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OCR Page 1 of 2DIARY
Book 221
November 1 - November 8, 1939
Book Page
Alsop-Xintner
Duffield memorandum concerning material to be used -
11/2/39
221
79,175
HMJr tells FDR article is worrying him - 11/8/39
349
HMJr asked to comment on BREMEN situation, French
airplane deal, et cetera; told White House will
handle - 11/8/39
390
Agriculture
Food Stamp Plan: summary of Perkins' (Milo) speech
giving resume of operations - 11/1/39
21
Argentina
See War Conditions: Latin America
- B -
Bank of America
HAJr discusses situation with Landis - 11/8/39
392
Browder, Earl (General Secretary, Communist Party)
Dies Committee makes inquiry concerning reputed
attempt to cash $10,000 United States Treasury note
through a bank in Manila, Philippine Islands;
Bell reviews case at 9:30 meeting - - 11/1/39
10
Budget
Estimates, Revenue: Currie asks H&Jr if he can discuss
estimates on which he is in disagreement; HMJr
suggests Bell - 11/1/39
6
a) Bell suggests Budget representative at
conference on January estimates; fears estimating
group in executive offices
China
Transportation Mission:
Chinese Government asks for three to six months
extension . 11/1/39
20
a) Chen discusses with HMJr - 11/8/39
373
Yunnan-Surma Highway: Proposal to lay reenforced
concrete strips - 11/2/39
134
Motor-Transport System: Estimate of cost of operating
and maintaining - 11/2/39
147
- E -
Estimates, Revenue
See Budget
- F -
Financing, Government
United States Housing Authority: Plans for next three
months outlined in HMJr's letter to Straus - 11/1/39..
44
Food Stamp Plan
See Agriculture
Regraded Unclassified
- G -
Book Page
Guatemala
See War Conditions: Latin America
- H -
Housing
United States Housing Authority: See Financing,
Government
- M -
Movie Cases
See Tax Evasion
- P -
Peru
See War Conditions: Latin America
- R - -
Revenue Revision
Doughton and Cooper discuss with Hanes program for
continuing study of the tax structure - 11/4/39...
221
205
- T -
Tax Evasion
Movie Cases:
Foley statement of facts - 11/1/39
27
Conference between Treasury officials and Greenbaum
and Knollenberg - 11/2/39
a) Knollenberg memorandum.
118
b) Greenbaum memorandum.
168,208
Kadis (Internal Revenue Agent): HMJr asks Hanes to
investigate assignment of Goetz and Zamuck cases,
where taxes were paid in California, along with
Schenck's return, which was made in New York -
11/6/39
257
Next move after receipt of Greenbaum-Knollenberg
memorandum discussed by HMJr with Hanes, Gaston,
Irey, and Cairns - 11/8/39
407
Taxation
See Revenue Revision
- G -
Book Page
Guatemala
See War Conditions: Latin America
- H -
Housing
United States Housing Authority: See Financing,
Government
- M -
Movie Cases
See Tax Evasion
- P -
Peru
See War Conditions: Latin America
- R - -
Revenue Revision
Doughton and Cooper discuss with Hanes program for
continuing study of the tax structure - 11/4/39...
221
205
- T -
Tax Evasion
Movie Cases:
Foley statement of facts - 11/1/39
27
Conference between Treasury officials and Greenbaum
and Knollenberg - 11/2/39.
a) Knollenberg memorandum
118
b) Greenbaum memorandum
168,208
Kadis (Internal Revenue Agent): HMJr asks Hanes to
investigate assignment of Goetz and Zamick cases,
where taxes were paid in California,along with
Schenck's return, which was made in New York - -
11/6/39
257
Next move after receipt of Greenbaum-Knollenberg
memorandum discussed by HMJr with Hanes, Gaston,
Irey, and Cairns - 11/8/39
407
Taxation
See Revenue Revision
= # I
Book Page
United States Housing Authority
See Financing, Government
- THE -
War Conditions
British-French relations: See War Conditions -
French-British
Business situation for week ending 11/4/39:
Haas memorandum
221
241
Commercial Policy, Executive Committee on:
White membership OK'd by Hull - 11/2/39
78
a) Treasury acknowledgment - 11/8/39
386
Exchange market resume - 11/1/39, et cetera
25,178,
267,387
Financing, Government, 4/1/17 - 6/30/19: Bell
memorandum - 11/7/39
292
France:
Rueff, after six years in the Novement General des
Fond, becomes Under Governor of Bank of France;
Bullitt and he confer - 11/1/39
49
Caillaux article as it appeared in Paris Soir on
10/30/39
56
French-British relations reviewed pessimistically by
Reynand to Bullitt - 11/3/39
193
(For discussion between Feis and Cochran, see page 277)
a) British financial resources three times those
of French
b) Great Britain has less than one out of forty-five
mobilized where France has one out of eight
c) British soldier receives two shillings a day;
French solider only fifty centimes
d) Export industries of France cannot be maintained
because of number of French being mobilized
whereas those of Great Britain have not suffered
e) Reynaud believes Sir John Simon's clear object
is to exhaust French resources so that at and of
war Creat Britain can control entire situation
f) France's financial situation reviewed: huge plane
purchases mean French exports to United States
must be increased
g) Russian economic backing for Germany will win over
France and England in the end
(For report by Couve de Murville to Bullitt after
visit of Reynaud to London November 16, see Book 222,
page 349)
Germany:
War Finance: Tax Revenues of the Reich for second quarter
of fiscal year ending 9/30/39 reviewed by Kirk - 11/3/39 187
- B - (Continued)
Book
Page
Mar Conditions - (Continued)
Germany:
Railway Loan: Oversubscribed on first day - - 11/7/39. 221
330
Silver hoarding for payments abroad indicated by
Reichsbank report - 11/7/39
334
Great Britain:
War Loans: Formal procedure initiated - 11/3/39
190
High-Grade Securities Markets:
Current Developments: Haas memorandum - 11/7/39
279
Letin America:
White material (economic background) on each of
Latin American countries transmitted to State
Department through Hull - 11/8/39
352
Webb (Vanderbilt) discusses with HMJr possible
connection with case - 11/8/39
403
Argentina:
Financial Counselor at Embassy expresses to Cochran
fear that there will be heavy sales of British-owned
dollar bonds of Argentine Government upon American
market when Britain begins important war purchases -
11/4/39
200
Colombia:
Conference with State Department - 11/2/39
139
a) Securities and Exchange Commission discusses
"debts owed by South American Republics to
our citizens"
Guatemala conference:
Williams (John) unable to go; Hanes thinks it
important that some strong Treasury personality
head mission; otherwise urges postponement until
January - 11/2/39
137
Gaston to head delegation - 11/8/39
344
Peru: Resume of financial position by American Embassy
at Lima - 11/4/39
197
Netherlands:
J. P. Morgan and Company representative confers with
insurance company in Baltimore relative to shipment
of $750 million of securities (mostly United States
Steel) in $50 million lots on neutral ships to
United States - 11/1/39
31,66
Neutrality Act:
Credits to Belligerents: Foley and Bernstein more and
more convinced Treasury should not ask for return
of the administration of credit section assigned
in former Act under Section 3 - 11/8/39
378
Poland:
Foreign exchange plans of Germany reported in
Kirk's cable - 11/1/39
47
Gold Reserve: Kirk reports information that one-half of
gold reserve was kept in Roumania and remainder was
shipped to Alexandria, Egypt - 11/6/39
258
* I
Book
Page
her Conditions - (Continued)
Purchasing Mission (British-French)
France:
Finance arrangements finally agreed upon by Finance
Ministry and Bank of France; instructions will
shortly reach Leroy-Beaulieu - 11/2/39
221
91
a) Estimate of probable purchases during first
year of war - 11/2/39
94
b) Cariguel and Knoke discuss Treasury's
preference for account in name of foreign
central bank rather than foreign government -
11/6/39
253
Bullitt's letter to FDR urging that Monnet visit
Washington in connection with enlarging productive
capacity of United States sirplane industry and
then head committee in London; Bob Brand suggested
as head of Joint Purchasing Mission in United States:
a) HMJr and FDR discuss - 11/3/39
150
1) Cochran resume of Monnet's past
connections with Great Britain -
11/4/39
223
Bloch Laine (partner in Lazard Freres, Paris) to head
French purchasing mission; HMJr wishes no further
contact with representatives until FDR's instructions
are received; Leroy-Seaulieu so informed by Cochran -
11/4/39
224
Collins' resume of purchases - 11/6/39
239-A
Great Britain:
Assets not unlimited; therefore purchase of commodities
in United States (tobacco, films, apples, et cetera)
not strictly required must be curtailed -
Simon informs Kennedy - 11/1/39
16
Resume of Federal Reserve Bank account for Bank of
England - 11/1/39
65
Conference; present: HMJr, Cochran, Sir James Rae,
Sir Owen Chalkley, Pinsent, and Purvis -
11/3/39
180
a) Draft of communique announcing establishment
of purchasing mission office in New York and
explaining connection with Canadian group
discussed
1) HMJr asks that release be deferred until
neutrality bill 1s signed by FDR
b) HMJr explains he is "merely pinch-hitting
for present"; FDR will definitely determine
method of liaison within next few days
o) French plans for establishing banking arrangements
in New York nearing completion
- W - (Continued)
Book Page
War Conditions - (Continued)
Purchasing Mission (Gritish-French):
HiJr's attitude toward serving as liaison officer:
a) Explains he is merely "pinch-hitting" at
conference with Great Britain's representatives -
11/3/39
221
180
b) In connection with Bloch Lainè's appointment
as head of French purchasing mission, HMJr tells
Cochran he wishes no further contact with
representatives until FIR's instructions are
received - 11/4/39
224
o) Tells Cochran he is "becoming more and more
convinced that he should not act as adviser to
these visiting foreign groups" - 11/6/39
255
d) Suggests to FDR that Committee be set up with
representatives from Army, Navy, and Treasury
who will report through McReynolds to FDR -
11/7/39
327
1) Conference; present: HMr, McReynolds,
Collins, Graves, and Cochran - 11/8/39
358
2) HMJr explains plan to Pinsent and
Leroy-Beaulieu - 11/8/39
365
Ship Movements:
SS COULMORE (British freighter) attacked by submarine
450 miles off New England Coast - 11/1/39
$
a) Discussion at 9:30 meeting - 11/2/39.
129
State Department map indicating belligerent ports to
which American ships may not carry goods, et cetera -
11/8/39
376
Flagships (American and foreign) tied up in various
ports lacking clearance certificates; State, Commerce,
and Treasury involved; situation discussed by HMJr
and Welles - 11/8/39
416
Sweden:
Earmarked gold transactions discussed in Cochran
memorandum - 11/8/39
411
Turkey:
Reynaud and Bullitt discuss Sir John Simon's letter
insisting that loans and credits to Turkey (and other
Allies) be shared equally - 11/3/39
193
Works Progress Administration
LaGuardia consults HWr about larger contribution Federal
Government is asking for and which he cannot provide -
11/8/39
421
Regraded Unclassified
1
GROUP MEETING
November 1, 1939.
9:30 a.m.
Present:
Mr. Hanes
Mr. Harris
Mr. Graves
Mr. Haas
Mr. Gaston
Mr. Foley
Mr. Viner
Mr. Duffield
Mr. Cotton
Mr. White
Mr. Cochran
Mr. Thompson
Mr. Bell
Mrs Klots
H.M.Jr:
Gene, if you don't know it, get the story about
these two nice women who are retiring.
Duffield:
I don't know it but I will get it.
H.M.Jr:
Well, get it. Bell started to tell me that this
one woman is the daughter of the man who took the
testimony when Lincoln was shot. One woman was
the first person that Bell saw when he came in.
Forty-nine years for one and fifty for the other.
Duffield:
You mean he saw her fifty years ago?
H.M.Jr:
She still is able to carry on. It is quite a
story.
Gaston:
It is a pretty old case for us to work on, isn't it?
H.M.Jr:
It has got both Thompson and Bell so shaky that
they aren't over it yet. It is quite B. story and
I think it is nice for them. You ought to have
their pictures taken.
Hanes:
I haven't anything.
Gaston:
Burton took off from Floyd-Bennett at 7:17, and
Burke, from Cape May, at 7:55. After holding a
three-way conversation with Stark and Callahan,
Waesche put two more cutters on that deep sea
patrol.
H.M.Jr:
Today?
2
- 2 -
Gaston:
This morning.
H.M.Jr:
How many does that make?
Gaston:
That makes six ships on that project, and they
ordered two more cutters out, immediately, today
on this particular search.
H.M.Jr:
What else?
Gaston:
They had orders to trail the submarine if they
found it. Waesche didn't know exactly how he
was going to trail the submarine, but he gave the
order just the same.
H.M.Jr:
Maybe they will give you B. couple of submarines.
Gaston:
They haven't got any of those trained seals. They
had trained seals, you know, in the last war.
H.M.Jr:
Cryder in my press conferences said, "What 1s this
that we hear, that the Navy has withdrawn because
the weather is bad and the Coast Guard is taking
over the patrols," and I said, "Well, you will
have to see Mr. Gaston, If and he said, 'Pardon me,
you mean Admiral Gaston?"
Gaston:
I get it different.
H.M.Jr:
I am referring to my stenographic notes. Either
way, it is good.
Gaston:
I appreciate it.
H.M.Jr:
Will those boys be over at 10:00?
Gaston:
Yes, they will. One of the Customs agents inter-
viewed the owner of this yawl, Lekala, in New York
harbor. This man Schwarts said yes, these people
did plan to go to Germany to make contacts with
& German boat and they were instructed to do ao
by B. man in the German Consulate in New York, which
was very interesting, I thought.
Foley:
Here is & memorandum (handing memorandum to Secre-
tary) on Wagner's statement on the Stabilization
Fund. I thought we ought to put it all together
so if we ever have to refer to it we will have it
there.
Regraded Unclassified
3
- 3 -
H.M.Jr:
What about one for the Speaker?
Foley:
That will be ready in maybe an hour.
H.M.Jr:
O. K. Anything else?
Foley:
No.
H.M.Jr:
There was no letter from me to the Attorney
General?
Foley:
No.
H.M.Jr:
That was a break for me.
Foley:
There was an investigation of Carr. I think Elmer
said he was all right.
H.M.Jr:
Elmer said so?
Foley:
Yes.
H.M.Jr:
Well, he told me yesterday he didn't know whether
Elmer okayed him or Wenchel okayed him. He said
one or the other okayed him and said he was all
right. It was Irey?
Foley:
Yes.
H.M.Jr:
Well, Irey has been the fellow who has been the
most critical.
Foley:
That is right. Afterwards he found out that the
former U. S. Attorney out there, Pierson Hall,
who used to be this fellow's boss, was in on the
case and they were pretty close together.
H.M.Jr:
Well, he is the first man that brought it to my
attention.
Foley:
Yes. He did investigate Carr and they did ask
whether he was all right.
H.M.Jr:
When I brought it to the Attorney General's atten-
tion that we were critical of the way Carr presented
this thing to the Grand Jury, he very patiently
said, "All right, I will read the testimony myself,"
and I just want to tell you either Wenchel or Irey
personally okayed this man. It has been Irey who
4
- 4 -
has been the most critical. Of course, we all
make mistakes.
Anything else?
Foley:
Nothing.
H.M.Jr:
Herbert, you might bring Irey's attention to what
I am saying.
Gaston:
Yes, I will.
H.M.Jr:
If there is a comeback from the Attorney General,
your own man will get it. You are going to talk
to him?
Gaston:
Yes, I will.
Foley:
Jim Morris asked us to designate somebody to pre-
sent the case back in May and I spoke to you. I
think that at the meeting - I have forgotten the
exact date - we decided that we didn't want one
of our men to present the case because it would
get too long, but we would make a man available to
them while they were going over the files and
familiarizing themselves with it, before they held
conferences with the taxpayers, so we designated
Carpenter and he went to Carr before the conference
and then Carr took over and went out on the case.
H.M.Jr:
The fact remains that Carr presented the case.
Foley:
That is right.
Gaston:
I suppose Irey will say he didn't know how Carr
got in on this case and then Pierson Hall came up
after Carr was removed.
H.M.Jr:
Is it unusual for a Treasury man to make such an
investigation?
Foley:
They suggested & fellow by the name of Woodcock
and Irey didn't want Woodcock.
H.M.Jr:
Well, 0. K.
Gene?
5
- 5 -
Duffield:
Bob Kintner was going to come in this morning and
start going over the documents but it 18 off until
tomorrow.
E.M.Jr:
Documents?
Duffield:
On the April meeting.
H.M.Jr:
Yes. Well, suppose you and Gaston and Hanes stay
a minute behind and I will tell them what we had
in mind and see if they agree.
Cotton:
I wonder if you had anything to tell me about this
thing?
H.M.Jr:
Mr. Hanes has kindly accepted the responsibility of
arranging the personnel to go down to Guatemala.
He has taken it completely off my shoulders, so
refer to him. I have asked him to. I have got to
an impasse and I don't want to be impatient with
the State Department, so Hanes is going to handle
it, 1f you don't mind. I got impatient yesterday,
so I will let Johnny handle it.
Hanes:
I couldn't get that man again on the phone this
morning.
H.M.Jr:
He has a North Carolina disposition. I take North
Carolina tomato juice, but it doesn't help. I
guess I don't take enough of it.
Harris:
Does this mean that the Tijuana trip is off?
H.M.Jr:
No. That 1s a pleasure; the other is 8 headache.
George?
Haas:
Hadley asked Lindow and Murphy to prepare a chart
showing the price of second-grade rail bonds.
Lindow gave this chart to Hadley last evening.
Hadley told me this morning he didn't have B chance
to submit it to you.
H.M.Jr:
There is nothing in it, 1s there?
Haas:
Second-grade rail bonds, or any bond on which the
payment of the principal is in question, act like
common stocks in the market. You will note that
the chart also contains one very high-grade rail
Regraded Unclassified
Б
- 6 -
bond, the Norfolk & Western. This bond has acted
in the market like a Government bond. The second-
grade rail bonds have advanced 8. little more per-
centage-wise, I think, than the Dow-Jones common
stock average.
H.M.Jr:
Is there any significance in the way they have
acted?
Hans:
No.
H.M.Jr:
George, Lauchlin Currie came over here and asked
whether it would be all right for him to talk to
the President about some of our estimates, because
he was in disagreement and he said first, he didn't
want to do anything without first talking with me,
and second, he didn't want Professor Brownell
jumping on his neck, because he jumped on him the
other time and he knew Brownell wouldn't approve of
even talking to me. He called me up and he didn't
have an opportunity to talk to the President because
the President decided not to give out a budget sum-
mation.
Bell:
None at all?
H.M.Jr:
None at all. I mean, incorporated with the January
one. I think it would be B. very nice thing - my
attitude is that if anybody feels that we are off,
we would like to know it, 80 I think 1f you call
him up and invite him to come over and sit down
and tell him you will be delighted to get what he
has in mind, irrespective of the President, it would
be well. The question is something about Customs
receipts, something low on those, something on
corporate income, I believe, and some other things.
So, whatever he has got, I would like to get the
benefit of, 80 1f you call him up, I think it would
be very nice. Tell him not to worry about Professor
Brownell.
Haas:
All right, I will do that.
Bell:
I think it might be B. good thing, Mr. Secretary, if
before the January estimates go in, you have the
Director of the Budget or & representative in on
that conference, because I am afraid there 18
developing a scheme to have their own estimating
crowd in the executive offices, either by way of
Regraded Unclassified
7
- 7 -
checking the Treasury estimates or doing their own
estimating. There is some feeling there, I know.
Haas:
There has been for 20 years, hasn't there?
Bell:
Yes, but it is stronger now than it has been for
some time.
Haas:
I think it is better to bring them inside and let
them see it, because God knows they are welcome.
H.M.Jr:
That is right. I no longer have any responsibility
for the Budget.
Bell:
I think you still have the law, however, on your
side, to make estimates of receipts.
Hanes:
Aren't they satisfied with the estimates?
Bell:
I think, generally speaking, they are.
H.M.Jr:
The former President's assistant isn't satisfied.
He just says so and we say, "Fine, come on over."
Haas:
They put up a song and dance about being appre-
hensive about business going to pot next June and
they can't be on both sides of the fence at the
same time.
Viner:
Oh, can't they?
Hanes:
I don't see what they have got to complain about.
You go back and read the record and the record has
been darn good. I think it 18....
H.M.Jr:
I told them that. Our record for the last five
years has been extraordinary, but I still say some-
body who was Assistant to the President, if he has
any question, is welcome to sit in and see what we
have got, and we will let him set us straight or
we have an opportunity to set him straight. That
is my attitude.
Hanes:
They never do figure the lag on this thing and it
is a big lag.
H.M.Jr:
Maybe you would like to sit with them.
8
- 8 -
Hanes:
I could make out a good case on the record, I
know that, because you go back and that record
18 extremely good and you are guessing 18 months
ahead.
H.M.Jr:
It is the best any Secretary of the Treasury has
ever done. That is due to my Assistanta.
Haas:
And your elbow.
H.M.Jr:
Well, we have got the best record, anyway. What's
his name, Mills, was 50 percent off within three
months. He missed It by 50 percent. I still say,
George, the attitude - invite him over.
Haas:
Absolutely. No doubt he has done a lot of thinking
on it and we would like to get it.
H.M.Jr:
And it is important that the President get the best
of the combined efforts. I see in Kintner and Alsop's
column that you are worried about the third quarter.
Haas:
I don't know who my reporter is. He says it is
reported that I am worried. I never saw him.
H.M.Jr:
I would let Kintner and Alsop read your report of
this week if they really want the facts.
Haas:
You are going to let them?
H.M.Jr:
I just said it with EL rising voice, indicating
question.
Haas:
It suits me.
H.M.Jr:
No, I don't want - all right.
Basil?
Harria:
Nothing.
White:
Nothing.
H.M.Jr:
Harold?
Graves:
Nothing.
9
- 9 -
Bell:
Here is a letter for the U. S. Housing Authority
about financing the 15 million.
H.M.Jr:
Now listen, fellow, let me read this.
Bell:
That is what we promised them. We told them to
go ahead on their program.
H.M.Jr:
Well, didn't they promise you to talk it over with
you before they do anything?
Bell:
Yes. They apologized very profusely.
H.M.Jr:
Who did?
Bell:
Kaiserling.
H.M.Jr:
What was his excuse?
Bell:
Well, he thought that we had in mind only the formal
advertising notice and he thought this preliminary
publicity wouldn't hurt anybody, so they went ahead
with it. He was very sorry he hadn't contacted me
beforehand.
H.M.Jr:
Did you let him know?
Bell:
Yes, I called him up and told him we were a little
disappointed, that I thought they might have waited
until we had our financing out of the way, at least.
H.M.Jr:
How much are you charging?
Bell:
A quarter of a percent.
H.M.Jr:
Just to teach them B. lesson, can't you up it a little
bit?
Bell:
Well, I don't think they will have it more than 30
days.
H.M.Jr:
They promised to give us a quarter?
Bell:
They don't promise anything but the 15 million.
H.M.Jr:
What do you charge the others?
Bell:
That 1a what we charge them all on the short-term
basis. We charge Home Loan Banks a quarter percent.
10
- 10 -
Interest rates have risen. Would you like to go
up an eighth?
H.M.Jr:
You are B. lot of "softies." What else?
Bell:
Martin Dies has written the Treasury asking about
a ten thousand dollar certificate supposed to have
been presented several years ago by Browder. We
answered his letter on the first of October and
said that we would go into it and let him know
later.
H.M.Jr:
Certificate?
Bell:
Yes. It was a ten thousand dollar certificate of
indebtedness.
H.M.Jr:
Presented to who?
Bell:
Presented to the Treasurer of the United States. It
says, "This Committee has been advised that during
1927, Earl Browder, who is now General Secretary of
the Communist party of the United States, attempted
to cash & ten thousand dollar U. S. Treasury note
through a bank in Manila, Philippine Islands; that
the bank, the name of which 1s not known, before
cashing & bill of such large denomination, wanted
to verify its serial number with the Treasury Depart-
ment of the United States; that a cable was sent
by the bank in Manila to the Treasury Department,
making inquiry regarding the serial number of the
ten thousand dollar bill; and that, prior to receipt
of a reply to the cable, Mr. Browder became alarmed
and made no further effort to cash the bill in ques-
tion. Information has been received that the same
bill was cashed in New York City some time later."
Well now, looking through our files, we have nothing
on that particular bill, but there was a ten thousand
dollar certificate of indebtedness from the Philippine
Islands which was cashed in 1922, redeemed, rather,
in September of 1922, paid by the Treasurer and per-
forated and sent to the Philippine Islands, along
with the regular transcript of the Treasurer.
In 1924, I think it was, the Philippine Islands'
Treasurer moved from one building to another and
apparently lost some of these paid certificates.
11
- 11 -
Somebody picked 1t up, and in 1927 that certificate
appeared in New York. The dates all coincide, you
see. They had some paper pasted over these per-
forated holes and it looked like a perfectly good
certificate. They sent it to the Treasurer and, of
course, they refused to make payment. This letter
has been written, reciting all those facts and the
banks through which that certificate came, and wound
up by saying, "It will be noted that there is a
coincidence as to time, place and denomination of
the obligations, but that otherwise the facts as
stated in your letter with respect to the Browder
transaction and the transaction which the Treasurer
reports herein, do not check.
H.M.Jr:
Who signs that?
Bell:
That is prepared for my signature. Mr. Duffield
thinks that - and I think it is 8. pretty good point -
a committee might come down and get these facts,
informally, and we might just not write him a letter.
H.M.Jr:
Why?
Bell:
Well, he thinks that something may be made of it.
Duffield:
I don't see why we go way out of our way to recite
a long history of a case and then say, "It doesn't
seem to check with what you ask, but it might."
It seems to me we are sort of gratuitously doing
some investigating.
Viner:
Dies would at once put that on the record, you know,
and pin it on Browder, whether Browder had any con-
nection with it or not.
Duffield:
I think so, too. I think we might write Dies and
say we don't have any evidence of 8. transaction
such as he describes, or anything that checks with
that transaction. Then we can ask him if he or
his counsel, or somebody, wouldn't come down and
we could relate to them this other case.
H.M.Jr:
If you were going to do that, I would ask his coun-
sel, who 1s an awfully nice fellow - what is his
name?
Gaston:
Whitley,
Regraded Unclassified
12
- 12 -
H.M.Jr:
And tell him you have got something you would
like to tell him about and to come down and see
it. He was an F.B.I. man for seven years in
New York. He is a terribly nice fellow.
Bell:
I am inclined to agree with Gene that that is the
best way to handle it.
H.M.Jr:
Then ask him how he would like us to handle it.
Bell:
All right, I will do that.
13
November 1, 1939
9:26 a.m.
John F.
O'Ryan:
Morgenthau?
HMJr:
Talking.
O:
Hello. This 18 General O'Ryan.
HMJr:
How do you do, General.
0:
How are you, sir?
HMJr:
I'm all right.
0:
I wondered if you could lunch with me today at the
Metropolitan Club.
HMJr:
Oh -- no, I -- I have an engagement, General.
O:
Well, I'm sorry for that. I've got to go back tonight.
I wanted to have just a brief word with you.
HMJr:
Yeah. Well, I'll be glad to see you at the office.
O:
All right. Suppose I stop in this afternoon and just
take a chance in between times.
HMJr:
No, I -- you can't do that with me. I work on too
close a schedule. I'll be glad to give you an appoint-
ment.
O:
Oh, yes.
HMJr:
I can see you this morning.
0:
At what -- at what hour?
HMJr:
I can see you at eleven.
O:
At eleven?
HMJr:
Yeah.
0:
All right, I'll be there.
HMJr:
I can see you at eleven.
0:
Yeah. All right, thank you.
HMJr:
Thank you.
14
November 1, 1939
4:56 p.m.
HMJr:
Hello.
Operator: Mr. Jones is away from his desk for 15 minutes.
HMJr:
Well, is there somebody there?
0:
Just a minute.
(Brief pause)
O:
His operator is there; his secretary is out too.
HMJr:
Well, tell Mr. Bell I couldn't speak to him and let
Mr. Bell talk to him when he comes in.
0:
All right.
HMJr:
And tell Mr. Foley I want him to walk up with me
part way.
0:
All right.
HMJr:
And he should be downstairs in about -- oh, be down-
stairs at five o'clock.
0:
All right. May I ask you a question please, Mr.
Morgenthau?
15
MEMORANDUM
November 1, 1939.
To Secretary
From Mr. Gaston
The following message has been received this morning
(timed
at 8:50 from the BIBB:
"Arrived but no vessel in sight on position given.
Will commence search to Worthward for vessel or boats.
Moderate southerly gale has been blowing with rising
barometer."
(British shop Coulmore!s
report b attack by Sub.
marine )
16
HSM
GRAY
London
Dated November 1, 1939
Rec'd 10:45 8. m.
Secretary of State,
AH
Washington.
2232, November 1, 1 P. m.
STRICTLY CONFIDENTIAL FOR THE PRESIDENT, SECRETARY
OF STATE AND SECRETARY OF THE TREASURY.
I had a talk with Sir John Simon this morning in
which he stuck closely to the text of a memorandum
which obviously had been prepared for him B. copy of
which I obtained on leaving. It really Embodies all hE
had to say.
"The amount of gold and other foreign Exchange
resources at our disposal for the necessary purchases
abroad for the prosecution of the war are by no means
unlimited. The United States Government has been kept
informed generally as to our gold resources, and the
amount of our readily mobilisable foreign Exchange
securities has recently been discussed with you. Add1-
tional foreign Exchange assets can, broadly speaking,
only bE obtained from the sale of exports, including
newly mined gold, abroad, and it is inevitable that our
export trade should bE seriously restricted by war time
conditions.
On
17
hsm -2- No. 2232, November 1, 1 P. m., from London
On the other hand, British Government purchases
abroad are bound to be greatly increased. It is impossible
at the present stage to make more than a very preliminary
estimate of what these purchases will bE, but on the basis
of such estimates as WE have been able to make United
Kingdom Expenditure in the United States is likely,
during the first year of the war, to be round about
one million sterling in EXCESS of what 1s likely to be
spent by the United States in the United Kingdom, and this
figure will probably increase as the war goes on.
A similar position holds as regards Canada, where
it is probable also that British Expenditure will EXCEED
Canadian expenditure in Great Britain, all transactions
visible and invisible included, by not far short of
one hundred million pounds in the first year of war.
In view of magnitude of this EXCESS expenditure it
has been, as you know, necessary for us, in order to
concentrate the dollar resources available to us on the
purchase of commodities Essential for the prosecution of
the war, to prohibit the importation, EXCEPT under license,
of a large varisty of goods. Faced as WE are by the very
grave Exchange situation Explained above, WE feel that
at a time when WE have had actually to refuse dollars to
the fighting services for purchases which they would
otherwise
18
ham - 3 - No. 2232, November 1, 1 P. ma, from London
otherwise have made abroad, WE could not defend the
further purchase in the United States of commodities not
strictly required in this country and WE propose to add
a certain number of further items including apples and
pears as from an early date to the list of goods which
can only bE imported under license. (Machinery is also
being added to the list, but this is for the purpose of
regulating not reducing the total imports.) WE have
already Explained our position in respect of films and
tobacco.
It is with the greatest regret that WE feel bound
to take action of this nature and you will appreciate
that it is dictated solely by necessity, having regard to
the atate of our dollar resources. WE have no intention
whatever of using the reduction of certain imports from
the United States which is forced upon us by the war for
the purpose of altering permanently the channels of trade
and WE intend as soon as may bE possible to return to our
normal peace time commercial policy as laid down in the
Trade Agreement with the United States, but as the war
goes on and as the pressure upon our Exchange resources
increases it will WE feel be inevitable that EVEN more
stringent restrictions should be imposed. As explained
above there will bE no overall reduction of imports, but
purchases of certain goods must bE reduced in order to
enable
19
ham -4- No. 2232, November 1, 1 p. m., from London
Enable other purchases to bE increased. WE wish to
give the United States Government the earliest possible
advance notice of the position and WE confidently trust
that the United States Government will appreciate the
position in which WE are placed and will understand that
no discrimination against the United States is in our
minds other than what is forced upon us by the Exigencies
of the war."
KENNEDY
HPD
8881
20
Dated: November 1, 1939 60mg 22
Rec'd: November 2, 1939
TELEGRAM RECEIVED FROM MINISTER CHANG KIA-NGAU, CHUNGKING
TO MR. K. P. CHEN, NEW YORK
PLEASE ARRANGE WITH KEESHIN AND WASHINGTON OUR DESIRE
PROLONG SHEAHAN ASSIGNMENT ANOTHER THREE TO SIX MONTHS IN VIEW OF
IMMINENT REORGANIZATION OF HIGHWAY ADMINISTRATION WITHIN MINISTRY
BELIEVE ACTION WILL ENABLE OUR GOVERNMENT GETTING BENEFIT FROM HIS
ACTUAL CONTACT WITH NEW SYSTEM.
Treasury Department
Division of Monetary Research
Date 11/2/39
19
To:
Miss Chauncey
From:
H. D. White
Mr. Perkins would like to
have the Secretary read the appended
report.
I have had it summarized for
his convenience.
21
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE November 1, 1939
TO
Mr. White
FROM
Mr. Eddy
Subject:
Summary of Mr. Mílo Perkins' speech before the National Association
of Food Chains on the "Agricultural Aspects of the Food Stamp Plan
Operations", October 10, 1939
"The project has received splendid support from all branches of the
food trades."
The plan allows persons on relief to raise their average food cost per
meal from 5# to 72% (It is not certain, however, to what extent more food
is bought or to what extent the saving is used for something else.)
The following table (condensed) shows first, the products for which the
blue stamps have been used in the five experimental cities, and second, the
stimated proportion of each crop which might be bought with blue stamps if
the plan were extended to the whole relief population:
Use of blue stamps
Percent of total domes-
in experimental cities tic consumption which
- percent of total
might be bought with blue
blue stamps
stamps if plan is extended
Butter
25 %
14 $
Egge
25
14
Wheat flour
10
5
Cormeal, rice, dry beans
and dried prunes
10
average over20
Fresh fruits and vegetables
30
-
100
Apparently only 3/4 of those eligible use the blue stamps in the ex-
erimental cities.
It is not known to what extent the blue stamp purchases are net increases
and to what extent a displacement of cash purchases that would have taken
ilace without the plan.
The plan holds important possibilities of helping both producers of sur-
Jue commodities and people on relief. It can be extended to the whole country
in 2 or 3 years. All factors involved can cooperate effectively without die-
atorship. The plan can be made flexible. Better than the stemp plan for all
concerned, however, is the increase of individual incomes through greater
mployment.
F.S. c. No. 1007
FEDERAL SURPLUS COMMODITIES CORPORATION
MEMORANDUM
10-660
10/30/39
From the office of Milo Perkins.
Confirming our phone conversation
of today.
22
Release - 1:00 P.M., CST, Tuesday, October 10, 1939
AGRICULTURAL ASPECTS
OF
FOOD STAMP PLAN OPERATIONS
Summary of statement by Milo Perkins, President of the Federal Surplus Commodities
Corporation, at the Sixth Annual Meeting of the National Association of Food Chains, in
Chicago, Illinois, on Tuesday, October 10, 1939.
The mechanical operations of the Stamp Plan are well known to all of you. The project has
received splendid support from all branches of the food trades, from farm organizations, from local
chambers of commerce, from public and welfare officials in the various states, and from the persons
using the stamps to secure an additional two and one half cents worth of surplus foods a meal for
each member of the family. This is in addition to the average of five cents a meal which such
persons previously were spending for food. A gradual expansion of this program already has been
announced by the Secretary of Agriculture.
It is too early to draw final conclusions as to the ultimate agricultural significance of
this method of distributing surplus commodities. The preliminary figures now available, however,
re of great interest to every farmer in America. First of all, we can see how persons getting
ublic aid are using their blue stamps on a wholly voluntary basis.
Based upon our experience to date, it appears that about one-quarter of the stamps are being
sed for butter and another one-quarter for eggs, two products which are produced very widely on
ar farms. About 10 percent of the added purchasing power is being used for wheat products.
proximately 31 percent is being divided among the fresh fruits and vegetables, according to the
Insumer's selection and the commodities which have been on the list thus far. Corn meal, rice,
y beans, and dried prunes are each receiving over 2 percent of the blue stamp expenditure as a
sult of the new buying by needy families. The following table brings out these figures in more
tail:
624-40
Table :
Percentage Distribution of Commodition Decured with Blue
Stampe in Five Cities
Univ 16 - 20. 1939
July 16 Auswet 26
May 16 2035 in
Kotiented
-
Davido
Expiration
Mail
APRE
a
Payten
Hoshwater
a
4
9
9
=
B
M
a
percent
Butter
33 )
25.8
33.0
30.0
19,3
33.2
18.9
11.0
23.4
30.7
36.6
23/7
27.3
20.3
29.4
19.7
12.4
24.7
Exes
B.J.
9.7
15.7
17
0.3
8.2
20.7
25.1
10 1
White Floor
Crabas Finur
11
07
.4
.16
26
on
07
10.38
Total Floor
8.17
9.8
14.4
T.TT
6.3
n.e
20.90
20.36
Cord Meol
2.1
L.0
.4
2.0
1.0
6.8
5.0
2.2
3
1.4
26
2.2
3.6
4.4
2.4
Rice
Dry Buses
2.4
4.5
4.7
1.4
4.5
22
6,2
10.3
3.8
go
2.7
3.4
14
2.1
2.2
2.7
5.2
2.2
Oried Prunee
Oranges
19.4
22.1
4.3
Grapefruit
3.7
7.1
5.0
Feaches
0.3
12.0
8.6
8.0
11,6
10.3
Posse
1.0
2.5
1,0
2,6
in
1.7
Total Frush Fruits
22.1
29.2
9.3
10.3
14.5
9.6
10.6
12.4
12.0
Cabbege
3.7
3.5
1.0
28
4.2
3.3
Pedo
23
4.5
1.5
3.7
.B
3.0
Tomatoes
10.9
10.8
7.0
5.9
3.6
9.3
Onlens
3.4
4.8
2,1
2.1
2,5
3.6
Total Fresh Vego-
tables
20.3
23.6
11.6
14.5
11.1
19.2
Total Fresh Fruits and
Vegetables
23.1
29.2
9.3
30.6
38.1
21.2
25.1
23.5
31.2
Total
100.0
100.0
100.0
100.0
100.0 100.0
100.0
100.0
100.0
/1. Seattle data during this period inadequate.
/8. First half-month of program only.
n.
City distribution weighted by the number in May, 1959 receiving public assistance in states surrounding
theoe cities.
Insure or date: Escausto Analysis Section. Stamp Division. Federal Surplus Communities Corporation.
Depisation serv
sales of flour and corn meal Important as the indicated increases are from the consumere' and the
I should like to call your particular attention, however, to the situation with respect to
these commodition which happen to be selling very much below parity,
sitimately, it can bring about a better price lovel for se entire crop. sopecially in the case of
than we anticipated. This wider distribution will de nore than provide 5. new market for surplusse:
figures indicating abarp increases 111 the consumption of rice and beace give a more hopeful picture
an alastic demand, such AZ dairy products, poultry products, fruits, and vegetables. The early
makes possible a much broader market for fathers producing those commodities for which there in
From an agricultural point of view, these figures have great significance The Stamp Plan
cabbage, peaches and other fruits and vegetables
market. Given purchasing pover, poor people will buy trainload after trainload of citrue, tomatoes,
227 million pounds of dry heans. For fresh fruits and vegetables there in a treaendous potential
form of core meal, about 140 million posada of rice, over 87 million pounds of prunes and about
THES. over 25 million busheln of whent in the form et floor, over 6 aillion bushols of corn in the
offers a potential annual market for over 300 million pounds of butter, about 352 million dozen
De the basin of the foregoing assumptions. 11 La interesting to note that the Stamp Pino
load =ay have changed considerably.
if other circumstances 2508 11 desirable to de 20, By that time, of course, the size of the relief
to think in terms of reaching the entire relief load in anything short of two or three years oven
the plan can be expanded. As an illustration, 10 do not believe that it is wish administratively
Stamp Flas extended to that many people, humaver. Many factors will influence the extent to #hich
16 million individuals This doce not nesessarily seen that " are currently planning to have the
been the case in the experimental cities, the group of participating eligibles would include about
DOCS form of public aid. If the same percentage of persona took part in e. ontional program as has
About 20 willion people are included in the total number of familier which are nuw receiving
Plan in that one city upon . wholly experimental basis:
privately employed persons sach as those in Shawnee, Oklahoma, who now are participating in the Stamp
here. refers to these naw receiving some form of public assistance and does not include Ice-inouse
upon the sabe basis an that in e few experimental cities. The term "eligible familien". 6.8 used
five sities for a for months, and if participation of eligible funilier throughout the nation were
every eligible family bought the jässe percentage or surplus foods 0,0 those which were purchased La
surplus commodities which wight skiet if the program were in operation throughout the country - If
were operating upon . national basis. In other words, Iet un project the increased market for
puriosity, - se can speculate on the possible agricultural significance of the Stamp Plan if 11
#ith that warning. - and treating the figures, therefore, 0.0 somewhat of a statistical
to get a more reliable meanure of the effects of the Stamp Plan upon our agricultural economy
a longer pariod of time, There punt be at continuing, runding analysta for some time yet if we are
as shown for e few months are A true Index to what the national appetito of this group might be over
accurately, nor is it widesprend enough to be sure that the food preferences of same 150,000 peraços
Tike d. permanent basis The plan has out bean in operation long enough so seasure seasonal changes
with certainty, as far as any particular comunity is conserned. that a now market exists on anything
products an they are added to the surplus list. It may be another year, however, before " cas any
these figures ao they change from time to time. He will sant to watch the demand for different
here at hose seung OUT underfed families. Every farm leader in the country will wast to watch
This is interesting evidence, crop by crop. et the untapped market for American farm products
23
5
24
elliers' posota of VIAR.. they hold relatively little promise for farmers growing wheat and 1st
There are a for other qualifications we must Keep in gind with regard to this table:
both cases, the increased AS the pusher of busbels which night be outsumed as flour and corn Dod]
world represent unly 1. fractica of the total crops 200 being produced. Lard in already on the simplie
(1) The calculations are tased on experience to date. Subsequent experience will require
list END if other pork products should be néded later in the year, the outlat for cora world la
modifications, particularly if 1here in - considerable change in the variety of cas-
Were the Steep Plan operating on a National babis, with livestock products included a
modities un the surplus List
the surplas 1104. 6 very significant market will be opened for our formera is the Corn Balt,
(2) They are based on prices existing up 10 September Radical price changes would alter
The figures apóil which the solimate of are markets sce based appear in more detail in the talls
the consumer purchases.
which fallows:
(2) It may not be true that all of these purchases will be additional purchases. For 8000
Table II
commodities and in some regions ascag scae families, a part of these purchases at loast,
probably would be ande la the absence of a program, The extent to which there potential
Productory Entinated of Foswible Purchases of Certain Surplus Commodities Vader & National Stamp Fie
purchases represent a net increase in the demand for agricultural commodities is of primary
and
vignificance. Although no final conologione on this subject can be reached from the date
1928-57 Average Domestic Consumption of These Commodities
naw available, considerable study 40 being and will continue to be directed toward this phase
of the subject The preliminary figures are very encouraging.
Approx, Blue
1 of Total Expenditure:Stamp Purchases 1928-37 Aver- Blue Stamp Furthase
(4) On the other hand, these calculations are lisited to the potential effect of purchases
Commodities
:for Each Commodity or on a National : age Deaestic as $ of 1926-37 4p-
by relief familier only and de not take into account any possible increase of purchases
Commodity Group
Banie
Consumption 11: order Consumption
by other families Ae a remult of special food drives und lower distribution charges não
1
2
2
4
provible by an indreased volume of unsiness. a still greater consumption of surplus fonds by
For Cast
Unit Million Units
Million
Units
Per Cent
the entire population pag be brought shout Re-employment. of course. will bring about this
result even more quickly\
Borror
25.4
lice.
301
2,191
13.7
After nearly Five wonths experience with the Steep Plan. - have smple proof of the splendid
Egga
24.7
des.
352
3,602
13.5
10b which the food trades have duns by way of pushing naisa for Tarmers with surpluses to sell.
Targers, business sec. and these of us who work for our government have learned that ve SAB got
Write & Grabas Flour
better results by tachling a tough job together That pottern of business-like cooperation may be
Wheas Equivalent (Le husbels) 10.16
bo,
26
more important than 1.h.o. Stamp Plac itself Many of us who citended the first two-day meeting of the
484
5.4
Agricultoral Advisory Council. recently called by Secretary Wallace, felt that It was. That Council
Cora Meal
Beating was attended by agricultural landere. laber leaders. and business lenders AF well de by
Curn Equivalent
2,2
NJ.
government officiale They were as one can in their sureness that the heavy responsibilities which
6.5
49/2
13.4
are ours because of est 18 the world can be discharged without remort to regisentation The present
Rice
2.4
lbs.
world emergency is a challenge to every major group in Amerios. It's up to us to prove that ve are
140
709
19.7
capable, as 6. people, of making economic demacracy work for the good of all without resort to the
Dry Beans
3,8
lb.
bethods of the dictators.
227
900/3
25.2
Dried Prizas
2.2
lbs.
The war already bas had & prenvanded effect upon. our agricultural mituation Many prices,
B7
228
38.6
which **** at somermally low levels doring the number. have now advanced If the vor drago
From FOUSE & Yegetables 14
41 Entimates nosice, allowance Fisolied is by Program 21.2 Coordination and Development Divisico, Burenu of Agricultural Do
out, & better export demand say be folt for poze products and A poorer cne for others The atto-
ation is a constantly changing one. Thanks to such machiners as the ever-normal granary, bewever,
a sill consumption
Werchant Made for fais to rotail market vaste
91 have abondant and adequate supplies of foodstuffs for our own people.
a (3 For 7% distribution including sanned beso consumption; partially
The prices of daty surpive agricultural commodities are still too los to bring about 4 Bito-
seasca of the year. Res 120% abviously depends to entimated the number of the
Ation where the returns to farmero will have a fair acchange value with city goods which (nrmors
willieg 49 for 14 sere dédad, a. the up total trange blue And stamp expenditures alone were on the commodities list in 3 cities, on the they list accept and -
Bust buy. As long 00 this condition axists. and 40 long 43 there ora millions of our own citizens
9115 inadequate diste, ve feel that the Food Streep Plan should be extended eradually to sections of
Source 1.2 parcent, chicne to Aspat and pass 38, frue pasches 3 to acquited 3.5 pricent for As each, Indicated 10.3 percent and in Table of the 1, total, when sore tomatow
the country where 16 has not yet been placed in operation.
Within each city, however, there is . possibility that the number of families aligible to
of Data 1100, United Analysis Section, Steep Division, Federal Surplus pears Commodities 1.7 percent. Corporal
participate will decline 1f the current trand teansit rulier employment costinues. That will please
States Department of Agriculture.
ac one more than It will please DA. A. man WALL . job at good wages provides the (armer with
Regraded Unclassified
- 6 -
broader market than 10 can afford to make possible through our food stamps, and he provides the
grocer a with 5. greater volume of business than he is now getting even in cities where the Stamp Plan
is in operation.
From the very beginning of the Food Stamp Plan we have tried to build its administrative
machinery upon an "accordion basis". In times of great agricultural surpluses, which usually are
accompanied by great unemployment, it will be there to do a minimum job in terms of minimum dieta
below which the public health would be endangered. The broader market thus made possible for our
farmers in times of stress will help to stabilize our whole economy. In times of fuller employment,
however, it can and should be restricted to the fewer families who would still be eligible for such
assistance.
I should like to repeat that both the farmers and the grocers make more money out of men
with good jobs than they do out of men buying a mere seven and one-talf cents worth of food a meal
with stamps. Everyone of us in this room lives in a family where the food expenditures are at least
three or four times that amount. Good times are likely to be followed by bad times, however, and
a mechanism like the Stamp Plan can serve the general welfare if it is contracted to a mere skeleton
in times of great prosperity, but kept alive so that it can be expanded in times of depression to
help cushion the shock. Those are the policy terms in which we are thinking during these difficult
days when no one can nee very far ahead.
It is expected that the commodities included on the surplus list will change from time to
time. In addition to the usual seasonal factors, disturbed world conditions may affect the variety
of commodities on the surplus list. On the other hand, there are adequate and in many instances
surplus supplies of a great many nutritive foods which can be expected to remain on the list. Some
commodities, such as citrus fruits and possibly pork products, may be added later during the year.
-
not read
TREASURY DEPARTMENT
MA
25
INTER OFFICE COMMUNICATION
DATE November 1, 1939
TO
Secretary Morgenthau
FROM Mr. Cochran
CONFIDENTIAL
The foreign exchange market experienced another quiet day. Sterling opened
at 4.00 and about noon, some commercial demand appeared in the market. The rate
rose to 4.00-3/8, and about mid-afternoon there was & little selling of sterling.
The rate then cased off and closed at 4.00-1/8.
Reporting banks in New York end the Federal Reserve Bank reported sales of
sterling totaling L237,000, from the following sources:
Commercial concerns
L178,000
Foreign banks (Europe and Far East)
I 59,000
Total
L237,000
Purchases of sterling amounted to L194,000 0.8. indicated below:
By commercial concerns
L130,000
By foreign banks (Europe and Far East)
19 64,000
Total
L194,000
The banks also reported that the British Control purchased sterling amount-
ing to L15,000 at the official rate of 4.02.
The belga improved today to close at .1667, as compared to yesterday's close
of .1664.
There was little interest displayed in the other important currencies and
the rates fluctuated in a narrow range.
We purchased from the Netherlands Bank $2,500,000 in gold from their ear-
marked account.
The Federal Reserve Bank reported to us the following shipments of gold to
this country from India, for sale to the U. S. Assay Office at New York:
$ 490,000 consigned to the French American Banking Corporation, New York
831,000 consigned to the Chase National Bank, New York
1,798,000 consigned to the National City Bank, New York
$3,119,000 Total
CONFIDENTIAL
26
- 2 -
On the report of October 25 received from the Federal Reserve Bank of New
York , giving the foreign exchange positions of banks and bankers in its district,
the total position of all currencies was short the equivalent of $20,129,000, an
increase of $1,706,000 in the short position for the week. The net changes in
positions are 88 follows:
SHORT POSITION
SHORT POSITION
INCREASE IN
COUNTRY
OCTOBER 18
OCTOBER 25
SHORT POSITION
England
$ 6,624,000
$ 6,874,000
$ 250,000
Europe
7,482,000
8,424,000
942,000
Canada
273,000
628,000
355,000
Latin America
364,000
286,000
78,000 (decrease)
Far East
3,607,000
3,851,000
244,000
All- Other
73,000
66,000
7,000 (decrease)
Total
$18,423,000
$20,129,000
$1,706,000
In New York we made one purchase of silver amounting to 50,000 ounces under
the Silver Purchase Act.
Mr. Knoke telephoned me that as of this afternoon the balance of the Russian
State Bank with the Chase National Bank was $4,900,000, as compared with $4,300,000
on October 27. A payment of $1,000,000 into this account had been received from
Sweden. The balance of the Amtorg with the Chase had been reduced from $1,100,000
on October 27 to $700,000 today.
Smill
CONFIDENTIAL
From Ed. 70by
27
11.25A.M.
STATEMENT OF FACTS
In April, 1933, Joseph Schenck, head of United Artists, Inc.,
entered into a contract with Darryl Zanuck for Zanuck's personal
services as 2. producer and director of motion pictures.
In May, 1933, Twentieth Century Pictures, Inc., was incorporat-
ed. Joseph V. Schenck and William Goets were sole stockholders of
record. Goetz acted as trustee of the Mayer Family Trust which his
father-in-law, Louis B. Mayer, had created.
Schenck invested $350,000 in Twentieth Century. The Mayer
Family Trust also invested $350,000 in the enterprise. Schenck and
Goetz each received 3,500 shares of preferred stock having a par
value of $100 8 share.
The common stock of Twentieth Century consisted of 100 shares.
Schenck and Goets each received 50 shares.
Upon the organisation of Twuntieth Century, Schenck assigned to
Twentieth Century & written personal service contract between Zanuck
and hirself which provided for 1 weekly salary of $4,000 plus 10 per
cent of the net profits.
Zanuck's personal service contract was revoked in March, 1934.
A new written contract was made under which Zanuck was permitted to
buy 10 shares of the common stock owned by Schenck and 10 shares of
the common stock owned by Goetz at a nominal price of $100 a. share.
His salary was reduced from $4,000 to $2,000 a week and he was per-
mitted to retain $100,000 which had been advanced to him by Schenck
In anticipation of Zanuck's 10 per cent share of the net earnings
under the original personal service contract.
Zanuck then had a 20 per cent interest in Twentieth Century for
the nominal sum of $2,000.
In his tax return for the year 1934 Zanuck did not report the
inocome represented by his purchase of these 20 shares at a nominal
price of $100 a share. In September 1936 a revenue agent reopened
Zanuck's return for the year 1934, and recommended that Zanuck and
his wife be assessed an additional tax of approximately 8100,000
based upon a book value of $10,100 per share.
In August, 1935, a merger was effected between Twentieth Century,
Inc., and Fox Film Corporation under a plan of reorganization which
required Twentieth Century, Inc., to transfer all of its assets to Fox
Film Corporation in exchange for stock in Fox Film Corporation. The
name of Fox Film Corporation after the merger was Twentieth Century-Fox
Film Corporation. The name of the old Twentieth Century Pictures, Inc.,
was changed to S-0-Z Corporation, and it was shortly afterward dis-
solved.
In effecting the marger two classes of stock were issued. The
preferred stock represented the assets of both corporations. The book
value of Fox assets was approximately $37,000,000. The book value of
Century assets was approximately $4,000,000. Preferred stock in the
Amount of 1,358,000 shares vas issued, each share being valued for
purposes of the merger at about $30 a share. Fox stockholders received
1,226,000 shares of preferred stock and Century stockholders received
132,000 shares of preferred stock on the basis of the respective monts
of the two corporations.
Regraded Unclassified
28
- 2 -
The common stock was treated for purposes of the reorganization
as if it had no monetary value. The old stockholders of Fox received
the new common stock on the basis of one-half share of common for
each share of new preferred, 1. e., 613,000 shares of common stock.
An equal amount of common stock was issued to stockholders of Century.
When received by Century the preferred stock was allocated in
accordance with the stockholdings of record, that is 40 percent to
Schenck, 40 per cent to Goetz and 20 per cent to Zanuck. The common
stock was divided on the basis of 35 per cent to Schenck, 35 per cent
to Goetz and 30 per cent to Zenuck. Although Schenck through manipu-
lation of the asset value per share of preferred stock apparently made
it appear to Zanuck that Zanuck was receiving 30 per cent of the
preferred as well as 30 per cent of the common and that Goetz and he
only 35 per cent of the preferred, this was not actually the fact.
This trickery of Zanuck is relevant only because it tends to establish
that stock holdings of the taxpayers were in fact the same AS they were
of record, namely 40 per cent in Schenck, 40 per cent in Goetz and 20
per cent in Zanuck.
The actual distribution among Century stockholders of the new
preferred stock in Twentieth Century-Fox was as follows:
Total Shares
Zanuck
Goetz
Schenck
to Preferred
tockholders:
700,000 at 830
22,000
11,000 (50%)
11,000 (50%)
To Common stockholders:
Balance Preferred
stock (Besis 20-40-40) 110,000
22,000(20%)
44,000 (40%)
44,000 (40%)
132,000
22,000
55,000
55,000
The purported distribution among Century stockholders of new
proferred stock in Twentieth Century-Fox WSS as follows:
Total Shares
Zanuck
Goets
Schenck
To Preferred stock-
holders: $700,000
st $12 per share (asset
value reached by working 59,000
-
30,000
30,000
backward on Schenck's orders)
Lance Preferred stock
to Common Stockholders:
(Basia 30-35-35)
73,000
22,000(30%)
25,000(35%)
25,000(35%)
132,000
22,000
55,000
55,000
The distribution emong Century stockholders of the new common
stock in Twentieth Century-Fox was 6.8 follows:
Total Shares
Zanuck
Goets
Schenck
613,000
183,000(30%)
214,000(35%)
214,000(35%)
-3-
29
The 613,000 ahares of common stock of Fox received by Century
and later distributed to Bahanak, Goots and Zanuck when Century
dissolved may have born paid for the good will and the cancellation
of personal service contracts which Century had with Zanuck and
Schenck.
Century which had 8. high earnings record might have refused to
enter into the merger without adequate compensation for the risk in
the form of a 50 per cent out of future earnings. This would ordinarily
be accomplished through an equal distribution of the common stock be-
twoen Fox and Century since the preferred stock had been issued against
the assets.
There is nothing in the Internal Revenue Code which appears to
require that after a aerger the new stock holdings be in the same
ratio sa the asset values of the merged corporations in order to con-
stitute 8. nontaxable reorganisation.
The very fact that there is s. reorganization implies a bargain-
ing power on the part of the corporations which are parties to the
reorganisation. If one party is able through superior borrowing power
to obtain what appears to be a disproportionate amount, this excess
may be ascribed to the superiority of that party's bargaining position.
But that is not all that there is to this case. The manner in
which the common stock allocated to Century is divided among the share-
holders in Century is persuasive evidence that here is something which
is not 8. normal reorganisation, nor germane to EL normal reorganization.
After providing for the return of the capital invested in preferred
stock in Century, the new preferred stock was distributed to the common
stockholders in Century in accordance with their stockholdings.
The 35-35-30 division of cosson stock was not in accordance with
the holdings of 40-40-20, and was not in accordance with usual corporate
practice upon liquidation after a reorganization.
Shareholders in Century might, of course, make a private deal among
themselves. But if there were such a private internal arrengement among
the stockholders of Century, it WEB extraneous to the reorganisation.
It was the lark on the back of the eagle.
This is illustrated by article Il of the plan of merger which
provided that Century and its stockholders agreed to transfer the new
preferred and new common stock to the stockholders of Century "in the
proportions set forth in Exhibit E hereto anneted and made a part
hereof, solely in exchange for the Century stock held by such Century
stockholders." Having in mind Zanuck's stock in Century and the proportions
set forth in Exhibit E (which were not in accordance with the actual stock-
holdings), it is rather apparent that there was sncrusted upon the reorganisa-
tion plan an artifice not germane to the reorganization. The purpose as
to cloak the income received by Zanuck with the immunity of 8. nontarable
reorganisation.
In addition to the distribution to which Zanuck WBA entitled by
reason of the distribution of Fox stock to Century stockholders, Zanuck
had apparently exacted a further consideration in return for his consent
as a common stockholder of Century to the reorganization plus his enter-
ing into a new personal service contract with Twentieth Century Fox.
4
or course, cash need not pass in order that taxable income be
realized. Instead of receiving cash, Zanuck received stock over
and above his pro rata share in Century. This income is texable
and should have been returned by Zannek in his 1935 return.
The facts disclosed by the investigation tend to show that
Zanuck willfully attempted to evade his income tax. Curiously, how
ever, the deficiency due to Zanuck's fraud is diminished to the EX-
tent of the fraud perpetrated by Schenck on Zanuck. In other words,
if the preferred stock, as distinguished from the common stock, of
the new Twentieth Century Fox Film Corporation was distributed to
Zanuck on a 40-40-20 basis in accordance with his basic holdings in
Century, then the amount which he got to boot over his proportionate
share consists of about 62,000 shares of common stock. On the other
hand, if the new preferred stock was distributed on a 35-35-30 basis,
As Zanuck has been led to believe by Schenck, the deficiency in
Lanuck's income tax due to Zanuck's fraud is increased by the market
value of the excess shares of preferred stock which he received.
Were it not for the disproportionate distribution, the non-
taxability of the reorganization would probably not be questioned.
But this fact, considered in the light of such events as the with-
holding of Exhibit E from the plan of merger submitted for a ruling
by the Commissioner of Internal Revenue, the attempts to conceal the
telegraphic communications between Zanuck and Schenck showing the
true nature of the transaction, the submission of apparently false
and misleading affidavits to the Bureau of Internal Revenue, the
obvious evasiveness of Zanuck and Schenck when questioned at the
Department of Justice, the evidence of the bribery by Zanuck's former
business agent of the Internal Revenue Agent who first found that
Zanuck had failed to report his 1934 income properly, and similar
indications of intent to conceal, warrants a grand jury investigation
for the purpose of shedding more light on the criminal aspects of
the case.
In addition to establishing Zanuck's civil and criminal liability
such a grand Jury investigation might also bring out more fully the
motives back of Schenck's sudden altruistic endeavors to protect
Zanuck, as well as Schenck's own civil and criminal liability in con-
nection with his deduction for a sham loss on the sale of stock and
false deductions for business expenses, as asserted in the letter to
the Acting Assistant Attorney General from the Acting Commissioner of
Internal Revenue dated July 14, 1939.
The reports of the Intelligence Unit upon which the tax liability
in this case is predicated disclose utter lack of respect for law and a
contempt for civic obligations by several of the principals involved.
In assessing income taxes, the Government must rely to a large extent
upon the disclosure by taxpayers of all relevant facts. To discourage
fraudulent attempts to evade taxes, Congress has, therefore, imposed
criminal as well as civil sanctions. The utility of the fraud penalty
as & remedial sanction in safeguarding the revenues of the Government
is not impaired by the collateral use of the criminal sanction; and
an indictment and trial for the making of a fraudulent return is
more effective as a deterrent than a hearing before the Board of Tax
Appeals in a civil case. The oft-quoted rule which excludes from
consideration the motive of tax avoidance is not pertinent to a situs-
tion such as this in which tarpayers knowingly try to hide the truth.
Regraded Unclassified
31
November 1, 1939.
m Column
MEMORANDUM FOR MR. IREY:
my
The following was received from Naval Intelligence at 3:45 p.m.,
this date.
This is additional to the information received from them on the
same subject at 10:10 a.m., this morning:
"A Mr. Rhinelander, representing Morgan and Company, New York,
conferred in Baltimore today with an insurance company, relative
to the shipment of $750,000,000 in securities (mostly U. 8. Steel)
in $50,000,000 lots on neutral ships to the United States from
The Netherlands."
T
B. M. Thompson.
1
11-1-39
FROM: MR. GASTON'S OFFICE
32
TO:
The Secretary
A message from Burton, in the Hall plane from
Floyd Bennet(, came through at 2:25 . It was
timed 12:10. He said that om account of
"generally poor weather conditions" he was returning
MD
SS
columere
11-1-3
FROM: MR. GASTON'S OFFICE
33
TO:
The Secretary
Burke reported at 12:30 flying weather had
become dangerous and he was returning. His
position then WES 285 in cast of Vantucket and
about 35 milles west of last reported position
of Coulmore. He had been unable to communicate
with the Bibb. "o report from Burton, who left
Floyd Bonnett 38 minutes earlier than Burke.
% Comphell reports heavy Bather, fresh southerly
nle with fog and rain.
Nar
55. Coulure
34
NOV to 1939
My dear Mr. Somers:
For your information, I an enclosing a copy
of a letter I have just sent to the Speaker in reply
to his inquiry concerning the use of the Stabilization
Fund.
If I can be of any assistance in the way of
supplying additional information concerning the
Stabilisation Fund during the course of the debate on
the neutrality legislation I shall be happy to do 80.
Very truly yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury
Hom, Andrew L. Somers
Chairman, House Committee on Coinage,
Weights, and Measures
House of Representatives
Washington, D. c.
Enclosure
Delivered in person by L.J.Bernard approximately at
11:30 a.m.
Initialed BB EHFJr and HDW
EHFIS Typed 11/1/39
35
Regraded Unclassif
November 1, 1939
My dear Mr. Speaker:
You have informed no that in connection with the present consi-
deration of the neutrality legislation by the House of Representatives
there has been discussion concerning the use of the stabilization fund
as a means of lending money to and siding a belligerent country to
finance the war. You have asked me for an expression of my views con-
cerning this matter.
The stabilization fund was created pursuant to Section 10 of the
Gold Reserve Act of 1934 which provided in part as follows:
"For the purpose of stabilising the exchange value of
the dollar, the Secretary of the Treasury, with the approval
of the President, directly or through such agencies as he
may designate, is authorised, for the account of the fund
established in this section, to deal in gold and foreign
exchange and such other instruments of credit and securities
as he may deam necessary to carry out the purpose of this
section. # . ","
Congress by legislation in 1937 and 1939 has continued these stabilisation
powere until June 30, 1941.
Às is made clear by the above-quoted provision, the stabilisation
fund may lawfully purchase foreign exchange only for the purpose of
stabilising the exchange value of the dollar. It has been for this purpose
and not for the purpose of supporting the currencies of any foreign country
that the Fund has from time to time acquired foreign currencies. Further-
more, I should like to state that the stabilization fund is not acquiring
36
- 2 -
any currencies of belligerent countries and is at present holding 745
pounda sterling (approximately $2,980) end 3,652 French france (approxi-
sately $82) which were acquired long before the outbreak of the war.
When I appeared before the House Committee on Coinage, Weights
and Measures last March in connection with the bill to extend the
stabilisation powers, the following colloquy took place between Con-
gressman Andresen and myself:
. andresen. Yes. And no hear a good many remarks
made about the activities of the Trensury and other agencies
of the Government, and I want to ask you this In connection
with the stabilization fund, has any of the stabilization
fund been used in any manner to finance a foreign government
in the purchase of arnaments or any other war supplies?
"SECRETARY NORGENTHAU. I can answer that under oath to
that questions No.
"And I will answer further. Às long as I am Secretary
of the Treasury and as long as Congress gives as that responsi-
bility, the answer is no. I answered yesterday to it before
the Senate connittes, and I would like the privilege of answer-
ing here again. If we ever become involved in any war, I would
come to this committee, and to the committee before the Senate,
and ask for guidance and directions as to how I should conduct
myself in relation to the stabilisation fund.
% ANDRESEN. Then this fund, from your answer, is to
the effect that it 1s not used in any manner as part of the
foreign policy of this Government with reference to supplying
war supplies to any other country?
"SECRETARY MORGENTHAU. Mr. Congressen, under oath, it
is not used that way, directly or indirectly."
Shen I appeared before the Senate Committee on Danking and Currency,
Senator Taft raised the following questions
"SENATOR TAFT. Suppose there is 5 foreign var and suppose
you go out and do what you can to buy $2,000,000,000 worth of
pounds Isn't the effect of that to give England the power to
buy $2,000,000,000 worth of goods in this country under the
cash end earry provisions?
37
- 3 -
My reply we as follows:
"Senators, if there 18 a war in any foreign country,
before we would use the stabilization fund or any money
in the Treasury to assist any country in prosecuting that
war, I would come up before the proper committee end csk
for guidance,"
My replies to the foregoing inquiries remain the sens, end I
would like to reaffirm the position which I took at that time before
the House and Senate committees.
I on also enclosing as of possible interest to this connection
copies of a recent exchange of correspondence which I have had with
Senstor Vendemberg.
I trust this furnishes you with the information that you
desire.
Very truly yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
Mob. William B. Benkheed,
House of Representatives.
Inclesure.
Biam
Retyped 11/1'30 by to (thire page)
Delievered in person by L. J. Bernard approximately at 11:30 a.m.
Initialed BB EHFJr HDW
38
UNITED STATES SENATE
Committee on Finance
October 17, 1939.
Nonorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
lty dear Mr. Socretary:
I should like to inquire - if I am entitled to the
information - whether the stabilization fund is nov. being
used in connection with the stabilization of the British
pound and the French franc; and whether there is any
stabilization agreement under which we continue to operate
in conjunction with England and France or any other foreign
countries.
I should also appreciate your viewpoint on another
phase of this problem. I assumo that you are continuing
to purchase at 35 an ounce, all foreign gold that is
offered. In viow of depreciated foreign currencies, is
not this equivalent to paying considerably more than 535
an ounce so far as the foreign scller is concerned? If we
put our foreign trade with belligerents on a strict "cash
and carry" basis, will it not be likely to substantially
increase this inflow of foreign gold - perhaps to so dan-
gerous an extent that we finally shall practically monopo-
lise the world's gold supply? Fould this not seriously
threaten the world's subsequent return to the use of
monetary gold - and thus relatively threaten the ultimate
value of our own enormous gold hoard? Should not the pur-
chase of foreign gold be curtailed and re-priced at least
for the period of the war?
I am not asserting any pre-conceived judgments of
my own in submitting these questions to you, I am simply
seeking information from authentic sources and I shall
greatly approciate a reply within the next few days.
with warm personal regards and best wishes,
Cordially and faithfully,
(Signed) A. H. WANDENBERG
39
October 24, 1939.
My dear Senator:
I should like to answer in some detail the questions in your
letter of October 17, so as to clarify certain aspects of problems
relating to gold.
You write:
"I assume that you are continuing to purchase at $35
an ounce, all foreign gold that is offered. In view
of depreciated foreign currencies, is not this equiv-
alent to paying considerably more than 35 an ounce
so far as the foreign seller is concerned?"
I am uncertain what you mean by this question. It is subject
to several different interpretations and to make certain that you
obtain the information you ask I will endeavor to answer each of
them separately.
1. Does the question ask whether the foreign seller
of gold receives more purchasing power over goods and ser-
vices here than he did prior to depreciation? If that is
the sense of your question then the answer is "No". The
835 per ounce (less 1/4 of 1 percent) which the foreign
seller of gold receives probably represents less and cer-
tainly not more purchasing power in terms of goods and
services in this country than it did before the depreci-
ation of currencies in recent months. Such purchasing
power of $35 in the United States varies, of course, with
changes in prices of goods and services in the United States.
Since most goods and services that can be purchased here by
a resident of a foreign country have risen in price during
the past two months, it follows that the foreign seller of
gold probably gets less goods and services for his 35 now
than he did a few months ago.
2. Does the question ask whether the foreigner can get
more units of his own currency for gold by selling it in the
United States than by selling it in his own country? If this
is the sense of your question, again the answer is "No". We
pay no higher price for gold (allowing for commissions, hand-
ling charges, etc.) than other countries do, After a foreign
seller of gold converts the dollars he obtains for his gold
into sterling, for example, he finds that he has approximately
- 2 -
40
the same amount of money as he would have had if he
had sold that gold in Lendon. (For a further expla-
nation of this I refer you to pages 7,8 and 9 of my
letter to Senator Wagner, dated March 22, 1939, a
copy of which is enclosed for your convenience.)
3. Does the question ask whether the foreign
seller of gold gets more units of his local currency
for his gold now than he did before the depreciation
of his currency? If this is the sense of the question,
the answer is clearly "Yes". That is exactly what de-
preciation of a currency in terms of gold means, namely,
that each unit of a depreciated currency is exchangeable
for less gold,
4. Does the question ask whether the greater number
of units of the depreciated currency which the foreign
seller obtains for his gold can purchase more goods and
services at home than could the smaller number of units
he obtained for his gold before depreciation? The answer
to this question in "Probably yes", Prices in the country
of a depreciated currency do not usually rise as much as
the currency depreciates for a considerable period of time,
if at all, During that period the holder or producer of
gold will got more local goods and services for an ounce
of gold than he did before, But he gets more goods only
if he buys goods at home; furthermore, he gets more goods
for an ounce of gold not because we continue to pay $35
an ounce for gold, but because his own country gives more
units of its currency for en ounce of gold.
When taken in the context of your whole letter one further
possible interpretation of your question suggnsts itself. You may
be asking whether the recent depreciation of foreign currencies will
of itself lead to an increased inflow of gold. If this is the sense
of your question, the answer is "Probably no". It is, of course, in-
possible to foretell at this time the total effect of a Europe at war
upon our balance of payments. The specific effect nf the recent de-
precistions .of foreign currencies, however, would clearly seem to
operate in the direction of a reduction in gold offerings, Depreci-
ation of foreign currencies vis-a-vis the dollar means that American
goods and services are less attractive to the foreigner because he
must give more of his OWT: currency in exchange for a dollar's worth
of merchandise than formerly. In other words, the depreciation of
foreign currencios is B factor which operates in the direction of
reducing our exports to and increasing our imports from the countries
involved. Thus the effect of the change will tend to reduce our
favorable balance of trade and consequently such inflow of gold as
may be attributable to our export surplus. It is true that price
changes may in time offset the effect on the relative attractiveness
of foreign and American goods initiated by the depreciation of foreign
currencies. But even in normal times this adjustment usually does not
take place for some time,
41
- 3 -
You ask the further question:
"If we put our foreign trade with belligerents on
a strict 'cash and carry' basis, will it not be
likely to substantially increase this inflow of
foreign gold - perhaps to 50 dangerous an extent
that we finally shall practically monopolize the
world's gold supply?"
The prohibition of credits to belligerent governments may
possibly have the effect of reducing our exports to belligerent
countries, This might in turn reduce the value of our total ex-
ports compared with what our exports would be were the prohibi-
tion not included in the Noutrality Act. Were the belligerent
governments to purchase some of their imports from the United
States on credit, a portion of the payments due us might be
postponed. However, whether this postponement would result
evon in a temporary reduction in the inflow of gold cannot be
forecast because:
(1) It is not known what proportion of the dollars
used for payments would be acquired from the sale to us
of gold, and what proportion would be acquired from other
sources.
(2) It is not known whether an extension of credits
to belligerents would result in greater purchases from the
United States or whether there would simply be a substitu-
tion of some credit purchases for cash purchases. Only in
the latter instance would it be possible for vart of the
inflow of gold to the United States to be postponed. In
the former case it would mean that the gold inflow would
be the same over the short period of time and would be
greater at some subsequent time when credits were liqui-
dated,
You ask this further question with respect to gold:
"Would this (increased inflow of gold) not ser-
iously threaton the world's subsequent roturn to
the use of monetary gold - and thús relatively
throaten the ultimate value of our own enormous
gold hoard?"
This war demonstrates, if any demonstration were needed, that
gold constitutes the best form in which foreign exchange resources
can be held, Even under the most difficult conditions of war, bel-
ligerent governments which possess gold can buy with it anything
that is for sale.
42
- 4 -
The now situation in world trade brought about by the war in
Europe will, of course, introduce some changes in the distribution
of gold among the nations of the world. Belligerent countries will
probably lose gold, but numerous neutral countries, which now have
little gold, may be put in a position to increase their holdings as
a result of improvements in their trade balances. As a consequence,
the war may well have the offect of causing a wider distribution of
gold among the countries of the world, Such an increase in gold
holdings by many countries would give more countries a stake in the
continuation of gold as a medium of international payments. The
gold producing countries, of course - including the British Empire,
which now produces half the world's gold - will continue to have a
vital interest in the use of gold as a monetary metal,
These considerations, as well as others, indicate that gold will
omerge from this disturbed period with added prostige as the inter-
national medium of exchange. For further discussion of the future
usefulness of gold as a monotary motal, you may wish to refer to
pages 16, 17, 18 and 19 of my letter to Senator Wagner referred to
abovo,
Your last question on gold relates to a suggested change in
our monotary policy, You ask:
"Should not the purchase of foreign gold be cur-
tailed and re-priced at least for the period of
the war?"
I am not clear whether by re-pricing gold you have in mind an
increaso or a docrease in the price of gold. I judge from the con-
text of your letter, however, that you are inquiring about the ef-
fects of a reduction in the dollar price of gold.
My views with respect to the consequences of reductions in the
price of gold are fully set forth in my letter to Senator Wagner re-
forred to above. The discussion appears on pages 13 to 16 of that
letter, and I think it may be appropriately re-read in connection
with your inquiry.
You raiso the question of the advisability of reducing the price
of gold "for the period of the war". Any substantial change in the
price of gold which is known to be temporary would have seriously dis-
rupting influences on trade and international capital flows. It would
introduce a still groater risk eloment in business relations with for-
sign countries and would, moreover, increase world speculation in
dollar exchango,
I now turn to the question in your letter referring to the
Stabilization Fund.
43
- 5 -
You write:
"I should like to inquire - if I am entitled to the
information - whether the stabilization fund is now
boing used in connection with the stabilization of
the British pound and the French franc;and whether
there is any stabilization agreement under which we
continue to operate in conjunction with England and
France or any other foreign countries."
When I appeared before the Senate Committee on Banking and
Currency last March, Senator Taft raised the following question:
"Suppose there is a foreign war and suppose you go out
and do what you can to buy $2,000,000,000 worth of
pounds: Isn't the effect of that to give England
the power to buy $2,000,000,000 worth of goods in
this country under the cash and carry provisions?"
I would like to reaffirm the position which I took at that
time. My reply was, and still is, as follows:
"Senators, if there is a war in any foreign country,
before we would use the stabilization fund or any
money in the Treasury to assist any country in prose-
cuting that war, I would come up before the proper
committee and ask for guidance."
The stabilization fund is not acquiring any currencios of
belligerent countries and is holding only a trifling amount of
foreign currencies of belligerent countries acquired long before
the outbreak of the war.
I trust that this furnishes you with the information you
requested.
Sincerely,
Enclosures.
(Signed) HENRY MORGENTHAU, JR.,
Secretary of the Treasury.
Honorable Arthur H. Vandenberg,
United States Senate.
oûo
44
NOV 1 1939
My dear Mr. Strams:
Receipt is acknowledged of your letter of October 30, 1939.
referring to the discussion between your representatives end
Mr. D. W. Bell, concerning the financing to be done by the United
States Housing Authority within the next six to eight months to
cover its needs for loans to be made to local housing authorities.
In reply. you are advised that in order to provide funds to
meet your requiremento over the next fev months, the Treasury will
be willing to purchase. up to an acgregate of $15,000,000, the
obligations of the United States Housing Authority pursuant to the
provisions of section 20 (4) of the United States Housing Act of
1937. under & procedure similar to that followed in connection with
the purchase by the Treasury of your Series "A" notes. It is super
gooted that the DOW notes be in the denomination of $1,000,000 each
and bear interest from the date of purchase by the Treasury at the
rate of one-quarter of one per centum per annus, payable semiannally
on December 31. 1939. and June 30. 1940, and nature on June 30, 1940.
If this arrangement Is satisfactory to your it is suggested that
there be submitted for My formal spproval, under section 20 (a) of
the Act, the form of note to be legued by the United States Housing
Authority.
Very truly yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
Fonerable Nathan Straus,
Administrator,
United States Housing Authority,
Washington, D. 0.
By hand
WTH:Vf
10/31/39
Regraded Unclassified
70(e)
FEDERAL RESERVE BANK
OF NEW YORK
45
OFFICE CORRESPONDENCE
DATE November 1, 1929.
ro CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION WITH
FROM
L. W. Knoke
BANK OF ENGLAND.
I called Mr. Bolton at 11:58 a.m. with reference to the
payments totaling about $85,000,000 made to us for account of the
Bank of England yesterday and today, receipt of which had not been
advised to us by the Bank of England, and explained the reasons
why we had to turn down $28,000,000 offered us by the Guaranty
Trust Company yesterday. I added that the latter item was now in
order and that our cable advising him of receipt of this amount
was on the way. Bolton was under the impression that a receipt
cable had been duly sent to us and suggested that it might have
gotten jammed with Government business. He explained that these
payments represented accumulations in the accounts of the commercial
banks acting as agent for the Bank of England and that the belated
transfer was entirely due to the enormous amount of work which they
had to do at the Bank of England. Similar payments might be effected
from time to time in the future and he would see to it that we would
get prompt advice beforehand.
I asked whether there were any news in the matter of pay-
ments to be made by us to Mr. Osborne to the debit of Bank of
England's account with us. Bolton replied that they appreciated
what we had done for them) that he was now waiting to hear from
Osborne what amount he would need.
I referred to our telephone conversation of August 29, 1989
in which he informed us of certain payments to be made to us
est
FEDERAL RESERVE BANK
46
OF NEW YORK
OFFICE CORRESPONDENCE
DATE November 1, 1939.
TO
CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION WITH
L. V. Knoke
BANK OF ENGLAND.
FROM
2
representing proceeds of sales of American securities. As re-
quested by them, we had in the past cabled them each time when
these payments, which were in Clearing House funds, were effected.
We wanted to suggest now, I continued, that instead of cabling
on the day the funds were received, we would cable them only
after the amounts had actually been credited to their account.
That procedure, Bolton replied, would be entirely satisfactory to
them.
I inquired as to the reaction in England to the shift
in the Italian Cabinet and to Molotov's speech. As to the former,
he had heard nothing at all. All arrangements with Italy were
working smoothly and there seemed to be no friction of any sort.
As far as Molotov's speech was concerned, it seemed to have caused
more disturbance in Scandinavia than anything else, where obviously
they saw their sovereignty threatened. In England the speech
seemed to have brought on a little more cheerful atmosphere.
BEDEIAED
LWE:KW
03713038
eept 5d
VAUSANT
-
1 be -
-
47
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Berlin, Germany
DATE: November 1, 1939, 11 a.m.
NO.: 1902.
In occupied Poland the same procedure of promptly
gathering up the foreign exchange of added territory (as in
the acquisition of Austria and the Sudetenland, and the
protectorate) has begun. In an order dated October 17,
issued at Lodz, the German-operated central bank of the
occupied area, the Reichs Kreditkasse (reference: telegram
of September 30, No. 1512, from the Embassy) has directed
all individuals and firms to offer to to Reichs Kreditkasse
or to a bank authorized by it to deal in foreign exchange,
all the foreign currency, foreign securities, foreign checks
and bills, and gold which they possess by October 31, and
to offer all claims on foreign exchange as well as claims
for payment in zlotys to be made by foreign concerns or
individuals by the thirtieth of November.
The foregoing order will not result in Germany getting
any substantial quantity of foreign exchange from Poland,
according to Puhl, the Reichsbank Director. He asserted,
on the contrary, that Poland would be & drain on the Reich's
exchange resources particularly in view of the fact that
in Poland there were relatively heavy foreign investments.
Requests
48
- 2 -
Requests have been received from the Governments of the
Netherlands, Switzerland and Sweden asking that their
arrangements with Germany on trade and payments be expanded
to cover the remittance of dividends and interest on the
investments of their nationals in the occupied area.
Foreigners held 42.9 percent of the capital stock of
Polish disposition, that 18, 721,000,000 marks, according
to the German press. This figure included 125,000,000
marks which Germans held.
Puhl has also said that no real addition to the
exchange holdings of Germany 18 to be expected from the
repatriation of Germans from Lithuania, Latvia and Estonia.
Arrangements are expected to be made between Germany and
the Governments of Lithuania, Latvia and Estonia looking
toward the progressive conversion of the assets left
by emigrant Germans in these countries. But it was admitted
that the transfer of the proceeds will be very slow work.
It 1s requested that this telegram be repeated to
the Treasury Department.
KIRK.
BEN
EA:LWW
49
AM
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embasay, Paris, France
DATE: November 1, 1939, 7 p.m.
NO.: 2632
FOR THE TREASURY DEPARTMENT.
This afternoon we dropped in at the Bank of France
for a talk with Rueff. In his new surroundings he seemed
to be quite happy, and he admitted that after having had
six hectic years in the Movement General des Fonds, he was
pleased to be at the Bank of France. He said that he would
have been willing to stay in the former position for the
duration of the war, and he did not minimize the great
interest of that job, but in his present post of Under Gov-
ernor of the Bank, he finds more "continuity". Rueff
added that when such vacancies occur one must take advantage
of them.
Rueff believes that the exchange control 18 working with
increasing smoothness; in the Foreign Exchange Office he
has increased personnel, and said that the decentralization
through establishment of branch offices has made progress -
reference, telegram No. 2394 of October 9 from the Embassy.
He 1a placing emphasis upon the importance of making speedy
decisions, and wherever possible, of avoiding delays, saying
that if unnecessary dislocations of trade are to be avoided,
time 1s the main factor in exchange control. Rueff spoke
very highly of the four American banks having branches in
Paris, saying that they displayed a cooperative attitude
toward
50
- 2 -
toward the Foreign Exchange Office. Other officials of the
Foreign Exchange Office have similarly expressed appreciation
of their cooperation.
The question (stressed by the Embassy in previous tele-
grama) of reviving France's economic life and particularly
her export trade, he said, 18 a more important problem than
that of exchange control today. He made mention of the
tour he recently made of the provinces, with the object of
doing what he could to remove unnecessary obstacles to trade.
Rueff 18 trying to get quicker action on the release of
exoess properties of various kinds which were requisitioned
by the military authorities in the exuberance of the early
days of the war which now are proving to be unnecessary for
the military. The Bank of France 1s similarly granting all
possible financial facilities to lessen the shock of wartime
disruption, and is helping in demobilizing officers and men
who are not needed. In particular this applies to owners
of emall shops or factories whose business was closed as
soon as they were mobilized, which resulted in important
and frequently unnecessary loss of employment and production.
In the foregoing connection, numerous stories have
come to us of the large number of reserve officers stationed
in the interior of France whose main occupation Just now 18
playing cards, or doing something similar of dubious military
value, when in their own industrial or commercial field they
could be serving their country to much better advantage.
It
51
- 3 -
It of course takes time to make such readjustments, and
criticism to date hardly seems warranted, taking into
consideration the enormous task involved plus the unknown
nature of the war.
Rueff emphasized the necessity of increasing exports
"at all costs" particularly to the United States, and the
necessity of finding return freights for the many ships
bringing war purchases from the United States to France.
END SECTIONS ONE TO FOUR INCLUSIVE.
BULLITT.
JI
GRAY
52
Paris
Dated November 1, 1939
Rec'd 5:40 Pame
Secretary of State
Washington
2632, November 1, 7 pame (SECTION FIVE)
A decree published in this morning's Journal
Official sets up groups in Each department of France
to facilitate the supply of foodstuffs and agricultural
products to the population in the Event of local
shortages, transport difficulties, reductions of
imports for national production, Et cetera. These
groups which take the form of limited liability
companies with variable capital are authorized to
buy and sell foodstuffs and products necessary for
the provisioning of the department.
A further decree based on the stipulations of
the law of July 11, 1938 on the general organization
of the nation in time of war authorizes the Minister
of Agriculture to call for periodical declarations
from dealers of stocks of foodstuffs on hand. The
Ministry of Agriculture may also compel dealers to
Establish stocks,
(END SECTION FIVE)
BUILITT
NPL
53
JI
GRAY
Paris
Dated November 1, 1939
Rec'd 5:25 pello
Secretary of State
Washington
2632, November 1, 7 Pezle (SECTION SIX)
A communique issued by the Minister of Finance
announces that neasures vill shortly bE decreed
"simplifying" collection of the 4% or 15% tax on
solarits, Etc. (depending on whether the tax payer
is mobilised) decreed in the "Journal Officiel" of
September 9 (our telegram No. 1872, September 9, 1
p.m.). These mensures will also provide the
communique Explains that while the tax is due as of
November 1, 1939, collection by deduction at source
by the Employer will COMMENCE only after January
hitherto
1, 1940. In the interin only the tax of two per cent/
prevailing will bE collected. The amounts due of
the 4 or 15% tax for the months of November and
DECEMBER 111 JE recovered from those subject to
the tax after action given some time during the year
1940. (This, a negative measure, is in line with
Rueff's
54
-2- 2632, November 1, 7 Pello (SECTION SIX) from Paris
Rueff's ideas mentioned above of doing nothing to
hinder revival of industry and trade at this time)
As Reynoud pointed out yesterday the savings
bank situation continues to improve: during the week
Ending October 28 deposits in Paris savings banks
totalled 9,000,000 francs and withdrawals 4,000,000.
The markets were closed today (All Saints Day)
(END SECTION SIX)
BULLITT
NPL
55
PARAPHRASE OF SECTION SEVEN, TELEGRAM NO. 2632
OF NOVEMBER 1, 1939, FROM PARIS
Yesterday the ss PRESIDENT HAYES cleared from the
port of Marseille, carrying approximately five million
dollars of gold from Bombay to New York; included in the
cargo are also some $2,000,000 worth of tin, and fure to
the value of some $1,000,000. At Marseille the ship was
not subject to any delay, and there was no interference
with the mails. However, it 13 our understanding that
at Alexandria some rubber and tin which had been consigned
to Italy was removed from the ship.
END OF MESSAGE.
BULLITT.
EA:LWW
Treasury
But
say
56
No.
5240
Paris, November 1, 1939.
Subject # Article by M. Joseph Caillaux,
published in PARIS SOIR dated
October 30, 1939.
M
The Honorable
The Secretary of State,
Washington, D. C.
Sir =
I have the honor to refer to the Department's telegram
No. 1331 of October 30, 7 p.m., transmitted on behalf of the
Treasury Department, and to the Embassy's reply No. 2616 of
October 31, 1 p.m., and to forward herewith a copy and
translation of H. Caillaux's article as it appeared in the
Paris Soir dated October so (1.e. the issue published in
the afternoon of October 29).
Respectfully yours,
For the Ambassador I
Robert D. Murphy
Counselor of Embassy
In quintuplicate.
Enclosures # 1. Copy of article
from Paris Soir.
s. Translation of above.
Regraded Unclassified
Enclosure No
10 despatch
5240
of
NOV
1
1939
from the Emboesy at Parts.
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Regraded Unclassified
58
Enclosure No. 2 to Despatch No. 5240 of November 1, 1939,
from the Embassy at Paris.
Paris Soir - October 30, 1939.
Translation
THUS SPOKE DR. BRINKMANN
by
Joseph Caillaux
former President of the Council,
President of the Finance Committee
of the Senate.
Last February, the vice-president of the Reichsbank,
Under Secretary of State Brinkmann, addressing a meeting
of Government officials and trustworthy personages, gave
vent to revelations on the economic situation of Germany.
He paid for it. A few days later he was actually transported
to a "snanatorium" following a "nervous breakdown". Please
note the euphemism I
What did he say, really ? Merely a portion of truth
on the agenising state of his country, merely the urgency
of returning by sound practices to a normal economy.
"All our reserves, he doclared, are entirely exhausted.
By the methods we have employed, we have reached a much
lower quality of production at a cost of production
considerably higher". More precisely, he admitted that
they were at the end of their resources of foreign exchange,
that raw materials were lacking, that they had come to
manufacture cannons with poor quality steel. " We have had
Regraded Unclassified
- 2 -
59
even to pay, he said, for a cannon a. price for which we
should normally receive ten cannons, and even that cannon
is of an inferior quality, which has been proved beyond
question, Gentlemen." He concludes as follows: " We
must return to economy, slacken the rhythm of all our
projects, establish a sound and durable program corresponding
to our financial and economic possibilities."
We will dwell no longer on this glimpse of the
situation in Germany which brought such smarting disgrace
upon the one who offered it. There are three essential
things to consider : the lack of food supply for the
people, the question of oil, and that of iron ore.
According to Dr. Yvan Lajos, a Hungarian, who recently
published a remarkable book from which I am about to borrow
largely in the following, if Germany's foodstuffs situation
is compared to that of 1914, it is much worse at the present
time than it was twenty-five years ago. Newspaper articles
published by German experts, statistics published by the
Frankfurter Zeitung, go to prove it.
We will not stop however to develop the matter fully.
Let it suffice to recall the utterances of Dr. Ley, Chief
of the Labor Front, at Nuremburg in 1937. He admitted that
the physical and even the moral condition of the German
population was affected by under-nourishment. We will not
go further into the subject, for it is hardly probable that
foodstuffs restrictions will determine the issue of the
conflict, and what we want to consider are the causes of
the substantial infariority of our adversaries. From
that
- 3 -
80
that point of view, the possibilities of petroleum supply
Regraded Unclassified
are decisive. The Reich has understood this BO well that,
not having oil deposits of its own, any more than TVO have,
it has endeavored to produce synthetic gasoline, but it may
be safe to suggest that not only has it failed to reach its
aim but that it has missed the mark by far. In 1937,
Germany was able to produce, of the 5,150,000 tons consumed,
some 35.9 por cent by synthetic means; the balance was
imported from abroad. Thence, it's certain - as estimated
by German economists - that wartime petroleum needs would
be not less than 16 or 20 million tons a. year; some of them
estimate them at 30 or even 40 million tons,- hence &
colossal disparity between the Reich's supply and its needs.
Taking the most favorable minimum of 15 million tons, where
is it to be found ? In Rumania P Production there is
insufficient. It amounted to 8,700,000 tons in 1956, and
fell to 6,350,000 tons in 1938. Accounting for its national
needs, and supposing even, against all likelihood, that the
surplus were supplied to Germany, the latter would obtain
but 4 or 5 million tons at the most of its indispensable
15 million tons. As for Russia, on which the Reich counts
undoubtedly, the Economist reasonably points out the chances
are small of Germany's obtaining important quantities of oil
from that source. Russian exports have fallen substantially
from 6 million tons in 1932 to 1,100,000 tons in 1938.
Furthermore, all these exports pass through the Black Sea,
and the laok of tank cars would prevent appreciable
quantities of petroleum from reaching Germany. This
English periodical, whose articles are known to be
absolutely
- 4 -
61
absolutely reliable, briefly reviews what has been
reported at length by the petroleum information service,
whose sources are unquestionably sound. As a matter of
fact, the situation may be summed up in a few words :
two-thirds of the world production of petroleum come
from the United States; the other third is supplied
chiefly by Asia and Australia (sic). To draw from the
precious wells implies maritime freedom.
It was "on the waves of petroleum that the Allies
were borne to the port of victory", said Winston Churchill
in speaking of the war of 1914. Was the English statesman
aware that the truth he uttered would be repeated a
hundredfold twenty years later ? For the petroleum needs
of 1919 cannot possibly compare with those of today. Such
is the growing importance of motorization and aviation that
it is impossible to gauge future requirements. And have not
the Germans shown a. singular lack of foresight in basing
their strategic conceptions on a liquid of which they do
not even possess the amallest portion ? Let us imagine a
miracle however I Suppose that "suddenly" a process were
discovered which would offset "all at once" the lack of
petroleum. Unlikely I Yes. Still, what would replace it 7
I am merely asking a question; and await no enswer.
In any case, there is iron ore I On this point also,
Germany's case is special. While sparing our readers the
dryness of figures, we must indicate that German production
of iron ore which in 1936 was 6,650,000 tons, in 1937 amounted
to 8,620,000 tons. The Reich was therefore obliged to import
18,470,000 ...
82
- 5 -
18,470,000 tons in 1936 and 20,620,000 tons in 1937.
Regraded Unclassified
It was difficult in peacetime; it will be impossible
in wartime. For example, how can it obtain from Sweden
the high-quality iron ore with which it will normally
supplied. By sea 2 As ever, the sea I Yesterday, it
was free. Today, it is no longer BO. The difficulty
for Germany is all the greater since Swedish iron ore
exports have hitherto come through the Atlantic port of
Narvik which is now vulnerable to British blockade. To
ship quantities of iron ore to Germany by the Baltic
would necessitate the construction of a special railway.
Therefore, Germany must resort to all means of increasing
iron and steel production, through the requisitioning of
park gates, iron grill doors, etc. This explains what
the Turkish governmental papers revealed on March 1, 1939 :
that six steel ships produced by Krupp and recently
delivered to Turkey, had immediately to be withdrawn from
circulation, in a pitiful state, and subjected to a complete
overhauling. An extraordinary account of the subject is
given by the newspaper Tan.
From the foregoing, it may be seen that the western
powers would have to show baffling incapacity to lose the
war. If they know how to make use of their advantages,
victory will be assured in a short time. They may suffer
passing insuccess but final victory will be theirs none the
less.
Now that wo have given these assurances of fact, let
us give play to fanoy. Imagine Germany supplied with
petroleum ...
63
- 6 -
petroleum, iron ore, and the wherewithal to feed plentifully
its population. Are we not confronted with the pitiable
fate of humanity 9 At a time when a man's merit is of
small account, when not only economic order is out of gear,
what would become of humanity if a tyrannical power,
curbing intelligence under its rule, depriving individuals
of their liberty, were to dominate the world ?
The Reich asks for colonies to justify its forthooming
claim for a navy. We cannot consider such views unless
Germany amends. But will it ever amend ? Shall we ever
nee again the Germany of Voltaire's "Candide", the Germany
of Rhenish princes currying favor with the Court of France,
or the Germany of musicians and of scholars who brought
such a precious gift to humankind &
Dr. Schacht, whose name sounds throughout the world,
in May 1937, already expressed his fears for intellectual
progress; he remarked on the smaller number of students in
the exact sciences, the lack of activity in training manual
workers. "All this, he said, unfortunately leads us to
neglect higher technical instruction, although the level
attained served to the greatness of German economy these
sixty years past". I may, myself, raise this complementary
question : Is not Germany overcome by its appliance to
science which has narrowed its intelligence with respect
to general ideas 1 of course, I might anticipate further
in asking whether such & danger does not threaten other
countries as well. But, confining my view to our eastern
neighbors, I observe that, stifled as it is without any
natural
Regraded Unclassified
- 7 -
64
natural frontiers, the German race no sooner seeks a unity
contrary to nature than it is beset by a temptation growing
out of its "primariness" I to extend its territory to the
measure of its appetite.
# The policies of all nations derive from their
geography" are the words of a conqueror who happened to
think strongly. The history of the great people, whose
defects Tacitus defined some eighteen hundred years ago
when he measured their perpetual uneasiness, their continual
instability, is the most glaring vindication of the Napoleonic
formula.
G5
Sevember 1. 1939.
STRICTLY CONFIRMITAL
Go
My dear Mr. President:
In commection with recent conversations is regard to the handling
of the British efficial account for the purchase of was materials is
the United States, the following data are of interest.
Oa October 31 payments were made to the Federal Reserve Bank of
New York, for the account of the Bank of Regland, as fellows:
Amount
Free
by order of
$5,000,000
Barelays Bank
Barelays hast
1,000,000
Bankers trust Oo.
Martins back
5,000,000
-
.
.
Restrinstor Bank
3,000,000
Central Beaever 3k. & Tr.Go.
.
a
2,500,000
.
#
.
#
.
Royal Bank of Scotlend
20,000,000
Chase National bank
Vestainster leak
16,000,000
First Nail Bank, Besten
Midland Bank
26,000,000
Quaranty trast Go.
National Previncial Bank
7,000,000
.
-
.
Vertainster Bask
2,500,000
Irving Trust Go.
Reyal Bank of Scotland
3,000,000
National City Bank
Vestainster Bank
$$5,000,000
It wald appear that the above payments represent the accounting of
dollar balances oursentared to the Britten Centrol in accordance with the
British Defense (Finance) Regulations. Insidently, three deposits is-
crease the each balances of the Bank of Regland with the Federal Receive
Bank of You York to $200,988,000 as of this seraing.
du October 30 the British delivered to as a communication is
which the Chanseller of the Embequer stated that be readily accepts the
proposal to open a special account with the Federal Recerve Bank of New
Terk, and agrees that the Secretary of the treasury shall personally and
confidentially have assess thereto.
While this special assount has net yet been established, the propare-
ties therefor obviewsly 1s being más through concentrating British efficial
dollar balances in the Federal Reserve Dealt of Sex York.
Tours sincerely,
The President,
à
this
Regraded Unclassified
C6
November 2, 1939.
MEMORANDUM FOR MR. IREY:
NY
The following has been received from Naval Intelligence today.
and relates to the same information they gave us yesterday. It
is, however, in slightly more detail:
"Additional information received to the effect that a
Mr. Rhinelander, Broker, connected with Morgan & Company,
New York City, came to Baltimore in place of the five
Netherlanders. He sought insurance rates for the shipment
of 3/4 billion in stocks, mostly U. S. Steel, held by
individuals and small groups in Holland, who wish to send
it to the United States for safe-keeping as they fear
invasion. The stocks will be sent in approximately 50,000,000
lots by neutral ships.
"Informant advised that approximately 10% of all U. S. Steel
is owned in The Netherlands."
T.
B. M.Thompson.
67
Excerpt from Political Report for the Month of
August from American Consul at Yunnanfu
1939
MA
Foreign Trade
According to statistics of the Yunnan-Indochina
railway, a total of 20,875 metric tons of goods were
exported from Yunnan over the railway in the seven
months from January to the end of July, 1939. The
following table shows the breakdown into the several
classes of goods.
Product
Quantity (Metric Tons)
Antimony
250
Food Products*
284
Wax
43
Tin Slabs
4,522
Tin Ore
522
Vegetable 011**
7,455
Medicinal Products
2,358
Tungsten Ore (Wolfram)
297
Hides
1,235
Duck Feathers
69
Bristles
801
Nutgalls
1,808
Miscellaneous
1,231
Total
20,875
*Believed to consist chiefly of pigs' intestines.
**Principally tung oil.
of this total, 13,388.86 metric tons consisted of
export shipments from provinces other than Yunnan (chiefly
Szechwan). The following table shows the quantity of this
kind of freight from month to month.
Month
Quantity (Metric Tons)
January
1,001.90
February
1,267.06
March
1,723.64
April
2,338.17
May
2,413.57
June
2,313.26
July
2,331,26
Total
13,388.86
It
SB
-2-
It is believed that the decreases noted in June
and July were due to the effect of heavy rains along
the highway from Chungking to Yunnanfu. It will be
recalled that serious congestion of traffic at the
Wukiang ferry was reported by this Consulate during
those months.
The statistics given above, though not obtained
from the railway itself, were supplied by a reliable
source and are believed to be accurate.
During the month of July, 1939, export shipments
of the National Foreign Trade Commission from Yunnan
totaled 1,393,927 kg., an increase of 259,954 kg. over
shipments during June. The items were bristles
(87,597 kg.), pigs' intestines (22,462 kg.), raw silk
(10,394 kg. quicksilver (13,760 kg.), nutgalls
(231,046 kg.), untanned hides (28,046 kg.) and tung oil
(1,000,622 kg., comparing with 909,642 kg. in June).
The figures for shipments of the Foreign Trade
Commission during August are not yet available. It
16 known, however, that 53 tons (106,000 pounds) of
tung oil was shipped to Rangoon by this agency on
August 12, this being the first export shipment over
the Burma road and in fact the first movement of com-
mercial goods over that route.
Ae noted in a previous section, all exports of
Yunnan-produced goods have ceased pending the outcome
of negotiations between provincial and National Govern-
ment representatives in Chungking.
C9
NEW YORK.--TWO UNITED STATES COAST GUARD CUTTERS SPED OUT TODAY TO
A SPOT 450 MILES OFF THE NEW ENGLAND COAST WHERE, ACCORDING TO RADIO
MESSAGES, A SUBMARINE HAD INVADED THE UNITED STATES NEUTRALITY ZONE TO
ATTACK A SHIP.
11/1--R835A
ADD SHIP, NEW YORK
THE SHIP'S sos WAS RECEIVED BY THE RCA STATION AT CAPE RACE, NFD.,
AT 1:30 A.M., ACCORDING TO MACKAY RADIO HERE. THE sos WAS FOLLOWED BY
THE "SSS SUBMARINE" SIGNAL, INDICATING A SUBMARINE ATTACK. THE
POSITION GIVEN WAS LATITUDE 40.20 NORTH: LONGITUDE 62.31 WEST.
THE SHIP WAS NOT IDENTIFIED IN MESSAGES RECEIVED BY MACKAY, BUT RADIO
STATIONS ALONG THE CANADIAN COAST IMMEDIATELY SENT OUT CALLS FOR THE
BRITISH FREIGHTER COULMORE, ASKING FOR SIGNALS so THAT DIRECTION
FINDINGS COULD BE TAKEN ON HER. THUS, IT WAS INDICATED THAT IT WAS THE
COULMORE THAT HAD BEEN ATTACKED. THE CANADIAN STATIONS GOT NO ANSWER
FROM THE COULMORE AND THEY REPEATED THE CALLS EVERY FEW MINUTES THROUGH
THE NIGHT ON THE AUTOMATIC SIGNAL SYSTEM, ON WHICH THEY ALSO BROADCAST
THE "SUBMARINE DISTRESS* ALARM.
11/1--R850A
LONDON. --BRITISH NAVAL CIRCLES SAID TODAY THAT A NAZI SEA RAIDER
MAY HAVE BEEN RESPONSIBLE FOR THE REPORTED ATTACK ON A BRITISH FREI-
GHTER--BELIEVED TO BE THE COULMORE--SOME 450 MILES OFF THE NEW ENGLAND
COAST.
11/1--R905A
Regraded Unclassified
70
NEW YORK. MACKAY RADIO REPORTED EARLY TODAY THAT THE UNITED
STATES COAST GUARD CUTTERS GEORGE W. CAMPBELL AND GEORGE M. BIBB WERE
RUSHING TO A SPOT 450 MILES OFF THE NEW ENGLAND COAST WHERE A SUBMARINE
ATTACK HAD BEEN REPORTED.
11/1--R921A
ADD RAIDER, LONDON
PENDING FURTHER DETAILS, OFFICIALS SAID THEY WERE NOT PREPARED TO
BELIEVE THAT THERE IS A U-BOAT IN THAT AREA OF THE ATLANTIC OCEAN AT
PRESENT.
IF A SHIP WAS ATTACKED THERE, THEY BELIEVED, IT WOULD BE MORE
LIKELY THAT A GERMAN SURFACE RAIDER MADE THE ATTACK. THREE CERMAN
WARSHIPS HAVE BEEN REPORTED IN THE ATLANTIC AT VARIOUS TIMES. THEY ARE
THE DEUTSCHLAND, THE ADMIRAL SCHEER AND THE EMDEN, NONE OF WHICH HAVE
BEEN HEARD FROM RECENTLY.
11/1--R926A
THE NAVY ANNOUNCES THAT ITS DESTROYERS AND PLANES ARE COOPERATING
WITH THE COAST GUARD IN EFFORTS TO AID THE S.S. COULMORE,
BRITISH FREIGHTER WHICH SENT AM sos SOME 450 MILES OFF THE NEW ENGLAND
COAST AND WAS BELIEVED TO BE A GERMAN SUBMARINE VICTIM.
-NAVY DESTROYERS AND PLANES ARE COOPERATING WITH THE COAST
GUARD IN ANSWER TO DISTRESS CALL FROM THE S.S. COULMORE IN SAVING
LIFE AT SEA, A NAVY STATEMENT SAYS.
11/1-9:37
Regraded Unclassified
71
ADD SHIP, NEW YORK (TIMED 8:50A)
AT 10 A. M., HOWEVER, THE COAST GUARD REPORTED THAT NO FURTHER
WORD HAD BEEN RECEIVED FROM EITHER CUTTER.
JQ 11/1--E1007A
ADD NAVAL SEARCH
RELIABLE SOURCES OF INFORMATION PLACED THE LOCATION OF THE COULMORE
ABOUT 350 MILES OFF BOSTON, 480 MILES OUT OF NEW YORK AND 500 MILES
FROM PHILADELPHIA.
THE NAVY'S DESTROYERS, WHICH HAD BEEN ON NEUTRALITY PATROL, ARE
EXPECTED TO REACH THE COULMORE SHORTLY. THEY ARE PROCEEDING AT FULL
SPEED AND ARE BELIEVED TO HAVE BEEN NOT FAR FROM THE COULMORE'S LOCAT-
ION,
11/1--E1012A
COAST GUARD CUTTER BIBB ARRIVED TODAY AT THE REPORTED POSITION OF
THE BRITISH FREIGHTER COULMORE AND REPORTED IT FOUND NO SIGNS
OF THE SHIP,
11/1--R1058A
ADD CUTTER BIBB
THE COULMORE REPORTED EARLIER THAT IT HAD BEEN ATTACKED
BY A SEA-RAIDER APPROXIMATELY 450 MILES EAST OF BOSTON.
THE BIBB SAID THAT A MODERATE SOUTHERLY GALE WAS BLOWING AT THE
POSITION GIVEN BY THE COULMORE, AND WHEN IT FOUND NO TRACE OF THE
VESSEL OR ITS CREW, BEGAN SEARCHING TO THE NORTH.
11/1--R1102A
72
ADD CUTTER BIBB
THE COAST GUARD CUTTER ADVISED HEADQUARTERS THAT IT EXPECTED TO
MAKE CONTACT AT 11:45 A.M. WITH A COAST GUARD FLYING BOAT WHICH LEFT
NEW YORK AT 7:17 A.M.
THE CUTTERS CHELAN AND ARGO WERE ORDERED TO JOIN IN THE SEARCH.
PREVIOUSLY THE CUTTERS HAMILTON, CAMPBELL AND DUANE WERE REPORTED
TO BE UNDER WAY FOR THE COULMORE'S POSITION.
11/1--R1109A
Couls,
TWO COAST GUARD AIRPLANES WERE FORCED TO TURN BACK BECAUSE OF
BAD WEATHER AFTER FLYING CLOSE TO THE REPORTED POSITION OF THE BRITISH
FREIGHTER COULMORE, 500 MILES OFF THE NEW ENGLAND COAST.
ONE PLANE, PILOTED BY LIEUT. R. L. BURKE OF THE CAPE MAY, N.J.,
COAST GUARD STATION, REACHED A POINT APPROXIMATELY 35 MILES FROM THE
COULMORE'S POSITION BEFORE HEADING BACK. THE OTHER PLANE WAS FROM
NEW YORK. A GALE WAS BLOWING IN THE VICINITY OF THE COULMORE'S REPORTED
POSITION AND FLYING CONDITIONS WERE HIGHLY UNFAVORABLE.
11/1--R337P
Regraded Unclassified
73
11/16/2019
THE CAMPERDOWN RADIO STATION IN CANADA TODAY NOTIFIED THE COAST
GUARD CUTTER BIBB THAT THE BRITISH FREIGHTER COULMORE IS SAFE.
11/2--R938A
ADD COULMORE SAFE
THE MESSAGE TO THE BIBB SAID THAT AT 2:30 A.M. THE CAMPERDOWN STATION
WAS ADVISED BY THE COULMORE THAT SHE WAS SAFE.
THE BIBB'S COMMANDER SAID THAT THE CAMPERDOWN STATION'S MESSAGE
JUSTIFIED ENDING THE SEARCH.
THE CANADIAN STATION SAID THE COULMORE WAS ABLE TO SEND
MESSAGES TO. CAMPERDOWN BUT APPARENTLY COULD NOT RECEIVE THE REPLIES.
11/2--R942A
ADD COULMORE SAFE
THE BRIEF MESSAGE TO THE COAST GUARD DID NOT SAY WHETHER THE BRITISH
FREIGHTER HAD BEEN ATTACKED BY A BELLIGERENT NAVAL VESSEL. SUCH AN
ATTACK WOULD ATTRACT CLOSE OFFICIAL UNITED STATES ATTENTION INASMUCH
AS IT MIGHT PROVIDE THE FIRST MAJOR TEST OF THE DECLARATION OF PANAMA
IN WHICH THE AMERICAN REPUBLICS DECLARED AS A NEUTRAL ZONE A BROAD
SEA EXPANSE AROUND THE WESTERN HEMISPHERE REPUBLICS.
YESTERDAY THE COAST GUARD RECEIVED A CALL FOR AID FROM THE
VESSEL AND THEN NOTHING FURTHER WAS HEARD FROM THE SHIP'S RADIO. IT
WAS FEARED THAT SHE HAD BEEN THE VICTIM OF A SUBMARINE ATTACK.
11/2--R954A
74
ADD COULMORE SAFE
THE BIBB'S COMMANDER SAID THAT THE CAMPERDOWN STATION'S MESSAGE
JUSTIFIED ENDING THE SEARCH.
THE CANADIAN STATION SAID THE COULMORE WAS ABLE TO SEND MESSAGES TO
CAMPERDOWN BUT APPARENTLY COULD NOT RECEIVE THE REPLIES.
11/2--E1001A
HALIFAX, N. S.--CAMPERDOWN WIRELESS STATION, NOW UNDER DIRECTION
OF THE ADMIRALTY, REFUSED TODAY TO CONFIRM OR DENY IT HAD INFORMATION ON
THE SAFETY OF THE BRITISH FREIGHTER COULMORE,
11/2--E1006A
OTTAWA.-THE CANADIAN NAVAL SERVICE SAID IT HAD BEEN ADVISED OF AN
INCOMPLETE MESSAGE THAT THE FREIGHTER COULMORE WAS SAFE, BUT THAT IT
COULD NOT "PLACE TOO MUCH CREDENCE" IN THE REPORT.
11/2--R1041A
ADD COULMORE SAFE
THE COAST GUARD SAID IT WOULD CONTINUE THE SEARCH IN THE VICINITY
OF THE REPORTED S.O.S. CALL FOR A WHILE LONGER. THE CAMPERDOWN
RADIO STATION DID NOT ADVISE THE COAST GUARD OF THE LOCATION OF
THE COULMORE WHEN IT REPORTED ITSELF SAFE.
11/2--R1046A
75
and vulma
BOSTON.--ALL COAST GUARD AND NAVY VESSELS ON NEUTRALITY PATROL
OFF THE NEW ENGLAND COAST WILL CONTINUE THEIR SEARCH FOR THE FREIGHTER
COULMORE UNLESS ASSIGNED TO OTHER SPECIAL DUTY AN OFFICER SAID TODAY.
FOUR CUTTERS AND TWO PATROL BOATS, BUT NO PLANES, ARE COOPERATING
NOW IN THE HUNT, WHICH CONTINUED ALL NIGHT WITH AID OF SEARCHLIGHTS,
ACCORDING TO THE OFFICER. HE SAID THE SEARCHING SHIPS CARRIED A
TOTAL OF ABOUT 550 MEN.
11/2--R1158A
THE COAST GUARD ANNOUNCED THAT IT IS CONTINUING SEARCH FOR THE
BRITISH FREIGHTER COULMORE UNTIL IT IS DEFINITELY ASCERTAINED THAT THE
SHIP IS SAFE AS REPORTED BY A CANADIAN RADIO STATION AT CAMPERDOWN,
N. S.
11/2--E1210P
ADD COAST GUARD
COAST GUARD HEADQUARTERS EARLIER HAD ANNOUNCED THAT THE CAMPER-
DOWN STATION ADVISED THE CUTTER BIBB THAT IT HAD CONTACTED THE COULMORE
AT 2:30 A. M. EST.
THE COAST GUARD DECIDED TO CARRY ON THE SEARCH, HOWEVER, BECAUSE THE
CANADIAN STATION ADDED THAT IT HAD RECEIVED NO REPLIES FROM LATER
DIRECT MESSAGES TO THE COULMORE.
THE BIBB, WHICH WAS IN CHARGE OF THE COAST GUARD HUNT, ADVISED AT
MIDMORNING THAT IT WAS RETURNING TO HALIFAX BECAUSE IT HAD A SICK SAILOR
ABOARD.
THE BIBB WILL BE REPLACED BY THE CUTTER DUANE.
11/2--E1221P
T8
BOSTON.--THE COMMANDER OF THE CUTTER CHELAN, SEARCHING FOR THE
BRITISH FREIGHTER COULMORE, RADIOED COAST CUARD DIVISION HEADQUARTERS
HERE ASKING PERMISSION TO CALL OFF THE HUNT. THE MESSAGE WAS RELAYED
TO WASHINGTON FOR A DECISION.
11/2--R309P
COAST GUARD HEADQUARTERS ANNOUNCED THAT IT HAS CALLED OFF THE
SEARCH FOR THE BRITISH FREIGHTER COULMORE, BELIEVED TO HAVE BEEN
ATTACKED BY A WAR VESSEL OFF THE NEW ENGLAND COAST.
11/2--R321P
ADD COAST GUARD SEARCH SUSPENDED
IN CALLING OFF THE SEARCH, AFTER THE COMMANDER OF THE CUTTER CHELAN
HAD ASKED PERMISSION TO QUIT, THE COAST GUARD DID NOT SAY WHETHER IT
WAS SATISFIED THAT THE VESSEL WAS SAFE.
AT 2:30 P.M., COAST GUARD HEADQUARTERS MESSAGED THE CUTTERS
CHELAN, ARGO, CAMPBELL AND DUANE TO RESUME THEIR REGULAR STATIONS,
BELIEVED TO BE THE U.S. NEUTRALITY PATROL. THE COAST GUARD CUTTER
BIBB EARLIER HAD ABANDONED THE SEARCH AND TURNED BACK TOWARD HALIFAX,
N.S., BECAUSE ONE OF HER CREW. MEMBERS WAS ILL.
11/2--R330P
77
ADD COAST GUARD SEARCH SUSPENDED
THE SEARCH WAS ABDNONED BECAUSE COAST GUARD HAD REASON TO
BELIEVE THE VESSEL WAS SAFE, IT WAS EXPLAINED AUTHORITATIVELY./
THIS BELIEF WAS BOLSTERED BY A MESSAGE FROM THE AMERICAN TRADER TO
THE CUTTER CHELAN ADVISING THAT THE COULMORE WAS SAFE. COAST GUARD
OFFICIALS SAID THAT THEY WERE WITHOUT INFORMATION AS TO WHETHER
THE AMERICAN TRADER SAW THE COULMORE OR COMMUNICATED WITH IT. REPORTS
FROM OTHER SOURCES ALSO SUPPORTED THE AMERICAN TRADER'S ADVICE.
11/2--R342P
replacts 11-8-39
78
THE SECRETARY OF STATE
WASHINGTON
November 2, 1939.
My dear Mr. Morgenthau:
With reference to your conversation yesterday with
Mr. Welles concerning the Treasury's representation on
the subcommittee set up on October 20, 1939 by the
Executive Committee on Commercial Policy to consider
problems arising in connection with this Government's
participation in the work of the Inter-American Finan-
oial and Economic Advisory Committee which 1s to meet
at Washington on November 15, 1939, I understand that
it would be difficult for Mr. Hanes to give the neces-
sary time to the committee in question owing to the
many other matters requiring his attention and that it
has been suggested that Mr. Harry D. White, who is the
Treasury's representative on the Executive Committee on
Commercial Policy, represent the Treasury also on this
subcommittee of the Executive Committee on Commercial
Policy.
I should be very glad to have you designate
Mr. White as the Treasury's representative on the
committee and, upon being advised of his designation,
I shall see that he is notified of its meetings.
Sincerely yours,
The Honorable
Henry Morgenthau,
Secretary of the Treasury.
THE SECRETARY OF STATE
WASHINGTON
C.24
The Honorable
Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
79
November 2, 1939.
FOR THE SECRETARY:
I saw Bob Kintner at 11 o'clock this morning and gave him the
attached notes which I had made on the April meetings. I have two more
meetings to read and digest. I also gave him a copy of the printed
testimony before the Senate Military Affairs Committee on the French
airplane deal and copies of the telegrams sent to Customs and Coast
Guard offices under the Neutrality Act together with the dates on which
these telegrams were first drafted.
Bob did not seem upset at the way the information was being
given to him, in fact, he said he thought it was a splendid job of con-
densation. However, he again renewed his request for information on
the list of subjects which I gave you previously and added to the list
the Bremen incident. He said that, if I were to attempt to digest all
this material for them, I would have a very long job, and he asked that
I suggest to you the use of the State Department system: The State De-
partment is giving them the original records, memos, etc. and allowing
them to make their own digests; these digests are then submitted to
the State Department and the Department deletes anything it feels should
not be used.
I told him that you had not seen the attached notes and had not
approved them and that, after you had seen them, you might wish to change
the way in which I was handling them or even to withdraw some of the in-
formation I had given them.
80
- 2 -
Bob said that one reason they wanted to see the transcripts
was to get a feeling of your attitude because they were being given
the impression by your "enemies" that you had been very pro-Allies.
I replied that certainly the records I had seen did not substantiate
this view and I pointed out to him the incident in which you were
prepared to force Britain and France, even against their wishes, if
necessary, to give us some assurance that they would not allow their
stock selling to break our market.
Bob is returning Monday, or perhaps before, to pick up the
rest of my notes and to inquire again whether they will be allowed
to get information on the other incidents on his list.
EAD
- -0-
4
81
April 11, 1939
3:00 P.K.
Those attending were: The Secretary, Lochhead, White,
Young (for Hanes), Foley, Douglas, Frank, Purcell, Tele, Wallace,
Robbins (Agriculture), Looles, Goldenweiser.
The Secretary made the following opening statement;
"Gentlemen, the President asked us to get together for him in
the strictest of confidence -- also to give Mr. Justice Douglas
8. good send-off -- and he wondered what, if anything, we were
doing in ORGO there should be A world war to look after the
various markets; and I told him that frankly talking for myself
I wasn't ready and I didn't know whether anybody else was,
So he asked us to meet and discuss it and to get ready. And 60
I will start anywhere you want."
Mr. Douglas said that "We are prepared with all the legal
documents necessary for the closing of the exchanges if that
proves necessary. I mean all those documents are drawn and they
are all in the 100-box and they could all be executed within
a very few minutes, 80 we are prepared against that contingency.*
Mr. Wallace said "I would very much question whether it
would be necessary for us to close the commodity exchanges,'
but promised to prepare for any such contingency if it should
arise.
Mr. Ecoles said that at the time of the Munich Conference
the Reserve Board had prepared a statement which could be issued
in the event of an emergency. He asked that Dr. Ooldenweiser
explain the statement. Dr. Goldenweiser said the statement would
reassure the public "of the position of the banks, of the fact that
they stand ready to meet any withdrawals," Mr. Eccles promised
to have the Board take official action on the statement and then
to submit it to other members of the conference.
The Secretary asked Mr. Lochhead to read 8 cable from
Butterworth, transmitting the following information from the
British Treasury: (1) Upon the outbreak of E war, the British
will register all foreign securities, balances, and gold belong-
ing to British residents and will consult with proper American
authorities in liquidation of securities here -- in an effort to
manage the liquidation of any American securities in a manner
which will be least disturbing to American markets, (2) The
British Government does not contemplate a general moratorium,
but expects to close all banks and financial institutions for
one day. (3) The Bank of England would announce, probably
daily, foreign exchange rates for sterling, and banking insti-
tutions would be authorized to supply foreign exchange in
suitable amounts for bona fide reasons, Mr. Butterworth re-
ported his own impression that there were two schools of thought
as to the rate for the pound in the event of & war, but that he
Regraded Unclassified
- 2 -
82
believed that those who favor an immediate and sharp depreciation
will prevail. (4) Stook exchanges will be closed upon the out-
break of a war, but will be reopened as soon as practicable,
Secretary Morgenthau suggested that the Tripartite
mechanism might be used to keep each of the countries in that
arrangement informed on what the others plan to do about closing
exchanges, no that no one market would find itself the only one
open and, therefore, subject to world-wide selling pressure.
Mr. Feis raised the point that any rumor of A. simultaneous clos-
ing of all stock markets in major countries might precipitate
selling at once. Secretary Morgenthau replied "I want you to
know how I febl. I would do everything possible to keep the
market open," and Mr. Feis agreed.
In response to a question from Mr. Douglas, Mr. White
reported that total foreign holdings of American securities
amounted to about $3,200,000,000, of which the British owned
about $900,000,000, and that these holdings were a very small
percentage of all listed securities. He added, however, that
they might all be thrown on the market in a short space of time.
Mr. Douglas suggested that if France, Holland, and Switzerland
could give some sort of assurance -- as the British had done --
that their liquidation of American securities would be orderly.
The United States would have "the only protection we need.
Secretary Morgenthau agreed that "it would be wonderful."
The Secretary suggested that each agency present designate
some representative to sit on a committee 80 that there would be
no necessity of fumbling around for people if the need for action
arose, The meeting adjourned with an agreement to meet at 3:30
the following afternoon,
Regraded Unclassified
83
April 12, 1939
300 P.H.
Those present were; The Secretary, Hanes, Foley, Bernstein,
White, Tome, Wallace, Feis, Frank, Purcell, Rocles, and Goldenweiser,
Hr. Feis opened the meeting by suggesting preparation of
"a statement which at the 6429 time would declare & desire to keep
the exchanges open, give & presentation of the adventages of keeping
the exchanges open, but also allay apprehension by indicating that,
if that turned out to be under actual short trial unsatisfactory,
they could be closed." Mr. Purcell next reviewed the SEC position
as follows: There are three things which night be anticipated in the
event of a declaration of war in Europs. (1) Foreign dumping of
American securities in the absence of some control of this selling
by the foreign governments, (2) domestic colling of securities be-
cause of fear of foreign dumping, and (3) withdrawal of potential
buyers from the market. "Therefore, some neasures would com 12005-
eary in order to withhold at the source of foreign dumping." Be said
there were two possibilities: (1) Keeping the markets open under
close supervision and (2) temporary closing of the exchanges, plus
"some regulatory force" to be exerted over registered dealers and
brokers in the over-the-counter market. Be expressed the opinion
that perhaps the best course would be not to 18800 any statement in
advance and that no government paying of the market be considered.
If the market had to close, the pattern followed in 1914 TAB
"the beat that can be visualised 4 priori."
The Secretary then suggested that a message be telephoned
through Butterworth and Cochran to the Treasuries in the Tripartite
accord - England, France, Belgium, Switzerland, and Holland -
suggesting prompt consultation directed toward preventing panicky
marketing and utilisation of asseta in the markets of other
countries. The Secretary suggested to the meeting that should the
various governments whose nationals own American securities in large
amounts not desire to cooperate to the end suggested in his name,
the Treasury could immobilize their dollar balances in this
country, Power to do so, he explained, was contained in the
Treasury's power over payments by banks and over foreign exchange.
Such action would remove their incentive for hasty melling.
He added, however, that he would be most reluctant to invoke any
degree of exchange control.
Mr. Wallace reported that the Department of Agriculture had
no *absolute powers" to close commodity exchanges; it had only
the power of sussion. The Department's Lewyers, be said, were etill
investigating the question of whether the President had authority
to close commodity exchanges.
Regraded Unclassified
of I -
84
Mr. Zoeles reported on the statement which he had
montioned at the meeting yesterday. He explained that it vas
a tentative statement subject to approval by each of the
Reserve banks and he summarised it by saying that the Reserve
banks would stand ready to make advances on Government securities
at par. The statement would go on to toll something about the
general credit situation, he said.
The Secretary said that he thought the Attorney General
should be asked to give his opinion, perhaps informally, on
the SEC's order which would be used if the stock exchange had
to be closed and on any orders which the Treasury might use if
it decided on any form of foreign exchange regulation.
The Secretary said that he was asking President Harrison
and Vice President Knoke of the New York Reserve Bank to come
to the Treasury the next morning and he asked the SEC to invite
Edward Bartlett of the New York Stock Exchange to represent
President Martin who was out of the city.
85
April 18, 1939
5:40 P.M.
Those present were: The Secretary, Hanes, White,
Duffield, Bernstein, Lookhead, and, for brief periods, Feis,
Foley, and Frank.
(The Secretary had been to the White House at 8 oblook
to report to the President the progress being made by the
group.)
The Secretary called Secretary Hull on the telephone,
read him the proposed message to the Tripartite governments
which had been read at the previous meeting today, and told
him the Treasury had in mind telephoning it through Cochran
and Butterworth. Secretary Hull said that inasmuch as the
message was merely an inquiry and not a commitment he would
not object to its transmission, but also would not undertake
to express an opinion on its merits. Mr. Feis later joined
the meeting and confirmed this conversation. The Secretary
put in trans-Atlantic calls for Butterworth and Cochran and
while the calls were coming through discussed with Mr. Feie
the best way of making/Similar approach to Canada.
The Secretary read the text of the message to
Mr. Cochran and instructed him to telephone it to the
treasuries of France, Belgium, Switzerland, and Holland, and
to inform Ambassador Bullitt. Because of delay in reaching
London, the Secretary left Mr. Lochhead with the responsibility
of reading the message to Mr. Butterworth and instructing him
to communicate it to the British Treasury.
06
April 15, 1939
9150 A.M.
Those present were: The Secretary, Hanes, Lochhead,
Gaston, Ecoles, Harrison, Knoke, Goldenweiser, Frank, Purcell,
Carl B. Robbins, and J. V. T. Duvel (both of Agriculture) and
for part of the time, Mr. Feis and Mr. Bartlett.
The Secretary explained the purpose of the meeting and
said "I'd like to hang a sign outside my door: 'Business as
usual.' That's the way I feel. I'd like to be able -- I want
to do everything possible to maintain the position of the
United States as a world market and keep going on with business
as usual.'
Mr. Ecoles, Mr. Harrison, Mr. Frank, and Mr. Robbins
(who, with Mr. Duvel, represented Wallace because of an appoint-
ment the latter had at the Capitol) all expressed agreement with
this objective. Mr. Harrison, in discussing the problems which
he thought might arise, mentioned the Government bond market.
Mr. Eooles explained that should an emergency arise, the Executive
Committee of the Open Market Committee would "have authority to
increase the portfolio on the basis of & telephone approval,'
by the other members of the full Committee.
Secretary Morgenthau
asked whether such an authorization could not be given in advance
to the Executive Committee and, if possible, be given today.
Mr. Eccles replied that he would call the Open Market Committee.
Mr. Kooles stated that "I think we ought to get authority
to buy at least $500,000,000. $500, It does not seem to me to be
a question of how much you're going to buy, but you've got to
get authority to buy whatever the situation may require."
Rr. Harrison raised the question of whether any attempt
should be made to peg the Government bond market and Secretary
Morgenthau suggested that this matter be discussed by Mr. Harrison
with the Federal Reserve Board that afternoon. Mr. Ecoles remarked
"I think that to the extent of avoiding & complete panie in the
market where there would be no buyers and thus the market could
drop an unjustifiable amount between sales -- that we should to
something on that score, but only that."
Mr. Fels reported that Secretary Hull advised that contact
be made with Canada through Mr. Riddell of the Consdian Legation
and that Mr. Riddell be asked to arrange for some Canadian
representative to come by train tonight. At this point, Mr. Frank
was ssked to bring Mr. Bartlett into the meeting, After explain-
ing the purpose of the meeting, the Secretary said "If you would
be kind enough -- and I am afraid it will have to be 8 one-way
conversation -- would you tell these gentlemen here what you have
in mind and what you think would be helpful? We'd like to listen.
07
- 2 -
Mr. Bartlett then said "Well, I assume that there 16 no dispute
about the desirability of keeping the Exchange open; and of
course that can not always be done, but we have the feeling that
in this 08.00 it can be done, In the first place, there has been
no great amount of foreign liquidation that ve have seen. The
market has been low and there is no great speculative interest
in the market." He continued by suggesting that if foreign
liquidation became too heavy "an attempt should be made to handle
it, if it arises, with 10 percent minimum prices." For example,
a stock or bond selling in the 40's would be permitted to decline
a maximum of $4.00 in any one day. At least this device should
be given a trial to 898 if it would work. His second suggestion
vae that Federal Reserve margin requirements might be reduced to
something like the stook Exchange minimum requirement of 30 per-
cent. His third suggestion was that the SEC amend its "daylight
trading rule." He concluded by saying "The difficulty with
closing A market !8, if you close a market there 1s great diffi-
culty to open it, particularly if values decline materially.
Then you've got to wait until the raft floats again. You can't
open it without serious breaks confronting you. Gooner or later
you've got to face the music."
In response to A question from Secretary Morgenthau about
whether the Exchange was worried about possible foreign selling,
Mr. Bartlett replied *Well, all we can say 1a we have seen no
evidence of anything to alara us,"
Mr. Ecoles inquired whether the Exchange had power to
enforce a minisum price system, such as Mr. Bartlett had out-
lined, and Mr. Bartlett replied in the affirmative. Re explained,
however, that he had not discussed his ideas with the Board of
Governors of the Exchange.
08
April 13, 1930
$100 P.M.
Those present were: The Secretary, Hanes, White, Lochhead,
Bernstein, Foley, Ecoles, Harrison, and Knoke.
At the opening of the meeting, the Secretary announced
that the Attorney General had not yet reported is views on the
draft executive order which would institute exchange control if
it became necessary. He remarked: *Well, anyway, what I'm try-
ing to do is -- it shows how important it is to do these things
before there is a crisis. You get ready and thep pray to the
good Lord there won't be any orisis. But if ve were fussing
around and Frank Murphy saying, 'You can't do this thing, and
you fellows putting the pressure on to do it, everybody would be
excited; and this way we do the thing and then if there is no
crisis, why, ve are very fortunate. But I an tickled to death
we've got this thing under way now." Harrison: "I hope you
won't have to issue that order." Foley: "So do we."
Secretary Morgenthau: It's all true, but if you want & weapon
you want to keep it oiled and loaded." Harrison: "That's right.
Secretary Morgenthau: "But with the sincere hope that you don't
have to use it, that's all, No, what I an counting on 1m this,
and this is what I want to say to this small group. What I call
all of these things, they are trial runs, you nee,
The Secretary asked Mr. Harrison to outline what steps he
thought would be necessary as A. matter of preparatory safeguards
in New York. Mr. Harrison replied) "Before the Munich orisis
we made a complete survey in the New York banks of the 1914 versus
the 1938 situation. The one thing we felt we needed definitely
in New York, in the light of past experience, was to have a
bankers' committee to which I might go in any hurry upon any
matter dealing with credit, loans, foreign exchange, gold, or
anything else that the Treasury might want us to do, The bank-
ing community agreed definitely that I should have such A 000-
mittee -- call it advisory committee or a market committee or
a contact committee. There was some difference of opinion as
to how it should be organized, but nevertheless the principle
was agreed to. We dropped it merely because of the Munich ap-
peasement, as it WAS called, I understand. - . I'll say one
thing that they said about government bonds. They all agree,
those with whom I talked, that in event of an emergency the
New York banks would not, because of their own interests they
probably couldn't at any reasonable price, unload their Govern-
ment; that it would not be a practicable or sensible thing to
do. That doesn't mean that some who are under pressure for one
reason or another might not have to try, or get a loan from us,
But in principle, they agreed that as a banking community they
shouldn't demoralize the market by trying to run to cover and
unload their holdings of securities on us.*
09
2
Some discussion then followed on the question of whether
the Transury, through the New York Reserve Bank, could upon the
outbreak of a var in Europe request the New York banks to freeze
voluntarily the foreign accounts which they hold, thus using
4 voluntary and temporary arrangement which would enable the
Government to avoid any outright blooking of foreign exchange
transactions, Kr. Harrison pointed out that if private banks
refused to honor drafts which foreign customers drew on the
quetomers' balances, the banke might be liable for any damages
which the customers sustain and, therefore, the banks probably
ocule not 2070 on their own authority.
The discussion then returned to the committee which
Mr. Barrison was suggesting. And he said "I would expect to
have a committee representing the commercial banks, the invest-
mont houses, perhaps the government bond dealers, the savings
brake, and perhaps even the insurance companies, although that
would be doubtful. And I would expect to have them organize
sub-committees such 0.0 one on foreign exchange, for instance,
BD that If I have a meeting of the group I can turn over any
formign exchange ruling or question or suggestion or cooperation
that you want to procure to the full committee, leaving it to
the representative on that committee that has the foreign ex-
change committee to do the Job."
Secretary Morganthau suggested that the committee be
formed immediately. Mr. Harrison and Hr. llanes both said that
formation of such a committee at this time might cause the
f.nencial community to suspect that the Government had some
information which was not generally available and which was
very ominous, whereas, as a matter of fact, no such informa-
vion - at hand. Mr. Ecoles and Mr. Hanes suggested that,
for the present, it might be sufficient if Mr. Marrison merely
kipt In sind the plan and the personnel 00 that he could
actually form the committee on a moment's notice and Secretary
Morgenthau agreed.
Rr. Mooles reported that the Board sitting with
12-, Harrison as the Open Market Committee had "adopted & resolu-
tion authorizing A purchase of bonds up to $500,000,000, by
Visa executive committee. This resolution, he added, was subject
1/1 telephonic approval by the other members of the Open Market
Committee. Secretary Morgenthau reported that the Treasury had
arez 100,000,000 of special non-market 2 percent notes in the
various trust funds, and that the funds could be shifted from
these non-market issues to market issues. The Secretary N-
pirted that he had heard from Cochran on the French attitude
Inward the communication of yesterday. The indications were
that Paris would not be interested because the desire there WAS
to do nothing which would keep France from being a refuge for
Regraded Unclassified
90
- 3 -
European capital or which would discourage people from sending
their money there. Mr. Knoke explained that anything indica-
tive of exchange control in France might interrupt the existing
flow of funds back to France and that France was in a peeuliar
position because it was the only European country which recently
had been gaining as the result of international capital movements,
In addition, a very informal reply had been received through
Butterworth from London in effect repeating a favorable British
attitude conveyed in the message which had been read at the
meeting of April 11.
S1
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: November 2, 1939, 1 p.m.
NO.: 2634.
The following 18 personal for Secretary Morgenthau:
Reference 18 made to your telegram of October 21,
No. 1289, and to telegram No. 2588 of October 27 from the
Embassy.
Yesterday afternoon we were told by Rueff that
the Bank of France had now approved the suggested procedure,
and the Finance Ministry now has to make the decision.
This morning we asked Couve de Murville how the matter stood.
the faot that
He said that the delay was due to/Governor Fournier
had at first objected, and that the Bank of France was a
"highly conservative" institution and the mechanism which
was suggested for handling the French war purchases was
"entirely new" for the Bank. However, Couve de Murville
added that now Fournier has come around, the differences
between the Finance Ministry and the Bank having been
straightened out. He said that very shortly instructions
would be despatched to Leroy Beaulieu.
BULLITT.
EA:LWW
ADDRESS OFFICIAL COMMUNICATIONS TO
THE SECRETARY OF STATE
92
WASHINGTON, a c.
DEPARTMENT OF STATE
WASHINGTON
November 2, 1939.
My dear Mr. Secretary:
I enclose two copies of paraphrase of telegram
No. 2634 of November 2 just received from Ambassador
Bullitt, transmitting a personal message for you.
Sincerely yours,
merbert terb
Herbert Feis
Adviser on International
Economic Affairs
Enclosure:
2 copies, No.
2634 of November 2.
The Honorable
Henry Morgenthau, Jr.,
Secretary of the Treasury.
93
PARAPHRASE OF TELEGRAM RECEIVED
M
FROM: American Legation, Paris
NO.: 2635
DATE: November 2, 1939, 3 p.m.
This morning we called on Couve de Murville and
for Reynaud's information we gave him copies of the
letters which we received yesterday by mail from London
to which you referred in your telegram no. 1292 to
London dated October 25.
We inquired of Couve de Murville how French revenues
were holding up. He replied that unfortunately a drop
of 60% under budgetary estimates was shown in returns
for September. There will be material improvement, it
18 hoped and expected, in the revenues for October,
although it 18 still too early to know. When we asked
whether they contemplate any new taxes in connection
with the budget for the coming year, he replied that
they were not.
He stated that taxes in France already were "very
high" and that some of the direct taxes already amount
to 50%. (He probably referred to war profits, on which
the tax amounts to 50% when the profits amount to between
four
94
- 2 -
four and six percent. The tax 1s 100 percent for profits
over 10 percent. Reference: telegram of July 31 from the
Embassy, No. 1421, and despatch of August 16, No. 4879.)
We inquired of Couve de Murville whether he had any
reasonably close estimates of probable French war purchases
in the United States during the first year of the war; he
replied that he could not tell as yet. They have already
arranged for purchases of copper in the amount of some
$40,000,000 - we understand that the "credits" involved ih
this transaction only cover the period prior to actual
delivery at the port in the United States from which the
copper 1s to be shipped. In the coming year, he said that
airplane purchases will amount to $100,000,000, subject of
course to revision of the Neutrality Act. He said that
machine tools of many varieties would make up the most
important item in French purchases from the United States,
aside from the cotton, petroleum and other important raw
material purchases.
With regard to the credits to Turkey which are being
discussed now, he said that they had not yet definitely
settled the final amount. However, war equipment 1s badly
needed by the Tunks, he said, and very large credits, several
tens of millions of pounds, would be granted by France and
Great
95
- 3 -
Great Britain for such purposes.
Couve de Murville said that French capital continues
to be repatriated. For the most part, this capital is
coming from London, but they are also receiving returns of
dollar holdings and a little from elsewhere. With a smile
we said that from the point of view of the war, whether
"repatriated" now or not, much of this capital would pre-
sumably be available to the Government. Couve de Murville
replied in the affirmative, but said to have it come in
voluntarily was more satisfactory. On Saturday when Butter-
worth is here, Rueff and Couve de Murville are lunching at
our house.
END MESSAGE.
BULLITT.
EA:LWW
96
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, London
MA
NO.: 2255
DATE: November 2, 1939, 10 p.m.
Reference is made to your no. 1285 of October 24,
7 p.m.
Butterworth will leave tomorrow morning by plane
and will arrive in Paris at 11:00 a.m. In accordance
with your no. 1326 of October 30, 3 p.m., he will spend
two days in Paris. He will leave Lisbon on the Pan-
American Clipper the morning of November 8 and will
arrive in New York on the following day at noon. The
revised British lists of American security holdings
are being sent with him.
Please pass this information on to Treasury.
KENNEDY
EA:EB
97
JI
GRAY
Paris
Dated November 2, 1939
Rec'd 6:25 p.m.
SECRETARY of State
Washington
2644, November 2, 6 pame
FOR THE TREASURY
In line with the Government's keen anxiety
to bring about a much needed restoration of
Economic activity (SEE for Example our telegram
No. 2632, November 1, 7 pem.) today's Journal
Official publishas a decree creating a "permanent
Economic committee" to replace during the period
of hostilities the unwielding and ineffectual
National Economic Council created by the law of
March 19, 1936. A memorandum accompanying the
deoree frankly sets forth that Existing urgent
Economic and social problems call for a simple
compact organization composed of specially qualified
representatives of the nation's Economic life.
The relative utility of the National Economic Council
and its topheavy nature it is stated were ill-adapted
to present circumstances.
(END OF SECTION ONE)
BULLITT
NPL
98
JI
GRAY
Paris
Dated November 2, 1939
Rec'd 6:35 p.m.
SECRETARY of State
Washington
2644, November 2, 6 pame (SECTION TWO)
(You will recall from paragraph No. 2 of
telegram No. 2571, October 24, 6 person that Professor
Rist told us that the committee in reality did
nothing since the war started.) This new committee
is composed of 20 members (which SEEMS to us still
somewhat unwieldly) who will "undertake inquiries,
study solutions and provide advice and suggestions
on all urgent Economic questions laid before it
by the government". The membership which is
representative of all important industrial, commer-
cial, agricultural, banking, transport, and labor
groups numbers among its members: Rist himself,
Ardant of the Societe Generale, Professor Siegfried
Payerimhoff (President of the Coal Mine Owners
Association), Petiet of the Patronat Francais and
Jouhaux of the CGT.
(END SECTION TWO)
BULLITT
NPL
99
PAP
GRAY
PARIS
Dated November 2, 1939
Rec'd 10 p.m.
Secretary of State
Washington
2644, November 2, 6 p.m. (SECTION THREE).
With reference to yesterday's decree (please see para-
graph 4 our telegram No. 2632, November 1, 7 p.m.) setting
up departmental groups to insure adequate supplies of
foodstuffs and agricultural products, the Ministry of
Agriculture indicated this afternoon that these organiza-
tions will be put into operation only in case of need or of
indications of speculation in foodstuffs and other necessities.
The Bourse was strong and active today, rentes gaining
around a franc on the average. The Bank of France statement
published today for the week ending October 26 again shows
no further drawing by the state on its advance account at
the Bank. Commercial advances were reduced by B. further
449,000,000 francs and open market operations were down
5,000,000. Thirty day advances were up 18,000,000 while
advances against securities decreased by 27,000,000. Note
circulation showed an increase of 140,000,000 to a total of
144,379,000,000.
(END SECTION THREE).
BULLITT
NPL
Regraded Unclassified
100
PAP
GRAY
PARIS
Dated November 2, 1939
Rec'd 6:40 p.m.
Secretary of State
Washington
2644, November 2, 6 p.m. (SECTION FOUR).
Current and deposit accounts decreased by 1,569,000,000
and the Treasury account was down 142,000,000 leaving a
balance of 107,000,000. Gold cover increased from 59.33%
to 59.80%
The statement of the National Bank of Switzerland
dated October 31 showed gold holdings unchanged at 2,390.6
millions and foreign currency holdings down 291.4 millions.
Note circulation rose 43.6 millions to 2,036.2 millions.
Sight demand liabilities totaled 834.7 millions. The ratio
of gold cover was 83.40% as against 83.03% the previous
week,
The general meeting of Mendelsschn creditors at Am-
sterdam has been postponed from November 3 to November 30.
The Netherlands Bank statement for the week ending October
30 showed gold reserves at 1,108,000,000 florins ad against
1,112,000,000 the previous week. Total liabilities were
PER
&
1,142,000,000 as against 1,424,000,000. Gold coverage stood
at 76.83% as against 78.93%.
(END OF MESSAGE)
BULLITT
NPL
101
HSM
PLAIN
London
Dated November 2, 1939
Rec'd 1:40 P.M.
Secretary of State,
Washington.
2253, November 2, 6 P. n.
FOR TREASURY FROM BUTTERWORTH.
1. The Bank of England now fixes an official
exchange rate for Netherlands East Indies, the rate
for yesterday being 7.44-7.54, and for today 7.46-7.56.
2. The return of notes from circulation has halted,
this week's Bank of England return showing an increase
of 6828 thousand. There was little further of interest
in the return, public deposits and bankers' deposits
both declining by 62 million and other accounts increas-
inz by 63.7 million. Government securities in the bank-
ing department declined slightly by 6705 thousand, while
other securities increased by 6334 thousand.
3. In reply to B. question in the HOUSE of Commons
today Simon gave as the reason for the reduction in
bank rate to 2 per cent "The recovery of markets from
the dislocation caused by the outbreak of war and the
obviously better adjustment of our financial system to
the new conditions."
KENNEDY
MOL
not read
102
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
M
DATE November 2, 1939
TO
Secretary Morgenthau
FROM
Mr. Cochran
Transactions in the foreign exchange market were again small today. The
sterling rate moved in a narrov range opening at 4.00-1/8 and closing at 4.00.
Sales of sterling by reporting banks in New York totaled L211,000, from the
following source:
Commercial concerns
L211,000
Foreign banks
is -0-
Total
1211,000
Purchases of sterling amounted to L353,000, as indicated below:
By commercial concerns
L198,000
By foreign banks (Europe and South America)
L155,000
Total
1353,000
The banks also reported that the British Control purchased sterling amount-
ing to L149,000 at the official rate of 4.02. Of this amount L130,000 represented
cotton bills.
The rates for the other important currencies closed as follows:
French francs
.0227
Guilders
.5311
Swlee france
.2244
Belgas
.1669
Canada
10% discount
The Chinese yuan was quoted at .08-3/4.
The discount for the Cuban peso widened to 11-3/48 as compared with yester-
day's rate of 10-3/4% It was reported that this weakness was due to fear that
the anticipated rise in the price of sugar, due to war conditions, may not
materialize and thereby have an adverse effect in Cuba.
We purchased from the National Bank of Switzerland $10,000,000 in gold from
their earwarked account.
CONFIDENTIA
103
- 2 -
In the report of October 31, it was mentioned that the National Bank of
Rumania cabled to the Federal Reserve Bank, stating that it intended to buy 80-
proximately $12,375,000 in gold, and that the Federal had informed the Rumanian
Bank of the procedure necessary in order to make the purchase. The Federal Ro-
serve Bank today received another cable in which the Rumanian Bank states that
the Federal will receive for its account, successively, funds for about $11,000,000,
and it requests that this amount of gold be purchased on behalf of the Rumanian
Bank and earmarked in its name at the Federal. The Rumanian Bank also confirmed
that the funds employed for the purchase of the gold are from its own resources,
and that the gold so acquired will be constituted by it as & reserve of the Bank.
The Federal Reserve Bank made application to the Treasury today for the purchase
of $1,000,000 in gold for Rumania, permission for which was granted. la funds
are received by the Federal Reserve Bank for the remaining $10,000,000, which are
to be used for the purchase of gold, application will be made to the Treasury each
time.
The Federal Reserve Bank reported to us the following shipments of gold:
$ 695,000 from India, consigned to the Chartered Bank of India, Australia and
China for sale to the U. S. Assay Office at New York.
1,298,000 from Mexico, consigned to the Federal Reserve Bank of New York by the
Bank of Mexico to be earmarked for its account at the Federal Reserve
Bank of New York.
2,310,000 from Norway, consigned to the Chase National Bank, New York, by the
Bank of Norway for account of the State Bank of U.S.S.R.
1,571,000 from Sweden, consigned to the Federal Reserve Bank of New York by the
Bank of Sweden for sale to the U. S. Assay Office at New York.
1,575,000 from Sweden, consigned to the Federal Reserve Bank of New York by the
Bank of Sweden to be earmarked for its account at the Federal Reserve
Bank of New York.
1,967,000 from Sweden, consigned to the Federal Reserve Bank of New York by the
Bank of Sweden to be earmarked for its account at the Federal Reserve
Bank of New York.
$9,416,000 Total
In New York we made two purchases of silver totaling 150,000 ounces under
the Silver Purchase Act.
B.M.S.
CONFIDENTIAL
11-2-39 (Arta
Thereing
104
Excerpt from Political Report for the Month of
August, from American Consul at Yunnanfu
1939
Transportation and Communications
Highways
Although & small bridge on the Burma road west of
Heiakwan was washed out during the month, there was no
interruption in the transportation of goods from Lashio
to Yunnanfu, Cargo 18 carried over, the break and re-
loaded on other trucks to complete the journey. On the
southern end of the roads where the rains are heaviest,
truck traffic still continues slowly, and passenger
automobiles are unable to proceed.
No date has yet been set for the opening of the
Yunnanfu-Luchow road, although hopeful news-items in the
press from time to time promise that it will be opened
to traffic in the early autumn.
Railways
It 1s reported here that the Yunnan-Indochina
railway intends to increase its freight rates from Hai-
phong to Yunnanfu. Steps have been taken by the French
authorities in Haiphong to clear the docks; it is re-
ported that customs warehouse space there 18 to be in-
creased, and an order has been issued which requires
owners of cargo on the docks to clear it before they
can withdraw goods from customs warehouses. In Yunnanfu
provision 1a being made for an extension of the railway
yards; and in addition, the Yunnan-Indochina railway 18
to have permission to shunt cars on to the sidings recently
built near the city by the Yunnan-Burme and Yunnan-Szechwan
railways.
105
TREASURY DEPARTMENT
WASHINGTON
November 2, 1939
TO THE SECRETARY:
If you desire to say something at
your 10:30 press conference regarding the
RFC subscriptions, I suggest the following:
4 While the final figures on the sub-
scriptions to RFC notes will not be reported
until late this evening, preliminary figures
indicate that we have received subscriptions
for more than fourteen times the amount
asked for. The basis of the allotment will
be made public tomorrow morning.
DWB
EdD
106
November 2, 1939
My dear Mr. President:
I am inclosing herewith a copy of
a cable from Berlin giving a report of a
conversation between the First Secretary
of the American Embassy and Dr. Schacht.
Yours sincerely,
(Bigned) H. Morgenthau, Jr.
The President,
The White House.
By hand
107
November s. 1000
n dear M. President:
I as inclesing herewith s copy of
a cable from Serlin giving & report of a
conversation between the First Secretary
of the American Fabassy and Dr. Schasht.
Yours sincerely,
(Signed) H. Morgenthau, Jr.
The President,
the white House.
108
November 2, 1939
my dear Mr. President:
I an inclosing herewith a copy of
& sable from Berlin giving a report of a
conversation between the First Secretary
of the American Embassy and Dr. Schacht.
Yours sincerely,
(Signed) H. Morgenthau, Jr.
The President,
The White House.
109
November 2, 1939
POSSIBLE CRIMINAL LIABILITY OF JOSEPH M. SCHENCK, DARRYL F. ZANUCK,
WILLIAM GOETZ, WILLIAM B. DOVER AND HARRY KADIS
Throughout the day of November 2, 1939, Mesers. Greenbaum,
Knollenberg, and Mesars. Foley, Wenchel, Trey, Oftedal and Kndes,
conferred concerning the possible criminal liability of any, or all,
of Messrs. Schenck, Goets, Zamuck, Dover and Kadis, with respect to
the following questions:
1. Bribery of Revenue Agent Kadia in November, 1936.
2. Failure of Schenck, Goets and Zanuck to report
taxable profit on exchange of Twentieth Century Pictures
Corporation (hereinafter called "Century") stock for Twentieth
Century-Fox Film Corporation (hereinafter called "Fox") stock
in 1935.
3. Failure of Zanuck to report as taxable income the
value of certain Twentieth Century-Fox Film Corporation
stock received by him in 1935.
4. Malding a false statement in affidavits filed in
1938 by Schenck, Gosts and Zamuck in a matter within the
jurisdiction of the Treasury Department, namely the investiga-
tion of their income tax liability for 1935.
These points will be discussed in the order named.
1. Bribery of Revenue Agent Kadia in Hovember 1936.
Prior to August 22, 1935, Messrs. Schenck, Goats and Zanuck owned
all of the stock of Century in the following anounts:
110
-2-
Preferred
Common
Schenck
35,000
40
Goets
35,000
40
Zanuck
None
20*
In July, 1935 arrangements were made for a statutory merger
of Century with Fox, and on or about August 22, 1935 Schenck,
Goetz and Zanuck received for their Century stock the following
shares of Fox stock:
Preferred
Common
Schenck
55,000
214,000
Goetz
55,000
214,000
Zanuck
22,000
183,000
It is conceded that the value of the Fox preferred and common
stock received by each of the Century stockholders was far in excess
of the cost basis of his Century stock, and that, therefore, if the
exchange was not a tax exempt exchange, a. large taxable profit was
realized. None of the Century stockholders reported any taxable pro-
fit on the exchange in their income tax returns for 1935 on the theory
that the exchange was a tax exempt exchange under section 112(b)(3)
* - These were the record holdings. As brought out later, Schenck,
Goetz and Zanuck filed affidavits with the Bureau of Internal Revenue
in 1938 stating that the beneficial ownership of the Century common
stock in August, 1935 was 35-35-30 shares respectively.
111
-3-
of the Revenue Act of 1934 which was in force in 1935.
In 1936, Kadia, 8 Revenue Agent attached to the Upper District of
New York, audited the 1935 income tax returns of Century and Fox, which
were, I think, New York corporations, and, in some way not yet ascertained*,
was assigned the duty of auditing the return of Schenck who filed his 1935
return in the Upper District of New York, and also the returns of Goets
and Zanuck who filed their returns in the Los Angeles District.
On December 1, 1936 Kadis submitted his report on his audit of each
of the individual taxpayers, in which he said:
"On August 22, 1935 the taxpayer exchanged all of his stock
in the Twentieth Century Pictures, Inc., which name was
changed to the S. G. z. Corporation, for stock in the Twentieth
Century-Fox Film Corporation in pursuance to a plan of re-
organization which the Bureau held to be nontaxable. ****
Mr. Kadis made no mention of the extraordinary fact, which his in-
vestigation must have disclosed, that Zanuck had received a considerably
larger proportion of the total Fox stock issued to the Century stock-
holders than was representative of his proportionate stock holding in
Century. It is believed that Kadis made no mention of this fact because
he had been bribed by Dover to make a. favorable report on or about November
11, 1936, when Kadis is known to have been alone with Dover in the latter's
room at the Waldorf-Astoria in New York City. Dover is Zanuck's business
manager and attends to his financial affairs.
* - A complete story should be obtained as to how Kadis happened to have
assigned to him the audit of each of these returns, including the Fox end
Century returns.
112
There is no direct evidence whatsoever that Dover gave Kadis any
money or property in November, 1936, or at any other time. There are
various indications that Fox, Goets, and Zanuck, through Fox,or Dover or both,
bribed Kadis in 1937 and 1938, but such bribery probably took place in
California rather than in New York. The immediate question is whether
the Department of Justice should be asked to have the United States
District Attorney in New York secure an indictment of Dover and Kadia
(and possibly Zanuck, Schenck and Goetz on the supposition that Dover
was acting as their agent) on the ground that Dover paid, and Kadie
received a bribe at the Waldorf-Astoria on or about November 11, 1936.
There is a three year statute of limitations on the crime of bribery 80
that unless the indictment 18 secured before November 11, 1939, it would
be impossible to indiot Dover or Kadie even though it is definitely
ascertained after November 11, 1939, that Dover bribed Kadis in the
course of Kadis' visit to Dover at the Waldorf-Astoria.
It seems to me beyond the possibility of doubt that the Treasury
Department does not have sufficient evidence of bribery in November,
1936 to request an indictment on that ground.
I understood that all at the conference agreed with this
view.
113
-5-
2. Failure to report taxable profit on exchange of Century
stock for Fox stock in 1935.
Section 112 (b) (3) of the Revenue Act of 1934 provides:
"Stock for stock on reorganization - - No gain or
loss shall be recognized if stock or securities in e.
corporation a party to a reorganization are, in pursuance
of the plan of reorganization, exchanged solely for stock
or securities in such corporation or in another corpora-
tion a party to the reorganisation."
Messrs. Schenck, Goets and Zanuck maintain that the exchange of
their Century stock for Fox stock falls squarely within the exemption
provided for by Section 112 (b) (3). They contend that there is
nothing in sub-section (3) (unlike sub-section (5)) which makes the
exemption conditional on the stockholders receiving stock of the new
corporation in proportion to their holdings in the old.
It appears to me that this position is well taken, and that no
taxable profit was realized by Messrs. Schenck, Goets and Zenuck on
their exchange of Century for Fox stock.
If no taxable profit was realized, it is obvious that there was
no criminal offense in having failed to report in their returns for
1935 that the Fox stock had been received.
3. Failure of Zanuck to report as taxable income the value of
certain of the Fox stock received by him in 1935.
It has been noted that Zanuck received Fox stock in excess of the
number of shares reflecting his proportionate interest in Century.
The Treasury Department maintains that the value of these excess shares
-6-
114
is taxable on the ground that they were received not in exchange for
Zanuck's Century stock but B.B compenations for agreeing to permit Century to
transfer his employment contract to Fox, or his subsequent surrender of his
Century contract, or his entering into a new contract with Fox, or for &
combination of these.
I do not agree with this view, in the absence of evidence that any of the
stock wese in fact received for property other than stock or for services
rendered or to be rendered. If Zanuck had agreed to work for Fox for a sub-
stantially lower salary than he was entitled to receive under his contract with
Century, I think there might be a substantial basis for the Department's assumption
that there was not a 100 per cent exchange of stock for stock, but the fact seems
to be that Zanuck's employment contract with Fox was as favorable as that
with Century.
I have asked for documentary evidence on this point and reserve judgment
until I have seen the documents.
The Department has referred to and quoted telegrams exchanged by Zanuck and
Schenck while the merger of Century and Fox was under consideration in support
of its position, but I perceive nothing in these telegrams that supports the
position.
If the excess Fox stock received by Zamick in 1935 did not constitute
additional compensation, there was, of course, no criminal offense in his having
failed to report the value of the stock as taxable income.
4. Making a false statement in affidavits filed in 1938.
On December 23, 1938, Schenck, Gosts and Zanuck caused to be delivered to
the Treasury Department's investigating agents at Los Angeles affidavits
stating that:
"The common and preferred stock of the reorganized company
which they received upon the exchange of their common stock
of the old Twentieth Century Pictures, Inc. was on the exact
pro rata basis of their actual ownership of COMMON stock of
said old Twentieth Century Pictures, Inc., to wit, 35% to
Schenck, 35% to Goets and 30% to Zanuck."
135
-7-
It 1a believed that the statement in the affidavit and the other
similar statements were untrue and that Zanuck in fact had only a 20
per cent in the Century common stock. The principal ground for this
view is that on May 5, 1935, Zanuck telegraphed Louis B. Mayer:
"Our present division of 40-40-20 is okay now because
Joe furnished releasing organization and Billy furnished
finance end I produced pictures. But now that 1a all
over and it seems only fair that in the new deal we
should all share equally as certainly my job and new
responsibility entitles me to at least get what they
get."
No dividends were paid on the common stock of Century, 80 that
this important indication of stock ownership is not available.
Mr. Wenchel suggests that the action of Messrs. Schenck, Goets and
Zanuck in misrepresenting the facts concerning the stockholdings in Con-
tury was in itself 6. crime under Section 35 of the Criminal Code, as
amended (U. S. C. Title 18, Sec. 88), which provides that:
"Whoever shall *** make *** any *** affidavit ***
knowing the same to contain any fraudulent or fictitious
statement *** in any matter within the jurisdiction of
any department *** of the United States *** shall be
fined not more than $10,000, or imprisoned not more than
10 years, or both."
The context of the language quoted might lend some support to the
contention that Section 35 applies only to the making of claims against
the United States, but offhand, I agree with Mr. Wenchel that Section 35
is applicable to affidavite filed with the Treasury Department in the
course of an investigation by the Department of tax liability. If
so, the fact that no tax liability was avoided because none actually
exists does not, in my opinion, render the statute inapplicable, and
16
this view is sustained by the decision of the United States Circuit
Court of Appeals in the Second Circuit in United States V. Mellon, et al.,
96 F. (2d) 462 (1938), cert. denied 304 U. 8. 586.
Other Points Not Fully Discussed.
There is considerable evidence that one or all of Schenck,
Goetz and Zanuck were instrumental through Fox or Dover or directly
in bribing Mr. Kadia in 1937 and 1938. It seems to no highly advisable
that further evidence be sought on this point with a view to prosecution,
probably in California.
There 18 strong evidence in support of the view that Schenck filed
fraudulent income tax returns for 1935, 1936 and 1937 (wholly apart from
the Fox stock matter).
Tie did not go into the details of these additional points and I
shall, therefore, not discuss them at this time beyond stating that the
case against Schenck for additional taxes, civil fraud and probably
criminal liability - particularly for the year 1935 in connection with
a loss claimed on an apparently fictitious sale of stock - seems to be
strong.
Although I would wish to give the matter further consideration
before making a. final recommendation my present view is that the case
against Schenck for 1935 on account of items other than the Fox stock
1a so strong that the case ought to be presented to the Grand Jury in
New York, where Schenck's income tax return for 1935 was filed.
There is, however, no occasion to make an immediate decision on this
point since the statute will not run for several years. In the course
of the Grand Jury investigation on the 1935 return I believe that a
117
-9-
great deal of other important matter may well be brought out,
including evidence to support our belief that Kadis has been bribed
by Schenck, et al.
Burnhand Knowleng
knowing
November 2, 1939
original smin
& Seery by miskenly
af330 on 11-3'39
POSSIBLE CRIMINAL LIABILITY OF JOSEPH the DARBIL & ZANDCK,
STATEM GOSTZ. WILLIAM De DOVER AND HARRY KADIS
118
Throughout the day of November 2, 1939, Necess. Greenbaus,
Knollenberg, and Besore. Foley, Renchel, Trey, Oftede: and Indes,
conferred conserning the possible original liability of any, or all,
of Mesors. Schenck, Goats, Zanuck, Dover and Kadim, with respect to
the following questions:
1. Bribery of Revenue Agent Kndia in November, 1936.
2. Failure of Schenck, Gosts and Zenuck to report
taxable profit on exchange of Twentieth Century Pictures
Corporation (hereinafter called "Century") stock for Twentieth
Century-Pox Film Corporation (hereinafter called "Yox") stock
in 1935.
3. Failure of Zanuck to report as taxable income the
value of certain Twentieth Century-Fox Pilm Corporation
stock received by him in 1935.
4. Making #: false statement in affidavits filed in
1938 by Scheack, Gools and Zanuek in a catter within the
jurisdiction of the Treasury Department, namely the Investige-
tion of their income tax liability for 1935.
These points will be discussed in the order cased,
1. Bribery of Revenue Acent Kadia in November 1936
Prior to August 22, 1935, Mesors. Schenck, Goets and lanuok owned
all of the stock of Century in the following amounts:
119
- 2 -
Preferred
Common
Schenck
35,000
40
Goots
35,000
40
Zenuck
Some
200
In July, 1935 arrengements were made for a statutory merger
of Century with Fox, and on or about August 22, 1935 Schenck,
Goats and Zanuck received for their Century stock the following
shares of Fox stocks
Preferred
Common
Schenek
55,000
214,000
Goots
55,000
214,000
Zenuck
22,000
183,000
It is conceded that the value of the Fox preferred and 003500
stock reseived by each of the Century stockholders was far in excess
of the cost basis of his Century stock, and that, therefore, if the
exchange was not a tax exempt exchange, a large taxable profit was
realized. Nome of the Century stockholders reported any taxable pro-
fit on the exchange in their income tex returns for 1935 on the theory
that the exchange we a tax exempt exchange under section 112(b)(3
These were the record holdings. As brought out later, Schenek,
Goots and Zanuck filed affidavite with the Bureau of Internal Revenue
in 1938 stating that the beneficial ownership of the Century conson
stock in August, 1935 was 35-35-30 shares respectively.
120
- 8 -
of the Revenue lot of 1954 which me in force In 1935.
In 1956, Kadia, & Revenue Agent attached to the Upper District of
New York, audited the 1985 income tax returns of Century and Fox, which
were, I think, les York corporations, and, in some say not yet uscertained*,
was assigned the duty of auditing the return of Echenok who filed his 1935
return in the Upper District of New York, and also the returns of Goots
and Zanuck who filed their returns is the Los Angeles District.
On December 1, 1956 Kadis submited his report on his audit of +ach
of the individual taxpayers, in which he saids
"On August 22, 1935 the taxpayer exchanged all of his stock
in the Twentieth Century Pictures, Inc., which name was
changed to the S. G. 1. Corporation, for stock in the Twentieth
Century-Fox Film Corporation in pursuance to a plan of re-
organization which the Bureau held to be montaxable. 1148
Mr. Kadie made no mention of the extraordinary fact, which his in-
vestigation aust have disclosed, that Zenuck had received a considerably
larger proportion of the total Fox stock issued to the Century stock-
bolders then 118 representative of his proportions te stock holding in
Century. It is believed that Radia made no montion of this fact because
be bad been bribed by Dever to sake I favorable report on or about November
11, 1938, when Kadia is known to have been alone with Dever in the latter's
FOOD at the Malderf-Astoria in New York City. Dover is Zanuck's business
manager and attends to his financial affeirs.
- A complete story should be obtained no to how Endia happened to have
assigned to his the audit of each of these returns, including the Fox and
Century returns.
121
+
There is no direct evidence whatsoever that Dover gave Kadis any
money or property in November, 1936, or at any other time. There are
various indications that Fox, Gosts, and Zamuck, through Fox, or Dower or both,
bribed Kadia in 1937 and 1938, but such bribery probably took place in
Celifornia rather than in New York. The immediate question is whether
the Department of Justice should be asked to have the United States
District Attorney in New York secure an indictment of Dover and Kadie
(and possibly Zenuck, Schenek and Goets on the supposition that Dover
Will acting as their agent) on the ground that Dover paid, and Kadie
received a bribe at the Waldorf-Astoria on or about November 11, 1936.
There is a three year statute of limitations on the crime of bribery so
that unless the indictment is secured before November 11, 1939, it sould
be impossible to indiet Dover or Kadia even though it is definitely
accertained after November 11, 1939, that Dover bribed Endis in the
course of Kadia' visit to Dover at the Baldorf-Astoria,
It secus to as beyond the possibility of doubt that the Treasury
Department does not have sufficient evidence of bribery in Nevember,
1936 to request an indictment on that ground.
I understood that all at the conference agreed with this
view.
Regraded Unclassified
22
2. Failure to report terable profit on exchange of Century
stock for Fox stock in 1935.
Section 112(b)(3) of Who Revenue Act of 1934 provides:
"Stock for stock OB reorganization. -- gain or
loss shall be recognised if stock or socurities in 4
corporation & porty to 6 reorganization are, in pursuance
of the plan of reorganization, exchanged solely for stock
or securities La such corporation or in another corpors-
tion a party to the reorgenization."
Mesors. Schemek, Goets sac Zenuck asintain toot the exchange of
their Century stock for Foz stock fails squarely within the exemption
provided for by Section 112 (b) (3). They contend tost there is
nothing in sub-section (3) (unlike sub-section (5)) which Boses the
exemption conditional 00 the stockholders receiving stock of the new
corporation in proportion to their holdings in the old.
It appears to lae that this position is well taken, And that no
taxable profit was realized by Mesars. Schenck, Conts and Zensck on
their exchange of Century for For stock.
If no taxable profit was realized, it is obvious that there une
no criminal offense in having foiled to report in their returns for
1935 that the Fox stock had been received.
3. Failure of Zanuck to report as taxable Income the value of
certain of Lae Fox stock received by his in 1935.
It has been noted that Zanuck received Fox stock in 0X0068 of the
cusber of shares reflecting his proportionate interest in Century.
The Treasury Department anist ins that the value of these excess abaros
Regraded Unclassified
6
123
is tamble on the ground that they were received not in exchange for Demok's
Century steek but as compensation for agreeing to peradt Century to transfer
bis employment contract to Fex, or his subsequant surrenter of his Century
contract, or his entering into 6 nov contract with Fox, or for 4 combination
of these.
I do net agree with this view, in the absence of evidence that any of the
stock was in fact received for property other than stock or for services
rendered or to be rendered. If Zamuek had agreed to work for Fox for 8 sub-
stantially lower salary than he was entitled to receive under his contract with
Century, I think there might be a substantial basis for the Department's 16-
susption that there was not a 100 per cent exchange of stock for stock, but the
fact seens to be that Zamuck's employment contract with Fox vas as favorable as
that with Century.
I have asked for documentary ovidence on this point and reserve judgesnt
until I have seen the documents.
The Department has referred to end quoted telegrame exchanged by Zarrack
and Schenek while the marger of Century and Fox was under consideration in
support of its position, but I perceive nothing in these tolegrass that supports
the position.
If the 0x0055 For stock received by Banuck in 1935 did not constitute
additional compensation, there vos, of course, no criminal offense in his have
ing failed to report the value of the stock as taxable income.
4. in affidavite filed in 1938.
On December 23, 1938, Beheack, Goots and Issuck caused to be delivered to
the Treasury Department's investigating agents at Lee Angeles affidavite
stating thats
The - and preferred stock of the reorganized company which
exchange of their - stock of the old
Twentdeth Centary Pictures, Inc., was - the exact - rate basis
of their actual emerchip of common stock of said old Twentieth
Century Pictures, Inc., to wit, 35% to Schemek, 35% to Gosts and
305 to
124
-1-
It 10 believed that the statement in the affidavit and the other
similer statements were untrue and that Zamuck in fact hed only a 20
per cont in the Century common stock. The principal ground for this
view 1a that on May 5, 1985, Zanuck telegraphed Louis B. Mayers
"Our present division of 40-40-20 le okay now because
Joe furnished releasing organization and Billy furnished
finance and I produced pictures. But now that is all
over and it seens only fair that in the now deel ve
should all share equally M certainly my job and new
responsibility entitles me to et least got what they
get."
do dividends were paid on the common stock of Century, 60 that
this important indication of stock ownership is not available.
Mr. Fenchel suggests that the action of Messrs. Schenck, Goots and
Zeauck in micropresenting the facts concerning the stockholdings in Code
Lury WOB in itself a orine under Section 85 of the Crininal Code, AS
enended (U. S. C. Title 18, Sec. $8), which provides thats
"thoever shall 000 make - any *** affidavit ---
knowing the name to contain any fraudulent or fictitious
statoment in any matter within the jurisdiction of
any department --- of the United States --- shall be
flood not more than $10,000, or imprisoned not more then
10 years, or both."
The context of the language quoted might Lend some support to the
contention that Section 25 applies only to the working of claims against
the United States, but offheed, I agree with Mr. Venchel that Section 55
La applicable to affidevits filed -1th the Treasury Department in the
course of 10 investigation by the Department of tex liability. If
no, the frot that no tex licidlity ras evoided because none notually
existe Goos not, in my opinion, reader the statute impolicable, end
Regraded Unclassified
- . -
125
take visa is sustained by the decision of the United States Circuit
Court of Appeals in the Second Circuit in United States V. Mallon, et alos
96 7. (24) 482 (1989): carb. danied 304 U.S. 005,
other Points Net Bully Discussed.
There is considerable evidence that one or all of Schemok,
Goots and Zenuck vate instrumental through Fox or Dever or directly
is bribing Mr. Kadie in 1937 end 1938. It seens to me highly advisable
that further evidence be sought - this point with a view to pros-
seution, probably in California.
There 18 strong evidence in support of the view that Schenek
filed fredulent income tax returns for 1935, 1956 and 1937 (whelly spart
from the Fox stock matter).
To did not @ into the details of these additional points and I
shall, therefore, not discuss them at this time beyond stating that
the case against Schemek for additional taxes, civil frend and
probably oriminal liability - particularly for the year 1935 is
commention with a Less elained on on apparently fictitious sale of
stock - seles to be strong.
Although I would visab to are the matter further consideration
before neking a final recommendation, - present view 10 that the case
against Schemek for 1955 as account of items other them the Fez stock
is ⑉ strong that the case ought to be presented to the Grand Jury is
New York, where Dehensk's income tax return for 1935 was filed.
There 10, however, no conseion to make as immediate decision at this
point eines the statute will not res for several years. In the course
of the Great Jury investigation - the 1935 return I believe that .
126
- 9 -
great deal of other important natter may well be brought out,
including ovidence to support our belief that India has been bribed
by Schenek, et al.
(Signed) Bernhard Knollenberg
127
November 2, 1939
4:20 p.m.
HMJr:
Hello.
Operator: Mr. Jones 18 busy on long distance. I'm waiting
for him.
4:24 p.m.
HMJr:
Hello.
Jesse
Jones:
(Talking aside and cannot be understood.)
HMJr:
This 18 Jesse -- this is Morgenthau.
J:
Yes, sir. I was calling you. I want to tell you
that the -- the Walcott Amendment failed.
HMJr:
Yeah.
J:
I suppose you might have known it.
HMJr:
Yeah, they told me.
J:
Ah
HMJr:
Now whether that leaves you, Jesse, in the clear 18
another question.
J:
Except -- I think it does, Henry. It leaves us in
the clear of anything that we want to do.
HMJr:
You're -- you're sure of this.
J:
Well
HMJr:
Because our boys sort of think that there ought to
be something in the -- taken up in conference on it.
J:
Well, you see the -- the only thing that -- I see,
the only thing that, and I haven't checked this with
the lawyers - the fact that the House repealed this
amendment, it seems to me to counteract or kill the --
the statement by Pittman and Taft and George.
128
- 2 -
HMJr:
Well, would you be willing to Bee Ed Foley sometime
soon and let him
J:
Yes.
HMJr:
Would that be all right?
J:
Yeah.
HMJr:
Well I'll have Ed call you up.
J:
All right.
HMJr:
Thank you BO much. I appreciate your calling.
129
GROUP MEETING
November 2, 1939.
9:30 a.m.
Present:
Mr. Gaston
Mr. Bell
Mr. Graves
Mr. Haas
Mr. Cotton
Mr. Harris
Mr. White
Mr. Duffield
Mr. Riefler
Mr. Viner
Mr. Cochran
Mr. Thompson
Mrs Klotz
H.M.Jr:
Gaston?
Gaston:
The Bibb received a message this morning from the
Camperdown Radio Station, stating that at 2:27
this morning they had received a message from the
S.S. Coulmore, indicating that she was safe. They
were satisfied that the message came from the
Coulmore, which seemed to end that
H.M.Jr:
Was that radio a fake?
Gaston:
We don't know that yet. They weren't able to talk
satisfactorily to the Coulmore.
H.M.Jr:
Didn't you say last night you thought it was a.
fake?
Harris:
Not from anything I had heard. I just wondered
whether it was a fake. It seemed 80 queer.
Gaston:
The radio reception was bad and they weren't able
to talk satisfactorily to the Coulmore, but they
were satisfied that the ship was safe.
H.M.Jr:
Who reports that?
Gaston:
Camperdown Radio Station.
H.M.Jr:
Where is that?
Gaston:
Do you know, Basil?
Harris:
I never heard of it.
130
- 2 -
Gaston:
Is it a Canadian station? The original report
came from Camperdown.
Harris:
I imagine it is Canadian.
Gaston:
I think so.
H.M.Jr:
Anything else?
Gaston:
I had an invitation to attend a reception at the
Russian Embassy and I don't know whether to treat
it as an ordinary invitation or not. I thought
there might be some angle of policy involved.
H.M.Jr:
I'm going to be conveniently out of town.
Gaston:
I see.
Cochran:
Exchange rates are very steady, still at four
dollars.
Cotton:
I haven't heard from Mr. Hanes yet on this busi-
ness, but I....
H.M.Jr:
You and I both.
Cotton:
I imagine it is still in his hands.
H.M.Jr:
Yes, and I am going to leave it there.
Viner:
I think we have invitations on our desks, I will
turn them over to you, Herbert, if you want to
take anybody else along.
Gaston:
Thank you, I will be in charge of the delegation.
H.M.Jr:
You both (Riefler and Viner) look very healthy. I
will see 1f I can't do something about it.
Viner:
Do you want him to get another black eye?
H.M.Jr:
George?
Haas:
I have nothing this morning.
Harris:
Nothing.
Duffield:
Nothing.
131
- 3 -
White:
Nothing.
Graves:
Nothing.
Bell:
If you want to say something at your 10:30 press
conference, I suggest the second paragraph (handing
memo to Secretary).
H.M.Jr:
"We have received subscriptions for more than
fourteen times the amount the amount that has
been made public." It seems successful.
Bell:
That saves giving an amount, because it may change
& hundred million.
H.M.Jr:
How much?
Bell:
Might change & hundred million. They do policing
yesterday and today and then they cut it down some.
H.M.Jr:
O. K., what else?
Bell:
We have received B. request from a Mr. Hellman, in
the Department of Commerce, for information as to
whether or not there is any competition on the part
of the Treasury in selling U. S. Savings bonds.
There is a competition, I suppose, with Savings
banks.
H.M.Jr:
Who wanted to know that?
Bell:
Mr. Hellman, who is working for the Committee on
the Hill.
Duffield:
Monopoly Committee?
Bell:
Yes.
H.M.Jr:
Is there any competition?
Bell:
Yes, and he wanted to know to what extent - whether
or not we had had any kicks from banks, and so forth,
on the competition of U. S. Savings bonds.
H.M.Jr:
Well, we have a member on that Committee, you know,
O'Connell.
132
- 4 -
Bell:
Yes, I know. This gentleman is working for the
Committee and he gets up memoranda on these
various points, and he has asked the Postal Savings
people to give him a similar report, end I have
asked him if he would be good enough to let us
see that report before it goes in.
H.M.Jr:
Send it to O'Connell and ask him what they are
after.
Bell:
They are after all phases of Government competition
with private business. It 1s the same old question
that has been hanging around Washington for 20 years,
not only on this end, but on the purchase of supplies
and manufacturing of supplies, ot cetera.
R.M.Jr:
Do you want to handle it?
Bell:
Well, I will handle it in a way that won't do them
much good.
H.M.Jr:
Send them a copy of Tom Smith's report to the Ameri-
can Bankers, which says that baby bonds should be
stopped.
Bell:
No.
H.M.Jr:
Wouldn't you do that?
Bell:
No.
H.M.Jr:
You don't want to do that?
Bell:
No, I don't think so. I think I would tell them
that we have had very little kicks from bankers
on this, and 1f there 18 any competition, it has
been insignificant.
H.M.Jr:
Well, you handle it.
What else?
Bell:
That is all.
Thompson:
I was wondering If I could have & couple of minutes
today about the transfer of Mr. Bell's staff to the
Secretary's office.
133
- 5 -
H.M.Jr:
What do you want me to do, take off my coat and
move them? You fellows can stay right now. Nobody
has any news. Glad to have seen you all.
COPY
134
No. 234
Rangoon, Burma, November 2, 1939.
SUBJECT: Proposal to lay reinforced concrete strips
on sections of Tunnan-Burma highway in
Yunnan.
THE HONORABLE
THE SECRETARY OF STATE,
WASHINGTON, D. C.
SIR:
I have the honor to report that the construction of parallel
reinforced concrete strips two and one-half feet wide and six inches
thick for a total distance of about eighty miles, is one of the
proposals for the improvement of the Yunnan-Burna highway in Yunnan.
The estimated cost of the proposed improvement is Rupees 12,000
a mile, or approximately Rupees 960,000 (about $288,000 at present
exchange). Materials required would include about 5,000 tons of
cement, steel for reinforcement, and asphalt for expansion joints.
It is said that cement produced in Burns would be used.
The proposal is that of P. Y. Tan, director of the Yunnan-Durms
highway in Tunnan. The reinforced concrete strips would be laid
at places between the Burma border and Pacshan, particularly in the
Mangshih and Lungling sections, where the road became impassable
at times during the rainy season this year.
Concrete Road Link Near Rangoon Inspected.
A seven-mile stretch of parallel reinforced concrete strips
was built in the Rangoon district two years ago as part of a road
road
135
- 2 -
to the storage facilities of nov municipal waterworks, and it issaid
to have withstood heavy traffic without damage during the last two
rainy seasons. This stretch of roadway vas inspected by Mr. Manrice
E. Sheahan, Vice President-Treasurer of the Keeshin Freight Lines,
Incorporated, of Chicago, and by Dr. Francis I. Pan, of the Chinese
Ministry of Communications, when they were here in October.
Mr. Sheahan reported that the strips were laid on a. solid laterite
foundation, and he said that unless the road foundation in Yunnan
was strong there would be danger of truck traffic breaking up the
concrete. He expected to confer with the director of the Tunnan-Burma
highway concerning the proposed construction after inspecting the
highway.
According to Chinese reports, the sum of Ch. $13,000,000.
or more than U.S. $1,000,000 at present exchange, has been made
available for the improvement of the Yunnan section of the Yunnan-
Burma highway during the dry season now opening.
Improvement of Burns Section Starts.
The Defense Department of the Government of Burna reports
that considerable work is already in progress under the plan to nake
the Burma section of the Yunnan-Burna highway a "first-class" road
before the rainy season of 1940 (reference despatch no. 207, of
August 12, 1939). It is said that a proposal to use reinforced
concrete strips on that section vas considered by the Public Works
engineers, but that it was rejected on the ground that such con-
struction would be much more costly, and that it would offer no
advantage over a tar-surfaced nacadas road. The surfacing of the
the
136
- 3 -
the metalled road with tar is expected to cut down maintenance
costs at least 60 percent. It is stated that the engineers in
charge of the improvement of the highway from Lashio to the border
are confident that the work can be completed during the next six
months.
Respectfully yours,
Austin C. Brady
American Consul
Distribution:
1. Original and four copies to Department.
2. Copy to American Embassy, London.
3. Copy to American Embassy, Chungking.
4. Copy to American Consulate General, Calcutta.
5. Copy to American Consulate, Yunnanfu.
800
ACB/cp
original reti to Hanes 11-2-31 by Home at
luncheon
137
November 2, 1939
Tot
The Secretary
Treat Mr. Names
Testorday I had persuaded John Williams to a to Oustemala. He
asked for 24 hours is which to explore the situation further before
asking President Conant for leave of absence in order to make the trip.
Mr. Williams has game into this matter thoroughly with people is State
Department, and perhaps with others. with the result that he advised as
this norning that he definitely cannot undertake the mission at this time.
Mr. Williams card that If the conference is postponed until January
he will then be delighted to nake the journey as this would give his ample
time is which to get ready. and also the conference beginning here on
November 15th with representatives from 21 American Republics vill have
become history.
Ky recommendation to you is asffellows:
(1) Unless some substantial personality connected with the Treasury
or the Federal Reserve heads the mission the Treasury is going to be placed
in a most unfortunate light.
(2) Ve have exhausted all possibilities and have no further suggestions
on a NAB to represent the Treasury.
(3) I understand that Mr. Duggan of the State Department has stated
that he will refuse to go valess some senior representative from Treasury
is willing to attend.
(4) This brings no to the conclusion that the Treasury should notify
State Department that It is in our opinion highly desirable that the
Quatomala conference be postponed until January, and an agreement be
obtained from John Villiams as this time as to the date he will be available
for the journay.
(5) That the State Department be authorised to announce to the
South American countries at this time that Mr. Williams will head the
mission. and that ve have asked for this postponsment due to the fact that
neither Mr. Villiams nor any other senior executive of the Treasury can
possibly leave Washington me.
(6) I do not believe there is any other alternative. and feel in view
of the agenda for the Outsmale conference that it would be suicidal from
our standpoint to let anyone represent as who 10 not fully qualified to
Mr. Hanes handed original to
Secretary at luncheon today - 11-2-39
138
- 2 .
discuss all phases of, (a) the gold standard, (b) currency stabilization,
(e) foreign exchange policy. (a) a thorough familiarity with the declarations
and recommendations adepted at the Montevidos. Busnes Aires and Lima
conferences, (e) the policy of central banks and their relationship to the
States.,X) the increase and extension of credit to the various countries
in all its phases.
(7) I hope you can persuade the Secretary of State to postpone the
conference.
139
RE COLOMBIAN FINANCE
November 2, 1939.
3:30 p.m.
Present:
Mr. Welles
Mr. Feis
Mr. Frank
Mr. Jones
Mr. Collado
Mr. Duggan
Mr. Cotton
Mr. Riefler
Mr. Hanes
Mr. White
Mr. Cochran
H.M.Jr:
The reason that we called this meeting today is
that this committee of Mr. Jones and Mr. Welles
and myself were meeting, with the approval of the
President, to try to work out B. formula to solve
the financial difficulties of "A" country in this
hemisphere, having solved our own, completely.
The question comes up of their debts to private
citizens and I think in the course of one of the
meetings at luncheon that we had, you (Frank) said
that SEC had a lot of information on the debts
owed by South American Republics to our citizens.
Frank:
I may have been over-stating. I think we have some
data.
H.M.Jr:
Well, with that in mind, we asked 1f you would come
over and tell us what you felt the SEC could do to
be helpful in this matter.
Frank:
I wish I had known that. I wanted to bring my
man along, who is much more familiar with it than
I. You (Feis) know Lincoln. I think he 1s pretty
well informed. I ought to bring him, because
H.M.Jr:
I thought you knew.
Frank:
I didn't know you wanted to get that information
today. I may be able to get him now.
White:
Are you sure the Secretary has in mind the specific
situation as to
H.M.Jr:
I don't mean the data, in dollars.
140
- 2 -
Trank:
No, I know.
H.M.Jr:
How far could you go, legally, and how far would
you like to go?
Prank:
We have got the problem, of course, of the regis-
tration of those securities and the question is
how far we can go within the limits of that statute
to obviate difficulties that might arise in dis-
closures. I don't know how far we can go. I
think we are somewhat straight-jacketed, I am not
sure. The man that I should have brought over
is Lincoln, who, as Mr. Feis knows, did B. great
deal of work under Bill Douglas in connection
with the Protective Committee studies on foreign
bonds, and who since has been in touch with the
registration in connection with those and with
that Board of Visitors that scrutinized, to some
extent, the activities of the Foreign Bondholders
Council. He has been the man that was on the
firing line there. My own first-hand knowledge of
it is very limited.
E.M.Jr:
I see,
Hanes:
I thought it was rather to find out if the SEC
couldn't be helpful in the Protective Committee
work for the private investors; in other words,
looking after the interests of the private In-
vestors in this country, to whom are already owed
monies by South American countries.
Frank:
I think they could.
Hances
With the idea of exploring the possibility of
getting the SEC's cooperation with the Treasury,
State, and Mr. Jones, when we are about to lend
money to South America, what kind of a settlement
could you make with the bondholders of this coun-
try, with the SEC looking after the investors'
interest and to keep them apprised of the kind of
deal we were trying to make with the investors in
this country, 80 that the problem wouldn't crop
up of the SEC saying, "This isn't a fair deal from
the standpoint of the SEC for our investors in
this country;" in other words, to take the SEC
right along with us every way.
141
- 3 -
Frank:
We will be delighted to do it. I will speak for
myself at the moment, but I think the Commissioner
would go along in any way that we could on the
basis of our statutory powers or extra-statutory
methods, because I think it is an important problem,
both for the investors and for the welfare of the
country in South America.
Jones:
You would have to register any new securities,
wouldn't you?
Frank:
Yes, sir.
Jones:
You would have to come in on that?
Frank:
We would have to come in on that.
Jones:
So, 1f a new security was worked out for the public,
you would have to do that?
Frank:
That is correct, and any committees that were formed
would have to register.
Hanes:
You would have to pass on the committees, too, wouldn't
you?
Frank:
They would have to register their material.
Jones:
The committee for the bondholders.
Feis:
In most of the settlements that have been recommended,
there haven't been any new securities. As 8. matter
of fact, I can only think of one or two, offhand, that
involved any new registration.
H.M.Jr:
The registration
Frank:
The registration, so far, has been
Jones:
Could you, if the old bonds - if there is not a new
issue, but they were merely stamping an old bond,
changing the terms, I assume you would have to con-
cur in that, or would you?
Frank:
I think 80. We got a decision from the Court of
Appeals in the Second Circuit last year, involving
a domestic company, in which it was held that 8.
renewal or extension was a security and that
soliciting of an extension was the soliciting of
a security.
142
- 4 -
Hanes:
You would have to?
Frank:
That Associated Gas case.
Hanes:
They would have to apply to you before they could
solicit, wouldn't they?
Frank:
I think that is correct.
Jones:
And you would have to approve that?
Frank:
Yes, and also they will have to file their data
on the registration form and we would have to be
satisfied that that was correct, that is, that it
was honest.
Jones:
It probably would not be necessary, you think, then,
to issue B. new bond, but merely to say instead of
paying eight percent interest, they were going to
pay four percent interest?
Frank:
I don't think there was anything in our statute
that would affect that. They would have to register,
but there is no reason why they couldn't do it, as
far as our statute was concerned.
Welles:
Without prior approval?
Frank:
We don't have to approve the security. We don't
have to approve the issue, as such.
Feis:
As I say, the settlements that were reached, there
were new securities issued in only one or two cases
and unless I am mistaken, there has been no new
registration certificate required except in connection
with the listing on exchange, with which you already
were concerned.
Frank:
That is right, their annual reports. For instance,
this recent program against the German bonds, which
was discontinued because they withdrew, involved
the failure to bring their data up to date in con-
nection with their solicitations of conversion
bonds.
H.M.Jr:
Let me ask this question. Confidentially, the State
Department has selected Colombia as the country that
we are going to try to do & job for. In connection
143
- 5 -
with their private debt, would you think over,
talk over with the Commission, how much assistance
you could give us in coming to some sort of an
agreement?
Frank:
Yes, sir.
H.M.Jr:
I mean, Just how far you can go and how far you
would like to go, not just to sit back and wait
until the stuff is brought to you.
Frank:
I could say - I am sure we would be delighted to
be helpful in any possible way and I think pro-
bably we can be, don't you (Feis) think so, or
don't you?
Feis:
I have no opinion.
Frank:
Well, you know what the contacts have heretofore
been.
Jones:
I have got documentary evidence here to submit.
I would like to submit that to the meeting.
H.M.Jr:
I will have to give this to one of the Spanish
students.
Jones:
A man read in the paper about this committee and
sent me a bond and says he has 198 more just like
it.
Welles:
What country was that?
Duggan:
This is the Bank of the State of Rio de Janeiro.
H.M.Jr:
Mr. Welles and I, at least, are glad that we know
that they know where to go. We will have to open
up & new department.
Jones:
They knew they couldn't get anything out of the
Treasury.
H.M.Jr:
Well, after they 800 you have a successful financing...
Jones:
Then I get this letter.
144
- 6 -
Hanes:
What 1s it, a bond on the
Duggan:
It is B. bond of a bank, not of any federal govern-
ment. I never heard of that issue. It 18 an
issue
Jones:
What is the date of it, when was it issued?
H.M.Jr:
1900.
Collado:
It 18 a mortgage bond issued by a State bank.
Jones:
S. W. Straus & Company, or something like that?
Feis:
Probably, yes.
Jones:
Well, I guess we
Frank:
Mr. Secretary, I would just like to say I am here
as an individual and what I said, of course, I
have got to take back to my Commission. I suggest
I do this, take it back and get their views and
let you know just what data we have, what mechanisms
we have and just how we can be helpful. Supposing
I indicate that to you?
H.M.Jr:
At a fairly early date?
Frank:
Yes, indeed, sometime tomorrow.
Welles:
May I clear up this one point. If I understand
correctly, what it really amounts to is whether
the SEC feels it has any statutory power to
represent the private bondholders in a negotiation.
Frank:
I would doubt that. As a matter of fact, I can
say unequivocably that we have no statutory power.
I know that. John knows that.
Jones:
You will just have to keep us in line.
Frank:
We will have to see that the lines are kept open,
but we have no power to represent anybody more
than anybody here would. Somebody over in our shop
might raise captious objections about registration
form or solicitation material.
145
- 7 -
Jones:
How much will you (Duggan) give me for it?
Duggan:
About three cents.
Jones:
Sold!
Duggan:
That went into default before the depression,
Mr. Jones. 1927 was the last coupon.
Jones:
Maybe it will come to life. Three cents?
Duggan:
That is high.
H.M.Jr:
Well, while we have the benefit of Mr. Frank's
presence, does anybody want to ask him anything
other than if he would take it up with the Com-
mission and see how far they can go?
Jones:
I suppose we ought to do that.
Frank:
Yes. I can say, without going back to the Com-
mission, that we have no statutory power to repre-
sent anybody.
Jones:
No, you just....
Frank:
Any more than you would, Mr. Jones, and less, perhaps.
Jones:
If it comes to the registration, of course you have
got to do that, and if they don't even stamp the
old bonds....
Frank:
I would think so, on the basis I mentioned, but I
will let you know about that.
Jones:
I think you ought to do that in the interest of
the bondholders.
Frank:
I think 80.
Hanes:
The bondholders would accuse you of not looking out
for their interest 1f you let some phoney deal ride.
Jones:
That is probably as far as you can go, too, isn't
it?
Frank:
I think so.
146
- 8 -
H.M.Jr:
Do you want to ask these gentlemen anything?
Frank:
No, I have nothing to ask.
H.M.Jr:
I don't think we can do much more today.
Welles:
No.
Frank:
I will send that letter promptly, and I will
send copies to you, Mr. Jones, and you, Mr. Welles.
147
No. 235
COPY
Rangoon, Burma, November 2, 1939.
CONFIDENTIAL
SUBJECT: Estimate of cost of operating and maintaining a motor-transport system in
China.
THE HONORABLE
THE SECRETARY OF STATE
WASHINGTON, D. 0.
mitro
SIR:
I have the honor to report that the annual cost of operating and maintaining
& motor-transport aystem in China covering 7,000 kilometers (4,350 miles) and
involving 5,000 motor vehicles would be Ch,$121,051,061 (about US$10,000,000 at
present exchange), according to an estimate made in a report prepared for the per-
sonal information of Dr. H. H. Kung, President of the Executive Tuan of China
(Premier) and Minister of Finance, by Mr. D. F. Myers, an American mechanical
engineer who is with the Ministry of Finance in an advisory capacity.
Mr. Myers' report was presented to Dr. Kung on August 19, 1939. and it beare
a notation to the effect that it was "approved in principle" by Dr. Kung on
September 5. 1939. A copy VOS turned over to Mr. Maurice 3. Sheahan, Vice President-
Treasurer of the Keeshin Freight Lines, Incorporated, of Chicago, for his information,
and this copy Mr. Sheahan had with him when he came to Rengoon in October.
Heavy Expenditures for Supplies.
The estimate of annual cost included supplies, depreciation, salaries, interest,
overhead charges, and handling charges. of the total estimated, supplies were
abown as requiring ch.$104,450,475 (about US$8,878,000 at present exchange). The
principal supplies needed and the costs in United States currency were net down as
follower gasoline, 25,000,000 gallons, $6,250,000; diesel 011, 1,000,000 gallons
Regraded Unclassified
148
a , .
$200,000; lubricating oil, 100,000 gallons, $100,000; spare parts, $300,000;
tires and tubes, 2,000, $55,000.
The report stated that on the basis of 5,000 motor vehicles operating 200,000,000
kilometers, serviced and maintained under the system outlined, the cost would be
Ch.$0.6053 (now about US$0.05) & kilometer.
To naugurate a motor-transport system such as that contemplated, Mr. Myers
estimated that a capital outlay of US$497,500 and Ch.$2,967,500 (about US$252,000)
would be required. He placed the mumber of workshops necessary at 157. Roads in
the Northwest were not included in the calculations, the highway network consisting
only of the following units: Tunnanfu to Burma border, 975 kilomoters; Chungking
to Yunnanfu, 1,165; Luichow to Tunnanfu, 915; Eweiyang to Chen-nan-Kwan, 1,045:
Changsha to Iveiyang, 800; Eweilin to Ta Tung, 306; Hochi to Kaopin, 520; San Chi
Chang to San Chien Pan, 820; Chengtu to Chungking, 445.
Tunnan-Burma Highway Needs.
Mr. Myers, in company with Mr. Tsang Ou, a member of the Executive Yuan of
China, traveled over the Tunnan-Burna highway in both directions during the recent
rainy season, making the round trip in the month of July (reference despatch no. 198,
of July 25, 1939). He recorded as his convictions in regard to that highway that
in order to get anything like an adequate return from the money already expended con-
siderable additional money would have to be spent; that until the road was improved
there was little use of maintaining trucks in good condition; that control of drivers
and of traffic generally was essential, and that control of maintenance, service
and supply should be in the hands of & sings agency. He observed that the equipment
purchased by the Highway Administration was of little use except for construction
purposes, and that there was great need for equipment for the removal of earth
slides, which were then occurring daily.
149
- 3 -
Pacilities for Export Via Rangoon.
With reference to the shipment of export cargo from China, Mr. Myers held
that some of the cargo should be sent via Bangoon in order to assure the Burna
officials that their action in providing a road and in reducing freight rates had
not been "in vain". He stated that the head of the Burma Railways had told his that
the Lashio branch was capable of handling 60,000 tona a month - 1,000 tons a day
in each direction, and that a maximum of twelve trains a day, each carrying 180
to 200 tone, was possible.
Expenditures on Burna Section of Highway.
Information obtained by Mr. Myers concerning expenditures on the Dursa
section of the Tunnan-Burna highway vse given in his report as follows: Cost to
date, exclusive of expenditure in 1938, Rupees 700,000 (about $252,000); expenditure
in 1938, Rupees 369,018 (about $132,846); appropriations for making road "first
class" - materials, Rupees 250,000 ($75,000 at present exchange), engineering and
labor, Rupees 300,000 ($90,000 at present exchange); total expenditure, Rupees
1,619,018 (about $549,846). The length of the Burma section is 116 miles.
Respectfully yours,
Austin C. Brady
American Consul
Distribution:
1. Original and four copies to Department
2. Copy to Embassy, London.
3. Copy to Embassy, Chungking.
800
4. Copy to Consulate General, Calcutta. 5. Copy to Consulate, Tunnanfu. ACB/DP
Regraded Unclassified
150
November 3, 1939
The President asked me what I thought he ought
to tell Bullitt in regard to the attached and I said
that he should have Monnet come to this country. Sub-
sequently I told the President the whole story about
Monnet being Sir John Monnet and how he got this through
the intervention of Sir Robert Kindersley and the whole
hook-up with Lazard Freres.
THE WHITE HOUSE
WASHINGTON
November 3, 1939
CONFIDENTIAL MEMORANDUM FOR
H. M. Jr.,
Please read and return. What
do you think I should say to Bullitt?
F. D. R.
Enclosures
Regraded Unclassified
Paris, October 18, 1939.
Personal and
Strictly Confidential
Dear Mr. President:
I enclose herewith the agreement drawn up by the
British Government and Jean Monnet covering economic
cooperation. Personally, I think Monnet should head
the Committee in London, and I should like to see
Bob Brand at the head of the Joint Purchasing Com-
mission in the United States.
In any event, I hope that Monnet will go to
Washington to put through the business of enlarging
the productive capacity of our airplane industry.
The experience he had last winter has given him a
knowledge of the possibilities of our industry that
no one else in either France or England possesses -
and every day will count.
I don't like to say so in 8 telegram, but I
really believe that there is an enormous danger that
the German Air Force will be able to win this war
for
The Honorable
Franklin D. Roosevelt,
President of the United States of America,
Washington, D. C.
Regraded Unclassified
- 2 -
for Germany before the planes can begin to come out of
our plants in quantity. I think we should encourage
the French and British in every way possible to place
the largest conceivable orders. If, before those orders
are completed, the French and British shall have been
defeated, we shall need the planes for our own defense.
You may still be interested in that island; but
our Navy doesn't seem to be so much interested. I had
my Naval Attaché telegraph to the Navy Department the
text of the contract that the French Government is
prepared to sign, more than ten days ago; and in spite
of another telegram from the Naval Attaché asking whe-
ther the Navy Department wants to sign this contract,
we have had no reply!
There has never been any question about the readi-
ness of the French Government to let us have the island;
but it was very difficult to find a legal adviser of the
French Government who had not been mobilized or was not
snowed under with war work to go over the contract. I
had to push hard. Before you get this letter, the matter
probably will be settled. If not, I shall probably send
you a telegram couched in diplomatic language expressing
the thought - What the Hell!
Everyone in Paris is expecting a major German attack
to break the moment the present rains stop. Our prepara-
tions are superb. I have converted a wine cellar in the
basement
Regraded Unclassified
- 3 -
basement of the Embassy Residence, under the front steps,
into an abri. It is not in the least bombproof; but I
have hung in it the Turkish and Bokharan embroideries
that I used to have in my house on the Bosphorus, and
it is the last word in Oriental style and comfort, 80
that when the bombs begin to drop you may imagine Offie
and myself tucked away in a Selamlik!
Our motto is: "We don't mind being killed, but we
won't be annoyed."
Love and good luck.
Yours always,
Bill
Regraded Unclassified
(COPY)
SECRET
MACHINERY FOR COORDINATION OF ANGLO-FRENCH
ECONOMIC WAR EFFORT
I.
PERMANENT EXECUTIVE COMMITTEES.
(a) Composition.
Permanent Executive Committees will be formed to
provide for Joint Anglo-French action in the various
departmental fields, e.g., food, armaments, etc. These
Committees will consist of 8. few British and French
members appointed by their respective Ministers. It
is essential that both French and British members
should be selected in such a manner as to carry the
required authority with their national Departments,
and that they should be given by their Ministers wide
enough powers to permit prompt decisions by the Exe-
cutive Committees. This point is of the utmost im-
portance to the efficient working of the Executive
Committeer which are to be permanent organs carrying
out joint action and administrative tasks.
!!inisterial consultations will take place at
meetings to be held either in Paris or London as and
when necessary between the !linisterial Heads of the
Departments concerned in order to take whatever de-
cisions are required in connection with the activities
of the Executive Committees, and to give them the
necessary
Regraded Unclassified
- 2 -
necessary directions. These meetings will be known as
"Councils".
(b) Functions.
The functions of the Executive Committees will be:
(1) To lay down a programme of the requirements of
the two countries in the particular field covered
by each executive committee and, where possible,
to establish an ad hoc inventory of the resources
of each country In that field.
(2) To secure the best utilization in the common
interest of the resources of the two countries
in raw materials, means of production etc., and,
so far as may be possible, to provide for a fair
allocation of cuts arising out of the necessity
for the restriction of programmes.
(3) Having regard to the above considerations, to
formulate Joint Allied programmes of imports.
(4) To organize purchases under such agreed programmes
of imports in such a way as to prevent all compe-
tition between French and British purchases. This
will in most cases entail the making of purchases
through a single purchasing organization, the form
of which should be adapted to suit the particular
conditions prevailing in different countries.
(5) To ensure that such programmes are effectively
carried out.
(c) Sphere of Activities.
In the first instance Permanent
should be forned to deal with:
(1) Food.
(2) Shipping.
(3) Munitions and Raw Materials.
(4) 011.
(5) Air Production and Supply.
The Permanent Executive Committee for Shipping will
be entrusted with the important responsibility of providing
for the allocation of tennage at the disposal of the Allies
(including
- 3 -
(including neutral tonnage) which is required for carrying
out the agreed programmes of imports of the other Executive
Committees.
It may subsequently be desirable to add to the number
of Permanent Executive Committees; moreover Sub-Committees
can, if necessary, be formed to deal with particular pro-
ducts such as wheat, sugar, chemical products, ores, etc.
Coal is a separate subject which will require special
treatment.
II. ANGLO-FRENCH COORDINATING COMMITTEE.
(a) Composition.
The Committee should consist of six to eight members
and should be drawn from a panel comprising, on the British
side, the members of the existing Interdepartmental Committee
for Anglo-French Supply and Purchase of War Material etc.,
on the French side, the Heads of the French Executive Com-
mittees in London. The personnel could be varied according
to the subjects on the agendum. The committee should have
a fulltime Chairman who should be appointed jointly by the
two Governments as an Allied Official. Although in no
sense an arbitrator, be would do his best from an allied
as opposed to a national point of view, to adjust differences
and obtain decisions. Although the Committee would sit in
London the Chairman must be able to visit Paris frequently
to consult with French Ministers.
The Committee should normally include representatives
of
Regraded Unclassified
4
of the Treasury and the Ministry of Economic Warfare on
the one hand, and the French Ministries of Finance and
Blockade on the other, in order to ensure that the Com-
mittee's decisions take into full account the require-
ments and the policy of those Departments.
(b) Functions:
(1) To coordinate the work of the Permanent
Executive Committees.
(2) To deal with differences of opinion arising
out of the supply and purchase of munitions,
food, coal and other commodities which af-
fect more than one Executive Committee or
which raise important questions of principle
or priority.
(3) To coordinate the work of Allied Purchasing
Missions abroad.
III. SUPREME WAR COUNCIL.
It is contemplated that there should be in due
course an Economic Section of the Supreme War Council
which will settle broad issues of policy.
12th October, 1939.
Regraded Unclassified
TREASURY DEPARTMENT
159
INTER OFFICE COMMUNICATION
DATE November 3, 1939-
TO
Secretary Morgenthau
FROM
Mr. Hass 90A
Subject: Wheat export sales and other market data from the
Federal Surplus Commodities Corporation.
Oct. 24: Winnipeg reported that the English government had
bought 2,000,000 bushels of wheat. The visible
supply of Canada continues to increase rapidly,
with an increase last week of 16,500,000 bushels,
bringing their total to 336,566,000 bushels, which
18 the largest on record, as against 174,873,977
bushels A year ago.
It was reported today that 250,000 bushels of corn
had been sold for shipment from Montreal to England.
Oct. 25: Sales of Manitoba wheat to the United Kingdom today
are estimated at around 500,000 bushela or more.
Exporters are reported to have made purchases of
1,000,000 bushels of Winnipeg futures, but even with
this buying the Winnipeg October closed 1/8 lower.
London reported that Hungary had sold 36,000 tons of
wheat flour and 4,000 tons of feeding flour to
Germany. Switzerland 18 buying 20,000 tons of
Roumanian wheat.
Oct. 26: Broomhall reported that the Australian government 18
negotiating for the sale of an additional 50,000 tone
of flour and about 2,300,000 bushels of whest to
England.
Oct, 27: Reports indicated that rains for the past few days
had missed the most important producing sections,
failing to reach the hard wheat area where the big
wheat acreage 18 located. H. C. Donovan, crop
expert, reported that the situation in the Southwest
was the worst that he had seen in his 55 years of
experience in the grain field.
100
Secretary Morgenthau - 2
Oct. 28: Foreign demand for Canadian cash wheat was slow today.
It is said that large amounts of corn are scheduled to
be shipped to eastern porte for winter storage 80 that
the grain will be in position to ship to Europe in case
of a good demand developing later in the season.
Oct. 30: It was reported that about 250,000 bushels of Manitoba
wheat had been worked to the Continent. Foreign demand
was very disappointing. It is estimated that Roumania
has sold about 28,500,000 bushels of new crop wheat,
and of this amount about 3,500,000 1e destined for Italy.
Shipments of wheat for export from Argentina last week
amounted to 3,700,000 bushels. Wheat shipments for the
year to date from Argentina amount to 3,770,238 tons,
against 1,503,0 tone last year during the same period.
ICI
November 3, 1939
RE: JOSEPH M. SCHENCE, DARRYL F. ZANUCK. WILLIAM GOETZ, WILLIAM B.
DOVER AND HARRY KADIS.
I concur in Mr. Knollenberg's memorandum dated November 2, 1939
but think it may be helpful to submit the following comments in
amplification:
1. The bribery of Revenue Agent Kadis in November, 1936.
As stated by Mr. Knollenberg, the Department has not sufficient
evidence at the present time to warrant an indictment for the act of
bribery alleged to have occurred in November, 1936. However, this does
not mean that no criminal action should be taken in connection with the
bribery charge, including this specific act. The facts indicate clearly
that Agent Kadis was bribed and warrants presentation to a Grand Jury.
Such presentation should be 88 part of an investigation into other related
matters, as hereafter indicated, and not as an isolated fact.
The following are some of the known facts presently susceptible of
proof: Special Agent Kadie accepted substantial favors and gratuities
from the taxpayers, including the use of a limousine automobile at a cost
to Twentieth Century-Fox Film Corporation of almost $3,500; be secured the
employment by this company of a young lady of his acquaintance at a compen-
sation of $0.00 a week, which employment lasted for several years up to and
including February, 1939; be was assigned to a further field investiga-
tion in 1938 and promptly notified Dover of this assignment, whereupon, Dover
Regraded Unclassified
132
- 2 -
cabled Zanuck, who was then in Paris, that he had received a telephone
call from Kadis, "our tax man New York", who explained that he had been
assigned to the case and felt that this was an "unusually good break
falling into his hands instead of others"; Dover, who was neither an
attorney or tax expert secured a power of attorney from Mr. and Mrs.
Goets, who had their own counsel, and proceeded to New York for the
preparation of affidavite; and Kadie actively participated in the
preparation of these affidavits.
With these and other facts it is believed that bribery can be
established, not only as against Kedie but those who gave the bribe.
Consideration should also be given to the advisability of pro-
ceeding under I. R. C. Section 4047(e), R, S. 3152, BO far as Kadis
18 concerned, and with a conspiracy charge so far as others are
concerned. As stated in a memorandum of Elmer Irey dated October 30,
1939 the persons responsible for the bribery and the conspiracy should
not escape punishment.
The original recommendation of the Bureau in this respect is fully
warranted by the known facts. Although this task will be made more
difficult by reason of the rather perfunctory Grand Jury investigation
already made, the situation is sufficiently serious to warrant further
action. The Grand Jury investigation only took one hour and twenty
minutes, and consisted of calling two hostile witnesses whose testimony
might have been helpful but who were given the opportunity to see the
Government's hand and to put white-washing denials in the record.
Regraded Unclassified
183
- 3 -
In spite of this it is recommended that further action be taken
and it is believed that this can be done in connection with the
prosecutions hereafter recommended.
2. Failure to report taxable profit on exchange of Century
stock for Fox stock in 1935.
I agree with Mr. Knollenberg that the reorganization did not
result in texable profit to Messrs. Schenck and Goetz. The criminal
liability of Messrs. Schenck, Goetz and Zanuck will be discussed
in item 4. The tax liability of Zanuck will be discussed in point 3.
3. Failure of Zanuck to report as texable income the
value of certain of the Fox stock received by him in 1935,
Ae pointed out by Mr. Knollemberg, Zanuck would have no
terable guin if the stock he received in the new company was in
pursuance of the plan of reorganization "solely for" his Century
stock. (Section 112(b)(3)). The documentary evidence as to
whether part of this stock was actually received in return for
other benefits, such as a more favorable employment contract, is
not yet available for our examination. Disparity in the proportion
of stock received is indicative that this may be the fact and
would seem to warrent the Bureau in meking an assessment for de-
ficiency against Zanuok. If this cannot be established, nevertheless,
affidavite furnished by Messre. Zanuck, Schenck and Goetz furnish
another basis for assessment. In these affidavite dated
December 23, 1938 they state, under oath, that Zanuck owned
30 per cent of the old Century stock (I have not seen these af-
fidavita, but assume that the excerpts furnished are correctly quoted).
Regraded Unclassified
4
184
If it be a fact that Zanuck did own 30 per cent of the stock prior
to the reorganization there must have been a taxable gain to him at
the time when his interest was increased from 20 per cent to 30 per
cent. No such gain has been reported by him and his tax liability
for the gain is clear.
4. Making a false statement in affidavits filed in 1938.
I agree that section 35 of the Criminal Code is applicable and
recommend presentation to a Grand Jury of the facts concerning the
acts of Messrs. Schenck, Goets and Zanuck and others.
In spite of the conduct of the taxpayers subsequent to the
reorganization, it seems doubtful to me whether a conviction could
be obtained if there WHB no original tax liability. For the reasons
stated above, however, I feel that there was such liability on Zanuck's
part. If in fact there was such liability I recommend prosecution of
those persons whose acts violated the provisions of section 35.
In this connection it should be noted that there is evidence avail-
able, to indicate that Messrs. Schenck and Gosts had a financial interest
in aiding Zanuck from escaping tax liability. Messrs. Schenck and Goetz
induced Zanuck to enter into the plan of reorganization and would be
placed in a very difficult position vis-a-vis Zanuck if such reorganiza-
tion resulted in tax liability to Zanuck und not to them. It is worthy
of note that in the letter appended to the plan of reorganization Messrs.
Schenck, Goets and Zanuck indemnified the corporation against tax lia-
bility arising out of the reorganization. Tax liability against Zanuck
might well
105
- 5 -
indicate to them the possibility of tax liability against the
corporation. Such liability would have resulted in a huge obligation
to Mesars. Schenck and Goetz. This indemnity to the corporation
and the surrounding facts indicate strongly that Messrs. Schenck
and Goetz may also have agreed to indemmify Zanuck against tax
liability.
It is in connection with Grand Jury proceedings under
section 35, that I feel facts can be developed on the bribery
charges against Kadis and the others. Many of these acts occurred
in New York, the place where both Schenok and the Corporation
filed their returns. It 16 recommended that the criminal proceedings
be initiated in the Southern District of New York.
5. Schenck's liability on his 1935, 1936 and 1937 returns.
As pointed out by Mr. Knollenberg, there 16 strong evidence,
wholly apart from the reorganization question, that Schenck filed
fraudulent income tax returns for 1935, 1936 end 1937. This is
the subject matter of a letter from the Bureau to the Department of
Justice dated July 14, 1939. Although we have had no opportunity
to go into this matter fully, my examination of the available papers
indicates that in 1935 Schenck took a false deduction of $173,228.33
on an alleged loss resulting from the sale of stock in a Merican
corporation. This stock was alleged to have been sold by him in
December, 1935 for $50,000, although in that year he received dividends
of $33,853 on that stock. The alleged purchaser of the stock
apparently was without funds and Schenck provided him with funds
to make the so-called payment of $50,000. In this 1935 return Schenok
took deductions for expenses of which over $28,000 seemed to be clearly
186
- 6 -
false. Although his contract with the corporation entitled him to
reimbursement for "reasonable traveling and living expenses while away
from home" he made deductions in bis personal return, for what he called
business expenses and for such items as an automobile purchased for a
lady friend, flowers, salary of his valet, personal barber, etc. In
his returns for 1936 and 1937 similar deductions appear. In my opinion
there seems ample justification for an additional assessment against
him by reason of the alleged loss of stock in 1935 and false deductions
for 1935, 1936 and 1937. I likewise feel that the facts warrant e fraud
penalty and criminal prosecution.
General Comments,
Although I do not agree that the known facts bear out the Bureau
58 to its contention that the tax liability resulted to Messrs. Schenck
and Goetz by reason of the reorganization, I do agree fully with the
recommendations of the Bureau heretofore made that the facts called for
criminal prosecution. Indeed, it seems to me that on the basis of the
Bureau's investigation it would have been derelict in its duty if it had
not made a. recommendation for action by the Department of Justice.
Although it may be beyond the scope of this memorandum, nevertheless,
I an taking the liberty of making El further suggestion. It is my feeling
that where the Bureau makes 6. recommendation for criminal action arising
out of a tax situation, an assessment should be made against the taxpayer
prior to the institution of criminal proceedings. Such assessment should,
of course, not be made without consultation with those officials in the
Department of Justice who will be charged with the responsibility of
conducting the criminal proceedings.
Regraded Unclassified
167
-7-
I am cognizant of the difficulties in connection with the
adoption of such a new procedure and I understand the reasons why
it has been long established policy to postpone making the assessment
until after the criminal proceeding. However, I feel that the Supreme
Court's decision in the Mitchell case in overruling the Coffey case
eliminates many of the objections that heretofore existed. The
criminal prosecution of a taxpayer to-day without a prior assessment
furnishes the taxpayer with an opportunity to cry "persecution" by
alleging that he is being criminally prosecuted without being given
an opportunity to pay his tax. Such an argument might prove a
weighty one before a jury in prosecution under section 35. It is
believed that if the facts warrant an assessment, such an assessment
should be made, to remove the inference referred to above, and to
make available the implications which such an assessment bears.
It is By belief that such procedure would strengthen a prosecution
under section 35, and, indeed, any prosecution rising out of & tax
fraud.
Respectfully submitted,
0
wanted
31%
usey
I
servy
any
The
rearty
100
November S, 1939 mil-39
RE: JOSEPH M, SCHENCK, DARRYL 7. ZANUCK, BILLIAM GOETZ, WILLIAM B,
188
DOVER AND HARRY KADIS,
I concur in Mr. Knollenberg's memorandum dated November 2, 1939
but think it may be helpful to submit the following comments in
amplification:
1. The bribery of Revenue Agent Kadie in November, 1936.
As stated by Mr. Knollenberg, the Department has not sufficient
evidence at the precent time to warrant an indictment for the not of
bribery alleged to have occurred in November, 1936. However, this does
not mean that no criminal action should be taken 10 connection with the
bribery charge, including this specific act. The facts indicate clearly
that Agent Kadis was bribed and warrante presentation to a Grand Jury.
Such presentation should be as part of eu investigation into other related
natiors, as hereafter indicated, end not as an isolated fact.
The following are some of the known facts presently susceptible of
proof: Special Agent Kadie accepted substantial fevors und gratuities
from the taxpayers, including the use of a limousine automobile at 4 cost
to Twentieth Century-Fox Film Corporation of almost $3,500 he secured the
employment by this company of . young lady of his acquaintence at a compan-
sation of $100 a week, which employment lasted for several years up to and
including February, 19391 he val assigned to . further field investige-
Wion in 1938 and promptly notified Dover of this assignment, whereupon, Dover
Regraded Unclassified
189
-2-
cabled Tanuck, who was then in Paris, that he had received a telephome
call from India, "our tax man New York", who explained that be had been
assigned to the case and felt that this was an "unusually good break
falling into his hands instead of others"; Dover, who was neither an
attorney or tax expert secured E. power of attorney from Mr. and Mrs.
Goets, who had their own counsel, and proceeded to New York for the
preparation of affidavite; and Kadia actively participated in the
preparation of these affidavits.
With these and other facts it is believed that bribery can be
established, not only as against Kadis but those who gave the bribe.
Consideration should also be given to the advisability of pro-
ceeding under I. E. C. Section 4047(e), R. S. 3152, BQ far 58 Kadis
is concerned, and with a conspiracy charge so far as others are
concerned. Às stated in 6. memorandum of Elser Irey dated October 30,
1939 the persons responsible for the bribery and the conspiracy should
not escape punishment.
The original recommendation of the Bureau in this respect is fully
warranted by the known facts. Although this task will be made more
difficultyby reason of the rather perfunctory Grend Jury investigation
already made, the situation is sufficiently serious to warrant further
action. The Grand Jury investigation only took one hour and twenty
minutes, and consisted of calling two hostile witnesses whose testimony
eight have been helpful but who were given the opportunity to see the
Government's hand and to put white-sushing denials in the record.
Regraded Unclassified
170
- $
In spite of this it is recomended that further action be taken
and it is believed that this can be done in connection with the
prosecutions hereafter recommended.
2. Failure to report taxable profit on exchange of Century
stock for Fox stock in 1935.
I agree with Mr. Knollenberg that the reorgan sation did not
result in taxable profit to Messrs. Schenek and Gosts. The criminal
liability of Messrs. Scheme, Goets and Zanuck will be discussed
in item 4. The tax liability of Zamuck will be discussed in point 5.
3. Failure of Zaruck to report as taxable income the
value of certain of the Fox stock received by his in 1935.
la pointed out by Mr. Knollemberg, Zanuck would have no
taxable gain if the stock he received in the new company was in
pursuance of the plan of reorgan setion "solely for" his Century
stock. (°ection 112(b)(5)). The documentary evidence as to
whether part of this stock was actually received in return for
other benefits, such as a more favorable employment contract, is
not yet available for our examination. Disparity in the proportion
of stock received is indicative that this may be the fact and
would Been to warrant the Bureau in making an assessment for de-
ficiency against Zamick. If this cannot be established, nevertheless,
affidavita furnished by Messrs. Zanuck, Schenck and Goetz furnish
another basis for assessment. In these affidavits dated
December 25, 1958 they state, under oath, that Zamuck owned
30 per cent of the old Century stock (I have not seem these af-
fidavits, but assure that the excerpts furnished are correctly quoted).
&
171
If it be a fact that Zawack did own 30 per cent of the stock prior
to the reorganisation there must have been a taxable gain to his at
the time when his interest me increased from 20 per cent to 30 per
cent. No such gain has been reported by him and his tax liability
for the gain is clear.
4. Making a false statement in affidavite filed in 1938.
I agree that section 35 of the Criminal Code is applicable and
recommend presentation to a Grand Jury of the facts concerning the
acts of Messrs. Schenck, Goets and Zamuck and others.
In spite of the conduct of the taxpayers subsequent to the
reorganisation, it seems doubtful to no whether a conviction could
be obtained if there was no original tax liability. For the reasons
stated above, however, I feel that there was such liability on Zanuck's
part. If in fact there was such liability I recommend prosecution of
those persons whose acts violated the provisions of section 35.
In this connection it should be noted that there is evidence avail-
able, to indicate that Mesars. Schenck and Goets had a financial interest
in aiding Zanuck from escaping tax liability. Meesrs. Schenck and Goets
induced Zasuck to enter into the plan of reorganisation end would be
placed in a very difficult position Pla-e-fin Zannck if such reorganiza-
tion resulted in tax liability to Zanuck and not to them. It is worthy
of note that in the letter appended to the plan of reorganisation Memors.
Schenck, Gosts and Zanuck indemified the corporation against tax 11a-
bility arising out of the reorganization. Tax liability against Termack
night well
172
indicate to them the possibility of tax Liability against the
corporation. Buch liability would have resulted in a huge obligation
to Mesars. Schemek and Gosts. This indemnity to the corporation and
the surrounding facts indicate strongly that Measrs. Schenck and Gosts
say also have agreed to indemnify Zanuck against tax liability.
It is in connection with Grand Jury proceedings under section 35,
that I feel facts can be developed on the bribery charges against Kadia
and the others. Many of these acts occurred in New York, the place
where both Schemck and the Corporation filed their returns. It 1a
recomended that the criminal proceedings be initiated in the Southern
District of New York.
5. Schenck's liability 98 his 1935, 1936 and 1937 returns.
is pointed out by Mr. Enellenberg, there is strong svidence,
shelly apart from the reorgenisation question, that Schemek filed
fraudulent income tax returns for 1935, 1936 and 1937. This is
the subject matter of a letter from the Bureau to the Department of
Justice dated July 14, 1939. Although we have had no opportunity
to go into this netter fully, my examination of the available papera
indicates that in 1935 Schenck took a false deduction of $173,228.33
on an alleged loss resulting from the sale of stock in . Mexican
corporation. This stock see alleged to have been sold by his in
December, 1935 for $50,000, although in that year he received dividends
of $33,853 on that stock. The alleged purchaser of the stock
apparently was without funds and Schenck provided him with funds
to cake the so-called payment of $50,000. In this 1935 return Schenck
took deductions for expenses of shich over $28,000 seesed to be clearly
6 -
173
false. Although his contract with the corporation entitled him to
reimbursement for *reasomable traveling and living expenses while away
from home be made deductions in his personal return, for what he called
business expenses and for such items as an automobile purchased for a
lady friend, flowers, salary of his valet, personal barber, etc. In
his returns for 1936 and 1937 similar deductions appear. In ay opinion
there seess emple justification for an additional assessment against
his by reason of the alleged loss of stock in 1935 and false deductions
for 1935, 1936 and 1937. I likewise feel that the facts warrant a fraud
penalty and criminal prosecution.
General Comments.
Although I do not agree that the known facts bear out the Bureau
as to its contention that the tax liability resulted to Messre. Schenck
and Goots by reason of the reorganization, I do agree fully with the
recommendations of the Bureau heretofore made that the facts called for
criminal presecution. Indeed, it seems to me that on the basis of the
Bureau's investigation it would have been derelict in its duty if it had
not sade a recommendation for action by the Department of Justice.
Although it my be beyond the scope of this memorandum, nevertheless,
I an taking the liberty of making a further suggestion. It is K7 feeling
that where the Bureau makes . recommendation for criminal action arising
out of a tax situation, an assessment should be nade against the taxpayer
prior to the institution of criminal proceedings. Such assessment should,
of course, not be made without consultation with those officials in the
Department of Justice who will be charged with the responsibility of
conducting the criminal proceedings.
Regraded Unclassified
174
- 7 -
I as cognisant of the difficulties in connection with the
adoption of such a new procedure and I understand the reasons why
it has been long established policy to postpone making the assessment
until after the criminal proceeding. However, I feel that the Supreme
Court's decision in the Mitchell case in overruling the Coffey case
eliminates sany of the objections that heretofore existed. The
criminal prosecution of & texpayer to-day without e. prior assessment
furnishes the taxpayer with an opportunity to cry "persecution" by
alleging that he is being criminally prosecuted without being given
an opportunity to pay his tax. Such an argument might prove &
weighty one before a. jury in prosecution under section 35. It is
believed that if the facts warrant an assesssent, such an assessment
should be made, to remove the inference referred to above, and to
make available the implications which such an assessment bears.
It is by belief that such procedure would strengthen a prosecution
under section 35, and, indeed, any prosecution rising out of a tax
fraud.
Respectfully submitted,
175
November 3, 1939
FOR THE SECRETARY:
Attached is the last set of notes on the April
meetings which I plan to give to Bob Kintner at present.
However, the material which I have had 80 far does not
answer two questions, the first of which Bob has already
asked me and the second of which I am sure he will ask me
as soon as I give him these final two pages. The first
question is: Did the British volunteer the information
which their Treasury cabled to us through Butterworth,
setting forth their financial plans on the outbreak of war?
The second question 18: What was the final outcome of
the inquiry which the United States Treasury addressed to
the Tripartite countries, asking for consultation on their
financial plans in the event of a war? Did the consulta-
tion ever take place, and if not, why not?
ESD
PAGES 176,177 PLACED IN
BOOK 179, PAGES 272A-B
(4/15/39)
not read
178
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
W
DATE November 3. 1939
TO
Secretary Morgenthmu
FROM
Mr. Cochran
The foreign exchange market was more active with greatly increased volume
in sterling transactions. At the opening, sterling WAB quoted at 4.00 and short-
ly after it Van reported that the Chase Bank had foreign bank orders to sell
about L200,000. After the offering of this sterling appeared in the market, the
rate eased and in the early afternoon it was quoted at 3.99. The rate remained
fairly steady until shortly before the close, when some forced came on the market.
It then again receded and closed at 3.98-1/2.
Sales of sterling by reporting banks in New York totaled L658,000, from the
following sources:
Commercial concerns
1 158,000
Foreign banks (Europe, Far East and South America)
1 500,000
Total
1 658,000
Purchases of sterling amounted to L660,000, as indicated below:
By commercial concerns
I 257,000
By foreign banks (Europe, Far East and South America)
I 403,000
Total
1 660,000
The banks also reported that the British Control purchased sterling amounting
to 165,000 at the official rate of 4.02. All of this sterling represented cotton
bills.
The rates for the other important currencies closed as follows:
French france
.0226-1/B
Guilders
.5310
Swise francs
.2242-1/2
Belgas
.1666
Canada
10-5/16% Discount
The Chinese yuan continued to improve and was quoted at .08-15/16. This 1a
the highest quotation for the yuan since it started to improve.
We sold to the Central Bank of Argentina $2,500,000 in gold which was placed
in its earmarked account with the Federal Recerve Bank of New York.
CONFIDENTIAL
179
- 2 -
We purchased from the Netherlands Bank $1,700,000 in gold from its earmarked
account.
The Federal Reserve Bank reported to us the following shipments of gold:
$ 302,000 from India, consigned to the Bank of Montreal, New York, for sale to
the U. S. Assay Office at New York.
20,000 from England, consigned to the Canadian Bank of Commerce, New York, for
sale to the U. S. Assay Office at New York.
2,088,000 from South Africa, consigned to the Federal Reserve Bank of New York, to
be earmarked for account of Netherlands Bank at the Federal Reserve Bank
of New York,
2,654,000 from Hungary, consigned to the Federal Reserve Bank of New York, to be
earmarked for the account of the National Bank of Hungary at the Federal
Reserve Bank of New York.
$5,064,000 Total
We have been advised by cable from our Embassy in London that the Bank of
England is making one shipment of gold, valued at approximately $2,000,000, to
the Federal Reserve Bank of New York. Although our advice does not 80 indicate,
it is assumed by us that this shipment is for official account. If such is the
case, it is the first shipment of such a nature for a considerable period of time,
and may be the beginning of the resumption of gold shipments to the U. S., for
official account.
The equivalent of today's London silver price was 41.514. The price fixed by
Handy and Harman for foreign silver remained unchanged at 34-3/46. The Treasury's
price was also unchanged at 35$. In New York, we made 3 purchases of silver total-
ing 200,000 ounces. We purchased 25,000 ounces of silver from Canada under our
regular monthly agreement.
B.M.
CONFIDENTIAL
STRICTLY CONFIDENTIAL
BK221
TREASURY DEPARTMENT
180
INTER OFFICE COMMUNICATION
DATE November 3. 1939.
TO
Secretary Morgenthau
FROM Mr. Cochran
By appointment the following gentlemen called on Secretary Morgenthau at
11:30 this morning: Sir James Rae (Administrative Officer of the British
Purchasing Mission in Canada), Mr. Pinsent (Financial Counselor of the British
Embassy), Sir Owen Chalkey (Commercial Counselor of the British Embassy) and
ir. Purvis (a British industrialist at the head of the Canadian branch of
Imperial Chemicals who has been selected to be the ranking officer in the New
York organization of the British Purchasing Mission). Mr. Cochran MBC present.
Sir Owen Chalkey expressed the gratification of the group at the latest
nows with respect to the neutrality legislation. They were all quite happy over
this, Sir Owen then showed to Secretary Morgenthau B. draft of a communiqué
which they contemplated releasing to the press, announcing the establishment in
New York of the Purchasing Mission office and explaining the connection between
this and the group in Canada. When the Secretary asked him when they planned
to release this notice, Chalkey said they had asked approval of the British
Government for the release, and hoped to issue it Monday. The Secretary re-
marked that while the release appeared quite in order, he thought it should be
held up until after the neutrality bill had been signed by the President. When
ssked as to when the bill would be signed, the Secretary replied that he had
not discussed this matter with the President and did not know, but believed
it would be signed by Monday.
Mr. Purvis, who called today for the first time, was most appreciative
of the consideration which the Secretary has been showing his British colleagues
with respect to purchasing arrangements, and, for his part, desired to cooperate
fully in undertaking his new duties. The Secretary asked whether they could
say anything as to plans for the British and French Missions coordinating their
purchasing operations in the United States. The British had no definite in-
formation on this point, but hoped that such coordination would be arranged.
They realized that much harm could come to the two Missions by competitive
bidding, and that prices on our market might be unduly raised.
Mr. Purvis hoped the French would at least name comeone with whom be could
be directly in touch for consultation in regard to purchases in the United
States.
In answer to Purvis' question as to the officer with whom they should con-
sult in Washington, the Secretary explained that he me merely "pinch bitting"
for the present, but that he expected the President definitely to determine the
method of liaison within the next few days. The Secretary stressed the advan-
tage of having both the British and French officers come together to the Ameri-
can liaison officer so that two separate but quite similar discussions could be
181
- 2 -
avoided and Idean better coordinated.
The question then arose e.e to whether with the setting up of this
Vission in the United States the British would naice some purchases of Ameri-
pila materiala directly in England. He cited the case of a purchase of Ameri-
Cridit motor trucks being contracted for in France, without the knowledge of
of.icials in this country who could have told the French that the truck in
question 138 defective. The British appreciated very highly the service that
our officials could lend them in Just such en instance, They said they did
not want to be caught with any faulty equipment. The point was made, however,
that certain purchases of American grain and foodstuffs have been contracted
for in England by officials --- allegedly experts in this field. If this
;motice continues, the members of the group will insist that they be kept
currently informed of such purchases.
This applies to raw materials, as well as foodstuffs, since they realize
that the pricesof finished products depend importantly upon the prices of the
ISW materials that enter thereinto.
Sir James Rae will apparently be in Canada most of the time. Mr. Purvis,
is nead of the organization in New York, will keep in touch with Messra. Chalkey
and Pinsent and desires to come personally to see the American lisison officer
At least once each week. The Secretary agreed to receive Mr. Purvis next
Wednesday, at an hour to be communicated by Mrs. Klotz to the British Embassy
here, to discuss problems of interest and indicate whether the American liaison
officer is yet named. The Secretary informed them of his travel plans and
niced that they communicate only with Mrs. Klots and myself in his absence.
The Secretary let them know that arrangements appear to be nearing comple-
ilon for France to establish banking arrangements in New York, similar to thosé
pred upon by the British, for the handling of funds for purchases of mar
materials in this country.
After we came out of the office of the Secretary, Mr. Pinsent asiced me if
there had been any clarification of our neutrality legislation on the point
38 to whether it definitely prohibite a Government entity such as the Recon-
struction Finance Corporation from making loans to a belligerent Government.
Re had in mind particularly the question of getting advances against British
owned dollar securities, lest too hurried sale thereof may depress the market.
: tolá him that I thought the legislation as sent to the conference committee
contained nothing new on this point. and that, ae far as I knew, no steps had
been taken to clear up this matter since the debate in which Senator Pittman
talked on this question.
In his talk with me alone, Mr. Pinsent expressed a little concern about
the French organization for purchasing in this country, it being his fear that
there will be too many varied French Missions, with the Commercial Attaché in
The York acting as a sort of secretary thereto, rather than any permanent
official In this country heading the organization.
B.M.R.
Regraded Unclassified
182
IT:P:CA
CAA
November 3, 1939.
REPORT FOR SECRETARY MORGENTHAU:
In regard to closing agreements which have been requested,
the following applies:
Colt's Patent Fire Arms Manufacturing Company:
The agreement duly executed was forwarded to your office
for your consideration.
An amended certificate dated October 26, 1939 and a trans-
mitting letter dated October 27, 1939, from the War Department,
were received on November 1, 1939. The certificate is amended
to state that 159 guns will be procured and that there is a
probability that the ultimate number of guns required may be
increased to 300, all of which will be purchased under the one
contract.
Consolidated Aircraft Corporation:
Nothing further has been heard from this contractor.
De Laval Steam Turbine Company:
Additional information has been received from the 00M-
tractor.
The representative of the contractor was orally advised
to apply to the Navy Department for a certification and he
stated he would do 80.
New matters developed as follows:
The Midvale Company, Nicetown, Philadelphia, Pennsylvania:
A letter from this contractor dated October 26, 1939 was
delivered by hand to Appel on October 30, 1939, requesting a.
183
- 2 -
closing agreement with respect to various facilities estimated
to cost $674,700.00 claimed to be required for & prospective
contract for armor plate. The request asks that $653,010.00
of such cost shall be allowed 8.8 chargeable to cost of the con-
tract. The facilities include extension of a building; removal
of B. carpenter shop; changing location of tracks and switches;
alterations of various fire, water, air, oil and drain lines;
expenses of installation and fitting out of a 6,500 ton press
to be leased from the Navy Department; relocation of various
facilities and purchase of various machinery and installation
thereof. The messenger stated that application has been made
to the Navy Department for certification and he understood that
the Navy Department has instructed its cost inspector at the
plant to make a report, The terms of the request were not dis-
cussed.
Commis
184
IT:P:CA
CAA
Berember 3, 1989.
REPORT FOR SECRETARY MORGENTHAU=
In regard to clesing agreements which have been requested,
the following applies:
Colt's Patent Fire Arms Manufacturing Company:
The agreement duly executed was forwarded to your effice
for your consideration.
Am anended certificate dated October 26, 1989 and a treas-
mitting letter dated October 27, 1939, from the Was Department,
were received on November 1, 1939. The sertificate is eneaded
to state that 150 grans will be prosured and that there is a
probability that the ultimate mmber of gune required may be
increased to 300, all of which will be purchased under the one
contract.
Consolidated Aircraft Corporation:
Nothing further has been heard from this sentractor.
Do Lavel Steen Turbine Company:
Additional information has been received from the -
traster.
The representative of the contractor was erally adviced
to apply to the Havy Department for a certification and he
stated he would do no.
New matters developed as follows:
The Midvale Company, Nicotown, Philadelphia, Pennsylvanias
A letter from this contractor dated October 26, 1989 was
delivered by hand to Appel es October 30, 1939, requesting &
185
- 8 .
closing agreement with respect to varieus facilities estimated
to cost $674,700.00 claimed to be required for a prospective
contract for erner plate. the request asks that $688,010.00
of such cost shall be allowed as chargeable to cost of the -
tract. The fasilities include extension of & buildings removal
of a carpenter shops changing location of tracks and switches;
alterations of various fire, water, air, oil and drain lines;
expenses of installation and fitting out of a 6,800 tea pross
to be leased from the Havy Department; relocation of various
facilities and purchase of various methinery and installation
theresf. The messenger stated that application has been made
to the Havy Department for certification and he understeed that
the Havy Department has instructed its cost inspector at the
plant to make a report. The terms of the request were net die-
cussed.
(Signed) Guy T. Helvering
Commissioner.
CAA/ETS
Regraded Unclassified
186
FROM: MR. GASTON'S OFFICE
TO: The Secretary
of our request for $39,000,000 deficiency
Recal 1240 the Budget is allowing us
of 44,500,000, just enough for the pay and
= the of the 2,000 added men now on the
colle. 1:13 does not trúce care of the 2,500
, antimated by Weesche BE necessary
" sich the loading of explosives under
- act. It contains nothing for new
- thes, glowes, listening devices, gun mounts,
1re lighthouse tender and buoys (nalted by the
-% for nine-laying use) or other equipment.
who told us we can represent these arain
1 cón oction with the 1940 budget--but we will
e Are not right away under the new neutrality
1
2
187
PARTIAL PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Berlin, Germany
DATE: November 3, 1939, 10 a.m.
NO.: 1928
The official statement of the tax revenues of the
Reich for the second quarter of the fiscal year ending
September 30, 1939 shows that 6,179 million marks in taxes
was collected during this period, representing an increase
of 1,546 million marks, or one third, over collections during
the corresponding quarter of the present year. Total tax
revenues for the first half of this fiscal year were
11,800 million marks as compared with collections of 8,304
million warks during the first half of the preceding fiscal
year, These figures tend to confirm the forecast made by
State Secretary Reinhardt that the normal tax yield for
1930-40 would be approximately 22 billion marks. A revised
estimate made by Reinhardt since the adoption of the new
var surtaxes forecasts a total tax yield of 24 billion marks
for the present fiscal year. Although the war surtaxes were
effective September 1st; the first date of payment for the
principal taxes vas not until October 18th no that revenue
from this source for September was negligible.
The first installment on the tax on increased incomes,
due on September 10th amounted to one million marks. Since
the tax for 1939 (which applies to increases in butter during
1938 as compared with 1937) is to be paid in three equal
installments
188
- 2 -
installments during the first year it secus probable that
the total yhold of this tax for the present year will approxi-
mate 300 million marks. This is the amount which the tax vas
originally designed to produce but subsequent increased
exemptions and abatements as a result of an unusual volume
of protest from the tax payers led some observers to the
conclusion that the tax would yield less than half of this
amount, 800 telegram 829, August 18, 5 p.m.
The most recent statement of the Reich's floating debt
is for July and shows a net increase of 739.6 million marks
during the month to a total of 10,324.8 million marks
(including tax certificates). Some 781 million marks in tax
certificates were issued in July bringing the total issued
during the first three months in which the now finance plan
was in force to 2,279 million marks. Assusing that tax
certificates were issued at the same rate until their die-
continuance on November 1 their total of issuance would be
approximately 4.5 billion marks.
Last June, when the Reichsbank was reorganized, the
previous limitation of 100 million marks oa Government
borrowing from the Reichabank vas removed. Novever, care
was taken by officials and the press to give the impression
that the increased borrowing facilities would not be availed
of by the Government. During the month of July, despite
those assurances of financial moderation on the part of the
Government,
Regraded Unclassified
289
- 3 -
Government, the Reich borrowed from the Relchsbank 454
million Reichsmarks. This increased borrowing from the
Central Bank was apparently to meet heavy maturities of
government short term paper some 496 million marks of which
fell due during July.
The last statement of funded debt available was for
May, see my telegram 829, August 18, 5 p.m. No public
loans have been issued since the first of the year but the
amount of government bonds issued directly to the savings
banks, insurance companies and social insurance agencies
is said to have been larger than last year and when the
full effect on savings of rationing and searcity of con-
sumption goods 16 felt will probably be even greater.
Repeat to Treasury.
KIRK.
DECEIAED
2891 8 yes
THEMTHANDO VIIIALIST
- - for
without all - -
EA:LWW
Regraded Unclassified
190
EDA
PLAIN
LONDON
Dated November 3, 1939
RECEIVED 1:02 p.m.
Secretary of State
Washington
2267, November 3.
FOR TREASURY.
1. The first step in formal procedure preparatory to
the issuance of war loans was made public when & motion
under the Chancellor of the Exchequer's name appeared in
last night's parliamentary papers. This motion which will
form the basis of B national loans bill to be introduced
and passed through all its stages next WEEK reads as follows:
"The Treasury may borrow in such manner AS it thinks
fit on the security of the consolidated fund:
"1. Any sums required for raising any supply granted
to H1s Majesty for the SERVICE of the year ending March 31,
1940.
An
"2./ Additional sum not EXCEEDING 1250 million and,
"3. Any sums required for the repayment of any
maturing securities, issued or deemed to have been issued
under the war loan acts, 1914 to 1919, or any provision
thereof or issued under any act of the present session
for giving Effect to this resolution, or of any Treasury
bills
191
EDA - 2 - #2267, November 3, from London
bills or ways and means advances."
The resolution also provides powers to the Treasury
for the purpose of carrying out any arrangements for the
Exchange of Government securities, to create and 193UE
new securities and make payments to holders of securities
surrendered. The financial press this morning consistent-
ly points out that this resoltuion indicates the prepara-
tion of the necessary statutory machinery rather than an
early announcement of an actual war loan though for
some time there has been discussion in the city of the
possibilities of an actual announcement this month, The
City Editor of the TIMES points out that *it is not clear
from the resolution itself whether these suma (Enumerated
in paragraphs 2 and 3 of the resolution) are additional
to the borrowing powers to the extent of 1502 million
already available in respect of the current year under the
DEfence Loan Act if not also to the vote of credit of
1500 million obtained on the outbreak of war." But he
also points out that it does not necessarily follow that
the Treasury will avail itself of all its additional
powers within the year to which they relate. The Govern-
ment securities now callable are the one per cent Treasury
bonds 1939/41 of which 6100 million are outstanding, On
July
192
RDA - 3 - #2267, November 3 from London
July 1, 1940, L353 million of 4 per cent conversion loan
1940/44 will bE redemable. The announcement came too late
to affect the gilt-EdgEd market yesterday which closed
firm generally but with the medium dated stocks more
favored and with war loan 3½ per cent actually down by
to 911. This morning's stock market was quiet on the
approach of a weekend with war loan quoted as low as 91 3/8
but closing 91 5/8.
2. There was little change in the rate for today's
Treasury bill tender, the average being about 61. 38. 12D.
as compared with L. 3S. 8.83D. last WEEK. Applications
totalled $102,555,000 and the syndicate tenders received
a 53 per cent allotment.
KENNEDY
HPD
M
193
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: November 3, 1939, 7 p.m.
NO.: 2655
The following 18 strictly confidential:
I had a talk with Paul Reynaud today, who said that
a most serious problem was raised in a letter which he
had received from Sir John Simon. In the letter from
Simon, he insisted that with regard to the question of
loans and credits to Turkey, the French and British Govern-
ments should share equally in the burdens of loans and
credits for allies of France and England.
In talking with me Reynaud pointed out that Great
Britain had financial resources about three times the size
of those of France. He said that where Great Britain had
at present less than one out of forty-five mobilized, France
had one out of every eight of her population mobilized,
and that where & given section of front line trenches required
two British divisions to hold it, it could be held by half
& French division. He mentioned that supplies for & British
division were four times what 18 required for a French
division, owing to the higher standard of living of the
British troops, and that whereas a British soldier received
2 shillings & day, the pay of a French soldier was only
50 centimes - the equivalent of 1 1/10 cents. Because of
the number of Frenchmen mobilized, France was not able to
maintain
194
- 2 -
maintain her export industries, whereas the export industries
of Great Britain could be maintained. Reynaud said that
if there were an equal sharing of financial burdens, the
finances of France would collapse at a date long before
such B. state was reached by Great Britain.
Reyaaud said it was his belief that the clear object
of Sir John 81mon was to 800 French resources exhausted before
there was serious weakening on the part of Great Britain,
80 that at the end of this war, Great Britain could control
the situation absolutely. From the point of view of his
country, Reynaud said, this situation was entirely inadmis-
sable. He said he expected to go to London and have the
matter out with the British Government shortly.
From this we went on to discussion of France's financial
situation in general. He said that it had already been
necessary for him to take the position that they must make
revisions on many expenditures abroad which the French
Ministry of Commerce had already ok'd, as the amount of
such expenditures was more than double what France could
possibly spend.
An obvious necessity, Reynaud sadd, WAB that huge
additional purchases of planes should be made in the United
States by France, it might be desirable for his country
to make purchases to the amount of a billion dollars, in
planes and accessories. He said that 44 billion france
was an overwhelming sum for France, however small a billion
dollars
185
- 3 -
dollars might appear to the United States. In order to
win the war, he said, France would have to have the planes;
France would therefore have to consider immediately the
problem of obtaining means of payment for purchases abroad.
Then Reynaud asked whether I would have an immediate
atudy made on the question of increasing French exports
to the United States. I said that two months ago I had
had the Commercial Attaché of this mission make such 8.
study, and has asked the French Commerce Ministry to submit
to me its ideas on the question, but although I had been
promised such a report daily for the past week, I had not
as yet received it.
Reynaud continued that it would be a great help if
French exports to the United States could be increased,
but he said that in all probability there would be a great
decrese in exports to the United States from France, sincw
80 many of the. workmen in the export industries of France
had been mobilized, and that this means alone, in any
event, could not supply sufficient funds for purchases
abroad. Then I asked him what other means he was thinking
about, and he said although he knew it was not possible
for the United States to make loans to France, he was
cudgeling his brains for a solution of this problem but
could not make any suggestions.
Reynaud
196
- 4 -
Reynaud said in addition that in his opinion
there was a real danger that with the economic backing
of Russia, Germany could hold out longer than France
and England, even with the extension of the blockade by
the Allies from the Rhine to Vladivostok in order to
bring real pressure on Germany.
In view of all this he expressed the hope that the
United States Government would bear in mind the problem of
payments for purchases by France in the United States, although
such problem would not become acute for some time. In add1-
tion he said that he would greatly appreciate any suggestions
and ideas for dealing with the matter.
END OF MESSAGE.
BULLITT.
EA:LWW
197
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Lima, Peru
NO.: 93
DATE: November 4, 1939
The numbered paragraphs which follow have reference
to corresponding numbers in telegram no. 66 from the
Department dated October 31, 2 p.m.:
One. Balance as of August 31 1s given as follows
in the Central Bank bulletin for September: gold under
article 28, law 7, 538 - 6,921,479 soles; intangible
gold 38,784,832; funds held abroad 1,320,593; excess
reserve in Peru in checks and securities 200,000;
excess reserve abroad 879,638; legal reserve abroad
2,079,988. The total of reserves and funds held abroad
1s 51,571,565 soles. Rediscounts to associated banks
amount to 19,627,625. Loans and credits and discounts
to the Treasury total 121,321,374. A total of 121,645,230
18 shown for note circulation. Deposits amounted to
36,473,934. It was confidentially stated by the Manager
of Banco Central that by the middle of September note
circulation had increased to about 136,000,000 and that
on October 28 it was 132,072,750.
Two. Import and export statistics for the period
ending September 30 are the latest available. These are
included
188
-2-
included in Economic and Trade report no. 91 of October
26, which was sent in the pouch of October 27 via air
mail.
Three. American capital earnings in Peru are
remitted chiefly in the form of exports of commodities.
Please refer to the report of the Consulate General
dated September 29, 1939 with reference to the Peruvian
international balance of payments. The scarcity of
dollar exchange and the high exchange rate for dollars
have restricted transfers of funds to the United States.
An estimate of capital movement and of the volume of
transfer of interest and dividende cannot be made due
to lack of sufficient accurate information to Justify
such an estimate. We will send you an air mail despatch
containing additional background information.
Four. There are several estimates which place the
back-log of exchange accumulated from purely commercial
transactions at a figure as low as $1,000,000, but on the
basis of reports which have recently been received from
other banks, the total is placed at about 5,000,000 by
the Italian Bank. Other funds which are waiting to be
transferred (the Electric Boat Company account, for
example) are not included in this estimate.
DREYFUS
EA:EB
199
HM
PLAIN
Berlin
Dated November 4, 1939
Rec'd 6:39 p.m.
Secretary of State,
Washington.
1951, November 4, 5 pame
Last night's press summarizes an order issued
November 3, by Minister of Economics which prohibits
payments in free foreign exchange to persons or to the
credit of persons who have their domicile, permanent
residence, or headquarters in Great Britain, Northern
Ireland, British colonies, possessions and mandated
territories, Canada, Australia, Union of South Africa,
NEW Zealand, British Indies and Iraq; France with
colonies, protectorates and mandated territories; Egypt
including Sudan.
The prohibition also applies to payments to neutral
countries when it is known that the recipients are
citizens of the above named countries or firms controlled
by nationals or companies in these countries.
The prohibition does not apply to payments due in
Germany in Reichsmarks to the German clearing office and
to other clearing accounts including Aski, to the con-
version office for German foreign debts and to all blocked
mark accounts.
London and Paris informed.
EMB
KIRK
Regraded Unclassified
TREASURY DEPARTMENT
200
INTER OFFICE COMMUNICATION
TO
Secretary Morgenthau
FROM Mr. Cochran
returned
DATE November 4, w 1939.
Mr. Zuberbuhler, Acting Financial Counselor of the Argentine Embassy,
called this morning at 11:00 o'clock by appointment. He told me that his
Government WELD concerned lest there be heavy sales of British owned dollar
bonde of the Argentine Government upon the American market when the British
legin important war purchases here. He asked if we had planned any steps
to take to avoid such a development, I remarked, and he agreed, that the
mie of British securities to date had apparently been quite orderly and had
caused no upsets. I added that we had many months ago looked into the question
ME to what me should do if & war name and the question of selling European
orned dollar securities on this market arose. I let him understand that as
B. result of our studies we would be in a position to take such steps as might
be necessary and possible toward maintaining an orderly market here in all
circumstances. I hastened to express the belief, however, that the European
Governments selling securities here would be so anxious themselves to avoid
listurbing the market, and consequently diminishing the returns from their
veurities, that they would handle their operations 80 cautiously that little
U any action on our part should be necessary.
as visitor then asked if I could confirm that the British held some
fantastic amount, I think he mentioned $1,100,000,000. of gold on earmark in
Conada and the United States. I disclaimed any knowledge of gold holdings.
De saked what steps we would take if Great Britain began liquidating this
plà to us. I reminded him that our present monetary get-up requires us to
purchasee gold at $35 per ounce in New York. I presumed, however, that any
foreign country, including Great Britain, desiring to realize.on its assets
here would act as discreetly and BB much in conformity with our own best
interesta as possible.
BMP
201
TREASURY department
INTER OFFICE COMMUNICATION
DATE November 4, 1939
TO Secretary Morgenthau
FROM Mr. Haas
The attached tables and chart show WPA employment at
1,901,000 persons for the week ended October 25, 1939, an
increase of 3,000 persons over the preceding week, and of
113,000 persons over the figure for the last week in
September.
Attachments.
WORKS PROGRESS ADMINISTRATION
202
Number of Workers Employed - Weekly
United States
Week Ending
1939
Number of Workers
February 4
(In thousands)
February 11
2,966
February 18
2,966
3,011
February 25
3,043
March 4
March 11
3,032
March 18
3,009
3,015
March 25
3,009
April 1
2,980
April 5
2,906
April 12
2,761
April 19
2,752
April 26
2,751
May 3
2,734
May 10
2,660
May 17
2,622
May 24
2,609
May 31
2,598
June 7
2,594
June 14
2,590
June 21
2,578
June 28
2,551
July 5
2,388
July 12
2,290
July 19
2,250
July 26
2,200
August 2
2,081
August 9
2,053
August 16
1,976
August 23
1,896
August 30
1,841
September 6
1,661
September 13
1,694
September 20
1,733
September 27
1,788
October 4
1,833
October 11
1,874
October 18
1,898
October 25
1,901
Source: Works Progress Administration.
WORKS PROGRESS ADMINISTRATION
203
Number of Workers Employed - Monthly
United States
1936
Number of Workers
June
(In thousands)
July
2,256
August
2,249
September
2,377
October
2,482
November
2,581
December
2,483
1937
2,192
January
2,138
February
March
2,146
2,115
April
2,070
May
1,999
June
1,821
July
1,569
August
1,480
September
1,451
October
1,476
November
1,520
December
1,629
1938
January
1,901
February
2,075
March
2,395
April
2,582
May
2,678
June
2,767
July
3,053
August
3,153
September
3,219
October
3,346
November
3,319
December
3,094
1939
January
2,986
February
3,043
March
3,009
April
2,751
May
2,598
June
2,551
July
2,200
August
1,841
September
1,788
October
1,901
Source: Works Progress Administration.
Monthly figures are weekly figures for the latest
week of the month.
They include certified and noncertified workers.
204
WORKS PROGRESS ADMINISTRATION
Number of Workers Employed
United States
Monthly W.P.A. Employment
Weekly W.P.A. Employment
1930
1937
1938
1939
1936
1939
M
J
a
#
J
.
M
J
$
-
J
M
-
+
N
J
M
M
J
&
.
MAR.
MAY
JULY
SEPT.
NOV.
JAC.
was,
MAY
JULY
SEPT.
NOV,
-
THILLIERS
MILLIONS
MILLIONS
of
OF
or
3.
amount
WORKERS
WORKERS
MORKERS
3.5
3.5
3.4
3,4
dil
1.2
3,3
3.3
3.2
3.2
2.1
2.8
3.1
3.1
3.0
3.0
die
2.4
2.9
2.9
2,8
2.0
2.6
2.0
2.7
2.7
2.6
2.6
1.6
1.5
2.5
2.5
2.4
2.4
2.3
2.3
1,2
2.2
2.2
2.1
2.1
-1
a
2.0
2.0
1.9
1,9
it
14
1.8
1.8
1.7
1.7
0
o
1.6
1.6
#
.
in
J
.
-
N
M
-
JAN.
MAR.
WAY
JULY
SEPT.
NOV.
Jan.
-
MAY
JULY
SEPT.
NOV.
1936
1937
1938
1939
1938
1335
SOURCES WORKS PROGRESS ADMINISTRATION
Office el the Secretary of the Truntry
- a and -
Relations
belongs_to
belongs_to