should do everything possible to prevent a European war until England and France are prepared to meet it. In the meantime I think the people in the United States should strive for peace, but I also believe that peace is 80 important to the future of the world that we should be prepared, and willing, to fight for it if necessary. In presenting this thought to Americans we must understand that the United States will stand to lose more in the case of a general war than any other country, because another world war will make it necessary for the United States to participate in a much bigger way than we did in the last in order to maintain our type of civilization. We must educate the people in the interior of our country with the importance of doubling our Navy 80 that we can protect our two long coast lines. Talk with the President about: 7 Quick action preparedness program. The local Chambers of Commerce to survey the industries in their localities and ascertain what each one can manufacture with their present equipment, and as long as manufacturing is now on a forty or forty-four hour a week basis the equipment and buildings are idle the rest of the time. Assign to each manufacturer a certain amount of manufacturing which he will agree to do on a cost plus basis; the cost to be figured the same as the cost in his business, and the profit would be limited to the amount that would cover any extraordinary overhead, over and above the regular overhead. Wherever it is possible to find the necessary talent to do the work, these plants would be put on extra shift;where it is not possible in the community to secure skilled labor, regular employees would be asked to volunteer to work an additional hour each day and possibly Saturday forenoon in the plants that are on a five day week. In order to help the program along the labor unions might (2) b see their way clear to allow those volunteers who work over time to work at the regular rate. When these various parts are made and inspected, they should be sent to the respective plants which are in the business of manufacturing munitions of war, and those companies, who are experienced in the art would do all the assembling and final testing. This would not only speed up the program and save the government an enormous amount of money, but the psychological effect in Europe would be of unestimable value, when it is announced that the entire American machinery and tool equip- ment was going to be utilized outside the regular hours so as not to interfere with the production of peacetime goods, and placed at the disposal of the govern- ment in order to speed up the building of munitions of war. of course, editor- ial comments would call attention to the fact that the United States manufactures 50% of all of the goods manufactured in the world, which would convey to Europe the story with all this equipment at the government's disposal, we can 9 manufacture as much in the way of munitions of war as the rest of the world combined, and in my judgement, plus your personal influence, would start certain people thinking seriously about peace rather than war. Another good effect às I see it, in having a check-up by the local Chambers of Commerce it would make the citizens of every community conscious of the serious side of a European war and might lead to make them more co- operative in helping to carry out the plan of re-arming for peace. From time to time the war supply factories put on an exhibition of how quickly they can assemble and turn out a gun as the result of the facilities of the companies making parts for them, and various other articles. Have the airplane companies combine in an exhibit at the New York and San Francisco Worlds Fairs, and put on an exhibition of how quickly they can assemble an airplane. Invite the press to be present whenever these demonstrations are given and publish to the world the United States can turn out an airplane every 80 many hours. They can assemble the plane and fly it away and have a certain number of the planes brought back, torn down and re-assembled and have the exhibition go on during the entire length of the Fairs. This will not only show foreign countries what we can do in building equipment to protect our country, but they will also understand that these companies are in the business for selling these to other countries. = Talk with the President about: Consideration be given to developing markets in foreign countries. Germany is fast getting control of the trade in the Balkins, Baltics and Scandanavian countries, and I know from personal interviews with Rulers and Leaders in the foreign countries that the majority of them prefer to do business with the United States. I recommend the selection of three experienced business men, as military attaches, working direct from and reporting to Washington, of course, CO- operating with our regular organizations in the various countries. 13 Talk with the President about the exchange of undesirable Germans in this country for desirable Jews and Catholics in Germany. Financial arrangements to be equal. Talk with the President about: 93 Blocking German and Italian money in the United States. 14 Talk with the President about: Invitation to the King of Sweden. 13 Talk with the President about: Turning relief over to the States. Let each State raise its own money within the State, the Federal Government to lend no more money for relief except for self liquidation propositions. The States to furnish work for unskilled debt labor. continue present Jan rates and start reducing Concentrate on training mechanics in CCC Camps, and when business again becomes normal we will be able to supply the demand for the companies which require skilled mechanics. Extend unemployment insurance until it is on a basis that will remove fear from the mind of the working people. 16. Talk with the President about: who verit Rulers and Heads of foreign countries the United States. Conditions in the smaller countries, solving unemployment by putting more people on the land to earn their living. Discuss the Jewish problem. Discuss the possibility of buying land from northern Mexico. Show the President copy of letter written to Europe. PSF: Margerthan freesmal THE WHITE HOUSE WASHINGTON January 27, 1939. MEMORANDUM FOR THE SECRETARY OF THE TREASURY What do you think of giving me two trial balance sheets - one as of March 4, 1933 and the other as of January 1, 1939, showing assets and liabilities; net amount of debt, deducting money loaned on basis of being paid back? On 1939 sheet give credit for $2,000,000,000 soldiers' bonus, which was a debt in 1933, but not included. F. D. R. PSFiMag THE WHITE HOUSE WASHINGTON CONFIDENTIAL January 27, 1939. MEMORANDUM FOR THE SECRETARY OF THE TREASURY At a guess -- or hunch -- the conclusions drawn from this report are overdrawn. The facts may be correct but I doubt whether "one spark would cause an explosion" or that "the regime will not fight a big power". F. D. R. B et THE MHILE HOUSE VII THE SECRETARY OF THE TREASURY WASHINGTON January 26, 1939. My dear Mr. President: I an enclosing herewith a very confidential report from Mr. Tyler of the League of Nations, who has made a second trip in Italy for me. I think you will be interested in its contents. You will undoubtedly remember that Mr. Tyler was very solicitous of our keeping secret that he is doing special work for the United States Treasury. Faithfully yours, The President, The White House. PSF THE SECRETARY OF THE TREASURY WASHINGTON February 6, 1939 MEMORANDUM FOR THE PRESIDENT: Countervailing Duties on German Products By memorandum dated November 28, 1938, I advised you that I had before me a Treasury Decision giving notice of the imposition of countervailing duties on certain imports from Germany under Section 303 of the Tariff Act of 1930. The countervailing duties are required by reason of so- called "barter" transactions through which the importation into the United States of dutiable merchandise from Germany is financed by means of premium prices for certain products, particularly cotton and copper. Investigation of the current operation of the barter trans- actions has satisfied the Treasury that the German Government, by restricting imports, fixing import prices, regulating the method of paying for imports and controlling the disposition of the pro- ceeds of payment, is bestowing a valuable privilege or grant in connection with about half the dutiable merchandise exported from Germany to the United States. On or about November 28, 1938, you referred the matter to the Attorney General for an opinion. About December 10, 1938, I learned that en opinion had been submitted to the Attorney General for signature. I wes also informed that the Attorney General de- sired to hand the opinion to you personally. On January 31, 1939, I learned that the opinion had not been delivered to you but wes being retained in the Department of Justice with a memorandum in the file saying that no action in the matter was required at this time. You will remember that the State Department suggested that the opinion be withheld until Mr. Rublee returned from Germany. fell THE SECRETARY OF THE TREASURY WASHINGTON Bimg FEB 16 1939 Dear Mr. President: In order that you my be advised of the status of the proposed new building for the War Department, I am sending with this note a brief statement of the status of the project to date, with a photograph of the per- spective drawing of the first unit and a plat indicating the relation which the new building will have to the other buildings in that area. Faithfully yours, The President The White House ENCLOSURE 87069 FROM TREASURY DEPARTMENT PROCUREMENT DIVISION PUBLIC BUILDINGS BRANCH FORM 8742 AS- M as 2.7.39 (Diviales and types's (Reciplent please destroy this tag.) 1 ... 2-19451 LOBOIC ЕЙСГОЗ February 7, 1939 COMMENTS RELATIVE TO THE PROPOSED NEW BUILDING FOR THE WAR DEPARTMENT WASHINGTON, D. C. The proposed new building for the War Department, to be located in the area generally referred to as the "Northwest Rectangle", is to occupy the space between 21st and 23rd Streets and C Street and the proposed E Street, South. After a thorough study by the Procurement Division, the exact loca- tion on the property has been approved by the National Capital Park and Planning Commission and the design has been passed upon by the Commission of Fine Arts and highly commended. A plat of this area and a photograph of the perspective of the first unit are attached. The project is divided into two units, the first of which is the easterly portion with its east and west axis passing through the inter- section of the center line of Virginia Avenue with the north and south axis of the building of the Federal Reserve Board. So located, and with its northerly facade on a line with that of the south building of the Interior Department, a plaza is formed, measuring approximately 500 feet from the east to the west, and extending in the north and south direction, with Virginia Avenue as an important traffic lane passing diagonally through this open space. The present authorization is for the first or easterly unit only, which as now proposed will accommodate the offices of the Secretary of War, the General Staff, and Branches of the Service most closely related thereto. The limit of cost under the present authorization is $10,815,000, which includes acquisition of the site for the entire project. The first unit is seven stories high and the effective floor space (offices and storage) is 270,000 square feet; the future construction of the second unit will bring the total effective floor area to 1,098,775 square feet. The study for this project entailed careful consideration of the re- lation to be maintained between the first and the second units which as originally intended were to be connected by only a tunnel; as now worked out, the two units will be directly connected on every floor, thus making the two buildings in effect an integral unit. In designing this project great care was exercised to evolve a plan which would take into consideration the relation of the building to the Lincoln Memorial. By the choice of a scheme having mostly open courts, long unbroken facades are avoided; and by employing the device of a re- entrant angle in the corner toward the Lincoln Memorial the effect of the great bulk of the building is minimized from this point of view. E STREET NORTH E STREET SOUTH B A D E VISIONA C 23 RD STREET C STREET ST STREET - 22 NO 22 ND STREET 20 TH STREET 19 TH STREET A FIRST UNIT WAR DEPT. BUILDING. c PROPOSED FEDERAL RESERVE ANNEX. E DEPT. OF INTERIOR SOUTH BUILDING B SECOND UNIT WAR DEPT. BUILDING. D PROPOSED DEPT. OF INTERIOR ANNEX. PSF THE SECRETARY OF THE TREASURY WASHINGTON Job February 22, 1939. Personal My dear Mr. President: about I beg to acknowledge receipt of your memorandum of February 17th en- closing a copy of a letter from Mr. Frederic Delano. I am enclosing herewith a summary of the meeting that Mr. Delano refers to. I would like to have an opportunity to discuss this with you on your return as I think the subject is too important to be dismissed without further consideration. Yours sincerely, The President (V1a White House pouch) February 14, 1939 To: The Secretary From: Mr. Hanes J.w.H. The following is a summary of the opinions expressed at the meeting yesterday on financing power projects through an agency of the Treasury. These opinions are all stated in full in the transcript accompanying this summary. Name Statement Frederick Delano Expressed the opinion that this Bill "would raise particular hell" in Congress during a period which 1s going to be crucial for the Administration. He suggested revising it to cover only com- pleted projects, but to embrace any self-liquidating asset in order to remove the emphasis on power. Mr. Burlew Agrees with Mr. Delano that an (Interior) attempt to pass such a Bill at this time would be unwise. Mr. Smith Said the Commission has not for- (Power Commission) mally passed on the plan. His attitude during the meeting was one of helpfulness provided the Power Commission was given real authority. Mr. Blandford Said his Board had not considered (TVA) the plan, but that his personal preference was for an attempt to do this financing within the frame- work of existing agencies, notably TVA and Reclamation without concen- trating financing authority in a new agency. - 2 - Captain Marshall Sees no objection to the Bill. (Army Engineers) Mr. Cohen (Power Policy Said in a statement filed after Committee) he had been called away from the meeting that he supported the underlying theory of separating self-liquidating assets and thought the machinery for doing so should cover new projects as well as existing ones, and that the Secretary of the Treasury should be the financing officer with power to review the financial statements of the projects through any device he chooses. EXCERPT FROM TRANSCRIPT OF MEETING RE GOVERNMENT POWER CORPORATION HELD IN MR. HANES'S OFFICE FEBRUARY 13, 1939. Hanes: I want to get on expression here - Mr. Deleno, I know, nos got something he wents to say - no #: matter of fact, I'd Like to have each agency here express, If they would, just their viewpoint D.B. to the general policy of this thing, because I think the President is interested to have all the agencies of the Government express # frank opinion ES to the general policy, not the specific bill or the provisions thereof. Mr. Deleno, have you got anything? Deleno: Yes. I realize - I hate to say anything that asy seem derogatory when I know men have worked very hard to solve D very difficult problem. But, funde- mentally, us I see it, the next six or eight months are exceedingly critical months for this Administra- tion, and I would hate to see D bill introduced In Congress which to my mind sould raise particular hell. Now, tast isn't - tast doesn't mean that I on against the idea of not treating as debt self- liquidating assets. I think that they ought to be handled separately. And perhaps If it had been two yours LEO or three years ago we could have done just what we're contempleting now. What I'd like to suggest is that we try to remove from this bill the features of it which will be particularly contentious. I think one thing that would help would be to make it only apply to com- pleted projects. Anybody who has ever known con- struction on a large soale knows that costs often greatly exceed estimates. And If you're going to have & general authorization to cover costs and even capitalize the operating expenses during development, which is considered a very improper thing by conservative corporations, why, you're going to be up for a tremendous lot of criticism. And then I think the question of the great emphasis on water power is going to raise a good deal of question. Here's the T.V.A. that just after El long hard battle has made on adjustment on water power -2- that 1s, I think, going to have El good denl of benefit in smoothing the ruffled feathers of B. good many big corporations; but I think when - just 15 soon DB this bill is introduced in its present shope, they'll soy, "Well, here's the thing all over agoin; they're going into D general development of enter power and competing with private corporations." Well, I pretend to be one 1 think I DA E. liberal, but I'm - John Deney defined E liberal - he said a liberti WUD DI men who WILD able to = e o both sides of the question, and I think it is awfully Important to see both stoes of the question, especially in the next six or eight months. I would D. great deol rether see c. bill that permitted the development - or the reimbursing or the Treasury for construction of self- liquidating projects, and that might include toll bridges, transmission lines, housing, reclamation, irrigation, water works, those are things that occur to me. But I would then like to put it on E bosis which even the intense partisons on the opposite side cannot upset. Say, "way, you comit that the Penson Genel cost over 400 sillion dollars; you admit that that has an earning basis. Now, instead of having that part of the debt of the United States, we propose to reimburse the United States for tast expenditure end let it stand on its own Ret." Hanes: D16 (2) Itself out. Delnno: Yes, uig (?) itself out. And so with other things. I hope - I'm not trying to knock this Idea at all. Hunes: Inst's exactly what re went, the frankest sort of expression, because we're not helping anybody if we've got some secrets here. The have certainly got none. We're just carrying out the instructions given us by the President. And I'd say again that if there is any confusion in enybody's mind - I heard the President talk about this thing at some length, the If there is my confusion in somebody's mind that he WEB thinking, or we were thinking, in terms of Issuing bonds to the full extent of the cost of any project, why, get It out of your mind right now, because It's -3- just not in the curds. Deleno: I think want I nive sold is in keeping with Secretary Morgenthau's quote from the President's message. Hunes: Well, thank you, Mr. Delano. Now, Mr. Burles, would you like to express on opinion? Burlew: I agree in the soin with Jr. Delano, for verious reasons he's given, and particularly for the Irrigation features. And I don't see where the security of the reclamation projects adds anything to the bonds, because we've got D revolving fund which TO spend from year to year. That's my prin- cipol Question - is just what security the reclama- tion fund would bring to these bonds. Hunes: You think there la some doubt as to the wisdom of the Administration trying to pass any sort of legis- letion at this particular time which would contem- pinte the recepitalization or reimbursement of the Treasury for funds already put out on completed projects? Burlew: Yes, sir. dones: Who will speak for the Federal Power Commission? PO you want to speek for thes, Mr. Smith? Smith: I don't believe we can speak for the Federal Power Commission at this time. Mr. Servey, our Acting Chairman, WUS supposed to be here and was taken 111, BO we're pinch-hitting for him, and I'd better not - I noven't discussed this feature with him. denes: Do you (Blandford) want to any L. word for the T.V.A.? Blandford: Well, I would Like the record to indicate that neitner the staff nor Doord of Directors has had time adequately to explore the proposed bill or, more recently, the second draft, and cannot picture et the moment the full implications of the proposal. It should be sold that, while the opinion 1a somewhat personal and curbstone, there is complete subscription to the paragraph quoted from the President's budget -4- message, and as a matter of feet In our fiscal planning and our conversations with the Bureau of the Budget we neve been moving repidly in that direction within our own statutory authority. Whether some present prospect - and on that I'm inclined to support Er. Deleno - whether some present prospect of considerable extension of the number of agencies administering such projects - I think it would be very profitable and appropriate to explore such on interesting, constructive formula ES has been tentatively expressed in this bill. I think it 1a realistic to come back to the realize- tion that there are two agencies, practically, for the purposes involved nero - the Bureau of Reclamation and the T.V.A. - and os I hostily go over this bill I inevitably think in terms of almost smendment of the T.V.A. Act; elmost every paragraph suggests some question. And from that viewpoint it is a bit exciting, with till our other distractions. And whether some immediate necessity of progress along this line - I think our studies should include, in the absence of DI large number of new agencies working on water projects, the exploration of moving in the direction of the President's budget message under the respective statutes of the two agencies, cooperating perhaps in its financing plans with the Bureau of the Budget, as an alterna- tive, until some more lorger plcture develops. 1 do hope there will be smple opportunity to explore the relation of this proposed bill to our own tatute. Burles: I hope the same thing for the Bureau of Reclamation. Wolfson: I walked out, Mr. Burlew. I wonder If you made mention that Bonneville is interested in how this thing turns. It's in the Department, but on 4 different basis then Reclamation. Blandford: We sentioned Bonneville before in listing the number of projects. Actually, in terms of administrating this thing year -5- in and year out, it secas the big bulk of the relationship is with I.V.A. and the Reclamation Buresu, imposing D lot more legislation and 4. lot more facilities and agencies on two agencies at least one of which is Just feeling its way out through some very complex situations and reviewing policies and checking with 0 considerable number of agencies et the present time. danes: Well, Is there anyone else that wishes to be heard from? Captain, do you want to say anything? Marsholl: The only thing I could sty for the War Department is tast, though It has only had D. brief period to examine the provisions of this bill, It has given It some study and is sware of no objection to the general purpose of the bill. This bill applies to very few projects ciready constructed by the WER Department, although It does apply to some - will apparently apply to several projects now authorized but not yet constructed, and we can so far see no serious objections to financing self-liquidating features of future projects in the senner proposed by the bill; us for 0.0 the Ser Department la concerned, it seems to be & matter of financing, and we see no objection to it. Hanes: Thank you, sir. Anybody else want to say anything about the policy matter? (The following statement W&B submitted by Mr. Ben Cohen, who WES called out during the discussion:) "I DE sorry that I WLS culled out of the meeting and could not hear all of the discussion about the underlying theory of the proposed bill. I think, however, that it is extremely important that some machinery be created for the separation of the self-liquidating portion of the public debt from the balance, and tast that machinery should cover new projects 68 well as those already constructed. Moreover, I think that it would be better to have the control over the financing of self-liquidating projects concentrated -6- in the Secretary of the Treasury, who would be acting for the President. This would not, however, involve D duplication by the Treasury of the work of the agencies concerned but would involve a review of their work. If the date submitted 1s not sufficient, the Treasury or any agency that the Treasury might use would not itself set about getnering new or additional date but would merely require the agencies con- cerned to submit more adequate date. PSF: Morgenthau THE WHITE HOUSE WASHINGTON March 8, 1939. MEMORANDUM FOR THE SECRETARY OF THE TREASURY Will you speak to me about this? F. D. R. F. D. R. - LONGHAND Int. Rev. Coll. - Florida John Fahs in place of J. Ed. Larsen Ask Jim Farley & H. M., Jr. Andrews concurs with Pepper Let Pepper know Can we put Larsen into Treas. or at least offer him job here. Lawyer. Now gets $7,000. C'd we start him at $5,000 with chance to progress to 7 or 8 personal PSF THE SECRETARY OF THE TREASURY Hmg WASHINGTON My dear Mr. President: I have received your memorandum of March 25th, accompanying a letter to you from Senator Pat Harrison, dated the 24th. I am also in doubt as to how you should answer Senator Harrison's letter. It may be helpful to you in preparing a reply if I review the facts as I know them. On February 17th, while you were aboard the special train at Key West, you told the Press in substance that business and industry need not fear any new taxes at this time. At my Press conference on February 23d, the first conference I held after your tax statement was made public, I told the Press that I was pleased by your statement and that for my part I should like to see the committees of Congress look into the tax law for the purpose of discovering whether there were any deterrents to business which could be removed. The following day at Des Moines, Harry Hopkins advocated also the removal of tax deterrents to business. On the same day, the 24th, Bob Doughton issued a statement approving what I had said and offering to cooperate. I had not discussed the matter with Harrison up to that point, but I had sent him & summary of what I said at the Press conference. He came to see me the following week and he and Doughton on March 3d sent me a joint letter expressing approval of your tax statement, my statement, and that of Hopkins and offering cooperation. John Hanes and I saw you on March 8th and presented our tax ideas and you arranged for a conference with Harrison and Jere Cooper (Doughton being away) the following day. Our recommendations to you included the substance of the material later furnished to Harrison. At the conference on March 9th, Harrison referred to a proposal to repeal the excess profits, capital stock, and undistributed profits taxes and to substitute a revised corporate tax schedule, not as his suggestion but as one that he had heard. To your question whether the present revenue could be preserved under such a revision, he said that he thought it could be. I had been careful not to give out to the newspapers any details whatever as to what I regarded as tax "deterrents." Nevertheless, it was widely known that various business organizations had suggested changes of this character and speculation in the Press after my Press conference of February 23d and Harry Hopkins' speech centered around these particular suggestions. This would certainly offer adequate ground for Harrison's statement that he had heard these things suggested. - 2 - In view of this background, I do not think that we can success- fully maintain the proposition that these ideas originated with Senator Harrison. I should not myself want to avoid responsibility for initiating the suggestion that the corporate tax structure be revised. It was not done at Pat Harrison's suggestion. It was my OWN idea. I am enclosing herewith my idea of 8. letter in answer to Senator Harrison's letter of March 24th. Faithfully yours, Hung The President, The White House. March 25, 1939. MEMORANDUM FOR THE SECRETARY OF THE TREASURY I don't quite know how this letter from Pat Harrison should be answered. The point of the whole thing 1s that suggestions for the repeal of "deterrent taxes" were made by Senator Harrison. These, as I remember it, anti-dated any statement by you that the subject was being studied. Thinking back I know you will remember that the repeal of the excess profits and capital stock tax was seriously considered both a year ago and two years ago without any par- ticular objection on the part of either yourself or myself. This was based, of course, on some assurance that the amount of their yield would be made up to the Treasury in some other way. Therefore, there can be no serious objection to a statement on our part to the above effect. But I hesitate to have you or Hanes propose a substitute tax for these two because of the difficulty of getting a fair substitute tax without revamping the whole tax structure. When we come to the change in the "spread the loss" tax, I am not ready to take a position because I have no information as to which corporations would be helped or hurt by it -- and we must be very certain that any action on this would not enure merely to the benefit of the very large corporations. In regard to the fourth proposed change, however -- the elimination of what is left of the undistributed earnings tax, I do not see how you and I can forget or bury the fact that two years ago one of the principal reasons for advocating the undistributed profits tax was to prevent very rich people from leaving their earned income in corporations controlled by them, with the effect of avoiding both personal and corporate income tax payments. That 1s a matter of fundamental principle. -2- For this reason I hate to see you put in the hole of proposing these changes. It seems to me perfectly clear that the origin of the proposed changes was Senator Harrison himself. Frankly, the political mistake, made while I was with the Fleet, was in falling into Senator Harrison's trap. Obviously he tried -- and tried with some success - to make it appear that the Treasury was listing taxes which it be- lieved to be deterrent or recommending their repeal, or recommending a substitute or substitutes for them. In regard to these substitutes, it is all very well to say "add the necessary amount to the straight percentage corporation taxes. But if you do this, you and I know that you will either step on the toes of the 153,000 small corporations or you will step on the toes of the one thousand very big corporations. Why put your head into that noose? The mistake made was that in the first instance we did not pin this thing on Senator Harrison, offer every kind of assistance and, in good faith, give him our opinion on what would be the result of any change which he had asked us to study. In the last analysis the amount involved in the proposed changes is negligible. We are all agreed that the corporations as a whole will continue to pay the same amount of money into the Treasury. We cannot allow the Administration to get behind any change which will restore old abuses. F. D. R. teodory VIeuo treamin 160998 of bevetf date do out tvdo st off II OIJE .T HARRISON, MISSISSIPPI CHAIRMAN United States Senate MAR COMMITTEE ON FINANCE March 24, 1939. RECEIVED 05 AM 39 25 THE I WHITE HOUSE Dear Mr. President: I am in receipt of your letter of March 21 and the enclosed data prepared by the Treasury Department. Only because inferences might be drawn from certain parts of your letter that the enclosed data prepared by the Treasury Department was based on my suggestions, am I reiterating what I told you at our last conference, namely: that I had not seen and had no definite knowledge until our conference of the suggestions and revenue estimates based there- on, both of which were prepared by the Treasury Department for purposes of discussion and study. I did not know until I received the photostatic copy of the proposals and estimates that the suggestions - "repealing the $2,000 limitation on the deduction of net losses for other income" and "allowing the three year carry-over of net losses" had been made or were under consideration. I had read in several of the newspapers rumors that the Treasury Department intended to suggest the repeal of the capital stock tax, the excess profits tax and the undistributed profits tax, and the substitution therefor of a flat cor- porate tax. I did not know definitely that these suggested changes were Treasury proposals until our conference on March 9, when we exchanged views, and at which time we were all agreed that regard- less of what might be finally evolved and recommended, the smaller corporations would continue to receive the same fair and beneficial treatment that they #2 - The Honorable Franklin D. Roosevelt, President. have received in prior tax laws, and that the total of taxes paid by corporations to the Treasury should not be lowered by any change in the laws. At our conference I asked for the Treasury proposals and the revenue estimates based thereon, because of my desire to know exactly what they were and in order that I might study the suggestions with a view to cooperating in the formilation of any fair program of tax legislation that might be suggested by the Treasury Department. I appreciate your sending me this data, and I assure you of my sincere desire to cooperate wholeheartedly in effectuating the purposes announced by the Secretary of the Treasury -- to aid business through the modification or elimination of any pro- visions of our tax laws which act as a deterrent to business. Sincerely yours, The Honorable Franklin D. Roosevelt, President of the United States, The White House, Washington, D. C. march 27th 1939 PSF Fmp THE CLUB Cloister SEA ISLAND GEORGIA Dear Mr. President: Ireceived your memorandum of March 25th today with enclosed letter from Senator Harrison. In order to make any helpful suggestions to you how to answer Senator Harrison, I would affreciate your sending me a copy of your letter to him. I was very sorry not to be able to say goodbye to you. I hope by the time this letter reaches you, you will have entirely recovered from your cold. Elinor joins me in sending our best regards, sin cerely yours, Jr. new NTATEN PONT V.E 145 DELIVERY DAIL- ED a RUMAR27/CK / = 8 6c C 1939 1939 GA. GA. Special Delivery Air Mall Fire The President The White House Special Delivery Washington W.C AL Personaland Confidential Mail Henry from. Margethan Jr. THE SECRETARY OF THE TREASURY WASHINGTON A PSF April 12, 1939 HMP Dear Missy: I don't know whether this scandal sheet, "The Week", has been brought to the President's attention. If it has not, I think he will enjoy reading it. Yours sincerely, thank Miss Marguerite Le Hand, Secretary to The President. LIBRARY No. 308 Periodicals APR 1939 THE WEEK tment 28 VICTORIA STREET. TELEPHONE: Karch 29th Room 3439. LONDON. S.W.1 AGREY 1954 DAYS OF SURRENDER. Almost unbeknownst to the British public, the situation has passed within the last ten days into a new and much graver phase than is current- ly suggested: the European power position is being stood on its head in a way not yet hinted at publicly even by the most "alarmist": as a re- sult of the action of the London Government since the Rumanian appoal of Saturday week, we are moving out of a phase in which it was a question of how much the British Government might be prepared to do to organise the "grand collective alliance" or "peace front" against the Axis attack, to- wards a phase in which it is a question of just how isolated the British are going to be against a possible "collective alliance" directed against them. Bombshell for Paris. Since the British newspapers give scarcely & hint of it -- nor the French papers either for that matter -- it is hard for British and other observers to grasp the full depth and power of the effect upon French opinion of first, the British Government's refusal of the Soviet preposals for immediate conference of the anti-aggresscr powers, secondly the British Government's refusal to offer Poland terms adequate to bring Poland into even a joint declaration, third the British Prime Rinister's Thursday state- ment declaring that he welcomed German economic expansion and was opposed to the formation of a bloc against the Azis, and finally the open encourage- ment from London to Mussolini to proceed with his a claims against France. "Nothing from London" For at least three days and nights after the Birmingham speech, with the Soviet offer already made in Loscow, and every prospect of the whole Axis drive being blocked at Bucharest and all other points, French opinion was veering swiftly to out-and-out support of collective Franco- Russian-Britleh action which would have rallied the ampller powers. The realisation that -- as a French commentator put it "the stiffening of Mr. Chamberlain at Birmingham was merely the first stage of rigor mortis", has tilted the entire French position. Exactly according to the German and Italian sims already referred to weeks ago in this correspondence, the rift between London and Paris has widened with startling speed. It is now a major factor in the situation. Hush-hush At this point occurs a curious phenomenon: nobody will speak -- publicly of this horrifying development, for the reason that those "friends of the Axis" in London and Paris who favour the split do not want to reveal the game too soon, and those on the other hand who nre trying - 2 - even now to heal it, are afraid to talk about it because it might "play into the hands of the Axis", The Axis however is perfectly well- informed on the subject, since 1% has at lonst one French Cabinet Mini- stor directly on its payroll, and has in London highly-placed allies who do not (with some notable exceptions) even ask to be paid. In any case, it is desirable to report frankly on the real position. In a situation which it is optimistic to refer to as "the gravest since 1914", for it is the gravest since 1917, outstandingly significant points are these:- The "Tory revolt". The Birmingham speech THE made undor pressure of an incipient "Tory revolt". On the Saturday of that wook when the Rumanian appeal and the Soviet offer of immediato action were already in the British Government's hands -- the "rebels" were apparently genuinely confident that the Birmingham speech "meant something". On that Saturday, their leadors were declaring that "if Chamberlain doesn't stiffen now he will be out". Mr. Micolson, prominent among the "rebels" on the Government side of the House wont so far as to write a little piece for the Spoctator explaining that this time it was genuine. The "capitulators", who had "seen nino-and-thirty loaders of re- volts" after Austria, after the bombing of British ships by Italy off Spain, after Berchtesgaden and on the night of Godesberg - were almost entirely unperturbed. They refused the Soviet offor immediatoly, and ro- fused the Rumanian appeal. Then Memel went, and then the Rumanians had to capitulate to the extent of accepting the Trade Pact. Poland was obviously tottering on the edge of capitulation: especially when they learned that in the middle of last week the Foreign Office had informed foreign correspondents that "the Poles want too much" -- meaning a straight guarantee. (Since, if there had been any serious intention to resist, the British Government would have been falling over itself to offer the Poles anything they would take, the effect of this extraordinary formulation in Whitehall may be imagined). The Italian Intrigue As the eastern bastions crumbled, "Tory revolt" flared again: but this time, instead of the strategic "retreat to Birmingham", there was a more effective riposte. The Italian intrigue, first publicly launched in the Daily Mail, was brought into the centre of the whole affair. By Monday of this week, it wes being semi-officially "explained" at the Foreign Office that (1) Poland cannot be defended without Soviet co-operation, and is therefore no use as an ally unless the Soviot Union is an ally too, (2) It is true that such an alliance would "ripe the floor" with any combination opposed to it, but "wo crust always remember" that in Warsaw there are "certain hesitations about co-operation with Moscow". (3) Questioned as to whether the objections were really in Warsaw and not very much more in London, the Foreign Office sighod end siggled and said that of course there "aro certain elements in the Cabinet who" etc etc etc. (4) But in any case "wo know definitely from Mussolini" that any CO- operation with the Russians would preclude any "sympathetic attitude towards us in Rome". Doing the Runciman, At the same time there began to appear in the British and French - 3 - No. 308 press -- which a few days before had been publishing jolly pictures of Stalin and Voroshilov articles "doubting" the strength of the Soviet Army, the Soviet airfleet, etc. etc. etc, precisely along the lines of the "Lindbergh conversations" at the Line of the September surrender. By the time Mussclini had launched his claims on France, the Times -- and still more the British Embasey in Paris -- were "doing the Runcimen" and de- manding French surrender to "these reasonable claims" exactly according to the plan of "Runcimanisation" outlined early this year in this correspond- ence and hotly denied then by all and sundry. Stresa and Four Power Prot. Behind the Italian intrigue in London immediately re-formed itself the grotesque allianco which has existed for years (and frequently been commented on here) betwoon the "Stresa frontiste" who imagine that they are "pulling Mussolini out of the Axis", and the Four Power Pacters" who know very well that the purpose of concessions to Mussolini is to find a way, via Rome, to Berlin: whose aim, that is to say, is not opposition to Berlin, but an approach to Hitler through Mussolini, with France ultimately playing fourth fiddle in the Four Power combination. The flow in the first theory is that it in an illusion. The flow in the socond is that while it is intended to lead to a position in which the British Government will have "miscled in" et last to a place "on the board" of the Berlin-Rome-Burgos-Tokyo company, what 1% really leads to is a progrossive workening of the positions hold against the Axis by Britain and France, and hence the acceleration of the rate at which the Axis ap- proaches the moment when Gott will strafe England. The alternative, Subscribers all constantly writing to nex us whether the people who support these catastrophic policies are fools or villains, and if neither, why they go on the way they do. So far as the first part of the recurrent question goes, it is really inmaterial whether people are villains behaving foolishly or fools bohaving villainously: ar.d. in any case there is a point where stupidity on : villainy come to very much the same thing. So far as the reason why they behave as they do, particularly during the past week, it is relatively simple: for the alternative to these policias of disaster is that co-oporation with the Soviet Government which these same people re- jected (dospite the reporte of Balfour and Buchanan) evon in the darkest hours of 1918 when their own advisere assured them that co-operation with Lonin would certainly damage the Germans and might turn the scale of the war, and rejected again on Saturday March 18th 1938 then the :oreans were reaching for the Rumanian Pact: nnd the domination of Poland, Paris-Rome, Statements that thore had been simply "proliminary" conversations between the French and Italian Governments en the question of surrender to the Italian claims bofere Mussolini-s = speech, are inaccurate, There had been -- with British nami -nce -- detailed conversations conducted first by Baudoin and then by Lagardelle. The suggostion that Laval should (10 to Rome to clinch the capitulation vous mado emactly fiftoon days Ago, person- ally, by Horr von Ribbentrop to M. Bumjuitte, former Min- istor in the Sarraut Government, The point 10 of ospecial significance, because it in proof of the fact - already sufficiently wellmonn in other quarters -- that the supposed "uneasinoss" of Burlin over the "Itclian approach to France", which has been given such & play in the capituintionist pross in Britain, is the morest moonshino, the whole plan of the Mussolini approach having been discussed between the Italian and Gorman governments, and actually pressed upon the French by Rilbentrop himself, e fortnight cuto. - 4 - M. Bonnet's lack of taste, The logical not the British-theoretical -- consequences of the abandonment of eastern Europe and the pressure on France to accept the Mussolini claims, were very quickly and unpleasantly evident in London in the conduct of M. Bonnet during the Lebrun visit, The first thing that happened was that M. Daladier telephoned to Bonnet and suggested - under pressure of the public opinion then preva- lent in France in favour of quick and strong Anglo-French-Soviet action that M. Bonnet had better urgo the British Government to "get on with its. M. Bonnet replied that he was not proposing to do anything of the sort: that he entirely understood the hositations of his London friends: that ho thought the Soviet proposal was just as "premature" as the British did, and that he would fall in entirely with the British attitude. M. Daladier, possibly under the pressure of the bottle, raged at M. Bonnet, ordered him to do as he was told, Whereupon, cool as you please, M. Bonnet replied that he would do as he chose, and if dear Edouard wished to object, why then dear Georges would say a word or two to this person and that about just precisely what happened at this and that particular moment of the Stavisky scandal and why and by whom so-and-so was suicided etc etc. Thue, for once at least, the famous blackmail which is supposed (inc rectly) to be the sole reason why Deladier has to keep Bonnet in his Cabinet at all was brought into operation. Talking to Flandin. All this however was regarded as good clean fun compared with what happened next, For next M. Bonnet, having effectively silenced the absurd Daladier, proceeded to put himself in communication with M. Flandin. In fact during the greater part of his visit to London, M. Bonnet was reporting not to the French Government but to M. Flandin, who in turn -- as a Munichois cent pour cent and avowed capitulator was in direct communication with Herr von Ribbentrop. Via M. Flandin, M. Bonnet sounded out Horr von Ribbentrop once again on the possibilities of a quick Franco-German doal at the expense of the Entente Cordiale, at the expense of the continuance of democratic institu- tions in France, and in favour of French "neutrality" on der Tag when Hitler "goes for London". The "better clement" emong the British thought this sort of thing -- conducted from London itsolf hardly in "the best possible taste" and ostentatiously cut N. Bonnet at the India Office Ball, Even the capitula- tors, themselves hand-in-glove with Borlin and Rome, wore a trifle chilled by K. Bonnet's behaviour, judging that at the best it tended to "give the ENDS a bed name" and confirm the suspicions of M. Bonnet spread in such "un- 5 No,308 holpful* news services as The week, and at the worst might expose the whole game in unpleasent fashion just as things were "simmering dom* after Prague and the Birmingham nove, In France Although neither M. Bonnet nor M. Daladier can be taken as to any serious degree representative of French máss opinion, there is no question that the inactions of the British Government, plus its support for Musso- lini's claims, strengthened the hand of the capitulators in France, by shocking and confusing patriotic opinion. It is significant of the situation within France that around the emergency decrees there is still a sort of equilibrium betwoon the forces: sufficient at loast to prevent the decrees for the moment being used not for national defence but for strike-breaking and for the final removal of the improvemente in working class conditions achieved by the People's Front, Observers in Paris believe that even under present circumstances, it would be impossible for Bonnet to carry out his pro-Nesi capitulation- 1st policy "to the end" without facing social revolution in France, and for this reason the process of trussing and hamstringing the public by means of the emergency powers would have to go a great deal further than it has yet gone before anything of the kind could be seriously contemplated. This was in fact pointod out by von Ribbentrop to M. de Brinon, Bonnet's agent, when the two not in Borlin several weice ago. It was demanded by Ribbentrop on that occasion that France "in order to convince Germany of the sincerity of her intentions and her friendship, must "make certain in- ternal adjustments, including the suppression of the Comunist Party and a more vigorous restraint of press froedom", This is of course the nethod traditionally employed by the Germans in their advance: attacks upon the left being carried out as a rule under the cover of "a strong national stand against aggression", -and thereafter, the patriotic forces having been mussled and trussed, and if possible pro- voked into striko action or something of the kind by attacks from the right, it is possible for the capitulators "within the gates" to carry out the surrendor without further trouble, It would be untrue to say that this situation -- or anything like it -- has yet been reached in France, and indications from Paris still suggest that despito the disastrous character of the Phipps-Bonnet policy, the resistance of the patriotic left and of the army High Counand is boing sufficient at least to delay the procoss: with the possibility that they may not only dolay it but actually defent the whole policy -- this in turn depending of courso on the degree to which the policy is defented "at the source": namely in London. London turnoil By Tuesday night of this week, the situation nt the London end had 6 again become so bad that again the "Tory revolt" was in progress, and the talk of a Government under Lord Halifax was revived, It appears to be. true that under the influence of the Bishop of Ripon, Lord Halifax has within the past three days committed hinself more defin- itely than over before to opposition to the policy of Mr. Chamberlain, and has gone to the longth of expressing also certain views on the personal and political character of Mr. Chamborlain in general, which would seen at least, to malco it somewhat difficult for Lord Halifax to continue any longer his policy of acting as a sort of "stoogo" for the Prise Minister, continually taking the odge off attacks upon the Government by the suggestion that "after all Halifax is all right". The "robols" believed last night and for all anyone knows may still be belioving by this ovening - that they have secured from the Labour leaders an agreement not to object to a "Promier in the Lords", if and when they succeed in breaking the Cabinet split wide open and openly backing Halifax, Although all such "rovolts" are liable - in the absence of any serious push from the Labour sido -- to collapse overnight or over lunch, it is true that the situation has now reached a point of such extreme gravity that ovon what have beon called "the great ivory headed casses of the Tory Party" are, so to speak, turning in their sleep. It was thought to be of extremo significance on Tuesday night that Sir Samuel Hoare was beginning to speak gravely of his touch of flu and allowing the suggestion to be mode that he night be confined to his bed for at least a fortnight. This was taken as an excellent barometer of the gravity less of Sir Samuel Hoere's physical health than of the political health of the Prime Ministor, which must be judged shaky indood if Sir Samuel feels himself compelled to withdraw from the scene until the cat has jumped one way or another. Gravo and gloony as the situation is, it is still true that a rapid and total roversal of "Chamberlainism" in British foreign policy could even now recover a great deal of the ground lost, and build -- with the Russians and the French a "front" against the aggressors which would cause an indefinito slowing down of the-"Gooring plan" of "elastic attack" reforred to horethroo weeks ago and carried out with doadly efficiency since then, (Subscription rates to THE WEEK 5/- half-yearly, 16/- yearly. Foreign rates 12/- end 24/-. U.S.A. and Connda and Dominions where Air Mail rates of 34 por oz. do not apply 10/- and 20/-. Dominions where Chorp Air Mail ratos naro in force 13/- and 26/-. Printed and pub- lished by Cloud Cockburn nt 28, Victoria Street, London, S.W.1. THE SECRETARY OF THE TREASURY HMW PSF WASHINGTON fresmel. April 13, 1939 My dear Mr. President: I am inclosing herewith Harlan Miller's article. I thought you might enjoy reading his reference to Lady Lindsay and the Chatfield-Taylors and the Battle of Yorktown. Yours sincerely, Henry The President, The White House. WASHINGTON POST APR 13 1939 Over Calm, regal, American-born Lady Lindsay, wife of the British Ambas- sador, gets a little out of patience occasionally with some of the more the la-de-da members of the British Em- bassy-staff. She thinks that even if they are diplomats and attaches Coffee they might attend to business a little more diligently. By Harlan Miller "GILT OFF THE DOME: Most generals here have offices at the War Dept. resembling those of small "-Yorktown's bad for Britons" town freight agents; grim, but One recent week-end when things tidler With were popping and sparks were fly- about $38 worth ing back and forth across the At- of second-hand lantic and the Embassy air was elec- furniture I'm tric, she observed that several of told more wrong the young men in striped pants phone numbers were away. On the following Tues- are dialed in the day she encountered one of them. Capital than "Where were you last week-end?" anywhere in she asked curiously. America The "Oh, I was week-ending at the average Con- Chatfield Taylors near Yorktown." gressman pays "I seem to remember," said Lady 53 cents for his Lindsay, "that we British once lost lunch at the a war at Yorktown!" Capitol: his tip U.&.U. averages 8 cents, Lady Lindsay . ... long memory I have been taken to task for speaking lightly of Sen. Cotton Ed Smith. "You ought at least to respect his age!" writes an indignant lady. Does that mean that we will have to take Senators Rush Holt (West Virginia) and Bilbo (Mississippi) more seri- qualy when they're 70 than we do now? Egad! psF, THE WHITE HOUSE psF Hmlp WASHINGTON CONFIDENTIAL April 18, 1939. MEMORANDUM FOR THE SECRETARY OF THE TREASURY This I take it 1s the Order which will be kept in your safe ready to be signed at any time. Please, however, read the opinion of the Attorney General. F. D. R. Executive Order regulating transactions in foreign exchange, transfers of credit, payments, and the export of coin, bullion and currency. Also letter from the Attorney General. STANDARD FORM No. 14A APPROVED BY THE PRESIDENT FROM MARCH 10. 1926 The White House PSF Mashington TELEGRAM Hmlgs OFFICIAL BUSINESS-GOVERNMENT RATES NIGHT LETTER U.S. GOVERNMENT PRINTING OFFICE 73762 April 25, 1939. HON. HENRY MORGENTHAU 1133 FIFTH AVENUE NEW YORK, N. Y. MANY HAPPY RETURNS OF THE DAY STOP IT MAKES ME HAPPY THAT YOU ARE EXACTLY MY AGE STOP WE ARE BOTH APPROACHING MIDDLE LIFE WITH VIM AND VIGOR AFFECTIONATE REGARDS FRANKLIN D. ROOSEVELT THE WHITE HOUSE WASHINGTON Hmg PSF CONFIDENTIAL May 3, 1939. MEMORANDUM FOR THE SECRETARY OF THE TREASURY Will you speak to me about Ernest Angell? F.D.R. file mol PSF THE WHITE HOUSE WASHINGTON NWH May 4, 1939. MEMORANDUM FOR THE PRESIDENT The Secretary of the Treasury tele- phoned to say that he is going to attempt to collect statistics from agencies other than WPA to show how many people were at work in April due to activities in FHA and RFC, etc. He says he is sure we will find a very large number of people were at work as the result of government aid, direct and indirect. He believes some- body should take the aggressive side instead of apologizing. He thinks too much of this has been done. The Secretary would like to know if you approve of his doing this. G. PSF THE WHITE HOUSE morg WASHINGTON Trens May 13, 1939. MEMORANDUM FOR THE SECRETARY OF THE TREASURY Will you speak to me about this on Monday at lunch? F. D. R. t1 THE SECRETARY OF THE TREASURY WASHINGTON May 11, 1939 My dear Mr. President: Mr. Hanes, Mr. Bell and I met with Mr. Jean Monnet Monday night, at my house, and discussed the French debt to the United States. The French pre-armistice cash loans, as you will notice from the inclosed statement, amounted to $1,970,000,000. Her post-armistice debt for casn loans amounted to $1,027,000,000, and for war and relief supplies, $407,000,000. These figures represent the original debts and do not take into consideration the accrued and unpaid interest nor repayments made by France before and after refund- 1ng of its debt. If we should follow the very tentative suggestion of Mr. Monnet and forgive the pre-armistice debt of $1,970,000,000, this would leave France still owing us $1,434,000,000. Mr. Monnet's thought was that we mignt arrange some barter deal for the $407,000,000 of war and re- lief supplies, leaving a net $1,027,000,000 to be repaid us in cash. If we should follow through with Mr. Monnet's suggestion and take up the Britisn debt, we find that their pre-armistice cash loans amounted to $3,696,000,000 and their post-armistice cash loans only $581,000,000. Therefore, I raise the question at this time, before we proceed further with Mr. Monnet, whether it would be feasible to apply the Monnet formula to the British and otner Governmental debts to the United States. Mr. Monnet has grave doubts as to the wisdom of raising the French debt question at this time and we snare his doubts. -2- Mr. Monnet is waiting to hear from me and I shall be glad to have your views before proceeding in these conversations. Faithfully yours, Myruthan The President, The White House. STATEMENT SHOWING AMOUNT OF FOREIGN INDEPTEDIESS TO THE UNITED STATES UNDER VARIOUS CLASSIFICATIONS (In thousands of dollars) Postarmistice Total Repayments Original Payments on Funded Amounts due and unpaid Preamistice CASH loans war and TO- obligations of principal net Debt as debt Total debt cash loans lief supplies originally prior to principal refunded Principal Interest Principal Interest Moratorium May 1, 1959 acquired refunding debt 1/ annuities Funded debte: Belgium 171,780 177,434 29,873 379,007 2,067 377,080 417,780 17,100 14,490 26,600 43,356 5,329 449,080 Osechoelovakia - 61,974 29,906 91,880 -- 91,880 185,071 19,830 - 17,670 - 2,011 165,729 Estomia - - 13,999 13,999 -- 13,999 16,466 - 1,247 859 3,681 402 20,737 Finland -- - 8,282 8,282 - 8,282 9,000 878 4,309 - - - 8,249 France 1,970,000 1,027,478 407,341 3,404,819 64,689 3,340,130 4,025,000 161,350 38,550 284,346 250,399 33,516 4,160,825 Germany (Austrian In- debtedness) -- - 24,056 24,066 -- 24,056 24,615 863 - 1,840 - 139 26,012 Great Britain 3,696,000 581,000 - 4,297,000 202,182 4,074,818 4,600,000 232,000 1,232,770 202,000 893,899 106,928 5,419,388 Greece - 27,167 - 27,167 3 27,164 32,497 901 1,097 5,440 1,929 782 34,068 Bungary -- -- 1,686 1,686 - 1,686 1,983 74 423 93 388 46 2,365 Italy 1,031,000 617,034 - 1,648,034 364 1,647,670 2,042,000 37,100 5,767 80,200 12,945 9,858 2,022,745 Latria - - 5,132 5,132 - 5,132 6,889 9 621 345 1,420 168 8,546 Lithuania - -- 4,982 4,982 : 4,982 6,432 235 1,002 264 1,230 150 7,650 Poland -- -- 159,687 159,667 : 159,667 207,344 1,287 19,311 10,350 46,065 5,018 259,502 Runania -- 25,000 12,911 37,911 1,799 36,112 66,560 2,700 29 9,000 -- 536 63,991 Tugoslavia 10,605 16,175 24,978 51,758 728 51,030 62,850 1,225 -- 2,275 115 -- 61,741 Total 6,979,385 2,533,263 722,812 10,135,460 271,822 9,863,658 11,704,487 475,632 1,320,516 641,283 1,255,427 164,854 12,710,628 Unfunded debter Armenia : -- 11,960 11,960 -- 11,960 -- -- : -- 11,343 : 23,303 Ouba 10,000 -- : 10,000 10,000 - -- -- : : : -- -- Liberia -- 26 - 26 26 -- : -- : -- : -- -- Nicaragua - -- 432 432 142 290 I -- : -- : -- : Russia 187,730 -- 4,871 192,601 -- 192,601 -- -- : -- 192,771 I 385,372 Total 197,730 26 17,263 215,019 10,168 204,851 I -- I -- 204,114 I 408,675 Total 7,077,115 2,533,289 740,075 10,350,479 281,990 10,068,489 -- -- -- -- -- -- 13,119,304 Repayments: Belgium : 2,003 54 - 2,067 Cuba 10,000 -- - -- 10,000 France : 64,689 - -- 64,689 Great Britain 130,011 72,171 - -- 202,182 Greece -- 3 : -- 3 Italy : 364 -- -- 364 Liberia : 26 -- : 26 Nicaragua : -- 142 -- 142 Rumania -- 1,799 -- - 1,799 Tugoslavia I 728 : - 728 Total 140,011 141,783 196 - 281,990 1/ Includes $1,715,556,244.38 on account of interest accrued prior to funding and $127,226,578.44 interest funded under debt agreements. ACCOUNTS AND DEPOSITS May 11, 1939 RF THE WHITE HOUSE WASHINGTON mong Treas May 13, 1939. MEMORANDUM FOR THE SECRETARY OF THE TREASURY Will you speak to me about this on Monday at lunch? F. D. R. THE SECRETARY OF THE TREASURY WASHINGTON May 11, 1939 My dear Mr. President: Mr. Hanes, Mr. Bell and I met with Mr. Jean Monnet Monday night, at by house, and discussed the French debt to the United States. The French pre-armistice cash loans, as you will notice from the inclosed statement, amounted to $1,970,000,000. Her post-armistice debt for casn loans amounted to $1,027,000,000, and for war. and relief supplies, $407,000,000. These figures represent the original debts and do not take into consideration the accrued and unpaid interest nor repayments made by France before and after refund- 1ng of its debt. If we should follow the very tentative suggestion of Mr. Monnet and forgive the pre-armistice debt of $1,970,000,000, this would leave France still owing us $1,434,000,000. Mr. Monnet's thought was that we might arrange some barter deal for the 3407,000,000 of for and re- lief supplies, leaving a net $1,087,000,000 to be repaid us in cash. If we should follow through with Mr. Monnet's suggestion and take up the British debt, we find that their pre-armistice cash loans amounted to $3,696,000,000 and their post-armistice cash loans only 3581,000,000. Therefore, I raise the question at this time, before we proceed further with Dr. Monnet, whether it would be feasible to apply the Monnet formula to the British and otner Governmental debts to the United States. Mr. Monnet has grave doubts as to the wisdom of raising the French debt question at this time and we share his doubts. e -2- Mr. Monnet 1s waiting to hear from me and I shall be glad to have your views before proceeding in these conversations. Faithfully yours, Mymthan The President, The White House. STATEMENT SHOWING AMOUNT OF FOREION TO THE UNITED STATES UNDER VARIOUS CLASSIFICATIONS (In thousands of dollars) Postarmistice Total Repayments Original Payments on funded Amounts due and unpaid Preamistice CASH loans VAT and TO- obligations of principal net Debt M debt Total debt cash loans lief supplies originally prior to principal refunded Principal Interest Principal Interest Moratorium May 1, 1939 acquired refunding debt 1/ anmuities Funded debte: Belgium 171,780 177,434 29,873 379,087 2,057 377,000 417,780 17,100 14,490 26,600 43,356 5,329 449,080 Crechoelovakia - 61,974 29,906 91,880 -- 91,880 185,071 19,830 - 17,670 - 2,011 165,729 Estonia -- - 13,999 13,999 - 13,999 16,466 - 1,247 859 3,681 402 20,737 Finland -- -- 0,202 8,282 - 8,282 9,000 878 4,309 - - - 8,249 France 1,970,000 1,027,478 407,341 3,404,819 64,689 3,340,130 4,025,000 161,350 38,650 284,346 250,399 33,616 4,160,825 Germany (Austrian 10- debtedness) -- - 24,056 24,056 -- 24,056 24,615 863 - 1,840 - 139 26,012 Great Britain 3,696,000 581,000 - 4,277,000 202,182 4,074,818 4,600,000 232,000 1,232,770 202,000 893,899 106,928 5,419,388 Greece - 27,167 - 27,167 3 27,154 32,497 981 1,897 5,440 1,929 762 34,068 Hungary -- -- 1,686 1,686 - 1,686 1,983 74 423 93 388 46 2,365 Italy 1,031,000 617,034 - 1,648,034 364 1,647,570 2,042,000 37,100 5,767 80,200 12,945 9,858 2,022,745 Latvin - - 5,132 5,132 - 5,132 6,689 9 621 345 1,420 168 8,546 Lithuania -- -- 4,982 4,982 -- 4,982 6,432 235 1,002 264 1,230 150 7,650 Poland -- -- 159,667 159,667 : 159,687 207,344 1,287 19,311 10,350 46,065 5,018 259,502 Rumania -- 25,000 12,911 37,911 1,799 36,112 66,560 2,700 29 9,000 -- 536 63,991 Tugoslavia 10,605 16,175 24,978 51,758 728 51,030 62,950 1,225 -- 2,275 115 -- 61,741 Total 6,879,385 2,533,263 722,812 10,135,460 271,822 9,863,638 11,704,487 475,632 1,320,516 641,283 1,255,427 164,854 12,710,628 Unfunded debte: Armenta -- -- 11,960 11,960 -- 11,960 - -- -- -- 11,343 -- 23,303 Cuba 10,000 -- -- 10,000 10,000 -- -- -- -- : -- -- -- Liberia -- 26 -- 26 26 -- -- -- : -- -- -- -- Nicaragua -- -- 432 432 142 290 -- -- -- -- -- -- -- Russia 187,730 -- 4,871 192,601 -- 192,601 -- -- -- -- 192,771 -- 385,372 Total 197,730 26 17,263 215,019 10,168 204,851 - -- -- -- 204,114 - 408,675 Total 7,077,115 2,533,289 740,075 10,350,479 281,990 10,068,489 -- - -- -- -- -- 13,119,304 Repayments: Pelgium -- 2,003 54 - 2,057 Cuba 10,000 -- -- - 10,000 France -- 64,689 -- -- 64,689 Great Britain 130,011 72,171 -- -- 202,182 Greece -- 3 -- -- 3 Italy -- 364 -- -- 364 Liberia -- 26 -- -- 26 Nicaragus -- -- 142 -- 142 Rumania -- 1,799 -- -- 1,799 Tugoslavia -- 728 -- -- 728 Total 140,011 141,783 196 - 281,990 Includes $1,715,556,244.38 on account of interest accrued prior to funding and $127,226,578.44 interest funded under debt agreements. ACCOUNTS AND DEPOSITS May 11, 1939 THE WHITE HOUSE WASHINGTON June 1, 1939. MEMORANDUM FOR DANO FOR PREPARATION OF REPLY FOR MY SIGNATURE. F. D. R. Letter enclosed from Mr. A. W. 0' O'Connell, 0' Connell Packing Company, P.O. Box 5624, Kenton Station, Portland, Oregon, in re petition to the Secretary of the Treasury to secure a reclassification of imported canned meat dog foods. filenal PSF THE SECRETARY OF THE TREASURY WASHINGTON Hmgs June 13, 1939. Dear Boss: I got your note. I am in favor of dog food. I think this Argentine stuff is a lot of baloney, but that will do for dogs who can't get fresh meat. My people have fixed up some words for the barker from Oregon. Personally I ignore all dogs that bark. I advise you to do the same. I lick your hand, Affectionately, DANO. The President, The White House. (His mark) (Message communicated through Henry Morgenthau, Jr., Secretary of the Treasury.) THE WHITE HOUSE Hmlp PSF WASHINGTON June 13, 1939. MEMORANDUM FOR THE SECRETARY OF THE TREASURY Will you speak to me about this? F. D. R. Longhand memorandum from the President: H. M., Jr. Bring figures tomorrow on cash outgo to farmers up to July 1, 1940. And I am to talk it over with Wallace and then with Sen. Bankhead and Sen. Russell. F.D.R. - PSF THE SECRETARY OF THE TREASURY WASHINGTON HMJ June 13, 1939 My dear Mr. President: I am inclosing herewith an up-to-the-minute progress report from John Hanes in connection with the tax bill. Yours throughouth sincerely, The President, The White House. TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE June 15, 1939 TO Secretary Morgenthau FROM Mr. Hanes The subcommittee of the Tays and Means Committee on Internal Revenue taxation at its meetings on Monday, June 12, 1939 made the following decisions with respect to matters to be included in the revenue bill: 1. Net Loss Carry-over. a. It was agreed (In the absence of objection) that losses should be carried over from 1939 to 1940, to be first used for computation of income for the year 1940. b. It was agreed (In the absence of objection) that a net operating loss say be carried over from one year to the two succeeding years. (Mr. O'Donnell estimated loss of revenue from a two year carry-over from business years like 1939, of $23.6 million). C. As a part of its consideration of the matter, it was understood by the Committee that capital losses would be excluded in computing net oper- ating losses. 1. It was agreed in the absence of objection that personal holding companies should not be allowed this new operating loss carry-over. 2. Capital Stock and Excess Profits Tax. B. It vas agreed (In the absence of objection) that the undistributed profits tax should not be extended beyond 1939 (Revenue loss estimated by Mr. O'Donnell at $17.5 million) and that the rate on corporations above $25,000 should be 185 (revenue increase with proposal in b. below esti- nated by Mr. O'Donnell at $65 million assuming banks and insurance companies to be included in general treatment). - 2 - b. As to corporations under $25,000, it TAB agreed (in the absence of objection) that the rates in the present law with respect to these corpora- tions should be continued. C. It was first agreed tentatively (In the absence of objection) that the dividing line between large and small corporations should be upon net income and not upon normal tax net income. On further consideration it WAS agreed that the 4- viding line should be on normal tax net income which 1a net income less interest on partially exempt Federal obligations and less the credit for intercorporate dividends. d. It TAS agreed that banice, China and Trade Act companies, insurance companies and corporations in possessions shall be treated like other COT- porations as to rates and that nutual investment companies shall be taxed at - flat 18 regardless of the size of Income with the same credit for distributed income which those companies now re- ceive. c. It was agreed (In the absence of objection) that foreign corporations engaged In trade or business within the United States are to be taxed at 18% instead of 19% as In the present lar. f. It Tas agreed (In the absence of objection) that the present provisions taxing foreign corporations not engaged in trade or business In the United States shall be continued. They are now taxed at 15% upon withholding income except dividends and at 10% upon dividends. & It 705 agreed (In the absence of objection) that the special treatment given under present law to corporations in bankruptcy or receivership, Joint stock land banks and rental housing corporations shall be eliminated so that these corporations will be treated 11ke all others. 3. Elimination of the $2,000 limitation on corporate capital losses. D.+ It was agreed (in the absence of objection) that there shall to no limit on deduction of long tera losses by - 3 - corporations Clir. O'Donnell estimated revenue loss at $49 million). b. It TAX agreed (in the absence of objection) that there shall be a limitation on the deductibility of short-term logges so that they can only be ap- plied against short-term (nine for the tamble year with a one-year carry-over for use acainst short-term gains in the next year. Cir. O'Donnell estimated revenue loss at $1.4 million). 4. It TAX apparently agreed by the Subcommittee that all of the foregoing proposale shall first become operative for taxable years compensing in 1940. 5. Mr. O'Donnell estimated the net revenue loss from all of the foregoing proposals at $15.7 million. 6. It was agreed by vote that the excise taxes and postal rate provisions shall be extended for two years. 7. Hondler case It TAX agreed (by vote) that a provision to eliminate the problems created by the Hendler case relating to accumption of indebtedness in corporate reorganisations shall be Included in the bill. 8. Kooldand & Gouran CASSE It WAS agreed (in the absence of objection) that a provision to eliminate the problems created by the Koshland and Govran cases relating to the taxation of stock dividends, shall be included in the bill. John witanes. THE WHITE HOUSE WASHINGTON June 16, 1939. MEMORANDUM FOR H.M. Jr. A little sparrow tells me that a gentleman named Schwartz, formerly of the Chicago Daily News, is now with your publicity department and he is alleged to be getting news for the Chicago Daily News. Will you have Herbert check? F.D.R. FDR/dj DECLASSIFIED By Deputy Archivist of the U.S. By W. J. Stewart DaMAR 16 1972. PSF TREASURY DEPARTMENT HMOP INTER OFFICE COMMUNICATION DATE June 19, 1939 TO Secretary Morgenthau FROM Mr. White Confidential Subject: Japanese trade 1. Japan still has a highly unfavorable balance of trade with the world (excluding trade with the yen bloc - Manchuria, Kwantung and China), amounting to 575 million yen ($190 mil- lion) in 1938. Japan's trade during the first four months of 1939 was more unfavorable than during the same period of 1938, indicating that there has been a worsening of Japan's trade position this year. Both exports and imports have been down sharply from the high levels of 1937. Japan's Foreign Trade (excluding China, Manchuria, and Kwantung) (In millions of yen) Exports Imports Excess of Imports 1936 2,035 2,370 330 1937 2,384 3,345 960 1938 1,524 2,099 575 First 4 months of 1937 715 1,164 449 # . II # 1938 469 684 214 If If If II 1939 450 701 251 2. United States exports to Japan have been maintained at a high level until this year. United States exports to Japan in 1938 were only 17 percent less than during the peak year of 1937, although Japan's total imports had dropped 37 percent. In the first four months of 1939, however, Japan's purchases in the United States were down 20 percent in comparison with the same period of 1938, while Japan's total imports were about the same value as during 1938. (It is too early yet to tell whether the drop of United States exports during the past few months represents a shift of Japanese purchases to other parts of the world or whether it represents a drop in total Japanese purchases.) Secretary Morgenthau - 2 Our imports from Japan were 38 percent lower in 1938 than in 1937, similar to the change in the world's imports from Japan, and have remained at this lower level during 1939. 3. Silk prices have risen sharply in the past few months, but Japan's receipts from silk have barely been maintained because of the decline in volume. Japanese exports of silk in the first four months of 1939 were in value about the same as during the same period of 1938 but the quantity of silk exported dropped from 131,000 quintals to 103,000, a decline of about 25 percent. During recent months the price of Japanese silk has risen from $1.75 a pound at the first of the year to an average price of $2.75 per pound in May. Since the first of June there has been a decline in the quotations for silk (June 15 it was $2.50). The sharp rise in the price of silk during the last few months has been attributed to the following reasons: (a) Domestic consumption of cotton, wool and rayon has been sharply curtailed in Japan and as a result the Japanese have been buying large quantities of silk for their textile needs. It has been esti- mated that a third of the total silk crop of this year has already been absorbed for domestic uses. (b) The silk producing industry of Japan has been putting sharply reduced quantities of silk on the market, probably due to a labor shortage and the generally poor conditions of agricultural production under war-time conditions. (c) The Japanese Government is now taking steps to maintain lower prices for silk in the world markets and 1s attempting to restrict domestic uses. Japan fears that a high price for silk may encourage the use of substitute products. Japan's exports of silk in value were only 10 percent lower for the whole year 1938 in comparison with 1937. The quantity was about the same as in 1937, the reduction in value being attributed to the lower prices for silk. United States takes about 90 percent of Japan's silk exports. During the first four months of 1939, Japan ex- Secretary Morgenthau - 3 ported to us 16 percent less silk in quantity, compared with the same period of 1938, but the silk was 8 percent more in value. 4. Japan's imports of cotton in 1938 were cut in half from the previous year. Her imports of United States cotton were down about the same percentage as total cotton imports. Japanese Exports of Silk Exports to U. 8. Total exports (In million (In thousand (In million (In thousand Yen) quintals) Yen) quintals) 1936 334 427 393 503 1937 325 380 407 473 1938 298 393 364 477 1938 (4 mos. ) 76 102 99 131 1939 (4 mos. ) 82 86 98 103 Japanese Imports of Cotton Imports from U. S. Total imports (In million (In million (In million (In million yen) quintals) yen) quintsls) 1936 372 5.9 650 15.2 1937 306 4.2 851 13.8 1938 166 3.2 437 9.4 1938 (4 mos.) 55 1.0 128 2.6 1939 (4 mos.) 61 1.2 140 3.1 United States Trade with Japan Exports to Japan Imports from Japan Excess of Exports or Imports (-) (In millions of dollars) 1936 204.3 171.7 32.6 1937 288.3 204.2 84.4 1938 239.6 126.8 112.8 1938 (4 mos.) 91.6 40.8 50.8 1939 (4 mos.) 74.9 39.5 35.4 NEW YORK JUN 1 8 JAPAN CONFIDENT OF BALKING BRITAIN Tokyo Doubts United States Will Take Part in Measures to End Tientsin Blockade By HUGH BYAS Wireless - Tax Hav Thes TOKTO, June IT.-As lum that done not figure in diplomatic utter- anoes here but plays . potent part in motives la prostige. The Japanese are confident that M a result of their challenge the British Em- pire's prestige in Asía will be out- shone by Japan's. Even & decade ago such confi- dence could not have been - tered. It is a result of the success of Japan's continental policy since she challenged the world over Man- churis in 1932. When the Japanese talk of build- Ing a "new China" II is a new Japan, filled with self-confidence, that speaks. Almost every set of Japan's policy sinte 1931 has been opposed by a Wastern power Intrin- sically stronger than Japan, but none has carried Its opposition be- yond diplomatic protests. Intexicated by this record the Japanese press and public are un- able to conceive failure at Tientain. A considerable reading of the Japa- ness prese has shown this confi- dence la based on two quite prac- tical opinions First, while Britain is able to In- filet heavy economic damage on Japan, economic sanctions are dou- ble-edged, - Britain must think twice before beginning. Becond, Britain cannot send a fleet to Singapore because eondi- tiona in Europe the her hands and therefore she does not have power to challenge Japan In the Far East. It la being assumed, possibly pre- maturely, that Britain is diplo- matically laclated. Press dispatches from Tientain declare the French there are in "manifest cordial aym- pathy" with Japan's blockade. The Japanese will not be greatly Influ- enced by French action in any event but they are being told that the United States, if not exactly sympathetic, la determined not to be entangled. It is clear, says Domel, the Japanese agency, that Washington will not participate in retallatory measures. Italy's support is assured, Domel asserts, If an international confer- ence la held. To complete the picture of the Impending triumph it is added that the British Government is divided between two policies, one repre- sented by Bir Archibald Clark Kerr, British Ambasssdor to China, who favors strong mare in sup- port of China, the other by Bir Robert Oralgie, the Ambassador to Japan, who, according to the Japa- nass version, recognizes Japan's power and advises cooperation. Japan's Price for Accord TOKYO, June 17 UP.-The com- mander of Japan's North China army was quoted in Tientain die- patches tonight as declaring that Britain's unconditional abandon- ment of her support of General Chiang Kal-shok's Chinese govern- ment was Japan's price for esttle- ment of the Tientain crisia. According to Domal, Japaness news agency, the commander told Japaness correspondente be had re- pelled efforts of British authorities to Interview him since the blockade began. These afforts had been made both directly and through thing powers, be said, "but I - Continued en Page Twenty-five JAPAN CONFIDENT whether Britain is ready to make eral at Kulangsu, the international strict blockade of Amoy's inter- unqualified revision of her China settlement off Amoy, has arrived at national zone on Kulangsu Island, policy," the commander said. Taihoku, Formosa, en route to OF BALKING BRITAIN with passage permitted only to Domei quoted the commander as Amoy with fresh instructions from junks that fly special Japanese saying Britain would need coopera- Tokyo for settlement of the dispute flags and are registered with Amoy tion of the United States to make with the foreign area, which is fac- naval headquarters. Chinese funk Continued From Page One any economic reprisals against Ja- ing a food shortage. owners hesitate to display the flag pan effective but that such coop- He indicated the Japanese atti- for fear of reprisals on reaching jected them all because I could see eration was "extremely doubtful." tude was hardening, but there is no Chinese-controlled territory, where no possible value in them." In Tokyo the British Ambassa- sign that the settlement is prepared they obtain food supplies. "This is no mere local issue," he dor, Sir Robert Craigie, called to subordinate itself to Japanese on the American Chargé d'Affaires, Previously food reached Kulangsu continued. "It will never be set- Eugene H. Dooman, to discuss the authority. from Amoy, but this has been tled until Britain drops her pro- Tientsin situation, but the talk was stopped. Food supplies awaiting dis- Chiang policy." described as merely an exchange of Kulangsu Still Blockaded tribution on Kulangsu jetties have [The commander's name was information. There was no Indica- withheld in the dispatches, but SHANGHAI, June 17 (P). - Dis- been sent back. The price of neces- tion that any American action was General Gen Suglyama, former patches from Amoy, South China, saries has risen 50 per cent in Ku- Imminent and talk of American Minister of War, was named com- report that Japan is maintaining a. langsu. mediation at Tientsin, heard yes- mander in North China last De- terday in official quarters, sub- cember and no replacement has sided. been announced. The Tokyo Experienced observers believed & Cabinet yesterday approved the complete British-Japanese deadlock stand of the North China com- had been reached in which neither mander on the blockade of the could back down without tremen- British and French Concessions dous loss of prestige. "Face" being in Tientein, in effect vesting him of such vital importance in the with full powers to handle the Orient, It was believed that a re- crisis.) treat by either side would have far- The commander said delivery of reaching effects on the Japanese- the four Chinese held by the Brit- Chinese war and the course of Far ish would not be enough now to Eastern events. settle the dispute. Rejection of a Japanese demand for surrender of the four, charged with killing a lo- New Terms for Kulangsu cal official, brought on the block- Wireless to THE New YORK TIMES. ade. HONG KONG, June 17.-Goro "The crux of the question is Uchida, the Japanese Consul Gen- PSF, June 23, 1939 magither Memorandum for the President From Leon Henderson Henderson's slant on Subject--Hanes report to Morgenthau-June 13, 1939 on Tax Bill. Attached is the memo to the President from Morgenthau and the report from Hanes. See:Leon Henderson's folder-Drawer 2-1939 PSF morg Treas in THE SECRETARY OF THE TREASURY WASHINGTON of JUN 29 1939 My dear Mr. President: I an enclosing for your information a copy of a confidential letter which I have received from The Honorable Charles A. Dunning, Minister of Finance of Canada, dated June 5, 1939. I an also enclosing a copy of my reply. I shall keep you informed of any arrange- ments looking to the conference between the two countries. Faithfully yours, Mynithan The President, The White House. Enclosures MINISTER OF FINANCE CANADA OTTAWA, June 5, 1959. Dear Mr. Morgenthau, Some time ago at your request I arranged to have Mr. Graham Towers, Governor of the Bank of Canada, go to Washington to discuss with you the problems involved in protecting the security, commodity and money markets in the event of war in Europe, and the measures that might be taken in that event with particular regard to preventing panicky marketing and utilization of assets in our respective markets. I was glad to have Mr. Towers discuss with you these important problems because they had already been the subject of consideration and concern on my own part. Promptly upon his return Mr. Towers reported to me fully upon his discussions and the questions which you had raised, but unfortunately the pressure upon me during the last few weeks has been exceedingly heavy because of the rush to conclude the work of Parliament. Parliament, however, prorogued on Saturday evening and I now take the first opportunity I have had to reach decisions and to give you the benefit of our conclusions. I will now deal seriatim with the various points raised by you. 1. In regard to the impounding of the foreign securities of our nationals, while we have made no plans whatsoever in this connection, I think I can assure you that in the event of such action being taken that we will be able to cooperate with the authorities of the United States in a way which will be entirely satisfactory from your point of view. 2. Assuming that Canada does not impound foreign securities owned by our nationals, I do not see how our Government will be able to super- vise or control the actions of Canadian owners of 2. United States securities. However, your problem in respect to Canadian owners of United States securities will, it seems to ne, be simply a minor extension of your own domestic problem. In any case the volume of such securities will not be large, and in many cases they represent investments of long standing which are no more likely to be affected by panic than the investments of United States citizens. I should add that if the United States instituted certain regulations affecting its own nationals, there might perhaps be ways in which Canada could cooperate to prevent evasion of these regulations by Canadians or by others operating through this country. If you have any suggestions in this regard, we should be very glad to give sympathetic consideration to them. 3. The remarks made in the preceding section are applicable also to the case of European nationals who may hold securities in safekeeping in Canada, either in their own names or in the names of Canadian holding companies. In other words, I think the Canadian Government, while it could not take the initiative in supervising or interfering with the sales of such securities, might be able to cooperate in preventing evasion of United States regulations. It 18 also possible that NO might cooperate to prevent evasion of regulations made by the country of which the European investor is a national, if that country were an ally in any war. 4. In regard to commodity markets, I do not see any likelihood of Canada being a disturbing factor but I would be glad to hear from you if you visualize any difficulties in this respect. In general, therefore, the position which I have outlined amounts to this. If we should decide to impound foreign-owned securities, we will certainly be willing to cooperate with you; and if we do not do so we will be glad to consider any request for assistance and cooperation which you may care to make. 8. I trust that I have dealt with all the points raised by you with Mr. Towers and that I have left no doubt or uncertainty as to what our attitude will be. Yours very sincerely, Hon. Henry Morgenthau, Secretary of the Treasury, WASHINGTON, D.C. CONT JUN & 8 1839 My dear Mr. Dunning: I wish to express ay thanks for your letter of June 5, 1939 in which you give your views with regard to the matters that I discussed some time ago with Mr. Towers. I sincerely appreciate your offer to cooperate with us in the problems 16 have been dis- cussing. It occurs to ne that it sight be worth while to discuss further some of the technical details of the problems which would inevitably arise should it become desirable to attempt a cooperative program for the protection of the security, money, and commodity markets of both countries in the event of acute disturbances abroad. With that in view I suggest that a small group of experts from the two Treasuries, and any other agencies that might be appropriate, confer on this matter either in Ottawa or Washington. I should be glad to have your views with respect to this suggestion. Sincerely, (Signed) R. Morgenthau, Jr. The Honorable Charles A. Dunning, Winister of Finance, Ottawn, Ontario, Canada. HDW:33:meu 6/26/39 1-1989 THE SECRETARY OF THE TREASURY WASHINGTON July 10, 1939 PSF My dear Mr. President: Now that your Self-liquidating Program has been launched on the Hill, it seems to me that it is equally important to get everybody behind it at this end of Pennsylvania Avenue. Therefore, I am taking the liberty of making the following suggestion: that you call together on Tuesday afternoon, the way you used to, your Cabinet plus the heads of all the vari- ous Independent Agencies and on this occasion give the men who are responsible for making this program work an opportunity to explain it. Then if you personally will give half as good a sales talk to this group as you did last week to a cer- tain gentleman, I have no doubt that this program will get the support that it needs from this end of Pennsylvania Avenue. Yours sincerely, Hermy The President, The White House. THE SECRETARY OF THE TREASURY WASHINGTON PSF site -11.39 MEMORANDUM TO THE PRESIDENT. July 19, 1939. You will remember that on June 7th you transmitted a letter from the Secretary of the Interior, who had brought to your attention one he had received from Mr. 8. H. White of London. In this connection I think you will be interested in seeing the enclosed memorandum from Mr. D. W. Bell. Jun. TREASURY DEPARTMENT WASHINGTON July 14, 1939. TO THE SECRETARY: The attached letter dated May 15, 1939, from a Mr. S. H. White of London, England, addressed to Mr. Ickes, and Mr. Ickes' letter of May 29, 1939, transmitting it to the President, were sent to you by the President on June 7. at which time he asked you to speak to him about the suggestion made in Mr. White's letter. It does not seem to me that this is a sound suggestion. I certainly do not believe that we should tie our currency system or any part of it to foreign debts. The net effect of this suggestion would be to convert the British debt to the United States which is now represented by long-term obligations on account of which payments are now in default, into a fiat currency. The ultimate payment of this and other foreign debts depends upon the ability of the debtors to transfer to the creditors, directly or indirectly, goods, services, or gold in payment of annual service charges over a period of years. The redemption of this pro- posed currency would, therefore, rest upon the ability of the debtor nation to redeem definite annual amounts of the proposed currency in goods, services, or gold. The amount of currency now in circulation in the United States is approximately seven billion dollars. The amount of the British debt to the United States is approximately five billion dollars, - 2 - including accrued and unpaid interest. If this suggestion to issue currency against the British debt were adopted, the outstanding cur- rency of the United States would be increased by five billion dollars, or to $12,000,000,000, which, under present conditions, is certainly more currency than is needed to meet the demands of trade and commerce. In view of the flexibility of our currency system, which expands or contracts in accordance with the demands of trade and business, the issuance of this additional currency could have but one of two effects. Either it would alarm our people concerning our monetary system and would cause great hoarding or a run to commodities and other property, or the currency would be returned to the Federal Reserve Banks, which would make those banks carry the foreign debts to the amount of the currency so returned, without any corresponding return in the form of interest. If this is sound then we should pay off all our public debt through the issuance of currency. I do not believe that any such settlement as proposed by Mr. White would be, as he contends, "of vast moral and material benefit to both countries and would enhance the value of contractual obligations between all peace seeking and democratic countries." It might be just the opposite. I recommend that the letters be filed without any further action. Enclosure. DWB PSF OF THE Hmp THE SECRETARY OF THE INTERIOR WASHINGTON May 29, 1939.4F REGENED 181 10 WHITE is HOUSE >>> My dear Mr. President: I showed you this letter on Thursday and you ex- pressed the desire to have it. I have acknowledged it and am enclosing it for whatever use you may care to make of it. Sincerely yours, Secretary of the Interior. The President, The White House. Enc. 787, IBEX HOUSE, MINORIES, LONDON, 15TH MAY, 1939 HON. HAROLD L. ICKES, Esq., SECRETARY OF THE INTERIOR, WASHINGTON, D.C., DEAR SIR, MAY I BRING TO YOUR NOTICE THE FOLLOWING SUGGESTIONS SENT TO MEMBERS OF THE BRITISH GOVERNMENT: "THE FOLLOWING PROPOSAL SUGGESTING, IN PRINCIPLE, A SOLUTION OF AN IMPORTANT MATTER AFFECTING BOTH THE UNITED STATES AND THE UNITED KINGDOM, FROM THE VIEWPOINT OF AN AMERICAN CITIZEN WOULD BE MOST OPPORTUNE IF IT IS PUT FORWARD AT THIS TIME. THE CONGRESS OF THE UNITED STATES COULD AUTHORISE THE ISSUANCE OF FEDERAL RESERVE NOTES FOR THE FULL AMOUNT OF THE WAR DEBT, SECURED BY AN EIGHTY YEARS NON-INTEREST BEARING UNITED KINGDOM BOND ISSUE TO BE AMORTIZED IN THE FOLLOWING MANNER :- OF 1% ANNUALLY FOR 10 YEARS, : OF 1% ANNUALLY FOR THE NEXT 10 YEARS, 1% ANNUALLY FOR THE NEXT 10 YEARS, 12% ANNUALLY FOR THE NEXT 10 YEARS, 13% ANNUALLY FOR THE NEXT 30 YEARS AND 2% ANNUALLY FOR THE LAST 10 YEARS. UNITED STATES CURRENCY ISSUED AGAINST THESE BONDS WOULD MATERIALLY REDUCE TAXES AND THE DEFICIT THERE; THE CURRENCY WOULD BE ANNUALLY CANCELLED AS AMORTIZATION PAY- MENTS ARE MADE. IN THESE ANXIOUS TIMES THIS SETTLEMENT WOULD BE OF VAST MORAL AND MATERIAL BENEFIT TO BOTH COUNTRIES AND WOULD ENHANCE THE VALUE OF CONTRACTUAL OBLIGATIONS BETWEEN ALL PEACE SEEKING AND DEMOCRATIC COUNTRIES". YOURS PSF THE SECRETARY OF THE TREASURY Hmg WASHINGTON July 26, 1939 My dear Mr. President: I thought you would be interested in knowing that I appeared, this afternoon, before the House Democratic Steering Committee. The following are the members of the Steering Committee: James G. Scrugham, Nevada Ex Officio Members: Chairman William I. Sirovich, New York William B. Bankhead, Ala. Secretary Speaker Harry P. Beam, Illinois Sam Rayburn, Texas Clarence Cannon, Missouri Floor Leader Jere Cooper, Tennessee John W. McCormack, Mass. Robert Crosser, Ohio Chairman, Caucus Wall Doxey, Mississippi Robert L. Doughton, No.Car. Charles I. Faddis, Penna. Chairman, Jed Johnson, Oklahoma Ways and Means Committee Marvin Jones, Texas Edward T. Taylor, Colorado Charles Kramer, California Chairman William H. Larrabee, Indiana Appropriation Committee John W. McCormack, Mass. A. J. Sabath, Illinois Howard W. Smith, Virginia Chairman, Malcolm C. Tarver, Georgia Rules Committee Patrick J. Boland, Penna. Whip The purpose of calling me before this group was to try to get me to approve of the so-called Starnes' Public Works Bill which would in effect provide $350,000,000 grants for public works. I concentrated my effort in talking in favor of your Self-liquidating Public Works Program. On leaving, after quite a lengthy session, several -2- members were kind enough to say that I won over the majority of those present to your program. Yours sincerely, The President, The White House. THE SECRETARY OF THE TREASURY file WASHINGTON July 27, 1939 PSFIN My dear Mr. President: I thought you would be inter- ested in reading the inclosed clipping from today's Wall Street Journal. Yours sincerely, The President, The White House. WALL STREET JOURNAL JUL 27 1939 SurplusCash Penalty Treasury Will Enforce Regulation to Drive Earnings Into Dividends Shows Administration Deter- mined to Block Accumula- tions, Despite Surtax Defeat Wants 70% of Income Moved WASHINGTON-Tbe Roosevelt administra- tion, having lost the undistributed prodits tax, la still at war upon what it regards as un- reasonable cash accumulations by corporations. When the profits tax was repealed, President Roosevelt served notice that he regarded many such accumulations as an avenue of tax escape, which he Intended to Close, Yesterday the Treasury issued regulations to implement that policy. The regulations Indi- cate an intention of close enforcement of sec- tion 102 of the Revenue Act. Section 102 imposes penalty taxes for "un- reasonable accumulation of earnings or profits to avoid surtax." The penalty taxes are 25% on the first $100,000 of undistributed Income and 35% on undistributed income in excess of $100,000. The Regulations Indicative of the acope of the new regula- tions was the Treasury's instructions to Its staff that examining officials shall recommend ap- plication or non-application of the penalty tax section in all cases where A corporation has dis- tributed less than 70% of its annual earnings as dividends. The rules pointed out, however, that an even higher distribution of profits did not entitle a company to automatic exemption if its report showed "unreasonable" accumula- tions of cash or quick assets. The instructions drawn up by the bureau and approved by Secretary Morgenthau de- clared that the following classes of corporations "will be given close attention to determine whether section 102 is applicable": - 1. Corporations which have not distributed at least 70% of their earnings as taxable divi- denda. 2. Corporations which have Invested earn- ligs. in securities or other properties unrelated to their normal business activities. 1. Corporations which have advanced sums to officers or shareholdera in the form of loans out of undistributed profits or surplus from which taxable dividende might have been de- clared. 4. Corporations. a majority of whose stocks is held by A. family group or other small group of individuals, or by & trust or trusts for the benefit of such groups. 5, Corporations the distributions of which, while exceeding 70% of their earnings, appear to be "inadequate when considered in connec- tion. with the nature of the business or the financial position of the corporation" or cor- porations with "accumulations of cash or other quick assets which appear to be beyond the reasonable needa of the business." Average "Standard" It WM stated at the Treasury that the figure of 70%, distribution of earnings in dividends which is set up as A. standard in the regula- tions was selected because It was found to AD- proximate the average dividend distribution of all corporations. Section 102 has been in the revenue act for years but Treasury found enforcement diffi- cult. The undistributed profits tax was a stronger weapon than section 102 to force distribution. The prodits tax was largely re- pealed in 1938 and completely in 1939. In 1938 section 102 was strengthened in such a way as Please turn to page #, column I # NOUVI I Trust Act Loophole # Project Evenue Ampos # Standard Brands GOVERNMENTAL Quarter Net Steady IT 8000J et Theatre , disson have , s(wg pus F Inquiring Investor , Frank R. Kent , Easy #23 # ST Current Editorial Earnings Reports Table Abreast of the Market # Building FEATURES Material Firms Profits Up 4 PSC Hears CONSTRUCTION Postal Telegraph Petitions 9 Illinois Bell Telephone Prodits # Cottonseed COMMUNICATIONS Stabilization Planned or or Most Commodities Higher Whest Markets Extend Recovery Surplus Cash Penalty Continued from First Page to put burden of proof on a corporation that an accumulation was not unreasonable. The section of the law added in 1938 stated that "the fact that the earnings or profits of 4 corporation are permitted to accumulate be yond the reasonable peeda of the business shall be determinative of the purpose to avoid gur tax upon shareholders unless the corporation by the clear preponderance of the evidence shall prove to the contrary." In the case of holding or investment com- paniss, moreover, the law specifies a direct pre- sumption that they were formed or operate to avoid surtax. Section 102 More Limited While the existing language of the statute, if held constitutional. would greatly broaden the Treasury's power to proceed against al- leged violations of the statute, the applicability of section 102 is clearly much more limited than the undistributed profits aurtax which applied to virtually all corporations. It can be stated definitely, moreover, that Treasury officials do not view section 102 as a substitute means of enforcing maximum divi- dend distribution by corporations as & whole- that the undistributed profits tax no longer applies-but now rather as an implement against corporations which apparently withhold divi- denda for tax purposes. tions set up yesterday in the new regulations Treasury officials stressed that classifica- not mean that all of any large proportion be of did corporations in these categories would 102. The classifications, it was asserted, were merely to subject to the penalty levies under section A guide to internal revenue Held agents " the must be examined for possible evidence of types of corporations whose tax returns vio- lation of the section. The classifications are, nevertheless, suffi- porations and were interpreted here as pointing ciently broad to embrace a wide section of cor- an intensive effort to prevent large surplus to accumulations by corporations in cases where such accumulations are not clearly needed for business purposes. The regulations provide that on the first four of the five classes of corporations listed above, the internal revenue examining officers' report in every instance shall contain a apecific recommendation for the application or non- provide that each Internal revenue agent and application of section 102. The instructions also field division of the bureau's technical staff shall the recommendations of the examining officers. designate an employe to pass personally upon PSF August 4, 1939 President sends to Bullitt for his information and return THE COMMENT prepared by the following: Feis, Morgenthau, Lauchlin Currie on memorandum from a French Banker friend of Daladier which Ambassador Bullitt had previously sent to the President. See: Bullitt folder-Drawer 1-1939 PSF ADDRESS THE COMMANDANT. U.S. COAST GUARD STATES SEAL AND REFER TO No. UNITED Covino fillowed HMP TREASURY DEPARTMENT 1700 UNITED STATES COAST GUARD HEADQUARTERS WASHINGTON 1 September, 1939. From: Secretary of the Treasury Morgenthau. To : President of the United States. Depending upon weather, I expect to arrive in United States either Sunday or Monday evening. I would appreciate knowing your plans as I would very much like to see you at your earliest convenience and amongst other things discuss next Tuesday's financing. So far I have not disgraced you as a sailor, but I an making no promises. Best regards, Morgenthau PSF, fillsmel ADDRESS THE COMMANDANT. U.S. 5. COAST GUARD AND REFER TO No. Hmp STATES UNITED WE GUARD TREASURY DEPARTMENT 1790 UNITED STATES COAST GUARD TH HEADQUARTERS WASHINGTON 1 September, 6Es 35008 71 RECEIVE THE THESHIRE 1939. From: Secretary of the Treasury. To : President of the United States. Expect to berth 150 miles off St. Johns, Newfound- land, G.M.T. noon, Saturday. Weather conditions permitting, Coast Guard plane will pick me up at sea and fly me via Halifax and Boston to Washington. Am in constant communication with the Treasury. Best regards, Morgenthau PSF TELEGRAM MUH 3P0D17 Govt The White House felsonal Mashington St Johns N F 330pm Sept 3 1939 The President The White House Arrived St Johns will reach Washington some time tonight ready and anxious to reassume my duties best regards. Morgenthau 355pmd