Ask the Scholar
Document scope · 1 page
Scholar
Ask about this object, its catalog metadata, its source description, or the page inventory.
For page-specific OCR and visual context, open one of the page chats.
Scholar Source Context
Document identity
localId
28275887
label
Volume 62, April 1 – April 4, 1937
core
doc
dtoType
document
citationUrl
pageCount
1
Source metadata
id
28275887
sourceUrl
contentType
document
title
Volume 62, April 1 – April 4, 1937
citationUrl
collections
Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
imageCount
1
hasImages
yes
source
import
hasTranscription
no
Source extras
naId
28275887
levelOfDescription
fileUnit
recordType
description
ocrSource
nara-archive
Single page context
seq
1
pageIndex
0
type
document
mediaId
c00e6c9a007a2263
ocrText
DIARY
Book 62
April 1 - April 4, 1937
- B -
Book
Page
Budget
See also Business Conditions
"
# Government Bond Market
Magill memorandum presenting revised estimates made by
Division of Research and Statistics showing major
deficiencies in revenue receipts for present fiscal
year - 4/2/37
LXII
217
HMJr (in own handwriting) reports on Cabinet meeting -
4/2/37
218
a) FDR said:
1) "Still hopes for a balanced budget for 1938"
2) "Will try to get through this fiscal year
without any more demands in the Treasury"
Business Conditions
See also Government Bond Market
HMJr calls conference at home; present: Miss Perkins,
Peoples; Ross, Burns, and Gill (Works Progress
Administration); Eccles, McReynolds, Haas, Daggett,
Leon Henderson, Goldenweiser, Lubin, Hopkins, Gaston,
Bean (Agriculture), Bell, and Miss Lonigan -
8:30 P.M., 4/1/37
66
a) Hopkins tells HMJr he has prepared letter to FDR
outlining plan for cooperation between Treasury,
Works Progress Administration, Labor, and Agriculture,
for appointment of group of experts headed by Treasury
to study non-monetary methods of controlling inflation..
13
b) HMJr tells Hopkins this is exactly his purpose in
calling above-mentioned conference at his home;
Hopkins pretends great surprise
13
c) Feis tells HMJr of another group preparing to study
inflation, including Federal Reserve and State
Department; apparently HMJr unwittingly has "gotten
jump on the whole crowd"; HMJr does not care "which
group does it so long 85 we get results, namely,
balancing the budget now"
13
d) HMJr sees, more and more clearly, that just as long as
Federal Reserve follows policy of selling short-term
securities in order to get money with which to buy
bonds, they will continue to drive up short-term interest
rates, which seems to have effect of also increasing
long-term interest rates and thus push down long-term
bond market; only way to stop this constant fall in
bond market is for them to stop this process and begin
open market operations, thus increasing their portfolio;
this they have refused to do to date
13
Discussion at conference mentioned above
66
a) Actual memorandum
130
(For memorandum on "Speculative Commodities and
Unemployment Programs," see page 168)
Memorandum on "Selective Spending" discussed with FDR - 4/2/37.. 213 172
Ticker report of FDR newspaper conference - 4/2/37
Regraded Uclassified
- C -
Book Page
Carriers' Taxing Act
See Railroad Retirement Act
China
For resume of conversations between HMJr and Chinese
delegation, see Book LXXVIII, page 190
Nicholson reports names and short biographies of leading
members of Kung delegation to attend coronation in
England - 4/3/37
LXII 327
- F -
Federal Deposit Insurance Corporation
HMJr reports to Crowley that "Treasury is holding in
safekeeping for Federal Deposit Insurance Corporation
$100 million face amount of 2% special Treasury notes
dated 12/1/34 and maturing 12/1/39"- 4/5/37
228
a) Suggestion that Federal Deposit Insurance
Corporation should authorise Treasury to redeem
85 million worth, proceeds to be reinvested in
other obligations of United States
Federal Reserve Board
See Business Conditions
If Government Bond Market
France
See Stabilisation
- G -
Government Bond Market
See also Business Conditions
Burgess reports - - 4/1/37:
a) 10:25 A.M.: "Nothing very cheerful to report"
3
b) 12:38 P.M.: "Still slipping; HMJr statement has
not helped"
9
Interest rate situation discussed at conference; present:
HMJr, Haas, White, Seltzer, Murphy, Gaston, Taylor, Viner,
Eccles, and Goldenweiser - 4/1/37
27
a) Action should be joint between Treasury and Federal
Reserve Board; clear indication in press statement
that purpose is to ease money market situation, not
to secure funds with which to buy Government bonds
or to peg Government bond market
b) Gold to be released in inactive account and in
working balance; Federal Reserve should express
intention of conducting open market operations not
limited to bills or bonds
HMJr tells FDR, Eccles and he will have plan for him very soon;
due to Eccles articles, spotlight has been on Government
spending; if combined program fails, then spotlight will be
exclusively on him (FDR); begs FDR to make some statement at
press conference; FDR says he will announce that he is asking
Bell for revision of budget picture, which will be included
in message requesting relief money - 4/2/37
172
Regraded Uclassifie
- G - (Continued)
Book Page
Government Bond Market (Continued)
Conference at HMJr's home to discuss phrasing of joint
release and arguments to be presented by Eccles to
members of Open Market Committee meeting Saturday,
4/3/37; present: HMJr, Eccles, Goldenweiser, Thurston,
Taylor, Bell, Haas, and Gaston - - 4/2/37
LXII
229
Second conference: bond market - interest rate situation;
present: HMJr, Haas, Lochhead, Upham, Bell, Gaston,
and Taylor - 4/3/37
240
a) United Press story discussed
Meeting at HMJr's home; present: HMJr, Eccles, Goldenweiser,
Harrison, Burgess, Broderick, McKee, Sinclair, Williams,
Bell, Gaston, Taylor, Haas, and Upham - - 4/3/37
266
a) HMJr reports on Eccles-HMJr interview with FDR
- I - -
Inflation, Control of
See Business Conditions
- M -
Mexico
State Department transmits memorandum "regarding Mexico's
expanding program of development and the increasing
expenditures necessitated by said program" in preparation
of approaching visit of Suarez (Secretary of Treasury) -
4/2/37
186
= I I
Narcotics
HMJr tells Graves, Hull's office has just informed him
Treasury has not been asked to appoint & representative
to Geneva Narcotic Conference because HMJr has not yet
approved Hornbeck arrangement - 4/1/37
7
a) Graves will immediately prepare letter for
HMJr's signature
Memorandum entitled "Arrangement for facilitating cooperation
between the State Department and the Treasury Department
for the purpose of discharging the international obligations
of the United States concerning the traffic in narcotic drugs"
agreed upon with Hornbeck, approved by HMJr, and transmitted
to Hull - 4/1/37
21
- R -
Book Page
Railroad Retirement Act
For resume 2/24/37-4/21/37, see Book LVI, page 175
Magill memorandum on conference in Senator Harrison's
office with D. W. Bell, George Harrison, and Pelley -
4/1/37
LXII
11
HMJr tells FDR of conference with Harrison and Doughton -
4/1/37
14
a) HMJr makes suggestion (to which they agree)
that law go into effect July 1, 1937, instead of
January 1; thus Treasury will gain about $150 million
in this fiscal year
b) Harrison suggests that instead of going from 7% to
5% they let the 7% stand for one year, lowering
rate $2 each year until the 5% is reached
Senator Harrison reports "no luck in selling above ideas" -
4/2/37
207
Board of Actuaries forwards analysis of "certein actuarial
computations made by Railroad Retirement Board and
Government Actuaries" - 4/2/37
209
HMJr-Doughton conversation - 4/2/37
223
HMJr tells Magill, Harrison has said he could not get in
touch with railroad owners and therefore was going to
introduce bill in Senate; HMJr reported this to Cabinet;
FDR tells Garner to tell Harrison to do nothing until
FDR can send him a letter outlining why the Treasury
cannot afford to let this bill go through because of
loss of revenue this year and next; HMJr tells FDR,
Magill and Bell will have letter ready at twelve o'clock
Monday, April 5th - 4/2/37
227
- S -
"Selective Spending"
See Business Conditions
Stabilization
France:
Market movements resume - - 4/2/37
200
- U -
Unemployment Relief
For discussion of Haas memorandum "Selective Federal purchasing
and allocation of Federal projects from the standpoint of
employment and cost of materials," see Book LXI, page 292
See also Business Conditions
- W -
War, Prevention of
For Bewley conference with HMJr in Sea Island, Georgia,
see Book LXI, page 155-A
Chamberlain's reply to HMJr's "important message offering
cooperation in prevention of another war"
176
(Message was conveyed verbally to British Ambassador:
see Book LVI, page 317)
Regraded Uclassified
1
April 1, 1937.
10:18 a.m.
H.M.Jr:
Hello
0:
Chairman Eccles
H.M. Jr: Hello
0:
Go ahead
H.M.Jr:
Hello
Eccles:
Hello
H.M.Jr:
Marriner.
E:
Yes sir.
H.M.Jr:
Jake Viner is here at my desk.
E:
Yes.
H.M.Jr:
He could come over now if you could see him.
E:
Well I can't for a little while. Let's see - ah -
H.M.Jr:
Well give him a time - 11 o'clock?
E:
Yes, how will that be?
H.M.Jr:
Eleven?
E:
Yes, we're to - over at the Treasury.
H.M.Jr:
Well he n1 come to see you.
E:
Oh, all right then, that will be fine.
H.M.Jr:
No, he'll come to see you.
E:
That's fine.
H.M.Jr:
At - at 11 o'clock.
E:
I'd like to get - I'd like to have Goldenweiser
in too.
H.M.Jr:
Well anybody that you want - he'll come over there.
- 2 -
2
E:
Well that will be fine; 11 o'clock.
H.M.Jr: 1 11 o'clock.
E:
Ah - - thank you.
H.M.Jr:
All right, goodbye.
E:
Goodbye.
I
Regraded Uclassified
3
April 1, 1937.
10:25 a.m.
Burgess:
Hello
H.M.Jr:
Hello Burgess.
B:
Oh hello sir.
H.M.Jr:
Yes.
B:
Well I just wanted to keep in touch with you.
H.M.Jr:
Yes.
B:
You've seen the market this morning I suppose.
H.M.Jr:
Well Harris was just telling me about it.
B:
Yes, there's nothing very cheerful to report.
H.M.Jr:
Yes.
B:
There - there was some nibbling from insurance
companies yesterday from one or two of them
H.M.Jr:
Yes.
B:
but they're very few buyers in the market.
The buyers have all gone into their bomb-proof
storm shelters
H.M.Jr:
Ah-ha.
B:
and - ah - they may come in before the day's
over - I don't know.
H.M.Jr:
Ah-ha.
B:
They - there are blocks around that are available at
prices so that it would takean awful lot of buying
to do much in the market; we'll just - ah - just try
to keep it orderly
H.M.Jr:
Yes.
B:
....by buying here and there if I see any bids
available unless you have any other suggestions.
4
- 2 -
H.M.Jr:
No I haven't got any - ah - ah - I mean each day
goes on; its becoming more obvious that the - that -
that what we're following - not on the day to day
but the policy which is laid down isn't going to do
the trick but I'm not prepared to say what change
should be made.
B:
Well I think its very difficult. I've been very
hopeful all along; perhaps thats a little too
optimistic; that the thing would blow itself out
H.M.Jr;
Yes.
B:
but the darndest things keep happening here.
These - the
talk about inflation
H.M.Jr:
Yes.
B:
and about the Treasury Budget position
H.M.Jr:
Yes.
B:
and so on which keeps stirring people up again.
H.M.Jr:
Yes, we got - if you notice the Wall Street Journal
or the Tribune corrected that story that we were out
of funds.
B:
Yes - yes.
H.M.Jr:
Yes.
B:
Well I talked around with
here yesterday
and I straightened him out.
H.M.Jr:
Well I talked to Duffield yesterday.
B:
Well that's well, yes, I'm glad you did.
H.M.Jr:
Yes.
B:
Yes.
H.M.Jr:
Well -
B:
Well I - I still think its crazy and it will blow
itself out but just when I don't know.
Regraded Uclassifie
5
- 3 -
H.M.Jr:
Well, as I said, I talked to Harrison yesterday
on the day to day I might say, "Well I'd buy a
little more or a little less from hour to hour".
I - I told them whether they buy five, seven or
ten million on a day to day it makes very little
difference.
B:
I think it makes almost no difference.
H.M.Jr:
But its - we're - we're on a certain course; whether
that course should be changed I'm not prepared to
say yet.
B:
Yes, I agree. I feel exactly as you do.
H.M.Jr:
But I - I am becoming each day more skeptical that
the course that has been charted
B:
Yes.
H.M.Jr:
that the thing will correct itself as long as
we follow that course.
B:
Yes, well now I think that's a real question.
H.M.Jr:
What?
B:
I think that's a real question.
H.M.Jr:
But Eccles asked me last night did I have any
suggestions to make and I said not yet.
B:
Yes - yes, well I think you're taking exactly the
right course. I wouldn't be prepared to make any
recommendation to-day.
H.M.Jr:
How about this gossip that the banks converted a lot
of their April notes into the 2-1/2's hoping to make
a profit and then when they couldn't they got panicky
and sold them?
B:
Oh I don't think it was any more so than usual. Of
course they always do that.
H.M.Jr:
Yes, and they got stuck this time.
6
- 4 -
B:
Yes, there was some selling of that sort; there
always is
H.M.Jr: Yes.
B:
and their
had some.
-
H.M.Jr:
Yes.
B :
Ah - - but....
H.M.Jr:
Well I'm - I'm glad our refunding is behind us.
B:
Thank God for that, yes.
H.M.Jr:
That's right.
B:
(Laughs)
H.M.Jr:
All right, Burgess, if anything happens call me.
B:
I will.
H.M.Jr:
All right.
B:
Right.
7
April 1, 1937.
12:07 p.m.
H.M.Jr:
Harold Graves please.
0:
Right.
H.M.Jr:
Hello
0:
Mr. Graves.
H.M.Jr:
Harold.
Graves:
Yes sir.
H.M.Jr:
Mr. McBride, Mr. Hull's Secretary, just called
Mrs. Klotz to say that the reason they had not
asked us to appoint a man to go to Geneva on the
Narcotic Conference was because I had not - said
that I would agree to what you and Hornbeck had
gotten together on.
Graves:
Oh yes. Would you like for me to send some.....
H.M.Jr:
What?
G:
Would you like for me to prepare a letter for you
to sign?
H.M.Jr:
Well they say its on my desk; I've got nothing on
my desk.
G:
No, nothing was ever submitted for you to sign. I
suggest that you let me prepare a letter for you to
sign to Mr. Hull saying that you do approve this
Hornbeck arrangement.
H.M.Jr:
Well if you can get it in to me I'll sign it.
G:
Ah - I certainly will.
H.M.Jr:
Call up McBride and explain to him will you?
What you are doing?
G:
Yes.
H.M.Jrb
McBride is Hull's Secretary.
8
- 2 -
G:
I'll do it.
H.M.Jr:
Now the responsibility is yours.
G:
All right I'll see that the letter is prepared for
you and I'll call McBride.
H.M.Jr:
Right.
G:
Yes sir.
9
April 1, 1937.
12:38 p.m.
H.M.Jr:
Hello.
0:
Dr. Burgess.
H.M.Jr:
Hello
0:
Go ahead.
Burgess:
Hello
H.M.Jr:
Hello Burgess.
B:
Oh, hello Henry.
H.M.Jr:
How are things going?
B:
Not very well; it's slipping. Ah - keeps on slipping
a little bit.
H.M.Jr:
What?
B:
It keeps on slipping a little bit.
H.M.Jr:
Ah-ha.
B:
I guess it's off a half to three quarters of a point.
H.M.Jr:
Yes. Have you done anything to-day?
B:
We've done about seven million.
H.M.Jr:
Seven million.
B:
We - we've got bids in on the board; we're picking -
picking off the most
bonds as they come
along.
H.M.Jr:
"id you see my statement on the Dow Jones ticker?
B:
Yes.
H.M.Jr:
That didn't hurt any, did it?
B:
Well I don't know whether it did or not.
H.M.Jr:
Well I should think it would have helped.
10
- 2 -
B:
It's very hard to (laughs) - very hard to say. (Laughs)
H.M.Jr:
I made it to help.
B:
The market doesn't give much indication of having
been helped by anything this morning. (Laughs)
H.M.Jr:
I see. All right.
B:
But I - - I think you told just the truth and that's a
pretty good rule.
H.M.Jr:
That's right.
B:
It paid to doubt (laughs) I don't know any other
better rule.
H.M.Jr:
That's right. All right.
B:
All right, Mr. Secretary.
H.M.Jr:
Goodbye.
B:
Goodbye.
11
April 1, 1937
Excerpt from Mr. Magill's memorandum to the
Secretary entitled, "Memorandum of the Day's Activities
for April 1st":
1. Railroad Retirement Legislation
Attached hereto is a memorandum outlining my con-
ference this morning with Senator Harrison and Messrs.
George Harrison and Pelley. The two men last named are
to consult their respective groups and advise Senator
Harrison of the result. In the meantime there is no
action for us to take.
12
COPY
April 1, 1937.
TO
The Secretary
FROM
Mr. Magill
Subject: Railroad Retirement Legislation
Senator Harrison called me about 10:00 A.M. and asked
that Mr. Bell and I go to his office to discuss the pro-
posed compromises with him, Mr. George Harrison representing
the Railroad Brotherhoods and Mr. John Pelley representing
the Railroads.
We outlined to the conference the plan which you pro-
posed yesterday. Mr. Pelley seemed to have two objections:
(1) That it would cost the railroads about $50,000,000 and,
(2) that it would involve agreeing to the constitutionality
of the present Tax Law. I told him that as a matter of fact
the railroads would get a very good break, since the Govern-
ment would immediately take over a liability for $200,000,000
under the present private pension plans and that our Actuaries
estimate that the deficit under the proposed agreement would
amount to around $1,000,000,000.
After discussion back and forth Mr. Pelley agreed to
present the proposal to his group and Mr. George Harrison
would present it to his. Mr. George Harrison seemed to have
no objection to the proposal but stated again that he under-
stood from a conference he had with the President that the
President approved the agreement as it stood. Senator Harrison
stated that in the event the railroads would not agree to your
proposal we might have to have another conference and perhaps
a conference with the President.
Senator Harrison was very friendly but the impression I
get is that he would be entirely willing to go along with the
plan proposed by the Railroads and Brotherhoods. He stated
that the unfortunate part of the agreement was that the
Treasury had not been called in and that everyone should have
realized the jealousies that exist among the different Depart-
ments. I said that so far as the Treasury is concerned we
did not desire to oppose the agreement, but in the present
state of the budget we could not agree to an immediate loss
of around $150,000,000 and a prospective loss of $1,000,000,000.
(Initialed) R. M.
13
April 1, 1937
Aprry Hopkins went home with me last night. What
he wanted to tell me W&S that he had prepared à letter to
the President outlining a plan that the Trensury, the
Hopkins organization, Miss Perkins and "griculture should
get together and appoint & group of experts headed up by
the Treasury experts to study non-monetary methods of con-
trolling Inflation and that I should be chairman of this
committee.
Hopkins asked me what I thought of the idea. I told
him that that was the purpose of my calling the meeting
Thursday night and that I had just this in mind. He pre-
tended that he was very much surprised to learn that this
was my purpose and was it not interesting to think that he
and I had the same idea? Of course, from what I picked up
here and there, he knew that this thing was coming and was
just trying to "jump the gun" and get the credit for himself.
He told me that in talking with the President yesterday
the President said as far as money for next year went, it was
going to be $1,500,000,000 and that he did not want to discuss
money for relief for next year, but he would be willing to discuss
the relief problem.
In the evening Feis told me something about another group
which is making a study on inflation, etc., and I have not got
that story straight, but it dovetails in with what Wallace told
me and I gather that there has been another group talking about
getting together which includes the State Department and i the
Federal Reserve and evidently unwittingly I got the jump on the
whole crowd.
Feis has given me E memorandum, which I have
not yet read, which is supposed to cover this subject.
I do not care which group does it as long as we get the
results, namely: that we balance the budget now.
It is gradually becoming clearer to me that just as
long as the Federal Reserve follows the policy of selling short-
term securities in order to get money with which to buy bonds,
they will continue to drive up short-term interest rates which
seems to have the effect of also increasing long-term interest
rates and in this manner push down the long-term bond market.
I am beginning to believe that the only way that they can stop
14
-&-
this constant fall in the bond market is for them to stop
this process and begin open market operations, which would
mean that they would increase their portfolio. This they
have refused to do up to date.
******
HM,Jr. called the President at 9:30. He said to the
President, "Harrison and "oughton came down here last night
and we had an hour and a half together on the Hailroad Retire-
thing thing. I made a suggestion, which they liked very much,
and that was that instead of putting the law into effect
January 1, that we make it July 1, 1937, and in that way the
Treasury would gain about $150,000,000 in this fiscal year."
The Secretary then pointed out to the President that railroad
union people retiring now would receive greater allowances
under the proposed compromise since the present retiring act
is more generous than the proposed act.
"Harrison and "oughton liked it," the Secretary told
the President, and Harrison made the suggestion that instead
of going from 7% to 5% that they would let the 7% stand for
one year and then knock off 1/4% each year until the 5% is
reached. Harrison took the responsibility of seeing the
railroad owners and the unions to see what he can do.
HM,Jr. pointed out to the President that when the
unions thought they had the agreement, they immediately an-
nounced that they would strike for a 20% increase in wages.
"Bonds went down a lot and the Federal Reserve are
going to continue to support the market, the Secretary
reported to the President. 'Eccles calls me a couple of
times a day and George Harrison calls me. They both ask
for suggestions, but I told them that I had no suggestions
to make."
"Tonight Frances Perkins and Harry Hopkins are coming
over to my house together with a group of others to talk about
what I call "selective spending' and to see if we can work
out something and then we will ask to see you."
Regraded Uclassifie
TO:
Ins.
15
This is the ngular
monthly mprt for warch)
mg arding aloohol smuggling
incretigations an the Eastern
seatemed.
The security asked to
have these npnts famished
him.
From: MR. GRAVES 4/10
OFFICE OF
ASSISTANT DEPUTY COMMISSIONER
16
ALCOHOL TAX UNIT
April 6, 1937
Mr. Graves:
There is inclosed, for your in-
formation, a report dated April 1, cover-
ing the general smuggling situation along
the North Atlantic coast during March,
1937.
Assistant Deputy Commissioner,
D Dwight X Avis,
Enforcement.
17
COPY
April 1, 1937
SECRET & CONFIDENTIAL
Deputy Commissioner,
Alcohol Tax Unit,
Washington, D. C.
Attention: AT:EXIHL
The following report is submitted covering the general
smuggling situation along the North Atlantic coast during the month
of March, 1937.
STATUS OF CASES
Case No. 3237-M
This case is set for trial on May 10, 1937, in Camden, New Jersey.
Case No. 3855-M
This case involves the 8 eisure of 329 cases of alcohol at Keansburg,
New Jersey. During the month a new indiotment was returned in the
District of New Jersey against Pierre Leveque, John Saunders, Fred
Wise, Louis Johannes, Henry Baker and James Murry on a charge of con-
spiracy and other counts.
Case No. 373-8
There has been no change in the status of this 0880. The removal hearing
of Bert Erickson has been postponed from time to time and will come up
for decision before the United States Commissioner on April 6.
Case No. 377-B
Continuous effort has been made during the month to apprehend the defendants
Lovin, Gerks and Brown. The New Jersey fugitive squad, consisting of two
Investigators, has been spending practically its entire time in trying to
effect the apprehension of these fugitives. We have had telephones under
supervision, and the New York Police Department is aiding in this work
and has made two or three searches, one at the home of Mrs. Gerke. It is
believed that Gerke is in Greater New York and that Isvin is somewhere in
or around Miami. One report is that Levin moved to Hot Springs, Arkansas.
The matter has been taken up with the District Supervisor at Kensas City
for the purpose of having an investigation made there. Another report is
that he went into hiding some thirty miles from Miami on information from
the Newark gang which patronizes the Dempsey-Vanderbilt Hotel in Miami
that he is "hot". It is believed that Henry Gerke will surrender in the
18
near future. His wife is ill and the Collector of Internal Revenue for
the Third District of New York has prepared of distraint warrant to be served
at Gerke's apartment house at 921 St. Nicholas Ave., New York City.
It is believed that the defendant Brown is aboard a vessel engaged in
the banana business, and we have sifted the vessels on which he would
probably be down to three. One of them is the Norwegian Steamship BODO
which discharged a cargo of alcohol at St. Pierre, the captain working
with the American government in refusing to transship on the high 8635,
Our star witness and co-defendant Stanely Collins is still in jail at
Trenton, N.J., having been confined there for almost nine months. It
1a becoming necessary for us to get him out of jail through sons method.
The District Attorney insists on some kind of bond being made. It is be-
lieved by all concerned that Collins will voluntarily return to the United
States and testify in this case, However, it would be perfectly easy for
him to double-oross us. Anticipating that be was getting restless and
might cause a complaint to be made to the British Consul, I visited the
British Consul in New York yesterday and talked to him about Collins,
and feel that should any complaint be registered with him, the matter will
be handled in the proper manner.
Case No. 378-3
This case covers all activity in smuggling at this time. All activity is
centered off the New England coast. There is no doubt that the source
of supply is St. Pierre. In the report for themonth of December, 1936,
it was reported that the EAYEMARIE discharged a cargo of alochol off Cape
Cod. This decision was arrived at through a series of circumstances and
radio transmission.
During the month of March, information was obtained through B. former member
of the crew of the KAYEMARIE that they did discharge 1300 casse of alcohol
near Wellfleet, Mass. in December. It has been definitely determined that
John Magmis is heading the organization which is operating at this time.
On March 15 the KAYEMARIE returned to a position off the New England coast
and communicated with the land station by radio. On March 15 this vessel
was picked up and trailed by the Coast Guard, and was kept under trail
continuously until 5,00 P'M. on March 27 when it was lost near St. Pierre
due to the vessel going over shoals and the Coast Guard vessels could not
follow. It is believed that this vessel made contact with another vessel
and was refueled and provisioned. On March 31 this vessel was again heard
on the air, ad today at 9,00 A.M. B. bearing WELd obtained showing that the
KAYEMARIE was 33 miles SSW of Seal Islandon its way back off the New England
coast. Every effort has been made to locate the land station without
success due to the fact that it is portable and never broadcasts from the
same position. It is possible that during the coming operation of the
KAYEMARIE we will be able to find the portable station and it is our
intention to take the operator into custody and try to make a deal with
him to bring the vessel into American waters, and if imanocessful in this
5
will bring it in ourselves, using his net.
2.
Regraded
Uclass
19
There has been radio communication with a station which used the call
letters RO in January. On March 26 this station was heard again and
continued to communicate with the land station up to Sunday, Maroh 28.
The radio communications indicate that it successfully discharged ite
cargo, either to B. coastwise vessel or a fishing vessel about 35 miles
off Cape Cod, and it is believed that this ship was directed by a shore
station in the vicinity of New York using the call lettors WP, and that
the time consumed in transferring was four hours. The bearings indicate
that the vessel drifted approximately four to five miles while engaged
in the transfer, this position being about 10 miles off the regular shipping
lane ordinarily used by coastwise vessels.
We are just in receipt of uncorroborated information that B. trawler and
8. schooner have left St. Pierre with aloohol. This report end others
are being investigated from every possible angle. During the past two
months there have been reports from underworld sources to the effect that
B. gang in the vicinity of Boston, which is unidentified, is attempting
to sell alcohol in New York; that there were some 25,000 cases of aloohol
in St. Pierre and that they were bringing over 40,000 additional cases. on
the last visit of the Boston representative of the gang, he was suddenly
recalled to Boston and left word that they were having difficulty with the
foreign end in getting the alcohol and could not promise a definite date
of delivery. This story in itself would ordinarily not mean anything, but
immediately thereafter reports were received through the diplomatic ser-
vice that W. A. Shaw was trying to charter another boat from Klyberg.
This report came from Antwerp. At the same time the Vice-Comsul at Ham-
burg reported that Morase, who is the alcohol dealer in St. Pierre, had
made inquiries of the German Government as to the probability of being
able to obtain clearance on 40,000 cases of alcohol from Hamburg. The
German Government refused clearance unless certain rules and regulations
were complied with, which evidently stopped further action along these
lines for the time being at least. This information WEB received ime-
diately after the report from the underworld in New York that trouble
WELS being experienced on the foreign end. It is reasonable to believe
that Moraze would not replenish the supply of alcohol in St. Pierre if he
did not see his way clear to dispose of it at & profit.
Information has been obtained from certain records of W. A. Shaw which gives
a clear picture of the method used in bringing alcohol from Belgium and
transshipping on the high seas, particularly by the ANDERS, JAN, REIDUN
AND BODO. Bill Miller was the contact man with parties in the United States,
and went to Belgium, procured the alcohol and supervised its loading to
these vessels. Shaw procured the vessels and furnished the Supercargo.
Shaw would then give the captains of various rum vessels orders for quantities
of alcohol which would be delivered to the captain by the Supereargo
upon receipt of the order from Shaw. Shaw provided transportation for
this alcohol to a point off St. Pierre at the rate of 75% per case.
Imediately after the BODO refused to break cargo on the high seas and
dicharged its cargo in St. Pierre, this alcohol began to filter out, upon
Regraded Uclassified
20
theorders of Shaw to Paturel and Fitte who were operating the so-called
American House, the company which took over this alcohol and paid certain
fines due. This alcohol was to be released by Paturel only upon the
orders of W. A. Shaw. Shaw apparently is very anxious to have the indiot=
ment, which is pending against him in South Carolina, dismissed and has
agreed to furnish all the information in his possession. However, I an
somewhat in doubt as to whether Shaw will furnish the type of information
which would be of benefit to the Government, 0.0 he may claim that he was
merely the transportation agent. Therefore, I an not anxious to go to
Canada to confer with him, believing that later on he will become more
enxious and perhaps give more information than if I visited at this time.
About a week ago the Collector of Customs at New York received a radiogram
from a merchant in St. Martins to the effect that the STANDARD COASTER and
the REO II had left St. Martins with 6000 kegs of rum which would be trans-
shipped off the Jersey coast. Little credence is given to this report be-
cause it is not profitable to smuggle rum into this country. An inves-
tigation was made recently at the offices of large importers and distrib-
utors of foreign liquors, and information obtained indicates that run is
a very poor seller and no money can be made by smuggling it into the United
States. This morning these two vessels were heard in communication with
their home station in Nova Sootia and it is believed that they are again
proceeding off the Canadian shore and will discharge their cargoes in
Canada, where rum is a favorite drink.
Since March 28, 1937, at which time indications were that a load of alcohol
was successfully discharged, WB have been trying to obtain information which
will support this contention but 80 far have been unable to locate any
smuggled alcohol. Arrangements are now being made to effect the purchase
of smuggled alcohol, provided a source of supply can be found, and if the
purchase can be made we will attempt to work back to the land headquarters
from the distributor.
W. E. Dunigan
Assistant Supervisor, Enf.
Regraded Uclassifi
21
April 1, 1937.
My dear Mr. Secretary:
Mr. Graves has handed ne the attached memorandum, entitled "Arrange-
ment for Facilitating Cooperation Between the State Department and the
Treasury Department for the Purpose of Discharging the International
Obligations of the United States Concerning the Traffic in Narcotic
Drugs," which represents the understanding reached between Dr. Hornback
and himself with reference to the handling of the international aspects
of narcotics matters by the State and Treasury Departments.
I have examined this memorandum and find it to be entirely satis-
factory so far as this Department is concerned.
Sincerely,
(Signed) H. Marconthau, Jr.
Secretary of the Treasury.
The Honorable
Cordell Hull
Secretary of State.
HHG/mff
Regraded Uclassifie
22
March 25, 1937.
ARRANGEMENT FOR FACILITATING COOPERATION BONDER
THE STATE DEPARTMENT AND THE TREASURY DEPARTMENT FOR THE PURPOSE
OF DISCHARGING THE INTERNATIONAL OBLIGATIONS OF
THE UNITED STATES CONCERNING THE TRAFFIC II MARCOTIC DRUGS.
1. The Bureau of Narcotics will remain the Special Administration
of the United States under the Narcotics Limitation Convention of 1931.
2. The Bureau of Narcotics will continue to be the agency in the
United States responsible for the direct exchange with corresponding
foreign administrations of information and evidence with reference to
the illicit traffic in narcotic drugs. This will not, however, be con-
sidered as excluding the exchange of information and evidence directly
between Treasury representatives abroad and the police and other govern-
mental authorities of foreign countries, as outlined in paragraph 5.
3. The Bureau of Narcotics will continue to prepare the annual re-
port required of the American Government under the terms of the Narcotics
Limitation Convention of 1931, as well as other formal reports relating
to narcotics which may be required under treaty obligation or other in-
ternational agreement to be submitted by, or on behalf of, the American
Government to any foreign nation or nations. It 1a understood that before
any such formal reports (not including routine reports of seizures or
other reports of the classification referred to in paragraph 2) are put
in final form, the preliminary drafts will be submitted for review and
comment by the State Department.
4. With reference to the present arrangements whereunder all con-
tacts by the State Department with the Treasury Department on the subject
Regraded Uclassified
+
23
of narcotics are required to be made through the office of Assistant
Secretary Taylor, these arrangements will be understood hereafter to
apply only to matters of policy; and officers of the State Department
will be at liberty, in their discretion, to make direct informal contact
(1) with appropriate officers of Customs in any case where they may de-
sire information with regard to the smuggling of drugs into the United
States, (2) with appropriate officers of the Bureau of Narcotics in any
case where they may desire information with regard to any aspect of the
narcotics traffic other than the smuggling of drugs into the United
States, and (3) with appropriate officers of the Public Health Service
in any case where they may desire information regarding any matter No
lating to narcotics which comes within the jurisdiction of that Service.
5. The Treasury Department will be free to station representatives
in such foreign countries as it may consider to be important sources of
supply for drug-smuggling operations directed at the United States, (1)
for the purpose of conducting investigations with regard to such ams-
gling operations with the help of, and through contacts with, the appro-
priate police and other governmental authorities of such countries, or
(2) for the purpose of effectuating with governmental authorities in-
formal exchanges of information with regard to the smuggling of narcotics,
or (3) for both these purposes. The Treasury representatives will usually,
though not always, be officers of Customs, and when permanently stationed
abroad will be known as Treasury Attaches or as Treasury Representatives.
It is understood that when the Treasury Department wishes to send repre-
sentatives abroad for the purposes indicated, the Department of State
Regraded Uclassified
-3-
24
shall be consulted and, through the Department of State, the assent of
such other governments as may be concerned shall be sought.
6. The State Department will authorize its diplomatic and consular
representatives in Europe and in the Far East to transmit to the Treasury
representatives at Paris and at Shanghai, respectively, in the form of
strictly confidential memoranda, all information of immediate importance
with relation to the smuggling of narcotic drugs into the United States
which such diplomatic and consular officers send by telegraph or mail to
the Department of State, it being understood that under no circumstances
will the source from which such information has reached Treasury represent-
atives be disclosed. The State Department will also instruct its diplo-
matic and consular representatives in countries where Treasury representa-
tives are stationed to extend to said Treasury representatives such
assistance and cooperation as those representatives may properly request
in the conduct of drug-smuggling investigations abroad.
Regraded Uclassifie
25
April 1, 1937.
3:03 p.m.
Eccles:
Hello - Hello Henry.
H.M.Jr:
Marriner.
E:
Hello
H.M.Jr:
Marriner.
E:
Yes.
H.M.Jr:
I wondered if, by an chance, you're free tonight.
E:
Yes sir.
H.M.Jr:
Good, well now I'll tell you what. I'm getting
some people together to talk about what I call
"Selective Spending".
E:
Yes.
H.M.Jr:
And there's Hopkins; there's Perkins and so forth
and so on, see?
E:
Yes.
H.M.Jr:
And - well I just invited Hopkins and Miss Perkins
for supper and I wonder if you could come.
E:
Ah - yes, I haven't any engagement. That's at what
time?
H.M.Jr:
My house at 7:30.
E:
Yes.
H.M.Jr:
And then if you'd like Goldenweiser to come afterwards
why I'd beldelighted.
E:
All right. That - that won't be necessary to - ah -
H.M.Jr:
Prepare?
E:
To prepare at all.
H.M.Jr:
We've got a paper which we're going to read and we'll
let you fellows tear it apart.
Regraded Uclassified
26
2
E:
Yes, but I mean I can go right from the office here.
I
H.M.Jr:
Oh, yes. You don't - don't need to dress.
E:
I - I was
H.M.Jr:
At 7:30 and tell Goldenweiser 8:30, see?
E:
Yes. Well now, I'd like to see you this afternoon,
but I don't know. I suppose you're pretty busy.
I'd like to discuss this - this bond market.
H.M.Jr:
Well I told - I told Jake I'd see him at 4:30. You
want to come then?
E:
Yes.
H.M.Jr:
4:30?
E:
4:30.
H.M.Jr:
Okey-doke.
E:
So I'll be over to your office.
H.M.Jr:
Yes, and will you tell - I expect you for supper at
7:30 -
E:
Fine.
H.M.Jr:
- and Goldenweiser at 8:30. We're going to read a
paper and we'll let you fellows àll tear it apart.
E:
O.K.
H.M.Jr:
See?
E:
All right. That's fine.
H.M.Jr:
Thank you.
E:
Goodbye.
27
RE: BOND MARKET - INTEREST RATE SITUATION
April 1, 1937
4:15 P.M.
Present:
Mrs Klotz
Dr. Viner
Mr. Haas
Mr. Eccles
Mr. White
Dr. Goldenweiser
Mr. Seltzer
Mr. Murphy
Mr. Gaston
Mr. Taylor
Heas:
We feel that preferably - this is the ideal we're
talking about: Number One, that the action should
be jointly between the Treasury and Reserve Board;
that it should be clearly indicated in the press
statement, or whatever means is used to make it
public, that it is done for the purpose of easing
the money market situation, not for the purpose
of securing funds with which to buy Government bonds
or any implication that it is done in an attempt to
peg the Government bond market.
Then as to the devices which we think are preferable
to use, we think a combination probably would be
best. "A" under that - that you would release
inactive gold and the gold in the working balance;
the two together now amount to about 520 million.
The boys thought it would probably be better to
leave a little bit in the inactive account just to
keep it on the sheet, but to put out either four or
five hundred million dollars of the 520 million.
Put out 500, you've got 20 left; put out 400, 120
left. They felt you should do it in a substantial
amount to show that you're - they feel that is
necessary; that you can't just nibble at it.
In conjunction with that, the Federal Reserve Board
should say.
H.W.Jr:
(To Kieley) I'm sorry, his appointment was for four,
I'm very sorry, he'll have to - I can't see him now.
I've kept 15 minutes for him. You'll have to make my
apologies. I sat here for 15 minutes waiting.
Kieley:
Make a date for him?
H.M.Jp:
You'll just have to handle it. I can't do it the rest
of this week. I'm very sorry. - - Man walks in here
15 minutes late.
28
- 2 -
Haas:
Where was I?
White:
At the amount of gold. I don't know - said four or
five hundred million.
Haas:
At least the boys felt better to leave some in the
inactive account just to leave it on the sheet.
In addition to releasing either 500 or 400 million,
they felt that the new importations of gold should
not be sterilized for the time being.
H.M.Jr:
Well, may I just interrupt you?
Haas:
I'm about through.
H.M.Jr:
Well, I'll wait until you get through.
Haas:
I'm through.
White:
How about the Federal Reserve Board?
Haas:
Oh, the Federal Reserve ought to - the part which the
Federal Reserve Board would take - be also a part of
this joint statement of action taken. They should
express their intention of conducting open market
operations, not limited to bills or bonds but just
open, so they could buy bills or bonds.
I think it is important that the action should not
be just confined to the open market operations of
the Federal Reserve Board, because there is a general
feeling now - a misunderstanding, an irrational feel-
ing that the buying by the Federal Reserve Board is
sort of a pegging operation; there is not a general
understanding that that increases excess reserves of
the banks.
But that operation - the intention to perform that
operation if necessary, along with the release of this
gold, is the best solution we have.
H.M.Jr:
Well, what you think is it should be two things.
Haas:
A combination.
H.M.Jr:
A combination of open market operation and release
both.
29
- 3 -
Haas:
That's right.
H.M.Jr:
Now, for the moment, where we take that gold from
isn't important, is it?
White:
I think SO.
Seltzer:
You mean from the working balance or the inactive.
Haas:
I think it is.
Seltzer:
Probably have to raid both of them to make a
sizeable amount.
Murphy:
There's only 332 million in the inactive account,
and four or five hundred million is the amount that
it seems would be necessary to make a sufficient
showing.
H.M.Jr:
How much?
Murphy:
Four to five hundred million, to make a sufficiently
....
H.M.Jr:
You mean you don't feel it should be done 50 million
at a time.
Seltzer:
Oh, absolutely not. I think
Haas:
You might lose the whole effect.
White:
The effect we want to achieve is the psychological
one, not only the actual.
H.M.Jr:
341 million today inactive.
White:
We feel that something ought to be left in there to
leave the fund prepared
H.M.Jr:
186 plus 341 is 527.
Haas:
That's right. They might suggest just taking the
180 out of the working balance.
H.M.Jr:
Oh.
Haas:
That doesn't have the psychological effect; the
amount isn't large enough.
Regraded
30
- 4 -
H.M.Jr:
Of course, the thing that I don't like about this
thing - I don't like to be hurried SO on this thing.
I'd like to do this thing as of Monday morning.
I mean I hate to have Eccles come in here and say,
"Do this tonight, effective tomorrow morning." It
kind of rushes me. I think they rushed me too much
on the other business. They come in one night and
say, "We're going to raise the requirements, and
give us an answer tomorrow." We didn't have a chance
to You remember when I went over to the White
House. They didn't give me a chance.
White:
Well, I don't know that we're in agreement there,
but I feel personally on that that Monday or Saturday
would be all right.
H.M.Jr:
Well, I think it's a much more statesmanlike thing to
do.
White:
It's a little less panicky. Even if it goes down,
it will snap back as a consequence of that.
Haas:
There may De something in that. You don't want to
give them the position that you are pushed against
the wall.
H.M.Jr:
I mean this idea of doing a thing on a Thursday
night, coming out - as a matter of fact, there is
always a question when is the right time to do this
thing, and I think that
Heas:
Over a weekend.
H.M.Jr:
I think over a weekend is the time to do this thing.
White:
There is another reason why I feel over the weekend
is the time to do it. That is, what you are approach-
ing is for broad monetary policy; it isn't something
you should decide overnight. It is something - it
indicates the interest rates are as high as you think
is justified by the fundamental condition and the
thing to do is to ease it up, all in a leisurely
fashion, and it would help to give that impression
rather than
H.M.Jr:
Well, I mean if we had a press conference here Saturday
afternoon and Eccles was here, if we did this thing
in a statesmanlike manner. And we've got this other
Regraded
Iclassified
31
- 5 -
meeting coming tonight; I couldn't prepare. I want
to examine each word under a microscope.
Haas:
That statement wants to be very...
H.M.Jr:
Each word under a microscope.
Seltzer:
It would be a joint statement.
H.M.Jr:
Oh yes. But I mean Eccles got out that statement
of his - he told me he did it over a weekend, didn't
show it to anybody. I don't work that way. I mean
this thing we took up to Harvard - the reason it stood
up so well is because we examined each word under a
microscope and took a month to prepare it. I don't
know that I want to do this gold thing; I don't know.
White:
It is an important step, and it would seem to me that
the occasion doesn't warrant your rushing it.
H.M.Jr:
Supposing as a matter of fact it came back and...
White:
So much the better. I mean I wouldn't be guided -
if it goes back, so much the better, the doing it.
H.M.Jr:
I mean Eccles this is the first day they've had
to take it alone in three and a half years.
White:
Mr. Secretary, I think it is important that you don't
change your mind merely because the bond market snaps
back a little. I think to do it Thursday night is
ridiculous.
Seltzer:
Fundamentally, you've got a very good case for pumping
out this half a billion dollars of idle money, because
your banks are going to have a real squeeze around
May first anyhow.
White:
And, more than that, the interest rates have reached
the level where you are justified in doing the opposite
of what you did when you S tarted sterilizing gold.
Let's not forget why we did that. Now, the opposite
of
H.M.Jr:
What is the opposite?
White:
The opposite is that interest rates have reached that
Regraded Uclassified
32
- 6 -
level at which we think they oughtn't to go any
higher in view of the fundamental economic condi-
tions. Therefore, if bond prices rise a little
tomorrow, then so much the better if you do it
Monday morning. It shows definitely that it isn't
support of the bond market and that it's money rates.
Seltzer:
I don't think your statement ought to commit you to
support any level of interest rates or any level of
the bond market. But it would be a simple thing,
I think, to write a statement merely saying on behalf
of yourself and the Reserve Board that it appears
from the action of the market that these increases
in reserve requirements to take effect May first are
very obviously hard on some of the banks; they have
to sell securities and this is tending to "up" interest
rates; our policy is low interest rates; and we are
prepared therefore to add to the reserves of the
banking system for that purpose, to implement this
low interest rate policy.
H.M.Jr:
Well, I think - I mean it's a physical impossibility
to prepare any statement that I could agree on to
give out for tomorrow morning.
Haas:
I wouldn't; no, I wouldn't.
H.M.Jr:
No, but Eccles - he's sort of
Haas:
He's a little panicky.
White:
Anyhow, I think a problem like this should be slept
on.
H.M.Jr:
Another thing, I've got to go see the President. I
don't know how the President will feel about it.
I'm not going to rush over there and.... Say, listen,
I've been through this thing before and I've never
done a thing on an overnight basis. I've never done
it since I've been here. I'm not panicky. As a
matter of fact, I had my nervous moments down at -
when I was away at Sea Island. But I gradually
got this thing down and this thing is so bad that -
whenever anything's bad, my chin is always up. I
mean I can take these things. I mean I - there's
nothing panicky about me tonight.
Regraded
33
7 I I
Haas:
I think what we might do, Mr. Secretary - - if you do
decide to do something over the weekend, we might
start making somedrafts of the possible....
H.M.Jr:
Well, Eccles will be here in five minutes. You
fellows sit here and hear what he has to say, get
it fresh; let's hear what he has to say.
White:
1 think it would have the further merit - using
gold - of indicating that your monetary policy is
coherent. You sterilized that gold at a time when
the situation was such. Now you do the opposite when
the situation has changed. It's all in line with the
monetary policy that you established. So you're not
doing the unexpected - I mean you're not doing what
you didn't anticipate as a possibility.
Haas:
It would greatly improve your - I mean incidentally
it would greatly improve your cash position, probably.
H.M.Jr:
Don't mention that.
Haas:
Not fundamental, but incidental.
H.M.Jr:
Oh, it's so incidental.
Haas:
You haven't even thought of it.
H.M.Jr:
No, it's just - just
Haos:
A windfall.
H.M.Jr:
This is a windfall - tax reversal and the like.
(On phone) Tell Mr. Gaston to come in, please.
(Mrs Klotz comes in;
Mr. Gaston comes in)
Well, it's times like this that take a little poise,
a little judgment, a little backbone. Huh? I gathered
from the message that I got that Eccles wants to do
something tonight; I'm absolutely opposed to it. I
think it's not statesmanlike. Have a very bad effect
in the middle of a week to come out with an announce-
ment about bonds; show we're frightened. If we're
going to do anything, let's do it on Saturday a fternoon
and Monday morning. I'm not going to be part and parcel
Uclassified
34
- 8 -
to a performance
This is the middle of the
week. They've had one day of this.
Maas:
They didn't increase their portfolio, did they, today?
H.M.Jr:
Oh no. What I mean is this. You see, we told them
ten days ago we had fifteen million dollars left and
when that was finished they'd have to go it alone.
Today was the first day they've had to go at it alone.
They didn't increase their portfolio, no. I mean we
didn't take fifty percent of it - today is the first
day they took everything - about eight million.
Gaston:
Did you want to make a statement?
H.M.Jr:
You'll hear it in a minute. He's coming here. - -
It's awful hard for me not to smile. I'll tell you
now, if we do something, I'm going to wait and tell
Eccles before ne leaves that if there's anything
that comes up between now and >sturday making it seem
that accles was the "white-haired" boy, this time I
won't keep quiet. I'm going to tell him so. If he
has his friend Elliot Thurston slipping it to anybody
between now and Saturday, believe me, he's going to
get it. I'm going to tell that to Marriner personally.
Reading Paul Mallon Saturday, how Eccles made the
Treasury do SQ and so
White:
Truth has a way of getting out, Mr. Secretary, I should
think.
H.M.Jr:
Do you think so?
White:
In time - not at the moment, but....
H.M.Jr:
Yes, but look how bald I'm getting.
Haas:
He may not live long enough to get time to.
White:
Look how bald you can get.
Haas:
Some of those others haven't caught up with you yet.
White:
No, you'll be a long time. History is what counts,
not the moment.
H.M.Jr:
I don't know why George is so cocky about the top of
his head.
(Taylor comes in)
35
- 9 -
White:
He combs it well.
(Viner comes in)
B.M.Jr:
In view of the fact he said he wanted to do some-
thing, I've been talking it over here. Do you
(Viner) want to talk until he comes?
Viner:
No, I don't think so. I must confess that I'm all
at sea; I really haven't been able to make up my
mind. I've been trying to get an idea of the general
picture. I think myself that there is no way of say-
ing now just how bad that bond situation may get.
There is a combination of unfavorable circumstances
and just how - what the size of the reaction will be
I don't know. And I suspect very much that there is
nothing you can do of this shifting - Federal Reserve
shifting from short to long, or even its open market
operation on a reasonable scale, or using this inac-
tive gold - that may not suffice.
Seltzer:
You don't think that will have any effect?
Viner:
Oh, I don't say it wouldn't. I say you can't forecast
whether it will have a favorable or unfavorable effect,
unless - because I'd say the one solid thing to do is
something that is probably out of the picture, and that
is an extra tax measure or an agreement to reduce the
expenditures in other words, to get the budget into
shape. Now, otherwise I don't see what else - what
else can be done that is sure to improve the situation.
I nave come to the opinion now, since thinking it over
ànd talking it over, that if you were to use the inac-
tive gold it might conceivably I think it might help,
but it might hurt. They might say, "This is a fancy
move and it's not really correcting the situation at
all, and it's using up something that shouldn't be
used for this purpose." And open market operation
might operate the same way.
Seltzer:
On the other hand, over a period of a couple months,
you do get that much more excess reserves out.
P.M.Jr:
Seltzer, excuse me. Before he comes, I've made up
my mind about one thing. I want to tell you I will
not do anything tonight. I just want to let you two
men know that. It's unstatesmanlike, it shows fright,
Regraded Uclassified
36
- 10 -
it shows panic. I'm not penicky, I'm not frightened.
I'll not do - if anything, it will be Saturday after-
noon announced for Monday morning. I didn't want you
crowding me in case he should. I will not do anything
until - I mean I'm not that worried. Wayne?
Taylor:
(Nods affirmatively)
Seltzer:
What I meant to say was, regardless of that - and I
agree with you that a real move toward balancing the
budget would have the profoundest effect of anything -
nevertheless, the mere fact of increasing the reserves
exerts an undoubted technical effect in the right
direction.
Viner:
That's right.
Seltzer:
And that effect is, I think, needed in view of that
May first increase.
Viner:
Yes, but on the other hand the mode of increasing
it may result in a psychological effect in an unfavor-
able direction, and what I can't make up my mind about
with any confidence is that the unfavorable would be
less than the favorable.
White:
Why, Jake? Isn't that exactly what the gold was put
in the inactive account for - was to reduce the excess
reserves.
Viner:
You mean
White:
Remember, it was to tighten money.
Viner:
Yes
White:
And here is E situation in which the money market
appears too tight, and therefore if you do use it
you would be using it for exactly the purpose for
which it was originally utilized.
Viner:
Except that the way it works out is that we are
using bill borrowings of the past intended for a
sterilization effect as a means of meeting cash
balance demands. That's what we're really doing.
You see, what it does is to fix up our cash balance.
And what they say is that the Treasury had to revert
Uclassified
37
- 11 -
to expedients to retain its cash balance.
H.M.Jr:
Listen, did anybody say that when the Bank of
England did this about two or three months ago?
They didn't. They just - they had to unload.
They made that swap. What was it - a couple of
months ago?
Taylor:
The net amount was only five million.
H.M.Jr:
How much?
Taylor:
Five million pounds.
H.M.Jr:
Yes, but they made a swap.
Taylor:
Yes, but it was only five million pounds.
(Eccles comes in)
Eccles:
Hello.
H.M.Jr:
Come in, we're all friends.
Eccles:
Can I have Dr. Goldenweiser - be all right for him
to come in?
H.M.Jr:
Absolutely, we're all friends of yours. We were just
chinning.
(Goldenweiser comes in)
All right.
Eccles:
You waiting for me?
H.M.Jr:
Yes.
Eccles:
We have been discussing this situation. I talked to
Dr. Viner a little today over there, and I've been
talking to some of the members of the Board that are
here - and Dr. Goldenweiser for the last hour or so.
And it is my conclusion, I think more or less the
general conclusion over there - I don't want to speak
for the others because they weren't quite as - might
38
- 12 -
not have had the same conviction. But I can speak
for myself, that what I think this present market
situation needs is a show of courage. I think it
needs a show of real aggressiveness at this time;
that an djustment based upon a changed situation
WAS warranted, but 8 - to completely more or less
withdraw from the scene, leaving the control of
your bond market or your capital market up to -
I was going to say the forces of nature, but I
should say the forces in New York - it seems to me
that we shouldn't continue to do it.
You do have your Government bond houses, of which
there are quite a few, that - and also a few of
your very large banks - that can be very potent
factors in the situation, for their own interests.
I don't say that they are, but I mean those things
are possible; they have been done. The insurance
companies and the investors generally, of course,
pretty largely center in the money market, and it is
perfectly natural that what they'd like to do is to
get as high a rate as they can get. That's always
been their case and it always will be.
I don't 38y that this is the case now, but I remember
in the past some of the New York banks advising their
correspondent banks to hold while they were selling,
and then they usually advised them to sell while they
accumulated. I mean that thing has happened; I've
seen it nappen. I don't say that they do it in an
organized, conscious way, but it's just a question
of the game of the individual operating to whatever
extent it is possible in their own interests. The
Government nas assumed for 8 considerable time quite
8 degree of control over the money market, and I think
we must continue to do it to all reasonable degree.
So I think that either the Treasury should use their
gold - and by the way, I understand there is about
a hundred and some odd million - maybe 175 or 180
million of free gold
H.M.Jp:
186 million.
Eccles:
All right.
of free gold that would not involve
the gold that's been sterilized. There is certainly
no reason why that shouldn't be used, and every good
39
33 I I
reason possibly why it should be used. And also,
possibly we should use the full amount of the gold
sterilized.
That would accomplish two things. It would of course
make it unnecessary for the Treasury to go the market
for money for some little time. That would be notice,
without saying so, to the money market, investors and
banks, that they wouldn't have an opportunity to do
some additional financing at their own terms. And
they would, further, have excess funds instead of
using existing funds, with which to buy securities.
So it would accomplish two purposes.
H.M.Jr:
You mean the Treasury would have....
Eccles:
Yes, I mean the Treasury - no, the banks would then
have excess funds.
H.W.Jr:
Oh, I see.
Eccles:
See, by that process. And instead of having to use
existing funds with which to buy Treasury securities
which they would have to sell if they don't use the
gold. See? Now, that's one way, and it may be
debatable as to whether it - I don't think it is
debatable about the 180 million at all. That, after
all, is the Treasury's fund - free gold - and it is
theirs to be used; it isn't up to me to say whether
they should or they shouldn't, but I can only express
what my opinion would be with reference to it.
Now, with reference to the 300 million, it may be
debatable as to whether that should be used or whether
the Reserve System should aggressively, over the period
of the next week, buy a couple of hundred million or
more - whatever the situation may warrant - of
Government securities.
H.M.Jr:
You mean over and above your present amount.
Eccles:
Oh yes, oh sure. Now, I am at the present juncture
very much in favor of showing an aggressive position.
Now, this market - it isn't a question of destroying
any confidence in the market, it's a question of
establishing it, and I am personally very much in
favor of either one action or the other action, or
a combination of both.
40
- 14 -
H.W.Jr:
When?
Sccles:
Well, right away, Just as soon as - whether it should
be tomorrow or the next day - I mean after all the
timing is important, but it seems to me that it is
something that shouldn't be put off to an indefinite
period.
Now, I've called a meeting of the full Open Market
Committee for Monday. I don't mean to say that this
matter should be delayed 'til after that period -
especially the Treasury position, which isn't a matter
of the Open Market Committee; it's a matter that the
Treasury discussed with the Board, and we don't have
to wait for the Open Market Committee in the picture
at all. But we felt that, so far as the open market
operation is concerned, the full Committee should be
called, at least in order to just discuss and consider
the whole situation.
H.M.Jr:
Through?
Eccles:
(Nods yes)
H.M.Jr:
Well, this is the way I feel. First, I think all
these things are a question of timing, which is
important. I think it would be a great mistake to
do it tonight or do it tomorrow. I think something
should be done on a Saturday afternoon in a states-
manlike way, where we have plenty of time to do it
for Monday morning release, so that it doesn't look
as though we were frightened, because I'm not
frightened. I mean I'm not frightened and one day
won't make any difference.
Eccles:
That's right.
H.M.Jr:
To do it on a Thursday night or Friday night would
look as though we were frightened, and the effect
would be lost. So I think it's a thing that should
be done on Saturday afternoon - joint press confer-
ence, very, very carefully worked out, both staffs
working together and with the utmost secrecy, no
hints or leaks to anybody. I mean I think if there
is the slightest leak the whole thing, the effect of
it, is lost. I can vouch for the Treasury that there
will be no hints to anybody - any letter-writers or
anybody - that way. I think if there is any hint
41
- 15 -
that the thing is coming, the effect of it is
spoiled.
Eccles:
Of course, there may be press discussion in spite
of everything you can do.
H.M.Jr:
Well, I know you can't
Eccles:
These news fellows around - I mean there nas been
enough
H.M.Jr:
I know, but we have - if we can keep an agreement
between England, France and the United States secret,
I should think that this could be kept secret.
Eccles:
You're thinking more particularly of the timing rather
than of the question whether or not the press might
talk. I mean you can't stop them from talking about
it.
H.M.Jr:
Well, just so they don't get hints about it.
Now, as to what to do. I am - 83 I told you on
Tuesday, I feel that I am leaning toward this gold
thing, and that's the way I feel tonight but I
wouldn't want to put my name to it tonight. I
agree with you completely that it is a time for a
show of confidence. I don't believe there is any
fundamental reason why Government bonds should sell
on a three percent basis. There just isn't any rea-
son.
And it's like - I've been through this thing for a
little over three years, and I'll never forget the
time when I was in Farm Credit and the President was
so worried about the bond market. And through our -
I don't know whether I've told this story, but through
our fiscal agent of Farm Credit, we placed orders of
a million dollars for bonds on a Saturday morning in
about twenty different houses. We didn't buy 8 bond,
but they had orders for twenty million dollars. And
we turned the market. Somebody had to show that they
had confidence. I mean I was in Farm Credit and the
President didn't even tell the Treasury that Iwas
doing it. The thing was so - the situation is
different now, I guess, and there's confidence in the
42
- 16 -
Treasury. But I think it's & question of a snow
of confidence and I don't believe that there is
any reason in the world why this thing can't be
turned.
Now, 1 think tonight - as I say, I want to look
over and over this thing, because I haven't even
discussed this with the President. I mean I talked
to him about this thing this morning and I told him,
quite frankly, that I talked to you last night and
that I have your suggestions and that I was waiting -
I was waiting until you people got to the point that
you have now. I didn't think it would come this soon.
I go this far, and I'm looking at this thing in the
broadest way possible. I think that what we ought
to do is - I think we ought to put five hundred
million dollars worth of sterilized gold into this
picture, plus a very aggressive open market operation.
Eccles:
Well, be prepared to do it; you may not have to do it.
H.M.Jr:
But stop this swapping.
Locles:
Yes.
H.M.Jr:
Now, I'm convinced, end I got convinced at six o'clock
this morning, that - for the first time I can see this
thing clearly - that every time you sell ten million
dollars worth of short term securities the banks sell
ten million dollars worth of bonds in order to get ten
million dollars to buy the short term ecurities.
They're swapping. I don't say it actually takes place,
but something like that takes place. The New York
bank sells ten million dollars worth of bonds, gets
ten million dollars, and buys ten million dollars
worth of notes, which you sell in order to buy ten
million dollars worth of bonds.
Eccles:
That's all right, normally, in a normal fluctuation,
but in 8 major decline it's
H.M.Jr:
And just as long as you people keep up this swapping,
I think this thing is going to continue.
Eceles:
I haven't done much of it; it's a bagatelle really.
43
- 17 -
H.M.Jr:
True, but it keeps going down and down. And I was
never calmer or more collected than I am now. But,
as I say, the way I feel - I feel, subject to the
finest magnifying glass that your staff, plus ours,
can put on it, that I'm in favor of this thing, start-
ing Monday morning with an announcement that the
Treasury puts five hundred million dollars worth of
sterilized gold into the System, plus an announcement
that beginning Monday morning the Federal Reserve
System is going to start open market operations.
Now, if you people do that - I'll say to you that if
you do that I'll take up to a hundred million dollars
worth of bonds.
Eccles:
How do you mean you'd take
H.M.Jr:
I'll give you orders for a hundred million dollars
worth of bonds Monday morning. I'll go fifty-fifty
with you on a hundred million.
Eccles:
Oh yes.
H.M.Jr:
I'll take another hundred million dollars worth of
bonds.
Eccles:
With your trust funds, you mean?
H.M.Jr:
Well, I don't know where we'll get it, but we'll get
a hundred million dollars. We'll give you orders for
a hundred million dollars. We'll start out Monday
fresh on a fifty-fifty basis, provided that this is
done. In other words, I've got enough confidence -
I want to show I've got enough confidence, if you say
you'll start open market operations Monday morning
and we put in five hundred million dollars - I'll give
you an order for a hundred million dollars worth of
bonds. I mean that's the effect it has on me. See
what I mean? That's how I feel about it. I'll find
it some place, and I say that I'll give you an order
for a hundred million dollars worth of bonds. But I
think anything short of a big broad stroke - 1f we do
this thing in a "piddling" way, that the thing will
fall, that it's got to be done big and it's got to be
done in a very careful joint statement where every
single word is weighed.
44
- 18 -
Eccles:
You think that both actions are necessary?
H.M.Jr:
Yes, absolutely.
Eccles:
At least you think that we should - I'm just wonder-
ing - I'm not sure in my own mind as to whether both
actions, the extent of them - it is necessary to
announce them all at the same time or whether it
would be best to be prepared to
H.M.Jr:
No, Marriner.
Eccles:
to proceed
H.M.Jr:
Marriner,
Eccles:
with your open market in case the other
H.M.Jr:
No, no. I'll tell you the effect it has on me. If
you don't do both, I withdraw my order for a hundred
million.
Eccles:
Well, of course
H.M.Jr:
Now just look, we're talking here in the family. I
can give you my word of honor that what's said in this
room won't go out of this room. If I may suggest, I
would get your full Open Market Committee in Saturday
morning.
Eccles:
Well, that's what we talked of doing. Of course, we
figured that Saturday
H.M.Jr:
Well, let those fellows get on planes and trains.
Eccles:
Will you (Goldenweiser) call up Morrill, get him on
the phone, and change that. And if Day can't take
a plane from Frisco, tell him to get Peyton. In fact,
I'd sooner have Peyton.
H.M.Jr:
Wait a minute. Mrs. Klotz, let - you show him the
room.
Eccles:
Suggest to Day that if he doesn't want to take a plane
he call Peyton.
(Goldenweiser goes out to phone)
45
- 19 -
Viner:
DO you have to announce the meeting to the press
when you call B meeting?
Recles:
Oh no, we never do. They usually find out when it
is over, but they never know before.
Now, I think we ought to prepare ourselves before
they get here. There's going to be a good deal of
resistance on the part of the Committee, I know.
H.M.Jr:
But Marriner, look, I've been through this thing
again and again and I've had to do it all alone.
And we're so much further along on recovery than
we were. I mean they talk about - I mean that time
we went over to see the President, Earl Bailie and I,
we told the President, "Mr. President, we hate to
tell you this, but your vest and your pants don't
meet by three billion dollars," and that Was the
time that the President went absolutely white as a
sheet and didn't talk for fifteen minutes. But in
spite of that, we went shead and step by step built
this bond market up. Now, our picture is all right.
There's nothing the matter with this country. But
these fellows have got the Jitters, and New York is
always either way down in the cellar or way up going
off the roof. And it's only a matter within the last
two months that somebody around town was begging me,
coulán't we release a few of our long term bonds to
keep the bond market from going up too high, and last
July they wouldn't buy a 2 7/8 bond.
Eccles:
or course, things go too high and too low.
H.M.Jr:
Now, I want to say that if we put the five hundred
million in and you find that things are going too
fast, you come around - "Now wait a minute, Henry,
we've gone a little too fast. How about taking a
hundred or two hundred million out and sterilizing
it again" - we'll be perfectly willing to do something
like that. See what I mean? I mean maybe five hundred
million is too much.
Rocles:
-ither we could do that, of course, or we could let
some of our stuff run off or let some of your stuff
run off.
H.M.Jr:
But if you came to me in a month or two and said,
"We've gone too far and will you please take a
hundred million of gold out, or two hundred million,"
we'll be glad to do it. But I think that this is -
Regraded Uclassifi
46
- 20 -
you've got to do the two things together.
Eccles:
I think we're not going to say we're actually going
to do it. We're going to say we're prepared to do
it. Because to say you're going to do - now let's
just assume you put five hundred million of gold in -
that means excess reserves - and we say we're going
to carry out an open market operation of, say, 250
million. That's 750 million of excess reserves
you're going to put in. You've got over five hundred -
you have close to six hundred million excess reserves;
you've got excess reserves, then, of about a billion
three. I say be prepared to put that much in if
necessary, but don't say, see, that irrespective of
where your market goes or what happens you're going
to put that in anyway. See what I mean?
H.M.Jr:
That's why I'm not prepared tonight. But I say this:
that whatever the announcement is - I mean the announce-
ment should be that we are prepared to do both, and
Eccles:
And they are both flexible.
H.M.Jr:
I'll consider that overnight. I mean I might say we
are ready to put in up to five hundred million
dollars of gold, you people are ready - beginning
Monday, you will start open market operations; and
you don't have to say how much, but any bond that
you buy Monday will be from the open market.
Eccles:
I think we should simply say that is our policy.
H.M.Jr:
But you say, Marriner, that you're going to start
open market operations Monday, and we're going to
begin to put back sterilized gold in the System;
we don't have to say how much. I don't know; I'd
like to think it over.
Eccles:
Well, I think that of course is all a question of
the psychology that we create, the way we do it, and
to say the extent to which we're going to do it - my
feeling is now it would be B mistake. Just simply
say you are prepared to put that much gold in. Say
you are prepared to do it, not that you're going to.
Which means that it will reduce the need of financing
to whatever extent that you do do it. It means that
you put new money into the market.
Regraded
47
- 21 -
H.M.Jr:
Well, we don't feel we want to say anything about
our financing.
Eccles:
Well, you don't need to. That can be off the - that
can be the background for the press story. They can
do that. You don't need to do it in the announcement
as such, but certainly the press boys will mighty
soon interpret that; at least you can see that the
Treasury won't have to go to the market for money.
Gaston:
Wouldn't the announcement relate simply to the release
of the sterilized gold and the explanation of why,
and then let the open market operations speak for them-
selves later.
H.M.Jr:
No, no, Herbert. The announcement has to be that,
beginning Monday morning, the Federal Reserve is
going to start open market operation. Now, how much
they don't say. They'll start open market operations
Monday. Maybe they don't buy any bonds.
Eccles:
Maybe on Monday we find the bonds hopped right up
without any buying.
H.M.Jr:
But they are prepared to start open market operation
Monday morning and the Treasury is prepared to put in
so many millions of dollars or will deposit - will or
is prepared.
Viner:
You don't mean putting it into the cash balance, but
putting
Gaston:
Just deposit gold certificates.
Viner:
For what purpose?
Gaston:
For the purpose
Taylor:
To ease the situation.
Viner:
To ease the situation.
Taylor:
Yes
Viner:
So it will be available for the payment of ordinary
expenditures. To maintain the cash balance. Otherwise,
it doesn't lessen the need for resort to the market.
Regraded Uclassified
48 .
- 22 -
Taylor:
I don't think it is necessary to say that. This is
to ease the situation.
Eccles:
I don't think you'd say to ease it. It seems to me
that you have to be pretty careful on that score.
Taylor:
Well, whatever you say, but it isn't
Eccles:
If you're going to put that into the market
H.M.Jr:
I think if you and I talk about interest rates - I
think we are awfully safe on that. Say that we
don't feel that the level - that we are not satis-
fied with the level of long term interest rates.
Eccles:
I think what we want to do, rather than say specifically
we might say that it is for the purpose of stabilizing,
see, the capital market. That's really what it amounts
to.
H.M.Jr:
I think everybody has to make this thing letter-
perfect. I agree with you that we could agree on
a statement that you could show - "Now look, this
is what the Treasury and I have agreed to" - just
show it to the boys and let them take it and like it.
Eccles:
That would help very much. At least, you've got a
basis there to work on.
H.M.Jr:
I'd like
Eccles:
Let's get somebody tomorrow. I'd like Dr. Goldenweiser
and Thurston to work with whoever you may
H.M.Jr:
He can work with....
Eccles:
.whoever you designate. They can work on a state-
ment and you (Goldenweiser) and Mr. Thurston work on
a statement and tomorrow afternoon they can....
H.M.Jr:
They can work with George and his staff, I guess.
But I think - I mean we ought to have another talk,
you and I, when we are fresh, and agree as to just
what we are going to do, and put it down in pencil
and say, "Here's what you and I have agreed to."
Regraded Uclassified
49
- 23 -
Eccles:
Don't you think that it would be better to let
them work on this thing and then let us meet
tomorrow afternoon? I mean we've discussed the
general picture.
H.M.Jr:
Well, I've got Cabinet tomorrow afternoon.
Eccles:
Well, after Cabinet.
H.M.Jr:
Well, I'm no good after Cabinet. I'm all right
tomorrow night. I have nothing tomorrow night;
I'm free. Aren't you?
Eccles:
I'm free tomorrow night.
H.M.Jr:
But after Cabinet is the worst time to see me. I
get awful sleepy.
Eccles:
You mean after or during?
H.M.Jr:
Both. Both. I'm free tomorrow night. I can hit it
tomorrow night. I'll be glad to hit it tomorrow
night.
Eccles:
That will suit me.
H.M.Jr:
But I do think - but may I just say this? If we
are going to do this thing, if you say you want to
make a showing, let's go the full way. Any mealy-
-
mouthed half-way thing isn't going to do the trick.
That's what I think.
Recles:
I agree with you that we've got to show a - make a
show of strength and a show of courage and a show of
confidence. Now, that is after all what you've got
to do, and that doesn't mean any half-way measures.
At the same time, neither do I think that in order to
do that We should make any specific and definite
commitment.
H.M.Jr:
We never do here in the Treasury.
Eccles:
To say that we are going to put five hundred million
dollars in and we're going to carry on open market
for a certain amount - not that, but the Treasury is
going to put - use so much gold, up to - that's it,
up to - and that the Reserve System is going to carry
-
50
- 24 -
out an open market operation to the extent necessary.
In other words, the action of the Treasury, the
action of the Federal Reserve, to. the extent neces-
sary to stabilize the capital market.
Seltzer:
Don't be too stingy in your promises.
Eccles:
But you don't want to state any specific amount.
What you're doing here is saying "to the extent
that it is necessary."
Golden.:
The specific amount we can consider.
White:
There wasn't any intention of specific amount.
H.M.Jr:
No, but, Goldenweiser, if we just give a lip service
as to the amount of gold we're going to put in and
don't put any gold certificates in, that doesn't help
any.
Eccles:
Oh, put some in, but
Viner:
I think the effect would show itself. You put it in
in order to get a visible effect on the bond quotations.
As they were going up, that would snow that market that
you were operating. What you do is make up your mind
that you throw in enough to have a reassuring and
visible effect on bond prices.
H.M.Jr:
But Jake, you just couldn't say we're going to put in
gold certificates and not put any in.
Eccles:
You've got to put some in.
Viner:
But I don't think you have to state any amounts.
White:
You can put a substantial amount in - large amount -
and with the indication that you will put more in
if, when and as called for.
H.M.Jr:
But what I meant is that there must be some gold
certificates put in, and not just say we're going to
do it.
Eccles:
The Reserve System must be in the market, actually
buying bonds.
Seltzer:
I don't see any objection to putting a whole five
51
- 25 -
hundred million in, because you don't have to spend
it; it gets into your cash balance and people see
that you are prepared to spend it.
H.M.Jr:
It does not get into excess reserves?
White:
Not until you spend it.
Viner:
You're in a different position there. I mean you
don't set aside a fund for open market operation, but
the Treasury can set aside a separate fund without
affecting excess r eserves or anything else.
Eccles:
That's right.
H.M.Jr:
They can put it into the Reserve System and it
doesn't affect it until they spend it, and they can
then pull it out again if they didn't need it.
Seltzer:
It gives very definite notice to the market that we
are prepared to increase excess reserves a half
billion dollars.
Eccles:
Of course, there is this argument for putting it all
in, that if you do that it may have a sufficient
effect and when it comes to open market operation
you'd have darn little to do,
Gaston:
If you wanted to show on the Monday Treasury state-
ment that you put the gold in Friday, nobody would
discover it except us and the Federal Reserve Bank
of New York until Monday morning; but it would be on
the Monday statement.
H.M.Jr:
Couldn't we do that Saturday.
Gaston:
No, you couldn't do that Saturday because the state-
ment that comes out Monday covers Friday's business
day.
Eccles:
You could certainly put in, say, the 180 million.
H.M.Jr:
No, no. Well, I'm not going to do anything tonight.
This is too important.
If Eccles doesn't mind, I would like to hear from
Goldenweiser how he feels on this thing. Is that
52
- 26 -
agreeable to you?
Eccles:
Oh sure.
H.M.Jr:
Would you (Goldenweiser) mind saying just....
Golden.
Well, I am in favor - I find myself very much in
agreement with what both you and Mr. Eceles have
said, because I feel that it is a time for - unless
one wanted to do nothing and just let the thing
find its own level, which I personally would not
be in favor of, the only alternative to that is very
courageous, bold action on a large scale, because
otherwise you're just simply giving an opportunity
for the people to unload on you. I mean if you just
make an offer of 25 millions at that level, you get
your 25 millions. That is El good technique for
stabilizing fluctuations, but not a good technique
for actuating a real movement. So I am very much
in favor of large scale, bold action. I am in favor
of having that action be both by the Treasury and
by the Federal Reserve.
I would - I have recommended to the Board that they
go into the open market to increase their portfolio
on a considerable scale, whatever date it will be
done - Monday morning would be fine. On the Treasury
side, I feel more reluctant to even make a recommenda-
tion, because it isn't our field.
H.M.Jr:
No, please do, I'm asking for it.
Golden.:
But I should have preferred if you could use your
180 or 190 millions that you have. That doesn't
involve any change in policy, if I understand it
correctly. And put that in first and put your
sterilized gold in later if you find it necessary.
But make your announcement joint and make it clear
that all the resources of both agencies are at work
to support this situation.
H.M.Jr:
Do you feel strongly as between how much we put in
on our free balance
Golden.:
Not strongly, no, sir, but I would - there is only
one point on that on which I have a feeling, and
Regraded Uclassified
53
- 27 -
that is this: you can do the one thing without
reversing any policy, without cancelling your -
the thing that you started doing last December.
Is that correct? That 186 million can go in
without any change in policy. And I would wait
for the change in policy for a day or two and see
whether it was necessary.
H.M.Jr:
Well, if you don't mind my arguing with you, and
you argue back - I don't think it would be enough.
In the first place, 180 wouldn't be notice to the
market that we don't need to borrow any more money
before the first of July. Which is very important,
without our saying it, see?
Golden.:
Yes.
H.M.Jr:
If we put the five hundred million in, then they
know we are out of the market until the 15th of
June. I think that is very important. We don't say
it.
Eccles:
The press can say it.
Golden.:
That may be conclusive.
H.M.Jr:
Do you see what I mean?
Golden.:
Yes.
H.M.Jr:
I wish you'd sleep on it, I'm not going to - trying
to sell it to you tonight. I'm not - I mean I'm
terribly glad Eccles wanted to come tonight and
talk, because I've been feeling this way now for ten
days but I didn't want to hurry you people. I wanted
you to do it when and if you felt it was necessary.
But I do think that the 180 isn't enough. And after
all, as you point out, if we do put the five hundred
in, it doesn't go into your excess reserves until
we spend it. And if after the first of May or some
time - or by the first of July, when we've got our
financing over and everything is quiet, and there's
no r eason why part of that shouldn't be - at the rate
it's going, we'll have another sterilized gold fund
before we know it. But I think we ought to have a
signal to the market that the Treasury has enough
money from now until the 15th of June, and you can't
do it with 180.
Regraded Uclassified
54
- 28 -
Eccles:
That's the most important argument for it. You
won't have to go to the market.
Golden.:
There are other considerations than strictly the
market. AS you suggest, I shall be very glad to
think about it and give you what I think about It
any time you want to know. But I am very much in
favor of aggressive definite action in the open
market by the Federal Reserve at this stage.
accles:
The way to - it would have been better if this market
had found its level of its own accord at a reasonable
point. I mean that's what it could have done and
likely would have done, I think, If some of the bond
nouses and the New York banks had been desirous of
cooperating in that sort of a picture, instead of
maybe doing what they could otherwise. or course,
we have had other factors too that may be just as
important, if not more important than anything they
may say, and that is this budget picture that got to
the press. You know about that. Inst was used, of
course, to BY considerable extent. The strike situa-
tion, other factors - we've got a combination of cir-
cumstances here that has been terrific. So that it
has created more or less of a panicky situation, con-
sternation on the part of a lot of investors in
securities, feeling that they are - that we may have
lost confidence in the thing and that the Federal
Reserve and the Government itself is really not doing
much about it, and that there is no real force direct-
ing this market development.
It's a very different matter, it seems to me, to act
aggressively with securities in a rout like they were
today, at today's prices, than would nave been the case
at E. - when the market is almost dried up and with
prices, say, two points above the present level.
H.N.Jr:
The prices - it's all to our advantage, and if they
should go off tomorrow and Saturday I wouldn't feel
badly, because when we do come in, that is - it is
that much easier to correct.
Eccles:
I just wish they would go off & little
H.M.Jr:
After all, I've been at this thing for over three
years, and everything tells me that if we do this
Regraded Uclassified
55
- 29 -
thing - all my judgment tells me that if we do this
thing whole-heartedly and forcefully, and not in a
mealy-mouthed manner, it will be effective.
Viner:
Shouldn't there be a general idea before the operation
is started as to just where you want to bring them
back. In other words, do you know when you want to
stop? You don't want another relapse later.
Locles:
Yes, don't try to bring it back to the point where
you have a
Viner:
Feel the market out and see how it responds?
H.M.Jr:
or course, you can't - I say this: that I'd like to
see all the Governments sell above par anyhow.
Eccles:
You can't hold them there. You'd just have trouble
again.
H.M.Jr:
Well, I don't know.
Eccles:
You will if you don't
H.M.Jr:
I don't think that that - never had any trouble stop-
ping them from going up.
Eccles:
No, but you have trouble when the darn things come
down again, and to get them up to a point where they
can't be neld over a long
H.M.Jr:
Well, you won't have any trouble with me on that. We
can talk about it. That isn't - that doesn't worry
me so much.
White:
But don't you think, Mr. Secretary, it is something
that might well be determined ahead of time, because
it involves a question as to what you consider a
reasonable level of long term borrowing interest rates,
and I think that ought to be decided independent of the
feel of the market.
Viner:
The market is going to interpret your action. If they
get to know you are operating on a large scale, they
will watch to see to what level you are trying to
bring it and they will attach importance to that as
a level desired by you.
56
- 30 -
Hass:
of course, you wouldn't be operating all the time.
The effect of the momentum should carry it up and
I don't anticipate that you'll have to keep operating
all the time.
Accles:
That's why the open market has got to be very, very
flexible, because it might go up of its own accord.
H.M.Jr:
You won't get many bonds. You're not going to get many
bonds.
Seltzer:
Then, the effect doesn't stop when you've finished
buying your securities. You have, after all, inflated
your excess reserves
Viner:
No, but I mean if you keep on buying after it's reached
a certain level and the market keeps on rising and they
know that the Treasury or Federal Reserve is still buy-
ing, they will infer from that that you want it to go to
still higher levels - that you think a still higher
level is appropriate. I think that is perfectly all
right if you do think that, but you oughtn't to push it
up above that level at which you think it should really
be.
Eceles:
That's absolutely right.
H.M.Jr:
Well, can you say what level it should go to?
Viner:
No, I don't. But some sort of rough judgment will
have to be made - I should say group judgment.
Seltzer:
The Secretary has made one of them. He said all the
Governments above par - or at par, better.
H.M.Jr:
Well, certainly - certainly nothing has happened
since - during the month of March which says that
the Governments, 23% issue, shouldn't sell at par.
You fellows were all in there and nobody told me
We shouldn't sell another 23%
Eccles:
Well, of course, you had to price it at what the mar-
ket was at the time. I mean you couldn't give them
a premium
H.M.Jr:
But nobody said, "Don't sell any more 21's." As a
matter of fact, every person but one advised me to
sell it at a half point less than what I did. I
57
- 31 -
mean nobody said.... And nothing has happened in
the economic fabric of this country which says
that a 2g bond shouldn't sell at par.
White:
I think possibly there has,
Viner:
No genuine sign yet of a genuine balancing of the
budget, I'd say that is 8 very important factor.
If I were an investor, an insurance company, I'd
say that's & very important factor. You can't deny
that this unbalanced budget is a factor.
White:
And further, a price rise is another factor.
Viner:
Yes. And the war - the international relations
aspect.
Accles:
International inflation. Your British bond, your
Canadians - all of the Government bonds all over the
world have been going through this adjustment.
H.M.Jr:
If you talk much more, I'll say that this won't be
effective and I don't want to do it.
Eccles:
No, I don't say that.
White:
No, we're talking of, say, somewhere between two and
a half and three.
Viner:
I'd say it wouldn't be effective, I'll guarantee, if
you try to get it back to a two and a quarter base.
I'd say it wouldn't be effective. No signs that you
can do it.
H.M.Jr:
I think the thing to agree on tomorrow is what action
we're going to take to stop it from going any lower.
accles:
That's right, that's the thing.
Viner:
That's one sort of decision.
Eccles:
And that's the way I like to state it: stop it from
going lower and then let it find its own level back.
Viner:
Without binding yourself to purchase any specific
amount.
Regraded Uclassified
58
- 32 -
H.M.Jr:
Well, I've never given an order since I've been here
to put the bond market up.
Eccles:
But excess reserves is the indirect thing that....
H.M.Jr:
We've never given an order to New York to put the
market up. It's always been to keep it where it is
or keep it from going down. We've never given an
order for the market to go up.
Look, Marriner, I can't go any further in my thinking
on this thing tonight. -'ve given what I've got. I'd
like everybody to think about it. Fortunately, my
morning tomorrow morning is entirely free, so - we've
got this meeting tonight and I'm going to meet with
my own boys at ten tomorrow, and we'll see what we can
work out, see? Now
Eccles:
All right. Then let's do this. You meet here and
we'll meet and let's see what we can formulate inde-
pendently after this conference, with the idea that
either late tomorrow afternoon or late tomorrow even-
ing we'll get together.
H.M.Jr:
Herbert, see if any newspapermen are in the hall, will
you? I don't know whether they saw Eccles come in or
not.
Marriner, I just want to say something alone for a
minute.
(Secretary and Eccles confer aside)
Now, I don't want Waley-Eaton, Kiplinger, or - what's
that fellow's name?
Haus:
Goldsmith.
H.M.Jr:
Or Goldsmith or Moody - nobody to see them. We're
just busy, see? I mean I don't want anybody to see
any of those letter-writers, see? What? And any
newspapermen. I don't want anybody to talk to anybody.
I mean I'm not
Eccles:
I don't want to see anybody for six months.
H.M.Jr:
But Marriner, so nobody - the lid is on as far as the
Treasury goes.
Regraded Uclassified
59
- 33 -
Eccles:
Well, of course, I'm in a little different situation
from you. We've got Board members. I can't put any
lid on the members. As far as the staff 15 concerned,
I can talk to them, but when it comes to the members
themselves, it's - I - I mean you can suggest that.
H.M.Jr:
Well, I say I think that the effect of the whole thing
would be spoiled - the psychological effect - if it
got out before Monday morning.
Eccles:
Well, I don't personally know that it is necessary
to discuss - certainly, this gold sterilization -
I mean the release of the gold sterilization fund
and this free gold, And if we call a full meeting
of the Open Market, I can say to the members that
we've been having some informal discussions with the
Treasury in an effort to crystallize our views, their
views and mine. And when the Committee meets, we will
at least be prepared to tell you what their views are
and I'll be able to tell you what my views are.
H.M.Jr:
What we will most likely do is to meet tomorrow night
and finish the statement up, and we can show it to
the President Saturday and get his O.K.
Eccles:
Need quite a while Saturday.
H.M.Jr:
But I mean we ought to have something. We can go to
the President and tell him what you and I can agree
on.
accles:
Oh yes. But I would prefer to - I would prefer not to
do that until I have talked to the Board. There would
be a certain resentment on their part if I say I'm
committed and I've talked to the President. Then they
it puts them in a position where they might want to go
along and back me, yet I haven't given them a chance to
express their views. I think that it really would be
better for me to not make a definite commitment to
either you or the President, but merely say, "These
are my views and this is the way it seems to me, but
I would like the privilege of discussing this thing
with the Board.' Otherwise, you can see the position
of the Board. It looks like you're trying to - "This
is all set and you can take it or leave it."
H.M.Jr:
Well, that's the way it will be, and then you can do
the rest.
Regraded Uclassified
60
- 34 -
Eccles:
Well, I know, but there's just no need of
When it comes to the open market operation, after
all they've got the responsibility of that thing
as much as I have, and they've got to be effective
in that responsibility. And there's times when I'm
glad more than one's got it.
H.M.Jr:
Good night.
61
April 1, 1937
For the Secretary:
R. E. "eichert, former superintendent of banks in Michigan,
and now president of a bank in Ann Arbor, Michigan, was in.
His bank had to put up 300,000 additional reserves to meet the
March first increase; on March 15th their depositors withdrew
$200,000 to pay income taxes (heavier this year than usual, he says);
they had to surrender substantial Government deposits on B. call
from the Treasury; and on May 1 they will have to furnish another
$300,000 to meet the additional increase in reserves effective on
that date. Nearly 8. Million dollars in a short period of time)
His bank has been able to meet all of these payments acticking
without
selling any Government securities, but he knows that many country
banks have been forced to seek the market to meet the same situation.
He describes the situation as very similar to a "run on the bank".
During this period there has been some increase in loans
in his bank, but nearly altogether to manufact rers who used the
proceeds to pay dividends. He thinks that the increase in bank
loans throughout the country, totaling a billion dollars, and cited
sometimes as evidence of coming credit inflation, is largely
of this character, rather than truly commercial in character.
Mr. Reichert hopes that the Federal Reserve will cancel the
rise in reserve requirements which is scheduled for May 1. He points
out that the increase would not be ordered today if it had not been
done already, and thinks that 1a evidence that it chould be rescinded.
He thinks the Federal Reserve should be courageous to recognize that
two
62
conditions have changed so since their announcement that the
May 1 increase should be called off, even if it subjects them to
some criticism as having gone too far in their previous action.
Mr. Reichert pointed out that there are steady vithdrawals
from country banks and city banks for the payment of insurance,
which totals some millions a day in the aggregate, and that the
insurance companies are not buying, but holding off until the
market has "stabilized" a little more in the belief that they
will do better on quotations. This adds to the bearishness of
the Government bond market.
Customers are beginning to come in the bank to talk about
the soundness of the banking system, a thing which has not
happened before since the bank holiday days. Even if all the
banks were able to weather the storm and had as good a bond
position as his bank, which many do not, he feels that there is
danger if the public begins to take the situation seriously
enoughto come in and discuss it.
Many banks are beginning to question whether membership in
the Federal Reserve is worth while, Mr. Reichert feels. He is
far from jittery, and he is friendly to both the Secretary and
Chairman Ecc les, and has commented frequently to me on the
perfectly splendid job that he thinks the Administration has
done so far as banking and fiscal matters are concerned. But
he is disturbed now that there will be too much clamping down
and much of the good canceled out.
three
63
Jack Riddle, economist for the Bankers Trust Company of
New York City was in yesterday. He reports that country banks
are steadily withdrawing their correcpondent balances from New
York City banks, causing New York City banks to seal their bonds.
He seems to feel that there is B. natural adjustment going on in
the bond market and that higher interest rates are inevitable.
He rather inlcines to the view that we are more in danger of a
slump than a boom, and Inthink would rather expect some measures
to keep recovery going.
The executive vice president of the national bank in Iowa
City, who is a director of the Federal Reserve Bank of Chicago,
was almost hysterical ten days ago in his feeling about the
Government bond market. I gather that his operation of their
Government bond account has not been too conservative, and he
is panicky. In the Chicago Reserve Bank and in the First
National Bank of Chicago I learned that a good many country
banks are in the same condition. Ned Brown of the First was
not concerned about his own bond account, but was inclined to
the view that the bond market would be upset until after the
May 1 increase in reserve requirements. He pointed out, as did
"eichert, that while the effectiveness of the increase of last
summer can with the date of announcement, that has not been true
this time, and there is still considerable doubt and uncertainty
as to what will happen between now and May 1.
There is no doubt that many banks have heen specuaating in
Government bonds, for appreciation, and that they have been
Regraded Uclassified
64
four
using the profits for dividends, salary increases, and the like,
rather than building up amortization reserves. To them, falling
quotations for Governments are serious.
Upm
Copy to Chairman Eccles.
Regraded Uclassif
65
MEMORANDUM
April 1, 1937
To:
Secretary Morgenthau
From: Dr. Burgess
Treasury bond market opened lower and active today, and prices de-
clined rapidly until early this afternoon when a modest improvement occurred.
At the close quotations were up 1/32 to 10/32 from the lows but losses from
yesterday meesured anywhere from 3/4 of a point to 1 1/4 pointe. The
average decline on sales for the 19 issues of Treasury bonds was 27/32.
Total sales of government bonds on the board were $6,344,000 against
$4,423,000 yesterday, In the guarateed list the F.F.M.C. bonds were down
about 1 1/2 points, and the H.O.L.C. bonds were about 3/4 of a point down,
Treasury notes followed the rest of the market. Quotations firmed up after
2:00 o'clock and the list closed 10/32 down from yesterday.
High grade domestic bonds including the recent refunding issues were
off small fractions to around 1/2 point, but certain issues showed somewhat
larger declines. Generally speaking, offerings were not large but with the
bids thin, the tone of the market was heavy. Philadelphia Electric 3a were
quoted around closing time at 100 1/4 - 100 1/2. Second grade market was
also lower, losses ranging from fractions of a point to about 1 point, This
section of the market was feirly active in the last hour. The Panhandle
Eastern Pipe Line 4s, which were brought out at 97 1/2, were quoted 97 1/2 -
97 3/4 at the close.
Foreigns were quiet and mostly unchanged throughout the day. German
bonds sold off fractionally; Japanese issues were slightly lower; Itelian
bonds gained fractions to 2 points.
Total purchases today $9,648,000 miscelleneous Treasury bonds, all of which
were for System account.
66
NEETING AT 2201 R STREET ON
April 1, 1937
SELECTIVE FEDERAL EXPENDITURES
8:30 p.m.
Present:
Miss
Perkins
Admirel
Peoples
Mr.
Emerson Ross, WPA
Mr.
Arthur Burns, WPA
Mr.
Focles
Mr.
McReynolds
Mr.
Haas
Mr.
Daggett
Mr.
Leon Henderson
Mr.
Goldenweiser
Mr.
Lubin
Mr.
Hopkins
Mr.
Gaston
Mr.
Gill, WPA
Mr.
Bean, Department of Agriculture
Mr.
Bell
Miss
Lonigan
Haas:
I think we can be very brief on the preliminary
discussion of the subject. Secretary Morgenthau
has been watching the developments in certain
industries and prices and has noticed that certain
prices have been mounting very rapidly and cer-
tain industries have orders from private sources
that occupy them to capacity. The question has
risen in his mind whether or not, with these
large Government expenditures - whether or not
they couldn't be made in such 8 way as would
favorably affect the general economic situation.
For example, the steel industry, which is now
running at capacity; and there has been a rise in
steel prices. An examination of the expenditures
indicates that a considerable volume of steel is
being purchased by the Federal Government. For
example, in one of the recent years - I think it
was last year - the Federal expenditures in this
industry alone amounted to what is equivalent to
about 34% of the total business of the United
States Steel Corporation. In the cement industry,
the Government purchases amounted to somewhere
around 60% of the total capacity of the cement
industry. In structural and reinforced steel,
it runs about 50%; in cast iron pipes and fittings,
about a third; clay products and bricks, about 8
quarter of the industry's output is purchased by
67
2
the Government.
And with this problem in mind, I asked Mr. Daggett
to outline some material which might serve as the
basis of discussion for the whole problem, and we
have some charts which present some information.
I don't say it is at all conclusive, because many
of the phases of the problem have to be studied
very intensively.
It appears to us that not only would it be advan-
tageous for the development of our economic devel-
opment if purchases were made in accordance with
certain economic criteria, but it almost seems
imperative that this be done unless we get a very
distorted economic recovery. As we view it, we
believe that the purchases should be controlled
by economic factors of three broad categories.
The first is the question of the capacity at
which the industry is running - the question
of employment in that particular industry.
Second, the question of the price structure in
that particular industry. And then, of course,
it would be very highly desirable that the
project would be allocated regionally in cor-
respondence to the location of the unemployed
workers.
We have a few charts here which I think we can
pass out and I will discuss them after we have
them in your hands.
H.M.Jr:
George, don't you want to say that anybody can
interrupt you as you go along.
Haas:
Yes, I thought I'd be through with the preliminary
remarks very quickly. Several of the people here
have copies of Mr. Daggett's memorandum, and I
thought from that they might take up the discus-
sion.
(Haas and Daggett pass out a set of charts.)
Haas:
This chart is - Dr. Lubin could do a much better
job than I can on this chart, because these are
all his data. But we made it up merely to be
illustrative of what I was discussing; that there
are certain industries where the employment
already is in excess of the level of 1929,
68
3
whereas there are other numerous industries
that are much lower than the 1929 level.
You will notice in the left hand corner there
1s a sort of fan shaped chart, and the zero
line there representing the average for the
year 1929. Over at the extreme right is
January, 1937, and you will be able to read
the percentage increases above 1929 or below.
On the top you will notice the steel industry
18 in the lead. And on the right, in connec-
tion with each one of those lines forming the
fan, are bars which indicate the relative
importance in terms of volume of the employment
in the various industrial groups.
In a very rough fashion, it would seem, other
things being equal, that expenditures should
be placed in industries which are on the lower
scale, provided that they form any considerable
outlet for unemployed people.
I think, Mr. Secretary, if there is any discus-
sion
H.M.Jr:
Maybe Dr. Lubin would sort of like to expand on
that.
Lubin:
Mr. Haas has had some charts made for these indi-
vidual industries which give the picture over a
long period of time. They are duplicates of the
charts we use at the office. I don't know whether
this is too small for anybody to see or not.
Now this is a chart showing the situation in
manufacturing industries as a whole. You can
see that between 1924 and 1929 that heavy black
line remained virtually unchanged. In other
words, the manufacturing industries of the
country didn't absorb any new workers, with the
exception of that short period in 1929 when the
index went up to 108. By and large, the employment
remained more or less stationary, with of course
the usual seasonal variations.
Now, the interesting thing is that the employment
curve is back to that 1924-25 level. In other
words, it is just about the average of the last
decade - just slightly below, and the March
4
69
figures will show it pretty close to the average
for the last decade.
Now, those same figures shown here are broken
down there by individual industries, and you can
see the significance of those individual colors
that he has on his chart. Now this, for instance,
is cement. The industry is today employing slightly
more than half the number of people it did during
the last decade, on the average. Here we have
lumber and mill work.
Gill:
What are the two different lines?
Lubin:
The dotted and straight line is pay rolls, and the
other line is employment.
Perkins:
The black line is employment.
Lubin:
These are reversed on this chart.
Perkins:
Oh, I see.
Lubin:
Now there again you see in the case of lumber mill
work approximately 50% of the employment of the
last decade. In saw mills, employment is approxi-
mately 44% of the average for the last decade.
In brick, tile, terracotta, employment is about
the same - about 45% of the last decade average.
On the other hand, you also have structural
iron work and ornamental iron work, which are
used only in building construction, where employ-
ment 1s about 65% of the average.
Peoples:
Does that cover, Doctor, fabricated steel?
Lubin:
I-bears and structural steel that are used for
building.
Peoples:
Not so much in the mills, but
Lubin:
In the finished product.
Peoples:
But in the fabricated
Lubin:
Oh, yes.
Here are your steel and hot water heat apparatus
and steam fittings; employment about 65% of the
last decade.
5
70
Now in contrast to that are those industries
which he has up on top, Here you have blast
furnaces and rolling mills, employment up to
118, at a higher level than it was in 1929.
And 1929 was only for a short time that it
ever reached that height.
In this instance, we have iron and steel and
their products, not including machinery.
This other one was blast furnaces and rolling
mills. These are the finished products, like
angle-bars and car wheels. There again you
will notice they are back to the early 1929
level.
This here is automobiles, with employment at
a higher peak than ever reached in the history of
the industry. Cotton goods, running at a higher
rate than any point since 1927. Knit goods, at a
higher rate than for any other time except a
slight period in 1929, employing more people.
And back to the manufacturing. We could bring
others; we have such things as wire work and
pressed steel products, particularly the type
used in refrigerators and things of that sort;
enamel ware; all of those are at higher levels
than they have ever been in the history of this
country.
So you have the two groups of industries, one
absorbing more than they formerly employed
and primarily centering around transportation
and transportation equipment; the other around
housing and construction, which are the most
depressed of the group. And as a matter of
fact, as we were looking through all our 89
manufacturing industries, there isn't a single
one not connected with those two, either the
railroads and transportation group or the con-
struction.
Bean:
Have you on hand the production figures at the
present moment for these different groups of
industries?
Lubin:
I don't - let's see, the index itself is what,
116? Dr. Goldenweiser, do you by any chance -
Mr. Goldenweiser would know that better than I.
Steel
71
6
Goldenweiser: No, by industries I haven't got them in my head.
Haas:
91% of capacity, I know that.
Lubin:
Which is in effect about 6% above optimum capacity.
Goldenweiser: Must be about the same as 1929.
Perkins:
There are one or two industries, of course, in
the consumers' goods that show a higher production
and lower employment. There are one or two which
have had a really marked technological change
during the period of the depression. Tobacco is
one, as we all know - way above on production and
way below on employment, and we know there has.
been a complete machine program in there.
And I think - don't you (Lubin) think that with
what we know about the machinery tooling in the
steel industries, it would indicate that before
another two years is over we will begin to see
8. disparity between production and employment?
Lubin:
of course, we have the interesting situation in
steel - the situation I saw in Gary - where the
Carnegie-Illinois people were employing more
people and yet the manager of the plant told me
that their problem as far as unemployment was
concerned in the city was still very, very acute.
And I asked him how to explain it, and he said,
"We are employing high school boys, sons of these
people we brought over in the '90's. We don't
need them any more. With our new equipment
and new technique, we want these younger people
who have had more education and more background."
Perkins:
So there are more people actually employed, but
the unemployment in that area is larger due to
laid-off steel workers who don't get back, although
there are more people working in steel in that
ares than ever before. The new retooling takes
B different type of person, you see - better edu-
oated and younger.
Lubin:
Don't have to have the brawn that you had to have -
more brain and less brawn.
Bean:
And less pay.
72
7
Lubin:
No, no, the pay is good for the youngsters.
Perkins:
The pay is very good, perhaps better than it
WAB to father, They give a sort of preference
to boys who have been through B technical high
school, who got some mechanical training, and they
pay them pretty well on the whole.
Henderson:
Well, the hourly rates are better but I think the
weekly earnings are either the same or less.
Lubin:
At the Jones-Laughlin new plant, all of the
journeymen that are being trained now are
graduates of engineering colleges. They found
they could get them and they preferred them.
Perkins:
And the old-time husky is out; he is on relief.
Very interesting. His children are working.
H.M.Jr:
George, have you got some conclusion?
Haas:
I think Admiral Peoples might wish to discuss
the question of relating purchasing to 8 given
economic situation. He might have some ideas
on the practical problems involved in it. In
other words, we set up an economic pattern and
say, "After very careful examination, we find
it would be desirable to avoid purchases in
certain industries," etc.; that immediately
involves a very practical problem of handling
that kind of policy if it were laid down.
Peoples:
Of course, the character of materials purchased
by the Federal Government, particularly in con-
nection with relief, depends entirely upon the
character of the projects that are approved for
which these men are worked. Now, according to
these charts that Dr. Lubin has prepared, it is
very obvious that lumber and cement and tile and
brick industries are way below standard. The
only way to help them would be to concentrate
as far as possible in the approval of projects
which will lend themselves to materials of that
character, in connection with the work on the
project.
Regraded
73
8
If, on the other hand, cotton may be high, we
can't stop the purchase of cotton because if we
do that it will affect immediately these sewing
room projects. If the sewing room projects are
kept down, that will automatically cut down the
quantities of cotton textiles that are purchased.
The cotton industry here is apparently up to
about standard, according to these charts. The
Government has helped out tremendously the cotton
industry in connection with the textiles that
have been purchased for the sewing room projects.
Over 265 millions of yards of textiles alone
have been purchased for those 3600 different
sewing room projects, for which 217,000 men and
women are employed, which shows the effect of the
use of these work relief funds.
So whatever may be done with regard to the ques-
tion of materials depends entirely upon the char-
acter of the projects that are approved. It all
hinges around that.
H.M.Jr:
Up to now - Hopkins can say If I'm wrong - I don't
think, as far as I know - I mean they have had
plenty of other rules to try to fit the projects
into, and I know it is extremely difficult as it
is. But I mean up to now I don't think that they
have had the time or the necessity to stop and
think, "Well, if we are going to approve this
project, into that project goes the material,
on which either the price is too high or there is
B shortage," etc., etc., and that is one of the things
we are trying to raise here tonight.
Peoples:
I think you are exactly right, Mr. Secretary.
H.M.Jr:
Because I realize how difficult the job is. I'm
not trying to make it more difficult. But on the
other hand, I think we've got to come to that time
in recovery when we've got to stop, look and listen,
and I wouldn't be smart enough to go on record and
say that we could carry this through. But at least
I raise the question if we are taking 265,000,000
yards of cotton - I mean something else - should
we continue? That's all we're trying to do tonight,
is raise these questions and let you people say it's
impractical or its worth while raising.
74
9
Perkins:
What part of the general production would
265,000,000 yards be? Significant?
Lubin:
The value is $38,000,000, wasn't it - the total
value of textiles purchased by the Government?
Peoples:
In value, approximately that, Doctor.
Lubin:
Big item.
Hopkins:
One of the interesting things is - take lumber,
which is at the bottom of this thing. If you
take up the thesis that you deliberately want to
push up the production of lumber, you've got
tremendously high prices. And in several of
these materials which are low apparently, it
doesn't make any difference in price whether
it is up at the top or down at the bottom.
You see prices out of sight where you get a very
high production, and then also you have prices
out of sight when there 1s 8 low production,
so we are up against that problem there.
Take the building thing today, where you've got
tremendously high prices. If you want to delib-
erately push it, you spend a lot of money because
of the price structure.
Ecoles:
I think you've got a particular condition in
lumber that you don't have possibly in some of
the others. You've had the shipping strike,
which had a very disastrous effect on the lumber
production on the coast for some time. We've
had a good deal of labor trouble and B. good many
of the mills were shut down for substantial
periods. They had an extremely severe winter,
which has reduced very materially their output
because it's impossible to get out the logs
and timber when the weather is very bad, when
they have heavy winters like they have had. So
that you have there a combination of three
factors: Strikes in the mills themselves,
strikes in the water transportation, and a heavy
winter.
Now, so far as the capacity is concerned, they
haven't reached anywhere near their capacity to
produce. The lumber industry W&B so terribly
75
10
depressed over 8 long period that many of the mills
were completely shut down through bankruptcy and
receiverships and have been almost abandoned, and
it is a question of taking an element of time to
get them rehabilitated and started and built up
again. And it won't be done - it can't be done
of course until it becomes profitable to do it.
It is now, I look to see the situation, so far
as output is concerned - even though it increases
very, very materially, I question very much if you
can get any further price advances. The price of
lumber at the present time averagely is very close
to the 1928-29 figure at the mill.
Burns:
The increase in price occurred long before the
strikes and other difficulties, didn't it?
Eccles:
No, the real price increase has occurred during
the last six months.
Henderson:
About 50% since the strike and 50% since June -
of the increase.
Ecoles:
Yes. You've got a really big increase since -
the last six months.
Hopkins:
Does anybody know of the money the Government
spends on goods - how many of them are monopolis-
tically controlled like steel, and where the price
is fixed, like copper? Do we spend tremendous sums
of money where the monopolies control the price?
Peoples:
Doctor, have you got that chart that I gave you
today, which shows that out of the - during the
last sixteen to seventeen months, since we really
got started on the work relief purchasing, there's
been a total of approximately about 704 millions
of dollars purchased?
Hopkins:
Does that include the whole Government - CCC, PWA
Peoples:
No, no. WPA only.
Hopkins:
Have you got any figure for the whole Government?
11
78
Peoples:
Well, Dr. Lubin has it.
Haas:
Here is a summary table. Should I read it?
Peoples:
Complete analysis by commodities.
Hopkins:
Our purchases wouldn't be as typical compared to
the - some of the other Government purchases get
into the heavy stuff far more than we would be in
it.
Peoples:
No, oh no, except the Navy.
Hopkins:
Oh, reclamation - these big dams; RFC, to some
extent, through their loans to bridges. RFC
is talking about making 8. new loan to a big bridge
now in New York.
Peoples:
The Navy has been a very heavy purchaser of steel,
particularly during the last three years, during
their shipbuilding program - probably up to
250,000 tons of steel alone on the Navy account.
Not so much PWA, Harry. PWA would be heavier,
it is true. The Army is a great factor in there,
for shells, etc.
Lubin:
Harry, you people - that is your projects last
year, December 15th to December 15th, aggregated
in expenditures for materials $419,000,000.
Hopkins:
Federal expenditures?
Lubin:
Those are for Federal construction and projects
operated by the WPA.
Hopkins:
That includes' sponsors as well as Federal.
Lubin:
Yes. And the regular Governmental was $172,000,000
on construction.
Perkins:
Mr. Hopkins asked if anybody could estimate the ex-
tent to which those purchases were made in fields
which we know are monopolistically controlled.
Lubin:
About 8 third I should say. 304 millions were in
cement, stone, clay and glass, which are fairly
competitive, with the exception of cement.
Henderson:
Glass isn't.
Hopkins:
Cement is a big item and that is monopolistically
controlled.
77
12
Lubin:
Only a million six hundred dollars on glass.
Cement was $99,000,000.
Henderson:
You don't suppose Mellon would be in a competitive
industry.
Lubin:
Iron and steel
Henderson:
Just before you go on, you've got regional monopolies
in stone, crushed stone, gravel, and all those things.
Lubin:
You've got a quarter of a billion, 255 millions, in
iron and steel and their products.
Eccles:
How much?
Lubin:
Quarter of a billion.
Eccles:
This last year?
Lubin:
Yes. This is purchases for construction purposes
only.
Henderson:
Page four of the memo.
Lubin:
Then you've got forest products, 83 million; that
includes lumber. Textiles, 21 million; chemicals
and like products, 17 million; non-porous metals,
8 million; motor vehicles, railway cars and other
transportation, 56 million; and the balance is
made up of a hundred different items aggregating
$176,000,000. The big items are stone, clay,
cement and glass, and iron and steel - and
machinery.
Eccles:
You haven't reached capacity though in cement and
stone.
Lubin:
They're running about 60%.
Eccles:
Steel is.
Lubin:
In 1935, the United States Government bought more
than 50% of the total production of cement in the
United States.
Peoples:
67% I believe.
78
13
Hopkins:
Has there been an increase in the cost of cement?
Henderson:
No.
H.M.Jr:
It's interesting.
(to Miss Perkins).
Perkins:
67%!
Bean:
Total production is low, that's all; that's what
that means.
Ross:
I have here 8 distribution of materials purchased
under WPA by type of project which is fairly in-
teresting. Let me take Mr. Haas' chart. Evidently
you would concentrate on public buildings, housings
and recreational facilities - community houses.
For example, 50% of all material purchased on
public buildings was lumber, somewhat over 10%
on housing was lumber, and about 10% on those
recreational facilities are lumber. On the other
hand, another one of his depressed industries is
stone, clay and glass, which would mean highway,
road and street work rather than the other. The
crushed stone, sand and gravel together here total
about 23% of all material purchased for highways,
road and street Jobs. The other types of projects
are less important than those categories. But when
you get into projects like the Williamsburg pro-
Ject you have the problem that Secretary Morgenthau
pointed out of the employment of women and white
collar people, which possibly might overweigh some
of these other considerations.
Lubin:
You people spent 13 million dollars on lumber
last year.
Hopkins:
In other words, is it a fair assumption from this
that it would be to the interest of our whole
economic picture if we pushed our building program
in terms of wooden buildings?
Peoples:
Yes.
Eccles:
What's that, Harry?
Hopkins:
If we pushed our building program in terms of
wooden buildings requiring large amounts of lumber.
Eccles:
Well, labor 18 a very important item, I think, end
of course your whole trouble is today that your
whole housing - it 18 likely to slow it up even at
the present cost. Your labor costs today are
79
14
practically 50% more than they were in 1929.
That 18, your labor - they've got 8 forty hour
week and they had a forty eight hour week then.
So you've got practically
Hopkins:
Well how important 18 that in the whole cost of
lumber?
Eccles:
Well it's a big item. Labor is 8. very big item
in lumber. It is by far the biggest item. That
18, you take in the question of logging; there 1a
some mechanization but it isn't very great, and
there ien't very far they can go. The labor item
is the big element, and you won't get lumber down
with the increased labor cost in lumber.
Hopkins:
What ie the relation between the output and sale
of lumber to the number of carpenters working?
That 18, is there any relation of the output of
lumber to the employment of carpenters?
Lubin:
I don't know frankly.
Perkine:
There is relatively a dearth of carpenters now.
Hopkins:
Well, that may be for - but I'm speaking of the
number of carpenters employed in 1929. Are there
as many carpenters employed today?
Lubin:
There aren't as many carpenters.
Eccles:
No,not 8.8 many.
Hopkins:
Obviously if you are going to shoot up the pro-
duction of lumber you have to have a great many
more carpenters. We could find ways of using
carpenters; that 18 not a serious problem with us,
in certain parts of the country especially.
Ecoles:
You can get carpenters, but when you've got
carpenters you've got the question of plasterers
and bricklayers, plumbers.
Hopkins:
We've got about 120,000 of them now that are show-
ing no signs of getting work in private industry.
Part of it is their age; a great deal of it is
their age.
Eccles:
Well, the serious thing 18.
Hopkins:
The thing I'd like to clear up here in my mind now
15
80
18 what end of the Government buys the steel?
There is 250 million dollars as I understand.
Now who does that? Who buys that? We don't buy
it. We don't buy any substantial amount of that.
Peoples:
Not for WPA. What is that total of steel on that
chart?
Deggett:
I'm sorry, I don't seem to have brought the chart.
Lubin:
Iron and steel, total purchase of 254 million;
88 million bought by WPA - or 85 million.
Peoples:
85 million.
Lubin:
130 million by the PWA. Of that amount, 17 million
was cast iron plpe and fittings; 14 millionwas
structural and reinforced steel - no, wait B minute,
33 million was structural and reinforced steel,
Henderson:
That 19 million is other Federal construction.
Lubin:
It's part of WPA.
Ross:
You've got something else in there, because we
only spent 12 million on structural.
Lubin:
14 million for projects operated by WPA and
19 million 4 hundred thousand for the Works pro-
gram construction.
Hopkins:
The thing I'm getting at is that the whole WPA
program may only spend 14 or 15 million of this
whole 250 million dollars for steel.
Peoples:
What's that total for steel for WPA?
Lubin:
14, for projects operated by WPA and 19 for
Federal construction under the Works program.
Henderson:
The total of iron and steel under this classifica-
tion for the WPA is about 52 million and for the
other part of the Works program 33 million.
Hopkins:
Where is the rest of it?
Lubin:
130 million for the PWA, 5 million for RFC, and
32 million for regular Government construction.
Eccles:
That includes the Navy?
Lubin:
Yes.
81
16
Eccles:
You item. see, your Navy and your Public Works is a big
Hopkins:
The Navy ien't much there; it's Public Works that's
the big item there. I'm surprised the Navy is 80
small,
Peoples:
So then, if I understand that steel figure for WPA -
about what was it, 14 million?
Rose:
14 million for the structural and reinforced.
Lubin:
17 for cast iron, pipe and fitting.
Peoples:
You see, that's not so much, Mr. Secretary, out of
a total of 400 million.
H.M.Jr:
But some place where all of your purchases would
have to sort of clear - I mean some Central Board -
or war industries board. What? I mean like your
old war industries board.
Perkins:
Except that there are so many factors entering into
it. If the public policy is to build 8. big navy,
there's got to be steel purchased. Economically
it's unsound, but
H.M.Jr:
But there is no reason to approve any more bridges
or tunnels which are all steel. I mean in view of
what this shows, I'd say one of the easiest things
to say 1a, there would be no more big bridges.
Hopkins:
For instance, today I happen to know that there is
8 bridge proposal for a new bridge in New York City,
where they don't want any grant but they want to
borrow the money from the Federal Government, which
raises the question of whether the Federal Govern-
ment should encourage that by making the loan, Let
them go to the banks and get their money, They can
get it anyway, but we shouldn't encourage them with
Government funds.
H.M.Jr:
I'd say, in view of the figures we have here to-
night - I'd say no more bridges. I mean I think
I'd
Ecoles:
of course, they can go out on their own accord
and do it.
H.M.Jr:
Oh sure.
Eccles:
But a.8 far as the Government stimulating that sort
82
17
of thing, it ought to shut down.
H.M.Jr:
Well, our boys set up three things - it looked to
them, in view of these figures, that you might say
that three kinds of projects could go ahead. I
remember you (Daggett) said
.....
Daggett:
Flood relief, rods, and small houses of wood and
brick. That's light construction.
Eccles:
Doesn't involve much construction.
H.M.Jr:
Light construction - wood and brick.
Peoples:
Or any building can be built of reinforced concrete.
Perkins:
That takes a good deal of lumber too.
Peoples:
Your Printing and Engraving building has no
steel frame.
Perkins:
Oh, hasn't it?
Peoples:
No, all concrete.
H.M.Jr:
Aren't we spending almost as much today - how do
the figures compare that we are spending today for
construction as against what we did during the War?
Peoples:
For construction, Sir?
H.M.Jr:
Well, for material.
Peoples:
Oh.
H.M.Jr:
Construction material.
Peoples:
Well now, let me see, the Navy figures during the
War amounted to about 3 billion 6; that was the
total. Out of that, about pretty close to 2 billion
or in the neighborhood was for material, most of
which was steel in one form or other - ship
steel or shells or construction. Now the Army
figures were very much higher than that; I don't
recall what they were. But I don't think today
we are up to what the War figure was, Mr. Secretary.
H.M.Jr:
I don't suppose we are.
Peoples:
No, sir.
83
18
H.M.Jr:
But they had 8 War Industries Board which consid-
ered all purchases and through which all pur-
chases cleared.
Bell:
That's war materials, Mr. Secretary.
H.M.Jr:
Yes.
Bell:
Supplies for the Army and Navy.
Perkins:
And it was largely to regulate prices; that wes
the idea. I mean there was no intention of either
limiting or repressing certain types of production.
Eccles:
But at that time all private construction was
discouraged.
Peoples:
And in fact shut down almost completely. All
public building construction was absolutely shut
down.
Ecoles:
That's right, and private construction had to get
permits.
Peoples:
Private construction had to receive permits before
they could go shead; not only private construction,
but private replacements of all buildinge. Even
for car wheels and things of that kind, for street
cars, they had to get a permit in each and every
case before they could go ahead, because the whole
thing was under absolute control, like this, between
industry and the Army and the Navy.
Hopkins:
Mr. Secretary, have you got price figures for
these same items - the price trend?
H.M.Jr:
Have you, George?
Haas:
Mr. Lubin has them.
Lubin:
Page 19.
Haas:
I canread them off Mr. Secretary. Building material
group, brick and tile - these figures I am quoting
are percentages of the 1929 average, 80 you can get
some idea, using that as your norm if you want
to.
Eccles:
Ie this the wholesale price?
Maas:
These are Bureau of Labor statistic figures. Are
Uclassifie
84
19
they wholesale price?
Lubin:
Yes.
Hass:
Brick and tile 18 961% against 1929; cement,
104%; lumber, 105%.
Eccles:
Cement?
Haas:
That's right. Lumber, 105; paint materials, 88;
plumbing and heating, 82; structural steel, 107;
house furnishings, 94%. The metal and metal pro-
ducts group; agricultural implements, 94%; iron
and steel, 97; motor vehicles, 87; non-porous
metals, 84, Textiles and clothing, that group.
Now, clothing under that, 94%; cotton goods 92;
silk and rayon, 42; woolen and worsted, 105;
boots and shoes, 95. And miscellaneous: hides
and skin, 102; bituminous coal, 106; petroleum
products, 83.
Lubin:
George, I wish you would read that in the pre-
ceding column that shows them how these figures
fit in with the general price levels.
Haas:
Oh, yes. Assuming the all-commodity index 8.8 8
hundred so you can have & picture of whether or
not these particular prices are above or below
the index, the general index, we have, brick and
tile, 105%; cement, 110; lumber, 114; paint
materials, 97; plumbing and heating, 89; structural
steel, 121; house furnishinge 102; agricultural
implements, 108; iron and steel, 106; motor
vehicles, 108; non-porous metals, 104; clothing, 98;
cotton goode, 106; silk and rayon, 39; woolen and
worsted, 107; boots and shoes, 117; hides and skins,
133; bituminous coal, 112; petroleum products, 68.
Ross:
Where would foods and rente be relative to the
all-commodity index:
Burns:
Food is Just above the all-commodity index, I
believe.
Rose:
What is it that averages these down?
Burns:
A lot of industrials below it.
Ross:
That's consumption goods. What's holding food
prices down?
Haae:
What's holding the index?
85
20
Perkins:
What's holding the cost of living index down?
Lubin:
First, your food prices, and second, certain other
agricultural materials; and third, a large number
of the manufactured products that have'nt yet
caught up. Now take clothing for example; you
have it down here to 97.6. That would be away
above & hundred when all quotations are out on
men's clothing. The price would be up about 15%.
Compared to other prices, it 18 still down 4 points.
Ross:
Which indicates that you should be paying B higher
percentage for labor relative to materials at this
point in the game?
Lubin:
Not necessarily. You find in this group a large
number of the controlled price group commodities.
Rose:
In the material field.
Lubin:
Perdon me?.
Ross:
In the material field.
Lubin:
And finished products.
Ross:
Well, your consumption of goods 1s below, though,
the average.
Lubin:
(Nods yes.)
Perkins:
Where were rents in the general picture?
Lubin:
Of course, we have no wholessle price on rents.
The rent index now is approximately 15% below the
1939 level.
Ecoles:
Is that current leases made or 18 that the current
rent based upon existing leases?
Lubin:
Based upon existing leases; in other words,
inhabited houses.
Eccles:
But if you took today's rentals based upon the
rents that are contracted for now, they would be
considerably higher.
Lubin:
They would be up 4%. The figures for the March
collection period show about 1% increase since
January, but that is averaged - the new rentals and
the old. Of course, the wage earner who doesn't
move, who 18 willing to etay without renovation
Regraded Uclassifie
86
21
doesn't get the increase in rentals that he would
have to pay if he moved into a new place or into
another house.
H.M.Jr:
I don't know how much time you people have got,
but we've got another aspect of this thing that
I'd like to have them show you. I don't want to
hurry anybody, but I don't want to have anybody
feel we're keeping them from going.
Peoples:
Well, Mr. Secretary - Just a moment, Sir - I
think these charts and this discussion show that
every effort should be made to help lumber, mill-
work, cement, brick, tile end terra cotta,
structural and ornamental metal work,
Gill:
Regardless of price?
Peoples:
Steam and hot water heating. Huh?
Gill:
Regardless of price?
Perkins:
The prices are preposterous.
Gill:
I think that is as important as the production and
the employment. Furthermore, I am not 80 sure that
the Government should stimulate industries with low
employment necessarily, because it might be that the
Government would be keeping industries alive that
shouldn't be kept alive, and should really be stim-
ulating new industries for the future.
Peoples:
Well, these are basic industries, Corry.
Gill:
They have been basic, yes.
Peoples:
But when it comes to the heavy steel work, it is
well to put some sand on the track.
Gill:
I agree with you there.
(Daggett passes out another set of charts, entitled -
"Federal Emergency Expenditure and Business Re-
covery")
Haas:
Another aspect of the problem, 88 we have viewed
it, 18 this: That in addition to selecting the
projects which conform to the economic situation
in various industries, it 18 a question of locating
the projects where the need 1s, where the unemployed
are. This map and chart combination whichwe have
here is merely - it 18 merely suggestion. We have
taken such data as we have and placed along, with
it the total Federal expenditure. We have it for
Regraded
Uclassifie
87
22
the total of the United States. And then, rather
than taking it up for each state, we took it up for
certain geographical aressin the United States.
And in the center you will notice the curve, the
solid black line, labeled "Expenditures"; those
are total Federal Expenditures. Along with that,
we put automobile registration and bank debits.
Bank debits 18 - there is some question in the
fluctuation of that - exactly what it means; but
in the general run of affairs it does increase as
business activity in various regions increases.
Automobile registration seems to me to be an even
clearer indication of increased purchasing powers,
whether for the United States AS B. whole or for a
particular region. You will notice the expenditure
curve, with some irregularity, continues to increase
along with automobile registrations." It would
appear that at some date the expenditure curve -
one would reasonably expect that to decline.
Now, in certain of the areas, you will find that
very sharp differentiation between the business
curve and the expenditures. In the mountain
States you will notice, down in the right hand
corner, that automobile registration mounts very
sharply, but expenditures much more sharply. I
think that is explainable probably by some of those
large projects in the thinly populated area like
Boulder Dam.
G111:
George, may I interrupt to ask what these emer-
gency expenditures consist of?
Hass:
Where's Dan?
Gill:
I mean reclamation, PWA, WPA, CCC?
Bell:
All of the construction work and PWA. FERA, WPA,
PWA, CCC, Park and Reclamation Works - all emer-
gency work.
H.M.Jr:
An agricultural payments.
Bell:
Yes.
H.M.Jr:
And agricultural payments - benefit payments.
Ecoles:
That 18, other than the maintenance of the regular
departments of Government.
H.M.Jr:
That's right.
23
88
Bell:
That 16, other than the operating agencies.
It does take in the regular construction work like
rivers, harbors, reclamation, and public buildings.
Eccles:
Yes, but I mean it doesn't take into account the
amount of Government expenditure for the operation
of the Treasury's regular departments for instance -
for instance the Bureau of Internal Revenue.
Bell!
It does not take in that.
H.M.Jr:
Show him page 22; that's my favorite page. It's
got the dollars.
Bell:
Corry, they represent the Emergency Conservation
Works, Public Highways, Rivers and Harbors,
Public Buildings, Reclamation Projects, PWA,
WPA, Agricultural Payments, Resettlement Adminis-
tration, TVA, FERA, and miscellaneous others.
Gill:
Uh-huh - Well, the importance 1e that in these
mountain States it is the reclamation particularly
that throws that thing way out of balance.
Perkins:
In that area.
Gill:
Yes:
Perkins:
It has nothing whatever to do with recovery.
Gill:
And not anything to do with relief.
Perkins:
That is B. program based upon the necessity of the
particular state, the particular area - has nothing
to do with either the recovery or relief program.
H.M.Jr:
Nor, if I may say, how good a senstor they've got.
Perkins:
But I mean from the economic point of view they
throw the whole program off.
Eccles:
There are certain expenditures, for instance, with
reference to 8. project which involves 8. large ex-
penditure in an area. But then, you take for in-
stance Boulder Dam: now the amount of steel pro-
ducts and other products gave a lot of employment
to transportation and to steel mills and a good
many places outside. That, as compared with, for
instance, PWA - the money that they spent there
really was spent within the area. But that may
not be true of & battleship, for instance, which
may be built in some particular section, whereas,
89
24
the greater part of the expenditures are really
spent somewhere else.
McReynolde:
Well, your Naval construction isn't in here.
Eccles:
No, but maybe some sort of a project of that sort.
Well, the TVA, for instance; it may be all chargeable
to that particularares, but the great part of that
money was not spent in there. It involves pur-
chases of motors from General Electric and Westing-
house and Allis-Chalmere, and was really spent in
other places.
Bean:
To what extent are the peaks in the West North
Central and West South Central shown for the season
34-35 the result of the drought relief expenditures
in thos territories?
Haas:
I suspect some of those erratic movements are the
result of those expenditures, but I don't know
without checking up the figures.
Daggett:
I don't know exactly. I think a large element
of drought relief 18 in those figures.
Hopkins:
Is triple A in here, Dan?
Gill:
Yes.
Bell:
Agricultural expenditures, yes.
Perkins:
But not the triple A.
Bell:
Yes, triple A 1e in here.
Bean:
But that increase for 1934-35 in that territory,
I think, is related to the drought program - the
result of the 1934 drought - and in a way it didn't
represent an increase of purchasing power for the
territory. It really was an offset to some extent
for the condition created by the drought.
Peoples:
What proportion wae spent in the mountain area
88 compared to the total expenditure?
Bell:
I don't know.
(Secretary leaves room and returns).
H.M.Jr:
All right, George.
Haas:
On all these regional comparisons, I have pointed
Regraded
Uclassified
90
25
out that this chart is merely suggestion, that
it does point the way for 8 more intensive study
of the particular situation in different ereas.
These curves which we have taken - for instance,
automobile registrations and bank debits - in certain
areas do raise serious questions which I think
should be answered. The center one which shows
total expenditures of all these items by the
Federal Government, continues to mount almost as
sharply as the very sharp improvement in business,
indicated by automobile registration. I think that
raises a serious question as to the continuation
of that expenditure curve and its relation to re-
covery.
Besn:
I don't know that I got your point, Mr. Hass -
your last point.
Haes:
In other words, you must come to 8 point where ex-
penditures would have to decline. In other words,
they shouldn't keep abresst with 8 curve of busi-
ness recovery. In other words, if we do where are
we going to come out in our fiscal policy?
Eccles:
You've got 8 point, in other words, where your bank
debits and your automobile registrations, which
are a reflection of private expenditures or self-
generating recovery - where they pass your line of
public expenditures.
Heas:
That's right.
Rocles:
Now, in this chart here you notice they did pass the
line here. Public expenditures went along here until
the end of '35 almost straight, didn't they? They
passed the line there, but public expenditures turned
up nationally just about as sharply as bank debits
and private expenditures - that is, expenditures for
automobiles, automobile registration. So they are
going up together. That's all right for a time, but
you're getting to 8 place now, with private expendi-
tures increasing - bank debits - and public expendi-
tures keeping pace with it, where you do develop an
inflationary trend pretty rapidly. And you've got to
do some selective public spending, it seems to me -
just the thing you are discussing here - so as to begin
to level out this public expenditure here, but level it
out in an intelligent manner, 80 that the public expendi-
ture 18 done in such a way as to do the most good, and
as to go to the really, truly unemployed people who are
unable to get jobs in private industry, and not go
91
26
toward making for 8 more acute shortage among skilled
labor, the people who have skills, where shortages may
be developing, and stimulate further purchases of those
goods where we have almost reached the capacity or
have reached capacity of production. It is a selective
job.
Hopkins:
Don't these figures rather indicate - I don't know what
those total figures are there in dollars, but I judge
they are something over three billion dollars in expen-
ditures there. Of that total, three billion dollars,
250 million dollars is used on steel and perhaps another
150 million on things that are up here, that are moving
too fast. That is, of the total expenditure here, not
8. great deal of it can be related to other than that
250 million dollar steel item.
Rocles:
It isn't so much what has happened, it seems to me.
It's not taking the year as a whole, because there
is no question but what for the first six months of
1936 you weren't feeling the immediate effect of
price advances, rapid price advances, in most of these
industries; they were going along pretty steadily, gen-
erally speaking. The real advances have just come the
very last - the last part of '36 and even in the be-
ginning of '37. So that I say it isn't 50 much what
has happened up to the present time, but it is what is
very likely to happen unless we immediately begin to
face this problem, because it is 8 self-accelerating
thing and it works awfully fast.
Goldenweiser: It seems to me that part of the problem is where you
start from. I mean expenditures may go up as fast 88 -
or business may be going up as fast as Government ex-
penditures and you still may not catch up with it.
Your Government expenditures may keep on going up
and you will never catch up. I mean you have to have -
from this point you've got to proceed to a much closer
analysis of the problem, because there are many indus-
tries where you may be up to what you were in 1929 in
production and yet not be there in employment, and
you may be up in employment in all the industries and
still get seven million unemployed.
Ross:
That's right.
Haas:
of course, you want your production to go up balanced.
92
27
Hopkins:
George, I think this is - I don't want to
get In this fight, but I think it is inter-
esting. Here are some figures showing total
Government expenditures in these emergency
fields by years, and with these two main
headings: "Payments Primarily to Persons,"
and "Payments Chiefly for Non-labor Cost.
We have a division of the total expenditure
on those two general headings. For instance,
it shows a continuous increase in the percentage
of the total amount that 18 going to persons
rather than to non-labor cost. On the other
hand, the non-labor cost in 1937 is just
about the same as it was in 1936 - of the
total Government expenditures - and very
substantially higher than it was in '34 and
'35, the very times when we ought to have
been pushing non-labor cost, buying goods
and materials. In 1936 the Government
bought a little more than they did in 1937.
It's about the same in '37 as it was in
'36.
Bean:
Do you mind reading those figures off, Mr.
Hopkine?
Hopkins:
Yes. 1934, total two billion six. Payments
primarily to persons, a billion five. These
are round figures. Payments chiefly for non-
labor cost, a billion a hundred twenty million.
In 1935, the total was three billion four
hundred forty-five. Payments for persons, B.
billion eight thirty-five. Payments chiefly
for 'non-labor, a billion six. In 1936, three
billion one ninety-seven. Payments to persons,
one billion eight hundred eighty-four. Pay-
ments to non-labor, about a billion eight.
And in 1937, a total of about four billion.
Payments to persons, two billion two hundred
thirty-eight. Payments for non-labor cost,
a billion seven hundred fifty-nine, which is
about the same 88 1936.
Now, those aren't - those include budgetary
items 88 well as emergency expenditures.
Goldenweiser:
But doesn't the non-labor include labor indirect-
ly to B. very large extent?
93
28
Hopkins:
Sure, that is always a moot question. But that
gets into, it seems to me, the argument here
of Government spending. It seems to me the
argument has been made, and I think properly
made, that Government, if it should spend,
should spend in certsin directions, in certain
ways. And one of the ways I think everybody
would agree upon is that we should cut down
on buying steel. Now, from steel, which 18
the obvious case, you move down to other
types of things.
Now obviously, if we are going to spend
$4,000,000, there are ways to spend that
that I think favorably affect our economic
structure.
Eccles:
Keep our structure better balanced, that's
right.
Hopkins:
And buying steel tends to unbalance it. So
I think these general figures are important
as to the way we are spending. Now, the
tendency is to increase the percentage being
spent for persons. On the other hand, the
total here, showing that our non-labor costs
went up continuously
The funny
thing is that in 1934 we spent a billion one
twenty-one and in 1937 we will spend six
hundred million more at the very time when
Government spending ought to be out of the
thing from that point of view.
Eccles:
We should have been doing housing and the use
of steel and building materials and skilled
labor in '34.
Lonigan:
Do those include regular Governmental construc-
tion work, war expenditures, etc.? What is your
dividing line on those?
Hopkins:
Yes, this includes budgetary items, construction
and all emergency expenditures.
I'd like to ask George - what criteria do you
use and do you think of at any rate when you say
that at some point Government expenditures
should go down? Do you relate that to the
S4
29
national income? What do you relate that to?
Do you relate it to the fact that spending
Government funds may be a way of redistributing
the national income better than it was ever dis-
tributed before, that if this money is going
to persons, in effect, that constitutes a re-
distribution of the national income? And it
may be that this two billion four hundred mil-
lion going to persons this way - that this
is the best trick that anybody has yet devised
for getting a fair distribution of the national -
income, and it may be that instead of that going
down we ought to encourage it to go up some
more.
H.M.Jr:
Well, as I understand it
Haas:
I'll answer that quickly.
H.M.Jr:
He'll answer that quickly before Marriner and
I get to it.
Haas:
You can't keep your public expenditures going up
if you're going to borrow it. If you have a
tax structure that takes it out of one place and
puts it in another, that is different.
Hopkins:
Yes, I agree with you on your talking about an
unbalanced budget.
H.M.Jr:
Well, Mr. Bean heard what I said - "It's all
right if you can collect it."
Eccles:
You have two factors. You have first the factor
of balencing the budget at some point where you
build up your supply - your means of payment through
other than deficit financing.
But you also have another factor, Harry, that seems
to me to be very important. The question of
Government expenditures - I don't mean the Govern-
ment collection of funds, that portion going to
retire the debt, but I am merely thinking of the
Government increasing its collections and using
those funds to distribute the income by spending
it, see? We have accumulated a huge backlog of
need for producers' goods. If you are going to
have an increased standard of living, together
with an increased population, that means more
95
30
consumers' goods all the time. Now before you
can produce those consumers' goods, you get to
a certain point where you've got to get an ex-
pansion of capital goods. That means more ex-
pansion of plants; that means more skilled labor;
that means more machinery; that means an improve=
ment of your transportation. And it means also
8 big improvement and a big expansion in housing
to get up to the backlog.
Now that all, after all, has to be done by labor,
80 that labor has got to produce, in the final
analysis, not only the consumers' goods but the
capital goods that are used to produce your con-
sumers' goods. And you've got to save 88 8
nation, individually, and through corporations,
a sufficient amount to pay for these capital
goods. To the extent that you collect it and
spend it in consumers' goods, you are going
to get an unbalance. I mean after all you can
get such a thing 88 an unbalance between the
amount of consumers' goods - just as we did once
before, when we got producers' goods out of bal-
ance with consumer buying power, we cen get con-
sumer buying powerso great that we haven't got
capital goods to produce it without a runaway
price picture. I mean it is just as possible
to get unbalanced on one side 88 it is on the
other side.
Ross:
Yes, but how do you get capital goods expanded
except by the profit motive, which is in turn
actuated by the demand for consumers' goods?
Eccles:
That's right, but I'm speeking of getting con-
sumers' goods in terms of utilizing your facili-
ties, and after all you've got to expand those
facilities to keep your supply of consumers'
goods. It's that part of the production of labor
that isn't consumed that makes possible the ex-
pansion of capital goods.
Hopkins:
What I'd like to hear George discuss is this.
Assume you weren't talking about a balanced
budget and that we had 8. balanced Federal budget
today, right now. Do you still make your point
that Federal expenditures, in the interest of
S6
31
our economic situation, should be stopped at
some point from increasing further?
Hass:
No, I think in that case it would depend upon
what economic philosophy the Administration
wanted to embark upon.
Focles:
Well, I don't say that expenditures necessarily
need to come down. I think after all if you get
a national income here of eighty, or ninety,
or a hundred billion, that we can well afford
it if the need exists for the public expenditures,
and if we still have 8 sufficient surplus left
over to begin to retire public debt as private
debt expands. I think that we just can't ar-
bitrarily say that we need to decrease public
expenditure. What we are primarily interested
in is to increase national income, and if national
income is increased through maintaining a balance
and utilizing our facilities, we collect ade-
quate taxes - we may even collect more than we
are collecting now.
Hopkins:
But, Marriner, realistically in terms of the
budget this year, where you've got an unbalance,
and you say it is desirable to get to a balanced
budget, you've got in here certain expenditures,
Federal expenditures, which I think all of us
would admit are undesirable in the light of the
present economic situation.
Eccles:
They are the ones that ought to be out.
Hopkins:
Yes.
Rooles:
That's right.
Hopkins:
And the question is can you cut those? On the one
hand, suppose you could lop off 400 million out
of this billion dollar purchase that Lubin talked
about which we made last year. Suppose you
lopped that off and you put it in Navy expendi-
ture.
Eccles:
Doesn't help at all.
Hopkins:
Your economic picture is just the same, isn't it?
Ecoles:
It's worse.
97
32
Hopkins:
What I think the Treasury would be interested in
knowing is whether out of that billion dollars
that was purchased last year in goods - what part
of that is really not to the interest of our
present economic picture for the Government to
spend or loan? Or whether they loan it or give
it away - either way. Is there $400,000,000 of
that billion dollars that we spent for materials
last year or in the year 1937 that we shouldn't
spend in the year beginning July 1st, and what
are the items?
Lonigan:
There is one other factor in that that might be
considered, and that 18 so many of these projects
that require steel are going to have to be con-
tinued. The Government isn't going to have much
choice about some of them, because the commitments
are made. So that actually the prohibition on
further purchases of a few of those items at the
top of the list becomes that much more serious,
because it can't be complete.
Hopkins:
Well, what 18 the amount of these heavy purchases
that we are going to have - on which there are
commitments in the years'37 and '38, such as
Boulder Dam and that sort of thing?
H.M.Jr:
Well, there is all these - you take the 53
housing projects that Mr. Ickes has.
Hopkins:
You mean that money hasn't been spent yet?
H.M.Jr:
He's got $136,000,000 in that item and is 8 third
of it spent?
Bell:
Well, a little over B third. I think he has about
60 or 70 million dollars yet.
Perkins:
But they are started and have to be completed;
else it is a loss.
Hopkins:
In other words, we may spend more next year than
we did this year.
H.M.Jr:
No question about it. You take Resettlement;
they are down from March 1st to June 30th this
year to spend a hundred million dollars, and that
is
S8
33
Hopkins:
A lot of that 18 building.
H.M.Jr:
Pardon me?
Hopkins:
A lot of that is building.
H.M.Jr:
A lot of that is building, and the only way you
can catch this thing is if very soon, that - for
instance, instead of these things coming over in
8 little book to the President and he thinks in
terms of location, why, he has these other
factors or has a group which would go through
these projects and make them clear certain hurdles,
which they have never had to clear before. Now,
I realize you can have so many that you won't get
anything. That isn't what we are thinking about.
We are not trying to get anything except to lay
some things down. But there are commitments, as
I say, from March 1st to June 30th. Our estimates
show that all these agencies will spend another
billion and 8 half. Now you can't stop that
billion and a half from March 1st to June 30th;
that's going to be spent. And we're still spend-
ing the three billion three.
Lonigan:
We're still spending RFC' money.
H.M.Jr:
And we're still spending RFC money.
Hopkins:
Do you put loans, for instance, for the RFC in
the same category with the rest of this?
Bell:
No.
Hopkins:
But would you in terms of the economic picture?
Perkins:
That doesn't enter into the picture of the budget.
Eccles:
Well, it does in a way. It does in a very direct
way, because it means the Government borrows to
get the money to make the loans. It gets into the
deficit picture.
Perkins:
Yes, but I mean it doesn't create a deficit. We
don't carry that as 8 deficit, do we?
Eccles:
Well, we've got to go to the money market to get
the money. They have assets that would likely
99
34
cover the amounts of the loans.
Perkins:
And it's hardly fair to put that in, because the
money is loaned against good assets.
Bell:
You stop them making loans of that character and
your revenue will be larger. Your budget will
be benefited by that.
H.M.Jr:
or course, if you're in a war and the war is
over and then you stop and you cancel contracts,
etc., which of course you do
But at this stage, you've got commitments and
you've got to complete those commitments; but
the first thing you know, you're going to keep
up those commitments. I mean you've got to
start somewhere and stop making more commit-
ments and let the others run off. Now, if you
start to deal with the problem now, the thing
will automatically work itself out in an orderly
way. We haven't got to a point yet where I think
we are in any real danger, but unless we do stop
making these commitments, unless they fit into
8. national picture, we can very readily get into
8 pretty disorganized picture of prices and
employment and inflation.
Hopkins:
What I'd like to do is to have some one discuss
briefly the relation of Government expenditures
to prices and something about this whole price
picture as they see it now.
H.M.Jr:
Well, would you mind waiting a few minutes, because
we've got a couple more things, and then would
you ask those questions?
Hopkins:
Yes.
H.M.Jr:
We'll run through this whole program and then Mr.
Hopkins has something definite he wants to ask.
Haas:
I think this might be the last one.
H.M.Jr:
No, no, that other chart - that and one more.
I don't want to miss the other one, because Hopkins
came here
100
35
Hopkins:
The one that's got the dollars on it.
H.M.Jr:
Yes, sir:
Lubin:
That one has got dollars.
H.M.Jr:
Well, you've changed it since I've seen it.
I mean it had red figures on it.
Haas:
They wanted to photograph this, so they left
it black. But I don't think this is the one.
H.M.Jr:
I mean the one that showed total relief expendi-
tures in connection with unemployment and
agricultural employment.
Haas:
Oh, I get it.
H.M.Jr:
Because Mr. Hopkins came here - he's going to
be terribly disappointed if you don't point a
finger at him.
Hopkins:
Fingeror figure?
H.M.Jr:
Either. I mean Gill has just been sitting on the
edge waiting for a scrap here.
Gill:
Been on the verge of it.
H.M.Jr:
Terribly disappointed.
Haas:
Now give the Secretary this one. I can use the
black and white.
H.M.Jr:
That's the one. I don't know what the other one
was that you had.
Haas:
The other one is a different one that we may get to
later.
H.M.Jr:
If you don't mind, Harry, we're going through this.
Hopkins:
I'd like to very much.
Haas:
This chart is very similar to the previous one,
except that along with the expenditure curve we
have put in two other curves. One is called,
"Farm Labor Supply." Mr. Bean can explain what
that is. That 18 a figure of the Department
101
36
of Agriculture. By means of a questionnaire,
I understand - the sample method - reports are
obtained from all sections of the United States.
The questionnaires sak the farmer what per cent
of the normal his labor supply is and what
per cent of the normal the demand for farm
labor is, and then they take the ratio of one
to the other. It happens that the curve is
quite significant. Some ten years back or so, I
experimented with 1t. And it is, you will notice,
by regions, if you examine it. Along with some-
other indices, it seems to conform with that
unemployment situation in agricultural areas.
The other curve, of estimated employment - I'm
open to suggestions. But I'll tell you what we
used. We used Nathan's figures, and then Daggett,
in order to distribute them regionally or to
have a basis for distributing the Nathan esti-
mates regionally, took the registrations of the
Re-employment Service by states as they were
given, on the assumption that there would be a
correlation between unemployed and the amount
of registrations in the different areas. That
may or may not be true.
Perkins:
I doubt if it is true, but
Ross:
What is it on the United States total where you
have both the figures?
Heas:
Well, the distribution regionally was made on
that basis. We did it purely as a matter of
suggestion, hoping by doing something like that
we'd get 8. better suggestion. I think there is
8 very imperative need for it.
Gill:
George, Em's question was did they go together
on B national basis - Nathan's estimates and the
registration of unemployed.
Daggett:
There is considerable variation from year to
year, but whether they go together on a national
basis as compared with going together on 8
regional basis would be, of course, two different
questions.
Baas:
We are not putting up any case for it, but if
you don't like it, our suggestion is that we
should have something better.
102
37
Bean:
Could they fluctuate together on 8 regional
basis and not reflect that in the aggregate?
How can you have B correspondence regionally
and not have it show up in your total?
Ross:
It would be larger on the regional basis than
you might find in the national.
H.M.Jr:
But the fact remains that, beginning with
January 1, 1936, it looks as though from that
point the dollar should have gone down;
instead of that, it increased. I mean it looks
as though as the employment went down - unem-
ployment - that the dollar should have followed
it.
Hopkins:
What makes you think that, Henry?
H.M.Jr:
What makes me think what?
Hopkins:
That the dollar should have gone down.
H.M.Jr:
Well, if you follow what the President has said
about four times, that as private industry re-
employed people, we will spend less money, why,
that line ought to have gone down.
Ross:
Well, of course, we can show that the number of
people receiving aid has gone down along with
unemployment. Now, when you talk about money,
you're getting down to talking about direct re-
lief 88 against work relief.
H.M.Jr:
We put this up and the reason we asked anybody
to come over here is to see what they can do to
give us something better. There is no pride of
authorship.
Gill:
There is one other point that should be made
following Em's point, and that is that these are
all emergency agencies. The Secretary said he
was going to point his finger to Mr. Hopkins.
I'm not so sure that this 18, because this 1s not
FERA, PWA, WPA expenditures; it includes every-
thing.
H.M.Jr:
Oh yes, it's the whole picture.
Bell:
The line has gone up beginning January 1, 1936,
Em, and there was no direct relief at that time.
103
38
Ross:
In the beginning of '36, it would be all right.
Bell:
Went down a little in '35.
Ross:
What did you say?
Bell:
Went down a little in '35.
Ross:
But those are just annual figures. You don't
show any trend in '36. Those are annual figures,
aren't they?
Bell:
Yes, they are annual figures, but it started right
up January 1st and continued to the end of the year -
the line.
Ross:
Well, it shows your fiscal year.
Perkins:
Mr. Lubin, did you try plotting this with reference
to known employment? I mean when you get into
estimated unemployment, you get into a factor
that you don't know much about, but we do know
the employment in these various fields. We know
the employment in the factories.
Haas:
Wouldn't be just factory employment.
Lubin:
No, but we have a figure on the total.
Heas:
Oh, have you?
Lubin:
Oh, yes.
Bean:
The employment figure would be practically the
inversion of these figures of farm labor supply.
That farm labor supply figure happens to corres-
pond inversely with the employment in factories.
I think it represents that floating population
that moves between the factory and the farm as
the result of fluctuations in factory employment.
Daggett:
By the way, you can notice that in these states
the farm labor supply figure is smallest in indus-
trial states, like Michigan, Pennsylvania, etc.
Perkins:
I wasn't here, but how did you arrive at the farm
labor supply figure?
104
39
H.M.Jr:
He hasn't explained it yet.
Perkins:
oh.
Haas:
Mr. Bean - it's his Department's figure. He'll
be glad to explain it.
Bean:
Well, it's a metaphysical figure. Shall I go
on?
H.M.Jr:
Yes, it's all right.
Perkins:
We can all think in that field.
Bean:
The farmers are asked to report a figure on the
labor supply as 8 per cent of normal. Now,
no statistician figures normal for them, but
they report 8. figure. They are also asked to
report on the labor supply 88 a per cent of -
rather, the demand for labor as a per cent of
normal. Supply as 8 per cent of normal, demand
for farm labor as a per cent of normal. Then
the supply figure is related to the demand
figure to give us a relative figure. I believe
Mr. Daggett worked out that relative figure.
And that ratio, for various reasons, happens to
correspond almost perfectly with the fluctuations
in factory employment.
Perkins:
But this is based on opinion.
Bean:
Yes.
Perkins:
How many years have you been taking that?
Bean:
That's been going on since 1918.
Perkins:
With how many farmers?
Bean:
50,000 - probably less than that.
Eccles:
You certainly get the trend this way.
Perkins:
They've been doing it long enough.
Bean:
Whatever it 1s, it does happen to represent or
reflect the industrial situation almost per-
fectly. With employment down in the cities,
105
40
the supply of labor reported by the farmer is
up and the reverse, 80 that you have here in
this chart
Haas:
You really haven't anything more than you've
got in the previous one.
Perkins:
All it represents 1s just about the number of
families who regularly work in industry but who
keep a foothold in the country and go there when
times are bad.
Bean:
Yes, that's it.
Perkins:
People who have never quite lost their
Bean:
They shift between the two areas.
Perkins:
But what do we get out of this? I don't see
what we get out of this chart. It doesn't
mean anything to me.
H.M.Jr:
I don't think you get much out of it.
Perkins:
In the first place, this estimated unemployment -
I mean I think that is very
H.M.Jr:
After I heard of this "metaphysical," why
Perkins:
Well, the farm labor supply is metaphysical,
and the estimated unemployment is metaphysical.
H.M.Jr:
I don't think I want to take it to the Presi-
dent.
Hopkins:
I wouldn't even want to be with you when you take
it.
H.M.Jr:
Because I've heard him discuss unemployment fig-
ures long enough.
Perkins:
If you talked of "metaphysical," perhaps that
would just give him - put the fire under him to
make him come around and let us make a real
census.
Haas:
That's the point I was going to raise. You're
talking billions of dollars in that particular
field, and when you come to chart it, here's the
best you can do. That is really the best that
106
41
can be done. What is it? You say it is nothing.
I agree 100%.
Hopkins:
You are quite wrong on that. Much better charts
can be drawn for the need for relief. We know
more than any other nation in the world about why
we need money for relief.
Perkins:
But this isn't expenditure for relief.
Hopkins:
Yes, it 18; isn't it?
Haas:
It's all expenditures.
Hopkins:
Does this include that billion dollar purchase
of materials?
Haas:
It includes that.
H.M.Jr:
We're not personal yet.
Hopkins:
Well, I know you're going to get to that in a
moment.
H.M.Jr:
You (Haas) have one more chart.
Haas:
I only have one copy of this, and I doubt if it
is very easy to see it across the room. Up here
in this profile map are these automobile regis-
trations expressed in this way: The darker the
area, the smaller the percentage of 1929; for
instance, the black represents under 70%. In
other words, with reference to 1929, the black
area is the most depressed as expressed by the
automobile registrations.
Down at the bottom we have the states arranged
in terms of per capita Government expenditures -
Federal expenditures - going into the states -
the average per capita expenditure. This is on
fiscal 1937 for the country as a whole, about
$35.00 per capita.
The state which has the largest per capita ex-
penditure is Nevada - on a per capita basis,
a hundred forty.
Hopkins:
That was a doubtful state, you know, Haas.
107
42
H.M.Jr:
George, does that include silver?
Heas:
No, it would be out farther than
Bell:
You haven't got chart enough.
Haas:
After Nevada is Montana, Wyoming,
H.M.Jr:
What did Vermont get? How much did Vermont
get?
Haas:
Vermont got more than the average, about $38.00.
The average is about $35.00. So it's not so
bad.
H.M.Jr:
How about Maine?
Haas:
Can we find Maine on this thing? Oh, Maine is
away down, $20.00.
H.M.Jr:
See, there is the trouble.
Haes:
I'll read off a few more. After Montana, Wyoming,
South Dakota, New Mexico, North Dakota, Arizona,
Idaho, Washington, Oregon, Colorado, Nebraska,
Utah, Kansas, Minnesota, New York, California,
Wisconsin, Vermont, Oklahoma, Delaware, Florida.
Those are all above average.
McReynolds:
Sen. Gless is the lowest.
Haas:
Yes, he's down at the bottom, about $18.00.
H.M.Jr:
Now, Mr. Hopkins, if you will ask your questions?
Hopkins:
Well, I would very much like to have some one to-
night discuss very briefly the effect of Govern-
ment spending on prices and an analysis of the
present price situation and its potential effect
on employment and unemployment, cost of living,
etc. Now I wonder if Henderson would just take
a minute to talk about that, just 8 few minutes.
Henderson:
Well, I think Marriner put his finger on one of
the principal things, and that was that the real
velocity in prices didn't begin until October or
80 of last year. There were changes in the
108
43
individual groups, but the price levels stayed -
wholesale price index stayed around 90 from about
the first of 1935 clear up until about October.
Since that time, it has moved about 10%.
Taken in terms of what lumber and products
that we and the sponsors have paid for - that
is, up until about February 28th - it would mean
that as far as lumber price increase 18 concerned,
we get one quarter less lumber.
Now that price increase in wholesale prices was
8 lot of it in the basic materials and pretty
largely in the controlled price group. That 1s,
there are some very definite supply and demand
features, but very largely there was an increase
in the prices of controlled products. As you run
down the list, for example, of what the WPA
spending has been, you will find that there is
soarcely an item in which there isn't some mea-
sure of control. The effect on the retail price
H.M.Jr:
May I interrupt you a minute? You say it's the
effect from controlled products. What do you
mean?
Henderson:
I mean that either there is a private agreement
of some kind as to price or there 1s & conscious
control over supply, or there is a basing point,
or there is some factor that interferes with the
normal supply coming to the market.
E.M.Jr:
Oh, I understand.
Eccles:
That is, where they haven't utilized capacity.
Henderson:
What's that?
Ecoles:
Where they haven't utilized capacity in particular.
Henderson:
Well, you take in some of these groups where there
18 unutilized capacity. As Harry pointed out,
the prices remained high - relatively high through
the pre-depression period, and when it got to some-
thing like 55 to 60% utilization, why it began to
move up in an extraordinary manner. It isn't
always in the places where there is a lack of an
effective use of the capacity.
109
44
Take our old friends, cast iron pipe and fittings.
The WPA program spent $22,000,000 on that, and
the chart shows that about the beginning of the
year, they upped the prices despite the fact they
are running at only about 60% of capacity. And
the Federal Trade Commission has moved in on them.
Now you can take most of these things as they go
through and you will find that 8 lot of it has
not been due to a normal relationship between
supply and demand causing the price increase,
and it hasn't been due to the Federal spending;
it hasn't been due to factors which are ordinarily
ascribable to inflation.
Perkins:
Was there any labor cost change in that?
Henderson:
Yes, labor cost changed but the labor rates
didn't begin to go up until November. That is,
I think your index
Lubin:
Stayed pretty closely the same from some time
before the NRA went out until about October
and November.
Perkins:
In that industry?
Henderson:
Well, in an index of your hourly wage rate.
Perkins:
Yes, but I meant in that industry did it change?
In cast iron pipe and fittings.
Renderson:
They had a smaller wage increase on December lst.
Their prices reflected it long before that.
Perkins:
In fact, it is an unjustifiable rise?
Henderson:
I think so.
Lubin:
Remember this other fact, too. Our study of steel
shows that the number of man hours required to
finish 8 ton of finished product went down very
sharply as production went up. At 25% capacity,
it required approximately 46 hours to produce
a finished ton of the product. At 65%, that
number fell to 36 hours, 10 hours less.
Perkins:
So that
Regraded Uclassified
110
45
Lubin:
It should be more than offset by this.
Perkins:
of course, I think
Henderson:
These prices necessarily which have been given
in the memorandum and described here are either
January or February prices and do not reflect
the March prices or those which Dr. Lubin has
pointed out are in prospect. That is, if you
take the Fairchild reports you can very plainly
see that this wholesale price rise is. almost
bound to increase; that is, the plans are al-
ready made.
Bean:
There are other prices for which the prospect
would be lower prices rather than higher ones,
aren't there?
Henderson:
Well, fruit prices, you mean?
Bean:
I think your whole agricultural prices will
soon
Henderson:
How soon?
Bean:
As soon as you get your crops.
Perkins:
If the season is normal.
Bean:
I mean you have 8 spread now of 20d between your
current price and your distant futures, which
reflects what the market expects in the way of a
price level with something like 8 normal crop.
Henderson:
On the other hand, the increases in prices are on
basic commodities. And some of them have not been
reflected as yet. There is a normal lag of, I
would say, 7 to 8 months before they are reflected.
Take cotton textiles, for instance. In one item,
sheets, for example, the wholesale price is up
about 25₫ and the retail price is only reflected
about 15¢, and considering your prospect for the
fall market, it's going to be 35 or 40¢. And in
a certain one of the operations in textiles that
I have had all the figures on, a cent increase
on a 30₫ item is expected to reflect about 8g
in the retail price.
111
46
In other words, as far as the WPA program is
concerned, there is a very excellent prospect
that our dollars in the fell will be about
80 to 85¢ dollars.
Rocles:
As compared with?
Henderson:
As compared with what we have been getting in
1935 and 1936.
Gill:
At the time the security wage was set, taking
the minimum at that time.
Henderson:
We got the first reaction today, wasn't it,
Corry, from Joe Robinson's bailiwick,
complaining that the cost of living was ex-
ceeding the security wage.
Gill:
And that the security wage in Arkansas at the
time it was set was at the minimum, and that
if he had realized the prices were going up so
the way they have, he would have tried to get
an amendment through to change the security
wage.
Henderson:
or repeal the laws of supply and demand.
I think that the question of selective spending
is certainly an extraordinarily important one,
but I am not at all sure that just a selective
spending will control the boom. Now, I'm not
sure that even selective spending plus some
pretty strict monetary methods will control it,
because in the realm of the controlled price
groups, they are fairly independent of over-all
control. And by our experience with NRA and
previous experiences, if prices is any indication,
this is the time when the advantage is taken of
the market, in order to boost them.
Bean:
Does that mean they will continue to take edven-
tage or that, once having taken it,
Henderson:
I think they will continue.
Bean:
Well, of course, your industrial price level re-
mains flat until the end of 1936.
Regraded
112
47
Henderson:
I think that by the end of 1934 the price level
had reflected the change from devaluation;
it had reflected the bouncing back that you get
with 8 reversal in policies; it had reflected
the increases which were due to NRA and the re-
gaining of private control. Because, remember
this: It wasn't the NRA code provisions in
strict effect that were responsible for the
main price increases. It was the regaining
of control.
Lubin:
The price increases came to an end during the
first few months. The biggest increases occurred
before June of 1933.
Henderson:
And the stability that was aimed at was the
gaining of the effectiveness. As, for example,
in steel, very definitely in 1932; in 1932,
Weir and some of the independents were thinking
very definitelyofbreaking loose from the fixed
price structure, and under the manipulation of
the code and what they could do, they regained
the old relationship. And that was true in the
electrical products; it was certainly true in
this cast iron; it was true to B. lesser extent
in lumber; it was certainly true in paints and
vernishes, brick tile, terra-cotta, glass, cement,
building materials, and finished products, like
heating, ventilating, and plumbing supplies.
Most of those were regained without NRA provi-
sions, and you had a lower price level.
Now in that time, as Weintraub's reports showed,
we have had an over-all increase of productivity
of about 20%; we have had an increase in concen-
tration, most assuredly, of control; we've got
an increase in the private resources which our
concentrated group have at their disposel, and
all in all, the control picture and the ability
to manage prices from this time on is such that
just merely regulating the Government spending
and using the monetary controls is very likely
to be insufficient.
Gill:
Aren't there some other things, Leon, such 88
exercising the tariff power?
Henderson:
Well, there are a number of things available,
of course.
113
48
Eccles:
For instance, you've got B. tariff on Canadian
lumber; you've got a 4d tax on copper; you've
got a tariff on steel, which, of course, may
not be particularly effective today because of
foreign demand. You've got a condition of scrap
iron, of course. I don't know whether it is
possible constitutionally to put embargoes, but
I mean in those great, importent basic products,
where questions of tariff, question of a tax
which is equivalent such as that on copper,
question of an embargo - you can't deal with
the detailed fabricated products, but if you can
deal with these basic products
Henderson:
They are the ones that generate and start and
accelerate the price rises. And due to the way
our whole cost accounting is set up, practically
all of it is on 8 percentage basis.
Bean:
Leon, do you think prices will continue to go
up?
Henderson:
From this point?
Bean:
I mean is that the burden of your
Henderson:
I think so.
Bean:
Now, I wonder if you have in mind the situation
that developed after 1921. You have 8 very sharp
advance in metal prices and a lot of other non-
agricultural prices between 1922 - beginning of
'22 and last part of '32, perhaps beginning of
'23. Now, those prices didn't continue to go up.
I wonder if, standing at the end of 1922, seeing
that momentum in prices coming out of that low
point of '21-22, you wouldn't have reviewed the
situation then much in the same way that you re-
view it now.
Henderson:
I don't think I would, because I don't think that
we have a similarity of conditions.
Bean:
Don't you always get & rise in prices of substantial
proportions during an upswing in a business cycle?
Lonigan:
I think your curve of prices in '21-22-23 was not
free from regulations. You had very strong
Regraded Iclassified
114
49
Governmental intervention in that price situa-
tion in early 1923, by the Federal Reserve Board
and the Department of Commerce and Mr. Hoover.
Bean:
They were not regulations. I think the Federal
Reserve Board
Eccles:
Not regulations, but very, very powerful inter-
vention and persuasion.
Bean:
Well, was there any more
Henderson:
Certainly drew off the means of payment.
Eccles:
They broke down the price level - restrictive
credit policy.
Henderson:
That was one of the things on which the campaign
was carried, and immediately the Federal Reserve
Board went into B. withdrawal of the means of
payment, and your whole price structure was sub-
ject to it.
Bean:
It did something of that sort recently.
Eccles:
Yes, but at that time they forced - they limited
excess reserves, forced the banks to borrow, and
raised the discount rate.
Henderson:
What has been done, and I think Mr. Eccles will
bear me out on this - what has been done up to
date and what is due to go into effect is not
going to mean that there will be a calling of
loans in the individual bank districts, and that
is what resulted with the deflationary policy
of the Federal Reserve Board in the early '20's.
Lubin:
But not '23.
Goldenweiser:
That was 1920.
Eccles:
But isn't this 8 factor in this situation?
I wouldn't be sure that prices will continue to
go up. I think it depends somewhat on world
conditions, of course, and we've got to consider
how we can cushion ourselves against the reper-
cussion of world inflation conditions, which are
a very important factor.
115
50
But from purely a domestic standpoint, we've
got tremendous capacity to produce, and we've
got 8. great ingenuity for meeting problems
when it becomes profitable to do so. You
have certain marginal production. You take
in the copper business; when prices are at a
low point, there are certain mines that just
can't operate, and they don't operate.
When they get up to a point of, say, 10 or
114, then - and they did just last fall -
then there are certain mines that go. into
production. It takes time to get the ex-
pansion, so that they can increase their out-
put to some extent on an existing price level,
and even on a somewhat lower price level than
they've got today, but on a 10¢ price level
they couldn't. You've got the same thing in
the lumber industry.
Henderson:
Can we make a point right there on the differ-
ence between copper stocks in 1921, in that
post-war period, and where copper stocks are
today? How long is it going to be before you
will get that relationship in stocks which
might likely break 17¢ copper down to 10¢?
It will take quite a long time. Every yard
had copper on hand in the '20's, and it took
a long time before it was liquidated.
Eccles:
Well, you've got A monopoly there, all right.
You've got to deal with monopoly. I don't
think you can just talk about it. You've got
to deal with it. I'm just mentioning this
factor of marginal production in 8 general sense,
not in any specific way.
Hass:
I think it is very important.
Ecoles:
Yes, it is a factor.
Now, you take certain of the old steel fecilities.
At a certain price of steel, it doesn't compen-
sate for the cost of putting them in shape and
operating them. With these present prices, they
are putting plants into operation that haven't
been in for a long while.
Hopkins:
And think of the inordinate profits the fellows
are going to make who are ready to go into
operation.
116
51
Eccles:
That's right. That's exactly why you have got
to have 8 tex system to do something about it.
Burns:
And there is 8 further point that the steel
industry is bringing in new furnaces and new
mills. Half a dozen major mills will come into
operation this year. So it's not only the
marginal mills, but the new ones, too.
Rooles:
There is this encouraging thing about it, if
there is anything encouraging. It is this:
That this rapid price rise - the thing up
until October was going along on B pretty level
basis, but as indicated the prices have been
rapidly advancing since then, and it takes a
certain amount of time to attempt to overcome
1t, but I do think the labor problem comes in
here as an important factor, and
Hopkins:
I'd like to ask Miss Perkins how much of that
rise in prices was reflected by wage increases
and how much in profits, and have you any
notion of what is happening in textiles with
this textile rise?
Perkins:
Well, we have been making a study on the steel
situation, but I am afraid you will find there
is not complete agreement throughout the
Government, with regard to the proportions that
are reflected by the change in the wage level.
Do you want to discuss that, Dr. Lubin? You
went over that memorandum this afternoon,
didn't you?
Lubin:
We estimated the increased labor cost resulting
from wage increases in three different ways, and
the best we can get is a ratio of 1.91. In other
words, for every dollar increase in labor cost,
there is a dollar ninety cent increase in price.
That's the best we cen do. The worst we could do
was a ratio of 3.20. Now, that doesn't take into
consideration the changes in raw material prices
of scrap iron, etc. Now, in textiles
Perkins:
But the actual price rise has been 80 much.
Lubin:
The actual price rise has been 12% and the best
we can do on labor cost would be 6%.
117
52
Gill:
What per cent of that would have to be paid out
of increased cost of raw materials, other than
labor?
Lubin:
Well you see, your prices went up in December
and then went up again this last month, and we
don't know how much of that price rise preceding
this one there was absorbed in that increase.
We do know that the profits during the last
quarter did go up rather markedly.
H.M.Jr:
Isn't this the problem
Lubin:
Am I right in saying that the actual net profits
in the last quarter of '36 are equal to the last
quarter of '29?
Henderson:
The profit for all large corporations was larger
in the last quarter of '36 than it was in the
last quarter of '29.
Lubin:
So they must have absorbed that increased raw
material cost.
Perkins:
I think this price item is very important, be-
cause there's one school of thought in the
Government
Lubin:
I think it is all right to say that one of the
Government Departments is proving the reverse,
that the increased labor cost was greater than
the increase in materials.
H.M.Jr:
Henderson, I don't just follow you. I mean I
don't know whether you're going to draw a conclu-
sion. But do I gather that you don't believe
we should follow this study of selective spending?
Henderson:
Oh, absolutely, I believe you should.
H.M.Jr:
I mean do you think it is worth while?
Henderson:
I think it is worth while. I think that it is
worth while to do it and that it would be an
exercise of intelligence to do it. But I
think it would be dangerous to regard it as a
complete control device for a boom.
118
53
H.M.Jr:
Well then, you said - you mentioned monetary
control. You said you didn't think that that
would be - I mean I'm just trying to - I
wondered if you had been able to think it
through to an end. I mean in sitting here I
get the feeling that you thought we couldn't
do anything. I mean that's the feeling I got.
Henderson:
No, I think it can be very definitely mitigated,
I think the uproar about steel at the present
time will be a deterrent as far as 8. rise in
the next quarter goes, but that you could ex-
pect that if you continue the demand - arma-
ment demands abroad, and with the English
already having, I think they said, 40,000
tons unplaced that they can get with 8 guaranteed
continuity of production and delivery. They
have taken off their tariff of 33% and they
have opened the way there.
The War Industries Board report on steel is
8 revelation for anybody who thinks that prices
can be controlled in 8 time of increased demand.
That is, the circumstances now are extremely
favorable.
Now I'd like to speak on Bean's point as to
whether prices will continue to go on and on
and on. I would say no. Certainly I don't
believe that they will go to infinity. But I
do believe that the price rise in wholesale
prices will continue, because I know of B.
number of them that are already planned, and
I know the situation well enough in a number
of other industries that they always take ad-
vantage of it for the raising of prices. And
I do not believe that the full effect of the
rise in wholesale prices has been felt up to
the present time, and when you get that you
will have a distortion - you will have an un-
balance in the relationship which produced the
vigorous recovery of '35 and '36. I think
the luckiest thing that the Roosevelt Adminis-
tration has had has been that stability of price
levels during '35 and '36. If there is any one
thing that most people are agreed on, it is that
we should have had a reduction of price level
during the '20's in order to reflect the degree
119
54
of lowering labor cost. We had en increase
of productivity of roughly 30% and you only
had an increase of about 8% in labor cost.
And your price level in 1929 was about the
same as it was in 1922. Now we are at about
88. We are only 7 points off of that danger
point, and I think we will go further, and
I think that we are very dangerously
threatened with an unbalance between effective
purchasing power and prices, and that will be
reflected later.
Now, as to what can be done, Mr. Morgenthau,
entirely depends upon the national policy
and what the Administration decides to do.
If it throws its full force into the manage-
ment of prices, it can do 8. tremendous
number of things, but even with all the things
that are available, such as tariffs, such as
yardsticks, such as encouragement of coopera-
tives, such as selective use of the flexible
teriff provisions, such as some discrimination
in tax policy and a further menagement of the
Stock Exchange - an increase in the margins,
for example - even though use is made of all
of those, you will still have 8. reflection of
the cost of living which will make it almost
seem necessary to keep up consumer expenditures,
particularly since there are about 18,000,000
people who are dependent entirely on their
spending from what they receive from the
Government. We have an entirely different
situation than what we have had at other periods.
Hopkins:
What effect, in your opinion, will the Govern-
ment have without actually using any of its
non-monetary controls, such as exercising its
public opinion powers? Take this steel rise.
How about having the Government say, through appro-
priate public officials, that they think this
steel rise is inordinate, it is an outrage, it
is going to raise the cost of living, that it is
far in excess of the increase in wages, and will
result in an inordinate profit to the steel
corporations?
120
55
Now I assume Miss Perkins has something to do
with starting this row about the price of steel,
while they are claiming it's wages. Now in
other words, would you think by the same token
that it would be very unwise for any high
Government official to indicate that the action
of the United States Steel Corporation in raising
these prices in excess of wages was an unwise
policy?
Henderson:
Well, I wouldn't want to take that as an isolated
example. I don't think you need to make an ex-
ample entirely out of steel. I think, however,
that an announcement that the Federal Government
is going to use all of its powers and emphasize
all of its powers to indicate what the treatment
might be if they got out of line, would be help-
ful until you could get into a better balance.
I very definitely think that the control measures
have got to be implemented by some additional
legislation this term.
Eccles:
Get some teeth in your anti-trust laws; that's
one of the things you need.
Henderson:
Certainly. Suppose you started on copper, for
example.
Ecoles:
Take the tariff off of it.
Henderson:
Take the teriff off of it. Also, a lot of the
marginal mines are in need of assistance, and
the RFC has been known to give such assistance.
And by your selective spending cut down on
copper. That is, you are influencing the supply
side. I think then if we proceeded against
copper for its plain violation of the anti-trust
laws, its participation in the World Cartel -
if, in other words, you use everything you've
got, you can do something.
There was an exercise
Baruch's experi-
ence, as I read it, going through the Was Indus-
tries Board minutes on the individual commodities -
copper then wanted - they told Eugene Meyer they
wanted about four or five-cents more than they
finally got. Well, all during those proceedings,
with Brookings as the chairman on that tax
committee, and with Baruch hammering away at them,
121
56
they did keep it from getting completely out of
balance, but they had to use some pretty severe
methods. They had to threaten the steel indus-
try, for example, that the Government would take
over some of the steel plants and run them
themselves. of course, they were laughed at,
and when you looked it up, why it looks kind of
like a week power, but it is certainly there.
Ecoles:
Don't you think organized labor could help 8 lot?
For instance, when they go to negotiate an agree-
ment for themselves, they should at least find
out whether the whole public is going to pay for
that plus an additional profit instead of just
saying, "Well now, if we can get a dollar out of
that increase, we don't care who pays it, you
can add that onto the price plus a little profit
for yourself." It seems to me the consumer has
got to be represented in this picture by Govern-
ment, and we can't merely have organized labor
here and organized industry over here, which
represents 8. small part in the total population,
simply getting together for their own interests
for the moment, and against the interest of the
public as & whole.
You take one thing that might hold these prices
down - I was talking to Stewart McDonald yesterday.
He said he had just got back from 8 three weeks'
trip in certein areas, and he was making 8 survey
on possible new housing developments. He said he
was quite discouraged, and that instead of an
expansion of private building and housing, what
they had expected, the prices had advanced so
fast that skilled labor and building materials
had reached & point that people who were getting
their figures and making their plans were with-
drawing, saying, "We'll get along with what we've
got." Making the best of the situation, because
people getting the income that many of them are
getting couldn't afford to pay the prices for
material and couldn't afford to pay labor cost
of $1.50 an hour or $2.00 an hour when they were
getting 50 or 75¢, or getting $150.00 B month.
So you've got that thing that will retard home
buying, because you can get 8 buyers' strike in
that field as you can in other fields, and that's
bad.
122
57
Perkins:
In this last agreement they made in New York
City with the building trades, the employee
group didn't even put up a fight. They
raised no opposition. They didn't send for
us to help them. Why? Because they are in
speculative building and they know they can
build and sell now. That's what you've got.
You've got & speculative situation in the
building trades. The home builder may with-
draw, but the speculative builder doesn't
much care, because he feels that the situa-
tion is rightnow. He can build right
at any cost and unload. We have had 8 good
deal of information coming in to the effect
that there is B very ready market for small
individual houses - sold 88 quickly as built.
Lubin:
or course, all this talk about increasing
wage rates in the building trades is 8 lot
of bunk. The agreementsin building trades
usually terminate May 1st. There have been
no increases except in Manhattan and The Bronx
perticularly. The real increases in the past
six or eight months have been in building ma-
terials. They expect B. wage increase demand,
but they have already attributed that to past
building.
Now, as a matter of fact, this thing is true,
that in building the average house your labor
cost will run up to a maximum of 36%.
Eccles:
That is direct, but, of course, it is related
back to the whole structure.
H.M.Jr:
Could I sort of see if we've gotten anywhere?
Some of you may have a bed.
Hopkins:
Throwing us out.
H.M.Jr:
What?
Hopkins:
The business of being thrown out.
H.M.Jr:
I wonder if any group could possibly - we've done
the best we could on this thing, everybody else
cooperating, and I just - personally, I feel I've
gotten 8 lot out of this tonight. I wondered if
anybody else wanted to take it and continue
123
58
this price thing, and then maybe we might have
another meeting. In view, I mean
Hopkins:
At some other time, I certainly would like to
have Mr. Bean discuss the picture as he sees
it in terms of keeping farm income in balance
in relation to this whole price picture and the
situation as it now exists.
H.M.Jr:
Well, I spoke to Mr. Wallace, and he was ter-
ribly sorry he couldn't be here, and I asked
him whether he wouldn't prepare a paper and
he said he would. Did he say anything to you
(Bean)? So maybe next meeting we can have it
from the agricultural viewpoint.
Bean:
We'll be glad to discuss it as we see it.
H.M.Jr:
Taking it from the agricultural price view,
huh?
Bean:
Be glad to. If he hasn't written the paper,
it doesn't matter; one of us will.
H.M.Jr:
He said he'd get back Monday.
Bean:
Well, I'll discuss that with him Monday, and
if he has B paper
H.M.Jr:
How would that be?
Bean:
You mean on Monday?
H.M.Jr:
No, no. I mean when he gets back we could have
another meeting some time.
Perkins:
I think it is important not only with respect to
price control, but the whole question of expen-
diture control ought to be thought of 8 little
bit, in relation to the degree to which Govern-
ment expenditures in particular industries have
been and are still basic in the activity of that
industry at all. I mean we regard people working
for that industry as privately employed. They
are not counted among the unemployed or relief
people. In many industries the Government
expenditure is probably very significant in the
whole present picture of that industry. I
Regraded
124
59
mean I think we ought to do that, don't you -
I mean on the basis of the raw material we
have now, I think we could probably get an
estimate that you'll all agree to as to what
industries are actually relying today on
Government orders for a proportion of their
employment. That is significant in the
whole picture of the community.
Haas:
Cement, for example.
Perkins:
Just take that, for example.
Heas:
67%, wasn't it?
Perkins:
Yes, but what does that mean in terms of
employment there?
Henderson:
Well, Mr. Morgenthau I wonder if in your Pro-
curement, you might explore also what the
possibilities are, say, in terms of 8 housing
and a works program, of offering to buy certain
quantities distributed over, say, the next two
or three years at existing price levels, and
very positively indicating that the Government
wouldn't be interested at higher price levels -
that it will not go forward with that kind of
program if the price level does go up.
Now, I assume that in the lumber industry
particularly they have gotten their stocks
in fairly good control. That is, there is
close to - well, right at the present time
about B. billion board feet less than we had
to wrestle with in NRA; and time and again
they indicated that if they could see a con-
tinuity of demand, they could make their en-
gagements at an entirely different price than
if they had to depend upon a piecemeal, hand-
to-mouth kind of handing out of Government
orders.
Perkins:
On steel they claimed that the orders were
piecemeal.
Henderson:
You figure you are able to fit them in. If
they were able to exercise a certain degree
of selection of the time when they would fit
them in, and know over a period of 8. certain
125
60
number of months or years that they had that
much of 8 backlog, they could afford to do it
at & price which wouldn't be prohibitive so
far as the future is concerned.
H.M.Jr:
Well, I've gotten enough out of this thing.
I should think that certainly if you looked
at it just from the standpoint of Government
alone - that if the President would set up
a group which represented unemployment,
the Department of Labor, and the purchasing,
and they examined the general broad Government
spending program, that we could do quite a lot
toward keeping this economic program in balance.
I mean we couldn't do it alone.
Henderson:
But you could get off the day-to-day basis on
some of your monetary controls, end the Reserve
Board could certainly be thinking in terms of
B volume of credit over B. much longer period
than they are at the present time.
H.M.Jr:
But if we met once e week and had all these
things and gave it - I mean Ecoles and I
meet at least once B week or once a day, de-
pending upon the necessity; but we are in
constant touch. But I haven't - for instance,
if anybody asks me how Mr. Wallace was going
to spend his $500,000,000 next year, I haven't
got the faintest idea. I mean to me - I mean
I just haven't got the faintest idea how he's
going to spend his $500,000,000 next year. I
just don't know.
Perkins:
What he's going to buy or anything.
Peoples:
The same thing applies to other Departments 88
well.
H.M.Jr:
I just used that as an example.
Lonigan:
You mean budget or soil conservation?
H.M.Jr:
Soil conservation.
Lubin:
The Army is ready to motorize in
H.M.Jr:
Who is?
Lubin:
The Army.
to motorize in large
quantities. There is no reason in the world
126
61
why those orders shouldn't be placed 80
that when employment in those industries
starts dropping off, those orders start
coming in. I think we should time our
purchases.
Perkins:
You mean deliberately, so that we know these
orders will be placed - they've got to be
manufactured during the slack season.
Lubin:
Then the same thing in textiles. That vol-
ume of Government spending in textiles, dis-
tributed at the slack season, would make 8
tremendous amount of difference in annual
earnings and stability.
Perkins:
And, of course, the textile thing - I think
we all recognize that textiles is in one of
its periodic up-surges that precedes their
drop, which is usually two years ahead of any
other drop. And it may be that what is needed
is to - they are very conscious of it; they
want to stabilize; they want to level this
off if they can - it may be that the holding
back of 8. textile order for B reserve at the
time when the drop began
But you (Hopkins) can't carry on your sewing
projects that way.
Hopkins:
We could within limits control our program
in that connection.
Eccles:
Take lumber right now. Lumber right DOW is
just at the end of the winter. Your dried
stocks are very small. They are broken. And
you've got the worst time in the year to place
large orders for lumber. It is a time, too,
when private industries are placing heavy
orders for it, you see. So that you can take
8 seasonal period in that. And the same thing
applies - nearly every industry has a period
when it has its slack times, and you can
certainly do a lot toward timing the placing
of business.
H.M.Jr:
You can go 8 step further, Marriner. I think -
Bell can correct me if I am wrong - but you
Regraded Uclassified
127
62
take all the expenditures of the Government;
they in no way fit into the picture of season-
al employment.
Bell:
No attempt is made.
H.M.Jr:
No attempt is made to take the whole Government
expenditure and make it fit seasonal employment.
It just isn't attempted.
Lubin:
Mr. Secretary, this may mean a two-year budget
rather than an annual budget. I mean let's take
the case of CCC.
H.M.Jr:
We've been working on a four-year budget.
Lubin:
Let's take the case of CCC. Until they know
what their appropriation is, for '37-38,they
can't place orders for shoes and clothes, can
they?
H.M.Jr:
No. But I'm serious - that we're still study-
ing the three billion three; that's what I mean
when I say we've been working on a four-year
budget.
Lubin:
Have to know at least 8 year in advance what
we're going to need, and that means our budget
may have to be made on a two-year basis.
H.M.Jr:
I think we've got something to give the Presi-
dent in the way of suggestions.
Peoples:
Some sort of 8 group, Mr. Secretary, would have
to be developed.
Eccles:
You can call it a Board of Strategy or whatever
you want to call it.
Perkins:
But leave out the word "control" for the sake
of public relations.
Eccles:
I think pyschologically, too, that if the
public - business, labor and people generally -
knew that there was a conscious effort on the
part of the Government to do something about
this thing, and that they were really studying
all these problems and trying to relate them,
128
63
that that in itself would have a very, very
favorable psychology from the standpoint of
the public interest.
Henderson:
The discussion in England at the present time
on the management of their spending in relation
to the tax and borrowing, has exercised a very
definite effect on English prices.
Eccles:
Betcha life! It makes B lot of difference.
It gives these people B changed attitude.
Perkins:
Another thing that it will do - I have to think
of this - it will brace up resistance on the
part of certain employer groups to make agree-
ments with labor unions. of course, that is a
factor I don't like to see come into the picture.
But if they think the Government is going to
control or take steps to keep their prices
down, or withdraw its orders, anything of that
sort, they are going to be much tougher in their
relations with labor than they are now. I
mean at the moment they are softening, so to
speak, and they say, "Well, times are better,
and go shead, and we can add this to the price."
H.M.Jr:
That can be used both ways. That's a double
edged sword.
Lubin:
One of the big textile producers told me this
morning that the increase of 10% that was given
on textile goods by some of these firms that
have already signed up meant an eight-tenths
of one cent increase in the cost of manufacture
per pound to print cloth. The margin they are
working on is 7₫. In other words, they were
very magnanimous; they gave labor eight-tenths
of a cent, although they were getting 7₫.
Fooles:
In each case when that happens, if there WHS 8
board that got the facts - knew the facts, and
when the negotiations were made the public was
represented - there's no industry - that wants
to be put up before the public as being an
institution that is taking an advantage of the
public. I meen they all want to have B favor-
able public reception, don't they?
Regraded
129
64
Perkins:
Well, I think this has been extremely good,
Mr. Morgenthau, and I have had great help from
it. Thank you for asking me.
Regraded Uclassified
130
April 1, 1937
SELECTIVE FEDERAL PURCHASING AND
ALLOCATION OF FEDERAL PROJECTS
(A tentative report to serve as a basis for discussion)
SUMMARY
The competition provided by Government purchases in industries
which in some cases have been unable to keep up with private orders,
and in raw material markets in which prioes have risen steeply, sug-
gests the need for B. general study of Government purchases and pur-
chasing requirements, with the object of determining whether a better
distribution of necessary purchases could be made in the public in-
terest, and whether Federal emergency projects could be so selected
as to shift material requirements more largely into industries where
unemployment is still relatively high. Such & study should properly
be extended to include a survey of emergency requirements by regions,
to provide a basis for the distribution of Federal funds for work
relief in relation to unemployment needs. This report provides a
general picture of the ground which such B. study might cover.
Direct Federal purchases come under three claseifications:
Regular departmental purchases, made through the Procurement
Division; direct purchases for relief, made through the Procurement
Division; and purchases by the Army and Navy. The indirect pur-
cheses, or those made by independent contractors on Federal projects,
are more important in volume, and more adjustable, than are the
direct purchases. Greatest possibilities therefore seem to be
presented in the adjustment of Federal projects to accord with
market situations and unemploymont conditions in the industries
supplying the various materials. It may also be found that a bet-
ter distribution of direct purchases could be made to reduce com-
petition with private industry.
The most important depressed industries at present, from an
employment standpoint, are those relating to construction. Employ-
ment is particularly low in the industries producing lumber, cement,
briok and tile, furniture, and beating equipment. The major indus-
tries operating nearest to peak levels are steel, textiles, and
automobiles. The following three types of projects appear well
adapted to present conditions: (1) Light construction; (2) road
building: and (3) flood control. These would use a. maximum amount
131
- 2 -
of labor, and of such depressed materials as lumber, cement, and
brick, and a minimum amount of steel. They are also rather well
adapted to shifting from region to region according to unemployment
conditions.
Some indication of regional variations in unemployment is pro-
vided by data on employment applications and by indexes of farm labor
supplies. While these indicate that the volume of unemployment in
each region has been reduced during the past year, the per capita
Federal emergency expenditures in each region have increased. Indexes
of regional variations in purchasing power, as reflected in new car
registrations and bank debits, also show a consistent increase in
1936.
This report is in no way conclusive, but is intended merely to
suggest an approach to the problem. A more detailed study covering
the subjects touched upon in this report should be made.
Regraded
- S -
132
SELECTIVE FEDERAL PURCHASING AND
ALLOCATION OF FEDERAL PROJECTS
Confronted with the following facts,- (1) That production in
certain industries has expanded to 6. point where manufacturers are
unable to make near-term delivery on new orders, while other indue-
tries show only partial recovery; (2) that prices for certain prod-
uots, under the temporary influence of urgent buying, have reached
levels not likely to be maintained after production has responded to
the increased prices; and (3) that the number of unemployed workers
varies widely from industry to industry, and from region to region,--
it would seem advisable that the Federal Government adopt a policy
of selective purchasing in filling its requirements for goods and
materials, BO far as practical, and adopt a policy of allocating
Federal projects (1) by types of projects, according to economic
conditions in the industries supplying materials for these projects
and (2) by regions, according to regional unemployment conditions.
The adoption of a general plan permitting the shifting of
Government expenditures from industry to industry, and from region
to region, should benefit the nation in 6. number of ways: (1) By
preventing a further congestion of orders in industries already
crowded to capacity; (2) by stimulating lagging industries; (3) by
providing employment in regions and in industries where unemploy-
ment is most serious; (4) by permitting buying in individual indus-
tries to be reserved, where practical, until such time as it may
have a more beneficial effect; (5) in general, by furthering the
policy of the Administration to bring about a well-rounded recovery
and stability in all branches of the economic structure.
Extent of Government Purchasing
The United States Government stands far in the lead às the
country's largest buyer, purchasing goods and materials for its own
operations 8.8 well as financing the purchasing of a much larger
quantity of goods and materials used in carrying out various recovery
and relief projects. In the 1936 fiscal year, the Procurement
Division reports a total of $47,903,069.47 purchased through that
Division and by other Departments and establishments of the Govern-
ment under term contracts executed by the Procurement Division, ex-
clusive of a. very large volume of extraordinary purchases for relief
uses, and exclusive of Army and Navy purchases except for office
supplies and equipment. A grouping of the Procurement Division
purchases by classes, in order of importance, is shown in Table 1,
pages 15 and 16.
133
- 4 -
The table mentioned includes only materials used in the regular
operations of the Government Departments, excluding most of the Army
and Navy purchases. In the many classes of projects embraced in the
Government's broad program for recovery and relief, a much greater
volume of material is used, the purchase of which is indirectly con-
trolled by the Federal Government in its selection of projects. The
major part of these purchases is included in a tabulation by the
Bureau of Labor Statistics, showing a. total of $1,014,092,984 to have
been spent for materials used on Government-financed projects during
the year December 15, 1935 to December 15, 1936. A tabulation of these
expenditures by groups of materials and by classification of projects
is shown in Table II, pp. 17 & 18, Summarized, this table shows an allo-
cation of the following sums to various types of industries:
Cement, stone, clay, and glass products
$ 304,895,000
Iron and steel and their products
254,979,000
Machinery, not including transportation equipment
140,685,000
Forest products
83,269,000
Textiles and their products
21,809,000
Chemicals and allied products
17,065,000
Nonferrous metals and their products
8,262,000
Motor vehicles, railway cars, and other
transportation equipment
6,567,000
Miscellaneous
176,462,000
All materials
$1,014,093,000
In more detail, the figures show that in Federal construction
projects during 1936, more than $10,000,000 was spent in each of the
following 20 individual industries:
Structural and reinforcing steel
$ 103,071,000
Cement
99,228,000
Foundry and machine shop products
64,313,000
Sand and gravel
58,219,000
Lumber and timber products
41,372,000
Brick, tile and other clay products
39,740,000
Cast iron pipe and fittings
39,367,000
Concrete products
38,941,000
Electrical machinery and supplies
35,855,000
Paving materials and mixtures
34,976,000
Crushed stone
33,784,000
Petroleum products
32,328,000
Steel works and rolling mill products
25,511,000
Engines, tractors, turbines
24,229,000
Heating and ventilating equipment
23,589,000
Electric wiring and fixtures
19,544,000
Plumbing supplies
17,300,000
Marble. granite, slate, etc.
13,721,000
Planing mill products
11,028,000
Furniture and fixtures
10,552,000
5 -
134
The volume of Federal purchasing has without doubt been sufficient
so influence appreciably the national level of business activity, and
in some cases to lift certain industries out of depression conditions.
Of the $1,014,000,000 spent for materials used on Federal construction
projects in 1936, for example, $255,000,000 WIS spent for iron and steel
products, not including machinery. This figure would equal 34 percent
of the total sales of the United States Steel Corporation in that year.
In 1934, approximately 76 percent of the output of the entire cement
industry in this country was used in Federal-financed projects, and 57
percent of the output in 1935 WES so used. In structural and reinfore-
ing steel, 45 percent of the entire output of the industry in 1934 and
47 percent in 1935 was used on PWA projects. In cast iron pipe and
fittings, 26 percent of the entire output in 1934, and 37 percent in
1935, WAS used on these projects. In the clay products industry, making
brick, tile, and terra cotta used in building construction, PWA projects
used approximately 26 percent of the output in 1934, and 38 percent in
1985. These figures illustrate the extent to which Federal funds have
served to maintain employment in individual industries.
Recovery in Factory Employment not Uniform
Despite such assistance, however, the employment in certain indus-
tries has continued to lag. while most industries have gone forward to
levels of employment closely approximating those of 1929, In Chart 1,
Attached, is shown graphically the employment situation in each of the
important industrial groups as compared with employment in 1929.
Outstanding nmong the backward industries, it will be noted, are
those related to light and heavy building construction. Employment 18
particularly low in the lumber industry, which, in 1929, provided work
for an average of 419,645 workers in sawmills and 90,099 workers in
millwork, Data for Jamary 1937 indicate that employment in sawmills
during that month WRS running at only 57.0 percent of the 1929 average,
and employment in millwork at only 67.4 percent. These employment fig-
ures compare with an average percentage of 91.9 for manufacturing as a
whole. A tabulation including other important industries related to
building is presented below:
Average no. of
Employment in Jan.
employes in 1929 1937, 5 of 1929
Lumber, sawmills
419,645
57.0
Lumber, millwork
90,099
67.4
Furniture
193,475
80.4
Brick, tile, etc.
93,422
57,9
Structural steel
54,933
65.6
Hardware
52,274
78.7
Heating equipment
39,571
83.0
Marble, granite, slate
37,802
43.6
Seasonally
Cement
33,321
77.5
adjusted.
Cast iron pipe
19,755
76.3
Weighted avg.
Total
1,034,297
65.5
Source: BLS
135
- 6 -
view of the present employment situation in the more important
of the backward industries, with E comparative view of the situation
in all manufacturing industries, is presented in Charts 2 to 8,
attached. These show trends of employment and payrolls by months over
a 14-year period up to January 1937. The relatively slight improve-
ment that has taken place since the low point of the depression in
sawmills and millwork, cement, brick and tile, structural steel, and
heating equipment, will be particularly noted. In contrast, the
employment and payrolls for all manufacturing industries show an im-
provement to levels nearly equaling those of 1929.
In certain industries, on the other hand, the number of workers
employed has expanded to near the limit of capacity, equaling or
exceeding the 1929 levels. These include the three major industrial
groups in the United States -- steel, textiles, and automobiles --
which largely account for the present high level of manufacturing
activity as a whole. The trends of employment and payrolls in blast
furnaces and steel mills, in iron and steel products, in cotton goods,
in knit goods, and in automobiles are shown in Charts 9 to 13, attached.
In these industries, obviously no Federal assistance is now needed for
increasing employment. On the contrary, it would seen that Government
purchasing in these industries should be deferred, where practical,
until production has begun to recede, in order to avoid 8. further con-
gestion of orders in competition with private buying, and a further
boosting of prices.
The Situation in Prices
The recent sharp upturn in commodity prices, which has carried
prices for certain commodities to levels that may not be warranted by
the supply and demand outlook over the remainder of the year, gives
greater importance to an investigation of possibilities in the
distribution of Government purchases. Obviously it would not be in
the public interest to add a large volune of Government buying orders,
either directly or indirectly, to price situations that may prove to
have been largely created by speculative buying, unless the urgent
need for such purchases should outweigh other considerations.
Whether present prices for various types of materials and com-
modities are high or low can be judged only in comparison with some
selected level used as a standard. In Table III, page 19, two such
comparisons are made for average prices during February 1937, for
various commodity groups. One uses as a standard the general level
of commodity prices, represented by the all-commodity index of the
Bureau of Labor, and the other uses the average price in 1929 for
the respective groups.
136
- 7 -
It will be noted that certain building materials, notably struc-
tural steel, lumber, and cement, stand relatively high in both com-
parisons. This may partly explain the low rate of activity, and con-
sequently of employment, in the building industry. Metals and metal
products during February were rather high in price as compared with
the all-commodity index, but remained below their 1929 averages. The
recent increases in steel prices, however, have placed them above
their 1929 levels.
The more recent movements in individual prices are shown in
Table IV, page 20, in which market quotations on March 25, 1937, are
compared with prices a month earlier and a year earlier. The sharp
upturns in the metals, and in cotton, hides, and rubber, are par-
ticularly noticeable.
A Survey of Federal Purchasing Suggested
In view of the price situation outlined above, it would seem
well for a careful survey to be made of anticipated Government
requirements for all purposes for some time ahead, with a view toward
adopting a purchasing policy for each of the major items on the
required list of materials. Such e. survey should provide answers
to the following questions:
1. What materials will be purchased in sufficient volume to
be an important factor in the market, and how much of each
will be required?
2. What is the current and prospective market situation for
each of these materials?
3. To what extent can purchases of each material be deferred
or anticipated, and to what extent must purchases be made
as needed?
(Continuation, page 9)
137
Entirely aside from the possibility that such a survey might
bring about 6. saving to the Government in the prices paid for
materials, through suggesting a better distribution of purchases in
the light of varying market conditions, it should serve the useful
purpose of indicating when it might be in the public interest for the
Government largely to remain out of the market, in order to avoid 1.
congestion of orders in competition with private industry, to avoid
unjustified increases in price, or to avoid the encouraging of
speculative buying. Conditions favoring such a policy appear to
exist today in the steel and textile industries, and in the markets
for a number of raw materials. On the other hand, such a survey
would serve to indicate when Government orders could be placed to
good advantage for maintaining employment in various industries and
contributing most to recovery.
These direct Government purchases are only a part of the total
material purchases controlled by the Federal Government. A much
larger quantity is involved in the purchases made by private con-
tractors under the various recovery and relief projects financed
wholly or in part by Federal funds. Through e. provision in the
Government contracts requiring B. detailed statement of the quantity
and value of each material used, the Bureau of Labor Statistics has
been able to analyze each type of project in terms of material
requirements. Reports have been completed for certain types of
projects, and studies are in progress on others.
An analysis of possibilities in the distribution of Government-
financed projects should therefore be included in the survey men-
tioned above. Such an analysis would be directed toward determining
each year the types of projects that would make use of the maximum
amount of materials from depressed industries, and the minimum
amount of materials from industries in danger of over-production, or
of materials that appear over-priced. In any project, of course, it
is impossible to dispense with a. certain amount of materials in the
latter class. The problem is one of selecting projects that use them
in smallest amounts.
During the current year, since the building industries are most
depressed, the selection of projects should include those using a
maximum amount of lumber, cement, and brick, and a minimum amount of
steel and other metals. While the structural steel industry is
depressed, the volume of orders for this type of building material
should probably be held down for the present because of an over-
supply of orders in the steel industry.
A study will be necessary to determine the types of projects
best adapted to present market and employment conditions. The fol-
lowing groups suggest themselves: (1) Light construction and
building repair, (2) road building, (3) flood control and erosion
control. Low-cost housing projects should be well adapted to present
138
- 10 -
conditions. Road building and flood control projects - if B national
program can be worked out for the latter - have additional advantages
in that they require a. considerable proportion of labor and can con-
veniently be shifted from one section to another according to employ-
ment conditions.
These projects, furthermore, seem well adapted to the occupations
of workers now on relief. According to the U. S. Employment Service,
"overalls workers" made up by far the largest total of applicants for
employment, white collar workers were next, and skilled workers third.
The groups of skilled workers were headed by carpenters, painters,
mechanics, and foremen, in the order given.
Regional Allocation of Projects According to Unemployment Conditions
The tendency for the volume of unemployment to very from State to
State, and for the areas of serious unemployment to shift from year to
year according to local economic conditions in industry and agriculture,
makes advisable the organization of Federal projects on some flexible
basis that will permit of their being shifted according to the urgency
of unemployment needs indifferent areas.
Regional veriations in the present unemployment situation are
shown by data on the number of active applicants for positions on the
rolls of the United States Employment Service. The table below, giving
by geographical divisions, 86 of January 1, 1937. the total number of
active applicants for employment, end the percent of the total popula-
tion which they represent, provides some measure of the relative volume
of unemployment in different parts of the country, largely as it re-
lates to urban areas.
Total
Percent of
active
1930
applicants
population
New England
506,035
6.20
Middle Atlantic
1,596,426
6.08
East North Central
1,128,402
4.46
West North Central
766,758
5.77
South Atlantic
652,945
4.13
East South Central
551,883
5.58
West South Central
519,574
4.27
Mountain
233,285
6.30
Pacific
355,852
4.34
Total United States
6,311,161
5.14
139
- 11 -
Regional variations in unemployment in agricultural areas, which
also provide some measure of general unemployment in those regions,
are indicated by reports of the Department of Agriculture on the
supply of farm labor relative to the demand for farm labor in the
various States. Data for January 1, 1937, with comparative figures
for January 1, 1936, are shown in Table V, page 21. It will be
observed that a favorable change has occurred in most sections during
the past year, particularly in the industrial areas. Thus New England,
Viddle Atlantic, and East North Central States, as well as the cotton
mill region in the South, have brought their supply of farm labor
approximately into balance with the demand for farm labor. This bears
out reports from industry, which show a heavy gain in factory employ-
ment during 1936.
Certain States, more purely agricultural, have been helped but
little by the increased employment in industry. In these States the
reported supply of farm labor remains out of proportion to the re-
ported demand. These are largely States of the West North Central
and West South Central districts, which were seriously affected by
the drouth in 1936, and where industry provides very little outlet
for surplus labor. In the West North Central region, comprising the
States of Minnesota, Iowa, Missouri, North Dakota, South Dakota,
Nebraska, and Kanses, the relative supply of farm labor was reduced
in 1936 only from a figure of 140.5 percent to 136.9 percent, which
is still far out of proportion to the demand for farm labor.
Regional Emergency Expenditures compared with
Regional Unemployment
general survey of Government emergency expenditures, with a
view toward determining the most efficient use of Government funds
for relief and recovery purposes, could well be extended to include
B survey of regional expenditures in the light of changing regional
unemployment conditions. Such a survey would be necessary, in fact,
to provide a satisfactory and equitable basis for the regional dis-
tribution of emergency projects
In Table VI, page 22, is shown a classification of Federal
#mergency expenditures for various purposes by fiscal years, 1933 to
1937, with the present fiscal year divided to show expenditures
through February 28, and proposed expenditures March 1 to June 30.
State details have been combined by regions and converted to a per
capita basis, to provide a direct comparison of emergency expendi-
tures per capita in various sections of the country. These figures
are presented in Table VII, page 23, in the form of an index, in which
the average per capita emergency expenditure for the United States as
e whole during the three years 1934 to 1936 is taken as 100. The
- 12 -
140
unusually high per capita expenditures in the Mountain region is ex-
plained partly by the large sun being spent on the Boulder Dam project,
in n region that is rather thinly populated.
To make an sppraisal of emergency needs in the various sections of
the country, and to determine whether expenditures are being equitably
distributed by regions in accordance with these needs, entimates are
needed of the changes in unemployment in the various regions. No such
estimates have been published, but approximate figures may be derived
by using private estimates of total unemployment (Nather's estimates)
distributed by geographic divisions according to the relative number
of active applicants on the rolls of the U. S. Employment Service in
each region. While the probability of certain inscouracies in these
figures is recognized, they can be used as suggestive of a method of
approach to the problem. A supplementary index of regional trends in
unemployment is provided by Department of Agriculture data on the farm
labor supply, which tends to reflect employment conditions in the
cities es well as on farms.
These two unemployment indexes, placed on 8. common base, are com-
pared in Chart 14, attached, with an index of per capita emergency
expenditures. The section of the chart entitled "U. S. Total" shows
per capita expenditures in the 1937 fiscal year, for the country as a
whole, at a new high level, slightly more then 20 percent above the
average expenditures during the three years 1934 to 1936. Yet the
estimated unemployment is shown to have declined on January 1, 1937
to sbout 75 percent of the 1934 to 1936 average, and the unemployment
Index based on the farm lebor supply has likewise declined to about
75 percent of the 1934 to 1936 average.
A comparison of these charts by regions shows considerable varia-
tion both in unemployment and in per capita expenditures, with some
consistency in the relationship between the two except in the Mountain
and Pacific regions. The chart for the Pacific region shows per capita
expenditures 60 percent above the United States 1934-1936 average,
although the unemployment indexes are even slightly below the current
average for the United States as a. whole. The high per capita expen-
ditures in the Mountain region, as previously explained, are due partly
to the large sums being spent on the Boulder Dam project.
Outside of these regions, the highest per capits expenditures
are in the West North Central region. In this area the figures show that
unemployment is also highest, probably 88 a result of several years of
drouth. The lowest per capita expenditures are in the South Atlantic
section, where unemployment has been reduced to apparently the lowest
level of any region, probably due to the high rate of activity in the
textile mills.
141
- 13 -
A second method of determining relief requirements for the verious
regions 18 on the basis of regional changes in the level of business
activity. Improvement in business should be reflected in increased
purchasing power, and consequently decreased requirements for Federal
relief expenditures. Bank debits and new automobile registrations
have been selected as probably more indicative of purchasing power
than any other business date. These have been converted into indexes,
and in this form are shown in Chart 15, attached, in comparieon with
the per capits index of emergency expenditures by regions.
Business did show an actual improvement last year, as measured by
these two indexes, in every one of the geographic divisions. Ao re-
flecting purchasing power, it is possible that the bank debits index
may not be wholly accurate, since the increase may have been influenced
by changes in price levels. which affect living costs, and to some
extent by the volume of Government relief expenditures itself. The
same cannot be said of the increased number of automobile registre-
tions, however, which can hardly be interpreted in any other way than
88 reflecting an improvement in actual purchasing power.
One should theoretically expect relief expenditures to decline
96 new car registrations and bank debits rise. As shown in this chart,
however, the reverse has been the case. Expenditures for the present
fiscal year show an increase in all regions, except that in the New
England and South Atlantic sreas the increase has been negligible.
The highest index for new care registered last year was in the Pacific
States, yet that region shows the highest per capita emergency expen-
ditures, with the exception of the Mountain region, where the situation
ie abnormal. The highest index for bank debits, however, is in the
South Atlentic region, which accords, ne should be expected, with the
lowest per capita expenditures.
An indication of purchasing power in the agricultural sections
is provided by the Department of Agriculture in its published esti-
mates, by States, of receipts from the sale of farm products. These
figures for the various regions are shown in Table VIII, page 24, for
the years 1932 to 1936. It will be noted that every region shows
an increase in receipts from farm products except the West South
Central region. which was seriously affected by drouth.
Conclusions
It would seen well to have a broad survey made of Federal expen-
ditures used for the purchase of materials of all kinds, with the fol-
lowing objects: (1) To determine which materials are purchased in suf-
ficient volume to substantially affect market conditions, and employment
in individual industries; (2) to analyze present end prospective market
conditions for these materials in the light of Federal requirements, to
142
- 14 -
determine a purchasing program most nearly in accord with the public
interest; (3) to study the materials used in various types of Government-
financed projects, with a view toward selecting projects each year
that will best fit unemployment needs and market conditions in the
industries supplying these materials; (4) to study business conditions
and unemployment in the different sections of the country, to provide
an equitable basis for the distribution of relief expenditures and for
the shifting of them from region to region according to variations in
emergency needs.
In such a survey, all Government purchases, direct and indirect,
should probably be considered together. These would include: (1)
Regular departmental purchases, through the Procurement Division;
(2) Army and Navy purchases; (3) direct Government relief purchases,
handled through the Procurement Division; (4) purchases by independ-
ent contractors on Federal projects, reported to the Bureau of Labor.
In addition to any tangible benefits that might be accomplished
through such a study, a favorable public reaction toward the considera-
tion of plans for distributing Government purchases more in accordance
with industrial conditions can probably be expected.
143
- 15 -
Table I
Tabulation of Government Purchases by Classes
for Fiscal Year 1936 1/
Fuel: gasoline, coal oil (fuel)
$11,401,474.79
Office equipment, typewriters, etc.
9,882,074.44
Motor vehicles: accessories, etc.
6,915,461.23
Furniture
4,289,840.63
Electric apparatus and accessories
2,274,351.07
Stationery, bage, paper, books, etc.
1,803,268.50
Telephone service
1,608,398.76
Instruments of precision
1,396,200.73
Electric service
1,190,451.81
Dry goods; textiles, coverings, etc.
862,015.50
Foods; groceries, ice, provisions
807,366.91
Hospital-apparatus, accessories
506,318.66
Acids: chemicals, drugs, soap, etc.
504,866.53
Oils (illuminating and lubricating)
440,590.26
Lumber, barrels, boxes, etc.
368,157.73
Building material, brick, stone, etc.
357,619.36
Tools, machine
310,029.21
Machinery and equipment
288,461.96
Tools, hand
224,472.86
Rope, wire, and wire, bare
217,299.22
Paints: paint ingredients
211,536.72
Hardware (builders' general)
161,071.18
Reilway, dock, yard, fire apparatus
153,914.72
Pipe, tubes, tubing (non-flexible)
150,247.40
Toilet articles and accessories
122,978.80
Forage: bulbs, trees, seeds
115,544.45
Books, blueprinting, maps, paper, etc.
110,102.17
Textile-clothing, knitted goods
107,874.90
Pipe fittings
105,585.53
Agricultural implements, parts
85,395.44
Miscellaneous services
83,069.20
Tableware-alumimum-ware, glass
78,940.68
Badges, insignia, metals, etc.
73,157.58
Metal in bars; metal in plates and sheets;
metal shapes (angles and structural)
70,422.97
Leather; belting, harness, etc.
63,718.45
Bake shop, kitchen utensils
63,000.06
Cordage: hemp; jute; oalcum: etc.
58,484.27
Gaskets, hose, packing, etc.
52,535.71
Brooms, brushes
46,590.39
- 16 -
144
Table I
(Continued)
Vehicles (animal and hand drawn)
$
42,992.22
Athletic equipment
30,766.14
Duok, canvas, tentage, etc.
28,831.70
Caps, hats, gloves, women's furn.
28,648.46
Electric cable and wire (insulated)
24,271.00
Fire-surfacing and insulating material
18,226.63
Tobacco-products; and supplies
17,440.78
Bathroom-toilet fixtures; parts
16,297.95
Bolts, nuts, rivets, screws
15,695.14
Articles of special value; bullion,
jewelry, etc.
13,218.16
Arms, small and accessories
12,399.24
Ammunition, blasting-apparatus
10,111.99
Flags, bunting
10,055.01
Pumps and their parts
9,525.25
Boots, shoes, leather and rubber clothing
9,223.90
Boats
9,135.00
Lighting apparatus (nonelectric)
accessories, etc.
7,789.29
Boilers and engines (power-plant) (ship),
accessories, etc.
7,652.52
Musical instruments, music and parts
6,467.21
Radio and sound signal apparatus, eta.
6,031.46
Ovens; ranges; and stoves; accessories
4,904.66
Drayage and hauling, freight
4,719.82
Engine room fittings, tools, etc.
2,017.36
Submarine material
1,004.50
Boat and ship utensils
822.19
Boat and ship fittings
568.00
Anchors, anchor chains, eto.
403.91
Blank forms
212.57
Boilers and engines (boat power) accessories,
parte, etc.
212.14
Foundry-apparatus; accessories, etc.
167.64
Blocks; rigging; accessories, etc.
159.30
Livestock
73.00
Individual equipment (field and landing force)
70.00
Airoraft; aeronautic apparatus, accessories,etc.
35.00
Gyro-compasses, accessories
21.84
Mines; nets; torpedoes, etc.
17.71
Total
$47,903,069.47
Includes purchases by Procurement Division, open market
and contract, and purchases by other Departments and
establishments. under term contracts executed by the
Procurement Division.
Source: Procurement Division.
LUE OF MATERIAL ORDERS PLACED ON CONSTRUCTION Ph. LOTS FINANCED WHOLLY OR PARTIALLY BY FEDERAL FUN.
FROM DECEMBER 15, 1935, TO DECEMBER 15, 1936
- revistes)
PROJECTS
Public Maria
Regular
the Wares Prigna y
Type of misrid
Administration
Finame
Governmentel
Federal
Operated by
Total
Corporation
Construction
. P. 4.
V.
1/
2/
2/
411 anterials
$1,014,098,986
$19,969,153
$172,810,639
$160,569,768
$279,126,796
Termilles nad their products.
% 21,809,506
439,134
30,563
114,539
135,657
21,009,651
Aminge, - - are
70,416
59,255
579
10,938
27,862
I
Carpets set regs.
57.966
57,962
6
I
Contage - bulas
141.5%
31,607
2,112
56,266
51,551
-
Catten -
51,260
11,321
27,599
mss
11,400
I
Poit goods
2.40
22,442
101
5,539
0,00
I
Jute goods.
23,306
21,812
1
2.
1,521
I
Linelem
300,239
265,617
151
25,055
20,616
-----
facks and hap
15,267
3,129
I
5,201
6,575
-
Opholatoring materials, .....
4,255
4,058
-----
-
175
State,
12.992
1.111
I
P.M.S
1,316
Forset products
63,268,708
30,773,970
661,954
6,625,626
30,570,95
Carls products
167,755
126,650
10,667
20,115
10,505
Lamber and timber products, MA
61,371,980
22,015,993
637,378
5,405,104
13,853,513
I
Flazing mill prodects
11,027,820
6,526,533
15,909
1,115,052
1,560,506
-
Visitor ent door servese and watherstrip
150,251
103,046
-----
25,125
2,080
I
- silied products
% 17,044,978
3,129,260
306,970
1,198,093
2,949,216
4 9,103,519
- and related products
75,960
75,917
-
I
25
I
Charlesis,
530,753
72,016
NO
30,058
613,939
-
- liquefied puese
310,765
21,000
53.935
27,500
110,256
-
Explorives
3,647,251
1,146,201
310,057
692,701
1,490,112
Palets sed varatches
0,091,700
2,052,100
24,000
67.18
150.500
4,500,754
Item, stay and glass products
%/ 304,894,697
115,298,726
5,263,006
90,531,509
39,474,895
of 54,130,505
Advertise products, -
216,676
173,056
31,436
9,712
1,606
-
brief, beliew tile and other stay problems
39,740,550
23,066,009
63,189
1,599,001
1,555,360
15,516,050
Commi
99,228,568
30,057,047
4,752,609
23,573,456
16,350,438
24,566,030
Deservie products
30,961,265
18,992,017
134,019
1,354.290
L,422,909
15,090,004
Created stom.
33,764,271
6,001,231
19,015
8,232,317
4,536,500
14,105,130
Gase
1,63,667
1,253,998
7,865
200,011
101,053
I
Liam
319,259
212,300
661.
19,421
50,051
and prenite, state and other stome products
15,721,259
8,923,817
6,370
2,033,913
1,957,155
I
sinerals - serth, ground or otherwise treated
111,453
82,2%
----
19,187
10,012
-
1 1 I
58,216,560
16,812,172
135,007
11,965,083
9,100,507
17,895,919
Tilling, floor sel all, and terresse
3,156,205
2,609,730
4,230
322,169
619,710
I
mill pleaser, will have, insulating board and Plear composition.
5,600,052
4,405,472
20,691
301,775
753,005
I
from - stand - their products, net testeding
% 254,970,516
130,441,535
5,660,994
32,176,270
55,860,366
Bolts. mile, millers, are
2,353,227
1,262,109
10,339
128,770
614,009
-
care use viga - Fitsings
99,500,603
19,234,950
209,518
1,276,MD
1,80,302
17,326,999
shetters, vialer - froms, solding a tris (metal)
9,625,592
6,910,502
33,459
8,186,150
MP5,701
I
1
-
-
I
I
Fireshe
un - steel
3,797,650
1,276,377
7,805
1,758,917
150,599
-
-
5,309,618
433,300
956,308
1,987,95
parting - applicant
23,500,503
10,573,865
68,503
1,Ma,699
051,276
2,051,944
mile - aguse
1,34,000
790,774
9,956
639,148
mill späkes.
917,051
670,970
4,757
11,7%
1,5%
-
mile,
2,165,795
2,397,574
32,401
8,94
60,076
I
16,779
16,67V
-
10E
plant
,
I
- - - relitag will products, -
85,510,468
14,719,606
566,760
4,Ma,776
6,01,99
I
- - - - - electris
33,188
86,215
-
4,351
2,606
-
personal - relaterelag stes)
103,071,399
51,066,079
3,489,306
16,958,561
19,471,374
14,305,08%
- valing.
291,810
270,750
760
lattle
1,86
-
- these - Seels
7,535,799
60,00
38,000
771,199
Lms
6,030,095
1,798,7%
1,780,987
I
sure products,
6,568,535
5,004,336
1,00
309,409
-
N 0,261,919
3,307,999
30,099
1,095,781
- notals - their probarts
2,198,690
1,570,590
- -
110,278
0,161
125,84
Less
-
769,578
11,036
99,189
251,20
- products
800,350
193,056
96h
7,159
7,191
-
1,209,553
662,063
530
617,353
29,401
-
- alleys - -
4,951,154
2,195,919
6,900
-
1,505,481
I
- wrk
5.00
3,716
I
LAM
MR
the products
Regraded Uclassifi
Michinery, - including transportative aquipment
%
110,005,110
5,721,293
54,576,761
17,191,410
5/ 12,554,50
Bleetrical mothinery, apparature and applied
35,054,770
14,060,402
692,502
12,547,616
3,295,026
5,347,000
Elemtore and elevator squipment
4,170,364
2,992,154
29,951
999,991
147,960
I
Sugines, turblass, tranture, and entervised
26,229,079
6,263,520
267,252
13,703,395
3,795,112
-
Fessiry sai anothing shop products,
64,312,004
22,039,676
4,700,179
22,577,676
9,105,813
4,789,220
tools
1,957,570
1,091,538
15,760
622,390
227,090
-
Meters (gua, enter, are.) and - generature
453,714
639,062
2,712
0,143
5,017
-
People and pumping a
0,775,423
4,340,809
30,557
3,696,706
601,353
-
- refrigurating and ise-ming apparates
515,502
506,127
-
122,826
6,129
I
Transportation aptipment, sir, Load and wher
6,666,991
2,051,003
130,909
190,650
2,952,700
1,125,002
Aireraft (no)
176,416
160,726
-
27,09R
-
-
Bests, steel - mater (unil)
153,000
2,173
-----
85,551
65,276
-
Corringes and -
47,786
22,060
592
21,000
---
6,338
--
-
-
6,330
-
Enter vahicles, passenger
11,6,1.76
37,163
13,109
10,950
54,696
-
- valules, trucks
3,962,573
147,905
223,056
73,865
2,170,869
1,136,000
Bellowy mrs, freight
8.194,600
2,195,502
---
500
-
Missellaneous
176,442,451
60,106,699
1,870,747
26,303,650
27,786,357
50,396,998
Bilting,
09,217
3,371
5,101
10,660
6,095
-
Deal
2,256,549
200,070
4,125
300,167
375,976
1,335,973
1
06,355
5,886
-
676
19,995
-
Electric wiring - fistenal
19,564,005
14,066,170
297,060
3,096,500
2,164,363
-
Penishers, including shore ml office
10,551,806
5,299,292
3,609
1,463,586
346,229
5,309,372
Deleasets, professional and scientific
150,375
224,776
100
132,969
91,522
-
Differences - had eprings
Werce
12,666
-
660
50,
-
Modale - patient
17,7%
12,508
-
4,600
518
-
Paper protects
61,058
60,666
LTO
4,99
7,74
-
Periag interials ml Before
34,976,110
4,003,477
16,180
3,106,090
3,M9,255
23,000,046
Princips protects
31,521,86
7,163,052
403,761
0,725,148
9,765,451
5,911,486
oppersive and esterials
62,060
1,051
2,415
14,100
I
Placking emplies,
17,300,510
11,285,509
43,051
1,056,419
1,566,80
3,18,268
Smile of empliss
57,122
18,654
-
3,275
15,489
--
beling anterials, -
4,725,066
3,559,600
12,MS
406,552
746,867
-
labor golo
1,501,312
226,953
155,995
60,895
573,918
775,973
Item one der postring, plan - beiler severing, and pakets
787,518
674,563
4,056
66,251
22,636
-
Thestries) - - chape epipant
90,9%
90,9%
-
-
-
-
Vinire dates and l'istures
119,656
109,006
as
2,303
7,205
-
Other mitorials
51,169,352
14,006,976
985,169
7,263,772
0,575,412
20,119,993
esterial orders planni - projects by the Belief Appropriation or 1955-
Im and esterial anders plant - projects for which an ameried before sura 15,
belades projecto Classed by B.F.C. Company
5
Dear - include esterial win placed - projects for which acctrasia - before July 1, 1934.
geterial orders planed - Pelliche projects financed by included under P.M.A.
a erial artere placed to December 51, 1956. Outional Treth Administration projucts Lociude
apterial entere planed - termber 30, 1936,
asserial artere placed the projects sperated by W.P.A. which are net classified is detail.
Bouroe: Bureau of Labor Statistics, Division of Construction and Public Employment
Regraded Uclassified
146
- 19 -
Table III
Wholesale Commodity Prices
Average price, February 1937
Commodities
Percent of
Percent of
all-commodity
1929 average
index
price
Building materials:
Brick and tile
105.4
96.5
Cement
110.7
104.0
Lumber
114.7
105.5
Paint materials
96.6
87.9
Plumbing and heating
89.7
81.5
Structural steel
121.3
106.7
House furnishings
101.9
93.9
Metals and metal products:
Agricultural implements
107.9
94.3
Iron and steel
106.6
96.9
Motor vehicles
107.8
87.2
Nonferrous metals
103.6
84.3
Textiles and clothing:
Clothing
97.6
93.6
Cotton goods
105.8
92.4
Silk and rayon
39.0
41.9
Woolen and worsted
107.9
105.4
Boots and shoes
117.5
95.4
Miscellaneous:
Hides and skins
133.1
102.0
Bituminous coal
112.9
106.7
Petroleum products
68.5
82.9
Source: Bureau of Labor Statistics.
Regraded Uclassified
147
- 20 -
Table IV
Commodity Prices
:
Prices
:
Commodities
: 1936
....
1937
:
:
March 25
:
Feb. 25
:
March 25
Textiles:
Cotton, mid'g, Galveston
(Cents)
11.47
12.77
14.12
Print cloths, 38% inch
If
5-7/16
7-5/8
8
Wool, territory fine, Boston
$ .93-.95
$1.12-1.15
$1.12-1.15
Silk, crack double extra
$1.82-1.87
$1.94-1.99
$2.03-2.08
Metals:
Pig iron, no. 2 foundry
$19.50
$20.50
$24.00
Steel bars, Pittsburgh
(Cents)
1.85
1.85
2.45
Copper, electrolytic, Conn Valley
If
92-92
14
162
Zinc, East St. Louis
II
4.90
6.80
7.50
Lead, pig, New York
Il
4.60-4.65
7.00-7.05
6.95-7.00
Tin, Straits, New York
II
47%
55%
66-1/8
Coal and Oil:
Coal, bituminous, Pa., smokeless
$2.55
$2.45-2.60
$2.45-2.60
Petroleum, crude, Kansas, Oklahoma
$ .94-1.18
$1.06-1.30
$1.06-1.30
Miscellaneous:
Hides, heavy native steers (Chicago) (Cents)
13
16
17
Rubber, plantation
If
15-15/16
22
26
Moody's price index
169.6
207.8
224.2
Journal of Commerce index
134.5
163.1
175.0
Regraded Uclassified
148
- 21 -
Table V
Relative Supply of Farm Labor
January 1, 1936, and January 1, 1937 1/
Region
Jan. 1, 1936
Jan. 1. 1937
New England
122.4
106.1
Middle Atlantic
119.4
97.4
East North Central
119.3
100.8
West North Central
140.5
136.9
South Atlantic
116.5
99.2
East South Central
123.8
104.8
West South Central
144.5
129.9
Mountain
138.6
120.1
Pacific
122.1
111.8
United States
127.2
111.4
States reporting largest relative supply of
farm labor, January 1, 1937:
Nebraska
....
182
Missouri
142
South Dakota 167
Montana
133
Oklahoma .... 162
Texas
132
Kansas
......
158
North Dakota 152
States reporting smallest relative supply of
farm labor, January 1, 1937:
Michigan .... 89
New Jersey
....
97
Ohio
93
Vermont
.......
98
Pennsylvania 94
North Carolina 99
South Carolina 96
Georgia
99
1/ "Relative supply" is a ratio of the reported supply in
percent of normal to the reported demand in percent of
normal.
Source: Crops and Markets, February 1937.
Regraded Uclassified
- = -
149
Table VI
Matribution of Federal
by Fineal Years,
1988-1987, inclusive
(in millions of dollars)
-
I
a
6
,
I
.
.
-
I
8
2057
I
I
-
9
8
-
1988
-
1955
-
1954
1000
8.
I
1958
#
paly
1
stare 1
#
I
Badget
I
I
-
#
- to
. to
I
Total
.
estimate
I
I
I
1
80,
I
.
#
I
1
#
Emergency -
.
1
I
I
I
#
servation work
#
16.3:
300.1.
326.4.
570.2.
257.5
100.0
$65.50
330.0
-
8
#
I
.
I
Public highways
165.8.
221.6:
276.7.
224.5.
264.7
91.1
585.01
$69.0
a
1
.
8
.
#
Rivers and
#
#
#
.
I
#
harbers
1114.1:
188.8.
201.0:
235.2.
171.9
113.7
me.c.
170.3
#
I
.
8
I
8
Public buildings:
96.51
78.31
45.7s
58.81
45.8
55.2
70.0.
88.1
#
-
.
-
-
.
Reclamation
#
I
#
.
#
8
projects
. 25.4:
28.6.
59.91
45.61
$4.1
$8.6
67.7.
57.0
#
a
1
e
.
#
CWA
I
.
-
812.0.
- #
- #
-
-
- -
-
.
#
#
.
#
#
PRA
-
-
I
77.41
208.3:
368.5:
238.8
186.5
572.3:
214.0
#
8
I
#
1
$
WPA
I
-
-
- I
-
+1,805,7:1,508.0
851.7
1,857.7+
1,800.0
I
I
I
I
I
I
Agricultural
I
I
#
I
I
I
payments
I
-
I
267.4.
TER.9.
550.5.
247.1
228.8
475.91
482.4
#
1
#
e
a
#
Recettlement
-
#
#
#
.
-
Administration
4
- I
- -
9.8.
20.0.
3.6
108.1
105.7.
30.9
.
#
-
.
#
e
TVA
#
-
#
13.6:
37.51
54.31
32.4
16.5
M.T.
40.0
9
1
4
I
I
I
FERA
#
.
I
740.5.1,837.5:
476.8.
s.e
-
8.6:
I
I
e
e
#
-
a
Other
1117.01
802.0.
481.8.
140.00
152.9
111.7
204.6.
254.3
0
#
#
.
8
#
Total
AND
Receverable items: 80.00 690.9.1,238.9: 356.61 62.4 85.0 ms.
Regraded Uclassified
150
- 23 -
Table VII
Index of Per Capita Emergency Expenditures
United States average 1934-1936 = 100
(Fiscal years)
1933
1934
1935
1936
1937
New England
10.14
64.96
74.06
100.15
101.78
Middle Atlantic
7.86
64.46
97.48
116.88
126.91
East North Central
10.99
84.86
82.69
100.46
116.30
West North Central
17.54
98.18
152.96
93.26
150.25
South Atlantic 1/
16.49
81.22
98.76
82.11
83.43
East South Central
13.40
83.08
120.71
89.01
103.14
West South Central
15.25
80.57
128.46
82.27
107.86
Mountain
52.19
166.71
303.29
257.80
267.63
Pacific
19.67
81.26
118.62
157.34
160.86
United States
14.13
81.80
111.61
106.62
122.69
1/ Excluding District of Columbia.
Source: Computed from data supplied from Division of
Accounts and Deposits.
Regraded
151
- 24 -
Table VIII
Receipts from Sale of Farm Products
including Rental and Benefit and Soil Conservation Payments
(in millions of dollars)
1932
1933
1934
1935
1936
New England
145
147
167
178
202
Middle Atlantic
381
401
472
519
580
East North Central
787
881
1,059
1,317
1,508
West North Central
1,039
1,174
1,511
1,717
1,933
South Atlantic
401
514
718
735
746
East South Central
267
312
428
478
492
West South Central
509
690
772
821
796
Mountain
246
280
381
462
476
Pacific
460
473
601
713
773
Grand Total
4,235
4,872
6,108
6,940
7,507
Source: Department of Agriculture.
Regraded Uclassified
Chart 1
152
EMPLOYMENT. BY GROUPS OF INDUSTRIES
Percentage Change in Number of Workers Employed
1929 (Av) to January 1937
ALL GROUPS
PERCENTAGE CHANGE
NUMBER EMPLOYED. 1929
PER
Thousands of Workers
CENT
o
aso
500
790
1,000
L250
LEGO
1750
10
Iren, State
Pregapartation
Squipment
$
Chas, Patroleum
Testiles
0
Food Products
Lasther Products
a
Retails
Paper, Printing
-10
Rechinery
Products
-15
loss, Street trad
-20
LE Regular
-23
Stane,Ciey Glass
Telephone airs,
-30
Lamber Fred
1929(m)
Jan 1937
Iron and Steel Products
Machinery Transportation Revement)
PERCENTAGE CHANGE
NUMBER ENPLOYER -
-
PERCENTAGE CHANGE
NUMBER EMPLOYER 1629
Thousands
et
Workers
PER
.
se
-
PER
.
-
-
-
-
no
---
⑉
-
-
=
CENT
con
Hame
is
il
Supples
e
To Containers
$
legines besters
Femily
Medical the
-18
---
Testile Back "
Missing Repip
-10
Handware
-
Eles Redity
Pargings
Cash - Plan
Age
-se
-30
Street -
48
1
19290w
Jon 1987
Jan 1937
Non-Ferrous Metals
Lumber and Products
PERCENTAGE CHANGE
NUMBER EXPLEYER. -
PERCENTAGE CHANGE
NUMBER EMPLOYED -
Thousands Verbers
Thousands
of
Workers
PER
Stamped
o
8
100
PER
.
-
100
150
He
-
300
-
I
-
-
CENT
hand -
GENT
10
.
10
-18
18
-28
furniture
.
Capper -
-30
Allert
-18
1
- Adring
Seemite
-10
44
-
FRENCAO
Jan 1937
Stone. Clay and Glass Products
Textiles and Products
PERCENTAGE CHANGE
- - -
PERCENTAGE CHANGE
NUMBER EMPLOYER -
I 1
Thousands
of
Works
PER
CENT
-
PER
.
-
-
-
-
-
-
-
-
-
-
-
CANTI
@
=
-
-
- Nooda
10
Dathing
Come -
-10
Passery
.
Corpots, Regis
Coment
-10
-18
Founding I
-48
$
,
Time
M. Raper
-
- Products
5
Jen 1987
THAT
Jan 1987
Transportation Equipment
NUMBER EMPLOYEE ....
PERCENTAGE CHANGE
Thousands
of
Workers
PER
.
-
-
-
-
-
I
E
-
-
-
CENT
-
Automobiles
.
B.B. Care
-
-19
-
n
á
- PREF
- . - - - - -
0-18
EMPLOYMENT & PAY ROLLS
ALL MANUFACTURING INDUSTRIES
Index Numbers
1923-25-100
Index Numbers
160
160
140
140
120
120
100
100
Employment
80
80
60
60
Pay Rolls
40
40
20
20
0
0
1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938
UNITED STATES BUREAU OF LABOR STATISTICS
1
Rearaded Iclassif
EMPLOYMENT & PAY ROLLS
LUMBER: SAWMILLS
Index Numbers
1923-25=100
Index Numbers
140
140
120
120
100
100
80
80
60
60
Employment
40
40
Pay Rolls
20
20
0
0
1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938
UNITED STATES BUREAU of LABOR STATISTICS
Regraded 45 Uclassif
EMPLOYMENT & PAY ROLLS
LUMBER: MILLWORK
Index Numbers
1923-25-100
Index Numbers
140
140
120
120
100
100
80
80
60
60
Employment
40
40
Pay Rolls
20
20
0
0
1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938
UNITED STATES BUREAU OF LABOR STATISTICS
Regraded
LIC
EMPLOYMENT & PAY ROLLS
CEMENT
Index Numbers
1923-25-100
Index Numbers
140
140
120
120
100
100
80
80
Employment
60
60
40
40
Pay Rolls
20
20
0
0
1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938
UNITED STATES BUREAU OF LABOR STATISTICS
Regraded 156 Uclassifie
EMPLOYMENT & PAY ROLLS
BRICK, TILE, & TERRA COTTA
Index Numbers
1923/25=100
Index Numbers
140
140
120
120
100
80
mm
100
80
60
60
Employment
40
40
Pay Rolls-
20
20
0
0
1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938
UNITED STATES BUREAU OF LABOR STATISTICS
Regraded 5 15 Iclass
1
EMPLOYMENT & PAY ROLLS
STRUCTURAL & ORNAMENTAL METALWORK
Index Numbers
1923-25-100
Index Numbers
140
140
120
120
100
100
Employment
80
80
Pay Rolls
60
60
40
40
20
20
0
0
1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937
UNITED STATES BUREAU w LABOR STATISTICS
15
5
EMPLOYMENT & PAY ROLLS
STEAM d'HOTWATER HEATING
Index Numbers
APPARATUS & STEAM FITTINGS
Index Numbers
140
140
1923-25-100
120
120
100
100
80
80
Employment
60
60
Pay Rolls
40
40
20
20
0
0
1923
1924
1925
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
UNITED STATES BUREAU OF LABOR STATISTICS
1
Regraded 5 Uclassi
EMPLOYMENT & PAY ROLLS
BLAST FURNACES, STEEL WORKS, the ROLLING MILLS
Index Numbers
1923-25-100
Index Numbers
140
140
120
120
100
100
80
80
Employment
60
60
Pay Rolls
40
40
20
20
0
0
1923
1924
1925
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
UNITED STATES BUREAU of LABOR STATISTICS
Regrade 160 Uclassifie
EMPLOYMENT & PAY ROLLS
IRON & STEEL & THEIR PRODUCTS, NOT INCLUDING MACHINERY
Index Numbers
1923-25-100
Index Numbers
140
140
120
120
100
,MA
100
Employment
80
80
Pay Rolls
60
60
40
40
20
20
0
0
1923
1924
1925
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
UNITED STATES BUREAU OF LABOR STATISTICS
16 0) Inles
1
EMPLOYMENT & PAY ROLLS
AUTOMOBILES
Index Numbers
1923-25-100
Index Mumbers
160
160
140
140
120
120
Employment
100
100
80
80
60
60
40
40
Pay Rolls
20
20
0
0
1923
1924
1925
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
UNITED STATES BUREAU OF LABOR STATISTICS
1
Regrad 162 Uclass
EMPLOYMENT & PAY ROLLS
COTTON GOODS
Index Numbers
1923-25-100
Index Numbers
160
160
140
140
120
120
100
100
Employment
80
80
60
60
Pay Rolls
40
40
20
20
0
0
1923 1924 1925 1926 1927, 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938
UNITED STATES BUREAU w LABOR STATISTICS
Dear -I 163
EMPLOYMENT & PAY ROLLS
KNIT GOODS
Index Numbers
1923-25-100
Index Numbers
160
160
140
140
120
120
Employment
100
100
80
80
Pay Rolls-
60
60
40
40
20
20
0
0
1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938
UNITED STATES BUREAU OF LABOR STATISTICS
164 l
Chart 14
165
FEDERAL EMERGENCY EXPENDITURES
AND UNEMPLOYMENT INDEXES
By Regions
!
il
pacilic
W N.
Mid.
Central
E.N.
C
B
Central
M
ountain
I
I
i,
il
1
1
-
4
ES 5.
Central
W.S.
4,
Central
#
-
PER CAPITA EMERGENCY EXPENDITURES FARM LABOR SUPPLY RATIO
AND ESTIMATED PERCENTAGE OF POPULATION UNEMPLOYED'
u.s. Average 1934-1936-100 for All Regions
PER
PER
PER
CENT
New England
CENT
PER
CENT
Pacific
CENT
160
140
PER
PER
CENT
160
U.S. Total
CENT
160
140
140
160
160
140
140
Expenditure
120
Extensed
120
123
Unemployment
Avge Labor
120
140
100
100
140
Form Labor
IDO
Temply
100
so
so
120
Supply
120
no
so
Estimated
LC
Farm Lebor
60
Unemployment
40
Estimated
Supply
100
100
Chamployment
40
40
40
40
40
Expenditures
20
20
ao
80
20
10
o
1932
"
16
o
Expenditures
34
34
17
60
60
0
0
HM
33
#
35
16
17
40
40
PER
PER
SENT
Middle Atlantic
CENT
140
160
20
20
140
145
o
14
o
1932
"
15
14
SF
120
120
(00
100
FEE
PER
PER
FOR
E
PER
so
so
CENT
E.N. Central
CENT
CENT
w 11. Central
CENT
CENT
Mountain
CENT
160
160
160
160
300
300
40
&0
140
140
140
140
200
190
40
40
120
120
120
120
240
260
20
20
100
100
100
100
240
140
4
nsa
13
"$4
as
37
o
34
no
no
se
:
110
220
40
se
60
40
100
200
PER
PER
CENT
40
40
4d
40 160
iso
Soush Asiamic
CENT
160
1&0
20
20
10
10
160
160
140
140
0
a
a
0 140
140
1932
13
24
15
30
If
1932
#
14
35
36
37
120
120
120
120
100
100
100
100
PER
E
FEE
PER
eo
00
CENT
E.S. Central
CENT
CENT
W.S. Central
CENT
60
so
160
140
140
160
46
60
60
60
140
140
140
140
40
40
40
OF
120
129
120
122
20
20
so
se
100
100
100
100
0
o
o
1932
1982
#
34
N
14
"
0
13
H
as
'36
197
BG
80
as
60
60
40
AC
60
40
40
40
40
20
10
20
10
o
0
0
e
1952
32
14
35
24
17
1932 13 39 15 26 37
- - -
- - - - - as - /
- - - - any WE Employment - -
for - - - - - rise
No # - Servey el - Transpy
C-188
-
Regraded Uclassified
Chart 15
166
FEDERAL EMERGENCY EXPENDITURES
AND BUSINESS RECOVERY
By Regions
-
!
-
pacitic
W.N.
MIA
/
Central
z
Assantic
€
/
Central
Mountain
-
-
-
-
-
--
-
I
i
LS
Cantral
W.S.
Central
PER CAPITA EMERGENCY EXPENDITURES, BANK DEBITS
AND NEW PASSENGER CAR REGISTRATIONS
us Average 1934-1986-100 for All Ragions
FER
PER
PER
PER
CENT
New England
CENT
CENT
Recific
CENT
160
160
PER
PER
160
160
CENT
U.S. Total
CENT
140
145
160
160
140
140
Auto Registrations
Expenditures
120
122
120
120
100
100
140
140
100
100
Benk Debite
so
Expenditures,
Benk Deliver
so
120
120
80
60
-
60
60
40
Expenditures
100
100
Auto Repistrations
40
40
40
40
Benk Debits
10
20
so
80
20
20
e
1932
34
o
Auto Registrations
o
13
15
36
"IF
60
60
1932
"If
34
18
ST
0
16
40
40
PER
PER
CENT
Middle Atlantic
CENT
I&D
160
20
20
140
140
o
o
1932
33
34
15
34
37
180
120
100
100
PER
PER
PER
FOR
PER
FEE
80
se
CENT
E. M. Central
CENT
CENT
W Central
CENT
CENT
Mountain
CENT
160
160
140
160
300
300
62
40
140
140
140
140
280
200
40
40
120
120
120
120
240
260
10
20
100
100
100
100
240
240
6
1932
is
34
is
34
o
37
40
60
60
so
220
120
40
60
60
40
200
200
"
PER
CENT
40
40
40
40
180
180
South Atlantic
CENT
160
160
20
20
20
10
160
160
145
140
o
e
o
e
40
146
1932
33
2
38
"24
37
1952
13
H
38
36
or
120
120
120
120
100
100
100
100
PER
PER
PER
PER
80
ao
CENT
E.S. Central
CENT
GENT
w 5. Central
CENT
88
as
160
160
160
160
60
40
60
10
140
140
140
140
40
40
40
=
120
120
120
120
20
20
20
20
ide
100
100
100
n
1912
33
D
a
34
so
so
HM
M
x
35
34
37
o
15
34
37
so
so
40
60
60
40
40
40
40
40
20
20
20
20
o
0
0
a
1932
13
34
15
36
37
1932
"
14
"
14
$7
1 - - - - - - AM Reprimentation - - -
- of the Services # the Transary
C -129
- - - -
Regraded Uclassified
107
NEW PASSENGER CAR REGISTRATIONS AND
FEDERAL EMERGENCY EXPENDITURES
By States
1936 NEW AUTO REGISTRATIONS AS A PERCENTAGE OF 1929
¿
was
SUP
-
IM
um
-
OUR
of
PER CENT OF 1929
or and -
ses
13
15 use
70-40
Under you
PER CAPITA EMERGENCY EXPENDITURES
EXCLUDING A.A.A. AND RENTAL AND BENEFIT PAYMENTS
Flacal that 1037
DI
o
L
L
A
a
5
DOLLARS
o
20
40
AO
80
160
(20
140
1AM
.
20
se
-1
us
i
uwo
Diver
2
-
100
(If
--
TEM
-
-
-
5
favor
-
--
Rive
--
-
---
2
-
Art
-
-
liene
"
=
-
is
-
-
-
o
=
--
100
Regraded Uclassified
168
SPECULATIVE COMMODITIES AND UNEMPLOYMENT PROGRAMS
The report on restricting Federal purchase of materials, in
industries showing speculative increases, is excellent, except for
the suggestion that such purchases should be related to the unemploy-
ment situation in the separate States.
The discussion of unemployment by regions is not thorough enough
to justify the recommendations made. The statistics quoted are not
substantial enough to justify the interpretations placed on them. The
use of this material weakens an otherwise excellent report.
I suggested that the report would be greatly strengthened if it
stopped with a discussion of prices, materials, and purchasing, with
no reference to unemployment. The remedy for purchases of speculative
materials under the works programs is indicated in the report - when
analysis of general business conditions shows that certain industries
are out of line, e. warning can be issued to all Government agencies
purchasing through Procurement Division to restrict purchases in those
lines. Directors of works programs can be advised to eliminate projects
calling for speculative materials as rapidly as possible and shift
employment to other types of projects.
This is a highly constructive suggestion. It is weakened, rather
than strengthened, by the addition of employment data which do not
meet the problem.
Federal policy concerning purchases of steel could not be related
to the unemployment situation on a regional basis even if information
were available. Decisions about further purchases of steel must be
related to the total picture of the steel industry, or to price
- 2 -
169
relationships between steel and other commodities, on a national
basis, not to the employment situation in Montana or North Carolina.
Overstimulation of industries by Government purchasing or inequalities
in the price structure are national, not local, problems.
The question of continuing a Government construction project in
California could not be decided simply on the basic of index numbers
of steel prices and local unemployment. The need for the project is
not determined by either steel production in California or by unemploy-
ment in California. The labor for large projects comes from a terri-
tory far beyond State lines. The final decision to continue or dis-
continue such a project would probably be made on an engineering basis -
of commitments already made and losses involved in suspension of work.
Reduction of steel purchases would probably be made by eliminating new
projects in Louisiana or New Hampshire. Any artificial simplification
of the issues would yield "benefits" more apparent than real.
...
Following are a few specific criticisms of the employment analysis
as given in the report, No revisions in the report to meet the follow-
ing objections would make the discussions adequate because the criti-
cisms are illustrative of a much larger number of objections.
My recommendation on the report was specific - that no employment
statistics are adequate, and that inadequate discussion served only
to increase the confusion in a highly confused situation.
The best figures in the report are the employment indexes of the
Bureau of Labor Statistics. These indexes are on the whole excellent
for separate industries, although some of the industries are weak.
Automobiles and textiles are probably good but the clothing industries
are all inadequate.
170
- 3 -
Lumber is probably one of the weakest industries, because the
reporting system deals only with fair-sized, well established firms.
In the lumber industry there 1s at present rapid development of "family
mills" in the Southern States, where two or three families get & port-
able sawmill and cut wood far from social security and factory inspec-
tion, and also far from statistical reports. They are taking business
away from the old firms because their overhead is low. The low employ-
ment index for reporting firms in the sawmill industry may reflect not
unemployment but merely the transfer of business from well-established
reporting firms to small irresponsible ones.
In New York State, where we have had complete experience with
three business cycles (and where this method of employment indexes
was invented), we found the index method is at its weakest in the rising
phase of the business cycle, because 80 many changes are taking place
in the character of industry that statistical reports could not catch.
This is the best material used in the report. All the other
figures are much weaker.
In Nathan's estimates of unemployment the best figures, covering
about one-quarter of the workers, are derived from the BLS. His other
material (except that of manufacturing and railroads) is much weaker
than the BLS reports. His estimates are useful as a general index of
trend only, and they too grow increasingly weak in the upward phase of
the business cycle.
Figures quoted from the U. S. Employment Service depend entirely
on the efficiency of the separate State administrations in maintaining
their card files in order. This is not a basis for allocation of
Government funds.
4
171
According to their figures, Pennsylvania has more unemployed than
New York State. Casual inspection indicates either that the report
confused figures for New York City and New York State or that registra-
tion in New York is abnormally low. Since the New York employment
system has been in continuous operation since the World War this 1s
not likely. The variations are probably due to incomplete registration
of WPA workers. Pennsylvania figures indicate that the offices have
not cleaned their card files.
To allocate funds on such a basis would only encourage States to
pad their files. This is the basic difficulty now in "relief rolls."
The regional estimates used by Mr. Daggit combine the Nathan
estimates of unemployment with the U. S. Employment Service registra-
tions, multiplying the weaknesses of both.
The report takes no account of need due to other factors than
unemployment, such as low income or the social causes of dependency.
It also takes no account of labor migration. The whole problem
of unemployment in the District is a problem of migration. The number
of jobs increased greatly, but the number of new workers who came in
increased much faster. The same thing is true for the State of
Washington because drought families are coming West from the Dakotas.
In Celifornia, the migration 1s determined by Hollywood and the climate.
The statistics of the BLS, the U. S. Employment Service, and
Nathan's estimates are all compiled carefully with much hard work and
a high degree of integrity. The limitations are unavoidable.
These agencies have shown great restraint in not drawing more con-
clusions about unemployment than the quality of the material would
justify,
April 1, 1937
Saw
Pre-
172
April 2, 1937
Called on the President. Gave him a copy of Haas'
report on selective spending. The President was very much
interested and told me that he had been thinking about doing
something along these lines. He feels that in order to ac-
complish selective spending we would have to get legislation.
I do not agree with him. He said Mark Pullivan would accuse
us of adopting a policy of collectivism. He also said it
would be difficult to tell a town that they could not have a
steel schoolhouse. I said, Yes, but you would tell them that
they could have a brick one.
I pointed out that last year the Government spent
$250,000,000 for steel exclusive of the Navy and there was
no possible excuse for spending more money for bridges at
this time. He said, Well, have you not noticed that I have
not been approving any more bridges and I said, I have not.
He wanted to talk about this at great length and I begged him
to let me get on to the bond question, which he did.
I told him about Eccles' visit last night. Then he
showed me an article in the Wall Street Journal which claimed
that the Federal Reserve was only buying one-tenth as many
bonds as it had formerly. de said, "hat is the matter with
them?
I told him that Eccles and I would most likely have
a plan to submit to him late eaturday; that I thought it
would work, but I was not sure, unless he said something about
the Budget. I told him that due to Eccles' articles that
the spotlight had been put on the Government in connection
with spending, etc., and that if our program failed then the
entire spotlight would be exclusively on him and I strongly
urged him to say something this morning at his press conference.
I told him that in my heart I did not know how he felt
about spending. He did not answer me, but he said that he
would announce at his press conference that he was asking Bell
to give him a revision of the Budget picture and that he would
include this in his message when he sent up his request for
relief money.
I told him that we estimated we were off $500,000,000 or
$600,000,000 in our revenue between now and the first of July,
Regraded Uclassified
173
-2-
so he said, It is perfectly ridiculous. Helvering told me
we would only be off $350,000,000. Not having seen Helvering's
figures I could not answer him.
He then asked me to call up Bell and find out how much
Less we would spend this year than our estimates and Bell told
me about $200,000,000, or that on that deficit, according to
Bell, we would be off between $400,000,000 and $500,000,000
for the year ending June 30, 1937.
I told him there was not much we could do about reducing
expenditures for the balance of this year, but we certainly
could do something about next year, such as impounding funds.
He then told me that in his talk with Bell recently that
Bell was much more worried about this fiscal year than next year
and I told him that I did not think that was correct. That I
just left Bell and that Bell had agreed with me that we could
not do much more about the situation this year but we could do
something about next year.
I was very quiet with the President, but forceful. I
tried to push him and I do feel that 1 made more of an impression
today than I had in some time.
He said, We will send the figure up for $1,500,000,000
for relief and that ought to last us for next year. But, I said,
you will say so, Mr. President, and he said, No, I will not.
Then I replied, That is part of the trouble. I said, What I
would like you to say is that when you have the figures for next
year we will adjust the Budget picture so that the net deficit
for 1937-1938 will not exceed the figures that you sent Congress
in January.
I then stayed with him while he shaved and he seemed very
much amused by the fact that Lord Tweedsmuir did not toast the
health of the President after the President gave a toast to the
King and he said, Both the Anglish and the Canadians were very
much disturbed about it. I told him that when I was at Hull's
for lunch, Hull toasted both the King and the Canadian people
and Lord Tweedsmuir did not respond with a similar toast and the
President said that he just could not understand it.
While I was waiting to see the President I told the whole
thing to steve Early and his only answer was, If the President
tells Bell to make this survey and Bell shows that we are short
of revenue, then the President should go through with it and do
something, but he should not ask for the survey unless he ex-
pects to do something.
174-
175
Pages 174,175:
Although dated April 1, 1937, these pages
refer to Bewley's visit to HMJr at Sea Island,
Georgia, 3/26/37, and have been placed in
Book LXI, pages 155 A-B.
Regraded
176
- -
Greaming Chambers,
Whitehall SM.
The Chancellor of the Exchequer has received
Mr. Morgenthau's important message with the greatest
interest. He has discussed it with the Prime Minister and
the Foreign Secretary and wishes to say how warmly they all
three appreciate this evidence of Mr. Morgenthsu's and -
as they understand - the President's earnest desire to find
some way in which the United States - possibly in conjunction
with the United Kingdom - could help in preventing the
outbreak of another war. Beset 88 they are with the
difficulties and risks inherent in the present political
situation in Europe, the Chancellor and his colleagues have
given their most anxious consideration to this message,
In order to arrive at a proper appreciation of
the possibilities of averting war it is necessary first to
consider where the menace lies, and what are the causes
which keep it alive. These causes are both political and
economic and it is sometimes difficult to disentangle them
from one another. But Mr. Morgenthau is undoubtedly right
in saying that the needs of armament programmes are
responsible for a good deal of the economic troubles in
Europe and those programmes are in turn the result of
political considerations.
The main source of the fears of war in Europe 1s
to be found in Germany. No other country, not Itoly, since
she has her hands full with the task of consolidating her
Abyesinian conquest, not Russia with all her military
Regraded Uclassified
177
Greasury Chambers,
S.M.
preparations, certainly not France, England or any of the
smaller Powers, is for a moment credited with any aggressive
designs. But the fierce propaganda against other nations
continually carried on by the German Press and wireless
under the instructions of Dr. Goebbels, the intensity and
persistence of German military preparations, together with
the many acts of the German Government in violation of
treaties, cynically justified on the ground that unilsteral
action was the quickest way of getting what they wanted,
have inspired all her neighbours with a profound uneasiness.
Even these islands which could be reached in less than an
hour from German territory by an sir force equipped with
hundreds of tons of bombs cannot be exempt from anxiety.
The motive for this aggressiveness on the part of
Germany appears to arise from her desire to make herself so
strong that no one will venture to withstand whatever
demands she may make whether for European or colonial
territory.
With this intention in her heart she is not likely
to agree to any disarmament which would defeat her purpose.
The only consideration which would influence her to a
contrary decision would be the conviction that her efforts to
secure superiority of force were doomed to failure by reason
of the superior force which would meet her 1f she attempted
aggression.
It is because of the belief that British forces
would be available against German aggression that British
Regraded Uclassified
178
Greaming Chambers,
Shiteball $21.
rearmament plans have been welcomed by so many nations in
Europe with a sigh of relief, and if they still feel anxious,
their anxiety arises from their doubts whether this
country's rearmament will be adequate or will be completed
in time to act as a deterrent to German ambitions.
This being the situation in Europe 88 H1s
Majesty's Government see it, they have no doubt whatever
that the greatest single contribution which the United States
could make at the present moment to the preservation of
world peace would be the amendment of the existing
neutrality legislation. Under this legislation an embargo
would be imposed on the export from the United States of
arms and munitions, irrespective of whether a country is an
aggressor or the victim of on aggression. It is obvious
that the existing neutrality law and, a fortiori, any
extension of it so as to include raw materials, suits the
requirements of a country contemplating an aggression, which
can and would lay up large stores of war materials with the
knowledge that its intended victim will, when the time comes,
be precluded from obtaining supplies in one of the greatest
world markets. The legislation in its present form
constitutes an indirect but potent encouragement to aggression,
and it is earnestly hoped that some way may be found of
leaving sufficient discretion with the Executive to deal
with each case on its merits. Mr. Chamberlain realises that
this question is, spart from its international aspect, a
matter of domestic controversy in the United States, and that
Regraded Uclassified
179
Treasury Chambers,
Celbiteball SM.
it may well be impossible for the U.S.A. Government to take
such a step even if they desired it, but in view of
Mr. Morgenthau's request for the Chancellor's views he has
thought that the U.S.A. Government would wish to have them
expressed without reserve.
There is however another aspect of the same
question. Japan in the Far East is another Power with
fer-reaching ambitions which affect the interests of this
country in that region, not with the same intensity as
those which touch her very existence, but in highly
important respects. The strain upon our resources is
therefore seriously aggravated by the necessity of providing
for the protection of our Fer Eastern and Pacific interests,
especially as the most favourable moment for any enterprise
in that region injurious to our position there would be
precisely when we were engaged in hostilities in Europe.
The conclusion of the recent German-Jepanese agreement is an
indication, 1f one were needed, that if we were seriously
involved in Europe we could not count even on the neutrality
of Japan. Anything therefore which would tend to stabilise
the position in the Far Rest would pro tanto case our position
there and safeguard us against added embarrassment in the
event of trouble in Europe.
The advent of the new Government in Japan may
herald a change of attitude, and there are other signs that
the Japanese may realise that the recent trend of their
policy has not been to their adventage, and that they are
contemplating a change in the direction of better co-operation
Regraded Uclassified
180
Treasury Chambers,
Whitebull 5,001.
in the Far East and with the Powers which have great
interests there. We would therefore welcome an exchange
of views on the possibility of taking this opportunity to
try to put relations between the U.S.A., Japan and Great
Britein on 2 footing that would ensure hermonious
co-operation for the protection and development of their
respective interests.
Although Mr. Chamberlain believes it to be true
that the political ambitions of Germany lie at the root of
the economic difficulties in Europe, he is by no means
blind to the advisebility of trying by ell practicable means
to ense the economic situation, and in various directions
His Majesty's Government is now engaged in exploring the
possibilities of finding some relief. The conclusion of
a commercial agreement with the U.S.A. Government would in
the opinion of His Majesty's Government have far-reaching
effects both by its practical advantages to the two countries
and by the example it would set to others. Furthermore,
the State Department will by now have been informed in
confidence by H.M. Ambassador of a step which His Majesty's
Government contemplate taking in concert with the French
Government for the purpose of exploring the possibility of
securing B. relaxation of quotas and other restrictions on
international trade. It is proposed to invite the Belgian
Prime Minister to undertake for this purpose preliminary
investigations in various European capitals, and possibly also
in the United States. M. van Zeeland has expressed his
willingness to accept this mission, if invited, and would
Regraded Uclassified
181
Treasury Chambers,
Whitefall SM,
propose in the first instance to ask M. Frère, the Belgian
economist, to make the first unofficial enquiries.
In connection with economic questions, there is e
further matter that should be mentioned. Dr. Schacht last
autumn had discussions with French Ministers on a number of
topics and has more recently exchanged views with
Sir F. Leith-Ross. The subject matter of these conversations
(and so far as His Majesty's Government are concerned, the
fact that the discussions have taken place at all) have been
and are for the present to be kept secret, It is possible
that these conversations may lead to more formal contacts
with the German Government through the normal channels,
This question is still under careful consideration by His
Majesty's Government, and if no progress has been made up to
date, it is because the matters reised by Dr. Schacht have
concerned not so much purely economic matters, with which of
course he is fully qualified to deal, but rather matters of
wider political scope, more particularly the retrocession of
the ex-German colonies, which have necessarily wide
ramifications.
Mr. Chamberlain hopes that this frank exposition
made in response to Mr. Morgenthau's message may prove helpful
in clarifying the position and showing how it is regarded by
His Majesty's Government. He earnestly trusts that some form
of collaboration may be found possible between our two
countries since he is profoundly convinced that almost any
action common to them both would go far to restore confidence
to the world and evert the menace which now threatens it.
Regraded Uclassified
On His Majesty's Service
182
Regraded Uclassified
183
RB
A portion of this telegram
must be closely paraphrased
before being communicated
to anyone. (B)
PARIS
Dated April 1, 1937
Rec'd 3:37 p. m.
Secretary of State
Washington.
430, April 1, 5 p. m. (GRAY)
FROM CO CHRAN.
With New York offering dollars, with some repatria-
tion of European capital from the United States and
with Bank of England making available at London another
important lot of (Soviet or other) gold at a price
which will lead to its export to New York, dollars
are plentiful here today, French fund acquired some
sterling as well as dollars. There is less trading
in Belga which currency has been weak due partly to
risk, although slight, which Prime Minister van Zeeland
has taken in entering election race against Rexist
leader Degrelle. French rentes down 50 to 85 centimes
perhaps in anticipation of lowering of Bank of France
rate today.
There was, however, no change in the bank's rate
at weekly meeting held this noon. Statement as of
March 26 showed no alteration gold holdings and no new
advances
184
- 2 -
advances to the state. Coverage was 55.09 versus 55.08.
Tightness expected in money market next few days as pay-
ments are made to Treasury on account of subscriptions to
second tranche of defense loan. Small bankers and spec-
ulators who engaged more bonds than they can carry are
having difficulty in disposing thereof and Bank of France
is not helping in such cases.
I visited Rueff at the Ministry of Finance last night.
Rueff told me that for the present the Treasury situation
was easy. He insisted that "only on special days" was it
necessary to give official support to rentes. It is the
contention of my banking contacts that there has been more
selling of rentes for the purpose of buying new bonds than
is admitted by Rueff. There have also been important
withdrawals from savings accounts, incidentally, the opera-
tions for the second half of March of the private savings
banks with the Caisse des Depots showing 108 million francs
withdrawals against 54 million francs deposits.
WILSON.
EA:LWW
Regraded Uclassified
185
TO:
Miss Channcey
Mr Taylor has
tulked to the
Secretary-abach this
and it is returned
for From: your MR. TAXLOR files -
R-
186
ASSISTANT SECRETARY OF STATE
WASHINGTON
may
Personal
April 2, 1937
My dear Mr. Secretary:
Through an oversight I omitted to give
you yesterday when I had the pleasure of see-
ing you a memorandum on Mexican affaire which
has been prepared by my instruction in the
Department of State. In view of the approach-
ing visit of Senor Suarez, the Mexican Secretary
of the Treasury, and of the conversationswhich
you will have with him, I felt that some of
the information contained in this memorandum
might be of service to you.
You know me well enough to know that I
am not sending you the memorandum for the pur-
pose of suggesting what should or should not
be said by you to the Mexican Secretary of the
Treasury. I feel, nevertheless, that if you
coincide in the views indicated in this memo-
randum, and particularly with the suggestion
on page five, and if some appropriate oppor-
tunity in your judgment is presented, a word
of advice from you might be very helpful. The
present Mexican Government has a peculiarly
high regard for your opinion, expecially be-
cause of the particularly friendly and con-
structive oooperation you have shown the Mexican
Government during these past years, and I think
The Honorable
Henry Morgenthau, Jr.,
Secretary of the Treasury.
Regraded Uclassified
187
that such an expression of caution coming from
you would carry a great deal of weight,
Believe. me
Yours D very
sincerely, All
Enclosure:
Memorandum dated
March 25, 1937.
188
MEMORANDUM REGARDING MEXICO'S EXPANDING PROGRAM OF DE-
VELOPMENT AND THE INCREASING EXPENDITURES NECESSITATED
BY SAID PROGRAM
Since President Cardenas assumed office on November 30,
1934, he has been developing broad plans for highway and
railroad construction, distribution of lands to agrarians
with attendant expenditures for irrigation, construction
of a fertilizer plant, electrical installations, operation
of national petroleum reserves, et cetera. The money
obtained from various sources has not by any means kept
pace with the expenditures. The money spent for highways
turned out to be a good investment, because it made pos-
sible a large increase in tourists.
The Mexican Government's attention was turned, as a
result of the need of funds, to the re-establishment of
its credit position in the United States by coming to an
adjustment on the debt, and discussions are now going for-
ward both with regard to the foreign bondholders' debt and
the debt of the National Railways. The Mexican Government
also made settlements with the United States and other
countries involving an annual disbursement of funds for
claims.
The major projects of President Cardenas' administra-
tion are three big irrigation works, the construction of
B.
Regraded Uclassified
189
-2-
a highway from Mexico City to Guadalajara and Nogales,
the construction of a railway connecting with Lower
California, the construction of a railway to Chiapas, the
financing of the Laguna area where several large estates
have been expropriated, the financing of the agrarian
program throughout the country, and, eventually, a high-
way to Guatemala. In addition, the Mexican Government
is contracting for the purchase of something like seven
million dollars worth of equipment from the Baldwin Loco-
motive Works and the Pullman Company. It 18 understood
that the American Smelting and Refining Company 18 to put
up one million dollars in advances on freight rates to
the National Railways to help make the first payment on
this equipment, the remainder to be paid over a term of
years.
It may be said of these projects that the irrigation
works will not provide any income to the Government for
some years to come. The Chiapas Railway will probably
be a white elephant. It 18 too early to say how much
the Government may have to spend initially to bring about
the development of the national petroleum reserves through
the new
Government Petroleum Administration. In
addition, the Mexican Government needs to buy considerable
new
Regraded Uclassified
190
-3-
new equipment for its army, particularly artillery and
airplanes.
While income from tourist expenditures, customs, et
cetera, may be expected to increase, it is very doubtful
whether it will come anywhere near the amount needed to
keep up with expenditures. The President, however, appears
determined to carry through all the improvements he has in
mind before his term expires in 1940. As the President
travels about the country, he makes commitments in dif-
ferent localities for various expenditures to be under-
taken by the Federal Government. Consequently, the pressure
on the Minister of Finance to find funds 1s very heavy and
has resulted in his trying recently to make a loan secured
by oil taxes, in his issuance of fifteen million pesos
more of highway bonds, and in his seeking to obtain a loan
in the United States, probably to be secured by a lien on
the railways.
One of the major sources of income for Mexico 18 the
sale of silver to the United States. Any cessation in our
purchase of silver would probably result in immediate cessa-
tion of the payment of Mexican obligations in the United
States. Hence, the more Mexican obligations there are in
the United States, the greater the pressure to continue
our
Regraded Uclassified
191
-4-
our policy of purchasing Mexican silver.
Concerning the tourist situation in Mexico, it 18
certain that any serious disturbance of a political nature
would curtail the flow of tourists and the income from
tourist sources.
It seems as though the Mexican Government by 1940
would have committed every possible source of revenue to
the payment of obligations incurred for money already
spent by then, Bo that the President's successor 1s apt
to be faced with a burden of services on obligations with
which he may not be able to cope. Such a situation could
result in default on an unprecedented scale 80 far as
Mexico is concerned.
It would therefore seem wise for the Mexican Govern-
ment to slow up on some of its activities requiring ex-
penditures. Politically, they cannot slow up appreciably
in the distribution of lands. They cannot let go of the
Laguna development. Some undertakings, such as railway
projectsin Lower California, Chiapas, Campeche and Yucatan
could be curtailed. The three big dams now under con-
struction have a considerable political significance from
the agrarian standpoint, but one or more of them could be
delayed.
As
Regraded Uclassified
192
-5-
As previously stated, highway construction 1s Mexico's
best investment. The Mexican Government 1s more apt, how-
ever, to give up the Guatemala highway (an important link
in the Pan American Highway) than any other, if it has to
curtail expenditures.
It 1s doubtful whether we have anything to gain by
having Mexico develop a large debt in the United States
at this time. There is also to be considered, however,
the fact that if Mexico gets its income seriously compro-
mised for the future and 1f funds are not available for
relief, it may turn to other countries with offers of
Government-controlled oil and make barter agreements or
secure loans. The Mexican Secretary of Finance is shortly
to confer with Secretary Morgenthau concerning at least
some of the questions dealt with in this memorandum, In
connection with that conference it would perhaps be wise
to hold down, if possible, credit expectations in the United
States and to lay emphasis on future income and on its
certainties and uncertainties in relation to Mexico's grow-
ing foreign obligations.
The American Embassy at Mexico City has recently re-
ported that Senor Suarez will want to discuss the follow-
ing matters while in this country:
(a)
Regraded Uclassified
193
-6-
(a) To show to both our Secretary of State and our
Secretary of the Treasury a statement of the
Mexican Federal income and expenditures for the
year 1936 in order to demonstrate the soundness
of the present Federal financial position.
(b) He 18 compiling a list of Government capital
purchases, such as machinery, railroad equip-
ment, irrigation equipment and railroad supplies
which were bought from the United States in 1936.
He placed the purchases in excess of seven mil-
lion dollars and said that it demonstrated the
good will of the Mexican Government toward that
of the United States.
(c) The Minister said that he had noted that the
freight passing through the Panama Canal was
exceedingly heavy and that he would make every
effort while in the United States to have at
least a million tons a year diverted and trans-
ported across the Isthmus of Tehuantepec from
Puerto Mexico on the Gulf to Salina Cruz on the
Pacific, via the Government-owned railway, Ferro-
carril Nacional de Tehuantepec. He has in mind
to discuss this matter principally with various
large shipping interests, but will doubtless dis-
cuss the matter with Secretary Hull. He further
stated that the Ferrocarril Nacional de Tehuante-
pec 1s now losing money and that the assistance
which he ie seeking would place it upon B. sound
basis. He said that the harbors at both ends
of the railway would be in excellent condition
by the end of this year.
(d) Recently the Minister of Finance was authorized
to float a 50,000,000 peso bond issue, the funds
from which will be used in various railroad con-
struction projects. The Minister said that he in-
tended to float as much of the 1ssue as possible
in Mexico because prices of commodities were
rapidly advancing and he desired to withdraw as
much money from the market as possible. However,
he feels that the Mexican market cannot absorb
the entire issue and, therefore, will seek means
of selling the remainder in the United States.
He said that he would discuss this matter with
Secretaries
Regraded Uclassified
194
-7-
Secretaries Hull and Morgenthau in order to
secure, if possible, their support. He did
not go into detail 8.8 to just what type of
support he might request.
(e) Minister Suarez has plans under way for the
purchase of the Kansas City Mexico and Oriente
Railroad in order that the port of Topolobampo
on the Pacific coast might be connected by rail
with the National Railways at Chihuahua. Such
8. route would give a direct haul for fresh
vegetables, cattle, etc., through El Paso into
the United States. The Minister understands
that the Santa Fe Railroad holds an interest
in the Kansas City Mexico and Oriente Railroad
and indicated that he would talk to the officials
of that road and may not mention this matter in
Washington.
(f) Relative to the settlement of the Foreign Debt,
the Minister said that certain agreements had
to be reached concerning the National Railways
before final touches could be put upon a defi-
nite agreement. He said that he would discuss
with Mr. Lamont in New York certain phases of
the National Railways' debt. When asked the
question as to whether or not a definite agree-
ment could be reached on the Foreign Debt be-
fore his talk with Mr. Lamont, he said that it
was not impossible but that he thought the matter
would remain pending until after his visit to
New York.
(g) It 18 quite likely that Senor Suarez will wish
to get some idea of whether there is likely to
be any change in the near future in our silver
policy. Since there have been some rumors afloat
in Mexico City on that subject from time to time,
he will no doubt be interested in getting the
drift of sentiment in Washington while he is
in that city.
In the event that additional information should be
received from the Embassy regarding Senor Suarez's plans
it
Regraded Uclassified
195
-8-
it will be incorporated in a supplementary memorandum.
There is attached hereto a copy of despatch from
the American Ambassador at Mexico City dated March 16,
1937, in further relation to Senor Suarez's visit to
Washington. The despatch also deals with the possibility
that there may be an agreement concluded at an early date
between the Mexican Secretary of Finance and the Inter-
national Committee of Bankers on Mexico covering direct
Mexican Government obligations in the sum of approximately
250,000,000 pesos and the Mexican railway debt in the
amount of approximately 275,000,000 pesos. Copies of
the enclosures transmitted with the despatch are not
attached for the reason that they do not contain any
additional information pertinent to the subject of this
memorandum.
Enclosure:
From Embassy, Mexico,
March 16, 1937.
Department of State,
Washington, March 25, 1937.
Regraded Uclassified
OPY:SEM: 88]
OMP.
lent
1S6
EMBASSY OF THE
UNITED STATES OF AMERICA
Mexico, March 16, 1937
No. 4454
SUBJECT: Prospective visit to the United States of
Mexican Minister of Finance: Mexican For-
eign and Railways Debts
STRICTLY CONFIDENTIAL
The Honorable
The Secretary of State,
Washington, D. 0.
Sir:
I have the honor to enclose herewith & copy of a
letter addressed to me by the Commercial Attache of this
Embassy regarding the projected trip of the Minister of
Finance, Licenciado Eduardo Suares, to the United States,
In connection with the paragraph on the foreign debt,
I may say that Mr. Rublee called recently upon the
Counselor of the Embassy to say that he was preparing to
return to the United States. He had just had an inter-
view with Licenciado Suares and had shown him a communica-
tion which he had received from Mr. Lamont reviewing the
situation. Mr. Lamont held that there were only two solu-
tions which might lead to a settlement of the railway debt
with the Mexican Government: (1) to turn over the National
Railways to the bondholders (a solution which Mr. Rublee
and Licenciado Suarez both remarked was obviously out of
the question); or (2) to settle with the bondholders by
issuing direct Mexican Government obligations to them in
the amount of approximately 250,000,000 pesos. This would
mean a service of approximately 11,600,000 pesos & year.
The settlement with the holders of the foreign debt,
Mr. Rublee said, would involve the issuance of further
bonds similar to those to be issued the railway bondholders,
in the amount of approximately 275,000,000 pesos, involving
& service of approximately 13,000,000 pesos & year. All of
4%. these would presumably be 40-year bonds bearing interest at
Two
Regraded Uclassified
197
&
Two points had been causing particular difficulty
in the discussions between Mr. Rublee and Licenciado
Suares regarding the foreign debt. One was the inclusion
of a provision to protect the bondholders in the event of
a drop in Mexican exchange. The other was an additional
amount of 30,000,000 pesos of bonds to be issued five
years hence to take care of accrued interest on the for-
eign debt and preferred stock. Mr. Buarez had held that
this additional 20,000,000 pesos should be absorbed by
the bondholders 8.8 part of the 275,000,000 peso bond issue
settlement. Mr. Rublee explained that such an arrange-
ment was impossible from the point of view of his Committee.
At the last interview, Licenciado Suarez offered to give in
on the exchange provision if the foreign bondholders would
give in on the matter of back interest and preferred stock,
Apparently nothing definite has been worked out 88 to what
will be done about the back interest on the railway debt.
Mr. Rublee mentioned that the back interest on the foreign
debt actually amounted to some 285,000,000 pesos and the
back interest on the railway debt to something like
250,000,000 pesos. He said any settlement made, therefore,
would amount to a purely nominal figure.
Licenciado Suarez said that he VBS anxious to 808
Mr. Lamont in the course of his trip to the United States.
Fe could not reach New York until April 6th, and Mr. Lamont
had planned to eail for Europe on April 3rd. Mr. Suarez
asked if Mr. Lamont could wait for him. Mr. Rublee tele-
phoned to find out if this could be done and discovered
that Mr. Lamont could not arrange to wait. Other members
of the Committee will therefore receive Licenciado Suarez.
Mr. Rublee pointed out to the Counselor of the Embassy
that the present arrangement for the disposal of the fund
of seven million dollars now tied up in New York would
terminate on April let and he did not think the bondholders
committee would extend the agreement unless some understand-
ing had been reached with the Mexican Government. Under
their present plans approximately one million dollars of
the amount now tied up would be available to the Mexican
Government, the remainder to be devoted to expenses and
initial payments under the settlement under discussion. If
no agreement were reached, the entire amount now tied up
would become available to the bondholders for distribution.
The Counselor of the Embasey asked if there were not SOME
legal impediment to suoh a distribution. Mr. Rublee said
there
Regraded Uclassified
198
there was not. The only recourse the Mexican Government
would have would be to sue the Committee in the American
courts; he doubted if they would do this, as it would be
& reversal of their previous position that American courts
did not have any jurisdiction in the matter. He pointed
out that by making & settlement on the railway loan the
Mexican Government would have the advantage of releasing
the National Railways from any lien to the bondholders 80
that they can again be pledged in the new railway loan now
under contemplation by the Mexican Government.
Mr. Rublee said he was under the impression that 8
good deal of what Licenciado Suarez had said about having
to consult the President from time to time was tactical.
He really thought that the whole negotiation had been con-
ducted by Suarez largely on his own initiative and seemed
to believe that the Minister had been trying to negotiate
for the greatest possible advantage for the Mexican Gov-
ernment before putting the matter up definitely to the
President.
I am rather doubtful as to whether this is the case,
and am under the impression that Licenciado Suarez has
kept the matter actively before the President at every
phase. It is obvious that some irritation has developed
between Rublee and Suarez. Mr. Rublee said that he ex-
pected that after his return to the United States he would
take part in the negotiations in New York at the time the
Minister saw members of the International Committee of
Bankers on Mexico,
Yesterday Mr. Rublee supplied me with & copy of his
file on his negotiations here. As he was able to give
me only one copy, and it ie voluminous, I have not yet
had the opportunity to go over it fully or to have copies
made. However, I am enclosing it herewith for the Depart-
ment's information, with the request that after the Depart-
ment has had an opportunity to study it and make excerpts
it be returned to me for the Embassy's files.
My despatch 4447 of March 16, 1937, reports an impor-
tant statement made by the President to the representative
of the United Press, which would indicate that Licenciado
Buares expects to come to 8. definite agreement on the
foreign
Regraded Uclassified
199
-4-
foreign debt and the railway debt during the course of
his trip to the United States.
Respectfully yours,
JOSEPHUS DANIELS
Regraded Uclassified
200
RB
GRAY
Paris
Dated April 2, 1937
Rec'd 4:15 P. m.
Secretary of State
Washington.
437, April 2, 4 p. m.
FROM COCHRAN.
French rentes again lower and French shares market
weak. While various threats of strikes are not immediate-
ly alarming, they will prevent any market enthusiasm
from returning to the Paris market.
LE CAPITAL PARIS remarks that while there is for
the moment no discussion of general monetary stabiliza-
tion and no country apparently willing to take the
initiative in that direction, it should not be over-
looked that if the monetary problems were solved world
economic recovery could be rendered more regular and
stable.
In his annual report to Bank of Italy, Governor
Azzolini considered the monetary agreements of September,
1936, the first attempt made since 1931 toward reestablish-
ing broad and sincere international cooperation. Never-
theless, he added, this international monetary agreement
remains
Uclassified
201
RB
-2-#437, April 2, 4 P. m. from Paris
remains subordinated to the international economic
necessities of each country and the process of adaptation
of the various currencies on stable bases, internal as
well as external, still appears far from conclusive. The
Governor pointed out the improvement in the Italian
situation that has followed the alignment of the lira.
He favors more elasticity than the old gold standard
permitted.
END OF SECTION ONE.
WILSON
SMS
EMB
Regraded Uclassified
202
PARAPHRASE OF SECTION TWO OF NO. 437 OF APRIL 2,
1937, from the American Embassy, Paris.
Bankers of Paris, London and Brussels have received
persistent rumors via their New York correspondents that
the dollar is likely to be revalued upward, or that in some
other manner purchases of gold at $35 per ounce will be
discontinued by the Federal Reserve. Such rumors are
circulating among usually well-informed bankers over here,
and are believed to have been partly responsible for the
strength last night and this morning in the dollar.
To one of the bankers who mentioned this rumor to
me I cited Section Twelve of the Gold Reserve Act - pro-
viding that the gold dollar shall not be fixed at more than
60 percent of its old weight, under existing legislation.
The banker thus saw that it was hardly likely that necessary
new legislation would be so hurriedly passed that while he
might have a gold shipment enroute to New York a lower
American gold buying price would be established.
I have the impression, nevertheless, that in the present
uneasiness some of the bankers who ordinarily ship gold to
New York may refrain from operations. The supply of dollars
which has recently been available on European markets would
naturally be restricted, and unless the British or American
control stepped in, should lead to a rise in the quotation
for the dollar.
END MESSAGE.
WILSON.
EA:LWW
Regraded Uclassified
203
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, London, England
DATE: April 2, 1937, 5 p.m.
NO.: 189
FOR TREASURY FROM BUTTERWORTH.
During 8. conversation at the British Treasury, Waley
mentioned that Arakawa, the Financial Attache of Japan
accredited to London and Paris as well as Washington, was
in this country. In the course of & luncheon, Waley said,
Arakawa had indioated that he wished to call at the British
Treasury in the near future to discuss the possibility of
Japan adhering to the six-power monetary arrangement.
According to Arakawa, the authorities in Japan intend to
hold the yen stable and they were favorably disposed to
adhere to the agreement. Arakawa had not yet made a visit
to the British Treasury, but Waley said the sudden general
election in Japan might of course alter his intentions.
My contact said that for his part he would welcome
the adherence of Japan to the tripartite monetary agree-
ment, that he did not know his "political geography well
enough to say whether Japan belonged to the Italo-German
axis", but he did believe that the monetary arrangement
had political democracies associated with it too much, and
to have a non-democratic adherent would be a healthy thing.
In addition, he said it seemed that Japan had garnered what
it
Regraded Uclassified
204
- 2 -
it could from the anti-comintern pact with Germany, and
might now find it suitable to take the contemplated step,
for political as well as economic and financial reasons.
Re the last paragraph of my 172, March 25, 9 p.m.,
we also discussed in a casual way - without reference to
Clay - the question of reducing the value of gold. Waley
dismissed the idea, saying that it was interesting but
probably beyond the realm of practical politics. He said
it was always difficult to retrace one's steps, and usually
to explain them away to members of parliaments and senates
was impossible.
BINGHAM.
PRESSURE
EA:LWW
Regraded Uclassified
205
April 2, 1937
10:59 a.m.
H.M.Jr:
Hello?
Operator:
Congressman Patman. Go ahead.
H.M.Jr:
Hello?
Rep.
Patman:
This is Patman, Mr. Secretary.
H.M.Jr:
Yes; hello.
P:
How are you today?
H.M.Jr:
Oh, pretty well.
P:
I don't suppose you have any problems that are
pressing.
H.M.Jr:
None at all.
P:
I wonder if I may see you this morning about
11:30?
H.M.Jr:
Well, ah - might I ask this?
P:
Yes.
H.M.Jr:
If it is something which is Legislature or
urgent, yes. If it's something about some
appointment could you let it go over until
next week?
P:
Well listen, I never asked you for an appointment
in my life.
H.M.Jr:
Is it something you
P:
It's about legislation.
H.M.Jr:
Well, 11:30 it is.
.
P:
11:30?
H.M.Jr:
Yes.
P:
I'll be down at 11:30, Mr. Secretary.
H.M.Jr:
Good.
P:
Say, and listen
206
2
H.M.Jr:
Yes.
P:
If - You know I believe in the Government
owning the Federal Reserve Banks.
H.M.Jr:
Yes, I see you do.
P:
We're preparing a bill along that line and I
want to talk to you about it.
H.M.Jr:
All right.
P:
I want to get your views.
H.M.Jr:
Thank you.
P:
Thank you; goodbye
Regraded
Uclassified
207
April 2, 1937
12:11 a.m.
Operator:
Go ahead.
H.M.Jr:
Hello?
Pat
Harrison:
Hello, Henry?
H.M.Jr:
Hello, Pat.
H:
How are you this morning?
H.M.Jr:
Oh, I've been better.
H:
Henry, I tried to sell those ideas but I
couldn't.
H.M.Jr:
Ah-ha.
H:
We had a conference up here the very next
morning. That was yesterday morning.
H.M.Jr:
Yes,
H:
And they met with their groups yesterday.
H.M.Jr:
Yes.
H:
of course the - the whole thing hinged on the
proposition about the railroads on this money
that they've collected -
H.M.Jr:
Yes.
H:
- and which they've charged on their books
as paid into the Treasury -
H.M.Jr:
Yes.
H:
- on the bookkeeping proposition.
H:M.Jr:
Yes.
H:
And so they came to me this morning to make a
report.
H.M.Jr:
Yes.
H:
And so they just couldn't get along at all on
that. Harrison representing the Brotherhood
and Pelley representing the railways -
208
2
H.M.Jr:
Yes.
H:
- so I asked them to let me know after they'd
had their meeting with the group, and so what
they said they'd do - they'd just have to have
the bill introduced in the Senate and ask for
hearings, etc., on it.
H.M.Jr:
I see.
H:
So I just wanted to advise you.
H.M.Jr:
All right.
H:
All right, Henry.
H.M.Jr:
Sorry.
H:
Goodbye.
H.M.Jr:
Goodbye.
Regraded Uclassified
209
GEORGE B. BUCK
IBO NASSAU STREET
CONSULTING ACTUARY
CABLE ADDRESS
EAST OF CITY HALL
NEW YORK CITY
SOUNDPLANS NEW YORK
April 2, 1937.
The Honorable,
The Secretary of the Treasury,
Weshington, D. C.
Dear Mr. Secretary:
The Board of Actuaries has received your letter of March
18, 1937, requesting an analysis of certein actuarial computations
made by the Railroad Retirement Board and by the Government Actuary.
The letter also asks for the Board's opinion in respect to the as-
sumptions upon which the calculations were based.
The Board has undertaken to comply with your request and
submits the following.
Statement of Basic Assumption
The Social Security Act provides benefits to all employees
other than those engaged in agriculture and B. few other stated occu-
pations. The Act includes employees of the power companies, tele-
phone and telegraph companies, motor bus and air transportation sys-
tems, electric reilways, and other industries and public utilities.
Railroad employees will also be included unless they are given
special benefits under e separate act. If any other groups desire
benefits greater than those of the Social Security Act, such benefits
must be provided at the expense of the employees, or their employers,
or both. The present pension rolls of such employers must of course
be carried at their own expense.
The proposed act is designed to produce benefits for rail-
road employees greater than those of the Social Security Act, 80 we
assume that the Congress and the public will expect the reilroads
and their employees to pay the cost of the extra benefits; for other-
wise, if reilroad employees are given special privileges, other groups
may be expected to demand such benefits immediately.
We therefore assume that the Treasury is concerned with
having the rates set in the proposed tax bill sufficiently above the
Social Security tax rates to reimburse the Government for the extra
benefits provided in the proposed retirement bill so that the rail-
roads and the reilroad employees will not be subjected to substantial
unexpected increases in their taxes in the future or on the other
hand, that the general public shall not be subjected to unanticipated
taxes in order to give special benefits to the railroads.
- EM -
210
The Board has had no opportunity todevelop its own figures
of cost, but has reviewed the figures prepared by the Reilroad Retire-
ment Board and the figures derived therefrom by the Government Actuary.
Findings of Fact
The Reilroad Retirement Board figures indicate that the pro-
posed scale of tax rates would be too 1cm to provide the benefits and
in a memorendum submitted to the Treasury by Mr. Murray N. Latimer,
Chairman, it is argued that the Government should properly supplement
these texes because of the saving resulting from the exclusion of the
railroads from the Social Security Act.
In the documents transmitted to us, it appears that subse-
quent to the receipt of Mr. Latimer's memorendum by the Treasury De-
partment, the Railroad Retirement Board made cal culstions showing
the cost of Social Security benefits 88 applied to the railroads,
end made the results of their calculations available to you. From
these figures we find that the Social Security taxes would not cover
the cost of benefits in respect to the present group of 1,250,000
railroad employees. This condition is also true in respect to practi-
cally all other groups under the Social Security Act, but it does not
hold when new entrants are included. When new entrents into railroad
service are included in the calculations in the identical manner that
they were included in the figures showing the total cost of the pro-
posed bill, it is apparent that the exclusion of the reilroads will
actually produce B. deficit of approximately $640,000,000 in the Old-
Age Reserve Account established under the Social Security Act. The
figures showing the cost of the proposed bill, also prepared by the
Railroad Retirement Board, indicate an additional deficit of about
$374,000,000 in the tax rates for the proposed bill. Therefore, on
the besis of the Reilroad Retirement Board's actuariel calculations,
the proposed measure with the existing tax retes will involve the
public in additional taxes approximating over $1,200,000,000.
The cost figures prepared by the Railroad Retirement Board
indicate that & uniform tax rate of about 8.25 per cent. is necessary
to cover the cost of the proposed bill. Even this figure may be low
because the Railrced Retirement Board is using the assumption that
the average age of retirement of those in good health who have the
right to demand retirement at age 65 will not be until age 70. In
the past there have been a number of reasons which caused men to work
at very high ages in the railroads, which reasons may not exist under
the new retirement plan.
Conclusions
The Board's first conclusion is that the tax rates of the
proposed bill are not adequate and that either the public or the
railrosds and their employees must make up the deficit.
The second conclusion of the Board of Actuaries is that
the proposed tax bill should be attended to provide either for 60
initial tax rate of 7 per cent., increasing by increments of one-
half per cent. every third year to 8.5 per cent. after Jenuary 1,
1946; or an initial tax rate of 5 per cent., increasing by 1 per
cent. increments to 9 per cent. after January 1, 1949; or some
-3-
211
other equivalent adjustment in the proposed tax scale.
The third conclusion is that since any estimate must in-
volve certain assumptions, conservative or otherwise, which may
not be borne out by the facts, it appears desirable that the retire-
ment bill should be amended to provide for periodic valuations of
the contingent assets and liabilities created by the act in respect
to new entrents, existing members, and pensioners; with a report to
the Congress and the public setting forth the amount of such assets
and liabilities as well as the level percentage of the payroll re-
quired to provide the benefits. In order that all parties et
interest, namely, the reilroads, the employees, end the public, may
be assured that they have technical representation, perhaps the
actuarial valuations should be made subject to the supervision of a
board of three actuaries, one of whom might be designated by the
railroads, one by the railroad employees, and the third by the
Secretary of the Treasury.
Educa Respectfully submitted,
R.R. Reagh
Board of Actuaries,
Civil Service Retirement and Disability Fund.
the figmes in the first Second
Conclusions Sum to me reasonable and
no facility for checking them Th
probably conect although Have had
this conclusion is eminently proper
ty adopted will serve as a periode
check on the figures - Ginerally
Concern in the letter
Pinchurst 3" april 1937.
212
April 9, 1937
Dear Mr. Magill:
I have now studied carefully the memoranda by
Mr. Latimer and the various figures regarding the bene-
fits to railroad employees under the proposed bill. I am
convinced that such benefits call for contributions which
should run from 5 percent at first to 9 percent ultimately
as recommended by Mr. Buck and Mr. Reagh.
The railroad employees include many who have been
for a long time in service and it is these older em-
ployees who get the greatest benefits under the proposed
legislation, I am further advised that the employees'
organizations want to be fair in this whole matter. If BO,
I would like to suggest that in the early years the em-
ployees pay the full amount of 5 percent and that the ad-
ditional charges running up to 9 percent ultimately be paid
solely by the employers, thus equalizing in a manner the
benefits and putting the extra cost on those who get most
of the extra benefits, namely the present employees.
Sincerely,
Honorable Roswell Magill,
Under Secretary of the Treasury,
Washington, D. C.
+ This might be made
4½ % at first, mising to
9 % on the 50-50
principle Wa
213
ROOSEVELT SEEKS TO CHECK GOVT BUYING OFDUR
-ABLE GOODS- CITES PRICE INCREASE IN COPPER
AND STEEL
1106
APR 2 1937
WASHN-
ADD ROOSEVELT
WASHN PRESIDENT ROOSEVELT AT HIS
PRESS CONFERENCE THIS MORNING DISCUSSED THE
ECONOMIC SITUATION AT SOME LENGTH AND
REVEALED THAT THE ADMINISTRATION is SEEKING
TO CHECK GOVERNMENT PURCHASES OF DURABLE GOODS
- THE PRESIDENT SAID THAT AT PRESENT THE
INCREASE IN PRODUCTION OF DURABLE GOODS WAS
GOING MORE RAPIDLY THAN THE INCREASE IN
CONSUMER GOODS - THE CHIEF EXECUTIVE DESCRIBED
THIS AS A DANGER SIGN - ALMOST EVERY TIME
DURING THE PAST 30 OR 40 YEARS HE SAID WHEN
THE CURVE OF DURABLE GOODS PRODUCTION HAS GONE
ABOVE THE CURVE OF CONSUMER GOODS OUTPUT THERE
HAS DEVELOPED NOT NECESSARILY A DEPRESSION BUT
A FALLING OFF WITHIN 12 TO 18 MONTHS
THAT-S HISTORY THE PRESIDENT SAID ASSERT-
ING THAT ALL ECONOMISTS AGREED ON IT
THE PRESIDENT WENT ON TO SAY THAT HE
HAD ABOUT DECIDED THAT THE TIME HAS COME
INSOFAR AS POSSIBLE TO DISCOURAGE GOVERNMENT
PURCHASES OF DURABLE GOODS AND ENCOURAGE CON-
SUMER GOODS PURCHASES
THERE IS NEED MR ROOSEVELT SAID FOR
214
MORE EXPENDITURE OF NATIONAL INCOME AT THE
BOTTOM AND LESS AT THE TOP - FUNDS AT THE
BOTTOM HE ASSERTED GO TO CONSUMERS OF
CONSUMERS GOODS RATHER THAN TO CONSUMERS OF
DURABLE GOODS
THE PRESIDENT CITED LARGE GOVERNMENT
PURCHASES OF STEEL FOR NON-MILITARY USES
AS AN EXAMPLE OF THE TYPE OF GOVERNMENT
BUYING WHICH HAD THE EFFECT OF BOOSTING DURABLE
GOODS OUTPUT - THE GOVERNMENT HAS ALSO BOUGHT
A LARGE PERCENTAGE OF THE WHOLE COUNTRY-S
OUTPUT OF CEMENT HE SAID
AS RESULT THE PRESIDENT CONTINUED IN
THE FUTURE - - THE COMING YEAR - - THE
ADMINISTRATION WANTS TO SLOW DOWN ON SUCH
APR 2 1937
THINGS AS STEEL BRIDGES AND PERMANENT
STRUCTURES THE PRICE OF WHICH IS GOING UP
AND UP AND UP
THE CHIEF EXECUTIVE MENTIONED COPPER
AS ONE DURABLE GOODS MATERIAL THAT HAS
ADVANCED SHARPLY - THE PRESIDENT SAID THAT
EVERYBODY KNOWS THAT COPPER MINES SHOW A PROFIT
AT 5 OR 6 CENTS A POUND - MENTIONING ANACONDA
COPPER BY NAME HE SAID THE COMPANY COULD SHOW
A PROFIT AT 8 OR 9 CENTS - YET COPPER IS
AT 17 CENTS OR MORE HE STATED PUSHING UP
ALL KINDS OF ARTICLES IN WHICH COPPER is USED
PRIMARILY DURABLE GOODS ARTICLES
AUD ROUSEVELT
11.28
215
WASHN - PRESIDENT ROOSEVELT EXPRESSED A
PREFERENCE FOR ACTIVITIES SUCH AS CHANNEL
DREDGING AND EARTHEN DAMS RATHER THAN WHAT
HE REFERRED TO AS GREAT STRUCTURES
THE GOVERNMENT OUGHT TO SLOW DOWN ON THE
PURCHASE OF DURABLE GOODS HE STATED FLATLY
AT THIS POINT
RECENT ADVANCES IN THE PRICE OF STEEL
WHICH HAS GONE UP 6 DLS A TON THE PRESIDENT
DESCRIBED AS MUCH LARGER THAN WAS JUSTIFIED -
ACCORDING TO FIGURES PREPARED FOR HIM BY THE
CENTRAL STATISTICAL BOARD THIS ADVANCE WAS
BETWEEN TWO AND THREE TIMES THE AMOUNT THAT
WENT TO THE WORKERS IN WAGE INCREASES MR
ROOSEVELT STATED
IN REPLY TO A QUESTION AS TO WHETHER
HE WAS SEEKING ANY CHECK ON DURABLE GOODS
PRICES BESIDES A MODIFICATION OF GOVERNMENT
BUYING POLICY THE PRESIDENT REPLIED THAT
APR 2 1937
HE WISHED HIS QUESTIONER COULD TELL HIM A
WAY TO DO IT
IN REPLY TO ANOTHER QUESTION THE PRESI-
DENT SAID THAT THE DEMAND FOR ARMAMENTS
ABROAD HAD HAD A GREAT DEAL TO DO WITH THE
DURABLE GOODS MOVEMENT AND HE CITED RECENT
ESTIMATES OF STEEL SHIPMENTS TO ENGLAND
PRESIDENT ROOSEVELT SAID HE DID NOT THINK
THE PRESENT 4-CENT EXCISE TAX ON COPPER
HAD ANYTHING TO DO WITH THE PRESENT 17-CENT
PRICE WHICH HE DESCRIBED AS A WORLD PRICE - IT
MAKES NO DIFFERENCE AT PRESENT WHETHER THE
4-CENT TAX is TAKEN OFF OR NOT THE CHIEF
EXECUTIVE ASSERTED
PRESIDENT ROOSEVELT EXPECTS HIS RELIEF
216
MESSAGE COVERING THE 1938 FISCAL YEAR TO GO TO
CONGRESS ABOUT THE 14TH OF THIS MONTH - WITH
THAT MESSAGE CONGRESS WILL ALSO RECEIVE A
RE-CASTING OF BUDGET ESTIMATES FOR THE CURRENT
FISCAL YEAR AS WELL AS 1938 - THE PRESIDENT
DECLINED TO REVEAL ANY DETAILS
HE DID SAY HOWEVER THAT HE STILL HOPED
THAT NO NEW TAXES WOULD BE NECESSARY AT THE
PRESENT SESSION OF CONGRESS
THE PRESIDENT REITERATED THE DENIAL
MADE YESTERDAY BY SECY HULL THAT THE ADMINIS-
TRATION WAS CONSIDERING THE CALLING OF A WORLD
ECONOMIC OR PEACE CONFERENCE
HE DECLINED TO COMMENT ON PRESENT STRIKES
AND SAID HE HADN-T HEARD ANYTHING ABOUT
THE WAGNER HOUSING BILL DURING THE PAST 4 OR
5 DAYS
PRESIDENT ROOSEVELT-S COMMENT ON DURABLE
GOODS AND THE GOVERNMENT-S BUYING PROGRAM CAME
IN RESPONSE TO A QUESTION CONCERNING HIS
CONFERENCE YESTERDAY WITH A GROUP OF SIX
REPRESENTATIVES HEADED BY REPV BEITER OF NEW
YORK ON THE SUBJECT OF THE PWA PROGRAM FOR
NEXT YEAR
-0-
ADD ROOSEVELT
WASHN -
THE POLICY OF THE GOVERNMENT IN ITS OWN
SPENDING WITH PARTICULAR REFERENCE TO PUBLIC
WORKS OUGHT TO BE AIMED AT LARGER PURCHASING
POWER IN THE CONSUMERS GOODS FIELD MR ROOSEVELT
SAID
-0-
217
April 2, 1937.
The Secretary
Mr. Magill
The revised estimates made by the Division of Research and
Statistics show the following major deficiencies in revenue receipts
for the present fiscal year:
Millions
Income Tax
267.5
Estate Tax
so.
Gift Tax
90.
Railroad Retirement
134.
Social Security
30.
Windfall
80.
631.5
This tabulation does not take account of possible increases in
revenue from some of the taxes. The work in this respect has not
been completed but I think W can safely my that these figures will
not greatly change the picture; they might reduce the estimated
deficiency to an even $600 million.
You will also notice that the estimated deficiencies as shown
above are much less in the case of the estate tax and such greater
in the case of the income tax than the figures I have previously
given you. I an not yet convinced that the Division's calculations
on the estate tax are correct; the deficiency might very well be $75
or $80 million below the budget estimates. I have not gone into the
income tax estimate in detail since I just received it this morning.
or - Mr majiel to
seey be 4/2
RM/mrl
1937.
21
Cabinet
I
THE WHITE HOUSE
WASHINGTON
april 2 n
18
Pres. said:- -
"Stite hopes fn
a balawad Indept
"
for 193 8"
will try to get them
this fiscal you
demands m the
without any mare
Juasury, " -
219
Friday
"pril 2, 1937
4:10 p.m.
HMJr:
Hello -
T.O.:
Chairman Eccles - Go ahead.
HMJr:
Hello
Marriner
Eccles:
Hello, hello, Henry.
HMJr:
Marriner -
E:
Yes
HMJr:
I got your statement; I don't know whether
you've seen ours.
E:
Yes, I've seen yours -
HMJr:
I'm not entirely happy over yours but I mean
it's - not so much but what I could go along
with most of it, see?
E:
Yes
HMJr:
Now, the question we want to know is, I think
we ought to try to polish this off to-night
so that you'll be free tomorrow to tackle your
Board.
E:
That's right.
HMJr:
Now, are you free tonight?
E:
Yes
HMJr:
Well, I'd rather do it after supper tonight.
We'll let our boys work on it in the meantime.
E:
All right.
HMJr:
See?
E:
All right. I made a change or two in our statement
too, I mean I -
HMJr:
I'd be free at eight-thirty if you are.
220
-2-
E:
0. K.
HMJr:
And, I mean - just a second, Herbert's here.
(Short pause while Secretary talk to Mr. Gaston)
Hello -
E:
Yes
HMJr:
Herbert says he'd like to do a little work and
then come over and see them at your place because
they've got a kind of a watch on both of my doors
here.
E:
Yes
HMJr:
There are newspaper men pacing up and down the
floor and he thinks they're less apt to be seen
if he goes over to your place.
E:
Fine -
H.M.Jr:
What?
E:
That's all right. Now who do you - who do you
want to meet tonight? - How - ?
HMJr:
Well, you and anybody else you want, I mean -
E:
Wouldn't it be well to confine it, let's say
you get - we - I'll bring Elliot and Golden-
weiser only, see -
HMJr:
All right.
E:
Just the two of them.
HMJr:
All right.
E:
And - and you have -
HMJr:
I'll have a couple.
E:
And you have a couple. We get so darn many and
you know, you -
HMJr:
That's all right.
E:
And if there's just the six of us I think we can
maybe make some progress.
221
-3-
HMJr:
All right.
E:
And, in the meantime, you say Herbert wants -
HMJr:
A little later on Herbert Gaston will give
Elliot
-
E:
All right, that'll be O.K.
H.M.Jr:
See?
E:
That'll be O.K. then.
HMJr:
All right.
E:
Then I'll
-
where do you want to -
over to
your place?
HMJr:
At my house, is that all right?
E:
That's all right with me.
H.M.Jr:
8:30?
E:
8:30.
HMJr:
Thanks.
E:
All right.
MEMORANDUM
222
April 2, 1937
To:
Secretary Morgenthau
From: Dr. Burgess
After opening lower today and declining rapidly during the first half
hour Treasury bond market turned upward in active trading and closed at its
highs of the day with the long bonds 12/32 to 22/32 better than yesterday
with the exception of the new 2 1/20, up 9/32. The other Treasury bonds
showed gains ranging generally up to 13/32. In the guaranteed group the
P.F.M.C. bonds showed gains of about 1/2 point and the H.O.L.C. bonds were
up 3/B to 3/4 of a point. Turnover of government bonds on the board was
$6,802,000 compared with $6,344,000 yesterday. There was a good demand
for bonds, which were often taken on the offered side as the market rose.
Treasury notes improved with the rest of the market and the longer matur-
ities finished 1/32 to 5/32 better than yesterday's close.
Domestic bonds both high and second grade opened fractionally lower
and early in the afternoon high grades were off small fractions to around
3/4 of a point. and second grade bonds were down fractionally to more than
one point. Trading was not very active. There was a better tone to the
market in the last hour and quotations improved on some short covering.
High and second grade bonds generally closed fractionally off from
yesterday.
Foreigns were dull with few price changes. Canadian bonds sold off
slightly.
Purchased today $225,000 miscellaneous Treasury bonds for System
account.
223
Friday
April 2, 1937
4:24 p.m.
HMJr:
Hello -
Bob
Doughton:
Mr. Secretary?
HMJr:
Talking - how's Mr. Doughton?
D:
How's that?
HMJr:
How are you, Mr. Doughton?
D:
Well, just about the same. How's your case
developing?
HMJr:
Oh, just about the same.
D:
Yes. Well, you know what progress was made
in the discussion or conference between the
railroad people and your office, Dr. Magill,
about this -
HMJr:
Yes
D:
- this disagreement on the tax?
HMJr:
Yes
D:
Well, what is the situation now?
HMJr:
Well, Pat Harrison called me up this morning
and said that he'd heard from Pelley and that
the railroads wouldn't go along.
D:
Wouldn't?
HMJr:
No. So he talked to the Vice President and we
took it up at Cabinet and I told the President
about it and in confidence I'll tell you what the
President said.
D:
All right.
HMJr:
He told the Vice President that - to ask Pat
Harrison not to introduce any bill in the Senate
and that he, the President, would send him up
a letter and - telling him why. Asked him to
hold off until the President had a chance to
write him a letter.
224
-2-
D:
Well, I talked to the President about it today
and he - I told him that the request in the
bill would be introduced some time today.
HMJr:
You -
D:
And -
HMJr:
What's that?
D:
The President requested that it go over until
Monday -
HMJr:
Yes
D:
-
Well, Dr. Magill is gone I understand.
HMJr:
That's the thing. And I told that to the President.
D:
Well, who have you got there now that could
know whether to go into a conference tomorrow
you see?
HMJr:
No, nobody can do anything until Magill gets
back Monday morning.
D:
Monday morning?
HMJr:
Yes
D:
Yes. Well, I'd be glad, if you don't mind,
and if you'd call me or have Dr. Magill to
as soon as he gets in his office Monday morning.
HMJr:
Yes, well now do you want a similar letter as
Pat gets?
D:
Well, as you like about that.
HMJr:
All right. I'll tell -
D:
But I think this, they want - they are going
to have a bill introduced Monday I'm - as far
as I'm really - reasonably certain.
HMJr:
Well, -
225
-3-
D:
And if -
of course any time during the
session or day would be introduced Monday,
I think -
HMJr:
Well, they'll - I'm sure Pat Isn't going to
introduce it because the President asked Jack
Garner to ask him not to introduce it.
D:
Yes, but they want it introduced over here as
a tax bill. He hasn't - Pat hasn't gotten
around to introduce it - we just sent it back
on him.
HMJr:
Well, that's what I
I
D:
That originated in the House, that don't -
there's no trouble for Pat to obey that request
because it's not his responsibility anyway.
Over here is where the job is.
HMJr:
Well, I asked Jack Garner, "How can Harrison
introduce a revenue bill which would - a tax
bill which originates in the House?"
D:
He can introduce it but then he wouldn't get
far with it.
HMJr:
Well, I think you'll find - I'd be very much
surprised, after the Vice President speaks to
Harrison, if he won't wait until the President
writes him a letter.
E:
Yes, but
-
but you don't get my point.
They want it done over here in the House, that's -
HMJr:
Well, then let the President write Harrison a
letter and let him write you a letter, both.
D:
Well, that'd be all right.
HMJr:
Now, the President is taking the same view that
I took, that we can't afford this thing and the
Treasury can't lose this revenue and that's what
the letter is going to say.
D:
I don't want to advise about it because I -
HMJr:
I wish you would.
226
-4-
D:
don't think that I'm capable of advising.
But I do feel this, that it couldn't hurt
and might be helpful and clarify the situa-
tion up and get a perfect understanding
if somebody from your office could have a
conference with these people Monday morning
the first thing.
HMJr:
Well, sir, I'll tell Magill's office the
minute he comes in to call you up.
D:
All right.
HMJr:
And I appreciate your calling me.
D:
How's that?
HMJr:
I thank you for calling me.
D:
All right. You're welcome.
HMJr:
Goodbye.
D:
Goodbye.
227
April 2,1957
m. Magill
Secretary Margentinu
Senater Harrison called - and said he could not get in
touch with the railread omers and therefore was going to intro-
dues the Bill in the Some. I reported this to the Cabinet.
Senater Harrison talked with the Vice President, the President
requested the Vice President to tell Semator Harrisen to do
nothing until m, the President, could send him a letter out-
lining to the Treasury could not afford to let this Bill go
through because of the loss of revenue both this year and next
year. I told the President Mr. Magill would prepare such a
letter in consultation with Mr. Bell, and it would be ready by
twelve e'clesk, Monday, April 8th.
Distated by the Secretary
to Miss Humphries,
copy to Mrs. Klets
228
5.
am
Nonorable Leo T. Crowley,
Chairman, Federal Deposit
Insurance Corporation,
National Press Building,
Washington, D. 0.
My dear Mr. Crowley:
The Treasury is holding in safekseping
for the Federal Deposit Insurance Corporation
$100,000,000 face amount of 2 per cent special
Treasury notes, dated December 1, 1934, naturing
December 1. 1939.
The Treasury is of the opinion that it
would be in the public interest if at this time
the Corporation should authorise the Treasury to re-
deam $5,000,000 of its special 2 per cent Treasury
notes and to reinvest the proceeds in other oblign-
tions of the United States. In the event the
Corporation approves this suggestion the Treasury
is prepared to redeem at par, plus accrued interest
to date of redemption, $5,000,000 of these special
2 per cent Treasury notes.
I shall be glad if your Board would give
prempt consideration to this matter and advise ne
of its action.
Very truly yours,
Secretary of the Treasury
EPRINGS
April s. 1937
Regraded
Uclassified
229
There were present at Secretary Morgenthau's home Friday
evening, April 2nd, the following:
Secretary Morgenthau
Governor Eccles
Dr. Goldenweiser
Elliott Thurston
Wayne Taylor
Dan Bell
George Haas
Herbert Gaston
The discussion lasted for about two hours and related
almost wholly to the phrasing of a press release for proposed
use on Saturday which involved, however, the whole question of
the action to be taken with respect to the bond market and the
arguments which were to be presented by Chairman Eccles to the
members of the Open Market Committee meeting Saturday, April 3rd.
Both the Treasury and the Federal Reserve people had prepared
tentative releases. After receiving from Elliott Thurston at
2:30 on Friday a copy of the Federal Reserve's version, the
Treasury group, consisting of Taylor, Haas, Bell, White,
Seltzer and Gaston, had made some revisions in the tentative
Treasury draft. Gaston had gone over to see Thurston and
Goldenweiser about 6:00 Friday evening and they had argued
for their general form of draft, and Thurston at that time sug-
gested the modification of their draft by inserting the words
"if necessary" in No. 2, which stated that the Federal Reserve
system would increase its holdings of Government securities.
230
- 2 -
Caston suggested at that time several modifications of the
Federal Reserve draft. At the beginning of the discussion
at the Secretary's home, Dr. Goldenweiser produced a revised
draft. This draft included various points which the Treasury
had found objectionable, including the words "if necessary"
in No. 2. The Secretary objected immediately to that quali-
fication. Momentarily, this point was passed over for con-
sideration of the first paragraph in which the Federal Reserve
people retained their statement to which the Treasury objected,
which read "Developments wholly unjustified by underlying
financial and economic conditions have recently manifested
themselves in the capital markets and are adversely affecting
the orderly progress of economic recovery." Gaston repeated
the Treasury's objections already advanced to this language
and the Secretary said that he would not permit that state-
ment to stand. He said we might just as well face the facts
and Jecognize that the break in the market was largely, if
not wholly, due to the increase in reserve requirements and
this was certainly an "underlying condition." A modification
of the wording to omit the objectionable phrasing was finally
agreed upon. This made the first sentence read "Developments
which have recently manifested themselves in the capital markets
threaten to affect adversely the orderly progress of economic
recovery."
231
- 3 -
There was protracted argument as to the statement of
the amount of gold certificates which the Treasury should
deposit. The Treasury had originally suggested 500 million
and the Federal Reserve had countered with the suggestion of
300 million. It was explained that one of the reasons for
placing it at 500 million instead of 300 million was that we
did not wish to place this figure at the actual amount which
was generally considered to represent the Treasury's cash
needs. We wanted to get away from creating the impression
that the Treasury was merely doing this to improve its cash
position, which was not the fact. The Secretary said he
would not even want those in the room to think that this was
any part of the Treasury's motive.
Chairman Eccles and Dr. Goldenweiser repeated their
objections to the 500 million figure. They said that it
could be calculated to be almost the exact amount necessary
to nullify the effect of the increase in reserve requirements
on May 1st and that, therefore, Chairman Eccles would have
great difficulty not only in the public reaction but in con-
vincing the members of the Open Market Committee that they
ought to go along on the general plan. At the earlier meeting
with Chairman Eccles in the Secretary's office on Thursday,
the Secretary had consented to modify this figure from 500
million to 400 million but stated that he would not accept
232
4
300 million for the reasons stated before. Near the close
of Friday night's discussion, Dr. Goldenweiser offered an
alternative. It was that we reduce the gold certificate
amount to 250 million with the understanding that open market
operations would take care of another 250 million. This, he
said, would make it B. fifty-fifty proposition. Mr. Haas com-
mented that this was something like a fifty-fifty sausage
consisting of half horse and half rabbit, since it would have
the effect of increasing rather than lessening the burden on
the Treasury and would subject us to the criticism of showing
favoritism to the banks. It would increase the cost to the
Treasury and lessen the cost to the Federal Reserve system.
The Secretary thought that this 250 figure would weaken
the force of the action and he could not at this time consent
to it. He would, however, sleep on the matter with the under-
standing that he was still sticking to the 400 figure.
Chairman Eccles reverted to the words "If necessary" in
action No. 2. He thought that with this qualification, he
would be in & much better position to win over his Open Market
Committee by explaining to them that they were not asked to do
more than market conditions would require. The Secretary said
with great emphasis that he would not consent to any such
proposition; that if the Federal Reserve group and the Open
233
- 5 -
Market Committee insisted on it, he simply would not play
ball with them and he would be forced to go ahead on his
own as he had been doing with respect to the Treasury's bond
market for the last two years. It was pointed out to Chairman
Eccles that the use of the words "1f necessary" would deprive
the whole procedure of any effect of concerted action at all.
The Treasury would be making a definite commitment but the
Federal Reserve system would not be committing themselves to
anything and that would be obvious on the face of the state-
ment. More than anything else what was wanted was to show
concerted action and a united front and these two weasel
words would completely destroy that effect. Chairman Eccles,
Dr. Coldenweiser and Thurston finally conceded the force of
this argument and Chairman Eccles said that he might indicate
to his Open Market Committee some of the implications of
failure on their part to make a definite commitment for action.
Chairman Eccles finally stated that he personally, as Chairman
of the Board of Governors, was determined to be associated
with the Treasury Department in this concerted corrective
move and that he felt willing to tell the Committee that if
they would not go along, he would ask to be associated in
the Treasury statement as agreeing to it in his capacity as
Chairman of the Board of Governors.
234
- 6 -
By general agreement the final paragraph of the Federal
Reserve form of statement was substantially modified in the
light of Treasury objections.
It was agreed that a joint press conference would be held
in the Treasury some time Saturday afternoon, the time to de-
pend on the progress of the deliberations of the Open Market
Committee and the opportunity for presenting the final plan
to the President for his approval. If there was prospect in
the early afternoon for agreement on a joint course of action,
the newspaper men were to be notified that & statement would
be forthcoming later in the day.
There are attached copies of the Federal Reserve draft
(A) of a proposed statement presented at the opening of the
evening's discussion, the Treasury draft (B) and the final
revised draft (c) which was the product of the evening's
meeting.
Iclassified
A
235
April 2, 1937.
Developments wholly unjustified by underlying
financial and economic conditions have recently manifested
themselves in the capital markets and are adversely affect-
ing the orderly progress of economic recovery. In order to
counteract these developments, the United States Treasury
and the Federal Reserve System have decided upon the follow-
ing course of action, effective as of Monday, April 5:
1. The Treasury will deposit with the Federal reserve
banks $
of gold certificates, issued against
gold previously held inactive, and is prepared to deposit
additional amounts if necessary.
2. The Federal Reserve System will if necessary increase
its holdings of United States Government securities through open
market operations.
The effect of the combined action will be to add to the
reserves of member banks, thus facilitating an orderly adjustment
to the final increase in reserve requirements, and to maintain
an orderly capital market which 18 essential for refunding and new
financing in the construction and durable goods industries, in-
cluding housing; for the restoration of full employment, and for
the effective utilisation of the country's productive resources
in agriculture, commerce and industry.
B
236
The Secretary of the Treasury and the Board of Governors of the
Federal Recerve System, in accordance with their common policy of
seeking to maintain a level of interest rates which will promote
full employment and effective utilization of the country's productive
resources, are taking the following action:
(a) The Secretary of the Treasury will transfer to the Treasury's
account with the Federal Reserve Banks 4400 millions of Cold certificates
against free gold now carried in the working Balance and in the
Inactive Gold Account of the Treasury. Gold certificates will also be
issued against further new acquisitions of gold. This action is taken
in conformity with the Secretary's statement of December 22, 1936,
which declared that "the Secretary of the Treasury, after conferring
with the Board of Governors of the Federal Reserve System, announced
that he proposes whenever it is deemed advisable and in the public
interest to do so, to take appropriate action with respect to net
additional acquisitions or releases of gold by the Treasury Department."
(b) The Federal Reserve System will make additional purchases
of securities for the System open-market account.
Regraded Iclassified
J
237
Developments which have recently manifested them-
selves in the capital markets threaten to affect adversely the
orderly progress of economic recovery. In order to counteract
these developments, the Treasury and the Federal Reserve System
have decided upon the following course of action, effective as
of Monday, April 5:
1. The Treasury will deposit with the Federal Reserve
banks $400,000,000 of gold certificates, issued against gold
which has been held inactive. This action is in conformity
with the policy with respect to acquisitions of gold announced
by the Secretary of the Treasury on December 22, 1936, after
conferring with the Board of Governors of the Federal Reserve
System.
2. The Federal Reserve System will increase its
holdings of United States Government securities through open
market operations.
The purpose of the combined action is to maintain an
orderly capital market, which is essential for the restoration
of full employment, and for the effective utilization of the
country's productive resources.
C (working drapt)
238
which
Developments
financial and Sconome conditt have recently manifested
threaten to affect
themselves in the capital markets adversely
the orderly progress of economic recovery. In order to
counteract these developments, the Treasury
and the Federal Reserve System have decided upon the follow-
ing course of action, effective as of Monday, April 5:
1. The Treasury will deposit with the Federal reserve
banks $400,000,00 of gold certificates, issued against
which has been
gold proviously held inactive,
3
2. The Federal Reserve System will
increase
its holdings of United States Government securities through open
market operations.
Jurhose
is
The effect of the combined action within to to the
reser FOO of Member banks, the facilitating USE orderly adjustment
to the finel increase da poserve requirementsy and to maintain
an orderly capital market, which is essential for refunding and DAY
Meansting to durable goods Internation, in
for the restoration of full employment, and for
the effective utilization of the country's productive resources X
industry.
the Statement agreed in at my house 239
7n Diary This was
Friday a work ago.
Developments which have recently manifested themselves
in the capital markets threaten to affect adversely the orderly
progress of economic recovery. In order to counteract these
developments, the Treasury and the Federal Reserve System have
decided upon the following course of action, effective as of
Monday, April 5:
1. The Treasury will deposit with the Federal Reserve
banks $400,000,000 of gold certificates, issued against gold which
has been held inactive. This action is in conformity with the
policy with respect to acquisitions of gold announced by the
Secretary of the Treasury on December 22, 1936, after conferring
with the Board of Governors of the Federal Reserve System.
2. The Federal Reserve System will increase its holdings
of United States Government securities through open market opera-
tions.
The purpose of the combined action is to maintain an
orderly capital market, which is essential for the restoration
of full employment, and for the effective utilization of the
country's productive resources.
7.16/0
nasters
240
MEETING RE BOND MARKET -
April 3, 1937
INTEREST RATE SITUATION
12:30 p.m.
Present:
Mrs. Klotz
Mr. Haas
Mr. Lochhead
Mr. Upham
Mr. Bell
Mr. Gaston
Mr. Taylor
H.M.Jr:
Where does this come from, this UP story?
Gaston:
Oh, that comes mostly from the young man's
own mind I think.
H.M.Jr:
(To Lochhead) Sterling is 4.90.
Lochhead:
(Nods yes) Francs are steady and guilders are
steady.
H.M.Jr:
(On phone) Chairman Eccles, please.
Have you (Gaston) got my statement?
Gaston:
Yes.
H.M.Jr:
Everybody here in the room seen it?
Gaston:
No (handing statement to Secretary). No, I
think not.
H.M.Jr:
I'll read it out loud.
"Developments which have recently manifested
themselves in the capital markets threaten
to affect adversely the orderly progress of
economic recovery. In order to counteract
these developments, the Treasury and the
Federal Reserve System have decided upon the
following course of action, effective as of
Monday, April 5:
"1. The Treasury will deposit with the
Federal Reserve banks $400,000,000 of gold
certificates, issued against gold which has
been held inactive. This action is in con-
formity with the policy with respect to ac-
quisitions of gold announced by the Secretary
of the Treasury on December 22, 1936, after
Regraded Uclassified
241
2
conferring with the Board of Governors of the
Federal Reserve System.
"2. The Federal Reserve System will increase
its holdings of United States Government securi-
ties through open market operations.
"The purpose of the combined action is to
maintain an orderly capital market, which is
essential for the restoration of full employ-
ment, and for the effective utilization of the
country's productive resources."
(To Upham) Want to take a look at it? I mean
do you want a copy? Take a look at it
(handing Upham copy).
Lochhead:
May I ask, if we take that out - sterilized
gold - what will you do with the gold that
continues to come in now?
H.M.Jr:
Sterilize it.
Lochhead:
You will continue to sterilize it.
H.M.Jr:
(on phone) Hello? Thank you. (Has conversation
with Chairman Eccles, recorded on dictaphone
at 12:35 p.m.) (Attached and follows rhis page.)
You (Upham) say he has a machine, too.
Upham:
Yes.
H.M.Jr:
Just like this?
Upham:
Well, I haven't seen it but it is similar.
Ransom had it put in while Eccles was in the
South, so that he could talk to the whole group
over there at once.
H.M.Jr:
Has he got a recording machine?
Upham:
I don't know.
H.M.Jr:
Well listen, my advice to you 1s that you can
all go play golf.
Mrs. Klotz:
Serious?
242
April 3, 1937
12:35 p.m.
H.M.Jr:
Hello?
Operator:
Chairman Ecoles. Go ahead.
H.M.Jr:
Hello?
Eccles:
Hello?
H.M.Jr:
How is it going?
E:
Oh, I'm still alive.
H.M.Jr:
Well, that's something.
E:
Well, I - I think it's going along all right.
of course, you know you've got to let them
all talk and - and give them 8 perfectly free
discussion, but I - I feel hopeful about the
situation. They've gotten down to - to a
pretty serious consideration of the problem
end - and they're not making impassioned
speeches, and it's my feeling that they have
a - they see we're in 8 crisis, and that they
are, of course, desirous of doing the right
thing, and I have given them to understand very
definitely, as Dr. Goldenweiser has, that due
to failure to act up to the present time,
without blaming anybody for that individually
because you'd be in an indefinite argument
about that, that - that we are now up against
8. situation of either cooperating with the
Treasury and - or standing out here refusing to
do anything and let the Treasury go alone,
which would be a most unfortunate thing for the
Reserve System. I told them that it was your
desire to have cooperation; that you were very
loathe, of course, to have any breaks develop,
but at the same time you had made up your mind
that - that somebody had to take charge of the
capital market.
H.M.Jr:
Ah-ha.
E:
And that's about the - the sum and substance.
Now I - there is - they've been looking at the
statement, and there is considerable criticism.
They feel that they - that - that it's fraught
with some danger, and I think it's well to let
them try their hand. I told them that - that
Regraded Uclassified
243
2
you were not set on - you were set on making
a statement, but you weren't set necessarily
on every word in the statement or on the exact
text of the statement.
H.M.Jr:
All right; fine.
E:
That you'd be glad, I was sure, to have the
suggestions.
H.M.Jr:
As long as the objectives aren st changed.
E:
That's right, I - I don't know whether you'd
be willing or not to have the Reserve System
go it alone and make definite announcement that
they were going to buy and undertake to buy and
have the Treasury withhold action for the time
being.
H.M.Jr:
Well, of course, we don't think it would be
enough here. That's the thing - we don't think
it would do the trick.
E:
The - of course, the market is pretty strong
this morning.
H.M.Jr:
I know but now I told you why it is and what I
did yesterday, and I had the three-way program.
E:
Yes.
H.M.Jr:
And I don't think unless we go through the whole -
the three-way program theyre going to do it.
E:
Well, I - I - that's what I've told them.
H.M.Jr:
I mean - I - I've just burned myself out over
this, Marriner, and I've kept quiet, and I think
anything less than this three-way program which
I laid out last night that - I - I don't think
it's going to go across. Now, the fact that the
market was up yesterday and that it went up this
morning - then it receded again - I don't want
to go into a long argument but we - we feel that
due to many things which you're just as conscious
of as we are that 500 million excess reserves is
not enough.
244
- 3 -
E:
Well of course I recognized that. At least it
isn't enough for the time being that's certain
because they - you haven't gotten past the May 1st
period and they really don't know what they're
going to have, you see - individual - the banks
individually don't.
H.M.Jr:
I think this has got to be a three-way program,
Marriner, and I can't recede from the position
that I
E:
One of the points that the - ah - that some of
them have made
H.M.Jr:
Yes.
E:
1s,of course, whether or not the announcement
of putting a substantial amount of gold back into
the picture
H.M.Jr:
Yes.
E:
would have an inflationary effect so that
if the bonds did go up a little ways that there
would be a lot of people and a lot of institutions
that not because of the need for selling at all
but merely that they felt that this meant an in-
flationary development and this was a good time
to get out of long-term securities. I mean that -
that seems to me the question.
H.M.Jr:
You know what my answer to that
E:
What.
H.M.Jr:
These boys raised the reserve requirements in order
to - ah - ah - put a damper on - on - on commodity
prices.
E:
No, that isn't why we did it to get close to the
market; I mean to get to a point where we would
H.M.Jr:
Well -
E:
have - be able to - action by buying or
selling would really influence the market. In
other words, it was a question of a move to get
into position - that's - that was the purpose.
245
4
H.M.Jr:
And you got yourself into position and the commodities
have gone up steadily ever since.
E:
Oh well I didn't feel we could control commodities
as I said in my statement in substance of any
monetary needs to where you got unemployment to
try to fight money to control commodities would
be perfectly wrong and its very definitely against
my view of the thing.
H.M.Jr:
I know but - but - but
E:
And I don't
H.M.Jr:
then the thing gets down to what good did
this thing do? Look, Marriner
E:
Yes.
H.M.Jr:
These fellows, of course, don't want the Treasury to
do anything because it looks as though the Treasury
has to step in to help this situation out and they
can think of a lot of reasons why they don't want
the Treasury to do something. Now I have played
more than fair with the Federal Reserve; I've kept
my mouth shut but I feel - I mean the thing is
crystallized in my mind and from now until the
first of July I think we need another - more excess
reserves than what we've got and I'm willing - you
can tell them to sit down with these fellows any
time and reconsider this thing but at this time,
just doing this thing, I've got to say this - I
hate to say this but I think the Federal Reserve
has lost caste and I - they haven't handled this
situation and I think they've lost caste; now I
think the Treasury and the Federal Reserve have got
to move together plus what the President has done
and will do to assist us. - Ah - ah - and - ah
E:
Well, of course, I think a definite assurance with
reference to the budget would be one of the most
favorable - that would almost offset any putting
of gold in because it
H.M.Jr:
No - no
E:
the - the budget is
Regraded
Uclassified
246
- 5 -
H.M.Jr:
No - no, Marriner, I cannot and, I'm sorry,
I will not recede from my decision of last night.
I'm not going to recede from it - I mean - ah -
you were in entire sympathy; we went through this
whole thing before and now these boys are
E:
I'm not - I'm not arguing for you to recede; I'm
just merely giving you the picture because I've
got a tough job here with & big group of fellows
and it's just a question of knowing - ah - ah - what
H.M.Jr:
Well if these boys are going to go to work on you
now - and I - I can't recede.
E:
Yes.
H.M.Jr:
I - I mean the situation is so and, as I say, the
Federal Reserve hasn't been able to handle it; they
didn't rise to the occasion; they didn't do anything
about it; they've left this thing just slip every
day and I'm not going to sit here and - and - and
let this thing continue to - the situation has taken
me three years; everything that I've got to build up
the government where it is and then just sèe it slip
from under my feet. I mean I'm not going to do it.
E:
Well I'll - I'll report to them that - that so far
as the putting in of 400 million of gold is concerned
that, whether they do anything or not, you're at
least going to do that.
H.M.Jr:
Yep.
E:
And - ah - you'd like to have them cooperate by making
a joint statement indicating that they are going to
carry out an open market operation.
H.M.Jr:
Well certainly last night, when you left my house,
you were in entire accord with what we were talking
about.
E:
Well I'm not out of - I'm not out of harmony now.
I'm not - I'm - I'm - I'm - but I can't go into a
meeting of 12 people and simply use a club, you know.
After all, you get - you wouldn't get cooperation.
What I'm trying to do is to just say to them exactly
what the situation is and I've reported to you the
situation here and I'm merely asking you
H.M.Jr:
Yes.
247
- 6 -
E:
ah - if you would be willing to consider that.
Now if you won't then I'm - I'm not arguing for it
at all; I'm not making a case - I'm merely telling
you what some of the reactions are.
H.M.Jr:
Then let me ask you, "Marriner Eccles have you changed
from your position of last night"?
E:
No I haven't changed from my position at all. My
position last night, of course, was that you put in
less than the 400 million and - ah - and state that -
ah - ah - if necessary you'd put more in; that would
put the Reserve people on the spot here so that in
carrying out an open market operation by God they'd
have to do it - satisfactory to you. That was the
only - that was my position. Ah - ah
H.M.Jr:
I thought the statement, as written last night, was
agreeable to you.
E:
Well when we left I - - I told you that the statement
was agreeable but I preferred the other.
H.M.Jr:
Yes, but you were in agreement with the statement.
E:
Why, yes, of course, I mean I wouldn't say that if it
isn't that statement I wouldn't go along. That isn't
my position at all.
H.M.Jr:
No, I understood that the statement, as written last
night, met with your approval.
E:
Well when I left you last night
H.M.Jr:
Yes.
E:
I said, "Now keep your mind open on that
260 million", you remember? The last thing I said
and you said you'd sleep on it.
H.M.Jr:
Yes but I said that - but I also told and Goldenweiser
said that as far as I was concerned it was 400 million
and
E:
That's right. - that's what you said but I said to you,
didn't I, just as I left I said, "Well now let's sleep
on this thing. We don't want to make a mistake. Keep
your - keep
- 7 -
248
H.M.Jr:
Well I don 't remember it. Let me ask Taylor, he's
sitting here.
E:
All right.
H.M.Jr:
Let me ask him.
(Pause)
H.M.Jr:
Hello
E:
Yes.
H.M.Jr:
An - Taylor says the way he understands it - when we
left it was agreeable but you asked me to think about
it again.
E:
That's right.
H.M.Jr:
But it was agreeable as written.
E:
That's right; that's correct but I preferred the other.
H.M.Jr:
Incidentally, we've got a hundred million dollars
worth of gold on the ocean right now.
E:
Oh my gosh.
H.M.Jr:
Yes.
E:
Well we've got to do something about that. I mean
that's another problem aside from this that's damn
serious.
H.M.Jr:
Yes. Now as to time because I've got a lot of golfers
in the Treasury, see?
E:
(Laughs)
H.M.Jr:
And some race-track fans and our- Bowie starts at 2:15.
Now - ah - when are you fellows coming up for air
again?
E:
Well I don't - I - I - I don't think that. I think
this thing is sufficiently important that these
fellows better pass up their golf and their race;
I'm doing all that I can but after all there's such
a thing as trying to push a thing to a breaking point
and I don't want to do that.
249
8 1 I
H.M.Jr:
No I'm - I'm not going to the racetrack and I'm not
going to play golf but I want to know when they can
come back; they can go out - the way I figure they
E:
Oh - oh.
H.M.Jr:
I figure they can all go to the races.
E:
I think so, you tell them to go.
H.M.Jr:
That's what I meant.
E:
No, I think they can.
H.M.Jr:
Well that's what I meant - when we - when will you
want to talk to me again?
E:
Well I told these fellows that we ought to at the
latest get through this thing by two o'clock. I - I
don't - I tried to - I said that I had to see the
Secretary and we possibly expect to go over and see
the President and then we'd have a Press Conference
so I said, "You can see the question of time is of
essence".
H.M.Jr:
Well aren't you going to eat?
E:
I don't think - I don't think till we get through.
I'd keep them in there; maybe starve them; there's
some advantage in that you know.
H.M.Jr:
Well I'll tell you what we'd - I'd do. I'm - I've
got lunch at 1:15 with my daughter and after lunch
I'll call you up.
E:
All right, will you do that?
H.M.Jr:
I - I - supposing I do that.
E:
All right. If I happen to be out to lunch then I'll -
leave word and - where I can call you and I'll call
you as soon as I get back, that is, if I should be out
when you get through with lunch with your daughter and
should call me.
if
H.M.Jr:
Well now let's leave it this way - because/you go out - -
call me if you're going to go out.
- 9 -
250
E:
You'll be home?
H.M.Jr:
I'll either be at the offi - Treasury or home.
E:
All right, before I go out to lunch I'll call you.
H.M.Jr: O.K.
E:
Fine.
H.M.Jr:
Thank you.
E:
Goodbye.
Regraded Uclassified
251
3
H.M.Jr:
Yes.
Taylor:
At 2:00? 2:30 maybe.
H.M.Jr:
I'll give you three. I'll give you even money.
Bell:
I think they're through now.
Mrs. Klotz:
Through before they begin.
Bell:
Don't you (H.M.Jr.)? I think they're through
now.
H.M.Jr:
What do you mean?
Bell:
Might as well adjourn now.
H.M.Jr:
Do you know what Goldenweiser said last night?
He said before Eccles came - he was kind of
talkative - he said, "Do you know what they
ought to do? They ought to say, 'The meeting
has come to order; let's take a vote.' You'll
be just as far then as you will be two days
later." He said all the argument isn't going
to change anybody.
Taylor:
If all they're arguing about at the present
time is the wording of the statement, that
means that they are pretty well agreed.
H.M.Jr:
He (Eccles) didn't say that.
Now let's, in this room - if anybody - if anybody
thinks I am unfair they can say SO. We have
gone through this thing with Eccles again and
again, and Eccles has agreed, and he goes over
and somebody starts talking and he turns a
somersault, end then we've got to do our work
over again. I'm not going to wear myself out
doing it. I'm taking my position and there I
am and there I stay, and the only person that
can make me change is the President of the
United States.
You've seen him (Eccles), Cy, haven't you -
you've seen him come in and agree to something,
then those boys give him the works and he
changes. Am I unfair?
Regraded Uclassified
252
4
Upham:
No, I don't think you are unfair.
H.M.Jr:
He agreed to this thing. He did say - or
Goldenweiser, he said, "Think it over again."
I said, "No, it's 400 million." Didn't I?
Am I wrong? I mean
Bell:
You said to let it stand at 400 million and
we would sleep on it, but let it stand at
400 million.
H.M.Jr:
400 million.
Haas:
That was your reservation. You told him he
could talk five, you know.
H.M.Jr:
I said he could talk five, but my figure was
four.
Taylor:
It was up to him whether he wanted to talk five.
H.M.Jr:
(On phone) Miss Marguerite LeHand, please.
Miss Marguerite LeHand? How do you do. I told
a man by the name of Roosevelt that Mr. Eccles
and I would most likely want to see him this
afternoon to clear a very, very important
statement that we are thinking of making Monday
morning, to look after your bonds. Have you
still got those 13% bonds? - You have not?
You sold it? ... That's what made the bond
market go down. I wondered where the Ethiopien
was, I knew something was wrong somewhere.
I knew that there was big selling somewhere.
Now listen, is he going out for a drive or some-
thing? Well, I just got through talking
to Eccles. He's got his whole Board here, 12
of them, and he doesn't know when he's going to
get through.
But I just wondered if he
was going to take a drive. ... Well then,
what I'll - I'll have to take my chances.
Are you going to be in this afternoon? ...
Well then, when Ecoles and the rest of them
make up their mind, may I give you a ring?
... And sold all your Governments? -
You're a pal.
Bell:
Ask her where she got her advice. I want to
know where she got her advice. Maybe from
the President.
253
5
Mrs. Klotz:
I was just going to say that.
(Phone conversation finished)
H.M.Jr:
She said, "I sold my one bond."
I tell you exactly what I'm going to do, and
everybody can do what they please. I told
Joan I'd have lunch with her at 1:15. Every-
body's got to eat somewhere, don't they? And
if this thing
Where are you going
to go, Herbert?
Gaston:
Oh, I'll have lunch downtown somewhere.
H.M.Jr:
And Wayne?
Taylor:
Downtown somewhere.
H.M.Jr:
I'll let you fellows know at 2:00 whether I'm
going to take a sleep, and if I take a sleep
you can all go out and play golf; for two
hours and a half you can all go out.
Taylor:
I think I'll get a hair out and go to the
movies.
H.M.Jr:
How about you, Dan?
Bell:
I'll be here until about four. I have a dinner
engagement in Baltimore.
H.M.Jr:
What?
Bell:
A dinner engagement in Baltimore.
H.M.Jr:
You may get there. What time is it, if I might
ask?
Bell:
I'm supposed to leave here at four and get
over there by five thirty.
H.M.Jr:
On the train?
Bell:
No, driving.
H.M.Jr:
Well, let's see - you (Haas)
Haas:
I'll be available.
254
6
H.M.Jr:
Look, be available so that if I call up at
two and I get Marriner - didn't I say I'd
call him up at two?
Mrs. Klotz:
No, he said he'd call you if he went out.
Taylor:
You said that you'd call him after you'd got
back from your lunch.
Gaston:
He was to call the Secretary and the Secretary
would be either here or at home.
H.M.Jr:
Before he went to lunch.
Mrs. Klotz:
And if he didn't go to lunch, you'd call him
at two.
H.M.Jr:
Let me just go around the room. Does anybody
think what I said to Marriner - that I won't
recede from my position - is a mistake?
Taylor:
(Nods no)
H.M.Jr:
Or recede from this statement? I don't mean
words, but I mean as to the purpose.
Taylor:
(Nods no)
H.M.Jr:
Herbert?
Gaston:
Not now. No, I don't think it is a mistake.
H.M.Jr:
Why do you say "Not now"?
Gaston:
Well, I mean in any event if you were going to
recede, I wouldn't
H.M.Jr:
Would you have done it at 12:00?
Gaston:
No. I mean I'd wait until - take certainly
a firm position until that Board is through with
its meeting.
H.M.Jr:
All right. Cy?
Upham:
I agree with Herbert.
H.M.Jr:
What's that?
255
7
Upham:
I agree with Gaston.
H.M.Jr:
You do.
Lochhead:
I agree absolutely.
Haas:
I'd stay firm.
Bell:
I agree with that. I don't know as I'd stay
firm indefinitely, but I'd stay firm right now,
if you are satisfied with the position; stay
there until they take some position, then de-
cide what you'll do.
Gaston:
After we get all through with it, and then they
won't go along, we'll have to readjust the
position and decide what to do independently.
H.M.Jr:
Well, those of you who weren't there last night,
I want to get this over. Marriner Eccles
agreed to this thing last night, and this is
the last thing he said to me. Now, you (Bell)
check me. He said, "If my Board doesn't go
with me, I want to know whether you in your
statement will include Marriner Eccles, 88
Chairman of the Federal Reserve Board, and
say that I agree with what the Secretary of
the Treasury is doing. Will you include me in
any statement?"
Gaston:
He said, "I'd like to be included - I'd like to
be associated in the statement as Marriner
Ecoles, Chairman of the Board of Governors of
the Federal Reserve System."
Bell:
That's right.
H.M.Jr:
That's what he said - "Will you include me in
your statement?" Whereupon Elliot Thurston said,
"Well, if you do that, then the Board's got to
go along." He said, "I don't want to be tied
up with these banks and be known
He said, "Will you include me in your statement,
80 I can be known publicly to be in accord with
what you are doing?"
I want you to get that background, Cy. It's
terribly important.
256
8
Haas:
He hasn't pulled that yet over there, evidently.
Gaston:
He said that would be his final argument,
and he'd tell them flatly.
H.M.Jr:
Well, I sincerely hope that the Board and the
Treasury can go together. I sincerely hope -
I think it would be terrible if they didn't.
I think that would be the worst thing of all.
Well, you will all hear from me. I'm awfully
sorry, but I do think that this is about one
of the most important things we have had since
the Tripartite Agreement. Don't you (Taylor)?
Taylor:
(Nods yes) As far as this country is concerned,
it is a hell of a lot more important.
H.M.Jr:
And fortunately, I am in 8 very quiet, self-
contained mood, because I know what is the
right thing to do now. I know what I think we
should do.
Well, I'll go on home and have lunch with Joan
and then I'll phone the office here around 2:00.
How's that? I'm awfully sorry - a lovely day
like this, but
Mrs. Klotz:
There will be others.
H.M.Jr:
There will be others.
Taylor:
How do you know?
Bell:
What a big help you are.
Taylor:
Just because there always have been?
257
April 3, 1937
12:35 p.m.
H.M.Jr:
Hello?
Operator:
Chairman Eccles. Go ahead.
H.M.Jr:
Hello?
Eccles:
Hello?
H.M.Jr:
How is it going?
E:
Oh, I'm still alive.
H.M.Jr:
Well, that's something.
E:
Well, I - I think it's going along all right.
Of course, you know you've got to let them
all talk and - and give them a perfectly free
discussion, but I - I feel hopeful about the
situation. They've gotten down to - to a
pretty serious consideration of the problem
and - and they're not making impassioned
speeches, and it's my feeling that they have
a - they see we're in a crisis, and that they
are, of course, desirous of doing the right
thing, and I have given them to understand very
definitely, as Dr. Goldenweiser has, that due
to failure to act up to the present time,
without blaming anybody for that individually
because you'd be in an indefinite argument
about that, that - that we are now up against
a situation of either cooperating with the
Treasury and - or standing out here refusing to
do anything and let the Treasury go alone,
which would be a most unfortunate thing for the
Reserve System. I told them that it was your
desire to have cooperation; that you were very
loath, of course, to have any breaks develop,
but at the same time you had made up your mind
that - that somebody had to take charge of the
capital market.
H.M.Jr:
Ah-ha.
E:
And that's about the - the sum and substance.
Now I - there is - they've been looking at the
statement, and there is considerable criticism.
They feel that they - that - that it's fraught
with some danger, and I think it's well to let
258
- 2-
them try their hand. I told them that - that
you were not set on - you were set on making
a statement, but you weren't set necessarily
on every word in the statement or on the exact
text of the statement.
H.M.Jr:
All right; fine.
E:
That you'd be glad, I was sure, to have the
suggestions.
H.M.Jr:
As long as the objectives aren't changed.
E:
That's right. I - I don't know whether you'd
be willing or not to have the Reserve System
go it alone and make definite announcement that
they were going to buy and undertake to buy and
have the Treasury withhold action for the time
being.
H.M.Jr:
Well, of course, we don't think it would be
enough here. That's the thing - we don't think
it would do the trick.
E:
The - of course, the market is pretty strong
this morning.
H.M.Jr:
I know but now I told you why it is and what I
did yesterday, and I had the three-way program.
E:
Yes.
H.M.Jr:
And I don't think unless we go through the whole -
the three-way program they're going to do it.
E:
Well, I - I - that's what I've told them.
H.M.Jr:
I mean - I - I've just burned myself out over
this, Marriner, and I've kept quiet, and I think
anything less than this three-way program which
I laid out last night that - I - I don't think
it's going to go across. Now, the fact that the
market was up yesterday and that it went up this
morning - then it receded again - I don't want
to go into a long argument but we - we feel that
due to many things which you're just as conscious
of as we are that 500 million excess reserves is
not enough.
259
- 3 -
E:
Well of course I recognized that. At least it
isn't enough for the time being that's certain
because they - you haven't gotten past the May 1st
period and they really don't know what they're
going to have, you see - individual - the banks
individually don't.
H.M.Jr:
I think this has got to be a three-way program,
Marriner, and I can't recede from the position
that I
E:
One of the points that the - ah - that some of
them have made
H.M.Jr:
Yes.
E:
is, of course, whether or not the announcement
of putting a substantial amount of gold back into
the picture
H.M.Jr:
Yes.
E:
would have an inflationary effect so that
if the bonds did go up a little ways that there
would be a lot of people and a lot of institutions
that not because of the need for selling at all
but merely that they felt that this meant an in-
flationary development and this was a good time
to get out of long-term securities. I mean that -
that seems to me the question.
H.M.Jr:
You know what my answer to that is?
E:
What.
H.M.Jr:
These boys raised the reserve requirements in order
to - ah - ah - put a damper on - on - on commodity
prices.
E:
No, that isn't why we did it to get close to the
market; I mean to get to a point where we would
H.M.Jr:
Well -
E:
have - be able to - action by buying or
selling would really influence the market. In
other words, it was a Question of a move to get
into position - that's - that was the purpose.
260
- 4 -
H.M.Jr:
And you got yourself into position and the commodities
have gone up steadily ever since.
E:
Oh well I didn't feel we could control commodities
as I said in my statement in substance of any
monetary needs to where you got unemployment to
try to fight money to control commodities would
be perfectly wrong and it's very definitely against
my view of the thing.
H.M.Jr:
I know but - but - but
E:
And I don't
H.M.Jr:
then the thing gets down to what good did
this thing do? Look, Marriner
E:
Yes.
H.M.Jr:
These fellows, of course, don't want the Treasury to
do anything because it looks as though the Treasury
has to step in to help this situation out and they
can think of E lot of reasons why they don't want
the Treasury to do something. Now I have played
more than fair with the Federal Reserve; I've kept
my mouth shut but I feel - I mean the thing is
crystallized in my mind and from now until the
first of July I think we need another - more excess
reserves than what we've got and I'm willing - you
can tell them to sit down with these fellows any
time and reconsider this thing but at this time,
just doing this thing, I've got to say this - I
hate to say this but I think the Federal Reserve
has lost caste and I - they haven't handled this
situation and I think they've lost caste; now I
think the Treasury and the Federal Reserve have got
to move together plus what the President has done
and will do to assist us. - Ah - ah - and - ah
E:
Well, of course, I think a definite assurance with
reference to the budget would be one of the most
favorable - that would almost offset any putting
of gold in because it
H.M.Jr:
No - no
E:
the - the budget is
261
- 5 -
H.M.Jr:
No - no, Marriner, I cannot and, I'm sorry,
I will not recede from my decision of last night.
I'm not going to recede from it - I mean - ah - -
you were in entire sympathy; we went through this
whole thing before and now these boys are
E:
I'm not - I'm not arguing for you to recede; I'm
just merely giving you the picture because I've
got a tough job here with a big group of fellows
and it's just a question of knowing - ah - ah - what
H.M.Jr:
Well 1f these boys are going to go to work on you
now - and I - I can't recede.
E:
Yes.
H.M.Jr:
I - I mean the situation is so and, as I say, the
Federal Reserve hasn't been able to handle it; they
didn't rise to the occasion; they didn't do anything
about it; they've left this thing just slip every
day and I'm not going to sit here and - and - and
let this thing continue to - the situation has taken
me three years; everything that I've got to build up
the government where it is and then just see it slip
from under my feet. I mean I'm not going to do it.
E:
Well I'll - I'll report to them that - that so Ar
as the putting in of 400 million of gold is concerned
that, whether they do anything or not, you're at
least going to do that.
H.M.Jr:
Yep.
E:
And - ah - you'd like to have them cooperate by making
a joint statement indicating that they are going to
carry out an open market operation.
H.M.Jr:
Well certainly last night, when you left my house,
you were in entire accord with what we were talking
about.
E:
Well I'm not out of - I'm not out of harmony now.
I'm not - I'm - I'm - I'm - but I can't go into a
meeting of 12 people and simply use a club, you know.
After all, you get - you wouldn't get cooperation.
What I'm trying to do is to just say to them exactly
what the situation is and I've reported to you the
situation here and I'm merely asking you
H.M.Jr:
Yes
262
- 6 -
E:
ah - if you would be willing to consider
that. Now if you won't then I'm - I'm not arguing for it
at all; I'm not making a case - I'm merely telling
you what some of the reactions are.
H.M.Jr:
Then let me ask you, "Marriner Eccles have you changed
from your position of last night?"
E:
No I haven't changed from my position at all. My
position last night, of course, was that you put in
less than the 400 million and - ah - and state that -
ah - ah - if necessary you'd put more in; that would
put the Reserve people on the spot here so that in
carrying out an open market operation by God they'd
have to do it - satisfactory to you. That was the
only - that was my position. Ah - ah
H.M.Jr:
I thought the statement, as written last night, was
agreeable to you.
E:
Well when we left I - I told you that the statement
was agreeable but I preferred the other.
H.M.Jr:
Yes, but you were in agreement with the statement.
E:
Why, yes, of course, I mean I wouldn't say that if it
isn't that statement I wouldn't go along. That isn't
my position at all.
H.M.Jr:
No, I understood that the statement, as written last
night, met with your approval.
E:
Well when I left you last night
H.M.Jr:
Yes.
E:
I said, "Now keep your mind open on that
260 million," you remember - the last thing I said;
and you said you'd sleep on it.
H.M.Jr:
Yes but I said that - but I also told - and Goldenweiser
said that as far as I was concerned it was 400 million
and
E:
That's right - that's what you said but I said to you,
didn't I, just as I left I said, "Well now let's sleep
on this thing. We don't want to make a mistake. Keep
your - keep
263
7 I #
H.M.Jr:
Well I don't remember it. Let me ask Taylor, he's
sitting here.
E:
All right.
H.M.Jr:
Let me ask him.
(Pause)
H.M.Jr:
Hello
E:
Yes.
H.M.Jr:
Ah - Taylor says the way he understands it - when we
left it was agreeable but you asked me to think about
it again.
E:
That's right.
H.M.Jr:
But it was agreeable as written.
E:
That's right; that's correct but I preferred the other.
H.M.Jr:
Incidentally, we've got a hundred million dollars
worth of gold on the ocean right now.
E:
Oh my gosh.
H.M.Jr:
Yes.
E:
Well we've got to do something about that. I mean
that's another problem aside from this that's damn
serious.
H.M.Jr:
Yes. Now as to time because I've got a lot of golfers
in the Treasury, see?
E:
(Laughs)
H.M.Jr:
And some race-track fans and our - Bowie starts at
2:15. Now - ah - when are you fellows coming up for
air again?
E:
Well I don't - I - I - I don't think that. I think
this thing is sufficiently important that these
fellows better pass up their golf and their race;
I'm doing all that I can but after all there's such
a thing as trying to push a thing to a breaking point
and I don't want to do that.
264
- 8 -
H.M.Jr:
No I'm - I'm not going to the racetrack and I'm not
going to play golf but I want to know when they can
come back; they can go out - the way I figure they
E:
Oh - oh.
H.M.Jr:
I figure they can all go to the races.
E:
I think so, you tell them to go.
H.M.Jr:
That's what I meant.
E:
No, I think they can.
H.M.Jr:
Well that's what 1 meant - when we when will you
want to talk to me again?
E:
Well I told these fellows that we ought to at the
latest get through this thing by two o'clock. I - I
don't - I tried to - I said that I had to see the
Secretary and we possibly expect to go over and see
the President and then we'd have a Press Conference
so I said, "You can see the question of time is of
essence."
H.M.Jr:
Well aren't you going to eat?
E:
I don't think - I don't think till we get through.
I'd keep them in there; maybe starve them; there's
some advantage in that you know.
H.M.Jr:
Well I'll tell you what we'd - I'd do. I'm - I've
got lunch at 1:15 with my daughter and after lunch
I'll call you up.
E:
All right, will you do that?
H.M.Jr:
I - I - supposing I do that.
E:
All right. If I happen to be out to lunch then I'll -
leave word and - where I can call you and I'll call
you as soon as I get back, that is, if I should be out
when you g et through with lunch with your daughter and
should call me.
H.M.Jr:
Well now let's leave it this way because if you go
out - call me if you're going to go out.
Regraded Uclassified
265
- 9 -
E:
You'll be home?
H.M.Jr:
I'll either be at the offi - Treasury or home.
E:
All right, before I go out to lunch I'll call you.
H.M.Jr:
O.K.
E:
Fine.
H.M.Jr:
Thank you.
E:
Goodbye.
Regraded Uclassified
266
MEETING AT 2201 R STREET RE
April 3, 1937
BOND MARKET - INTEREST RATE
8:50 p.m.
SITUATION
Secretary Morgenthau
Mr. Eccles
Mr. Goldenweiser
Mr. Harrison
Mr. Burgess
Mr. Broderick
Mr. McKee
Mr. Sinclair
Mr. Williams
Mr. Bell
Mr. Gaston
Mr. Taylor
Mr. Haas
Mr. Upham
H.M.Jr:
I'll talk awful fast, because the others
are coming at nine.
I took Eccles with me to see the President
and we were with him for an hour. And the
first reaction that the President had was
In the first place, you people
know Eccles takes the position now that he
didn't want us to put any gold in. I mean
he wasn't in favor of it. Well, any way,
the President - the first thing when he read
this, he said, "Well, just putting this gold
in means - won't this be interpreted as in-
flationary?" I said, "It might."
Well, we went over the whole thing, and then
during the conversation I said, "Well, the
way I feel is that due to the action of the
Federal Reserve Board on increasing reserve
requirements - that is largely responsible
for tightening up this situation. Now, if
the stumbling block is that they don't want
us to put the gold in, I am willing to with-
draw the suggestion if they will postpone their
May 1st action." So Eccles said, "Well, you
hadn't said that before." I said, "No,
because I didn't feel it's up to me, but I will
267
2
say it now before the President." Ecoles
says, "Well, I'm opposed to that." He said,
"Change of policy, turn-about, etc., we have said
this is a clumsy instrument, etc."
The President then made what I thought was a
very excellent suggestion, and his sugges-
tion to me was to say to these men here - he
didn't say it in just these words, but this
was the purpose, and it was: "You have been
given by Congress this responsibility to look
after the money market, to keep an orderly
market. You haven't done it. You have muffed
it. Now I, Henry Morgenthau, Jr., speaking
for the United States Government, serve notice
on you that we expect you to do this, and we
are going to give you one more chance. If
you don't do it, then the United States
Government, through the Treasury, will take
over the entire responsibility. We are going
to put this on to you now and give you one
more chance." And Eccles is entirely satis-
fied with that. He says he is a hundred per
cent for that. What? Now I think it's all
right.
Gaston:
Fair enough.
Taylor:
Perfect.
Gaston:
Fair enough, fair enough.
H.M.Jr:
Put them on notice; don't argue with them, and
don't tell them how to do it, but we want an
orderly market, and they have not kept an order-
ly market, and it is their responsibility.
Now, I can go over and over it again, but I'll
just put them on notice that if they don't do
it, the United States Government will step in
and do it.
Taylor:
(Nods yes)
H.M.Jr:
Now, I've got not only the President back of
me
But I didn't want to go into
this meeting not knowing how he felt, because
Eccles called me up all through the afternoon
and more and more - "This means a break," he
said - and then he kept receding from his position.
Regraded Uclassified
268
3
I said, "Well, didn't you agree to this state-
ment?" "Well, I agreed to it because you in-
sisted but it isn't what I want."
Then he explained the whole thing. And then,
what I can't understand, in meeting with the
people he said, "I had in the words 'if nec-
cessary' but Mr. Morgenthau made me take it
out. I didn't want to take it out. I
don't want him to put any gold in, but he
made me put it in." Now, how the hell you
going to convince anybody talking like that?
Gaston:
Well, they all conceded that point - that it
was valid.
H.M.Jr:
Listen, I want to sell you a piece of goods
and I say, "This is the cloth you want."
But you say, "Mr. Morgenthau, that's too
heavy for the summer; I want 8 lighter piece
of goods." But I persuade you to take this
piece of goods. But Mrs. Gaston comes along
and says, "I don't like it." "Well, I told
him - I told my tailor I wanted a lighter
piece of goods, but he convinced me this was
the piece of goods. Yes, my wife, you're
right; it isn't the suit I wanted, but my
tailor convinced me." Huh?
(Hearty laughter)
I mean how can you convince anybody talking
like that? I mean he gave every single ar-
gument and made it appear - this is what he
did - as though I was forcing this thing down
his throat.
Gaston:
Today?
H.M.Jr:
To his boys.
Gaston:
Yes.
H.M.Jr:
Now last night as he left here, he not only -
he also said, "I didn't want it, but I told
you I wanted the 250." He never said that;
that was Goldenweiser.
Regraded
269
4
Gaston:
That was Goldenweiser, yes.
H.M.Jr:
And then when I told him, "Why you told these
boys" - you (Upham) wrote the memorandum, I
think, weeks ago - "The original idea of putting
gold in was yours."
Heas:
That's right. I wrote that.
Gaston:
It didn't date only two weeks ago; it dates
from the time he put on the additional reserve
requirements. He told our boys at that time -
that we could fix this up with gold deposits
if necessary.
H.M.Jr:
Well, when the President was 80 smart -
Eccles was sliding out from under us, see?
Now he has said that he is vigorously in favor
of doing the open market operations. That will
also increase excess reserves. And if they
don't do it, then he is through. Now, he has
said that thing. There's no argument.
Then he tried to explain to me that Harrison -
and I can't get this, and I wanted to get home
to get my dinner - but as near as I could get
it, that Harrison wouldn't do anything and
that Harrison wants the Treasury to put the
gold in. That just doesn't make sense,
That's the last thing that he said to me,
that Harrison wants the Treasury to put the
gold in.
Taylor:
Well, there's something cock-eyed because
......
H.M.Jr:
That's why I'm so tickled to have Naster here.
That's why I'm so tickled to have Naster here.
I handle so many things and the things happen
so fast, I can't remember all these things; I
mean I just can't remember them. I mean it
isn't a question of my word, but then these
things happen so fast and they are so vital.
And Ecles said, "It's a crisis," and that the
only answer is for the Treasury to split with
the Federal Reserve and all that, and that it
had come to that point. And I said, "Well,
are you with us?" "Well, I don't want you
to put the gold in," he says.
270
5
Taylor:
Well, as I say, there is something cock-eyed
about this because all through the period
while you were away I was talking open
market to these boys, you see. Couldn't
get them to touch it. Marriner gets back -
remember when I told you that he was coming
over that afternoon - he comes up to me
and says, "We've got to do something and
it's got to be gold, see?"
H.M.Jr:
That was Thursday.
Taylor:
Yes, that was Thursday before you came back.
H.M.Jr:
And he told you it had to be gold.
Taylor:
Yes. I said, "Marriner, I don't agree with
you. I think open market should have been
done before."
H.M.Jr:
Just what your position was.
Taylor:
I feel exactly the same way. It certainly
has to be one or the other. I think it
ought to be open market first.
H.M.Jr:
And he on Thursday said it was gold. Well,
he's completely turned another somersault.
Taylor:
I had this battle with him.
H.M.Jr:
Well, Wayne, you've done business with me
long enough - sometimes I can't remember, but
at least I stay put.
Haas:
This memorendum last night when it came in,
had gold, and they said so much and more if
necessary; and down below it had open market
operations if necessary. They didn't intend
to use any open market operations; the whole
thing was to be gold.
Gaston:
Yes, yes, yes. That was the way they had it
last night.
Taylor:
I think it's fine that it has switched around
the way it is now.
Uclassifi
271
6
H.M.Jr:
Listen, the President is a swell newspaper
reporter and what he saw quickly was that
this puts the position that the Government -
because you can't disassociate the Treasury -
in a position that we are inflationary, and
it wouldn't be in tune with what he said
Friday, and he saw that quickly. But I saw -
I have said right along that I was willing to
take it on; I couldn't see any other way to
force these boys' hands.
Taylor:
Well, it's forced where it ought to be and
it's fine.
Haas:
I wouldn't take - I wouldn't do gold alone.
H.M.Jr:
No, I'm not going to do anything tonight.
But I'm authorized to say that the United
States Government serves notice on the Fed-
eral Reserve Board that they've got to keep
an orderly market. Now if they don't
Taylor:
It's just where it ought to be right now.
(Bell comes in)
H.M.Jr:
Listen, I'll talk awfully fast. Tonight
when I left this fellow at 7:30 at the White
House he was so - well, I've been all through
this with Eccles on sterilized gold; my God,
look how much he changed.
(Messrs. Eccles, Goldenweiser, Harrison,
Burgess, Broderick, McKee, Sinclair and
Williams come in)
H.M.Jr:
Well, Mr. Eccles, do you want to talk for your
crowd first?
Eccles:
Well, I don't think SO. I think I've talked
to this crowd until they - I'm just about
talked out.
H.M.Jr:
Is that possible?
Eccles:
Well, it is about as near as it's ever been.
I didn't think it was, but I've changed my mind
just about.
Regraded Uclassified
272
7
H.M.Jr:
Well, the purpose of this meeting, as I under-
stand it, is to see whether the Federal Re-
serve and the Treasury can get together. I
had a number of talks with your Chairman
during the week, and I had one last night,
where we had a meeting of the minds after
some swapping. And then I've been in touch
two or three times with Mr. Eccles today,
and I gathered that we weren't making much
headway. So, knowing that this meeting was
coming, I wanted to be perfectly sure where
I stood as far as the President was concerned.
So I asked to see him because the situation -
when a situation is as serious as it is, why,
naturally if I am talking for the Government,
I want to make a thousand per cent sure that
I am talking for it, and what I an saying
tonight - I didn't want to meet with you
people tonight until I had the authority to
talk for the Government, which I feel I have
tonight.
Now, the way the Treasury feels about what's
happened here recently is that the Government
securities have been going down rapidly and
not in an orderly manner. I have said to
Mr. Harrison and to Mr. Burgess that on the
actual execution of the orders I have no com-
plaint, but as to the general policy we are
not satisfied. Now, we could go into 8 long
discussion - I'd rather not; if I have to, I
will - as to why, etc. But I think that the
quotations what bonds are selling at tonight
and what they were selling at 6. couple of
weeks ago is good enough.
And I simply feel this way, that under the re-
cent Banking Act, the open market committee of
the Federal Reserve - I believe I em correct in
saying - was given this responsibility, and in
the room I want to say frankly that I don't think
they have taken it. I don't think - I think
they have muffed it and - through not using
the device of the open market, end that swapping
just hasn't done it.
Now, I never threaten. I don't want to
threaten. I just want to make a cold state-
ment, and that is that the Administration
Regraded Uclassified
273
8
would like to serve notice on this open
market committee that we hope and earnestly
request that you use the machinery which
you have and give us an orderly market.
Now, if within 8 reasonable time you don't
or refuse to, then I'm very sorry to say -
I have to say that the Government will, and
that's the whole story. I'm not threatening,
I'm just making a statement. I mean I don't
think that you have lived up to the responsi-
bility which Congress gave you.
Harrison:
Specifically, what responsibility, Mr.
Secretary?
H.M.Jr:
What the open market committee was set up for.
I don't know the legal language.
Harrison:
To accommodate commerce and business?
H.M.Jr:
I don't know just how the thing reads.
Harrison:
I don't intend to quibble with you on terms
because I think we are all after the same
thing.
H.M.Jr:
I mean I haven't brought any lawyer here.
I didn't think this was a legal matter.
But - I mean I don't know just how the
thing reads. If somebody has the Act, they
can read it as to what the purposes and the
authority of the open market committee are.
Eccles:
I feel that we do have the authority and,
of course, if we are going to get down to
strict technical legalistic terms as to what
it means to accommodate commerce, agriculture,
and business, we might argue that we shouldn't.
I know how I feel about it. I'd like to hear
Dr. Goldenweiser say something on that point.
Goldenweiser:
On what point?
Eccles:
Well, the point about what is expected of us
under the law and our authority.
Goldenweiser:
If I remember the law correctly, Mr. Secretary
and Mr. Chairman, it'says, "With e. view to
Regraded Uclassified
274
9
accommodating commerce and business and with
due regard to the maintenance of sound credit
conditions." If any part of it refers to
this particular situation, it is more likely
the second part - "Sound credit conditions."
And "Accommodating commerce and business,"
of course, is a term that one can interpret
in various ways. But, aside from the language
of the law, maintenance of an orderly capital
market, it seems to me, is a part of the re-
sponsibility of the open market committee.
Broderick:
Is what?
Goldenweiser:
It is & part of the responsibility of the
open market committee, and it is purely a mat-
ter of interpretation of what is an orderly
market and where the responsibility begins
and where it ends. On that there are all
kinds of different views.
My own view as to what the committee should
do, I have had occasion to state both to the
committee and to the Secretary and there is no
use my repeating.
Eccles:
Well, I'll say this. The counsel of the Board
was asked today whether under the circumstances
we had authority to carry out an open market
operation and increase our portfolio. He said -
gave a horseback opinion that we did.
H.M.Jr:
Did have the authority?
Ecoles:
Yes.
H.M.Jr:
Well, why did you have to ask the lawyer if
you had the authority?
Ecoles:
Well, the question came up there whether under
the circumstances we would be justified in car-
rying on an open market operation to accommodate
commerce and agriculture and maintain sound
credit conditions - if, according to his legal
opinion, see, that we were - he wasn't going
to pass upon our justification, but he said so
far as the legal question was concerned, there
could be no legal question about it.
Regraded Uclassified
275
10
H.M.Jr:
I mean did you ask the lawyer
If I might ask, how about when they passed
the resolution giving this committee the
right to increase the portfolio by
$250,000,000? I mean I think you passed
that bridge when you had that resolution.
Ecoles:
Well, somebody raised the question.
H.M.Jr:
Well, you passed that resolution, and do
you have to get a legal opinion on that?
Goldenweiser:
If I may say, Mr. Secretary, I think our
counsel gave the best legal opinion today
that I ever heard in my life. He said that
it was not a question of law.
H.M.Jr:
Well, that's all right.
Harrison:
I don't think there is anybody that questions
that we have the right. In fact, I think it
is 8 part of the function of every central
bank to maintain an orderly money market,
and if there is any question of that
H.M.Jr:
Well, that's all we're asking.
Harrison:
And my question - you said that the Act of
'35 gave particular responsibility to us.
I was quite sincere; I didn't know whether
you were referringto something different
than I thought you were.
H.M.Jr:
No, I mean just the general broad principle.
Harrison:
And I wasn't trying to ask a trick question
or to question our authority at all.
H.M.Jr:
Well, I think more than that, you have grad-
ually built up common law through usage and
Harrison:
And if we haven't got the authority, we ought
to go to jail now.
H.M.Jr:
What I was trying to say - what we have been
trying to do is - we had a sort of gentleman's
Regraded Uclassified
276
11
agreement on this whole thing that we work
step by step. I mean through the steriliza-
tion of gold the purpose was to remove gold
from being a domestic influence. And we
more and more have been developing a pattern
which would leave it to the Federal Reserve to
take care of the domestic money market, and
that has been the thing gradually building
up through the past months.
Harrison:
I don't think there is any question of law.
I don't think there is any question of a
difference of opinion that I have heard ex-
pressed anywhere as to a general objective,
Mr. Secretary. I think we all have got the
same thing in interest and at heart, and I
think we are all, so far as I know, working
for the same goal. I think if there is any
difference of opinion, it is partly due to the
fact that we haven't all sat together and
thought out loud continuously, and some dif-
ference in emphasis on either method or speed
or volume or rate - not a difference in the
objective, as I say.
I think it would help some of us on the com-
mittee in determining what we should do if
we had a little better idea than I think I have
of what the Treasury really wants to have hap-
pen in the bond market. I asked Chairman
Ecoles today when we were talking about it,
"Supposing the committee had given the execu-
tive committee complete authority to buy bonds
and increase the portfolio. When should we
buy? How much should we buy? When should we
stop?" I said, "If the New York bank is to
handle it, we've got to have a pretty definite
understanding," - a much closer understending
than I've got even tonight - "as to what really
is wanted." I just honestly don't know. Do
we want to run the bond market up and, if so,
how far, or is the objective to stabilize the
market where it 1s end, if so, is that not pretty
close to 8 pegging operation which some of us
think - have thought to be unwise in the past?
It is not, 88 I say, that any of us want to
contemplate a disorderly market. It isn't
Regraded Uclassified
277
12
that any of us want to see the Government
bond market go to pot. Least of all does
the Federal Reserve System want to see that
happen. It's just that frankly some of us
don't know where we should 80 or what really
is the objective.
H.M.Jr:
Well, you see, I hate to go over what's hap-
pened already, but, as I say, I believe that
the steps which the Federal Reserve took in
the first place are partly responsible for
bringing about the kind of market that we had,
and that secondly the devices that they used
to keep that market orderly were ineffective.
See?
Now certainly nobody took more care - we either
had four or five meetings, I don't remember
which, before we decided what to do for our
March 15th financing. I don't - was it four
or five?
Burgess:
I think four or five.
H.M.Jr:
It was four or five meetings. And nobody took
more time or more trouble to try and decide.
I announced publicly it was the most difficult,
the most delicate decision we had to make.
And through all that discussion and right up
to the last minute when we made the price, no-
body in the System ever once said to me, "Now
in connection with this refunding, fundamental
conditions are so and so, underlying conditions
are so and so, that you better not get out 8
long-term bond because it's going to slide off
five or six points." I mean there wasn't a
single person. And certainly between our March
15th refunding, and within the last week or two,
things couldn't happen so rapidly if there
hadn't been, I believe, artificial measures
taken which brought this about. I mean I don't
think that this has been a natural move. I
don't think it is 8 move which is justified.
And, to come to your question - what can you do?
The only thing that I see that you could do is
to use the devices that you have. Now just
selling 10 million dollars' worth of bills
Regraded Uclassified
278
13
and buying 5 or 10 million dollars' worth
of bonds just won't work. Now why won't it?
Well, the enswer is that it hasn't. I mean
this swapping process which has been going
or just won't do the trick, and I don't be-
lieve there is any excuse at this stage - and
with commercial loans, the last I saw, what
was it - since the 1st of January, they have
only gone up 80 or 90 million dollars, the
loans of banks. I mean there's no possible
reason that I can see for the tightening of
the money market through demands and loans
and such a call on the banks that the rate
should tighten the way it has.
I furthermore believe that this theory has
been completely exploded that you can tighten
short-term money rates and not have a direct
effect on long-term money rates. Now, some
of you people are committed to an easy money
policy, and the thing just hasn't worked.
I mean they thought they could go 5/8 to
1% for 9 months' bills and run it up to 3/4
and not have an effect on the long-term money
market, and the answer is it just doesn't work.
Now, we all learn by experience. I certainly
learn. I don't hold myself up as 8 great
theorist or anything of the sort, and I have
no theories - money theories, never permitted
myself the luxury of having any.
But the devices which have been used, as I
say - I repeat again - I think they have ag-
gravated the situation, and when it comes to
correcting it, they haven't been effective.
Now, I think - we think if the responsibility
was ours that we could correct it. But I think
that the worst thing that could happen to the
financial structure of this country would be if
the Federal Reserve and the Treasury had an
open break. I think it would be a most un-
fortunate and very, very serious thing, and I
have said so repeatedly. I don't want it. I
think over the last - since I have been
Secretary, I have demonstrated I want to coop-
erate. I have cooperated, and up to now I
have had no complaints. But nothing I think
Regraded Uclassified
279
14
would frighten people as much as if we had
a split, and it's the last thing in the
world I want.
But, in all seriousness I can't see what's
taken me - and I say "me" advisedly - three
years to build up over 8 most difficult period
just slide away from under my feet in a period
of two weeks to a month. Because the bond
market can fall off a quarter or a half point
a day, but it may go back one or two thirty-
seconds - it may take six months. I've seen
it happen again and again. I mean the thing
can fall, but when it goes back up
Now I said Thursday to the press publicly
that all I want to see is an orderly market.
I succeeded at the Farm Board - I used that
as en illustration end said that when they
tried to buy all the wheat in the world and
hold it up, I knew it couldn't be done any
more than you can buy all the Governments in
the world and hold it up; nobody has got enough
money. But you can correct the things which
are making the thing happen. If it is wheat,
you can grow less wheat; you have less wheat
on the market.
And, as I say, I think there are certain
things - now this swapping device hasn't worked.
I don't know if you people could have been
fortune tellers and seen that we were going
to have all these strikes and the European
troubles, and all that - whether you would
have put into effect your excess reserve re-
quirements. I don't know. But you have
done it. And 8 person CBD sit back and say
that 80 much money and so much this, end all
that - it's going to work; and then the strikes
come along and the banks feel they ought to be
extra liquid and they want extra money. And I
certainly didn't know that the banks had or
would sell over $800,000,000 since the last -
1st of July, and that they didn't take any of
our $2,000,000,000 increase in our debt. Those
are all facts which are back of us.
And I have never as far as I know - I have
never called up Burgess in three and a quarter
Regraded Uclassified
280
15
years and ever asked him to put the bond
market up.
Burgess:
That's right.
H.M.Jr:
And I never will.
But I think that certainly if it hadn't been
for what the President said at 11:00 Friday,-
certainly before 11:00 Friday we had the worst
we ever had; Friday morning the thing struck
the all-time low. And then he made the
statement, after I had been with him an hour
just beforehand. And the way things were go-
ing, I think it was perfectly possible to see
our 288 go below 90. And the thing that I am fear-
ful of is that when these things begin to
go down - I've been through this enough now -
when the thing goes down it's the devil's
time trying to stop it from falling. And you
work and work and work for three years to
bring the things up and then in a month you
can see all your work undone.
Now, as I say, all I'd like to see is new
measures taken to keep this thing orderly.
Now if they don't
And you
people use the open market device and announce
that you're going to do it. The last time you
had your resolution I misunderstood. Taylor,
without talking to me, he misunderstood it.
We couldn't make out whether you had to go
back and get additional authority before you
used it, or what. It certainly wasn't - you
haven't used it no matter what it did say.
I think you've just got to do something
different than what you have been doing. I'd
just like to feel that you people are willing
to practice what some of you have preached,
that you want 8 decent, long-time money rate,
and that you've got enough confidence in this
market and the Government that you're willing
to bring it about.
I don't know - you asked me a lot of questions,
George. That's my philosophy.
Harrison:
Well, that's what I want very much. For in-
stance, let's suppose for the moment that the
Regraded Uclassified
281
16
open market committee pass a resolution
authorizing the increase in the portfolio
this coming week, end Burgess and I go back
to New York. The New York Bank, being the
bank that executes the policies, the first
thing we want to know is, "Now what should
we do this morning?" And suppose we found
out the bond market is opening up. I would
think out of all the experience that we
have had with you, Mr. Secretary, that
under those circumstances you would not ex-
pect us to go in and buy Government bonds.
H.M.Jr:
The merket is what?
Harrison:
Opened up.
H.M.Jr:
Oh, I thought you - I thought you meant it
was 10:00.
Harrison:
No, no, it's going up. It's opening, we'll say,
above today's close.
H.M.Jr:
Yes.
Harrison:
And we have no reason to believe that there
is any disorder in the market or that there
is going to be any heavy liquidation, and 80
far as we see the bond market is going to rock
along at that level, or perhaps gain a little.
Because Burgess and I both feel that as best
we can guess it, it looks as though the market
is oversold now, and there ought to be some
readjustment. Whether it will be a permanent
one, no one is wise enough to say.
But let's suppose we have the authority and
the market opens with bids higher than the
closing today. First, should we or should we
not buy? I'm not asking you (H.M.Jr.) this
particular question, but I would have to find
out from my committee whether we ought to buy
bonds willy-nilly just because Government
bonds have gone down too for in some people's
minds already, or whether we ought to buy only
as we have in the past on a scale down, but
instead of making shifts make new purchases.
I think that my committee would have to tell
us that - tell the executive committee that,
Regraded Uclassified
282
17
and the executive committee would have to
tell the New York Bank that. And I rather
suspect that before the committee instructed
us, they would appreciate what you think
about it.
H.M.Jr:
If you don't mind, I don't think that is fair.
Harrison:
Well, it is only because I think, Mr. Secretary -
you said that we failed in the past.
H.M.Jr:
Yes, but I said on account of the devices and -
I mean I don't think it is up to me. I mean I
made a very frank and I hope certainly, as far
as the Treasury is concerned, a confidential
statement here. I've kept my mouth shut; I
haven't criticized publicly or tipped anybody
off that I was dissatisfied. There's been no
rumors out of the Treasury of any dissatisfac-
tion which have appeared in any newspapers or
letter writers or columnists, or anything
else. No one has had anything out of the
Treasury. There hasn't been a single inkling
out of the Treasury of any dissatisfaction.
McKee:
Can I put that question of yours a little
differently, George? Mr. Secretary, would
you think that the present market needs a
stimulant by action?
H.M.Jr:
If you don't mind, I'll put it a little bit
different.
McKee:
All right.
H.M.Jr:
I think what this present market needs is that
the Federal Reserve System show that it's got
confidence in Government bonds. Now, that's
what I think.
McKee:
And that, in your opinion, can only be done by
action.
H.M.Jr:
Some kind of action different than what you have
been doing during the last couple weeks, because
that didn't have the results. I think that you
should show that you have confidence in the
Government bond market.
Regraded Uclassified
283
18
As 8. matter of fact, if I may just say just
for a matter of history, if you people look
through your minutes, when Governor Black
was alive, I started to say in those days -
I've begged and I've done it again and again -
I said, "Won't you please either buy or sell
50 to 100 million dollars' worth of bonds
over and above your portfolio when there is
no emergency, so that when you do do it, it
will be taken just as a natural thing?" And
I started when Governor Black was alive and
said, "Please do that when there is no excuse
and no emergency, just to break that fixed
thing, so that when the thing - when the day
will come that you have to do it, it won't be
on the front page." I mean I started back in
Governor Black's time. I mean our minutes
show at least three or four or five times
that I done it. I mean I just want to say
that so that this isn't something new that
I am suggesting.
Eccles:
You said that to the executive committee and
I have recorded it.
H.M.Jr:
But I have done it back in Governor Black's
time.
Eccles:
That's correct.
Broderick:
Do you feel, Mr. Secretary, that if we had been
buying bonds during the past two or three weeks
instead of arranging for shifts, the decline
would have been stopped?
H.M.Jr:
It's awful hard. My guess is that if you people
had been buying, increasing your portfolio, the
decline would have been orderly instead of a
rout. That is my best belief. It is something -
I can sit here end say that's what I believe.
Broderick:
Sure, I know.
H.M.Jr:
What would have happened - all I can say is, like
anybody else, that the damn thing - what you
did didn't work, that's all.
The way I look at it is that 8 bank has 10
million dollars' worth of bonds. They sell it,
Regraded Uclassified
284
19
get some money, and buy 10 million dollars'
worth of notes from you people, which you
sell, and the thing just goes round and round
and round.
Broderick:
Of course, the sellers and buyers were differ-
ent classes of people at that time.
H.M.Jr:
No, I'm talking here recently. I mean re-
cently.
Broderick:
I mean recently.
H.M.Jr:
Well, the selling is mostly from the banks.
Burgess:
Most of our sales have been from insurance
companies.
Broderick:
Insurance companies - short notes.
H.M.Jr:
But I mean you provide the market for somebody
to sell bonds to.
Eccles:
of course, that left us in a position, too,
that we didn't have bills at the time of
maturity to help the Treasury out in its short-
term financing.
H.M.Jr:
It's easy enough to sit here and say that if
you had done so and so - I don't know. But
looking over what's happened over the last few
weeks, my best guess is that the device which
we used wasn't effeqtive.
Eccles:
Well, I can say this. I've said it to the
full committee, said it to the Secretary, and
I'll repeat it again. At the time the Treasury
and the Federal Reserve Board agreed to coop-
erate with reference to the sterilization of
gold, that was a move to get the open market
committee in a position to operate with a
flexible instrument of open market operations,
and it was a move so that the Board could con-
sider action with reference to increasing re-
serve requirements, 8. non-flexible instrument.
I said at the time, and have repeated it since
a good number of times, that at the time the
Board acted with reference to increasing
Regraded Uclassified
285
20
reserve requirements, that had I felt that
the open market committee would not move to
meet a situation such as has developed, I
would not have voted for increasing reserve
requirements to the extent that we did in-
crease them. And I feel that the action
taken with reference to the sterilization
was the proper action to give confidence,
give assurance, and that the action taken
by the Board with reference to increasing re-
serve requirements was the proper action if,
however, the open market committee was will-
ing to carry out an operation, give evidence
to the public, evidence to the market, that
they did have some confidence in the credit
situation, that they were desirous of main-
taining an orderly market and of stabilizing
the capital market, and that they were will-
ing, if they increased reserve requirements
by $750,000,000 to go into effect - that an
offsetting operation through open market was
thoroughly consistent and thoroughly justi-
fied to help to fit into this total picture
and cushion it. I felt that way then and I
feel that way now, and I feel there 1s no
justification in the short-term market going
where it did under the conditions as rapidly
as it did. And when I heard where bills had
sold, I was very much upset about it, and I
have felt since last Monday that we should
take action.
As you all know, the fact that the resolution
said "emergency" and I felt that there was an
emergency - there was a disagreement as to what
en emergency was or as to what the full commit-
tee meant by an emergency, and 88 a result
nothing was done. And I felt a crisis was de-
veloping and I so told the Secretary. I knew
he felt the same way about it, and he said to
me, "I W&B just wondering how long it would
take you to come to that conclusion."
H.M.Jr:
That's right.
Eccles:
And I feel at this time that it is the respon-
sibility of the Reserve System and the open
286
21
market committee to take action for the
psychological effect, so that the country
knows there is somebody - a public body
which has 8 public interest - managing the
situation; and that we should so announce,
that we intend to take such action through
open market operation in order to make for
an orderly market, to stabilize the capital
market, end possibly to help to cushion or
to make possible an orderly readjustment to
the reserve requirements.
And then, if the market has been oversold
and it goes up of its own accord, certainly
for us to go in and vigorously also place
orders and put the thing up too fast and too
far so that we invite selling again - that
would possibly be a mistake. But I do feel
that an assurance that we are going to take
action - and then if we do take it and take
it aggressively, and we still don't hold the
market, then it seems to me that we have done
what we can do. And I think in taking such
action we could keep in very close touch with
the Treasury, get their views of what the
situation is, and be ready at all times be-
cause of our mutual interest in the situation
to have any such suggestions as they may have
to make if they care to make any. Now that
is my position, and I have stated it today and
I repeat it again tonight.
Broderick:
I was very glad to hear the Secretary speak
about the absolute necessity for thorough
cooperation on both sides, and he has made the
same statement before at a meeting over at the
Board at a time when 8 question came up about
which there seemed to be a little difference of
opinion. I think a break between the Secretery
of the Treasury and the Board would have far-
reaching results, and I think the Secretary
and I am sure we want to avoid it as much as
possible.
I feel this way. I feel that we can influence
and we can check, but we might have difficulty
in either controlling or stabilizing with the
funds at our disposel. I think what we do will
have some influence right along the line, but
Regraded Uclassified
287
22
this may be a far more - this movement may
have a far more - go a good deal further
than you have any idea, because there seems
to be 8 very distinct feeling on the part
of a number of very large investors and
those interested in the investing market,
that there is a buyers' strike in vogue,
that there is a protest against the very
low rates which they have been receiving
on their funds. Now there are 20 factors
which might be mentioned as having influence
on the situation, and none of us can say
positively that any one is the positive
one, but they are all contributing factors.
I think the Secretary's remarks in regard
to the fact that we have used certain de-
vices that have not proved successful in
checking this market - I think those points
are well taken. Maybe we should have used
some others. I am thoroughly in sccord with
what he says about having 8. fixed investment
portfolio. I felt that way from the day I
came on the Board.
But, Mr. Secretary, I might say this,
that one reason why there was no change in
that was because I think at least the ma-
jority of the Board felt that a change in
that portfolio any time during the past year
might have been an indication to the investing
public that the Federal Reserve Board was
losing a little faith in the position and
the rate structure of the United States bond
market; and they had an idea that if they
did sell those bonds, it might affect you in
the financing. Now, that was the answer made
at the time and, as Mr. Eccles knows, the
question of reducing our portfolio came up
many times before the Board, but I think that
is what actuated most of the Board members in
not favoring the reduction of the portfolio.
H.M.Jr:
But here was the Secretary of the Treasury
begging you to do it, and saying he was willing
to take the risk of affecting the bond market.
Regraded Uclassified
288
23
Broderick:
Well, we all learn by experience.
H.M.Jr:
No, but, as I say, it's a useless - I mean
I'm never one of these fellows to go over
back ground other than to try to get 8 little
experience from it to guide me in the future.
That is the only way a fellow gets his experi-
ence, is through living and learning and the
mistakes.
Goldenweiser:
Mr. Secretary, may I give one more reason why
some people believe that the portfolio ought
not to be changed?
H.M.Jr:
Now?
Goldenweiser:
No, not now. I mean in the past. I won't take
but a minute.
One reason was the very thing that you said,
that then every change would be interpreted
as a change of policy, and the psychological
effect would be much stronger. And & good
many believed that it was desirable, in view
of the fact that the amount of ammunition
the System had was limited, to strengthen it
by having 8 move when the psychological effect
as well as the actual effect would be felt.
I mean if we stay at two billion four hundred
thirty million so long, then when we do take
action, it will have more influence. That was
one reason for doing it that way.
H.M.Jr:
You wanted to keep it virtuous?
Goldenweiser:
No, we wanted to make it carry more weight.
I'm not saying that that was the right view,
but that was one of the views. Here we've got
something, the power of which can be strengthened
by doing something unusual, something which
hasn't been done; and if there is an infla-
tionary psychology developed, and the Federal
Reserve should sell two or three hundred mil-
lions of securities, it would not only have
the effect of two or three hundred millions,
but it would have the added effect of being
something that hesn't been done for a long time,
and that definitely indicates 8. reversal of
policy.
Regraded Uclassified
289
24
Taylor:
I think it is particularly unfortunate in
view of all the existing circumstances
that it wasn't used because there is greater
psychological effect today.
Goldenweiser:
I thought you ought to know that it wasn't
just the one reason that Mr. Broderick men-
tioned, nor was it stubbornness or unwilling-
ness to do it. It was honest conviction
that that was the way to make the instrument
more effective.
Eccles:
I feel that to increase the portfolio, in view
of the action with reference to reserve re-
quirements, at which time it was stated that
we could either increase or decrease it to
meet the situation - that now to increase
the portfolio would be desirable, and then I
think it is easier to increase it first under
the circumstances, and
Harrison:
And I agree with you on that.
Eccles:
and then you can' decrease it, and
you haven't any fixed amount in mind as
two billion four hundred thirty million.
To first decrease it from that point would
possibly have been interpreted as a complete
reversal of policy.
Harrison:
I am still a little in the dark on one or two
things. I don't mean to try to pin you down.
H.M.Jr:
Wait a minute. Let me see if I can't get a bell
to get something to drink.
Harrison:
I wanted to ask 8 little bit by way of back-
ground so as to help, if we do anything, in
interpreting what you think ought to be done,
or what the Chairman thinks ought to be done.
I think the Treasury has made a perfectly grand
record over recent years in doing 8 difficult
job of financing, and you, of course, are enti-
tled to the principal credit for that, and the
courage you have used, and the judgment you have
used. I think that record has been due, of
course, in part to developments of favorable
Regraded Uclassified
290
25
conditions, but also 8. darned estute handling
of the situation. I'm giving you all the credit
for it.
H.M.Jr:
I'm getting worried. I'm getting worried.
Harrison:
I'll ring 8. bell first.
H.M.Jr:
I'm getting worried.
Harrison:
I think one of the principal reasons for the
success has been your very definite policy
that you wanted to meet the market, and didn't
want at any time to influence the market so
as to give yourself more favorable or less
favorable rates; and having determined what
the market was, you gave it at that premium
always to make the thing go. That, plus the
fact that conditions have changed and we
have easier and easier money. Bonds have gone
up and up and up. But still your record of
meeting the market has always been fair, and
that is the thing - one of the things certain-
ly that your administration of the Treasury
will be noted for.
Now, whether it is because you have been so
successful and bonds have gone up so long and
so steadily that you are now having an unduly
severe reaction, or whether it is because of
price scares or strikes or wage increases,
inflation or what not, you are going to have
a permanent readjustment, I don't know.
H.M.Jr:
Why don't you mention reserve requirements?
Harrison:
All right - or reserve requirements.
Eccles:
Budget.
Harrison:
But one thing, I just wonder whether the Treasury
wants now at this stage, when you have your
first severe reaction, to do anything that will
deliberately or unduly affect the price of bonds,
for the first time since you have been handling
it. That is the reason I asked you at the out-
set what you really had in mind and what your
objective was, because I was quite sure that
Regraded Uclassified
291
26
you were going to tell me you didn't want
us to drive the prices of bonds up. On the
other hand, I agree with your statement the
other day that no one can peg the bond
market.
Therefore, I think that the only policy that
we should have in the System, and the one
that the Treasury would want us to have is
to have an orderly operation of pegging the
market, of putting bids in under the market,
so BB to prevent, as you call it, a rout.
Now, whether the process of shifts would do
that from now on or whether they have done it
in the past may be a matter of difference of
opinion - or whether they would be successful
in accomplishing that in the future, I don't
know. But I do think there is some question
whether, even if we buy Government bonds and
try to handle the market on the way down by
additional purchases of Governments - what
is to be the final interpretation of that act.
It is true that banks have been liquidating,
but - and one reason I think that bonds have
gone down as they have is that just at the
time that the banks got out on account of re-
serve requirements the other investors whom
we thought would come in have failed to make
an appearance because of the price scare, and
the other factors which have made them think
that fixed income investments are not as valu-
able as they would be if we were not to have
the price inflation.
But any way, if now you are going to use the
process of supporting or maintaining an orderly
market through additions to the portfolio,
you've got to realize that there is the pos-
sibility that that real investor, the corpora-
tion investor and the trust investor, will
figure out, "Well here, they're going to sup-
port the market. The Government has shown its
hand now. They're going to support it." But
you're doing it in 8. way that is going to in-
crease excess reserves, which will be considered
by some as a stimulus to inflation, which, if
continued, will still make bonds less attrec-
tive than they would be if you didn't do it
Regraded Uclassified
292
27
that way.
Now, I don't know whether that will happen
or it won't happen, but I do think it is a
factor and a serious factor that ought to
be considered before we choose that partic-
ular process as against another process of
support.
And then if you deoide that the chances
are in favor of making the purchases, and you
think that that will be successful, then
the question is whether if you begin to
drive bonds up through that process, psy-
chological or otherwise - whether you stop
or whether you run bonds up to a point
where you will have the second inevitable
reaction again. I mean if these bonds are
down because of the fact the country is de-
termined that interest yields should be
down "around this level and not some other
level, then even if we should be successful
in bringing these bonds up, somehow they
would seek their level and again you would
have 9 second reaction. I'm not saying that's
going to happen, but I do think they are
factors really worth considering when you
come to choose the method that you're going
to employ.
Now, I was disappointed to hear you say one
thing, because it surprised me a little;
that is, that the process that we used had
not been successful, and that during the period
we were using the method of shifts, we hadn't
handled things right in the Government bond
market. Now, we've kept pretty closely in
touch with the Treasury, and I frankly thought
that we had handled those shifts about as well
as we could handle them under all the circum-
stances, considering the volume of sales, and
I have thought you felt that we had handled it
as well as it could be handled. The other
day I asked you if you had any other sugges-
tions to make, and you said that you would make
them if you had them to make
Regraded Uclassified
293
28
H.M.Jr:
Make them to the executive committee. That's
what I'm doing now.
Harrison:
But I never thought
H.M.Jr:
That's what I said.
Harrison:
that you'd be critical of the way
that we handled the market in the matter of
making shifts. I didn't know that that
Eccles:
Well, George, the Secretary told us three
weeks ago when we were over there, if you re-
call, that he felt making shifts would be
ineffective, and that he felt we should in-
crease the portfolio.
Hass:
Mr. Governor (Harrison), isn't it the con-
ventional way of central banks to maintain
so-called sound credit conditions by doing
something which affects the underlying credit
situation? It's not just the buying of bonds.
It's the effect it has on excess reserves.
And it is only through that operation that
effective central bank operations are car-
ried on, which have any material effect on
the underlying credit situation. In other
words, you can't have a fund big enough to
just buy bonds - pegging wheat like the Farm
Board tried to do. It is the underlying change
in excess reserves which really has the effect.
If buyers are going on a strike - why cer-
tainly buyers would be on strike if they
thought the direction was down rather than up.
Eccles:
The institutional buyers are wanting higher
interest rates. Of course, 88 I recall - I
think you do, too - in 1952, 1933, and 1934,
when they were getting rates of 32% or 31%,
3%, they still wanted higher interest rates.
I remember when Treasury was considering some
financing on the - I think it was either
the 2-3/4s or 2-7/8s - where it was felt that -
it was reported that the big insurance companies
were not satisfied with that kind of 8 rate,
that they would at that time be willing to
take a 3% bond. Of course, it's just a
294
29
perfectly natural thing, the desire to get
as large 8 rate as the lender can possibly
get.
Now certainly the supply of funds in rela-
tionship to the demand has something to do
with rates as well as the general price
level. When We have greatly reduced the
supply, abundant as the supply still is,
it still would temporarily cause a hope or
desire or speculation for higher rates,
and in bringing about a drastic adjustment
of that sort, certainly some tempering
or offsetting factor seems to me to be nec-
essary and desirable. What the final
long-term rate may be over a period of
years
H.M.Jr:
Excuse me, has everybody got a drink?
Anybody not got one? All right, the country
is safe.
Burgess:
To the Government bond market.
H.M.Jr:
Drink it down.
Gaston:
Drink it up.
Broderick:
Cheer it up, Mr. Secretary.
Eccles:
would depend 'upon the general price
level as finally attained. The general price
level, although it has risen - its average is
substantially lower than in the '20s. The
available supply of funds for investment is
certainly huge. There is no place else in the
world they could go with their funds. In fact,
most of the world want to bring their funds
here. And I can't see at this time, at the
present price level, end with our getting very
much closer to a balanced budget, a justifica-
tion for such a rapid downward fall in securi-
ties, and for the present confusion to develop
in the capital market, except for the reason
that there has been, of course, every effort
made to bring this about by those interests
who have funds waiting for investment, con-
sciously or unconsciously, and because they feel
that nothing is going to be done about it. They
Regraded Uclassified
295
30
naturally want to get in on as high a rate
as possible.
Harrison:
Well, we've never proved yet whether a buying
operation on our part helps the bond market or
hurts it. I'm not at all satisfied which it
really does. You can argue both ways. You
can say that if we are in buying that gives
evidence to the country that we have got con-
fidence. On the other hand, it deters other
investors on the ground that the thing is
artificially supported, and they don't know
when the Government is going to get out.
Haas:
The significance is that you increase excess
reserves and change the underlying credit
situation.
H.M.Jr:
You people just don't want to admit that,
but we think that you monkeyed with the car-
buretor and you got the mixture too thin.
We might as well call a spade a spade.
Broderick:
But you will admit there is room for differ-
ences of opinion on that.
H.M.Jr:
Oh, plenty. I mean I am
Harrison:
Gosh, I remember the time when we not only
had no excess reserves, but when we considered
that we had easy money and an easy credit sit-
uation when the New York City banks were in
debt not more than 50 millions of dollars.
There was a time when a man who ran a bank
in New York - if he was $10,000,000 over, he
would be fired.
Goldenweiser:
Mr. Harrison, you didn't have a 23% interest
rate in the market then.
Harrison:
And we haven't yet proved we can keep it.
H.M.Jr:
But nobody has heard me pound the table and say
I want a 23% rate, or I want this, or I'm
asking you to force the thing up so I can
go back and sell another 20-year bond at 2₫.
I'm not asking for that. But, I mean - we
people in the Treasury feel that you have
Regraded Uclassified
296
31
changed the underlying situation.
Harrison:
Not the open market committee.
Eccles:
We have changed it. We admit that we have
changed the underlying situation because,
of course, that was an artificial pressure
and that - I admit at the same time that if
we ever did it, we had to do it now, but
that we should also offset that underlying
situation by open market operation.
H.M.Jr:
Well, there's no argument about that.
Eccles:
Well, all right. I mean that
H.M.Jr:
I mean no argument as far as you (Eccles)
and the Treasury.
Broderick:
I think quite a few of us made a mistake on
the excess reserves, but the mistake was we
didn't move soon enough.
H.M.Jr:
Well, I can't
Broderick:
But those things can't be argued out. It's
just simply differences of opinion.
H.M.Jr:
That's all water over the dam.
McKee:
Mr. Secretary, my story doesn't sound good
on this table, but you're the first fellow that
I know has agreed with me since they started
talking about excess reserves.
H.M.Jr:
Good.
Broderick:
We'll have to admit that.
Eccles:
But, John, you didn't want any increase at any
time, but you wanted us to sell off our port-
folio.
McKee:
I wanted you to try that to find out what it
would do. I couldn't get 8 second to my
motion.
Regraded Uclassified
297
32
Sinclair:
Mr. Secretary, may I just ask a question
to remove a cobweb from my mind? Some of the
experts here can answer. Does part of this
request to act aggressively, bravely, increase
the portfolio, and make an announcement to
that effect - is that calculated to better the
psychology of those who sell and possibly those
who buy? In doing that at this particular
time, are we apt to accelerate or accentuate
the selling wave on the part of the banks?
I'd like to see some of the points of view
of the people here on that point. In other
words, if some of the banks are doubtful now
as to whether they are willing to buy again
or sell what they have remaining, if an an-
nouncement is made that the System is increas-
ing its account and is prepared to act aggres-
sively, will that incline them to sell more
than they might otherwise do at this parti-
cular time?
H.M.Jr:
Don't ask me that. Do you mind asking some-
body else?
Sinclair:
Some of these experts around here might want
to answer that.
Ecoles:
Well, I'm not an expert, but I have an opinion
on it.
Sinclair:
I realize what your opinion is. Your opinion
is the opposite. Taylor, what do you think?
Taylor:
I don't know.
Sinclair:
That's the risk we ought to take?
Taylor:
(Nods yes) That's the risk we ought to take.
Sinclair:
Well, none of us know.
Taylor:
You just can't tell how the market is going to
interpret that.
Harrison:
That's the trouble that I see.
Taylor:
But I think it is worth trying, a risk that you
have to take - a risk that we, the Government,
Regraded Uclassified
298
33
trying to finance itself, have to take.
H.M.Jr:
We as partners - I use the word "partners" -
we're in this thing just as deep as they are.
Harrison:
That's the real problem. I'm glad you men-
tioned that because, Mr. Secretary, I still
don't see - supposing that the open market
committee votes to buy Governments; I don't
believe that you would want us or should
want us, in view of this past glorious
record that I have just recited, to go ahead
buying Governments if the result of it is to
run up these bonds, say, as rapidly as they
have gone down. In other words, you would
then, for the first time, have been a partner
in the process of raising the bond market.
We have never done it except to keep it from
falling off.
H.M.Jr:
Nobody's asking you to do that.
Harrison:
Well, I'll tell you, if you'll listen to me
just
H.M.Jr:
You mean what is going to happen now if you
announce that you are going to increase your
portfolio? You going to prophesy what's
going to happen?
Harrison:
Indeed, I'm not. What I meant - this morning
when I got here and we were presented with a
document which represented the combined opinion
of some representatives of the Treasury and
some representatives of the Reserve Board
Eccles:
Well, the only representativesof the Board were
Dr. Goldenweiser and Mr. Thurston, as I explained
to you.
Harrison:
And when I asked what it meant I was told that
it meant if we accepted the plan that on Monday
morning we would have to buy Government securi-
ties no matter what the Government bond market
was doing, and no matter what other conditions
were, and that we had to agree to that before
1:00.
Regraded
Uclassified
299
34
Eccles:
No, George, let me tell you this
H.M.Jr:
That's not so; that's not so.
McKee:
I didn't understand it that way. I understood
we would agree and announce a policy before
Monday morning.
Harrison:
It says, "Beginning Monday morning" we'd do
so and so.
Eccles:
He's right, and I said so far as the amount is
concerned, the statement will simply say that
-
we would buy Government bonds.
Harrison:
Beginning Monday morning.
Taylor:
or Government securities.
Fooles:
But I said this, and the Secretary can correct
me if this isn't correct,
H.M.Jr:
Who was here last night?
Eccles:
Well, I've got the statement.
Harrison:
All I'm worrying about is that when I asked,
"Does that mean that we have to buy Government
bonds?" you said, "Yes."
Eccles:
I said, "Yes, if it is only 500 thousand or a
million dollars' worth." That's all I said.
Harrison:
I said, "That's foolish."
Taylor:
We said five bonds last night.
Eccles:
I thought you said 500?
Taylor:
No, we said five.
Eccles:
I said that the Treasury
H.M.Jr:
We said one bond.
Eccles:
I said that the Treasury was more anxious
for the psychological effect of a statement
300
35
of definite policy rather than that they were -
and they weren't attempting in any way to com-
mit us to any amount that we were to buy. I
put in the statement there "if necessary", see,
and that that was too indefinite, it was too
weak; that it would hurt rather than help,
in the opinion of those that met after a dis-
cussion. We felt that "1f necessary" didn't
mean anything because we had another resolution
which said "if an emergency develops" end we
couldn't agree what that meant. Therefore,
the whole question would be what is "if ne c-
essary" Just as it has been, what is "an
emergency." Now is that correct?
Harrison:
All I knew was that I had to buy bonds Monday
morning.
H.M.Jr.:
Well, we argued this
Harrison:
Whatever happened.
H.M.Jr.:
that if an emergency happened and you
people didn't think 1t was an emergency -
and we felt that "1f necessary" wouldn't be
any more fruitful than "if an emergency."
Eccles said "If you put that in, it means
we've got to. But don't you make 8 liar out
of me; you can buy one bond."
Eccles:
He said he was interested in the psychology
of a definite statement.
H.M.Jr.:
Did we say one or five?
Taylor:
I said five and you cut me down to one,
H,M,Jr.:
You said five and I said one,
Eccles:
Whether it's one bond or five hundred thou-
sand - I mean in our office it doesn't make
any difference.
H.M.Jr.:
The point of the argument was not that you
had to buy but the point that you meant
business.
McKee:
I don't know what George's interpretation was
but mine was that the fact that the program
Regraded Uclassified
301
36
was to start Monday morning and it was to
be announced in advance
Harrison:
And that we had to begin buying Monday morn-
ing no matter whether the Government market
was up or down or what the conditions were,
willy-nilly. I said I thought it WBB a dread-
ful thing for the Treasury to ask the Federal
Reserve Open Market Committee to agree to do
it blind no matter what conditions were.
Taylor:
I still get back to the point that that reads
"securities." Bills would do just 8.8 well as
far as the psychology went.
Goldenweiser: Do you mean bankers' bills?
Taylor:
No, I mean Treasury bills.
Goldenweiser: Because it says United States securities.
H.M.Jr.:
The point that I was erguing about - they had
in there "if necessary" and we went back to
the other statement of "1f an emergency."
Now we think you had an emergency and didn't
do any business, 80 if we were going to be
partners in this thing and we were going to
put up four hundred million dollars worth of
gold, we didn't want to sit around and Just
do nothing.
Gaston:
This speaks of 2 course of action effective 8.9
of April 5. Then when it gets down to the
second paragraph, it says "The Federal Reserve
System will increase its holdings of United
States Government securities through open mar-
ket operations." It doesn't say anything about
their sterting to buy Monday morning.
Eccles:
Well, that was the interpretation.
Geston:
"This course of action is effective Monday."
Eccles:
Well, that's exactly 88 I understood it.
Goldenweiser: That's what it means, Mr. Chairman.
Eccles:
Well, what it means or doesn't mean - at least
that's what I interpreted it to mean and that's
what I interpreted the result of the conference
to be, that the 1dea was to give the impression
Regraded Uclassified
302
37
that we did mean action and that if we only
bought, as you say, one bond or five bonds,
at least that would not make a llar out of
us; but that we did mean action and that if
we stated that "effective Monday morning"
why that is what we would do. If we bought
one bond, if that was all that wes necessary,
fine but it did have B. psychological effect.
Harrison:
Well, I didn't bring this up to blame anybody
for anything. My object 18
Eccles:
Well, what did you bring it up for?
Harrison:
was to find out what are we going to
do if we've got the power.
H.M.Jr.:
Let's put it the way - I mean I'm getting
a little fed-up. What would you do for
Monday? You give us the policy now; you
write out a policy.
Harrison:
I think that whether through shift or pur-
chases, depending upon what the decision
is
H.M.Jr.:
No, not the decision
Eccles:
You're making it alone.
H.M.Jr.:
You're making it. I've made one; now you
make one. I mean you're pulling ours apart.
Now if you don't mind, you be constructive.
Harrison:
No, before pulling yours apart, I've been
trying to find out what it is.
H.M.Jr.:
All right. We've had this for an hour and
8 quarter. Now I ask you as a member -
you're a member of the committee - now I
ask you what do you recommend? What do you
recommend as 8. positive action or what do
you recommend that the Federal Reserve Open
Market Committee should do beginning Monday?
Harrison:
Well, I think first I would not make any
statement this week-end. I say that largely
because of the fact that it 80 happens that
practically every dip in the bond market has
303
38
resulted from some statement over the past
three weeks.
Eccles:
There was e dip when there weren't any
statements too.
Harrison:
Well, you get the chart and you'll find that
it's pretty near true. Yesterday and today
the market behaved pretty well.
H.M.Jr.:
Due to the President's statement.
Eccles:
There is a statement where it didn't dip.
H.M.Jr.:
Due to the President's statement.
Harrison:
It behaved pretty well.
H.M.Jr.:
But exactly to the minute due to the Presi-
dent's statement - to the second.
Harrison:
That doesn't negative what I said.
H.M.Jr.:
You said every statement made it dip.
Harrison:
No, I didn't. I said every time there was a
dip, it was following a statement that was made.
However, I think I wouldn't make a statement
about it now, because you don't know whether
this over-sold condition that Burgess reports
about 18 going to level the bond market out or
not. I think it would be infinitely better if
we could have the bond market level out and be-
have itself in an orderly way without any action,
than it would be to take action because then you
have unavoidably, if you will, an element of
ertificiality injected into the situation which
does discourage certein classes of investors.
So that if you are going to have it leveled out
with intervention or without it, I think it 1s
much better to have it leveled out without it.
And there is some evidence today that maybe it
is leveling out. I don't know and I can't guar-
antee whether it 18 just temporary or whether
it 1s permanent. But until I've found out that
it was not leveled out, I don't think I'd do
anything new.
H.M.Jr.:
And you go back to your old statement, that you
are going to wait until there is an emergency.
Regraded Uclassified
304
39
Harrison:
I think I would.
H.M.Jr.:
Well, that's what I wanted to find out.
Eccles:
Well, I wouldn't.
Harrison:
On the other hand if you do it now - if you
do it now, when there isn't en emergency or
when it is leveled out, what 1s your purpose?
Is it to run it up further, and if so, when
are you going to stop?
H.M.Jr.:
Well, if I know anything about public rela-
tions, the time that I would pray to make a
statement like this would be when the bond
market was not going up. If I know anything
about it, I'd Just go down on my knees and
pray that I have one day that the bond market
not go up and then I'd make a statement.
That's the day I'é weit for.
McKee:
George, would you approve of action by the
Open Market Committee without B. statement?
Harrison:
Meaning buying?
McKee:
To increase the portfolio.
Harrison:
Well, I don't think I'd make a statement even
though you were going to buy bonds next week.
If things get bad or if this better situation
does not continue - supposing you determine
tonight that you will go in and buy bonds
heavily and drastically if the liquidation
revives, and it seeme not to have for the last
two days - but supposing the determination 1s
that the minute this liquidation seems to be
setting in, you're going to buy bonds. I don't
think - if that were your policy, I don't think
I'd make a statement in advance that you are
going to buy bonds because you don't know that
the liquidation would revive; therefore, you
don't know that you're going to buy bonds.
McKee:
Yes, but on the strength of that how could
you protect the little fellow against the big
fellow in such a procedure?
305
40
Harrison:
You mean
McKee:
Do you mean to tell me that that wouldn't
leak out and benefit the b1g fellow - if
the authority was granted without the an-
nouncement for everybody's protection?
How can you be sure that the little fellow
is protected?
Harrison:
Well, then, I think I'd make a statement
of fact that you are going to make purchases
of governments if there is a liquidation of
the bond market that Justifies governmental
or Federal Reserve support. I mean that's
all right if you want to cover equality of
treatment on the part of different investors.
The thing that I want to avoid is making 8.
statement which commits you in advance to
a policy of making purchases even though
you might not need to or might not want to.
Hass:
Well, I've never thought of the Open Market
operations as support for the Government
bond market. I always thought of it as a
device to increase excess reserves.
Harrison:
Well, maybe 80, but I say that Just as B
short cut here for convenience - I mean
in expression.
H.M.Jr.:
Of course, what you need - Just talking for
the Treasury, what you need is more reserves.
I mean you can't get me away from thi S thing
that you have cut this carbureter too thin.
Eccles:
I think you're right.
McKee:
In that connection may I ask & question?
Harrison:
You (H.M.Jr.) are telking of the Federal
Reserve Board now, sren't you?
H.M.Jr.:
Well, I don't know that any other rose by
any other name smells so sweet.
McKee:
This probably should be directed to Mr. Taylor.
Here you've got EL situation of B. disturbed
market and B. disturbed bond-holder public that
18 faced with a dead-line date of Mey 1 when
306
41
something is to happen. Whether there's
going to be any distressed selling between
now and then in order to meet that circum-
stance, no one can tell, at least 28 to
its volume. But consider for e moment the
buyer who has been standing on the side-
lines waiting for the opportunity - or his
opinion B.S to what is the bottom of this
market. Can you visualize any one of us
divorced from this picture stepping in and
buying a big block of bonds - we want it for
a continuous investment - when we knew there
was such 8. date standing on the horizon?
Now you (Taylor) 8.8 a bond man - now I'd
just like to have your opinion.
Taylor:
Well, I think even without that, why as long
88 the traffic 1s one way which it has been,
I'd stay out. I mean there's no percentage
in stepping in.
Eccles:
There's nobody taking charge of the market.
Taylor:
I mean I would certainly wait until the
psychology changed.
McKee:
Well, then, can we expect much out of this
Government bond market 86 long 88 that threat
is hanging over the market before May lst?
Taylor:
Well, my opinion is that you would have to
change the psychology. This may be the thing
that will do it. But you can buy, God knows
how many, billion dollars worth of bonds with-
out teking some positive action which means
a change in the psychology.
Eccles:
That's right.
I'd like to ask Dr. Burgess - he's pretty
close to that market from day to day and
he knows the psychology of it, and after
all, he 1s both the manager through the New
York Reserve Bank for the Treasury's account
and investment of their funds and he is also
the manager for the Open Market Committee.
I'd like to ask him whether he thinks that
in the present market situation an assurance
to the country of - on the part of the Open
Market Committee that they are prepared to
Regraded
307
42
increase their portfolio for the purpose of
stabilizing the capital market, providing an
orderly market, and to enable the banks to
meet the adjustments to the increase in re-
serves - whether it would be favorable or
unfavorable. I mean his opinion in this
present situation.
Burgess:
Well, that is, of course, impossible to
Judge fully.
Eccles:
No, but you have an opinion on it.
Burgess:
I think as 8. matter of fact it would be
immediately plus. That 18, I think the
market would begin to stabilize immediately.
I think that a good many investors and banks
would be alarmed by it because they have
said that the System was never going to
be able to get out of its governments, that
if the deficit financing kept on, the Federal
Reserve System would be called upon to sup-
port the Treasury and 80 on, and B. lot of
investors would say, "Our fears are now
realized." So that some investors would
hold out of the market.
But I think on the other hand the immediate
market people, the dealers and the people
closerto the market, would say, "This market
1s now going to be pegged and we'll play
with it." I think they wouldn't sell -
the selling would tend to dry out.
But whether the longer term investors would
be given confidence in it, I Just don't know.
I think it would stop the immediate selling.
Harrison:
But the longer term investors ought to get
discouraged.
Burgess:
I think, of course, the budget 1s enormously
important on it.
Harrison:
I think something on the budget would do more
good than anything else right now.
43
308
Burgess:
I think on that psychology of the market,
Mr. Secretary, that we were 8. bit slow to
recognize - and I take the blame just as
much 8.8 anybody and perhaps more 80 because
I should have been closer to the market -
that what we have had here 1s not one of the
ordinary fluctuations of the market that you
and I have been through in '34 and '35.
Those were dips in a market that was moving
upward over 8. period. Now I think what you
have had here is a much more fundamental
change than that. I think you've got here
the end of & bull market in bonds. Now
that bull market has been going on for -
really, since the middle of 1932, with
changes, and the market has gone up to
levels never before reached in this country.
And it rested on two things. It rested on
business depression so the people knew that
the money wasn't employable. And it rested
on the other hand on huge excess funds. Now
both of those things have changed. In the
past three months, by the action that you
took and that the Board took very wisely in
dealing with excess reserves, the money sup-
ply condition has been changed. Now unfor-
tunately that has happened to occur simul-
taneously with a total change in public
psychology as to item No. 1 - that 1e, the
notion about business conditions, about
prices. It Just happened that there has
been an enormous burst of interest and the
public mind has been impressed with the fact
that this business cycle has moved up nearly
to normal, that prices are booming ahead,
and that is inflation psychology.
In my mind that means the passing of a defi-
nite mile-stone in this business movement.
It meens that people are no longer thinking
in depression terms, which means hi gh bond
prices. They are thinking in terms of busi-
nees prosperity which means in the long run
lower bond prices. And I think that acute
investors end banks generally are saying
that the bond market has reached its top and
is on the way down. It's on the way down -
it may take some years, may take some months,
nobody knows. They say, "The top 16 passed:
309
44
Now like all bull markets there are B. lot
of speculators in this thing. A lot of
people bought and didn't expect to hold,
So I think you are going through a mejor
read justment which is inevitable.
Now I think it's been overdone. I think
the read justment has been somewhat over-
done. But I do think it 1s important to
recognize the character of that thing and
think of it in terms of the b1g business
movement that we are facing, and of the
policies that the Reserve System and the
Treasury need to follow in respect to
those major movements, which are very much
more important then the level of bond
prices, whether it's at 2 3/4 or 3 or what-
ever it 1s. And it seems to me perhaps
that our discussion this evening hasn't -
I'm supposed to talk about the bond market
but I should like to see 8 little more dis-
cussion about whither are we going as an
administration and as a reserve system as
to the big items of policy that face us.
Now I think there 1s B. crisis but I don't
think it is a crisis in the bond market.
I don't think that is the biggest crisis.
I think the real crisis 18 the one the
President talked about yesterday, that
Marriner Eccles has talked about, that
Wallace has talked about and Roper. It
is this question of prices and inflation
and 80 forth. And it seems to me tremen-
dously important what we do about this
bond market shouldn't be contrary to what
we might want to do about the real crisis.
Eccles:
But the President has given - oh, pardon
me.
Burgess:
Go ahead.
Eccles:
Some assurance with reference to the
determination of the administration to
meet that problem, and did say something
with reference to the budget yesterday -
not very much but at least something with
reference to this big picture.
Burgess:
I think that is very helpful.
310
45
Eccles:
Of course, he cen - which he no doubt will
at some time later - say something more
about the picture which I recognize is 1m-
portant and will be very, very effective.
And in the meantime I think this market has
been permitted to become disorderly, and
that any adjustment of rates to increasing
prices and increasing further recovery and
demand for money may come about, but it
certainly should come about in a more or-
derly manner, in & manner that will not
almost destroy the capital market and create
& fear and consternation throughout the coun-
try at this particular time. And I think
that if the Federal Reserve System - it is
their duty if they ever had a aity to play
their part in tending at this time to give
some confidence and to help to maintain
stability; and if they increase reserve re-
quirements, which they did, that they should
not hesitate when they take the drastic E.C-
tion that they did to at least tend to cushion
it or to offset a part of it - that you shouldn't
be able to expect B. banking system to absorb
such an ad justment without doing anything about
it.
Taylor:
Isn't it also BO, Marriner, that 88 far as
we know, why the underlying policy of this
Government still is a cheap-money policy?
Eccles:
That's right.
Taylor:
So that if you have started a bear market
in bonds, it 18 up to us to take some very
important action to show that that isn't
satisfactory to us - in other words, that
we are fundamentally 5 cheap-money country.
Harrison:
But I think it is perfectly appropriate in
connection with that to argue the possible
effects of one course or another.
Taylor:
That's right.
Herrison:
Without putting ourselves in the category of
enemies Just because we don't appear to agree
on the precise technique and procedure at the
outset. And, having established a technique,
I think 8 little bit better understanding of
311
46
where we want to go is necessary than we have
yet got. Thet's the one thing that worries
me.
Eccles:
My golly, George, if you haven't got it now,
I don't know how it is possible in the English
language. It isn't possible for me to express
this any - well, I haven't anything more to
say.
Harrison:
You haven't answered the question yet whether
you want us to 8° in Monday to buy and run
bonds up.
Eccles:
Oh, yes I have. I stated that I think for
psychological purposes we should let the
country know what we are prepared to do and
then I think that if the bond market on Monday
is going up of its own accord, certainly there
is no occasion for us to go in to run it up
further. But if on the other hand the market
is weak end there are E good many sellers, I
think we should vigorously act now. Whether
we can stop it from going down 1s another thing.
I don't know. But certainly I do feel that we
should act even if it is to the extent of buying
bills. We should let it be known that we are
increasing reserves, that we are tending to make
possible the necessary cushions to bring about
8 fundamental adjustment and, depending upon how
the bond market acts, we should continue to do
everything we can to maintain E cheap-money
policy and an orderly market. I mean cheap-
money policy in relationship to the total funds
available - I mean chesp in relationship to the
existing price level. And certainly an adjust-
ment from where we were to where we are in e.
short period of time that has transpired is not
an orderly market, It's an adjustment that I
don't think any other country has gone through
in such B. rapid disorderly period. Certainly
it hasn't happened in England and I know of no
other country that it has happened in,
Now if over a period of two or three years BB
prices increase and 8.8 other conditions develop,
the market gradually works to higher levels
that, it seems to me, may be another thing.
And yet if the Treasury - I mean if the Government
Uclassified
312
47
gets what I expect it will get, a balanced
budget, and with recovery it will be able to
start retiring its debt and offsetting the
expansion of private credit, BO that Govern-
ment bonds instead of being more in volume
will be less in volume, that there will de-
velop some scarcity value in that particular
security which 18 in an entirely different
category and an entirely different class than
any other security.
Haas:
Another element in this whole situation 1s
this: That at any time it is humanly impossi-
ble to forecast the effect of any measure
that 16 taken. Now central banks have several
devices they can use end 8.8 you classify them,
you say that from an ideal standpoint it would
be better if all these devices would be so-
called flexible ones. The advantage of a
flexible device is that you can take action,
try out your situation. If it doesn't work,
it doesn't mean it is like going off the gold
standard; once you're off, you're off. You
can, without much difficulty, come back and
ease your situation back and forth. And the
Open Market operation 18 one of the flexible
devices.
Eccles:
It 1s the only one we have.
Heas:
I always contemplated that that was the way
it would be used, that you would never be
positive but you would have the assurance that
you could operate both ways on it without any
difficulty.
Burgess:
of course, it is too bad that we have to
start operating on the upside Just at a time
when the whole country has its eye focused
on this question of inflation. And these
people that have watched the reserve bank
portfolio and talked about our frozen Govern-
ments, if we move up right now, are going to
say that infletion 19 going to come, that we
have chucked aside that instrument, that we
are going to finance the Government's deficit.
There is a tremendous kick on that which I
don't - I'm not saying that we shouldn't do
it, I'm Just saying that as part of the dis-
oussion.
313
48
Harrison:
That 1s part of the risk that you run in
doing it and a very substantial risk.
Eccles:
It depends on your statement.
Bell:
But you did announce at the time that you
announced the increases in reserve require-
ments that you would use the open market
to adjust the situation.
Eccles:
The Board
McKee:
The Board of Governors wouldn't have moved
if it hadn't been for the influence of
New York.
H.M.Jr.:
Well, Marriner, if you don't mind, this is
the third night running that I have been
doing this
Eccles:
Me too.
H.M.Jr.:
.... and I don't see that we are getting
anywhere. I don't see if I stay here for
another five hours - I've answered every
question to the best of my ability. I
haven't tried to evade any questions. You
people know how we feel.
Broderick:
I might ask this, Mr. Secretary, should the
Board use this so-called flexible instru-
ment and be prepared to increase its port-
folio, would the Treasury take any action
with reference to sterilized gold at this
time?
H.M.Jr.:
At this time?
Broderick:
Yes.
H.M.Jr.:
No.
Broderick:
You will rely upon whatever action we take
to see how that works first.
H.M.Jr.:
Absolutely, absolutely. I'm glad you asked
that because I thought that was understood.
314
49
Williams:
I've sat and listened to the discussion.
I haven't heard any of your side except -
and I realize that it Le B. very difficult
situation that we are in. But I want to
make it cleer that all day today and every
time in the last three weeks when I have
had an opportunity to talk about this, I
have counseled against taking any sction
whatsoever and I think my reason for that
has partly been stated by Rendolph. I
think that we meant when we said that we
were prepared to offset any adverse ef-
fects of raising the reserve requirements -
that we had in mind the general economic
situation of the country; that we were
still thinking that we had come art of the
great emergency and the re had been a great
deal of thought back and forth over B period
of perhaps two years 8.8 to whether this ac-
tion might not be too drastic, whether we
might not get a setback as to the recovery,
end we were therefore, as I understood it,
all prepared to offset the action by buying
in the open market, provided we felt that
recovery was in danger of a reel setback.
Now I have contemplated that a change in the
Government bond market, even though I recog-
nize that it has been rapid - that a change
of this magnitude would be regarded as an
emergency in that sense. I mean I'm stating
Just my personal point of view. And I have
listened for go long - 80 many times to the
view that on the first sign of bad weather,
the Administration would take a hands-off
attitude toward ell measures of monetary con-
trol and monetery restraint. I have felt that
that wasn't 80.
H.M.Jr.:
That we wouldn't do what?
Williams:
That at this first sign of a down turn in the
bond merket, we would find, despite all our
powers of control under all recent legislation -
that we would find ourselves in effect impotent
to do anything because of B. feeling that we
must prot ect the bond market. I've heard
bankers laugh about control. They Bay, "You've
got us into this bond market, and you're going
to take care of us." I've heard economists who
315
50
were naturally inclined to be critical
H.M.Jr.:
Who?
Williams:
Economists.
H.M.Jr.:
I thought you said communists.
Burgess:
Much the same thing, Mr. Secretary.
Williams:
who have been inclined to be critical
of Treasury policy and Federal Reserve policy,
Administration policy generally - I mean I've
had to defend the actions that have been taken
so long on this ground. They have said, "You
just wait and see - at the first sign of trouble
in the bond market, we're all under cover."
Now I don't Bay that if this nov ement should
go on - I confess it has gone faster and far-
ther than I supposed it would - I don't say
that if it should go on there wouldn't be 00-
casion to step in, but I very much hoped that
you would have the patience and fortitude to
live with it awhile and see if it can't find
its own bottom. I very much agree with some
sentiments that have been expressed here to-
night; that people feel the situation is still
artificial, you see, and that if we take any
kind of action at this time, it will inject
another element of artificiality and they
won't know what this bond market 18 really
resting on. And I feel convinced in my own
mind without pretending to be any kind of a
prophet at all that there are ample funds that
are watching this market and they are going
to invest in it when they think it 1s settled
down. And I BM fearful that if you take 80-
tion, the bond market might go up and people
would feel, "Well, here it 18 artificial again,"
Now we must remember that these are low levels
after all. As we said, bonds went to lower
yields than ever before in our history end I
don't believe that anybody 18 prepared to hold
the bond market indefinitely at this level.
But if you go in now in order to protect and
support your market - and that is the inter-
pretation that will be given, I Am afraid -
316
51
if you do that, then people will say, "This
is an artificial market.'
H.M.Jr.:
May I answer you?
Williams:
Yes.
H.M.Jr.:
I would agree with you one hundred per cent
before you took this action on reserve re-
quirements, because then I would say that
nothing has happened except the natural
demand for money has gradually increased.
I've said again and again that I only hope
and pray I can get through my refunding
before business recovery is far enough
along to push up interest rates on account
of its scarcity of money through natural
demands of busi ness. And I sald, "I only
hope that I can get through my refunding
before that happens, because I know that
that thing will come." II
And at different times when I have talked
with different people they have cautioned
me not to - the reason I didn't sccede to
the unanimous request of the insurance com-
panies that I sell 8 thirty-year three per
cent bond was for one reason that I saw the
day would come when the business require-
ments of this country would make 8. thirty-
year three per cent be sick and difficult
to handle and I used the expression that
I had been casting my fly 80 far that I
couldn't control it. But every insurance
company begged me to sell 8. thirty-year
three and I refused to do it.
Now I would agree with you entirely If I
didn't believe that it was artificial means
which had brought this down, and all I am
suggesting is that we go part way to correct
an artificial thing which I think that you
have done. Now I don't ask you to agree
with me.
Williams:
Well, now, Mr. Secretery
H.M.Jr.:
See? I think - I don't say solely but I
think through artificial means
Who
was
it that did thi 8 thing? People seem to be
touchy around here. Was it the Board?
317
52
Burgess:
Well, we all were in agreement.
Eccles:
All but one, McKee.
H.M.Jr.:
But wait B. minute. As to what you are talking
about and all that, and as to the devices we
have had, all these devices that the President
had, all these devices that Congress gave him.
He never used any of them when we were desperate;
he never used any of it. We went without using
the half dozen devices when things looked bad.
After his Green Bay speech, I never called any-
body up end said, "I need a shot in the arm."
At different times when we went through criti-
cal periods, I never called for nerotice or
dope.
Williams:
I've pointed that out time and time again.
H.M.Jr.:
All right. Now I'm not calling for it now
and I'm not urging it now, if it wasn't that
I and the Treasury believe that this drop of
five or six points in the market was brought
about through artificial means. Now all we
are asking is not that we use some inflationary
device but that through your open market opera-
tions you go part way towards correcting this
thing.
Williams:
If the circumstances were different, I think
I would agree but as it 18 today, we have all
the 8 talk about symptoms of inflation and I
think some of it 1e real and we are all con-
cerned about it, I feel. And what we want is
& lasting recovery. Personally, I'd like to
see it slowed up B, little bit because I think
it's running into bottlenecks here and there.
But what we want 16 E lasting recovery, and
in order to get that I think the community
wants a feeling of normality - "you see,
there's no artificial stimulation of any kind."
H.M.Jr.:
But you did have such a thing, professor -
artificial constriction?
Ecoles:
But that wasn't artificial. That's the point
I want to
H.M.Jr.:
No, sure it was artificial.
318
53
Eccles:
No, the excess reserves created were artificial.
They were created as a result of gold imports
which were the artificial thing.
Haas:
It's all artificial.
H.M.Jr.:
Well, let's use the word "arbitrary" instead
of "artificial,"
Williams:
I think myself it W&B a belated removal of
B very powerful artificial stimulant.
But if we get perspective on this problem,
what do we realize? Today we have the largest
money supply in the history of the country,
right now, see?
H.M.Jr.:
Yes, but unfortunately
Williams:
After these excess reserves have been removed
to the extent they will be on May lst, we still
have 8 half billion of excess reserves, which
in any previous period of history we would have
regarded AB highly abnormal.
H.M.Jr.:
All true, if you don't mind my saying so, ac-
cording to past book experience, see? All true,
theoretically - theoretically 80, But people
tell me that on account of the strike situation
and everything else, people want an additional
liquidity, which isn't in any textbook and I -
all I can be is a realistic person; and I may
be entirely wrong, but I simply feel that some-
body at some time has to show that they have
some confidence in a two and B half bond at
96.
Williams:
Mr. Secretary, if I was Secretary of the Treasury,
I would say, "I have entire confidence in the
bond market and I don't intend to do anything
about it." That 1s how I'm going to explaim my
position.
H.M.Jr.:
And I'd be laughed out of my job.
Williams:
I don't think go.
H.M.Jr.:
I'd be laughed out of my Job. I have demon-
strated that I have been able to go through
the most difficult times this country has
319
54
ever seen. I have weathered the storm. I
have no immediate financial problems which
are pressing me. There is nothing selfish
about it from the Treasury standpoint. My
refunding 18 all behind. I could sit here
and say, "It makes very little difference
to the Government whether we pay three quer-
ters of one per cent for the nine months or
whether we get it for a third of one per
cent. It isn't important." I mean there is
nothing driving - I haven't got eight hun-
dred million dollars worth of liberty loan
or anything else. But we are not fer along
enough in recovery that we can see this thing -
the beginning of 8. downward spiral. And I've
seen it - I've seen it
Williams:
You mean economically?
H.M.Jr.:
Yes. And when this thing begins to roll,
try and stop it and build it up.
Williams:
I'm afraid of the opposite, Mr. Secretary.
Now take the President's statement of yes-
terday. He said we are going too fast in
producers' goods, in durable goods. And
now you come out today with El statement which
says we must preserve an orderly capital
market for the sake of recovery. Now those
two statements are on opposite sides.
H.M.Jr.:
No, I don't agree. That is just where I
don't agree with you. I don't agree with
you and as far as T can tell as to your
principles and what the Government 1s try-
ing to do, I think we think entirely alike
but the only place that you and I differ
18 that I believe that you monkeyed with
this carbureter and you made our mixture
too thin, end the engine 18 coughing. Now
you don't believe - you don't believe that
has got enything to do with it.
Williams:
Well, if I thought we were having an economic
downturn, that would be different.
H.M.Jr.:
Well, it may be - 1t is like everything else;
you may have to wait two or three years to
recognize it, but I sense it and everybody
in the Treasury does.
320
55
And I don't like to drag Dr. Goldenweiser
in on this thing, but certainly in talking
to him he has been thinking right along with
us, and the only argument he had last night
was, when we got all through - he said, "In-
stead of making it four hundred million, make
it two hundred and fifty million, 80 it looks
as though we were going fifty-fifty." And I
don't want to try to quote you (Goldenweiser)
Goldenweiser: That's right, quite right, Mr. Secretary. I
would even much rather do what seeme to be in
prospect today, of having the Federal Reserve
do it alone. I was in fevor of that, have
been in favor of that since three weeks ago.
Williams:
Well, all I am suggesting
H.M.Jr.:
Now I withdraw. I know - I withdraw, and I'll
take the position that I will sit back and see
whether the Federal Reserve will act.
But honestly, I believe - 8.8 I say, there 1s
nothing motivating me from selfish necessity,
because we are in a beautiful position. The
people now can sit back and sey what happened
in 1920. How many years does it take them to
recognize what happened in 19207 And - I mean
I sense this thing.
Williams:
What happened in 1920, Mr. Secretary, was that
the Reserve System WAB forced to keep its rates
down owing to a Treasury welfare agency, and
that 18 commonly cited; it 1s not only in books
but on everybody's tongue and that is that this
is in danger, if I may say 80, of developing
into a similar situation. That is commonly
recognized as a major error.
H.M.Jr.:
Well, I can - now, we had - I hate to quote
people that are not here, but we had Dr. Viner
down here for two days and he had been sway
and so he wasn't quite femiliar with it. But
hie conclusion, the last thing he said - he
said, "I can't Bay it will do any good, but
I feel it won't do any harm." Now that is
what he said when he left. He said, "I cen't
Hee that what you are recommending will do
eny harm, but I can't promise that it vil. 11
do any good."
321
56
Williams:
My suggestion isn't 8 real difference, Mr.
Secretary. It is this: That it almost -
I mean nobody wants to see 8 really dis-
orderly market, but might it not be prudent
to wait this thing out a little? As you
say, it can't hurt you. Now whether it
would hurt the business situation I think
would depend on how far it went. And it
is BO desirable, in my opinion, that the
market find its own level, if possible.
H.M.Jr.:
But I think you people - I think you are
forcing this thing down. Now that is what
I believe. It isn't natural, I think you
people - whatever name you 80 by, whoever
1s back of this policy, that you are forcing
this thing down. Now that is what we believe.
Now Harrison asked me why I didn't say some-
thing. I waited until Eccles came to my
office Thursday afternoon and said, "We've
got to make a showing." I didn't send for
Ecoles.
Eccles:
You said to me, "I was Just wondering how
long it would be before you came to that
conclusion."
H.M.Jr.:
But I didn't ask you to come.
Eccles:
No, but I knew.
H.M.Jr.:
You came Thursday. I didn't send for you and
I said I Just wondered how long it would take
you to come to that conclusion. I mean I
didn't phone him and say that this was the time
to do it. Ecoles came and he said he felt that
something should be done, end he even had it
sort of half in his mind to do it Thursday
night.
Eccles:
No, I didn't talk of any time. I said, "I think
that this situation is disorderly due to an un-
cessary la ok of confidence in the picture
developing, and I think it needs & show of
strength and a show of leadership at this time
is necessary."
H.M.Jr.:
And if you ever had 8. lousy market, you had it
Friday morning the first hour. You had about
the worst market you he ve had any time.
322
57
Williams:
Well, something came out in the papers - I
forget Just which day - that the Treasury
had run out of funds. That had & bad ef-
fect on the market.
H.M.Jr.:
I think that was Tuesday,
Williams:
What I am suggesting 18 this. of course, I
can Just say it and you will throw it away.
The way I feel about it, if you say to your-
self, "Well, we have lived through this. Now
we are pretty well along toward May lst.
Suppose the bond market goes to 3 per cent,
for example. Now perhaps that 1s the time
to be prepared to act. But let's feel it
out and give it 8.6 much time as we think we
sefely can, to find its own bottom, because
it will be so much more wholesome if that
happens," - then you won't have to worry
about whether you have put in some artificial
stimulation, whether you will be expected to
do it.
H.N.Jr.:
But, Professor Williams, 19 there any reason
that you know from the demands in business
why we should go back to 8 3 per cent market
at this time?
Williams:
No, I don't think you'd say, with the volume
of funds seeking investment that it should
be 3.
H.M.Jr.:
Well, you know, It gets to 3 and people say,
"We won't buy except on 3." It was in the
Tribune - they're saying it now. People are
talking about 3 per cent. Then you've got
a huyers' strike. "We won't buy except on
a 3 per cent basis."
Goldenweiser:
I think the mistake that John Williams 18
making, and it isn't often that I find I
disagree with him, 18 that he 1s confusing
money-market policy with credit policy. I
think our credit policy over 8 long time
now should be generally directed towerd re-
straint, because we are likely to need me-
straint in the next two years or even in
the next few months. But that doesn't mean
that we need to have a disorderly, very rapid
and precipitate fall in the bond prices at
this time. It 18 6. question of short-time
fluctustion BS compared with long-time trend.
323
56
I feel very strongly that in the light of
the increase in reserve requirements, which
amount to three billion dollars since last
July, a cushioning of it to the extent of
a few hundred million is not only justified,
but in view of what has happened 18 essential
and necessary.
Eccles:
That's my position.
H.M.Jr.
Well, that's the Treasury's position.
Williams:
Well, it comes down, it seems to me, to a
question of judgment.
Eccles:
Of course.
Williams:
As to just what is the best way to see the
situation through. Now 1f the market- if
the liquidation is mostly over, you've got
8. chance of a big victory by Just sitting
tight.
Ecoles:
You're letting it go down to 3 per cent and
letting all the little banks and outfits in
the country sell out and then letting the
big banks and all the big boys and specula-
tors purchase at the bottom. I mean that
seems to me to be E factor in the situation.
We think after such an adjustment there cer-
tainly should be some evidence of confidence
somewhere to let them know certainly that
with 8 managed money picture, you are not
going to let nature just quietly take its
course or let the financial community or the
speculative community dominate it.
Heas:
The trouble 1s - John, 1sn't this true:
That 18, don't you stretch terminology when
you talk about a natural money market at all
times? The central bank policy makes it more
or less an artificial market and why not recog-
nize it?
The other point 1s that what we are concerned
about in the Treasury 18 not Treasury bonds.
We were concerned about the corporate bond
situation, and we saw this: That the utilities
324
59
now weren't getting along on refunding opera-
tions - the railroad, Just beginning; housing,
where most of the unemployed people would be
taken up - with rates going up sharply. Now
I don't know of anybody that can tell whether
that - several months from now you get & busi-
ness recession - that this move wesn't the
cause in the fundamental change in the general
business picture, and that 1s the apprehension
we have. The only reason the Secretary was
talking in terms of Government bonds W88 be-
cause they are the prime security, but as he
said, he wasn't 80 much concerned about the
Treasury financing as the general business
picture because on that is our revenue based.
And I am really concerned about what the '33
picture might be. The picture right now 18
very clouded as to what the development might
be in 1938. It may be clear to you. I'd like
to talk to you about it afterwards.
Williams:
Well, I've been hoping myself that we get 8
little business recession. If you look et
the index of production, it is just like -
you look at any past history end whenever you
see it go up 80 fast, you see it go down -
maybe not way to the bottom. I'd like to see
this thing edging off.
Taylor:
Are you stating that 8.8 a reason for changing
e fundamental cheap-money policy?
Williams:
No, I don't want to Bee 8 change in the cheap-
money policy.
Taylor:
Well, 1sn't that what this 18 All about?
Williams:
Yes, but It 1s all relative.
Taylor:
But you have to indicate at some place that
you went to continue the cheap-money policy.
Williams:
I would eay though that 3 per cent money is
cheaper today than 2 1/2 per cent would be
a year ago, because prices are high and prices
are going up and there 18 more willingness
then there was before to expand. I mean it
is all relative.
Uclassified
325
60
Taylor:
How about the farmer and the small home owner?
Williams:
Well, I don't know that the fermer end the
well. small home owner - Agriculture is doing awfully
Upham:
You mean prices are high?
Williams:
Yes.
Upham:
Yes, but they have nothing to sell.
Williams:
Ferm income has gone up.
Upham:
I have Just come back from Iowa and there is
certainly no prosperity in that section.
Williams:
Well, I don't know about Iowa, but certainly
farm income is higher.
McKee:
The farmer 1s not getting much benefit at
these prices.
H.M.Jr.:
Eccles, look, why don't we stop now?
Eccles:
Let me say this. We have worn the Secretary
and everybody out here, end we appreciate
the opportunity for this frank and free dis-
cussion. And I am awfully glad to have him
get the viewpoint of some of these people
that I have been with All day and for them
to get his point of view, and for me to take
my point of view before both of them. Now
the full committee expects to meet in the
morning. If the Secretary wants to meet with
them, we'll be glad to have him.
H.M.Jr.:
No, thank you.
Eccles:
All right. Now then, I can only say this,
that we will meet in the morning and we will
try to come to some conclusions. What the
committee 8.8 8. whole will do, I can't say,
but just 88 soon as we come to a definite
conclusion, I will advise you.
H.M.Jr.:
I will await anxiously that word.
326
61
Harrison:
And if some of us want to talk, we can still
do it.
H.M.Jr.:
Perdon me?
Harrison:
If any of us want to talk to you, we can
still do it.
H.M.Jr.:
Yes. I mean if anybody wants to get me to-
morrow afternoon
Eccles:
He means after tomorrow.
H.M.Jr.:
But I'm going to say now....
Eccles:
Tell him no, because, demn it, meke him take
some action. I'm getting tired.
H.M.Jr.:
I thi nk we're all of age end I think we can
have honest differences of opinion and still
keep our respect for each other. That's the
way I feel. And I think this is one of the
most important things that I have faced since
I have been here. And I again want to say
the last word. - I don't say I went the last,
but at least my last word is that I think the
most important thing of all 1s that efter
three years of working together, we continue
to work together. I think that is the most
important thing.
Eccles:
But you also say, as I understand it, that
if we don't do something about the situation -
that you are not telling us what to do, but
you have told us the way you feel about it
and that then 80 far as we are concerned the
Treasury and the Government will do something
and they will go it alone.
H.M.Jr.:
That's right.
Eccles:
That's the way I understand it end that's
after consultation with the President.
H.M.Jr.:
That's right.
00000
MA7
327
UNITED STATES TREASURY DEPARTMENT
AMERICAN CONSULATE GENERAL
OFFICE OF
SHANGHAI, CHINA
THE TREASURY ATTACHÉ
April 3, 1937.
The Honorable
Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
Dear Mr. Secretary:
Headed by Dr. H. H. King, Minister of Finance, the Chinese
delegation to attend the Coronation of King George VI and Queen Elizabeth
in London on May 12, sailed from Shanghei yesterday at one P.M. aboard
the S.S. Victoria.
For your information, I have the honor to submit the names
of the leading members of Dr. Kung's entourage, with 8. short biography
of each.
Dr. H. H. King (Kung Hsiang-hsi FL ** (2)
Envoy Extraordinary; Vice-President of the Executive
Yuan and concurrently Minister of Finance
Age 56; native of Shansi; descendant of Confucius in the 75th
generation; graduated Oberlin College 1906, M.A. Yale 1907, LL.D Oberlin
1926; revolutionist, educator, and reformer in Shansi; official in Canton
Government of Sun Yat-sen, and prominent in Kuomintang party from the
beginning; has held many high posts in Nationalist Government, including and
special missions abroad, Minister of Industry, Minister of Finance,
Vice-President of Executive Yuan. Wife is sister of T. V. Soong,
Mme. Sun Yat-sen, and Mme. Chiang Kai-shek.
Admiral Chen Shao-kuen ( MR 48 in
Deputy Envoy; Minister of Navy
Age 49; native of Fukien; graduated Naval College, Nanking,
1907; later special courses in America, Japan, and Europe, including
service in British surface ships and submarines during the War; Naval
Regraded Uclassified
328
-2-
Attache in London, 1919; long service in Chinese Navy; in 1929 appointed
Vice-Admiral, Vice-Minister of Navy, and chief technical delegate to
World Disermament Conference in Geneva; Admiral and Minister of Navy
since 1932.
His Excellency Quo Tai-chi (
Deputy Envoy Ex-Officio; Chinese Ambessador at London
Age 49; native of Hupeh; educated Easthampton High School and
Willeston Seminary, Massachusetts, greduated University of Pennsylvania
1911; official in Republican Government 1912-1917; secretary to Sun Yet-sen
in Canton Government 1917, subsequently other high offices and missions
under the Government; 1927-1928, Commissioner for Foreign Affeirs at
Shanghai, Vice-Minister and Acting Minister for Foreign Affairs; chief
delegate in Shanghei Armistice negotiations with Japanese, 1932; Minister
to Great Britain, 1932-1935; Ambassador to Great Britain since 1935;
delegate to Leegue of Nations and Chinese Representative on League Council;
delegate to Disarmament, Economic, and Monetary Conferences.
Dr. Oung Wen-hao ( $ ifi)
Chief Secretary; Secretary General of the Executive Yuan
Age 48; native of Chekiang; graduated Louvsin University;
Director of Geological Survey since 1922; former President of Tsinghus
University, Peiping: manager of mining company; author of books on Chinese
geology; Secretary General of Executive Yuen since 1935; bears exceptional
reputation among the Chinese for ability and personal integrity.
Mr. T. K. Tseng (Tseng Tsung-chien 45)
Counsellor; Administrative Vice-Minister of Railways
Age 55; native of Fukien; graduated Nanyang College, Shanghei,
1901; later studied King's College and graduated Cambridge; revolution-
1st; held various government offices; Minister to Norway and Sweden, 1926;
industrialist; secretary of flood relief organizations since 1930;
secretary of Commission for Readjustment of Finance since 1929; treasurer
of British Boxer Indemnity Board since 1929; Vice-Minister of Railways
since 1936.
Mr. Chu Chang-nien ( $ 3 7 )
Counseller; Superintendent of Customs, Shanghei;
formerly Minister to Norwey and Sweden
Regraded Uclassified
329
Mr. Chang Fu-yun ( 750 (F. Chang)
Counsellor; Member of National Economic Committee
Age 47; native of Shantung; graduated from Harvard, A.B. 1914,
LL.B 1917; various educational and official posts; secretary to Chinese
Commission in Siberia, 1919-1920; secretary to Chinese delegation to
Washington Conference, 1921; drefted marine laws of China; Director of
Customs Administration and Chairman National Tariff Commission, 1928-1932;
member of Advisory Committee of National Economic Council; protégé of
T. V. Soong; an able and upright administrator; is 8. close, personal
friend of the writer.
Mr. Kuo Ping-wen ( (P. W. Kuo)
Counsellor; Director of Bureeu of Foreign Trade
Age 57; native of Kiengsu; graduated Wooster, Ph.B. 1911,
Columbie M.A. 1912, Ph.D. 1914; educator; Dean of Teachers College,
Nenking, 1915; President Lawrie Institute end Chekiang Provincial
College, 1916; Chairman Educational Commission to Japan and Philippines,
1917; Chairman Educational Mission to Europe and America, 1916; Presi-
dent Southeastern University, Nanking, 1922-1925; Vice-Cheirman World
Federation of Educational Associations, 1926; Director of Foreign Trade
Bureau of Ministry of Industry since 1931; General Secretary China
Institute of Foreign Relations since 1932; manager Te Hwa Trading
Corporation and Shenghai Trust Company; wes B. member of the K. P. Chen
Commission to Washington on Monetary Conference.
Sir Frederick Maze, K.C.M.G.
Counsellor; Inspector General of Chinese Maritime Customs
Age about 65; native of Northern Ireland; entered Chinese Mari-
time Customs service about 1893, rising to senior Commissioner; in 1929,
after protracted unprincipled intrigue, succeeded in displacing A. H. F.
Edwardes and was appointed Inspector General of Customs; his political
astuteness has brought the service intect and strengthened through several
severe crises; is entirely unscrupulous and violently anti-American;
aspires to a baronetcy, end is reputed to have engineered his own eppoint-
ment to the Coronation Party as a means to this end; wife 18 Australian
and a very smooth and clever diplomat.
Lt.-Gen. Men Ying-hsing R 2)
Military Attache; Commender of Revenue Guard
Age 50; native of Kwangtung; greduated Nanyang College, Shanghai,
1901; attended Virginia Military Institute, 1904; attended U.S. Military
Academy, 1905; military offices in Canton end Shanghai, 1910-1912; military
Regraded Uclassified
330
offices under Sun Yat-sen, 1913; railway end mining engineering, 1914-
1917; brigadier general in Manchuria, 1920-1923; in charge business of
Woosung Port, Shanghai, 1926; President Tsing Ewa College, 1928; Chief
of Ministry of Finance Preventive Force, 1930; Dean of Gendarme and
Police Department Central Military Academy, 1931; Commissioner Public
Safety Bureau of Shanghai, 1932; member Sino-Japanese Joint Commission,
1932; Commander Revenue Guard since January, 1933; 18 a member of the
Molly Wendt family.
Rear-Admiral Lin Sheng-hsin (*)
Naval Attache
Colonel Shen Te-hsueh 180 18 )
Air Attache; Director Hungjao Airdrome
Age 42; native of Fukien; graduated from Chefoo Naval Academy
and attended Peking Aviation School, 1916; studied eviation in Vickers
and Rolls-Royce factories, 1919; in 1921, graduated from pilot course in
Army Service School at Arcadia, Floride, and had edvanced courses et
Kelly Field, Post Field, and Fort Sill; Director Peking Aviation School,
1923; commander of an air squadron under Wu Pei-fu; chief of aviation
with Nationalist Army, 1925; adviser to Aeronautical Department, 1927;
Director of Hungjao Airdrome since 1928; constructed the first plane
ever built in China.
Mr. Chen Ping-chang (FR kdg
Secretary; Secretary of Ministry of Finance
Age 37; native of Fukien; graduated St. John's University,
Shanghei, 1921; Princeton M.A. 1924; studied Yale, 1926; Dean Political
Science Department, Netional Chinan University, Shanghai, 1927; Secretary,
National Tariff Commission, 1928; various positions in tobacco and con-
solidated tax services, since 1928; Finance Commissioner for Rendition
of Weihaiwei, 1930; Secretary, Ministry of Finance since 1928; personal
secretery to Dr. H. H. Knng since 1933; numerous writing on economics
and finance: is a close, personal friend of the writer.
Mr. Chen Li-ting ( (*)
Secretary; Political Scientist
Age 43; native of Hope1; graduated Tsinghua College, Peking,
1913, Yale 1917, studied at Harvard; served in Y.M.C.A. in France;
Chinese National Committee Y.M.C.A. 1919; general secretary Y.M.C.A.,
Peiping, 1928, Shanghai, 1929; executive secretary, China Council,
Institute of Pacific Relations, 1929; research director, Kincheng Bank-
ing Corporation, since 1932; author and translator.
Regraded Uclassified
331
-5-
Mr. Hu I-kou ( 12)
Secretary; Chief Procurator, Kiengsu High Court
Age 61; native of Chekiang; graduated St. John's University,
Shanghai, 1897; did educational work; studied Universities of California
and Chicago; A.B. and LL.B. University of Illinois 1909; various legal
posts Chinese Government; professor of law at Peking, 1909-1912; Deen of
Nanyang College, Shanghei, 1913; Judge of Supreme Court at Peking, 1913;
Judge of Prize Court, 1917; Chief Justice Third Civil Court of Supreme
Court at Peking, 1925; President Court of Appeal of Shanghai Provisional
Court until dissolution in 1930; Chief Justice Civil Division Shanghai
Special District High Court 1930-1933; President Chinkiang District Court,
1933; Chief Procurator Kiengsu High Court since 1934; member of various
commissions for study of judicial questions; editor of pocket Chinese end
English dictionary.
Mr. Chang Ping-chun ( +
Secretary; Counsellor of the Executive Yuan
Mr. H. 0. Tong (Tang Hai-an )
Attache
Age about 45; native of Kwengtung; attended Shanghei Baptist
College; B. Sc. London University; Director of Wine and Tobacco Tax
Bureau with Canton Government; Commissioner of Police in ex-German
Concession at Hankow; Secretary to Minister of Finance T. V. Soong;
Superintendent of Customs, Chinkieng; Superintendent of Customs, Shanghei
1933-1935; lately acted as Administrator of the Salt Administration in
Canton, but was suddenly relieved of that office for openly selling jobs;
at present is operating an office, under the title of the Tienlan Mining
Company, in room 305, Shanghai Commercial and Sevings Benk Building,
Kiangse Road, Shanghai. It is believed he is actually engaged in dis-
posing of monopoly opium and, confidentially, our investigation of the
source of smoking opium seized in the United States, Hongkong and Shanghei
since January 1, 1937, has been traced to the Shing Eing Club, 8 Canton-
ese commercial club, whose headquarters are in the seme building as the
Tienlan Mining Company. This individual is 8 protège and former body-
guard of T. V. Soong. Re is e racketeer and vicious gunman, probably
personally 8. murderer; is 8 boisterous, swaggering, troublesome, loud-
mouthed, smart aleck, but at heart an arrant coward. Very close to
Madame King.
Mr. Quo Tai-tsing *L)
Attache; Director Municipal Buresu ex-British
Concession st Hankow
Age 38; native of Hupeh; graduated University of Pennsylvania
Regraded Uclassified
332
⑉6⑉
1925; New York University M.B.A. 1926; various posts in Ministry of
Foreign Affairs; Superintendent of Customs, Wubu, 1927; member of the
Treaty Commission of the Ministry of Foreign Affeirs 1928-1931; handled
taking over of Tsinan after Tsinan incident of 1929; Associate Director
and Acting Director of Shanghai Office of Ministry of Foreign Affairs
1931-1932; Director of Municipal Bureau of Special District No. 3
(er-British Concession) at Hankow since 1932; managing director of
Hankow Hereld; may be of difficult temperament, aa in 1927 he caused the
removal of T. A. M. Cestle, Commissioner of Customs at Wuhu, a man of
long service and good but not outstanding reputation; brother of Quo
Tai-chi (above), Ambassador to Great Britain.
Dr. C. Kuangson Young ( tis
Secretary; Managing Director of the China Press
Age 37; native of Kiengsu; graduated Coloredo College 1921,
Princeton Ph.D. 1924; student attache at Washington Conference 1922; third
secretary Chinese Legation at Washington 1924-1927; secretary Chinese
Delegation International Opium Conference at Geneva 1924-1925; professor
of Chinese at Georgetown University 1926-1927; various posts in Ministry
of Foreign Affairs and commissioner in mixed claims commissions; Consul
General in London; member Chinese Delegation to World Economic Conference
1933; managing director of the China Press, Shanghei.
Dr. S. P. Chen (Chen Shi-pang PRACIP)
Attache; Principal Medical Expert of Ministry of Interior
Age 57; native of Kwangtung, born in Singapore; graduated in
science from Cambridge; degrees in medicine and surgery from Cambridge,
with work in London hospitals; served 86 chief medical officer of North
Manchurien Plague Prevention Service; director Government Isoletion
Hospital in Peking; plague suppression work in Shansi, 1918; president
Peking Rotary Club 1928; principal medical expert of Ministry of Interior.
Mr. Gene L. Chiao (Chiao Ching-liang $ & 171
Attache; Official of Ministry of Finance
Age about 40; native of Shansi: graduated from Oberlin College
about 1924; served as deen of Oberlin in Chine: for about five years has
served 88 an administrative assistant to Dr. H. H. Kung.
Mr. Stanley 1. Wright
Secretary; Retired Commissioner of Customs
Age about 65; native of Northern Ireland; entered Chinese Mari-
time Customs service about 1895 end retired 5 few years ago after serving
Regraded Uclassified
333
-7-
as Commissioner and Inspectorate Secretary for many years, including
several years as Personal Secretary to the Inspector General; from about
1915-1925 was in charge of the service of all Chinese loans; author of
one book and co-author of another on this subject; knows more about this
subject and the internal history of the Customs than any other man alive;
is a little subject to the Irish weakness of harboring prejudices, but
at bottom a profound scholar and a man of staunch and outspoken moral
character; for this reason has had serious quarrels with his cousin,
Sir Frederick Maze, who however has apparently been unable to do without
him and has kept him on, doing special work, after retirement; is an
experienced negotiator and likely to be the brain center of any negotia-
tions undertaken by the party; his appointment thereto came at the last
moment and probably indicates his presence considered necessary for some
such purpose; wife is Norwegian, of peculier temperament, end not
interested in diplomatic affairs.
Other less prominent members of the Kung party, assigned as
code clerks and advisers, are:
Dr. C. W. Wu 12. ) - Secretary
Mr. Tsing-yeo Lee ( X ) - Attache
Lt.-Gen. Y. C. Kwei ( #2 ) - Military Attache
Major H. C. Hu ( 013 w. ) - Military Attache
Lt.-Comdr. Y. T. Chow ( 188 12) - Neval Attache
Lieut. C. Lin ( * ) - Naval Attache
Lt.-Col. C. F. Wong ( I ***) - Air Attache
Respectfully,
In. R.Nengloon
MRN. G
Regraded Uclassified