Images (2)
Document
| id |
id
28276275
|
|---|---|
| contentType |
contentType
document
|
| source |
source
import
|
Source image fields (6)
Extracted text
OCR Page 1 of 2DIARY
Book 227
December 6 - December 9, 1939
- A -
Book Page
Agriculture, Department of
Wallace told by HMJr "at the suggestion of FDR,
he (HMJr) will be pleased to hear about Wallace's
tax program whenever it's convenient" - 12/7/39
227
222
a) Wallace's telephone conversation
213
Appointments and Resignations
Willingham, Harris B.:
Resund of service with Federal Alcohol Administration
and Central Treasury Accounts Office - 12/6/39
128
- B - -
Budget Message, 1940
See Financing, Government
- C -
Coast Guard-Lighthouse Consolidation
"No instructions from the President as to savings" -
12/8/39
446
Cuba
Sugar: See Customs, Bureau of
Customs, Bureau of
Cuban Sugar: Johnson memorandum on delay in increase
in duty on - 12/6/39
25
a) Discussed at 9:30 meeting - 12/7/39
203
- F -
Financing, Government
March Notes, Refunding of: Setting for - (Haas memorandum).
54,75
a) Selection and pricing of issues for refunding the
March notes - 12/7/39
145
b) Haas reports on conference held at Federal Reserve Bank
of New York with representatives of Salomon Brothers
and Hutzler, Discount Corporation, et cetera -
12/8/39
440,448
Budget Message, 1940:
$500 million additional revenue: Blough memorandum on
possible method of raising
a) Given to FDR 12/6/39
32
- G - -
Great Britain
HMJr reports to State Department relative to reciprocal
exemption from income tax of profits arising from
operation of aircraft - 12/7/39
136
- I -
Book Page
Ireland:
HMJr reports to State Department relative to reciprocal
exemption from income tax of profits arising from
operation of aircraft - 12/7/39
227 134
- L -
Lighthouse-Coast Guard Consolidation
"No instructions from the President as to savings" -
12/8/39
446
- M -
Mexico
See also War Conditions: Germany
HMJr regretfully informs Suares (Secretary of Finance
and Public Credit) he sees no opportunity for Mexican
visit within immediate future - - 12/8/39
424
- 0 -
Ottley, John K., Sr.
Opening of account discussed with HMJr - 12/6/39
23
- P -
Procurement Division
Appropriation, fiscal year 1941: Graves memorandum -
12/7/39
142
- R -
Revenue Revision
See Financing, Government: Budget Message, 1940
- W -
Wallace, Henry A.
See Agriculture, Department of
War Conditions
China: Tin shipments discussed by HMJr, Cochran, Chen,
and Lochhead - 12/8/39
432
- W - (Continued)
Book Page
War Conditions (Continued)
Closing Agreements:
Electric Boat Company: conference between Treasury
and Navy - also present: Mr. Sutphen (Electric
Boat Company) - 12/6/39
227
87
a) Memorandum to FDR stating Treasury position -
12/6/39
114
Consolidated Aircraft Corporation:
Conference in Internal Revenue Building; present:
representatives of Internal Revenue, Treasury,
and Navy; and contractor's representative -
12/6/39
182
Conference; present: HMJr, Currie, Sullivan, Foley,
and Kades; Sullivan reviews conference with Navy
representatives and present status of negotiations -
12/7/39
154
Woodring acknowledges HMJr's letter (12/4/39
will consult with HMJr again "if necessary" - 358,259)
12/9/39
475
Exchange market resume - 12/6/39, et cetera
3,217,
434,478
Finland:
War Debt: Hollandale, Mississippi, Rotary Club transmits
$26 to apply on retirement of debt to United States;
HMJr suggests that he be authorised to turn this over
to Finnish Minister - 12/7/39
133
Germany:
Coast Guard message picked up from Mexico City to
German firm: Gaston's pencilled note, "This indicates
efforts of Germany to deliver goods to Mexico through
'neutral' shipment from Italy" - 12/7/39
166-A, 167
Treasury Office: HMJr reports to State Department on
closing of, and transfer to Stockholm - 12/7/39
131
Petroleum Situation: memorandum on - 12/8/39
228
Reich debt at end of August-September 1939:
American Embassy, Berlin, report - 12/8/39
460
Great Britain:
Exchange control by Dominion Governments reported on
in House of Commons by Financial Secretary of Treasury -
12/6/39
125
Neutrality Act of 1939:
Gaston memorandum explaining Berle's disagreement with
conclusions voiced by Senator Pittman and his intention
to discuss with FDR - 12/7/39
191
Purchasing Mission (British-French):
France: Lercy-Beaulieu to acquaint HMJr (formally) with
Bank of France's decision to open special account with
Federal Reserve Bank of New York - 12/6/39
2
Great Britain: Bank of England Account A set up: checks to
be signed by any two of the following: Purvis, Greenley,
Rae, and Osborne - 12/6/39
43
Motor Situation for 1940: Collins' resume - 12/7/39
169
United States Committee set up by FDR consisting of Director
of Procurement, Treasury; Quartermaster General, Army;
Paymaster General, Navy - - 12/6/39
44
- W - (Continued)
Book Page
War Conditions (Continued)
Strategic War Materials:
Molybdenum:
Discussion between HMJr and Hochschild: Hochschild
shows HMJr telegram from EL Climax stockholder in
England suggesting they stop selling to Russia;
HMJr says he will take up matter with France and
England to see if they can increase their purchases-
12/6/39
227
78
a) Hochschild's letter enclosing memorandum on
Russian imports of lead and copper -
12/7/39
151
b) Hochschild 'phones he is worried about their
laborers being laid off; HMJr says he will use
every effort to get new business from England,
France, and United States, and FDR wants to
include Japan in moral embargo - 12/7/39
153
c) U.S.S.R. and Japan not to be sold molybdenum
in future - Hochschild reports to HMJr -
12/8/39
407
1) HMJr 80 informs Purvis
415,469
a) Cochran memorandum
428
Riefler-Stewart-Viner memorandum giving certain
relevant information - 12/8/39
451
Butterworth memorandum after conference with Purvis
who has now seen representatives of International
Nickel Company - 12/9/39
477
Purchases: HMJr's letter to Collins quoting memorandum
of December 6th from FDR and asking Collins to carry
out its instructions - 12/7/39
172
Taxation:
Obsolescence to armament manufacturers discussed by
Currie and HMJr - 12/6/39
19
a) HMJr reports to 9:30 group on conference with
Currie at his home - 12/7/39
201
See also Financing, Government: Budget Message, 1940
United States Committee to work with Purchasing Mission
(British-French) I See War Conditions - Purchasing Mission
(British-French)
Willingham, Harris E.
See Appointments and Resignations
1
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE December 6, 1939.
TO
Secretary Morgenthau
FROM Mr. Cochran
On the Secretary's instructions, I telephoned Dr. Feis at 3:40 p.m.
today and asked him kindly to send a cablegram immediately for Ambassador
Bullitt's confidential attention, letting the Ambassador know that
Secretary Morgenthau plans to call him by telephone on Thursday, and sug-
gesting that he have before him his cablegram #2742.
B.M.R.
Regraded Unclassified
2
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE December 6, 1939.
TO
Secretary Morgenthau
FROM Mr. Cochran
AM
Mr. Leroy-Beaulieu telephoned ne from New York at 10:50 this forenoon,
and again this afternoon at 3:00 o'clock. He desires an appointment with
the Secretary on Thursday, or preferably Friday, to acquaint the Secretary
formally with the decision of the Bank of France to open its special account
with the Federal Reserve Bank of New York. Mr. Leroy-Beaulieu stated that
one Bank of France official had arrived in New York this morning from Halifax,
and that another Bank of France official, the one who is to be in charge of
the special account in this country, should reach New York Monday on the Rex.
Leroy-Beaulieu told no that he had let Pinsent know of those developments,
and he thought this information would be helpful, since he was under the in-
pression that there was some "hitch" in British arrangements.
Mr. Knoke telephoned me at 2:45 p.m. He stated that Mr. Osborne had
told him today by telephone that Under Governor Catterns of the Bank of
England had telephoned Osborne that he was going to cable the Federal Reserve
Bank of New York to open the British account as planned.
Incidently, Mr. Knoke mentioned that the Chase Bank in New York had today
received a market inquiry from Amsterdam as to whether there 18 any possibility
of this Government putting an embargo on gold of Russian origin.
I telephoned Mr. Leroy-Beaulieu's office at 4:00 o'clock and told his
secretary, in his absence, that Secretary Morgenthau would receive him at 10:45
a.m. on Friday.
At 4:00 o'clock I talked with the office of Mr. Purvis in New York, upon
confirming that Mr. Pinsent is at present in that city. With Mr. Purvis' secre-
tary, I fixed an appointment for Secretary Morgenthau to receive Mr. Purvis at
11:00 a.m. Friday.
TREASURY DEPARTMENT
3
INTER OFFICE COMMUNICATION
VY
DATE
December 6, 1939
TO
Secretary Morgenthan
CONFIDENTIAL
FROM
Mr. Cochran
The rate for sterling in the foreign exchange market today showed consider-
able strength. The opening quotation was 3.90 and it was reported there vas
some commercial demand in the market. During the day, the rate improved steadily
to 3.92, and closed there. From the turnover figures given below, it is evident
that the banks took a considerable amount of the sterling offered into their
own account, which had the effect of making a higher rate for sterling.
Sales of spot sterling by the four reporting banks totaled 1632,000, from
the following sources:
By commercial concerns
1 185,000
By foreign banks (Europe, Far East and South America)
I 447,000
Total
1 632,000
Purchases of spot sterling amounted to 1491,000. as indicated below:
By commercial concerns
I 375,000
By foreign banks (Europe and Far East)
L 116,000
Total
1 491,000
Cotton bills totaling 1362,000 were sold to the British Control at the
official rate of 4.02 by the following reporting banks:
1 185,000 by the Guaranty Trust Company
1 154,000 by the Bank of the Manhattan
1 23,000 by the National City Bank
1 362,000 Total
The other important currencies closed as follows:
French france
.0222
Guilders
.5309
Swiss france
.2242-1/2
Belgas
.1651
Canadian dollars
12-3/4% discount
The rate for the Ouban peso continued to improve to 10-3/4% discount.
4
-2-
The Federal Reserve Bank of New York purchased 100,000 belgas and 30,000
guilders for the Bank of Latria.
We purchased the following amounts of gold from the earmarked accounts of the
banks indicated:
$ 4,980,000 from the Bank of Norway
1,250,000 from the Nethorlands Bank
585,000 from the National Bank of Belgium
$ 6,815,000 Total
The Federal Reserve Bank of New York reported to us the following shipments
of gold:
$ 4,008,000 from Norway, shipped by the Bank of Norway to the Federal Reserve Bank
of New York, to be earmarked for account of the Bank of Norway.
1,099,000 representing two shipments from India, shipped by the National Bank of
India to the Guaranty Trust Company, San Francisco.
425,000 from India, shipped by the National City Bank, Bombay, to the American
Trust Company, San Francisco.
301,000 from India, shipped by the National Bank of India to Australian Bank,
San Francisco.
245,000 from India, shipped by the National Bank of India to the Swise Benking
Corporation, San Francisco.
$ 6,078,000 Total
All of the above shipments, with the exception of the first one listed, will be
sold to the U. S. Mint in San Francisco.
We received from the State Department cables from the American Consuls at
Calcutta and Hong Kong, stating that invoices were certified for the following
gold shipments:
$
266,000 from India, shipped by the National City Bank of New York, Calcutta, to
the National City Bank of liew York, New York.
294,000 from India, shipped by the National City Bank, Bombay, to the American
Trust Company, San Francisco.
1,235,000 from Hong Kong, shipped by the Chase Bank, Hong Kong. to the Chase
National Bank, San Francisco.
352,000 from Hong Kong, shipped by the Banque Belge pour l'Etranger, Hong Kong,
to the Bank of America N.T.&S.A., San Francisco.
336,000 from Hong Kong, shipped by the Chartered Bank of India, Australia and
China, Hong Kong, to the Bank of California N.A., San Francisco.
163,000 from Hong Kong, shipped by the National City Bank of New York, Hong Kong,
to the American Trust Company, San Francisco.
$2,646,000 Total
Those shipments consigned to San Francisco will be sold to the U. S. Mint in that
city and those sent to New York will be sold to the U. S. Assay Office there.
CONFIDENTIAL
Regraded Unclassified
- 3 -
5
The U. 8. equivalents of the Lendon spot and forward silver prices were 41.13#
and 40.984, respectively. Handy and Harman's price for foreign silver was unchanged
at 34-3/44. The Treasury's price was also unchanged at 354.
We purchased & total of 460,000 ounces of silver, under the Silver Purchase Act,
of which six purchases amounting to 300,000 ounces were purchased in New York. The
remaining 160,000 ounces were purchased through the Crocker First National Bank in
San Francisco.
We also purchased 60,000 ounces of silver from the Bank of Canada, under our
regular monthly agreement.
The Bombay silver price figured cut to an equivalent of 43.40$, as compared to
43.55# yesterday. The steadiness of the price would indicate that the Bombay silver
market is returning to more normal conditions.
B.M.R.
CONFIDENTIAL
6
December 6, 1939.
10:40 a.m.
H.M.Jr:
How are you?
Admiral
Land:
H.M.Jr:
I just got back from the White House this minute.
L:
Yes.
H.M.Jr:
And Mrs. Klotz tells me that you want to have a word
with me on the phone if nothing else.
L:
Well I've got, if it's convenient to you I'd come over
at eleven o'clock and maybe we could -
H.M.Jr:
No.
L:
Would that be all right?
H.M.Jr:
No, I've got the whole Navy Department coming here at
eleven - Edison's coming over on a contract.
L:
Huhhuh.
H.M.Jr:
Edison's coming at eleven.
L:
I see.
H.M.Jr:
That's why I couldn't shift, you see?
L:
Huhhuh. Well I -
H.M.Jr:
You're going to New York, aren't you?
L:
I've got to go, but - I've got this economic club thing
that I've had on - I wish I didn't have but I've got it.
H.M.Jr:
Are you speaking there?
L:
Yes, sir.
H.M.Jr:
Tonight. Won't you be back tomorrow morning?
Lt
I'll be back tomorrow morning.
H.M.Jr:
Well 1s there something on your mind that won't wait.
L:
Well yes, there's two or three things that - on this
whole shipping situation that I'd like very much to go
7
- 2 -
over with you and ultimately I think we may have to
get - mix some other people in it and we'll take it
up with the Big White Father.
H.M.Jr:
Well, how about three o'clock Thursday.
Hello.
L:
Yes, that's all right. I was Just looking it up to
see -
H.M.Jr:
How are you fixed?
L:
I've got a Congressman coming in at two-thirty but
I'll get rid of him. I can do it at three o'clock,
and what - how long is it going to take you with
Edison, do you know?
H.M.Jr:
Oh, God, he's coming over with a big gang.
L:
Well I guess I'd better not try it today then.
H.M.Jr:
It's one of these closing agreements on the shipping -
it's been going on for five months.
L:
Well then we'll say tomorrow afternoon at three o'clock.
H.M.Jr:
Yes, because Edison says this an argument that's been
going on for five months.
L:
I see. Well three o'clock tomorrow then Mr. Secretary.
H.M.Jr:
Thank you.
L:
O.K.
H.M.Jr:
Goodbye.
Regraded Unclassified
8
December 6, 1939.
2:27 p.m.
H.M.Jr:
Hello.
George
Harrison:
Hello.
H.M.Jr:
Hello George.
H:
Yes, Henry, I'm not meaning to bother you except that
I told you I would.
H.M.Jr:
Good.
H:
About a thing like this. Another large payment that's
been made by the Reich bank to the German Consular
General.
H.M.Jr:
Yes.
H:
But in view of the recent arrangement that we have with
the Chase National.
H.M.Jr:
Yes.
H:
Who gets all this information now and is collecting it.
H.M.Jr:
Yes.
H:
I didn't know whether you wanted me to give it to you
direct or not.
H.M.Jr:
Well if you didn't give it to me who would you give it to.
H:
Well I think the person himself gets it here you see.
H.M.Jr:
Well as long as you've got me on the phone, do you
want to tell me what it is.
H:
Yes. Well it 18 a payment of seven hundred thousand
that was made last week.
H.M.Jr:
I see.
H:
Of which two hundred thousand was withdrawn from the Chase,
in large bills.
H.M.Jr:
I knew about that.
H:
What?
H.M.Jr:
I knew about that.
9
- 2 -
H:
Yes, BO I think you -
H.M.Jr:
I think I'm getting it.
H:
I think you're getting it and I called you up - first I
wanted to be sure and second to suggest that perhaps
the best way to do it was go through on the regular
routine way now through the Chief.
H.M.Jr:
It's coming along nicely. Yes, thanks to your initiative.
Well George, -
H:
Yes.
H.M.Jr:
Everything 18 quiet I want to do some financing Tuesday,
I want to refund that March issue.
H:
Yes.
H.M.Jr:
Bo you might be thinking about it.
H:
First rate.
H.M.Jr:
I think that last issue settled down all right hasn't it?
H:
Well I think it has, the market's been a little upset
but it's not, it's very - very quiet and very -
relatively steady.
H.M.Jr:
Will you do this for me?
H:
Yes.
H.M.Jr:
Between now and ten o'clock tomorrow morning, do you
know of any good reason why I shouldn't announce at
my ten-thirty press conference that I'm calling -
asking the open market committee to meet with me, see?
H:
Yes.
H.M.Jr:
I'd like to know that before ten-thirty tomorrow.
H:
Yes.
When you have the committee meet with you?
H.M.Jr:
Monday.
H:
I see.
10
- 3 -
H.M.Jr:
But tell him that. Making that public would be notice
of 8. thing you're financing.
H:
Yes.
H.M.Jr:
So -
H:
All right, sir, well I'll talk it over with the fellows
here and call you back if there's any change.
H.M.Jr:
If you'd do it - let me know between ten and ten-thirty
tomorrow.
H:
Yes. If you don't hear anything -
H.M.Jr:
If I don't hear anything I'll announce at ten-thirty
that I'm going to invite the open market committee to
meet.
H:
All right.
H.M.Jr:
Notice to the world that we're going ahead, you see.
H:
Surely.
H.M.Jr:
O.K.
H:
Yes, all right.
H.M.Jr:
Thank you.
11
December 6, 1939.
3:10 p.m.
Operator: Mr. Parker.
H.M.Jr:
Right.
O:
Go ahead.
Geo. B.
Parker:
Hello, Mr. Secretary.
H.M.Jr:
Hello Mr.Parker.
How are you today? Hulloha to you.
P:
Hulloha to you. Right back at you.
H.M.Jr:
Yes.
P:
I read that thing that you sent out to me, and I think
what it's all about is very significant and has been
explained adequately.
H.M.Jr:
Yes.
P:
I mean not only as it relates to the matter of profit
on war contracts but it relates to the operation of
that whole thing called the closing agreement.
H.M.Jr:
Yes.
P:
And I'm no expert on tax matters, it's pretty much
of an Einstein proposition to me. I think I understand
the principle involved and that is the allowance for
operation instead of capital investment.
That's the headline on 1t.
H.M.Jr:
Just a second. Can I call you, the President 18 calling
me.
P:
Yes. I wish you would because I want - I don't want to
head you off but I'll be here for an hour -
Decatur 3084.
12
December 6, 1939.
3:16 p.m.
H.M.Jr:
Hello
Geo. B.
Parker:
Yes, what I started to say was this that to spell out
and have it accurate. The thing involving the
intricacies of allowances for depreciation capital
investment and all the tax angles 18 like - kind of
like explaining to the average person the Einstein
theory which you don't understand so well yourself.
H.M.Jr:
Yes.
P:
Now what I thought I'd like to do would be either
to attempt - I think I get the point involved in this
closing agreement thing. From my slight knowledge of
the business operations of newspapers, 1f we buy
a line-s-type that's a capital investment.
H.M.Jr:
Yes.
P:
Under certain circumstances a line-a-type might be
allowed 88 an operating expense. The difference would
show un in the taxation column.
H.M.Jr:
That's right.
P:
That's the guts of this thing.
H.M.Jr:
Well let's put It this way. Your line-a-type machine
might be used up in two or three years.
P:
Yes.
H.M.Jr:
A building might take twenty or twenty-five years.
P:
That's right.
H.M.Jr:
See?
P:
Yes.
H.M.Jr:
Now, in this particular case they have to put in
J1gs and dyes.
P:
Yes.
H.M.Jr:
Which they say will - only manufacture of this
particular gun.
P:
That's right.
Regraded Unclassified
13
- 2 -
H.M.Jr:
Can't be used for anything else.
P:
Yes.
H.M.Jr:
We're allowing them the life of the contract which 18
either one or two years.
P:
In other words, as an operating charge instead of
a capital investment that hangs on.
H.M.Jr:
That's right.
P:
Well I thought I got the point all right, but I'm no
expert in taxation matters.
H.M.Jr:
Neither am I.
P:
I'm going to try myself to write an editorialexpository
in its nature.
H.M.Jr:
Yes.
P:
From the material that you sent out.
H.M.Jr:
Yes.
P:
And I would like to check with you, Johnny Hanes or
somebody else, before it goes, because as I say,
I don't know the taxation intricacies or the Einstein
theory and one's about as hard as the other.
H.M.Jr:
Well, Hanes 18 away.
P:
I mean when it comes to explaining.
H.M.Jr:
Yes.
P:
To' the average reader what it's all about. The average
reader doesn't have those things because he isn't con-
ducting a business, and yet I think in this expression
of policy that then what you sent out to me is
probably one of the most hopeful things to the industry
and business of the country that I've seen.
H.M.Jr:
Really.
P:
It isn't anything new I guess, I mean it's merely an
expression of policy as it relates to war materials
but applied to industry generally it might be a very
hopeful stimulating thing but I wouldn't want to get
- 3 -
14
off on the wrong foot and be inaccurate in the
exposition of it.
H.M.Jr:
Well I tell you, we have got a man who worked on this,
his name 1s Sullivan, whose assistant -
P:
Yes, he's - he was in the conference.
H.M.Jr:
Yes.
P:
And he'd be available to you to come to see you at any
time or any place. Well I'd be very glad to drop in
and see him or if I could get a man like Raymond Clapper
or Tom Stokes
or somebody to spell this out in
the news way first.
H.M.Jr:
Well now -
?:
Then editorialize on 1t, that might be a better plan.
H.M.Jr:
I'll tell you what we'll do.
P:
How's that?
P.M.Jr:
I will tell Eugene Duffield who's in my office here,
who handles public relations.
P:
Yes.
H.M.Jr:
About my conversation with you.
P:
All right.
H.M.Jr:
And that if he gets a call from you or your office
he should arrange whoever you designate should get
together with Sullivan.
P:
That's fine. That's the way to handle it.
H.M.Jr:
How's that?
P:
That's fine and I appreciate it.
H.M.Jr:
The young man's name 18 Duffield.
P:
Duffield.
H.M.Jr:
Yes.
P:
And Mr. Sullivan 18 the other man.
Regraded Unclassified
15
- 4 -
H.M.Jr:
Yes, but I mean Duffield will arrange whoever you
designate.
P:
I thank you very much and I hope to see you soon.
H.M.Jr:
Well it's terribly nice of you to bother to call me up.
P:
Well I was very much interested in it but as I say
I'm no tax expert.
H.M.Jr:
It's very important because I spent one hour this
morning, confidentially, on the same thing for the Navy.
P:
Yes.
H.M.Jr:
Trying to drive this thing into the head of the Navy
what we can and cannot do, and I just couldn't get it
into their heads.
P:
Yes, which indicates that it's kind of a tough one
for even experts to understand.
H.M.Jr:
Well I tried my best for one hour, this is off the
record, I shouldn't say it, to explain it to none less
than Edison.
P:
Yes.
H.M.Jr:
And I said to Edison. I put it this way, "Now look
Mr. Edison, you got out a new ediphone and you had an
order for a hundred thousand ediphones and you wanted
to build a plant, I couldn't do anything for you on
the plant but I could on the machinery."
P:
Huhhuh.
H.M.Jr:
See?
P:
I see.
H.M.Jr:
And I went over and over and over and when he got through
he still didn't understand it.
P:
May I ask you this one cuestion, if I'm not taking too
much of your time.
H.M.Jr:
No.
P:
Suppose I'm in the business of manufacturing a certain
type of armament and you have a sudden peak load of
16
- 5 -
war orders.
H.M.Jr:
Yes.
P:
And in order to do that I've not only got to create
dyes that operate and yet are useless.
H.M.Jr:
Yes.
P:
Which I can understand under this program but I've also
got to expand my plant, and that plant when the war 18
over is no good, and that's exactly what happened in the
last war.
H.M.Jr:
Right.
P:
Now what do I do about that? Do I get any allowance
on that?
H.M.Jr:
We can't do it in advance, but we'd handle that Just
the way we did with some breweries when prohibition
came along.
P:
Oh, I see.
H.M.Jr:
And they became obsolete, we let the fellows write it
off.
P:
I get you.
H.M.Jr:
But the fellow's got to wait until the war 18 over or
his orders are over and then come and say, "Now look
I've got this plant on my hands, what are you going to
do about it?
P:
Yes I see.
H.M.Jr:
But we can't do it in advance.
P:
But by that process he could advertise his plant by
reason of the volume of business he would get during
the so-called peak load.
H.M.Jr:
Well, he'd have to wait until the end.
P:
I understand that.
H.M.Jr:
And we have precedent on that, as I say the best cases
is a brewery.
P:
Yes.
17
- 6 -
H.M.Jr:
And we did let those fellows, when they were through,
the plants became obsolete, we let them write it off.
P:
Don't you have the same principles in relation to the
development of an oil well? I mean, an oil well 18
a thing that doesn't last forever.
H.M.Jr:
Well now that's another thing and that's something
where we've got & hundred million dollar loop hole on
this depletion thing.
P:
I see.
H.M.Jr:
We could collect a hundred million dollars a week and
correct this depletion thing, but what - the Texas
California delegation are too big for us.
P:
Is that BO?
H.M.Jr:
There's a hundred million dollar loophole there.
P:
Is that a fact?
H.M.Jr:
Yes, and we just haven't got enough influence to get
beyond the Texas and the California delegates.
P:
Yes, well they're pretty close.
H.M.Jr:
But isn't -
P:
That's another thing again but isn't the principle
somewhat the same?
H.M.Jr:
Yes, but in that case, as I understand, they write it
off over and over again.
P:
Yes I see. Sometime I'd like to have that spelled out
to me.
H.M.Jr:
Well, the boys could do that any time, but we're getting
away - we figure we lose a hundred million dollars 8. year
on depletion of oil wells.
P:
I see. Well I can understand how there would be a
loophole and still the principle 18 that if you find an
oil well -
H.M.Jr:
Oh yes.
18
- 7 -
And that depletion felt in say a year.
H.M.Jr:
Oh yes.
P:
It's a different thing in establishing a newspaper which
proceeds and publishes indefinitely.
H.M.Jr:
That's right. It's the difference between a permanent
structure and something which you wear out.
P:
That's right.
H.M.Jr:
See?
P:
All right, I appreciate that very much and I'll have
somebody check in or check in myself with Mr. Sullivan.
H.M.Jr:
Right.
P:
I think it's damned important, but nothing 18 important
if you print it and it isn't understood.
H.M.Jr:
Well you're right and that's why I appeal to you because
I know you know how to use words.
P:
Well thank you very much sir, and I hope to see you
soon.
H.M.Jr:
Righto.
P:
Goodbye.
19
December 6, 1939.
3:29 p.m.
H.M.Jr:
Tax?
Lauchlin
Curry:
No. I'm not a great tax expert.
H.M.Jr:
Yes, English taxes.
C:
English taxes?
H.M.Jr:
Yes.
C:
Oh, oh that thing I had prepared for me. Yes -
H.M.Jr:
Who did them for you?
C:
Combe
H.M.Jr:
Who?
0:
Combe
H.M.Jr:
Who's that?
C:
He's down on leave of absence from the new school.
He's at Commerce now.
H.M.Jr:
Oh, I see.
C:
He's quite a good man I think.
H.M.Jr:
I see.
C:
And I called him in a rush the other day when I got
a request for some information what the British are
doing on taxes and he prepared that for me. I have -
if you're interested I have subsequent, an estimate
he put in on the eel of the National Defense Contri-
bution. Showed last fiscal year it was twenty
million pounds.
H.M.Jr:
I used to have something to do with taxes.
C:
(laughs) I have very little Mr. Secretary.
H.M.Jr:
All right.
C:
What I called you for was another matter of some
mutual interest and that's this obsolesence thing,
you know.
20
- 2 -
H.M.Jr:
Yes.
C:
To armament people.
H.M.Jr:
Yes.
C:
The President, some time back as you know asked me to
acquaint myself with it and follow it and so I've been
keeping in touch with you indirectly.
H.M.Jr:
Yes.
C:
And heartily approved of you - I heartily agreed with
your reaction to the whole thing.
H.M.Jr:
Yes.
C:
And sent & note the other day, to the President.
H.M.Jr:
Yes.
C:
Summarizing the result of my investigations outlining
about five different course of procedures.
H.M.Jr:
Yes.
C:
And coming to the conclusion that adequate remedies
existed under existing laws and practices, and advising
to make any special arrangements or even
asking for special congressional action. But did
suggest that I thought that in order to be in the clear
that the Procurement people and Army and Navy should be
thoroughly acquainted with what 18 possible under the
present laws, because I was cuite impressed when I got
into it to find what 16 possible.
H.M.Jr:
Huhhuh.
C:
And 80 I just got this note back from the President -
I'll read it to you, he says, "I like your ideas in
this and wish you would take it up with the Secretary
of the Treasury in person and also after talking with
him lay down as definite rules and procedures as
possible and have these sent to Army and Navy, etc.
F.D.R."
H.M.Jr:
That's all, uh?
C:
That's all, yes. Now, I had an opportunity to see
21
- 3 -
a memorandum written by Mr. Kades over in your place.
H.M.Jr:
Yes.
C:
On what is possible on existing law which forms a very
good basis I think for this. of course I don't know
whether these people over there really do know what
18 possible.
H.M.Jr:
Well we had Edison over here for an hour and the answer
18 they don't know nothing.
C:
That doesn't surprise me. (laughs) I had a talk with
Admiral Furlong, I don't think he understood much.
H.M.Jr:
Well, -
C:
Possible though.
H.M.Jr:
Let me - let me just see how this thing is running.
I'll known within an hour. I've got two tentative
appointments out for tomorrow.
C:
Uhhuh.
H.M.Jr:
And I'll get word to you see?
C:
Fine.
H.M.Jr:
Just as soon as I hear.
C:
Fine.
H.M.Jr:
And you say you've got five suggestions.
C:
Well some of them were not - I mean I objected to
most of them. Some -
H.M.Jr:
Are they Kades' or part Kades -
C:
No things that developed as in discussion with your
people over there, the things that could be done.
For instance drawing up a new regulation, permitting
a more rapid rate of obsolesence of armament making
equipment, and I advise against that.
H.M.Jr:
Yes.
C:
Free outright Government purchase and Diesel equipment
to private concerns, and I felt there were lots of
22
- 4 -
disadvantage in that. That companies claim any
obsolesence they wish and have final determination
made by the Board of Tax Appeals. That's kind of
messy and expensive to companies, and the - what I
finally came out with was No. 5 as under present
procedures the companies had the privilege of
submitting amended returns for a period of three
years, This can be extended by mutual consent of
the companies and the Commissioner. This means that
while companies would only claim normal obsolesence
now they have the opportunity of securing what would
be in effect retroactive readjustment of obsolesence
allowances and should they later appear justified
this closely resembles current British practice.
H.M.Jr:
Well Sullivan suggested that this morning and I have
another suggestion which I am making to the President
in writing today on this thing.
:
Uhhuh.
H.M.Jr:
Which I'll send you a copy of.
0:
Fine.
H.M.Jr:
But I'll see you anyway Thursday or Friday and would
like to Bee you.
C:
Fine.
H.M.Jr:
Don't take my kidding on taxes too seriously.
C:
No I'm not.
H.M.Jr:
And I'll talk to you about that too.
C:
Fine.
H.M.Jr:
I'd like to.
C:
All right.
H.M.Jr:
Glad you called me Lauch.
C:
Not at all.
H.M.Jr:
Fine.
C:
Bye. Bye.
original to Mr. Bell
23
12/6/39 - as per Secy's
December 6, 1939
instructions. me.s
4:44 p.m.
-above orig. returned & destroyed.
HMJr:
Hello.
Operator:
Go ahead.
HMJr:
Hello.
John K.
Otley, Sr:
Mr. Secretary.
HMJr:
Talking.
0:
This is John Otley.
HMJr:
Hello, Otley.
0:
Ah - fine. I was going - knowing how busy you
were - ah - and I was going off for B. two or
three days in the country shooting birds
HMJr:
Yeah.
O:
and I've got everything on my desk cleaned up
except the one little thing that you were kind
enough to say to me last Saturday that you were
going to do Monday.
HMJr:
Yeah. Well, they - I told Bell to do it.
I gave the orders on Monday.
0:
Ah - well, ah - I haven't heard anything from it.
HMJr:
Well, it may take a day or two to get it through
but you're going to get it.
0:
I - well, that - that's all right. I was Just
afraid you'd - ah -
HMJr:
No, I gave the order
0:
little thing like that might have gotten by.
HMJr:
No. You know that we've got to do it a little
extra because we're not supposed to make deposits
in a town where there's a Federal Reserve Bank.
0:
Yeah.
Regraded Unclassified
24
-2-
HMJr:
So we've got to get you something a little
special.
0:
Fine. All right.
HMJr:
But the orders were given and you go get yourself
some birds and when you come back you'll find
that an account has been opened.
0:
Well, fine. Thank you a thousand times,
HMJr:
No, but the orders were definitely given.
0:
Yeah. All right. Well, thank you 80 much.
HMJr:
I like sticktoitiveness.
O:
What?
HMUr:
I like the way you stick to getting business.
O:
(Laughs) Well, thank you. I don't turn 'em loose.
HMJr:
Well, you go out and get some birds.
0:
Yes. All right, I'll get some. But I hope -
ah - if it's during the season I have to C ome back
up there I'll try and bring you some.
HMJr:
All right. Thank you.
0:
Yeah.
HMJr:
Thank you.
O:
Goodbye.
MEMORANDUM FOR THE SECRETARY:
Re: Delay in Increase on Cuban Sugar.
25
OFFICE OF THE COMMISSIONER OF CUSTOMS
December 6, 1939.
TO MR. HARRIS:
FROM W. R. JOHNSON.
About five o'clock on the afternoon of September 11, 1939, 8.
representative of the State Department advised me by telephone that
action to increase the rate of duty on Cuban sugar was contemplated.
He stated that the date of action had not been decided, but that it
would probably be very soon. I said that the principal interest of
the Customs Service would be to have the duty increase become ef-
fective at a time when all customs offices were closed 50 that there
would be no confusion as to whether entries and withdrawals were ef-
fected before or after an increase occurring during office hours.
About six o'clock on the same day, we had received in the Bu-
rean a tentative draft of a notice to be issued by the Secretary of
Agriculture to make the duty increase effective. Under the law, the
increase became effective when the notice of the Secretary of Agri-
culture was made public. At that time (about six P. m.) I talked
by telephone with a representative of the Department of Agriculture,
was advised that it desired to make the increase effective immediate-
ly, stated that our administration would be facilitated if the in-
crease became effective after ten P. m., and before eight a. n.,
and received advice that the Department of Agriculture would make
the change effective at 11 p. n., that night.
A final copy of the notice of the Department of Agriculture signed
by Secretary Wallace was received shortly after this telephone conver-
sation. "Effective 11:00 P. B., September 11, 1939" was typewritten
at the end of the notice. (See T. D. 49962, attached.)
A circular telegram to all collectors of customs was prepared
and signed by me, advising them of the increase in duty and that it
would be effective at 11 P. m., September 11, 1939. This telegram
was filed at the Treasury telegraph office at 6:52 p. n., September
11, indoreed for transmittal "Via Government Facilities" in accordance
with the instructions contained in Bureau Office Memorandum No. 147,
dated July 25, 1932 (copy attached).
Shortly after nine o'clock the following morning (September 12),
the Assistant Collector of Customs at New York called me on the tele-
phone to verify rumors that there would be 8. duty increase affecting
Cuban sugar. He had not received the Bureau's telegram, the terms of
which were then dictated to him over the telephone. I learned later
that our telegram was received at New York, Baltimore, and Philadelphia
Regraded Unclassified
26
-2-
at various times on the morning of the 12th between ten and twelve
o'clook, eastern standard time (eleven and one, daylight saving time).
Presumably there were like delays in receipt at the other ports.
The White House had announced during the afternoon of September
11 that the AAA quota limitations on importations of sugar were aban-
doned, and it was generally understood in the sugar trade that this
would be followed promptly by an increase in the duty on Cuban sugar.
Importers owning sugar in customs bonded warehouses and on ships in
port attempted to clear as much of their sugars as possible on the
morning of the 12th to avoid the expected increase in duty. In sev-
eral cases entries or withdrawals were filed with deposits of duty at
the lower rate of 0.9 cent per pound, but the collectors refused de-
livery except on increase of the deposit to 1.5 cents per pound when
they received advice of the duty increase before actual release of
the sugar. The importers protested to the Bureau and to the Depart-
ment of Agriculture, claiming that no public notice had been given by
the Department of Agriculture until the notice was actually filed with
the Federal Register at 12:54 p. m., September 12, 1939. The Depart-
ment of Agriculture finally decided that this claim was valid. (See
T. D. 49977, attached) It seems clear that the Department of Agricul-
ture overlooked the requirement of publication to make its notice ef-
fective when it advised us of the effective time.
It is an established rule in customa law that when an importer
does all he can to enter or withdraw merchandise and ia wrongly pre-
vented from 82 doing, the entry or withdrawal will be treated as
though it were effected at the time of the attempt. Applying this
principle in the instant case, we have held that several large lots
of sugar were entitled to entry or withdrawal at the lower rate of
duty on the basis of the importers' attempt to enter or withdraw be-
fore 12:54 p. n., on September 12, notwithstanding that the lots were
actually released after the effective time of the duty increase. The
Department of Agriculture was informally advised, before it decided
upon the 12:54 p. m., ruling, that this result would follow.
W. R. Johnson
Regraded Unclassified
ES-hERALD-Armund the Clech-WEDNESDAY. DECEMBER 6. 1939
Washington Daily
Merry-Go-Round
(Trade Mark
By DREW PEARSON and ROBERT S. ALLEN
Best diplomatic information
at exactly 12:04 that the teriff
from Moncrew indicates that the
was increased from 90 centa ta
sudden attack on Finkind WER
$1.50.
motivated primarily by the sat-
Meanshile. sugar dealers
untion in the Brikans-expecial
whire dumping sugar in New
by Romania
York at the aid tariff rate of
Secretty Romanta la a more
so tents. And they dumped a
important Russtan objective
much before 12:54 noon that
than Finland. And while Fin
the Government loss around
land is a tong way DET. and os-
$2,000,000.
tensibly there is Dttie ennibec-
line between them. actually the
Capital Chaff
mantier in which Finland had
stalled off Marcow was cousing
If you don't see much of
Insa of pressire in the Balkans.
Prant Murphy these days the
In other words Romanie und
reason in that he is doing A lot
of behind the acenes digging to
wondering whether Russa mil-
ly meant business and whether
bring about a Inbor peace. Both
the in turo souldn't out-maneu
the and Roosevelt are desperately
Ver Stalio, JUAR as Finland
anxious to put this across be-
fore Prank gons up on the
sermed to be doing
Eupreme Court Movie star
T loss of premise *** what
Melvyn Douglas garnered more
fine induced Statin to act. ao-
fans in the White House last
cording to intelligence reports
week when President and Mrs.
coming out of Mascow, Apparent-
Recervit gave a dinner for
ly. be Deured that u was better
him. At § New Deal luncheon,
to make with a vigorous ex-
also, he met almost the entire
ample of Finland that Romania
unner frien, Murphy,
and other Balkan objectives
Tom Corcoran, Ben Cohen,
would sield without war,
Aubres Williams, Lowell Mellect,
One group in the Seviet In-
Leon Henderion All, incident-
mer citcle wanted to wait entil
ally, were invited to Hollywood.
Communist agilation traide
All accepted
Piniand was M active that the
inamiry could be shaken Into
Santa Class Cution
the Russian lap like a ripe
100m, without 6 struggle This
Henry Wallace, acting as Banta
policy was being pursued. But
Class, with Milo Perkins as
Stallo 804 impatient and de-
Senta Class helper, are plan-
rédert that the Halkan pregram
timg a. surprise Christmas pack-
would have to te speeded us.
REC to the cotten industry. It
will be . NW stanip plan fre
Finalsh Nates
disposal of votion gooda la low-
income families,
Reason the Sweder, despite
Much pleased with the sustom
neighborit distrest, don't do
of the stamp plan for disposal
wrething to heip Finiand is
if surplus foods, Walince di
less al Germany. Hitler lune
rected Perkins, who runs the
has had Das del on Bweden's
Federal Surplus Commodities
femous Irm SIGN, sod world
Corporation. to explore use -
hire notions better Loan an en
maility of doing the same thing
cuse tu more in in them.
with cotton goods. Perkins has
The British AS use, were
had ennferences with
WIDDE about Blank, Up unul
misiness groups and la almost
the last minute they very CHD-
reads to move.
villed Stalio would not move
in on Findand. Our State De
The plan mils for distribution
partment relying upon Brush
to relief families of stamps,
information thought M too.
which will be accepted M cash
in retail stores fut purchase of
Government Economy
beavy cotion goods, such as
mattiener, bienkets, sherta, tow-
Earnest economy-minded
eis. overalls and pince goods.
Henry Morgenthau inststa that
Wailace is hoping in biot from
an members of his Treasury De
American life the biller United
partment use his Count Quard
States veralon of "The Man
"wiso 50 sending Government
With the Hoe" poor farmer
degrama, However, Henry's
in patched overalls and thread-
ennomy on a recent $2.24 Lele-
bare shirt working to a field to
gram will cost the Government
Increase the surpias of the ent.
just about $2,001,000
tan cmp whole products he can.
All this happened when Room
not afford to buy,
velt removed Live quotas on
sugar, therehy increasing the tar-
Banker-New Deal Foud
Iff trom un cents to $1.50. The
Don t be surprised is the long
assouscement was carefully
timed for late in the afternoon,
quiescent banker-Diew Deal feud
tlares up again NEVE,
when all custome effices would
De
d. to no une could nah
Inner Administrationista are
Armugh some uninformed
sputtering msd over what hap-
customs tunue as the eld 30-cmt
prined at a recret meeting held
tariff.
5. New York by Robert Banes,
By nest murning. the Treas-
new president of the American
Ury figured. all sugar importers
Bankers Association To 100
and all customs house would
leading bankers be nad earn-
know of the tariff increase, and
moned. the North Camlinian
IL would be applied uniformly.
proposed that a fund of $250.-
However, discritary Morgen
con - ratied la be bred for
than's upset Usis plan.
"ducational" purposes un such
Not the uningram from Wash
legisiative insting as the Mead
isten to New Yors. sent by
bui, which
Cast Guard radio - the after-
Une ABA. has bitterly apposed
noop of September 11. did nos
The New Dealers are con-
reach the customer house in New
vinced that the real object be
York until around non Beg-
hind the fund is to finance a
tranker 13.
large-state attack on the Admin-
The Coast Quard now blames
intration Bus what is making
naral radin for the datay. The
them or and is the het that a
Mary bandles all Coart Guard
number of the bankers at the
and apparently the
secret powwoe had their TH
Hary didn't think the missage
mustal hides saved by Govern-
merot. 30 pus . lot of restine
Regraded Unclassified
mane rescue measures in the
naval currisages ahead or it
early months of the New Deal
Antwar, the tringram task about
10 Tumara sitting 5 New York
Various plans are being die-
cussed in the Luner circle on
Maranwhite, the of
- in New York. havide
the trees, way to his back at the
Tried almost the tariff increase ID
benkers. One proposal la fur
time President to fire - blass at
life frantically availed
the
them. Annther that the Senate
Banking Committee tread try
Finalis. at about 10:28, be
riephuned Weshington and had
New York New Dealer Wag.
ner, call Hanes end atter A.B.A.
telegram read to him Have
leaders be - public criss-exami-
ever. regulatives make
offices aware Use reseipt of trie-
nation A third La to have the
TNEC commit
address before raturng the
let crerk down
ML althmight the une
gram was mad ther the oñena at
NOTE these " 4 Brother nt
16.5g il var DMI actually IN
Johnny Names, Undersignatory
viried in New York until 12.54
at the Treasury.
Doum September 12 5c is was
28
TSTO:
(T. D. 49962)
Cuban sugar-Change in rates of duty
Rates of duty increased on sugar and other products covered by item 501; schedule
II of the Cuban Trade Agreement-TD 47232
TREASURY DEFARTMENT,
OFFICE OF THE COMMISSIONER OF CUSTOMS,
Washington, D. C., September 12, 1939.
To Collectors of Customs and Others Concerned:
There are published below for your information a Public Notice of
the Secretary of Agriculture, issued on September 11, 1939, and a
telegram pursuant thereto issued on the same date and addressed to
follectors of customs, regarding a change in the rates of duty on sugar
and other products covered by item 501, schedule II of the Trade
Agreement with Cuba.
BASIL HARRIS,
Commissioner of Customs.
LOTICE OF SECRETARY OF AGRICULTURE PURSUANT TO THE TRADE AGREEMENT
WITH CUBA
WHEREAS the note to paragraph 501 of schedule II of the trade agreement be-
ween the United States of America and Cuba, signed August 24, 1934, provides as
bllows:
and when the quota provisions of the Act "to include sugar beets and sugar-
nie as basic agricultural commodities under the Agricultural Adjustment Act,
and for other purposes," approved May 9, 1934, become inoperative, and the
ceretary of Agriculture gives public notice that no equivalent limitation on the
aportation of any article subject to that Act has been imposed, the duty on any
neh article imported into the United States of America from the Republic of
Tuba shall be determined BE though such article were not enumerated and de-
cribed in this schedule; provided, however, that such rate of duty shall not
seeed that imposed on the day of the signature of this Agreement.
nd
WHEREAS the President of the United States of America, acting pursuant to
ection 509 of the Sugar Act of 1937 (which continued, in substance, the quota
toyisions of the net "to include sugar beets and sugarcane as basic agricultural
ommodities under the Agricultural Adjustment Act, and for other purposes,"
proved May 9, 1934), has suspended the operation of the quota provisions of that
d:
Now, THEREFORE, I, Я. A. WALLACE, Secretary of Agriculture, do hereby give
ublie notice that no equivalent limitation on the importation of any article subject
the Sugar Act of 1937 has been imposed for the period of suspension of the quota
Tovisions of that act.
Dose at Washington D. C., this 11th day of September, 1939. Witness_my
and and the seal of the Department of Agriculture.
(SEAL)
H. A. WALLACE,
Secretary of Agriculture.
Effective 11:00 p. m., September 11, 1939.
29
CUSTOMS
CUSTOMS
5
4
TELEGRAM
(T. D. 49976)
VIA GOVERNMENT FACILITIES
September 11, 1939,
Travel
Collectors of Customs:
Delegation di authority to direct travel by use of extra-fare trains. (1) D. 40885
(See attached list.)
Due to Public Notice by Secretary Agriculture accordance Item 501, achedele
amended)
11, Cuban Trade Agreement, T. D. 47232, sugars and other products COTE
thereby and entered for consumption of withdrawn from warehouse for
TREASURY DEPARTMENT,
sumption on of after 11 P M Eastern Standard Time, September 11,
OFFICE OF THE COMMISSIONER of CUSTOMS,
subject to duty at twenty per centum less than rates promulgated in T. D. 47046
Washington, D. C.
Blop. No change in import compensating tax
To Collectore of Customs and Others Concerned.
JOBNSON.
Reference is made to anvamendment of section 15 of the Govern-
ment Travel Regulations authorizing the use of extra-fare trains
(T. D. 49963)
under certain conditions.
T. D. 49885 is hereby amended by adding at the end of paragraph
Port of entry
2 (a) thereof:
Extension of limits of the customs port of entry of Baltimore, Md., in curtos
(III) Specifie written travel orders for trave 00 extra-fare trains, or approval
collection district 13 (Md.), to include Sparrows Point, Md.
of such travel, where the cont thereof, taking into consideration salary and sub-
sistence savings, is not in X0088 of travel by regular are trains, or in emergencies
TREASURY DEPARTMENT,
where necessary for saving life or property,
OFFICE OF THE COMMISSIONER OF CUSTOMS,
BASIL HABRIS,
Washington, D/C., September 15, 1959
Commissumer of Customs.
To Collectors of Customs and Others Concerned:
Approved September 30, 1939:
HERBERT E. GASTON,
There is published below for the information of customs offic
Acting Secretary of the Treasury.
and others concerned the following Executive Order, dated Septembe
6, 1939, extending the limits of the customs port of entry of Baltim
Md., in customs collection district N3 (Md.) to include Sparrows Post
(T. D. 49977)
Md., effective thirty days from the date of the order.
BABIL HARRIS,
Cuban sugar-Application of duty rates
Commissioner of Customs.
(192-13.1)
Dutiable status of Cuban augur entered or withdrawn for consumption before
12:54 p. m., Eastern Standard Time, September 12, 1939
EXECUTIVE ORDER
TREASURY DEPARTMENT,
By virtug of and pursuant to the authority vested in me by section I of
OFFICE OF THE COMMISSIONER OF CUSTOMS,
Act of August 1, 1914, 38 Stat. 609, 623 (U. 8, C,, title 19, see, e). it la order
Washington, D. C., October 5, 1939.
that the limits of the customs port of entry of Baltimore, Maryland, in Cust
To Collectors of Customs and Others Concerned:
include Sparrows Point, Maryland.
Collection District No. 13 (Maryland), be, and they are hereby, extended
There is published below for your information a telegram addressed
This order shall become effective thirty days from the date hereof.
to collectors of customs regarding the rates of duty applying to Cuban
Tue WHITE House,
FRANKLIN D. ROOBEVRIE
sugars and other products covered by item 501, schedule 2, of the
Trade Agreement with Cuba, entered or withdrawn for consumption
September 6, 1930.
before 12:54 P. M., Eastern Standard Time, September 12, 1939.
Note in this connection T. D. 49962.
(343.1)
BASIL HARRIS,
Commissioner of Customs.
CUSTOMS
6
TELEGRAM
OCTOBER 5, 1939,
VIA GOVERNMENT FACILITIES
Collectors of Customs:
(See attached list)
Due to recent advice Secretary Agriculture concerning time of issuance publi
potice under note to item 501, schedule II, Cuban Trade Agreement T. D. 47232
sugars and other products covered thereby for which a warehouse withdrawal ha
been filed and n. permit of delivery issued before 12:54 P. M. Eastern Standard
Time September 12, 1939, or for which a consumption entry has been accepted
prior that time are subject duty at rates listed opposite item 501, Cuban Trade
Agreement. Bureau telegram September 11 modified accordingly.
BASIL HARRIS
(T. D. 49978)
Trade agreement notice
Public notice of intention to negotiate a trade agreement with the Government
of Chile
TREASURY DEPARTMENT,
OFFICE OF THE COMMISSIONER OF Cusroms,
Washington, D. C., October 7, 1939,
To Whom 11 May Concern:
Pursuant to section of an act of Congress approved June 12, 1934,
entitled "An Act to Amend the Tariff Act of 1930," as extended by
Public Resolution 10, approved March 1, 1937, and to Executive
Order 6750, of June 27, 1931 the Secretary of State has issued the
notice published below of an intention to negotiate a foreign-trado
agreement with the Government of Clríle. Also published below is a
relevant letter of the Committee fox Reciprocity Information.
(012)
FRANK Dow,
Acting Commissioner of Customs.
PUBLIC NOTICE
Trade nagreement negotiations with Chile
"An 10, let to Amound the Tariff Act of 1930," as extended by Public Resolution No.
Pursiant to section 4 of an act of Congress approved June 12, 1934, entitled
usent hereby of Chile, give more of intention to negotiate a trade agreement with the Govern-
1 approved March 1, 1937, and to Executive Order No. 6750, of June 27, 1934,
name phomenta) should presentation of views with respect to the negotiation sup-
All presentations of information and views in writing and applications for
contation be submitted to the Committee for Reciprocity Information of such agree-
ingflie with the announcement of this date issued by that in ao-
set for pablic tratines and dates for the submission of briefs and applications, Committee and concern- the time
CORDELL HULL,
Secretary of State.
30
OFFICE OF THE COMMISSIONER OF CUSTOMS
OFFICE MEMORANDUM NO. 147
July 25, 1932.
Office Memorandum No. 121, dated October 24, 1931, respecting
the preparation and transmission of telegraphic and cable messages
18 hereby amended as follows:
All telegraphic messages and radiograms sent to Customs
officers and others on official business and primarily
in the interest of the service, the cost of which is to
be borne by the Government, will hereafter be sent to
the Treasury Telegraph Office, main Treasury Building,
for transmission via Government communication lines. The
words "VIA GOVERNMENT FACILITIES" shall appear at the
top of all such messages,
The practice of preparing an extre carbon copy of a tel-
egraphic message for signature by the Assistant Secre-
tary, the Under Secretary or the Secretary, is extended
to include all messages transmitted via Government facil-
ities. (The extra copy in each case is for the Treasury
Telegraph Office.)
All messages sent collect and in the interest of private
individuals should be transmitted over the regular com-
mercial lines as heretofore.
The Government maintains facilities for the transmission of
such telegraphic and cable messages, without cost to the Bureau,
to the following-named points:
Alabama
California
Georgia
Anniston
All points
Atlanta
Montgomery
Columbus
Birminghem
Colorado
Sevennah
Denver
Alaska
Illinois
All points
Connecticut
Chicago
New London
Great Lakes
Arizona
Douglas
Florida
Indiana
Nogales
Key West
Indianapolis
Tucson
Pensacola
Iowa
Yume
Des Moines
Regraded Unclassified
31
+
Kanses
Missouri
Pennsylvania
Fort Leavenworth
Kansas City
Philadelphia
Junction City
St. Louis
Rhode Island
Kentucky
Nebraska
Newport
Louisville
Omaha
Newport
South Caroline
New Hampshire
Charleston
Louisiana
Portsmouth
New Orleans
Tennessee
New Jersey
Chattanooga
Maine
Lakehurst
Portland
Oceanport
Texas
Brownsville
Maryland
New York
Dallas
Aberdeen
Governors Island
El Paso
Annapolis
New York City
Galveston
Baltimore
Weat Point
San Antonio
Cumberland
Wrightstown
Utah
Massachusetts
North Carolina
Selt Lake City
Boston
Fayetteville
Vermont
Fort Bragg
Michigan
Burlington
Detroit
Ohio
Sault Ste. Marie
Columbus
Virginia
Norfolk
Dayton
Minnesota
Washington
Oklahoma
St, Paul
Puget Sound
Muskogee
Seattle
ALL POINTS IN - China, Japan, Panama Canal Zone, Puerto Rico,
Cuba, Guam, Philippine Islands, Virgin Islands, Territory of
Hewaii.
A telegraphic message routed "VIA GOVERNMENT FACILITIES", ad-
dressed to a place not enumerated in the foregoing list, is sent
over the Government wire to the nearest point and there turned over
to a. commercial company. This results in a saving of fifty per
cent or more on the price of each message.
All messages shall be delivered to the Chief, Division of Mails
and Files, for dispatch.
#xa Elle
F X A EBLE
Commissioner.
File 12/6/39.
These were given to the President today.
32
Extra Copy
P
T
December 4. 1939.
Mr. Names
Mr. Blough
Subject: Poscible mothod of raising $500,000,000 additional reme,
In this optional method it is proposed to raise approximately $300,000,000
additional revenue from increases in the personal income surtexes, and
$200,000,000 from increases in the estate and gift taxes,
The suggested rate schedules are attached. Formal outimates have not yes
been made but A comparison with other rate schedules indicates that those
schedules would raise approximately the indicated amounts.
I. Personal Income Surtame
The surtaxes at selected levels of income after deduction of exemption
are shown in the following tablet
-
Surtax not income
Total surtex
I
(In thousands of dollars)
Present retes
I
:
Suggested rates
:
Increase
$
2
$
-
$
20
$
20
5
40
100
60
10
300
480
180
20
1,260
2,500
1,240
50
7+700
16,120
5,420
1.00
30,000
43.420
13,420
500
256,000
299,420
13,420
1,000
641,000
654,420
13.420
It will be noticed that this rate schedule does not provide for my
decreases in the higher murinx brackets. It does not increase rates on
brackets of income above $100,000.
Regraded Unclassified
33
- 2 -
n. Zetate and an There
the estate taxes under the procent rates ml under the agreed rate
schedule are shown in the fellowing tablet
Net estate after
-
Total cotate tax
I
specific exemption
(In thousands of dellars) Present rates Suggested rates $ Increase
#
20
$
600
$
1,800
$ 1,200
to
2,000
5,400
3.400
100
9.600
21,000
11,400
200
26,600
54.500
27.900
500
89,600
162,000
92,400
1,000
222,600
417,000
194,400
10,000
4,962,600
5.547.000
584,400
There have heen no increases of the present scale in the estate brackets
above $6,000,000.
It is assumed that the gift tax rates will be increased to three fourths
the proposed estate tax rates.
III. Note Regarding Other Income and Estate
fax Changes
Yes the sake of simplicity, the optional plan 10 limited to rate increases.
The balk of the additional revenue would probably have to come from sush
increases under - plan. Cartain changes in exemptions, deductions, etc.
which would increase the tax base. would no doubt be considered and to the
extent adepted, would make possible smaller rate increases than these shown,
IV. Note Regarding Expess-Profits Tax
It 11 is desired to impose an excess-profite tax as part of the revenue
plan. the increases in surtex rates and estate and dift tax rates could de
kept analler than those shows in the suggested schedules. A considerable
amount of additional work would be necessary to develop a formula for an
excess-profits tax unfficiently complete to make practicable an estimate of
revenue yield.
Birth
12-4-39
Regraded Unclassified
34
Estate and gift tax rate eshedule designed
to raise appreximately $200 million
additional INVOICED w
Tax bases Net
$
3
cotate after
I
Branket
I
specific exception
I
rate
I
Total fax
(in thousands
#
percent
I
of dellars)
0
-
5
4
s
5
-
20
8
600
20 -
20
12
1,900
20
I
30
16
3,400
30
-
g
20
5.400
8
-
60
10,000
60
-
8
15.200
80
-
100
21,000
100
-
150
32
37.000
150
-
200
54,500
200
-
250
73.500
250
-
300
94,000
300
-
500
162,000
500
-
1,000
417.000
1,000
-
2,000
907.000
2,000 - 3.000
51
1,417,000
3,000 - 4,000
1,947,000
4,000 - 5,000
2,497,000
5,000 - 6,000
3.067.000
6,000 - 7.000
3,657,000
7.000 8,000
4,267,000
8,000 - 9.000
4,097.000
9,000 - 10,000
5.547,000
10,000 - 20,000
12.247.000
20,000 - 50,000
32,947.000
50,000. -
-
Treasury Department. Division <<< Insearch
December no 1939
w It 10 assemed that present gift tax rates will be increased to three
fourths the propesed estate tax rates.
(This schodule to accompany - of December b. 1939.)
18tch
12/4/39
Regraded Unclassified
35
Surtez schedule for individual income tax designed to
raise approximately $300 million additional Income
Surtex
-
-
not income
I
Rate
I
Total surtex
(in thomands
8
I
8
of dollars)
I
I
2
1
$
Is
60
6
140
8
280
10
480
10-
12
740
IT
14
1,060
16
1 10 16 13 62 66 64 24 25 20 50 4 2 7
1,460
16-
18
1,940
20
2,500
3,140
3,860
26
4,660
30
6,420
11,120
16,120
21,320
75
29,420
100
43,420
100m
150
72,420
150-
200
102,420
200m
250
133,420
300
165,420
231,420
500
299,420
500»
474,420
750-1,000
654,420
1,000-2,000
1,384,420
2,000-5,000
3,604,420
5,000, up
Treasury Department, Division of Tax Research
December 4, 1939
(This schedule to accompany memorantum of December 20. 1939.)
Latab
12/4/39
Regraded Unclassified
36
Compariesa of present and suggested rates of
individual income tax
SINGLE FERSON NO DEPENDENTS
Net income bracket rates
I
Effective rates
Before personal: (normal and surtex)
I
exemption
#
11
Present
Suggested
Present
#
Suggested
I
$ 2,000
m
5%
1.6%
2.1%
6,000
8
8
3.6
4.6
10,000
10
14
5.6
7.0
20,000
17
32
9.2
14.6
30,000
23
48
13.0
23.6
50,000
R
54
18.7
35.0
100,000
59
60
33.4
46.8
250,000
66
66
51.7
57.1
500,000
72
72
61.0
63.7
1,000,000
76
76
6s.0
69.4
Treasury Department, Division of Tax Research December 4. 1939.
V Nazime earned income assumed.
LS:ir
12-4-39
Regraded Unclassified
37
Comparison of present and suggested rates of
individual issues to
MARRIND PERSON TVO DEPENDING
Insome before Mazimum breaket rateol
personal exemption (normel and warter)
I
Effective rates
and credit for
I
dependents 1/
Present
I
:
Suggested
Provent
Ingrested
$ 2,000
-
-
-
-
6,000
45
65
1.4%
2.0%
10,000
9
11
3.4
4.2
20,000
15
25
7.3
11.2
30,000
23
45
11.3
19.9
50,000
31
*
17.2
32.6
100,000
59
60
32.0
45.4
250,000
66
66
51.1
56.5
500,000
72
72
60.7
63.4
1,000,000
76
76
67.8
69.2
Treasury Department, Division of Tax Research December 4. 1939.
w Maxim carned income assumed.
12/4/39
Regraded Unclassified
38
Comparison of present and suggested rates
of estate tax
8
Maxism
I
Net estate
Effective rates
before
I
bracket rates
:
I
Present
I
:
#
exemption
Suggested
Present
Suggested
I
$
:
$ 50,000
x
%
w
1.2%
100,000
12
23
4.2
10.0
200,000
17
35
9.9
20.3
300,000
20
#
12.9
25.9
500,000
23
4
16.1
32.9
1,000,000
29
by
21.1
39.8
3,000,000
41
51
31.2
46.6
5,000,000
53
55
38.0
49.5
10,000,000
65
65
49.4
55.2
50,000,000
69
$
64.7
65.8
Treasury Department, Division of Tax Research December 4. 1939.
66/4/27
LSTAMA
4 5,000
2,000 - 5,000
1,000 - 2,000
750 1,000 ************
100
06
8
*****
Fax
XN
20
ST
15
=
12
or
5
6
h
0
Department, Middles of if Recourch.
750
Fax
20
18
16
nz
10
s
6
(Thrusands of dollars)
net Income
150
06
8
THE
12
I arts of
b
1
-
-
70
19
17
15
13
11
9
8
7
our
4
persont Rate
the Invoice Ast of 1938
---
Precent individual surbex rate schodule under
$
December 4, 1939.
3,551,000
1,371,000
641,000
000'T94
285,000
218,000
152,000
120,000
89,000
59,000
30,000
24,500
19,400
16,580
14,000
11,660
9.560
7.700
6,050
4,640
3.380
2,240
1,560
1,260
1,000
780
600
Other
300
180
80
cumulative
I
Total curtex
39
40
Estate fax Rate Schedule
(Rovenue Act of 1932 as emended is 1935)
(Dollars in thousands)
:
-
Net estate
:Bracket rate I
Cumulative tax
$
on higher amount
1
$
0 -
10
2%
$
.2
10 -
20
4
.6
20 -
30
6
1.2
30 -
40
5
2.0
40 -
50
10
3.0
50 -
70
12
5.4
70 -
100
14
9.6
100 -
200
17
26.6
1
400
20
66.6
400 -
600
23
112.6
600 -
$00
26
164.6
800 - 1,000
29
222.6
1,000 - 1.500
32
382.6
1,500 - 2,000
35
557.6
2,000 - 2,500
38
747.6
2,500 - 3,000
41
952.6
3,000 - 3.500
bis
1,172.6
3.500 - 4,000
47
1,407.6
4,000 - 4,500
50
1,657.6
4,500 - 5,000
53
1,922.6
5,000 - 6,000
56
2,482.6
6,000 - 7,000
59
3,072.6
7,000 - 5,000
61
3,682.6
8,000 - 9,000
63
4,312.6
9,000 - 10,000
65
4,962.6
10,000 - 20.000
67
11,662.6
20,000 - 50.000
$
32.362.6
50,000 -
70
Treasury Department. Division of Tax Research. December 4, 1939.
LS:bh
Regraded Unclassified
Entra Cr
41
December 1, 1939.
COPY
Mr. Heaes
Mr. Blough
The memoranda of Mr. Randolph Paul which were submitted to the Treasury
Department contain 31 points involving possible tax changes which would
increase revenues, 15 points involving changes which would lettrities revenue,
and a plan for an excess profits tax. The following suggestions appearing
in the memeranda have not been under active consideration by the Treasury
Department during the last eighteen months:
I. The problems involved in the following recommendations appear
not to have been considered at least in recent years!
1. Clarify the law to make taxable any excess of the
principal - of insurance installments above the
principal SUN of the life insurance policy at the
time of the insured's death.
2. Authorise the courts and the Board of Tax Appeals to
relax the rule of TOE judicata in meritorious tax
cases.
II. With respect to each of the following items. the problem has
hass actively considered in recent months but the solution
proposed by Mr. Paul has not been considered:
1. Impose income taxes on stock dividends heretofore
considered to be nontaxable.
2. Netablish a conclusive presumption that gifts unde
after the decedent reaches sixty years of age are
made in contemplation of death.
3. (a) Eliminate the tax on intercorporate dividends
where stock ownership gives no control.
(b) Stiffen the tax on intercorporate dividends in
of inexcusably complicated corporate
structures.
4. No plan for an excess profits tax has been prepared
in such detail as that presented by Mr. Paul, although
the general problem has been considered.
Regraded Unclassified
42
- 2 -
III. The following problems have not been actively considered
Anring the last sighteen months but were actively considered
in 1937, 1938. or both years.
1. Eliminate the defaction for nonbusiness casualty
losses or restrict them to a fixed percentage of
the taxpayer's net income, or treat them as capital
lesses.
2. Limit the allowance for the deduction of interest
on noninterest borrowings to $500.
3. Limit the allowance for the deduction of nonbusiness
bad debts to $1,000 in the case of each debtor.
4. Limit the allowance for the deduction of taxes on
nonbusiness property to taxes on small homes.
5. Allow a deduction of perhaps $100 a year for medical
or dental expenses.
6. Limit the deduction for payments W the employees to
pension trusts to perhaps $5,000 for any one employee.
7. Limit exempt building and lean associations to those
of a genuine cooperative character primarily related
to financing home ownership.
8. Tax nonresident aliens and foreign corporations upon
income from sources within the United States in such
a way that there is no discrimination in their favor.
9. Provide that all tax suite and proceedings shall be
brought against the United States, eliminating the
highly artificial distinction between suits involving
the United States, the Commissioner and the Cellecter.
Birth
12-1-39
Regrade Unclassified
Capyforner Caches
COPY
INCOMING CABLEGRAM
London, Dec. 6, 1939. 43
Federal Reserve Bank of New York
New York
MA
No. 1180/39 FOR KNOKE
ONE
Your No. 904/39 Please open another Special Account for
us on your books designated Bank of England Account A and
transfer $5,000,000 to this account by the debit of G Account
TWO
We have authorized the following to sign cheques on our
behalf drawn on such Special Account A:
Arthur B Purvis
Colonel JHN Greenly
Sir James Rae
J.A.C. Osborne
any two to sign.
Such cheques should be signed "Bank of England
Account A by
Please have cheques in this form imprinted and delivered
to J.A.C. Osborne
THREE
You already. have specimen signature of J.A.C. Osborne and
he will furnish to you specimen signatures of the other
persons listed in paragraph two.
FOUR
We authorize you to pay and charge to such Account A any
cheques drawn on you signed as described in paragraph two.
FIVE
May we take it you will complete outstanding instructions
or ao you prefer all future payments should be made
through new account.
BECEIAED
Bolton
Ulice or are and
- desided to to -
Bank of England.
eeer 3 OED
Regraded Inclassified
THE WHITE HOUSE
WASHINGTON
December 6, 1939.
My dear Mr. Secretary:
I have created an informal committee to represent the
American Government in its contacts with the interested
foreign governments in all matters relating to the purchase
of war materials in the United States, consisting of the
following:
(a) The Director of Procurement. Treasury
Department: (b) The Quartermaster General of the
Army: (c) The Paymaster General of the Navy.
This committee will serve as the exclusive liaison with
reference to procurement matters between this Government and
the interested foreign governments. It will hold sessions
at least once weekly, and at such more frequent intervals as
may be necessary. At these sessions, it will receive an
accredited representative of the embassy of any interested
foreign government for the purpose of giving consideration to
the requirements of such government for supplies, equipment,
and materials, in relation to: (a) availability of the desired
articles, (b) priorities, and (c) prices. The committee will
submit a complete report of its proceedings. acts and recom-
mendations, At least weekly. to the President through
WT. McReynolds.
The Secretary of State has informed the British and French
Ambassadors of this arrangement.
Will you please inform the Director of Procurement of his
designation as a member of this committee and ask him to serve
as its chairman.
Sincerely,
Movement
The Honorable.
The Secretary of Treasury.
Regraded Unclassified
THE WHITE HOUSE
45
WASHINGTON
December 6, 1939.
My dear Mr. Secretary:
I have created an informal committee to represent the
American Government in its contacts with the interested
foreign governments in all matters relating to the purchase
of war materials in the United States, consisting of the
following:
(a) The Director of Procurement. Treasury
Department: (b) The Quartermaster General of the
Army: (c) The Paymaster General of the Havy.
This committee will serve as the exclusive liaison with
reference to procurement matters between this Government and
the interested foreign governments. It will hold sessions
at least once weekly, and at such more frequent intervals M
may be necessary. At these sessions, it will receive an
accredited representative of the embassy of any interested
foreign government for the purpose of giving consideration to
the requirements of such government for supplies, equipment,
and materials, in relation to: (a) availability of the desired
articles, (b) priorities. and (c) prices. The committee will
submit a complete report of its proceedings. acts and recon-
mendations, at least weekly. to the President through
MT. McReynolds.
The Secretary of State has informed the British and French
Ambassadors of this arrangement.
Will you please inform the Director of Procurement of his
designation as & member of this committee and ask his to serve
as its chairman.
Sincerely.
Movemb
The Honorable.
The Secretary of Treasury.
STRICTLY CONFIDENTIAL
46
sume 4. 1940
Customs Bureet
(Attembion: w.s.c.)
2. Morlo Cashron, Technical Accistant to the Secretary
In
the attached draft of a letter to the Secretary of State reached 90
yesterday. Since I have constant contact with the Department of State, and was
fermerly Asstetant Chief w the division is that Department which distributes
consular reports, 2 took the liberty of telephoning the State Department and
obtained the less of the report in question, which is attached herete. this
original 4017 should be returned to 20 for further treasmission bask to the
Department of State. Insidentally, a copy of this report to also es file is
Dr. Barry White's effice is the Treasury Department.
If the Bareen of Gastoms my desire. I shall be very gist to be of any
possible assistance in the future is obtaining reports informally for them from
the Department of State.
BMR.
EMO:dm:6.4.40
BK227
per
47
THE WHITE HOUSE
WASHINGTON
December 6, 1939.
My dear Mr. Secretary:
I have created an informal committee to represent the
American Government in its contacts with the interested
foreign governments in all matters relating to the purchase
of war materials in the United States, consisting of the
following:
(a) The Director of Procurement, Treasury
Department; (b) The Quartermaster General of the
Army: (c) The Paymaster General of the Navy.
This committee will serve as the exclusive liaison with
reference to procurement matters between this Government and
the interested foreign governments. It will hold sessions
at least once weekly, and at such more frequent intervals as
may be necessary. At these sessions, it will receive an
accredited representative of the embassy of any interested
foreign government for the purpose of giving consideration to
the requirements of such government for supplies, equipment,
and materials, in relation to: (a) availability of the desired
articles, (b) priorities, and (c) prices. The committee will
submit a complete report of its proceedings, acts and recom-
mendations, at lesst weekly. to the President through
Mr. McReynolds.
The Secretary of State has informed the British and French
Ambassadors of this arrangement.
Will you please inform the Director of Procurement of his
designation as & member of this committee and ask him to serve
as its chairman.
Sincerely,
treatment Movement
The Honorable.
The Secretary of Treasury.
THE WHITE HOUSE
WASHINGTON
December 6, 1939.
My dear Mr. Secretary:
I have created an informal committee to represent the
American Government in its contacts with the interested
foreign governments in all matters relating to the purchase
of war materials in the United States, consisting of the
following:
(a) The Director of Procurement. Treasury
Department: (b) The Quartermaster General of the
Army; (c) The Paymaster General of the Navy.
This committee will serve as the exclusive liaison with
reference to procurement matters between this Government and
the interested foreign governments. It will hold sessions
at least once weekly. and at such more frequent intervals as
may be necessary. At these sessions, it will receive an
accredited representative of the embassy of any interested
foreign government for the purpose of giving consideration to
the requirements of such government for supplies, equipment,
and materials, in relation to: (a) availability of the desired
articles. (b) priorities, and (c) prices. The committee will
submit a complete report of its proceedings, acts and recom-
mendations, at least weekly. to the President through
Mr. McReynolds.
The Secretary of State has informed the British and French
Ambassadora of this arrangement.
Will you please inform the Director of Procurement of his
designation 8.8 a member of this committee and ask his to serve
as its chairman.
Sincerely,
The Honorable,
The Secretary of Treasury.
Regraded Unclassified
December 6, 1939.
49
Dear Mr. Tyler:
I appreciated very such having your telegram
of December 3rd, and have noted the contents with
interest. Thank you for this dispatch. I shall
look forward to hearing from you after you make
the trip you are planning.
Sincerely,
(Signed) H. Morgenthau. Jr.
Mr. Royal Tyler,
c/o League of Nations,
Geneva, Switzerland.
GEF/dbs
50
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Consulate General, Geneva
NO.: 300
N
DATE: December 3, 1939
FOR MORGENTHAU FROM ROYAL TYLER.
"I have returned to Geneva. I met the Director
General of the National Bank of Hungary while I Was in
London. He stated that whatever may happen Hungary will
go on transferring service of League loan in accordance
with the agreement of 1937 and it will also continue to
make payments on corporate relief credits as offered by
that country. The foreign exchange losses of the
National Bank during 1939 amount to approximately
$18,000,000, leaving about $35,000,000 of gold and
utilizable exchange. Barring accidents, it is Hungary's
intention to keep on making payments to foreign creditors
with the exception of the League loan and corporate
relief credits as offered for a period of three years
beginning in the summer of 1937. However, Hungary is
afraid that if the war continues, she may not be able,
after the summer of 1940, to renew on the same scale.
At the present time Hungary's difficulties are securing
access to markets for her exports 80 that she can obtain
foreign exchange which she can use to purchase raw
materials and importing the raw materials through the
blockade
51
ade
blook established by the British, It is Germany's desire
to reduce Hungary to the status of an agrarian colony.
from Hungary
For that reason, in exchange for food, Germany 1s trading
no raw materials except coal. Therefore Hungary 18 assert-
ing that her industry is important to her national inde-
pendence and she is appealing to Great Britain to permit
imports into Hungary to go through the blockade on the
strength of certificates stating that they are for
Hungarian consumption. However, it is said by the British
that they have proof that imports which Hungarian firms
have certified as being for Hungarian consumption are being
slipped to Germany by those firms. Some of these shipments
have been blocked by the British. It seems possible that
a deal may be arranged whereby an annual amount of each
key commodity will be agreed upon, with the British per-
mitting imports up to the amounts agreed upon and no further
questions asked. But the British are refusing to accept
certificates even though they contain official endorse-
ments to the effect that a check cannot be made by
officials. I am planning to be in Budapest from December
8 to December 14, From there I will go to Italy. I shall
report to you upon my return.
TITTMANN
EA:EB
BILLER
52
HAVE DEPARTMENT
OFFICE OF THE CHIEF OF NAVAL OPERATIONS
WASHINGTON
6 December 1939
Memorandum relative to assignment of PBY
airplanes to Coast Guard:
Reference:
(a) Secy of Treasury Memo. of
30 November 1939, with
President's endorsement.
1
As reference (a) was not quite understood
by the Navy Department, clarification was requested by
telephone from Admiral Wassche, as B. result of which it
appears that Mr. Morgentheu is under some misappreheneion
as to the nature of the operations undertaken by the
Coast Guard in the North Atlantic in connection with the
neutrality patrol. By agreement between Admiral Stark
and Admirel Waesche, the Coast Guard took over the Grand
Banks patrol, a rectangular area defined by the following
points: Lat. 43-15 I - Long. 64-30 W; Lat. 43-15 X -
Long. 55-00 W; Lat. 40-50 M - Long. 64-30 W; Lat. 40-50 N -
Long. 55-00 ", which area was to be covered by surface
craft only. In addition, the Coast Guard agreed to cover
by both surface and aircraft, as necessary, 8 small in-
shore area along the comet of Maine and 8 somewhat larger
area included between the shore line and lines joining the
following points: Blook Island, Lat. 38-10 If - Long. 71-15 W,
end Cape May, N. J. The Navy is re-assuming the task of
patrolling this last area, to seaward of the 25-fathom curva.
B.
The off-shore aerial patrol is being car-
ried on with all the patrol airoraft which can be made avail-
able without weakening below a certain point the patrol-plane
squadrons on the West Coast and at Panama, although BOBR
aircraft have had to be taken from both these locations to
sugment our Atlantic equadrons for this purpose.
Regraded Unclassified
53
Op-38-N-MW
3.
It should be noted that of the type of
plane requested (PBY-4's) there are but three in con-
tinental U. S., one squadron being in the Philippines
and another in Hawaii. or these three planes, one is
at the Consolidated Company as the "Dog Ship" for new
production which it is hoped will soon be under way,
another is assigned a special and important project,
and the third is being operated in a West Coast squad-
ron as a replacement. Other planes of the PBY type
could be furnished the Coast Guard, but only by either
reducing West Coast squadrons below what is considered
the safety point under present conditions, or diluting
the present aerial patrol to a point where it would be
generally ineffective. Several weeks ago Admirel Waesche
contacted the Chief of Bureau of Aeronautics with regard
to the possibility of obtaining some planes from the PSY-5
production when it eventuates and was assured that this was
possible. One such plane, for which the Coast Guard has
funds, has been so earmarked with the possibility of seven-
teen additional planes of this contract, dependent upon
Coast Guard funds being available therefor. Production,
however, is not expected prior to May 1940.
Copy to:
Admiral Waesche
-2-
0-0-P-Y
Regraded Unclassified
54
TREASURY DEPARTMENT
CONFIDENTIAL
INTER OFFICE COMMUNICATION
DATE December 6, 1939
TO
Secretary Morgenthau
FROM
Mr. Haas MA
Subject: Setting for the Refunding of the March Notes
SUMMARY
(1) Treasury obligations were strong last month (Chart I).
A reaction started last week, however, 88 the Finnish
crisis developed. Long-term Treasurys are far above
their crisis lows but in the upswing have done less
well than have other high-grade bonds (Ohart II).
(2) A large proportion of the March notes are probably held
by commercial banks. The Federal Reserve banks hold
$162 millions of these notes in their Open Market Ao-
count. A larger than usual proportion of the maturing
notes may be held by wealthy individuals who obtained
them in the first instance for First Liberty 3-1/2's
and want only fully tax-exempt securities. Neither
the banks nor these individuals are likely to desire
a long bond in exchange.
(3) Data on the maturity distribution of the Government
portfolio of the major classes of holders indicate
that banks tend to concentrate their holdings in the
shorter maturities. Insurance companies, on the other
hand, invest a large proportion of their portfolio in
longer bonds (Chart III).
(4) Bids for the rights on the March notes are at a high
level when compared with bids for the rights on pre-
vious note maturities (Chart IV). These high bids
would seem to indicate that the market anticipates a
liberal pricing on the new issue and, accordingly, the
inclusion in the offering of B. long or medium-long bond,
which would be likely to carry a higher premium than 8.
note.
(5) The size of the March note issue focuses attention on
the desirability of issues having optional call periods.
There are already appreciable amounts of fixed maturity
obligations coming due in every year through 1948,
except 1946 (Chart V).
(6) British and French Government securities remained prac-
tically unchanged last week. Finnish bonds dropped very
sharply and other Scandinavian issues somewhat less
sharply.
Regraded Unclassified
55
Secretary Morgenthau - 2
I. Condition of the Market
The refunding of the March 1940 notes -- the largest re-
funding operation to face the Treasury since the Liberty bond
refinancings -- will come, if carried out in the next week or
so, at a time when the market for new capital issues has been
thoroughly awakened from the state of virtual inactivity that
existed during the outbreak-of-war crisis. This awakening
has not been limited to offeringe of Government securities
alone, but has extended itself successfully to the field of
municipal and corporate obligations. During the past few
weeks, for example, relatively large amounts of long-term
bonde have been floated by the City of New York and the
Public Service Company of Colorado.
During the past seven weeks, the Federal Government and
its agencies have floated $1.5 billions of notes and bonds in
the market. Each new offering has gone well in the market,
and, w1 th the exception of the March 1944 note, each new 18-
que 18 selling in line with other securities of comparable
term and character. The March 1944 note, 88 has been pointed
out previously, is still somewhat out of line, selling at the
close on Tuesday, December 5, to yield one basis point more
than the note maturing three months later, instead of a number
of basis points less, as might ordinarily have been expected.
Treasury obligations, as & class, have shown considerable
strength in the market during the past month, and, at the
close on Tuesday, December 5, long-term bonds were about two
points above the prices obtaining a month earlier (Chart I).
The reaction which started during the middle of last week at
the time of the development of the Finnish crisis, however,
caused long bonds to lose about a point.
It 18 important to note that long-term Treasurys have
done less well in the upswing from the September lows than
have either high-grade municipal or corporate issues. This
relatively poor performance 18 brought out in Chart II, which
shows the downward price swing (upward yield movement) ex-
perienced by each type of issue between its summer high and
its September low, and the upward price swing from that low
to yesterday's close (December 5).
Treasury bonds, it 18 noted from the chart, started to
deoline earlier than either municipal or corporate issues.
Their decline covered a somewhat longer period, and amounted
to A little less than the decline of the other issues. This
was probably due to the support given the Government bond mar-
ket early in September by the Federal Reserve banks and the
Treasury. On the upswing, Treasurys started later, and, when
56
Secretary Morgenthau - 3
compared with the other issues, have recovered a smaller pro-
portion of the ground lost. Municipal bond prices, for ex-
ample, are not far from their summer highs (reached June 24),
and corporate bonds have recovered about three-quarters of
their deoline. Long-term Treasurys, on the other hand, have
recovered only a little more than half of the decline experi-
enoed between June 5, the summer high, and September 25, the
crisis low.
II. Who Holds the March Notes?
In view of the large amount of the March note maturity,
it would be particularly desirable to know at this time who
holds the March notes. There 1s a very limited amount of in-
formation with respect to the actual amounts held by the vari-
ous classes of security holders, however. The available
statistical data do not break down holdings by issues, and no
system of direct inquiry to obtain this information 1s avail-
able at the present time. The figures that we have been able
to obtain from various sources and for various dates are shown
in the following table:
:
: Amount :Percent
Holder
:
Date
: (millions : of
:
:of dollars) : total
Federal Reserve Open Market
Account
11/29/39
162
11.8
3 national banks in New York
Various
City
dates
70
5.1
in 1939
10 national banks outside of
Various
New York City
dates
48
3.5
in 1939
First National of Baltimore
10/28/39
53
3.8
Total, 14 large national
banks
171
12.4
800 insurance companies
12/31/38
59
4.3
200 savings banks
12/31/38
12
.8
Total accounted for
404
29.3
Not accounted for
974
70.7
Total outstanding
1,378
100.0
Note: National bank figures from Comptroller of the Currency.
Insurance company and savings bank figures from Poor's
Manual.
Regraded Unclassified
Secretary Morgenthau - 4
57
In addition to the above figures, we have some informa-
tion provided by Mr. Rouse of the Federal Reserve Bank of New
York. He estimates that from $450 millions to #750 millions
of the maturing notes are held in his Federal Reserve district
with his "best guese" at $650 millions. This amount includes
the $162 millions held by the Federal Reserve Open Market Ac-
count and probably about $100 millions held by other holders
included in the above table.
Inadequate as they are, the foregoing figures indioate
that commercial banks as a class are probably the most impor-
tant holders of maturing notes. They indicate also that New
York City banks probably hold B. significant proportion of the
total holdings of all banks.
There is another factor besides bank holdings, however,
which may be quite important at this financing. About 55 per-
cent of the March notes WAB issued in 1935 to refund the
3-1/2 percent First Liberty bonds. The income from these
bonds was exempt from Federal surtaxes, and, accordingly,
many of these bonds were held by wealthy individuals, who
wanted to take advantage of their fully tax-exempt status.
It is quite possible, therefore, that on the occasion of
the coming refunding, a much larger than usual proportion of
the maturing notes will be in the hands of individuals who do
not want, and will not permanently hold in their investment
portfolios B. Treasury bond which 1B not exempt from surtaxes.
If the Treasury offers these holders a choice between a new
bond and B. new note in exchange for their holdings, they are
likely to prefer the note, unless it is priced too unattrac-
tively as compared with the new bond. If the Treasury should
not offer & note option, or if such option should be merely
nominal because of the relative pricing of the issues, these
individuals might be inclined to sell the rights to the new
issue, or to sell the bond acquired in exchange. Heavy sell-
ing 80 engendered might place the market in a rather weak
technical position, particularly if it happened to coincide
with unfavorable foreign developments.
The fact that commercial banks, especially those in New
York City, hold B. considerable proportion of the maturing notes
also contributes to the possibility that the exchange offer-
ing, if it includes an attractively priced long bond, might
place the entire Government securities market in a weak tech-
nical position. These banks are quite likely to undertake an
important secondary distribution operation if they obtain
long bonds in exchange, and this operation might be disturbing
to the market.
Regraded Unclassified
58
Secretary Morgenthau - 5
III. Maturity Preferences of Holders
of the Public Debt
Although our information on the holdings of the March
notes is quite limited, we do have information the the matu-
rity distribution of the holdings of all direct Government
securities by the principal classes of holders. These data
are presented in Chart III. They are in terms of the "pri-
vately held marketable supply" of the direct public debt, B
definition which excludes United States Savings and Adjusted
Service bonds, and securities held by the Federal Reserve
banks and Federal governmental corporations, credit agencies,
and trust funds.
The chart emphasizes the fact that banks tend to concen-
trate their holdings in the shorter maturities. About 46 per-
cent of the direct public debt has a maturity of more than ten
years, for example. Banks in New York and Chicago, however,
hold only 36 percent of their Government portfolio in such
maturities, and all other insured commercial banks outside of
these cities, only 41 percent. Insurance companies, on the
other hand, have 56 percent of their portfolios in the longer
bonds.
IV. Rights Values of Maturing Notes
At the close on Tuesday, December 5, the bid price for
the rights on the March notes stood at the high level of
1-10/32 points. Rights have been moving upward for about
three weeks, the gain having amounted to 6/32 of a point.
The high level of bide made for the March rights would
seem to indicate that the market anticipates a long or medium-
long bond will be included 8.8 one of the vehicles for the
approaching refunding. In past refundings of Treasury notes,
it is observed, the market has assumed that the Treasury
would be likely to price its issues 80 that a larger premium
would be carried by a long than by & short issue offered
in exchange. Accordingly, the market has allowed its antioi-
pation of the length of the exchange issues to control, to B.
considerable extent, the level of the bids made for the rights.
Bids as high 8.8 those obtaining at present have, accordingly,
been made only when the market has been anticipating B. rela-
tively long issue. This was the oase during the fifteen months
preceding the war crisis, when the market generally expected
long bonds and was usually correct in its expectation.
59
Secretary Morgenthau - 6
Chart IV compares the value of the rights on the matur-
ing issue with the premium carried by the issues offered in
exchange in each of the Treasury note refunding operations
engaged in since the beginning of 1934. The rights values
have been taken on & date about fifteen days preceding the
day of issuance of the new securities, 80 as to eliminate, as
far as possible, the influence of official intimations as to
the characteristics of the new offerings. For simplicity, the
highest right value bid has been taken when two notes were re-
funded at the same time, and the highest premium available at
the close of the first day of trading on any security offered
in exchange has been taken when alternative exchange securi-
ties were offered.
It appears, 8.8 shown in the bottom grid of the chart,
that the premiums carried by the new issue (or by one of the
new issues, if two or more were offered) were in excess of
the market's bid for the rights in eight of the nineteen re-
fundings. In each of these cases, the Treasury offered new
bonds in exchange for the maturing issue. On the other eleven
occasions, the premiums carried by the new issue were less
than the market's bid for rights. In five of these cases, the
Treasury issued new notes in exchange without the option of B.
bond, and in three other cases, added to issues of securities
already outstanding. Premiums carried by such offerings have
ordinarily been lower than those carried by new issues of
bonds.
It 18 interesting to note in connection these nine-
teen refundings that, in the aggregate, the excess of premiums
over rights values just about balances the excess of rights
values over premiums. In other words, 8. speculator who pur-
chased an identical amount of each of the maturing notes at
the prices shown would have come out just about even if, on
each occasion, he had availed himself of the exchange offer-
ing, and then had sold the new issue at the close of the first
day of trading.
V. Composition of the Public Debt
The large amount of the March notes -- the largest amount
of Treasury debt wi th the exception of the Third Liberty Loan
ever placed in a single issue of fixed maturity obligations --
focuses attention again on the intrinsic superiority from the
point of view of the Treasury of issues having optional call
periods. Large fixed maturities such as the one to be refunded
might be quite embarrassing to the Treasury should they come
due at an inopportune time.
80
Secretary Morgenthau IN 7
The present composition of the public debt classified
with respect to the amount of debt callable and maturing in
each calendar year is presented in Chart V. This chart dif-
fere from somewhat similar charts which we have submitted
previously, partly in that it includes guaranteed as well as
direct debt, but more importantly in that it 1s primarily
classified on the basie of whether the securities have fixed
maturities or optional call provisions.
The chart shows that there are now fixed maturities of
appreciable amount in every year through 1948, except 1946.
Beyond 1944, however, these fixed maturities are never greater
than three-quarters of a billion dollars in any one year.
VI. Foreign Government Securities
British and French Government securities underwent little
change this week. British 2-1/2 percent consols closed on
Tuesday, December 5, at 67-7/8, to yield 3.68 percent, as com-
pared with 8. yield of 3.70 percent last Tuesday. French 3
percent perpetual rentes closed at 71.95.
The Russian invasian of Finland has been followed by a
severe decline of Finnish bonds on the New York Stock Exchange
and some weakening of most of the loans of other Scandinavian
countries. The present levels of representative Scandinavian
issues, as compared with their levels just before the crisis
and their highs for the year, are shown in the following table:
:
:
: Net
: High for: Tues., : Tues., decline,
: 1939 Nov. 28 :Dec. 5 Nov. 28-
:
;
:
: Dec. 5
(closing prices)
Finland, 6's of 1945
107
88
36-7/8
51-1/8
Norway, 4-1/4's of 1965... 103-7/8 83-1/4
69-1/4
14
Denmerk, 4-1/2's of 1962.
97-1/2
59-1/4
50-1/2
8-3/4
Attachments
I
CHANGES IN THE PRICES OF U.S. SECURITIES AFTER AUG. 10, 1939
Points Plotted Represent the Difference from Aug. 19 Price of Each Maturity Class
1939
AUGUST
SEPTEMBER
1940
OCTOBER
NOVEMBER
DECEMBER
19
26
2
,
16
23
JAMUARY
30
7
14
21
&
4
"
16
25
2
9
is
23
POINTS
30
6
(NET CHANGE)
POINTS
(MET crease)
old
Daily
+11
- H
+18
- is
+ ij
" I
et
-1
+1
+)
+)
+
+i
o
o
:t
NOTES. 1-3 YEARS
T
T
-1
- I
-
T-
NOTES. 3-5 YEARS
1
-11
-
-11
-11
-H
- II
-2
Boars,
UNICE 5 YEARS TO CALL
-2
-26
-21
-24
-24
-21
-21
-3
-3
-31
3d
-31
-N
-34
Bows,
5-15 YEARS TO CALL
- и
-4
:
-44
in
-46
₺
-41
é
-5
-5
-si
-
-54
OVER 15 YEARS TO CALL
- M
-st
- 4
1-
1
-64
É
$
2
AUG. 19
±
é
-7
-7
-71
-71
-74
-71
-71
-71
-
a
-8
19
26
2
9
IS
23
30
7
14
21
20
4
"
15
25
2
,
16
25
30
6
13
SEPTEMBER
OCCURRER
JAMMET
AGREEST
OCTOBER
INVEMBER
1940
1939
MOTE: BREAK is LINE IMMIGATES CHANGE in COMPOSITION or . INTURITY CLASS
Office of the Secretary of the Transity
F-01-3
- - - - -
13
Regraded Unc assifi
MAJOR MOVEMENTS OF THE YIELDS OF TREASURY, HIGH GRADE CORPORATE
AND MUNICIPAL BONDS
Points Plotted Represent Changes from the Lowest Yield Reached by Each Class of Security in 1939
1939
JUNE
JULY
AUGUST
SEPTEMBER
OCTOBER
NOVEMBER
DECEMBER
3
10
17
24
I
8
15
22
29
5
12
19
26
2
9
16
23
30
7
14
21
28
4
II
18
25
2
9
16
23
BASIS
1
BASIS
POINTS
POINTS
- 10
- 10
DOW-JONES MUNICIPAL
0
0
. 10
+ 10
PHIGH GRADE CORPORATE
+ 20
+ 20
+ 30
. 30
+ 40
+ 40
LONG TERM TREASURY
+ 50
+ 50
- 60
+ 60
+ 70
+ 70
+ 80
3
10
17
24
I
8
15
22
29
5
12
19
26
+ 80
2
9
16
23
30
7
14
21
28
4
II
18
25
2
9
16
23
JUNE
JULY
AUGUST
SEPTEMBER
OCTOBER
NOVEMBER
DECEMBER
1939
"ADJUSTED TO ALLOW FOR CHANGES IN COMPOSITION OF TREASURY AVERAGE.
Office of the Secretary of the Treasury
of of
F - 144
Regraded Unclassif
Girt III
PRIVATELY HELD MARKETABLE SUPPLY OF
DIRECT U.S. OBLIGATIONS
By Classes of Holders
June 30, 1939
DOLLARS
DOLLARS
BILLIONS
BILLIONS
Amount Held
28
28
24
24
20
20
16
16
12
12
8
8
4
4
0
0
TOTAL
N.Y. AND
ALL OTHER
37 LIFE
ALL OTHER
OUTSTANDING
CHICAGO
INS. COMM'L.
INSURANCE
HOLDERS
MEMBER BANKS
BANKS
COMPANIES
Composition of Holdings by Maturity Classes, In Percent of Total Held
PERCENT
PERCENT
UNDER
UNDER
5 YEARS
5 YEARS
80
80
5 - 10
YEARS
60
60
5 - 10
YEARS
40
40
10 - 20
10 - 20
YEARS
YEARS
20
20
OVER
OVER
20 YEARS
20 YEARS
0
0
TOTAL
N.Y. AND
ALL OTHER
37 LIFE
ALL OTHER
OUTSTANDING
CHICAGO
INS. COMM'L.
INSURANCE
HOLDERS
MEMBER BANKS
BANKS
COMPANIES
EXCLUDES U.S. SAVINGS AND ADJUSTED SERVICE BONDS AND SECURITIES HELD BY THE FEDERAL
RESERVE BANKS AND FEDERAL GOVERNMENT CORPORATIONS, CREDIT AGENCIES AND TRUST FUNDS.
63
Office of the Secretary of the Treasury
F - 145
Division of - and -
Regraded Unclassifie
Chart V
INTEREST BEARING PUBLIC DEBT - NOV. 30,1939
Including Guaranteed
Agjusted to give effect to the new issue to be dated Dac a 1939
DOLLARS
DOLLARS
Billions
Billions
Amount Due or First Becoming Callable
By Calandar Years
5
5
Guaranteed
4
Callable lesues
4
Direct
Guaranteed
Fixed Issues
Direct
3
3
2
2
I
I
o
40
42
44
46
48
'50
o
52
54
56
'Sa
60
62
64
66
68
70
5
5
Amount Maturing
By Calendar Years
4
4
3
3
2
2
I
I
o
o
40
42
44
46
48
"50
52
54
'56
'58
09.
'62
64
66
68
70
Excluding (/) Postal Savings Bonds: (2) U.S. Savings Bonds (3) Adjusted Service
Bande - Special issues to Government Agencies and Trust Funds
Office al the Secretary of the Treasury
0-176-A
Drawn of - end -
Regraded Unclassified
CS
Chart IV
*RIGHTS VALUES" COMPARED WITH PREMIUMS ON NEW ISSUES
*
Exchange Offerings on Treasury Note Refundings, 1034 to Date
PRICE
ABOVE PAR
PRICE
IN 32NDs.
ABOVE PAR
IN 32NDS.
70
70
"RIGHTS VALUE"
60
II
PREMIUM ON NEW ISSUE
60
50
50
40
40
30
30
20
20
10
10
o
o
APR.
JUNE
MAR.
JUNE
DEC.
MAR.
JUNE
SEPT.
DEC.
MAR.
SEPT.
DEC.
MAR.
JUNE
SEPT.
DEC.
MAR.
JUNE
NOV.
DEC.
1934
1935
1936
1937
1938
1939
1940
40
40
Excess of Premium Over "Rights Value"
30
SCCURITY OFFERED IN EXCHANGE
30
NCW
NEW
ADDITION TO
20
NOTE
BOND
OUTSTANDING ISSUE
20
ID
10
0
JUNE
MAR.
JUNE
DEC.
DEC.
MAR.
SEPT.
SEPT.
MAR.
JUNE
NOV.
o
APR.
se
as
MAR. JUNE SEPT.
DEC.
MAR.
JUNE
DEC.
NW
-10
-10
-20
-20
1934
1935
1936
1937
1938
1939
1940
-
WHEN MORE THAN ONE NEW ISSUE WAS OFFERED THE HIGHEST PYCMIUM is SHOWN
The - the lacretary of the Treasury
F 143
- et Fears - -
Regraded Uncla sified
YIELDS OF TREASURY BONDS AND NOTES DEC. 9. 1939
Based on Closing Prices
1940
1942
1944
1946
1948
PER
1950
(982
1986
1956
1960
1962
1964
Itss
INE
1610
PER
CENT
CENT
275
2.76
250
2.31
10
5.00
:
260
N7 a
225
200
de Mar A IH2 1421
Der /H2 8242
5 EPA/ AREA I
to el I END
or Mar /M1 FOR
A - are
are
2.10
2.26
5
AND
1.00
200
Notes
1.47
(77
a
5
o
175
1.76
Mar #677
as Are /H/ #004
MM 2204 2 È
2x Jana (942)
1.58
1.50
(4)
cer
o
150
AAE
:
1.50
125
Mar (§ de fun
pri
a ran vlurre - Jedo 6700
13 las Del AM I'MO ENT
111
BOW
ou
a
59
to
100
=
rus --- un
25 % 24% lest N-W dives
the W-M BLAST
13. Sept. 1/-10 no
25, % Mar w-w BEAUT
2% x Sept. All, as W-39 2982
2 1 2 End e =
N % Dec 15 60-85 dives
125
ass Sext - 40
es Dec 40-50 1571
Dec
99
Notes
1,00
67
2
/vine ----- EMP
Date nei #70
**
Bonds with no cell period
75
er
"
.76
a finds with cell pariod
SR
50
Arrave ce zero line indicate
2
47
25
02
24
el
** Dec 14-24 BIORT
a asx Sept film
2% Dec 1948 ⑉
*** Mar 1481
18 - R(ON
1 15 Der
60
negative yield
Bonds
25
o
o
De
DOLLARS
3500
an dune */-w? -
DOLLARS
Millians
e % FILE
Millions
$ HER
1 : 0
Amount Outstanding
3,500
.
3000
Notes
Bands
3,000
2500
2,500
2000
2000
nee
1,500
1000
1,000
mid
500
D
0
1940
1942
1944
1940
1948
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
Note For collable bands, provide the computed to, and INSURE plotied or of, she sorhest call date of the bend a selling above pan
and or of the Final moturity date if the hand - selling below por The smooth surves are fitted by aya
Dollar amounts ahown in descriptions of aver ore in millions
for which an exchange offer has been mode and has expired are excluded
of
/
Regraded
COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM U.S. TREASURY
AND AVERAGE OF HIGH GRADE CORPORATE BONDS
1938
JAN
PER
MAR
APR
MAY
JUNE
JULY
AUG.
SEPT.
6
-
as
.
=
.
OCT.
NOV.
DEC
JAN
1939
и
M
FEB
18.
-
MAR
APR.
MAY
JUNE
1939
JULY
hoursed Scale
"
IN
as
AUG
-
is
SEPT.
OCT.
NOV.
DEC.
pac.
-
-
a
OCT.
NOV.
e
-
e
.
is
PER CENT
-
.
.
14
#
-
-
19
#
Inverted Scale
inversed Scale
PER CENT
FER CENT
WEEKLY. Saturday Quotations
22
DAILY
2.2
28
2.4
Long Term Treasury" (12 years ar more de contrast eall more/
2.4
2.4
2.6
2.6
2.6
26
Long Term
2.8
2:8
Treasury
3.0
3.0
3.0
"
3.2
3.2
Corporate
Corporatas
14
3.4
3.4
3.6
3.6
3.6
3.8
3.8
3.8
40
4.0
4.0
PER
PER
CENT
PER
CENT
CENT
100
1.00
1.00
so
60
.80
Spread Between Long Term
Treasury and Corporate*
Spread
.60
60
60
40
40
40
20
20
20
e
0
.
.
-
x
-
HE
-
.
=
#
is
0
JAN - - Fts to MAS " a APR 1.8 a MAY " JUNE - JULY - - AUG. - EF SEPT. - - . OCT. = NOV - DEC IF H JAN - - FEB II as MAR " a - APR. u * MAY - JUNE in JULY is " AUG 18 - SEPT. @ OCT. - NOV. . DEC.
F
OCT.
NOV.
=
DEC.
1939
1939
1938
# time indicates change - composition of Long Term Treasury average
Regraded Unclassified
Office # the the Treasury
INTEREST BEARING PUBLIC DEBT - NOV. 30. 1939
Daily Treasury Statement Basis
Adjusted to give effect to the new issue to be dated Dec a 1939
DOLLARS
DOLLARS
Billions
Billions
Amount Due or First Becoming Callable
By Calendar Years
4
4
Bills
Notes
Bonds
3
3
2
2
-
0
0
'40
42
44
46
48
'50
52
54
56
'58
60
'62
64
66
68
70
DOLLARS
DOLLARS
Billions
Billions
Amount Maturing
By Calendar Years
4
4
3
3
2
2
I
I
0
o
40
46
48
'50
'52
54
56
'58
60
'62
64
66
68
70
42
44
Excluding (i) Postal Savings Bonds: (2) US Sovings Bonds: (3) Adjusted Service
Bonds (4) Special issues to Government Agencies and Trust Funds
B-43-C-1
- of the Sentary of - Transpy
- di - - -
C8
Regraded Unclassif
YIELDS OF TREASURY BONDS AND NOTES DEC. 9. 1939
CS
Based on Closing Prices
1940
1942
1944
1946
1948
1950
1952
1934
1986
1956
1960
1962
1964
1966
1968
1970
PER
PER
CENT
CENT
2.75
2.76
250
2,86
2.36
2.39
141
2.60
2.25
2.25
in x Dec. 16, 1943 140/
or &
ik x Dec A. 1992 #233
de & June a me in
1% Mar a 1944 ten
& x June the 416
27.2
187
1.97
BAY
200
200
Notes
D
all
1.76
1.67
175
de X June N. 1941 #504
is AX Dec 1941 8204
de Mar 1942 1424
2X Suri. 18. 1442 1142
LTP
o
457
LES
o
(A)
LAI
o
1.50
1,25
de % June ETAR
N Dec 16 redo 8787
x Mar rev 8677
121
NM
I.M
and
120
1.25
:
2% Due AS. 44-30 $371
as 55 YY - KX 66 45
14 dept. 18, 80-10
an AL Sept./E - #755
2% Mar NE 33-90
2%. x Sept. 15, 36-19 2982
in June is - -- ENT
iss x Dati AR, ao M 61495
1.78
1.50
de N. Mar MI. revid 81378
I * a I
. Notes
1.00
100
42
"
75
so
If
47
25
02
2
or
as x Apr. nc - BLAN
** Dear AM - 81007
25% Reget 46-47 BLIM
24 * on /WL 1945 1041
des Man AE
1% June a - BLON
11-th : of I 2
44 X Des. ALL - END
2x Dec NE, 1947 #701
alex Mer. All w-s/ BLEAD
4XN Supe. (&, 1948 8451
e Bonds with no cell period
.75
o Bonde with cell period
Arraws to - line indicite
50
negative yrald
Bonds
25
o
o
LIS
DI
DOLLARS
DOLLARS
iss June NL, 43-97 dase
Millions
Millions
J4g N° June AM. wo VO-17 rai
IN 3 INS Mar 18. vo wa BENE
ax Aug (119) 1004
Amount Outstanding
3,500
3500
3,000
3000
we - Det.16 -
Notes
Bonds
2,500
2500
2000
2,000
1,500
1,500
1,000
1000
500
500
o
o
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1940
1942
1946
1946
1948
1950
Mide For bonde, ore computed to, and - platted as of. are cell survez data if are che fisted band - by willing eye above per
und celleble of the final your maturity data if the band is selling before par. The smooth
Ballar leaves for amounts which an exchange offer has been made and how expired ore excluded
or shown in descriptions of javes are in millions
Regraded Unclassified
COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM U.S. TREASURY
70
AND AVERAGE OF HIGH GRADE CORPORATE BONDS
1956
JAN.
FEB.
MAR
APR
MAY
JUNE
JAY
AUG.
SEPT.
1939
1939
OCT.
NOV.
DEC
JAN
-
FEE
MAR
APR.
MAY
-
JUNE
-
JULY
AUG
SEPT.
OCT.
NOV
DEC.
OCT
NOV,
DEC
-
"
-
"
.
H
.
a
.
"
a
⑉
14
as
is
.
e
is
I
inversed Scale
Inverted Scole
inversed Scale
PER CENT
PER CENT
MEE CENT
WEEKLY, Saturday Quotations
DAILY
2.2
22
2.2
24
Long Term Treasury" (10 years if - la service call data)
24
1.4
26
2.6
2.6
Long Term
28
2.0
2.8
Treasury
3.0
3.0
3.0
3.2
3.2
3.2
Corporates
Corporate
3.4
3.4
14
3.6
3.6
1.6
3.8
3.8
18
4.0
4.0
4.0
PER
PER
PER
CENT
CENT
CENT
1.00
1.00
1.00
.80
.80
80
Spread Between Long Term
Spread
Treasury and Corporate*
60
60
60
40
40
40
20
20
20
o
is
-
-
a
=
.
-
-
=
1
-
21
:
-
Il
-
18
#
=
30
o
-
o
-
as
-
=
-
=
*
-
-
if
OCT.
NOV
DEC.
OCT.
NOV.
DEC.
=
.
-
#
-
I
-
-
-
#
4
is
"
-
is
"
.
I
-
.
=
If
-
-
NOV
DEC
JAN
FEB
MAR.
APR
MAY
JUNE
JULY
AUG
SEPT
1939
JAN
FEB
MAR
APR
MAY
JUNE
JULY
AUG.
SEPT.
OCT.
1939
1938
"Breal - - - change - composition of Long Term Pressury average.
Regraded Unclassified
Mice di the how) # the Transury
INTEREST BEARING PUBLIC DEBT - NOV. 30. 1939
Daily Treasury Statement Basis
Adjusted to give effect to the new issue to be dated Dac a 1939
DOLLARS
DOLLARS
Billions
Billions
Amount Due or First Becoming Callable
By Calendar Years
4
4
Bills
N
Notes
Bonds
3
3
2
2
I
I
0
'40
42
44
46
48
0
50
52
54
'56
SB
09.
62
64
66
68
OL,
DOLLARS
DOLLARS
Billions
Billions
Amount Maturing
By Calendar Years
4
4
3
3
2
2
I
I
0
0
'40
42
44
46
'48
'50
'52
54
56
'58
60
62
'64
99.
68
70
Excluding (/) Postal Savings Bonds (2) U.S. Savings Bonds: (3) Adjusted Service
Bonds (4) Special issues to Government Agencies and Trust Funds
Min - The Secretary of the Transy
B-43-C-1
- - - Ima
Regraded Unclassified
YIELDS OF TREASURY BONDS AND NOTES DEC. 9. 1939
72
Based on Closing Prices
1940
1442
1944
1946
1948
1980
PER
1962
1964
1988
1960
1962
Issue
1944
ISSS
1970
CENT
PER
CENT
2.75
2.76
250
P 2.84 024
MZ
2.39
147
260
2.25
212
225
de X Dec 15. 1942 ####
12 A an June AL no SAFE
is x Dez. /a. 1942 1401
A = June 1944 / 4/6
2.10
APP
34 Mar non
4.87
:
20
2.00
Notes
A&7
1.77
o
200
NY
1.75
dex June 15. /M/ #604
AN ax Dec. /H/ #204
de % Mar 1942 8420
2% Sept. 18. 1942 INC
o
:
any
o
FFT
$
o
1.50
1.25
de Mar 15. 1940 81378
125 x June 18. 1940 6738
de x Dec 1940 #787
x Mar /M/ Mor.18,1941 #677
B/Y
1.30
1.50
1.22
1.00
*** Dept. 15, 1048 #451
2% Dec 15. WA-30 1971
! - XX & 92 Des. in
66 NOT I
24 * daps AB, 150-12 ELISO
24% - ML W-W BLAZZ
as Suit. Y/W 6758
is N. Men AL ---- 82.611
2% x Sept. no. 4d 1982
*** x June AR, - w-w 2100
x inx Dec no. so 8(405
1.75
1.25
1.00
:
.
Notes
1.00
62
73
75
a
50
Arrows to zero line indicate
.50
ss
47
25
oz
2
0
04
DOLLARS
Millions
2% x June AN, 43-47 páse
tax April AS, ELEIN
/ sux Regre 15, 46-47 BceM
2% Dec. AB, PHINE 8641
sign 1 March
an June 0.46-40 BLOOD
we auny
44 Der. N. NO- SF 6789
** 2x Dec. no. 1947 #701
aNx Mor --- #1228
Bonds with no call period
.78
o Bonds with cell period
negotive yield
Bonds
-
4% Dec. 14-14 BLOST
25
o
DOLLARS
Millions
- Oct.18. wa-ve
Amount Outstanding
3,500
3500
3000
2500
3 9 = x 1
th N Mar 15. - ###5
ass 1,1941 1004
3,000
Notes
Bonde
2,500
2,000
2,000
1,500
1.500
1,000
1000
500
500
o
o
1950
1952
1954
1956
1958
1980
1952
1964
1986
1968
1970
1940
1942
1944
1946
1948
Note: are computed to, and /REURE p/otted de of, the earliest cell curves date if are the fitted band - AV selling aye. above pan
For and callable os of bonds. the final yolde maturity date if the band a selling below par The smooth
Dellar lesues for amounts which en exchange offer has been made and has expired are excluded
shown in descriptions of jesues are in millions.
Regraded Unclassified
COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM U.S. TREASURY
73
AND AVERAGE OF HIGH GRADE CORPORATE BONDS
1938
inverted Scale
JAN e FEB. MAR APR = MAY JUNE - JULY AUG. " SEPT. - OCT NOV. DEC JAN - a FEE " MAR. N APR. 13. MAY - JUNE # 1939 JULY - " AUG - is SEPT. OCT NOV. DEC
1939
OCT.
NOV
DEC.
n
.
PER CENT
I
BY
19
-
a
-
1
Inverted Scale
Inverted Scale
PER CENT
PER CENT
WEEKLY. Saturday Quotations
22
DAILY
2.2
22
2.4
Long Term Treasury" (M years or more to partiest cell note)
2.4
2.4
2.6
2.6
2.6
2.5
2.0
Long Term
2.0
Treasury
3.0
3.0
3.0
12
3.2
3.2
Corporates
Corporate
14
3.4
3.4
1.6
3.6
3.6
3.8
3.6
3.8
40
4.0
4.0
PER
PER
PER
CENT
CENT
CENT
1.00
1.00
1,00
.80
.80
.80
Spread Between Long Term
Treasury and Corporate
Spread
60
60
60
40
40
40
20
20
20
o
#
as
HE
"
24
-
-
If
o
#
as
et
a
JAN - FEB. . 14 MAR a APR is MAY " JUNE - JULY - - AUS a " SEPT. - - . OCT. = NOV - . DEC If " JAN - - FEB " " MAR - ⑉ APR or MAY - , JUNE If JULY - H AUG - " SEPT B OCT. - MOV * DEC.
OCT.
NOV.
DEC.
1939
1939
1938
"dreat - line indicates change - rempension - Larry farm Treasury average
PRICE
-
-
-
Regraded Unclassified
INTEREST BEARING PUBLIC DEBT - NOV. 30.1939
Daily Treasury Statement Basis
Adjusted to give effect to the new ISSUE to be dated Dec 8 1939
DOLLARS
DOLLARS
Billions
Billions
Amount Due or First Becoming Callable
By Calendar Years
4
4
Bills
/
Notes
Bonds
3
3
2
2
I
I
0
o
42
44
'46
48
50
52
54
56
'58
60
62
64
66
68
70
'40
DOLLARS
DOLLARS
Billions
Billions
Amount Maturing
By Calendar Years
4
4
3
3
2
2
I
I
o
o
'40
42
'44
'46
48
'50
52
54
56
58
60
62
64
'66
68
70
Excluding (/) Postol Savings Bonds: (2) U.S. Savings Bonds: (3) Adjusted Service
Bands: (4) Special issues to Government Agencies and Trust Funds
Office of the Secretary of the Transary
- - - - -
Regraded Unclassified
75
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE Dec. 6, 1939.
TO
Secretary Morgenthau
FROM
Mr. Haae
Subject: An Important Technical Consideration in Connection
with the Refunding of the March Notes
It is emphasized in the accompanying "setting" memorandum
that the most important holders of the March notes are commer-
cial banke, and that many of these banks do not desire long-
term bonds at the present time as B. permanent addition to
their portfolios.
It is also pointed out that 55 percent of these notes were
originally issued in exchange for First Liberty 3-1/2's -- an
lasue which, at the time of its call, was largely held by
wealthy individuals because of its complete tax-exemption
feature. A much larger than usual portion of the "rights" may,
therefore, be held on the present occasion by wealthy indivi-
duals who originally acquired them in this manner. Such in-
dividuals are not likely to be interested in acquiring B par-
tially tax-exempt security such as a Treasury bond for permanent
holding, irrespective of maturity.
These considerations suggest that, if a predominant pro-
portion of the original exchanges should go into a long-term
bond, a great deal of secondary distribution might be required;
and that even a medium-term bond might require in this instance
E more than usual amount of such distribution.
A two- or three-way exchange offering of the ordinary sort
18 very apt to result in just such a lopsided distribution, even
if a conscious effort 1e made to avoid 1t. This 1s because the
premium on a note can be cut shorter than that on a medium-term
bond, and that on B. medium-term bond shorter than that on 8 long-
term bond, with an equal degree of safety. If this 10 done --
and it 18 difficult to avoid it -- the banks, and, to a lesser
extent, the wealthy individual holders, will "go" for the big
premium, irrespective of their intentions with respect to per-
manent holding. In this way the market might be placed in 8. very
vulnerable position technically.
The Treasury, in brief, is in the anomalous position that
the holders of rights -- who, for the moet part, have no interest
in acquiring long-term bonds for permanent holding -- stand be-
tween it and the real long-term bond market.
Regraded Unclassified
76
Secretary Morgenthau - 2
It is suggested &8 B means of avoiding this difficulty, at
least in large part, that we might explore the possibility of
making the exchange offering in fixed proportions, say, one-
third notes, one-third medium-term bonds, and one-third long-
term bonds -- or, one-third notes and two-thirds medium-long
bonds. If this were done, commercial banks as B. class would
tend to retain permanently their allotments of notes and medium-
term bonds, while wealthy individuals would tend to retain per-
manently their allotments of (fully tax-exempt) notes. The re-
quired amount of secondary distribution might be substantially
reduced in this manner, and the market 80 placed in a stronger
technical position.
It 16 true, of course, that in certain cases some secondary
distribution would be required under thie plan which would not
otherwise have been necessary, because some individuals would be
"forced" by the arbitrary allotment to accept securities which
they did not desire. It is not likely, however, that the secon-
dary distribution 80 made necessary would be an important offset
to that avoided. This is because the classes of investors who
would be most likely to offer their shorter-term securities for
secondary distribution -- insurance companies, for example --
hold relatively few rights.
The factor of safety on & "fixed package" offering of the
type suggested would, of course, be determined by the composite
premium on the combination of securities offered, and could be
adjusted somewhat more easily than that on an offering of the
usual sort. The larger the proportion of this "composite" pre-
mium which was apportioned to the shorter securities, the greater
would be the factor of safety for the entire offering on original
issuance -- but the greater also would be the possibility of the
long-term bond going below par in the event of a subsequent gen-
cral market decline.
The suggested procedure appears to have sufficient a priori
merit to warrant an inquiry into the likely market reaction
which it would arouse. While it 18 without precedent (at least
since the World War) for an exchange offering in the case of B.
direct security, it has a recent precedent in that of a guaranteed
security. This precedent 1s in connection with the HOLO 1-1/2 per-
cent bonds which matured on June 1 of this year. The holders of
these bonds were given the privilege of exchanging them in the
fixed ratio of 40 percent in new 1-year 3/8 percent bonds and
60 percent in new 2-year 5/8 percent bonds. This division -
which met the requirements of the HOLC much better than they could
have been met by a haphazard exchange determined by the relative
77
Secretary Morgenthau - 3
pricing of the two maturities - seems to have been well received
by the market. It should be pointed out, however, that the
present proposal - involving as it does a much wider spread of
maturities -- might meet with some adverse oriticism not fore-
shadowed by this relatively slender precedent.
Br227
78
December 6, 1939
Lunch with Harold Hochschild.
Told him what I had in mind about molybdenum.
He showed me a telegram from Mr. Beattie, in England,
one of his principal stockholders in Climax Molybde-
num, suggesting they stop selling Russia any more
molybdenum.
Their contract with Amtorg expires the end of
this year and on Friday he plans to take it up with
his Board of Directors and suggest that they do not
enter into another contract with Russia for the sale
of any molybdenum, He says he will be very glad to
do this, simply as 8 result of my conversation.
He 18 also going to talk with the President of
Kennecott, who produces about 4,000,000 pounds a year,
and ask them if they will do the same.
He pointed out to me that they make considerable
sales to Japan and if we make a similar request on
Japan they will be glad to take it up with the Board.
I then told him that I would take it up with
the English and the French and ask them whether they
could not increase their purchases of molybdenum,
based on the telegram that I got from Bullitt about
the 16th from Bullitt, where Professor Rist said
molybdenum was the one thing that Germany needed more
than anything else that we could stop her from getting.
I also told him that we would see whether we
could buy any molybdenum as a war stock for our own
Government. My understanding with Hochschild was
that this was not to be quid pro quo and that he would
go ahead independently, and he agreed to that.
Regraded Unclassified
79
PARAPHRASE OF TELEGRAM REGEIVED
FROM: American Embasey, Paris
DATE: November 13, 1939, 9 p.m.
NO.1 2742.
PERSONAL AND STRICTLY CONFIDENTIAL FOR THE
DEGRETARY AND THE SECRETARY OF THE TREASURY.
Our no. 2736, November 13, 3 p.m.
Matthews was informed last evening by Rist that
there WAS one rulnerable spot in the German araor-
molybdenum. Rist said be understood molybdemum to
be essential to the manufacture of armarents and
shells. Na also understood that although 12 is to
be presumed that Germany has sufficient stock to
need present needs it cannot last forever. He said
that the United States produces far more than any
other country in the world (approximately 92.8 percent
of world production for 1938; 85 percent of this
was produced by (7) nolybdenum company - Minerals
Year Book, 1939).
The French blockade authorities have had recent
information that Russia 10 making preparations for
near-future purchases from us of substantial amounts
for transshipment to Germany (secording to the Year
Book ve export from 50 to 96 percent of production
ansually, although there is no separate classification
for this in our trade statistics). He wondered
whether the United States needs of nolybdeam for
national
Regraded Unclassified
80
s 1 I I i I I
require exports of this metals of -
be greatly hoped that this vould be the case.)
Net - that France might also be in meed of
emplies of nolybdomen which wight possibly be purchase&
1 1 programs I I INC i
Maxico, Marresse and Notring in the order of their
apportunce.) He stated that in any event 10 would be
impossible for his to overestimate the importance
from the standpoint of the allies of preventing arrival of
aslystenes in Germany. He further stated (as in
1ª
telegram zon, October 24, 6 p.m.) that fats, oils
and forege likewise are recognized weaknesses in the
war commany of Germany and be heped only small.
ensure of these materials would reach Germany. IND RESSAGE
BULLITT
BEOEI AED
BECEIAED
1338 11 von
eeer 11 you
to golatviCI
VISTONOM
ТИЗМТНАЯЗО YRUSA3HT
adt to abiliO
remost all at united
SAIN no
BKZZ7
81
December 6. 1939.
My dear Mr. Secretary:
I have created an informal committee to represent the
American Government in its contacts with the interested
foreign governments in all matters relating to the purchase
of var materials in the United States. consisting of the
following:
(a) The Director of Procurement. Treasury
Department: (b) The Quartermaster General of the
Aray: (e) The Paymeter General of the Navy.
This committee will serve as the exclusive liaison with
reference to procurement matters between this Government and the
interested foreign governments. It will hold sessions at least
once weekly, and at such more frequent intervals as may be
necessary. At these sessions, it will receive an accredited
representative of the embassy of any interested foreign govern-
sent for the purpose of giving consideration to the requirements
of such government for supplies. equipment. and materials. in
relation to: (a) availability of the desired articles. (b)
priorities. and (e) prices. The committee will submit a
complete report of its proceedings acts and recommendations,
at least weekly. to the President through Mr. MaReynelds.
The Secretary of State has informed the British and
Branch Ambassadore of this arrangement.
will you please inform the Quartermaster General of his
designation as a nember of this committee.
Sincerely,
Signed by Presedent
The Nonorable.
The Secretary of Sar.
Regraded Unclassified
82
December 6, 1939.
My dear Mr. Secretary
I have created an informal committee to represent the
American Government in its contacts with the interested
foreign governments in all matters relating to the purchase
of was materials in the United States, consisting of the
following:
(a) The Director of Procurement, Treasury
Department: (b) The Quarternator General of the
Army: (s) The Paymaster General of the Navy.
This committee will serve as the exclusive lieison with
reference to procurement matters between this Government and
the interested foreign governments. It will hold sessions
at least once weekly. and at such more frequent intervals as
may be necessary. At these sessions, it will receive an
accredited representative of the embasey of any interested
foreign government for the purpose of giving consideration to
the requirements of such government for supplies, equipment,
and materials, in relation to: (a) availability of the desired
articles, (b) priorities. and (e) prices. The committee will
submit a complete report of its proceedings, note and recom-
mendations. at least weekly. to the President through
Mr. McReynolds.
The Secretary of State has informed the British and French
Ambassadore of this arrangement.
will you please inform the Paymeter General of his
designation as a nember of this committee.
Sincerely,
Signed
An. Charles Edison,
Assing Secretary of Mary.
Regraded Unclassified
83
Regraded Unclassifie
December 6. 1939.
My dear Mr. Secretary:
I have created an informal committee to represent the
American Government in its contacts with the interested
foreign governments in all matters relating to the purchase
of may materials in the United States, consisting of the
following:
(a) The Director of Procurement, Treasury
Department: (b) The Quartermaster General of the
Areg't (e) The Paymaster General of the Havy.
This committee will serve as the exclusive lisison with
reference to procurement matters between this Government and
the interested foreign governments. It will hold sessions
at least once weekly, and at such nore frequent intervals M
may be necessary. As these sessions, it will receive an
accredited representative of the embassy of my interested
foreign government for the purpose of giving consideration to
the requirements of such government for supplies, equipment,
and materials, in relation to: (a) availability of the desired
articles, (b) pricrities, and (e) prices. The committee will
submit a complete report of its proceedings. acts and reser-
mentations, at least weekly, to the President through
Mr. Molleynolds.
The Secretary of State has informed the British and French
Ambassadors of this arrangament.
will you please inform the Director of Procurement of his
designation as & member of this committee and ask him to serve
as its chairman.
Sincerely,
Signes by Presedent
! he Monorable.
The Secretary of treasury.
ADDITION OFFICIAL COMMINICATIONS TO
THE SECRETARY OF STATE
di di I
84
DEPARTMENT OF STATE
WASHINGTON
December 5, 1939.
My dear Mr. Secretary:
I submitted to the President today the question
of the most satisfactory means and methods of contact
between the purchasing missions which are being created
in this country by foreign governments, and the American
Government. In doing 80 I called to his attention the
suggestion put forward by you in your memorandum of
November 10.
He has approved the creation of the committee
therein suggested, to report to him through Mr.
McReynolds.
The French and British Embassies have been accordingly
informed today, and I am attaching copies of the memoranda
given to them.
The matter of the selection of the chairmanship of the
committee and the despatch of the necessary letters asking
these officers to assume these duties requires attention
and I shall consult you about it today.
Enclosures:
Memoranda.
I Sincerely yours, Alls
The Honorable
Henry Morgenthau, Jr.,
Secretary of the Treasury.
85
December 4, 1939.
MEMORANDUM TO THE BRITISH anrassador
In discussion with the Under Secretary on November
30, the British Ambassador inquired as to the manner in
which contact should be established between the Angle-
French Purchasing Board in the United States and the
authorities of the United States Government to avoid any
unnecessary disturbance to the American economy. This
Government plans to set up in the very near future an
informal committee made up of representatives of the
Treasury, War and Navy Departments, which committee will
report directly to the President through his Administra-
tive Assistant, Mr. MaReynolds. When established, this
committee will be glad to discuss with the Anglo-French
Purchasing Mission any questions which involve inter-
ference with the purchases to be made by the Government
of the United States in connection with its preparedness
program, any questions which involve priorities, and any
questions cognate to the question of fair prices and which
thus affect the internal economy of the United States.
EA:HF:EB
MEMORANDUM
Responsive to the inquiry contained in the French
Embassy's memorandum of Desember 2, 1939 all to the method
by which the American Government wishes to cotablish -
tast between itself and the Anglo-French Purchasing Mission,
the Embassy is informed that this Government proposes to
establish in the very near future an informal committee
made up of representatives of the Treasury, the was Depart-
ment and the Havy Department, which committee will report
directly to the President through his Administrative
Assistant, Mr. MeReynolds. When established, this -
mittee will be glad to discuss with the Anglo-French Pur-
chasing Mission any questions which involve interference
with the purchases to be made by the Government of the
United States in connection with its preparedness program,
any questions which involve priorities, and any questions
cognate to the question of fair prices end which thus
affoot the internal economy of the United States.
Department of State,
Washington,
U:SW:IJ 12/4 December 5, 1939.
Regraded Unclassified
Bx227
87
RE CLOSING AGREEMENTS
December 6, 1939.
11:00 a.m.
Present:
Mr. Irey
Mr. Foley
Mr. Helvering
Mr. Kades
Mr. Sullivan
Mr. Edison
Mr. McLaine
Admiral Furlong
Captain Kraus
Mr. Speer
Edison:
I think the quickest way to crystallize this thing
is to mention one problem and then see where we
stand on that. Perhaps that will bring out the
points on the others.
Now, here is what the problem is that we have had.
We are very anxious to quickly build up some small
boats for harbor and coastal defense, because in
the last war we had to make very quick use of a
lot of yachts and pleasure boats and one thing or
another, so we have been experimenting both with
American design and with an English design of boat.
The English design is all finished, the boat is
ready. The American designs are still in the
process of building and are purely experimental.
We don't know yet what they will do. We hope they
will beat the English design, but still we can get
that and we have been turning on all the heat to
get it quickly.
We made a deal with the Electric Boat Company which
Mr. Sutphen represents here today to fabricate some
of these boats.
H.M.Jr:
He has gotten so handsome as he gets older that I
didn't recognize him.
Sutphen:
We used to talk boats.
H.M.Jr:
He is an old pal of my father's, is that right?
Sutphen:
That is right.
H.M.Jr:
He is so handsome I didn't recognize him.
88
- 2 -
Edison:
Well, incidentally, he is one firm - the Electric
Boat Company - that has been actually sending
checks back on the Vinson-Trammell Act and he did
it without waiting for the order - without its
being pulled away from him, so the reluctance
against paying anything back on the Vinson-Trammell
Act has not existed in the case of the Electric
Boat Company.
Sutphen:
Thank you.
Edison:
But we made this arrangement. We have these boats
over here and we have been trying to get them
tested and we tried to obtain 23 or 24 boats as
rapidly as possible, because we want to get a
group of them to try out practically, for one thing
as B. group, then we also wanted to develop B method
of building them in quantity production, wanted to
develop a factory unit that can turn them out, not
only those boats but other boats too. So, as I say,
we have been turning the heat on in every direction
to get this thing closed up fast.
In order to make these boats cheap and fast and to
develop this technique of quantity production, they
have to build an addition to the plant at Bayonne
at a cost of some $600,000, which is going to be
built solely for this purpose and is not needed by
the Electric Boat Company for any business they
may get in Bayonne and it is really a unit solely
for this purpose, to give us the kind of unit we
want and to build these boats.
The only thing left now, in the negotiations, except
actually signing the contract, is the question of
whether all or any part of this $600,000 will be
granted to them 8.8 a part of the cost in a closing
agreement such as we discussed previously. Now,
that 1s the problem and the answer to that, I think,
will bring out the points that we want to discuss.
H.M.Jr:
Well now, Guy, who do you want to talk - Mr. Edison
suggested we use this as a formula and explain to
them what the President's provision is on depre-
ciation. Do you want to do it or do you want some-
body
Regraded Unclassified
89
- 3 -
Helvering: You mean relative to this contract?
H.M.Jr:
Let's use this as an example. Mr. Edison wants
to use this one.
Edison:
In other words, we have a different case in
Aeronautics, but we have an exactly similar case
in ordinance.
Helvering:
Well, on this particular case, we have no informa-
tion at all on the Bureau except what was handed
us this morning.
H.M.Jr:
Well, as you fellows can think fast, ask Mr. Sutphen
any questions. Let's just develop for Mr. Edison
what we would do. Let's find out what he wants
and just go through the motions and use this as an
example. Ask him what he is going to do, and so
forth, and give him an approximate ruling on how
we would handle it, that is what Mr. Edison wants
and that is what I would like.
Edison:
I was under the impression
H.M.Jr:
I think you said that you had been at this, hadn't
you - wasn't this the one you said you had been
waiting for weeks or months on?
Sutphen:
It has been a year, I think.
H.M.Jr:
Mr. Helvering says he got the first thing on it
this morning. Let's call 8. spade a spade, see,
so we find out where we are wrong and if, by any
chance, the Navy is wrong.
Helvering:
I will correct that to this effect, that the
gentleman called yesterday but the only written
statement is what we received this morning.
H.M.Jr:
Did you get that, Charlie?
Helvering:
I haven't even read that. It was given to me
since I came here.
H.M.Jr:
It is a compliment to us. They think that we can
look in the stars and get the answer, but anyway
30
- 4 -
Edison:
I understood from the talk we had the other day
and from this letter, that all closing agreements
were out.
H.M.Jr:
No.
Edison:
Then I have got the wrong impression.
Foley:
Mr. Secretary, I was handed this as I came in the
door, too. From just glancing at it, this 1s the
seme situation as the Consolidated. There is a
conditional bid submitted to the Navy based upon
a closing agreement being entered into with the
taxpayer by the Treasury.
H.M.Jr:
Sit up next to Mr. Edison, will you, Ed?
Foley:
This was just handed to me as I came in the door
and as I read it this situation is practically the
same as the Consolidated case upon which the letter
was written the other day that you have reference
to now. In other words, there 1s a bid conditioned
upon $600,000 being written off. That $600,000
is the cost of the plant?
Foley:
That is right.
E.M.Jr:
Do you want to write off the whole business?
Sutphen:
What we asked for was whether we would have the
privilege of writing off one half of it.
H.M.Jr:
Do you mind my interrupting you a minute? Nobody
here in the Treasury has had a chance to read this
thing. Could Mr. Sutphen state what the proposal
is and then one of my people will tell you what
we can or cannot do. How would that be? It gives
us a chance to do our homework in the open. What
is the proposal, Mr. Sutphen?
Sutphen:
Well now, Mr. Secretary, I appreciate the fact
that your department hasn't seen this, but
during the period of negotiating the matters
with the Navy, it has been discussed time and
again how we would prepare to build these units.
In other words, it is not an ordinary boat
building job, it is half airplane and half boat.
Regraded Unclassified
91
- 5 -
They are equipped with over 3,000 horsepower
and I went to England at the request of the
Secretary and acquired this boat over there
for the Navy's account and offered my services
gratis for all of them. When we decided on
the proposal of the type of boat they would
want - they want to duplicate the British boat
completely and the President has also had con-
ferences with us. I met the President over this
with the Secretary within the last six weeks.
The President's remarks to me - he said, "How
are we going to take care of an emergency of
the boat builders, small firms all over the
country?" He had gone through in the last war
the building of 110-footers and I had preceded
him by building for England and France some
580 to 600-foot boats before we entered the
war, so the President and I understand this
small boat problem of production and quantity.
I said, "Mr. President, if the Department sees
its way clear, we have in mind building a separate
unit." We have at Bayonne now B. plant where we
build cruisers, and the Secretary knows it. We
have been there for forty years. But this is a
secret job in a way. The Department wants to
keep all this job more or less 8. secret and I
strongly urge that. To mix it up in our own plan,
take part of one building and part of another,
it wasn't practical. There has never been, I
don't believe, in the history of the United States,
a really planned boat building plant ahead of
production and this is what we are trying to do
here, plan it in advance and make it economical
as a building unit and to build expeditiously.
The President said, "How am I going to take care
of these other builders in case of emergency?"
I said, "We have thought that out. We can sub-
license them under our agreement with this English
firm and we can fabricate in this building probably
faster than they can assemble in these smaller
yards." He said, "I am perfectly satisfied, but
I just wanted you to bear in mind I want the
facilities, if we go into this thing, so we can
reproduce fast."
92
- 6 -
Well, I think we have got kind of a reputation
in the last war of reproducing things when we
built 150 ships at Newark, a complete ship every
three days.
H.M.Jr:
May I interrupt you?
Sutphen:
Yes.
H.M.Jr:
Do you mind - get right down - let's get down
to this thing.
Sutphen:
The point is this, Mr. Secretary, that I figure -
and I made my bld conditional, that this plant
unit would cost $600,000. We asked that we be
permitted to charge off at least one-half of that
amount on account of building these boats under
this contract. Re don't know what the boats will
cost, no one knows. We hope, though, that we can
clear ourselves and write that off so that in the
future we can make better prices to the Navy or
to the Coast Guard, whoever wants to use the
facilities.
H.M.Jr:
You want to build a building to cost $600,000 and
you want to write off half of it - how quickly?
Sutphen:
Within the next two years, during the life of
these two contracts.
H.M.Jr:
That is the proposal?
Sutphen:
Yes, sir.
H.M.Jr:
Now, can you (Foley) or the Commissioner - we can
answer very easily what we can or cannot do. Now,
Mr. Helvering or Mr. Foley, who will answer that?
Helvering: Well, our depreciation rates on buildings, of course,
are very well established. Upon the proper certi-
fication of the Navy that this building will be
used for this purpose only, and that the use - at
the end of the useful period it will either become
the property of the United States or will be con-
tinued in other contracts - we only allow one hundred
percent depreciation.
93
- 7 -
It doesn't matter so much to us whether it is
written off in two years or four years.
H.M.Jr:
One hundred percent depreciation?
Helvering: That is all we can take on this building. As
far B.S we are concerned, it doesn't matter so
much how much of that goes in, but It is in-
conceivable that 50 percent of it will depre-
ciate in one year, that the use of it would
be 50 percent gone in one year, because I have
an idea this is a firm, substantial building.
Sutphen:
Oh yes, the Austin people would construct it.
It is very similar to an airplane plant in the
details of construction.
H.M.Jr:
This isn't any different than the Consolidated?
Foley:
No, this is the same as the Consolidated, Mr.
Secretary.
Edison:
Yes, but in the case of the Consolidated, they
wanted us to advance the money to build the plant.
In this case, he is going to build the plant and
all that but he merely says, "Please let me, in
figuring the profit on this thing for Vinson-Trammell
business, I would like to know now that I can put
half of that in the cost before you make me turn
some money back."
This isn't & question of financing in advance like
it is in the Consolidated.
Foley:
No, but in so far as our problem is concerned, the
use of the closing agreement to determine in advance
the rate of depreciation of this plant construction,
it is the same problem as we had in Consolidated
and from our point of view it doesn't represent
any different kind of a tax problem than Consolidated
did. Where we are talking about jige and dies and
tools, and equipment of that character that is
acquired especially for the contract and won't be
used except on that contract and it is reasonable
to assume when the contract is completed that it
won't be usable again, we can agree now as to what
he would be entitled to at the completion of the
94
- 8 -
contract in 50 far as the write-off of the cost
of that kind of equipment, but where we are
talking about writing off the cost of a building,
and what that building can be used for and what
its value is at the end of this contract, we are
in the realm of conjecture and we are just guessing
and I don't think we can safely use the closing
agreement to tell now what the value of this
building is going to be, either in two years or
three years or four years. We will be perfectly
willing to sit down with Mr. Sutphen at that time
and determine what depreciation he can take in
30 far as profit under the Vinson-Trammell Act
is concerned and in so far as his tax problem
is concerned, but how we can do that now, when
we have no facts upon which to go, is something
that I think is unreasonable for them
Edison:
Is it B matter of law or B. matter of policy?
Foley:
I think it is a mixed matter of law and policy.
Sullivan:
We are bound by reasonableness anyway.
S.N.Jr:
May I just try to be helpful? The President was
in complete sympathy on our turning down the Con-
solidated boat thing because it hinged on a write-
off on the building, you see, irrespective of
where the money came from. If this thing is on
a building, we can't do anything, but now let me
make a suggestion. In contemplating the con-
struction of these boats, are you going to put in
any special machinery?
Sutphen:
No, just ordinary woodworking machinery.
H.M.Jr:
You see, in the case of the Colt Arms, there they
had to put in a lot of special jigs and dies which
would only be used for the production of this
particular gun, couldn't be used for anything else
but that one gun and the Army certified that those
jigs and dies would be completely used up and would
be useless at the end of the life of the contract.
Now, in that case we could go along and I am right
in saying that we permitted one hundred percent
depreciation, I believe. Is that right?
Regraded Unclassified
95
- 9 -
Foley:
That is right.
H.M.Jr:
On the Jiga and dies, and the production of this
gun, which could only be used - I mean this machinery
they put in could only produce that and nothing
else.
Foley:
And then there was a condition there that if that -
those same tools and machines were used on add1-
tional contracts, the cost of that wouldn't be in-
cluded in the bid.
H.M.Jr:
They wouldn't include the cost of the dies and jigs
twice. I am giving you this example to try to be
helpful. Mr. Edison wanted to know where the Navy
stood. Now, we can do something with you on special
machinery but on buildings, no.
Edison:
What I am trying to get in my head is, what stymies
you on building? I mean, If you have B. building
and it costs so much and you charge it all off in
ten minutes, I mean right on the first boat or right -
you make no profit but you make twice as much the
next year. I don't see why
H.M.Jr:
The point is this: The purpose of this meeting was
to try to explain our attitude. We don't consider
that we should give any special treatment to a
manufacturer who is manufacturing something for
armament purposes than we should to a manufacturer
who 1s manufacturing a dictaphone and the practice
of write-offs on buildings 13 something which goes
through the whole history of Internal Revenue and
our own factory - - I don't know what the write-off
is, but if you were going to build a new factory
to manufacture the new Ediphone and came in here
and sald, "We have got a brand new Ediphone and
we have got a wonderful market; we have got 100,000
sold, but we have got to build & new building, but
before we do it we want to know whether you will
let us write this thing off on this one order
which we have for 100,000 Ediphones. Will you - it
will take us three years to produce it, will you let
us write it off in three years? We have this order,
a firm order." Well, the answer would be no.
Mr. Edison, you go ahead and build your building,
and your building will be treated, depending upon
96
- 10 -
whether it is steel or whether it 1s concrete
or whether it is brick or whether it is wood,
depending upon the material. We will base our
write-off on what we think 18 the life of the
building. But you say, "Well, I don't want to
start on this thing, because here I have got
this wonderful order and I can complete it in
two years and I don't know whether I will get
another order, somebody will maybe get a better
machine than I." I would say, "I am very sorry,
Mr. Edison, all I can do is depending upon the
materials that go into this building; we will
tell you what the write-off will be and we will
give this to you in writing, but you have got
to go ahead." Now, whether the man who gives
you the order gives you the money or whether it
is out of your own treasury or whether you go
to the public has no bearing on the facts. Whether
the financing comes from any one place for that
building and whether you are manufacturing an
Ediphone or whether you are manufacturing some
electric device for a shell or a mine or some-
thing, or a boat, it wouldn't make a bit of dif-
ference. I want to explain our attitude. We
would treat you - we might even give you & little
bit more of a break, because we think that you are
manufacturing something for peacetime. We might
even give you a little bit of a break over this
fellow who is going to manufacture something for
war. You might get the edge on him.
Foley:
That is especially true, Mr. Secretary, when
Congress says that you can't make
H.M.Jr:
Does that explain it?
Edison:
It does, except that it isn't the case, I don't
think.
H.M.Jr:
Just a minute. Have I missed
Sullivan:
That is right.
H.M.Jr:
Is that right?
Sullivan:
Fine.
97
- 11 -
H.M.Jr:
Would I treat him that way 1f he was going to
put up B. new plant for this new Ediphone which
looks so pretty?
Sullivan:
I think you would have to.
H.M.Jr:
And I would give him the same treatment, depending
on the material that goes in the building?
Sullivan:
That is right.
Edison:
Let me ask you this: Suppose you were going to
build Boulder Dam and the contractor put in a
price and said, "I am going to take ten years to
build this thing," and the Government said, "No,
you build that in two years." Well, "In that
case, I will have to build a town and as soon
as the Dam is over, that town is just a desert
waste, It is no good.' The Government says,
"All right, I want your people properly housed
on this Dam and I want you to build it in two
years." He says, "Well, this town is going to
cost me 10 million dollars. I don't want the
town. It is no good to me. After it is built
it is worthless. Can I charge that into the cost?"
"No, those are buildings, you can't put that into
your cost."
"Well then, I don't want the contract."
Helvering: That very thing is already - that very thing you
mentioned, Boulder Dam, has been handled in the
Bureau, but it wasn't handled when they made the
contract. It was handled when they became obsolete,
just as we would do with Mr. Sutphen here if at
the end of two years this boat didn't prove to be
what you thought it would and there was no more
manufacturing on it, then this plant would become
obsolete and it would be charged off.
Sutphen:
Mr. Secretary, can I just bring up one point here?
I appreciate the difficulty and the die and tool
expense of a manufacturing plant where they have
to make something especially for the Army and the
Navy and where those tools wouldn't be used in
ordinary commercial work. In this plant unit,
we are trying not only to build the boats in a
SB
- 12 -
rapid time - one a week - but we have to lay
twelve boats down. The machinery is very simple
machinery, woodworking machinery, but the plant
is the tool that we want. In other words, to
have space to lay twelve of these boats down at
one time takes an enormous space, 420 feet long,
240 feet wide, headroom of 26 feet, and that is
the tool that we have to have for this special
work. It is a building tool, it is a plant tool.
It is not just a small tool but it is a special
tool.
Well, I am just trying to show you, Mr. Secretary,
that here is the program. We don't know whether
the Navy will want many of these boats or only a
few, We couldn't afford to go in and build our-
selves & plant of $600,000 for 23 boats. It
would just be improper. The Department wanted to
have me study that end just as the President did.
How can we insure ourselves that in case of emer-
gency - I said this is the first thing to do, to
build a plant and the plant is a tool. Imagine
the space
H.M.Jr:
Just a second - it is impossible. You can't sell
me the idea. You can't sell me & factory building
as a tool, not as long as I have got any gray
matter left.
Sutphen:
I am trying to illustrate
H.M.Jr:
No, it is 8 very pretty thought but I have got to
defend what I do here in the Treasury on the Hill
and for me to go up and explain that a factory
was a tool - I don't want to be laughed at.
Sutphen:
I wouldn't want to have you
H.M.Jr:
I just
Sutphen:
But you see my point, that we are trying to accomplish
here & rapidity of production.
H.M.Jr:
All right, but you can't use the Treasury as 8 device
to do something which we feel, and which the Presi-
dent is in complete sympathy with, that a
99
- 13 -
Foley:
That we can't do for anybody else.
H.M.Jr:
That we can't do for Mr. Edison or Mr. Smith or
Mr. Jones.
Sutphen:
That is right.
H.M.Jr:
And the policy is that anything we are going to
do we are going to make public, and I, personally,
have got to defend this - Mr. Edison does, as
Secretary of the Navy, and I have got to defend
it and I can't defend that. Now, again trying to
make a suggestion which is no good or maybe of
use, what it gets down to, it seems to me, is
that you have got to do this, you have got to do
what we did in England and that is build these
shadow factories and the Government will have to
go and build B. $600,000 plant and lease it to
Mr. Sutphen.
Edison:
What good is it? Why have the Government pay a
lot of extra money?
H.M.Jr:
You are paying it anyway in your depreciation.
Foley:
You are going to do it this way, by indirection,
what you would do by direction, because the Treasury
wouldn't be getting this income that it would nor-
mally be getting.
H.M.Jr:
I would have to raise $600,000 in taxes out of your
Income and mine in order to pay for this plant or
I lose $600,000 worth of income. It is the same
thing. It all comes out of the Treasury in the
long run.
Edison:
You might not pay a cent this way.
H.M.Jr:
Well, look, we have had this thing now for five
months. We have been over it very, very carefully
and the question of permitting the depreciation
of 8. factory in excess of normal depreciation for
any manufacturer - we Just can't do it. You wanted
to know where we stand. This is important for you
and it is important for the country and I think
the sooner the Navy knows where we stand, the better.
100
- 14 -
We just can't do it. I think if you want these
boats and you can't make a dicker, you will find
that you will have to build this plant for Mr. Sut-
phen just the way....
Edison:
Then the Government has got a plant it doesn't
want, that won't be any good to it. You will have
a lot of tunnels and pipes and walls and things,
and what good is it, and it has paid the whole works.
H.M.Jr:
But we pay it the other way.
Edison:
If you do it under this closing agreement, there is
a chance you might not pay anything.
H.M.Jr:
You wanted to know this morning where we stood.
Edison:
Yes.
H.M.Jr:
Well, now you know.
Edison:
What you are saying is this: You are saying we will
have to delay our battleships two years; you are
saying that we don't get airplanes.
H.M.Jr:
Oh, no.
Edison:
You are saying that we won't get these boats.
H.M.Jr:
If you don't mind, may I be frank in front of these
gentlemen?
Edison:
Sure.
H.M.Jr:
You are being very unfair and unjust, because it
isn't my fault that there is a Vinson-Trammell
Act and it isn't my fault that Senator Nye has
expressed himself as - in his Committee, how he
feels about this and Senator Couzens investigated
this very thing at the end of the World War. It
is all on the records of Congress. Just because
you can't use a device - if you don't mind saying -
to circumvent Congress doesn't mean we are to
blame if you can't build your battleships. You
have still got your six million dollars, or 99
percent of it.
101
- 15 -
Edison:
That was only for armor plate.
Furlong:
Where I used it was on good Government ground
where I could recover it and use it. We would
have to build here for about five million dollars
for these other companies.
H.M.Jr:
What was on that ground?
Furlong:
Other parts of the plant.
H.M.Jr:
Owned by whom?
Furleng:
The United States Navy.
F.M.Jr:
And who was Assistant Secretary of the Navy when
it was built?
Furlong:
Mr. Edison.
H.M.Jr:
And he built a Government plant which he was very,
very proud of at Charleston, and by spending
$750,000 you again put it in order.
Furlong:
Yes, and that is where I like to put it.
Foley:
Then you leased it, didn't you?
Furlong:
No, I just leased the furnishings in it.
H.M.Jr:
He is very, very proud of it. If it was good then,
why....
Furlong:
That is fine.
H.M.Jr:
Why isn't it all right to build & plant for
Mr. Sutphen?
Furlong:
But this other thing that we have in the Army -
we have about two million dollars that Bethlehem
wants and a couple of million that Midvale wants.
If we put that stuff up for them, we can never
use it. We can use it at Charleston.
H.M.Jr:
Right on that, I want you to say before Mr. Edison
that there 1s nothing before the Treasury now on
102
- 16 -
the armor plate situation, we have no proposal
from you.
Furlong:
Yes, we wrote 8. letter to you on November 22,
asking for a closing agreement with the Midvale
people.
H.M.Jr:
On November 22?
Furlong:
The appointments here, over that subject, previous
to that - and it has been put off from time to
time.
H.M.Jr:
Then it is November 22, but that was quite recently.
Furlong:
That is right.
H.M.Jr:
It hasn't got to me yet, but that goes back to last
July, from July to November.
Edison:
We have got to find out first what is needed. They
have to get estimates and bids and drawings and
then we had a careful check to make sure we wouldn't
be rooked and then we had to certify to you that
these things were so and it all took a little time,
but we did have this all in process. Also we had
the money being worked out with the Midvale Company
in South Charleston. But I said at the Treasury
the other day, I thought I had been misinformed,
it was all in the mill.
H.M.Jr:
All I am trying to say is this, there are two dif-
ferent things we are talking about. One 18, let's
call it the Electric Boat type of thing which you
brought over here and which we "no can do."
The other thing, the Midvale, hasn't been brought
to me yet. Now, I would be delighted to ask for
a joint appointment for you and me to see the
President and bring it to his attention, just where
you are at with the Treasury, where you are at
with Mr. Sutphen, and then - because I am not
going to let you even think that we are holding
back your proposal because - 1t is a device that
you can't use, it is just - you will have to get
some other device than the Treasury.
103
- 17 -
Edison:
What isn't clear in my mind is, you can use it
on that desk but you can't use it on the waste
basket.
H.M.Jr:
Oh, no.
Edison:
That 18 what I can't see.
H.M.Jr:
You can use it on the desk, you can use it on
the waste basket, but you can't use it on the
four walls, because the four walls have been
here for 100 years and this waste basket may
last six months. That is the difference. That
may be good for six months, but these four walls -
I guess they have been here for 100 years and
that is the difference.
Furlong:
Say, Mr. Secretary, you know there is a funny
thing came up about this. After we got this
authority from you to ask for a closing agree-
ment, I then, of course, told these steel com-
panies that we wanted them to ask for these
agreements, but the Bethlehem Company, those
fellows, they don't want to do it and they won't
do it because they want all the money right away,
they want us to hand it out to them. They know
there will be some chance when the Treasury goes
around to tell them that, "Here, some of this
you can use in the next ten or fifteen or twenty
years, and they won't write this off for them
and they know that, so they want me to give them
the whole thing. That is the reason I was holding
back on this six million, I didn't want to give
it to that crowd.
Sullivan:
I think, Mr. Secretary, I should tell you that
the Midvale people yesterday were in about this
same thing and we wrote them that we had enter-
tained serious doubts as to the propriety of
our executing a closing agreement relating to a
subject upon which Congress had expressly authorized
the Navy to spend six million dollars, and the
reason we wrote them to that effect was because
we did not care to have anybody think that we were
engaging in anything that might be interpreted as
an effort to evade the Congressional desire and
intent. That is the situation on Midvale today.
104
- 18 -
Purlong:
I carefully explained to the Committee of Con-
gress when I got the six million that we were
trying to arrange it with the Treasury to get
this but that I wasn't sure that the negotiations
between the Navy and the Treasury would come out
all right, because I wasn't quite sure how the
Treasury would stand on it. We have had a lot
of talk on it with the Treasury. So I asked
them, so this program wouldn't fall down entirely,
to give me the six million and the six million
has been taking out of the shipbuilding, which
is authorized for 1940 and we have to go up and
ask for a deficiency because it has taken away
from the shipbuilding, so that was the reason
it came up, because the negotiation hadn't been
absolutely settled with Mr. Morgenthau and he
was negotiating with this Secretary at the time.
Sullivan:
But that 1s now earmarked to eight private in-
dustries to manufacture armor plate.
Furlong:
Right.
Sullivan:
And what each one of those three plants are asking
for is about $600,000.
Furlong:
No, Bethlehem has in for $1,806,000
Sullivan:
Their request
Purlong:
Navy has spent over a million and Midvale is asking
for six hundred fifty-three. They are asking for
$653,000. They had spent a million - over a million
on battleships, 57 to 60 and there, on that, they
are going to take their chances with the Treasury
on the general run of the mine business as you
usually make the arrangements, 8.8 you say, with
anybody. They will have to do that. But that is
how the six million came in, is because I wasn't
sure; we were at the same time negotiating with
the Treasury.
So I got it for armor, only, but the rest of these
fellows that make everything else - I am the only
fellow that got it because - well, I have been
working on this for two years. But the rest of
the industry, there are lots of other things besides
armor.
105
- 19 -
Edison:
There is one point I want to make and if I am
wrong on it - I would like to speak direct, but
if we spend this six million dollars, we will
have spent six million dollars that you had to
raise by getting taxes. If we make a closing
agreement, there is a chance we won't have to
spend a nickel.
H.M.Jr:
Answer that.
Sullivan:
No
Edison:
Now wait. Suppose the company made a profit of
five percent. If you don't let them write this
off, if you don't make a closing agreement, you
just throw that out. Suppose, on the other hand,
that you do make a closing agreement, they make
a profit of seven percent. Now, how much does it
cost the Government?
Sullivan:
I am afraid I don't understand the case. We are
allowing them to take out of their gross profits,
under your suggestion, six hundred thousand dollars.
That comes off the top.
Edison:
Yes. Suppose their profit was seven percent. They
have made seven percent on this thing and they are
allowed ten.
Sullivan:
That is right.
Edison:
They make seven percent. Now then, the question
comes up whether you should allow this to be
written off or not. If you don't allow it, they
make more profit, or they make either more or less
profit, but it is within the ten percent, that is
what I am trying to say. In either case, it doesn't
turn any money back to the Government. Therefore,
in that case the Government - it hasn't cost the
Government anything. Whether you allow it or not
is purely academic.
Sullivan:
If they establish B. loss they can carry that over
against their return the next year.
Edison:
If they establish a loss.
106
- 20 -
There is a case where it won't cost the Govern-
ment anything.
Sullivan:
But if the deficiency in profit technique is
changed in the Walsh bill to apply to naval
craft, then your case would fail because then
in the succeeding contracts they would be able
to make up the difference between the ten per-
cent and the seven percent and in that way
Edison:
But that isn't the law.
Sullivan:
No, not yet, sir.
Edison:
I am saying, what we are working with now, there
1s a chance of its not costing the Government
a cent. In the case of spending the six million,
it is going to cost definitely six million.
H.M.Jr:
Well, to get back to Mr. Sutphen, I am willing
to go across the street with you and recommend
that in cases like Mr. Sutphen's and cases like
the Consolidated and cases like some of the air-
plane engines where we need the production, that
the President include in his "B" budget suffi-
cient money for the Government to build these
factories and lease them to the manufacturer.
Now, I am willing to recommend that and I am
willing to go with you and recommend it.
Edison:
I think, Henry, that is going to cost the Govern-
ment an unnecessary sum of money for a lot of
stuff they don't want.
H.M.Jr:
The President and I are together on this thing,
see, and I am sure that we are together with
the Congress and the public on this, see, so 1f
you don't mind my saying it, there is no use
pleading on this question of excessive depreciation
on buildings for a munitions maker, because as long
as I sit here I don't O. K. it. In order not to
be the kind of fellow that says no and not be
helpful, I am willing to go across the street and
recommend "X" millions of dollars for the Govern-
ment to put in the plant where you need certain
things and the Army needs certain things to pre-
pare them. Now, I am willing to recommend it
107
- 21 -
and I am willing to put the influence of the
Treasury behind it.
Not to be an obstructionist, but in order to
get this thing done and get it done rapidly,
I will do that.
Edison:
That is what we did the last time, you remember.
H.M.Jr:
I know what the engine situation is.
Edison:
We said, of the worst of the two bargains that
we would spend the taxpayers' money by getting
the appropriation and we got six million, but
it is going to cost the Government a lot of
money which I was trying to save.
Foley:
The alternative is to repeal the Vinson-Trammell
Act.
H.M.Jr:
Well, that is ridiculous.
Foley:
Surely.
H.M.Jr:
I will go across with you and let you fellows....
Edison:
I will make that bargain with you if you will
also let me come back after we get the deal and
say, "Well now, I have got a way - I recommend
a way of saving all this money.'
H.M.Jr:
But not through the depreciation route.
Edison:
Well, I would like to recommend that.
H.M.Jr:
What?
Edison:
I would like to recommend that.
H.M.Jr:
You heard what he said at Cabinet. I don't want
to repeat what he said.
Edison:
I don't think he understands the problem.
H.M.Jr:
Yes he does. I don't think you do. The President
has got it all right. I sent him & copy of the
letter I wrote you. I wasn't jumping off the
108
- 22 -
deep end. He understands perfectly and 1a in
complete sympathy with what we are doing here
and I think that the quicker the Navy appreciates
that they can't use the Treasury route, the quicker
they will get their armor plate, the quicker they
will get the boats from Mr. Sutphen, the quicker
we will get the airplane engines.
Furlong:
It is an eternal headache, Mr. Secretary, for us
to have those plants up there at the end of the
contract.
H.M.Jr:
It is no headache
Furlong:
They are no good to us.
H.M.Jr:
We just disposed of the buildings - residences
that were built to house people during the war in
connection with a shipbuilding corporation. We
just finally sold those the other day. War is a
headache anyway. If you want this stuff and you
want it fast, I am convinced the way to do it is
for the Government to build these things and lease
them at a nominal rate to the manufacturer along-
side
Edison:
And that will hold everything up until we get
legislation out of Congress next May or June, won't
it?
H.M.Jr:
Well, you haven't made very fast progress with six
million dollars in your pocket on armor plate.
Edison:
This is a different problem.
Furlong:
The reason we didn't is because they were trying
to get this closing agreement. They have gone
ahead with the plants and hope to get them.
Sullivant
Couldn't these trial boats be made in the present
yards?
Edison:
No.
Sullivan:
They had quite a lot of room there.
Edison:
I suppose you could.
109
- 23 -
Sutphen:
Yes, you could, of course, but the point was that
we couldn't accept it as a secret and keep it as
secret as we want to keep it and when we want to
demonstrate
Poley:
That point was made at the hearings and I think
Admiral Land's reply to Senator Vandenberg's
question was that all your stuff was known all
over the world and there were no secrets. Isn't
that correct?
Sutphen:
I don't remember.
Foley:
I can show it to you in the hearings.
Sutphen:
Not in reference to this,
Foley:
In reference to your company.
Sutphen:
T don't agree with Admiral Land today. I think
we are keeping things pretty secret.
H.W.J.:
Don't you think we have gone as far as we can to-
day?
Edison:
I guess so, yes. I guess we aren't very clear
about our problem because I think if you under-
stood some of the figures of it, you would see
what we are trying to do, driving at, and that
one point about its costing the Government to
use the six million, I atill maintain it is just
a waste of Government funds.
H.M.Jr:
Captain Kraus would like to say something.
Kraus:
I would just like to say this, Mr. Secretary.
In order to separate my pet project, consolidate
it, from this general situation, a good many
things have transpired at high speed in the
last few days and we have in hand a modification
of the consolidated proposal which eliminates
all the inside financing and in which the bidder,
although he still makes a conditional bid, a
bid conditioned on a closing agreement, has put
his request for a closing agreement in a form
that I believe is right down to the Treasury's
groove. Now, whether he will agree to such
Regraded Unclassified
110
- 24 -
closing agreement as the Treasury may offer
remains to be seen, but I am just telling you
this at the moment to indicate that there has
been a change in that situation and that the
Treasury Department may be confronted with
that question again, but it is in quite a dif-
ferent form, with no inside finance, and a
straightforward request for a closing agreement
defining in the Treasury's language what treat-
ment will be accorded to the variety of items;
in other words, it is wide open now and it is
wide open now and it is not tied up with the
write-offs specifically on buildings. In other
words, we made an effort to regularize this
from the point of view of existing law.
H.M.Jr:
Well now, Captain Kraus, in order to save time,
instead of the manufacturers seeing you alone
and then seeing our Treasury people alone and
not always telling them the same story, 1f you
have got the Consolidated in town
Kraus:
They are.
H.M.Jr:
And Mr. Helvering, I understand you let Mr. Sullivan
handle this.
Helvering:
Yes.
H.M.Jr:
With Mr. Helvering's permission, I will tell him
to drop everything else he is doing and go to work
on this one, but let him see them together so that
they don't play one of us off against the other.
Kraus:
Yes.
Sullivan:
I think we should stress at this meeting, sir,
the fact that we can make progress using this
technique of a conditional bid. The original
idea was that the closing agreement, if any, was
to be executed before the bid was made and we
afforded that facility to the contractor so that
at the time he made his bid he would know as well
as anyone can know what his tax situation is to
be and hence would be able to bid in an enlightened
manner. A bid that is conditioned upon our execu-
ting this, that or the other kind of a closing
111
- 25 -
agreement, 8.8 the Electric Boat has done, as
Consolidated has now done for the second time,
is just wasting time for the Navy and for us
and for the bidder.
H.M.Jr:
Now look, as Mr. Edison - I don't know just the
Navy set-up. I don't know whether Captain Kraus
has this exclusively or not, but whoever has,
if he will instruct whoever has authority to talk
to you and let us give Consolidated a straight
from the shoulder talk on what we will do and what
we can do, it will save time. Let's use this as
a model and try to get a model contract out of
this so that you can multiply it as many times 8,8
you want, We will take all the time that is
necessary if somebody representing you will bring
him in so Sullivan and - they may change it more,
but let's try to make a model contract out of
this 30 then you can multiply it by a hundred
times, but 1f you designate whoever handled Con-
solidated to go to Mr. Sullivan's office, he will
sit there and lock the door and we either get a
contract or not,
Edison:
There 1s a peculiar arrangement in the Navy. We
have different bureaus handling different matters.
Admiral Furlong handles Ordinance. Kraus is
handling Consolidated and other bureaus handle
other things. It might have to be two or three.
H.M.Jr:
That is all right. All they have got to do is
call up Mr. Sullivan and he will sit down with
them and he will lock the door and he will work
day and night. But let us explain once and for
all what the Treasury's position is, and we take
this just as seriously as you do, because we
have got to collect six million dollars from
130 million people. We can do something for
Kraus. If you can't get somewhere, bring them
in here and I would like to talk to these babies,
Consolidated.
12
December s, 1939
Commissioner of Internal Revenue
Internal Revenue Building
Washington, D. C.
Attention of I.T.P.: CA-CAA
8 I R:
No hereby make application for a closing agreement in
Sections 801, 802 of the Revenue Act of 1938, covering the
pursuance of Section 606 of the Revenue Act of 1928 as emended by
construction and equipment of 8. new bost-building plant to be
located on our property, Bayonne, N. J.
On December 4, 1939 we submitted to the Chief of the
Bureau of Supplies and Accounts, Navy Department, Bids for con-
strusting twolve (12) Submarine Chasers - Schedule No. 900-2930
end eleven (11) Motor Torpedo Boats - Schedule No. 900-2939 at a
following: total cost of $4,999,965.00. Our bid being conditioned on the
a. & satisfactory clesing agreement with respect to
the special plant unit which 20 propose to install for the
construction of these boats. The estimated cost of this
plent unit is $600,000. It is our understanding that the
closing agreement will provide an allowance as a part of the
sost of the work under these contracts of at least one-half
the cost of the plant unit.
b. An allowance as a part of the cost of the work
under the contract of the amount paid by us to others for
engineering fees, not however to exceed five percent (8%) of
the contract price.
Be give herewith a description of the special plant unit
and equipment thereof, which we propose to build if no are awarded
the contract for the construction of twenty-three (23) motor boats
⑉ described above.
Main building: 240 by 420 feet.
Office building ad jecont: Approximately 50 by 150 feet.
Main building with office adjoining
$425,000
Launch ways, doeks and basin
76,000
Regraded Unclassified
- 2 -
December 6, 1939
Readway
$5,500
113
Blowing system and steam boxes
12,600
Machinery:
Joiner use
12,000
Boat Building use
15,000
Mechine shop
21,000
Copperemith
1,000
Engine shop
1,500
Hand tools
5,000
Installation
2,600
Office furnishings
5,000
Store room fixtures
5,000
Allowance
20,000
Total estimated cost
$605,200
Respectfully submitted,
ELECTRIC BOAT COMPANY
Huny R Duy keen
Vice-President
Skin
B1C27
114
DEC 6 1939
memorandum FOR THE PRESIDENT:
A conference was held in my office this norning in which Acting
Secretary of the Havy Edison, Admiral Furleng, Caph. Kraw and Verrum
Mclains represented the Nevy, and Mr. He R. Subphen and Mr. Spear
represented the Electric Doat Company of New York. Commissioner Guy
To ticipated. Holvering, John Le Bullivan, Rd Felsy end Charles Kadea also par-
The general position of the Treasury Department in relation to
the closing agreement technique as applied to contracts under the
Vinson-Tramell Act was discussed. The primary question was whether
or not the Internal Revenue Bureau would execute a closing agreement
paraitting the Electric Best Company to charge off as obsolessance
one half of a construction cost of a new building and new plant facil-
ities estimated to ecet slightly over $600,000. Mr. Sutphen stated
that all nachinery and equipment to be installed in the nov building
M standard and that the special tools or equipment were required for
this contract.
After stating what we would be willing to do in regard to obsel-
iscense of special tools and equipment asquired for the particular
contract, I them explained to then that under the law W could not
allow any other rate of charge-off for depresiation and obsolescence
than the standard rates in force in the Bureau and new applied to
factory construction of all types.
The Acting Secretary of the Harry stated that our refusal to enter
into such a closing agreement would postpons for a long while the 000>>
struction of these bests, although subsequently Mr. Sutphen asknowledged
that the 2) bests provided for in this contract could be manufactured
in the existing plant but without the secrety that would be assured by
the construction of the addition to the plant. When I suggested to the
Acting Secretary of the Havy that the proper solution we for the
government to build these plants and then lease them to private industry,
the Acting Secretary of the Havy remonstrated that this would be far
more expensive for the government because under the closing agreement
the government would not be obliged to pay any part of the construction
sorts. Repartedly it was explained to the Acting Secretary of the lavy
that any deduction for unreasonable depresiation or obsolescence would
result in the government paying for sush construction because a -
pertiamstely larger amount of actual - profit would be retained
by the contrastor. I constantly reiterated that NO sould not trest -
tempayer differently than 10 treated all tempayers,
Regraded Unclassified
115
AS this point the representatives of the Nevy Department reverted
to the case of the Consolidated Aircraft Corporation and stated that
they had just received new proposals contemplating an entirely different
type of closing agreement. I explained to the seting Secretary of the
Mary that the appropriate officials at the Internal Revenue Bareau would
suspend any other work they are now engaged in and held themselves in
readiness to consult with the representatives of the Mary Department and
representatives of the Consolidated Aircraft Corporation on any any
proposals the contractor wished to mke. And I further stated to
Mr. Edison that at the conclusion of these negotiations I would be glad
to neet with the representatives of the Havy and the Consolidated Air-
craft Corporation if that was deemed desirable.
At the alose of the meeting I again emphasized the fact that the
closing agreement technique could not in any may be used to circumsent
the clear intent of the Vinson-Trassell Act and afford to any taxpayer
nove than be was legally entitled to, and offered to Mr. Edison the
support and influence of this Department in any legislation he night ...
fit to propose to Congress to provide funds for the erection of needed
additional facilities to expedite the national defense program.
Although this matter was not discussed in the meeting, it is sub-
mitted that the problem which faces the Mar and Navy Departments can be
solved in either of two ways,
(1) By cresting plants similar to the "shadow factories" in
Great Britain and leasing each plants to private industry
and by expanding existing nevy yard and areenal facilities,
w
(2) by constructing or financing the construction of such
plants M part of 4 federal public works program under the
Federal Yorks Agency.
It is my considered opinion that it would be far better to spend
villions for defense than to use the tax laws to subsidise private
munitions miss.
(Signed) B. Morgenthau, Jr.
12-6-39
Regraded Unclassified
116
REB
GRAY
Paris
Dated DECEMBER 6, 1939
Rec'd 7:40 p. me
SECRETARY of State,
Washington.
2912, DECEMBER 6, 7 P. me
FOR THE TREASURY.
The Entire French press carries prominently this
morning the proposal of the President and the Secretary
to carry for the time being in a separate suspended
treasury account Finn's war debt payment due DECEMBER 15
and the suggestion that Congress may subsequently make it
available in some form to Finland. There has been as yet
no Editorial comment but the move has of course met with
popular approval here.
This morning's JOURNAL OFFICIEL carries a decree and
arrete concerning the required declarations of holdings
abroad. You will recall from our telegram No. 2765,
November 15, 7 P. me that the time-limit for filing such
declarations was postponed from DECEMBER 1 to January 15,
1940. The present decree brings into line the Extension
of time for filing of provisional declarations by those
serving with the colors from February 1 to April 1 (our
telegram
Regraded Unclassified
117
REB -2-#2912, From Paris, DEC. 6, 7 P. m.
telegram No. 2028, September 18, 1 P. ma, paragraph two)
and those subject to force majeure are given until March
15. Today's JOURNAL OFFICIEL likewise contains the delayed
monthly report of Treasury operations during August 1939.
It reveals that the Treasury had a balance of 8,807,000,000
francs on hand at August 31 compared with 10,976,000,000
at July 31. This included the Treasury deposit of
1.492,000,000 at the Bank of France (compared with
3,647,000,000 at July 31) and funds available at its
various paying agencies, in colonial banks, and abroad.
Expenditures of the Treasury during August totalled
56,940,000,000 francs and receipts 54,772,000,000.
(END SECTION ONE)
BULLITT
Repetition requested on underscored figures.
NPL
118
EDA
GRAY
PARIS
Dated December 6, 1939
RECEIVED 7:55 p.m.
SECRETARY of State
Washington
2913, DECEMBER 6, 7 P. m. (SECTION TWO)
The monthly statement of the situation of the public
debt at August 31 is also published in the Journal
Official of today. It reveals a net increase during the
month of August of 1100 million francs to a total of
445,742 million chiefly as concerns the 41% 1937 loan
with Exchange guarantee (935 millions) and the three year
armament bonds (1733 millions).
The Netherlands National Bank statement for the WEEK
EndEd DECEMBER 4 reveals gold holdings of 1,024,000,000
florins as against 1,029,000,000 the previous WEEK. DE-
mand liabilities totalled 1,353 as against 1,394, millions.
Note circulation rose materially from 1,143,000,000 to
1,158,000,000. Gold coverage rose from 73.81% to 75,68%
BULLITT
RR
19
JT
GRAY
PARIS
Dated December 6, 1939
Rec'd 8:15 p.m.
Secretary of State,
Washington.
2912, December 6, 7 pame (SECTION THREE).
The AGENCE ECONOMIQUE ET FINANCIERE carries B report
that "the Financial Counselor of the British Embassy at
Washington has denied rumors that the British Government in-
tends to create a holding company designed to obtain advances
against American securities held by the English". (Please
SEE my telegram No. 2896, December 4, 7 c.m.). "These
securities, he said, are at present sold for the account of
individual holders". The article adds that the rumors WETE
occasioned "by the arrival at Washington of two high
British officials to confer with the Federal RESERVE Board
and the 3ecurities and Exchange Commission concerning the
problem of liquidation of American securities in British
hands".
BULLITT
EMB
120
REB
GRAY
Paris
Dated DECEMBER 6, 1939
Rec'd 7:25 P. m.
SECRETARY of State,
Washington.
2912, DECEMBER 6, 7 P. me (SECTION FOUR)
The article continues that "large NEW York banks feel
that Washington will send up some trial balloons to
ascertain the popular reaction on the Johnson Law and
the Neutrality act. Public opinion is certainly very
favorable to the Allies and Washington will do all that
is possible to facilitate their transactions in the
United States. But in Congress any attack on the
Johnson Law or the Neutrality Act would COME up against
opposition", Meanwhile it concludes "banks and certain
private groups are buying portfolios of American securities
from foreign holders at prices below Wall Street. The
opinion prevails at NEW York that if any plan is adopted
for the liquidation of securities it is the Government of
the United States in accord with that of London that will
take the initiative."
BULLITT
NPL
EMB
121
CK
GRAY
Paris
Dated DECEMBER 6, 1939
Rec'd 8:50 p.m.
Secretary of State
Washington
2912, DECEMBER 6, 7 p.m. (SECTION FIVE)
The press gives an Estimate of the total losses in
the Credit Anverois failure at 200,000,000 of which
60,000,000 must bE borne by shareholders.
Funds SET up in the months of June, July, and August
it is announced today, will permit payment to French holders
of Young loan obligations of the semi-annual coupon due
DECEMBER 1 on the basis of twelve francs 50 net per 25
franc coupon. The coupon is to bE paid today.
The French financial press reports that the Official
Gazetta in Italy has published new rules concerning the
import and Export of Italian bank notes and tourist checks.
These rulea people provide that banknotes of 50 and 100
lira which are now abroad will not bE permitted to bE
brought into Italy unless their holders within a period of
20 days for those in Europe and 40 days for others, present
them to the Italian Foreign Exchange Office which will SET
up in the name of each owner a non-interest bearing account
to the value thereof. Any provisions with respect to the
owners'
122
CK 2-No, 2912, DECEMBER 6, 7 p.m (section five) Paris.
owners' utilization of such "account" are not mentioned
in the press.
The securities market was strong and active today and
most French industrial and bank sharts registered sub-
stantial gains. RENTES, however, were almost stationery.
Suez shares were up 480 and Royal Dutch 145 francs.
Scandinavian securities were steady. (END OF MESSAGE)
BULLITT
EMB
ease 030
(wist
- di 0 Wast
123
PARAPHRASE OF TELEGRAM SENT
TO: American Embassy, Paris, France
DATE: December 6, 1939, 5 p.m.
1AA
NO.: 1490
CONFIDENTIAL FOR THE AMBASSADOR.
On Thursday Secretary Morgenthau plans to telephone
to the Ambassador, and suggests that the Ambassador have
telegram Nol 2742 of November 13 from the Embassy at hand.
WELLES
Acting
(HF)
ПРИЗОЗА
7701 $230
EA:LWW
(COPY;FE:HJN)
Air Mail
*COPY
124
AMERICAN CONSULATE
Hano1, Indochina, December 6, 1939
No. 24
SUBJECT: Transit of Commodities to China during November 1939.
The Honorable
The Secretary of State,
Washington.
Sir:
I have the honor to refer to my despatch no. 13 of November 10, 1939, in
regard to the quantity of freight transitted to China via Indochina during the
month of October, 1939, and to submit the following information concerning the
month of November, 1939.
It is reliably reported that approximately 32 thousand tono of freight were
transitted to China via Indochina during November. Of this amount, 18.5 thousand
tons were transported over the Dong Dang-Nanning road and 13.5 thousand tons were
transported by the Indochina-Yunnan Railway. During the latter part of the month
under review the road was not usable because of the Japanese activities in Kwangsi
and during the early part of the month the railway did not operate at full capacity.
A part of the 18.5 thousand tons transitted by road was returned to Indo-
china, following the closing of that road and to prevent this cargo being cap-
tured or destroyed by the Japanese. It is estimated that about 5 thousand tons
were or are being returned to Indochina. This gives a net transit to China of
about 27 thousand tons, or 13 thousand more than in the month of October.
As in the preceding month, at least from 80 to 85 per cent of this tonnage
was destined directly or ultimately for the Chinese National Government or for
semi-governmental organizations. Petroleum products amounted to slightly over
7 thousand tons.
As a result of this increased traffic, a tocks at Haiphong were reduced by
from 8 to 10 thousand tons, even including the cargo returned to Indochina in
the latter part of the month. This is the first month in which any appreciable
inroade have been made in the a coumulation at Haiphong. Accordingly, it may be
estimated that at the end of November there were 190 thousand tons of cargo at
Haiphong, including some 3000 motor vehicles, and perhaps 7 thousand tons in
other parts of Tonkin, chiefly at Dong Dang.
It is to be regretted that, just as positive results were being obtained in
solving the transportation problem, the Japanese advence rendered useless the
main route of transportation to China.
Respectfully yours,
CHARLES S. REED II
American Consul
Original and 2 copies to the Department
Copies to Embassy, Chungking and Peiping
Copy to Consulate General, Hong Kong
Copy to Consulate, Saigon
815.4
CSR:cer
125
HSM
PLAIN
London
Undated
Rec'd DECEMBER 6, 1939
12:55 p. m.
Secretary of State,
Washington.
2551.
FOR TREASURY.
1. In reply to a question in the House of Commons
last night as to whether the Dominion Governments had
been approached with a view to forming a joint Empire
Exchange control the Financial Secretary of the Treasury
stated that "Each of the Dominion Governments has imposed
Exchange control under its own legislation and every
Effort is made to ensure coordination and cooperation
between the authorities concerned both as regards the
Governments and the central banks". In reply to a further
question as to the completeness of the control he said:
"I think Everything is quite satisfactory in this field
at the noment."
2. With regard to Simon's Paris statement on mone-
tary cooperation between Great Britain and France, Einzig
raises
126
ham -2- No. 2551, DECEMBER 6, from London
raises the question as to whether the stabilization of
the sterling-franc rate means a continuance of the
officially fixed rate in London and Paris or includes
also the intention to take steps for maintaining the
official rate in unofficial markets.
3. With reference to No. 2485 of November 29,
1 D. M., the Government revenue and expenditure accounts
for the WEEK ending December 2, published today show
total revenue at 612.3 million and expenditure at 676.3
million, giving a deficit on the WEEK of 664 million.
Though the Expenditure figure was swollen by the 633
million payment of war loan interest, it also represents
the highest weekly total since the outbreak of war on
supply SERVICES and a big jump on the past three weeks.
This figure at L53.5 million represents a daily Expendi-
ture rate of 67.5 million. The returns showed an increase
in total tap Treasury bills outstanding of 617.8 million
to L697.7 million, the highest figure since the peak of
£706.6 on November 4. Though the deficit was L64 million
the total floating debt increased by only L56 million,
receipts from national savings certificates having brought
a net L3.8 million and receipts from the new national
defense bonds a total of LA 1/4 million. (The sale of
savings certificates in & normal WEEK yielded 6500,000.)
4.
127
ham -3- No. 2551, December 6, from London
4. The silver price was up 1/16 to 23 7/16 for
spot and 23 5/8 for forward with the Bombay mint delivery
demand continuing heavy.
5. The Argentine peso rate was moved today from
17.00-50 to 17.15-65. Other officially fixed rates WERE
unchanged. The Finn mark was slightly firmer at 220 bid.
JOHNSON
MCL
Regraded Unclassified
128
TREASURY DEPARTMENT
WASHINGTON
OFFICE OF THE ADMINISTRATIVE
ASSISTANT TO THE SECRETARY
December 6, 1939.
MEMORANDUM FOR THE SECRETARY:
Harris 3. Willingham resigned from the Federal Alcohol Ad-
ministration on November 30, 1937. While with that agency he
received salaries ranging from $8,000 to $10,000.
On March 17, 1938, Mr. Willingham was appointed as an Ad-
ministrative Officer in the Central Treasury Accounts Office
under Mr. Bartelt at $6,000 per annum for a period not to extend
beyond June 30, 1938. This appointment was renewed not to ex-
tend beyond June 30. 1939. and again renewed not to extend be-
yond June 30, 1940, There is nothing in the file to indicate
that at the time of his original appointment there would be any
objection to the continuance of Mr. Willingham's services so
long as there was a need for them and emergency funds were avail-
able.
Mr. Bartelt tells me that he recommended the renewal of Mr.
Willingham's employment at the close of each fiscal year because
of the efficient and essential service he was rendering both as
an accountant and administrative officer.
of
COPY
PARAPHRASE
not real
A telegram (no. 438) of December 6, 1939, from the
129
American Consul General at Hong Kong transmits a. message
of December 3 from Consul Reed at Hanoi which reads sub-
stantially as follows:
The capture of Nanning and the fact that the Japanese
troops have advanced to the north and northeast is admitted
by the Chinese at Hanoi who state that unless they can
regain possession of Nanning they expect extensive bombing
operations in Yunnan and Kweichow will be carried on by the
Japanese using the air field at Nanning as a base. Some of
the cargo stored at Lungchow is being returned to Indochina
as the road to Nanning is unusable. It will be some months
before another road farther to the west which is being
built will be ready for use and even after that road is
ready it can take care of only 3000 tons of traffic a month
at the most, according to estimates. The railway hopes to
transport approximately 15,000 tons during December,
according to information received by Consul Reed. It is
Mr. Reed's understanding that for the time being certain
lots of goods are being stored which were expected to arrive
in Haiphong destined for China.
130
COPY
an
OPMAV
December 6, 1939
M
Ree'd 9:28 all
ACTION: STATE
CONFIDENTIAL,
the following vas received free the Asststant Naval Attache
at Changicing en Desember 5.
& shiplead of Duesian munitions arrived at Rangoom from
Oderss latter part of October is a ship of 9000 tone displacement.
the ship's we vas for transit aeross China and received local
Government's full cooperation. Traffic is expected totriple
over have route as - as improvements are completed, the
птегодо monthly traffie for the last 3 months having been 2000
tame mestly Seviet and German essential var materials. British
hands any that there is - pressure from the Japanese to close
the read and also claim they have as fear that theye will be an
sttack through Sim because Hippensee political setivity has been
inoffective. 0 R 95 (reference musber).
CHV ШОНЯ
membersaqed
me
2891 $ 030
to notatvil
VistageM
Regraded Unclassified
131
DEC 7" 1939
The Honorable,
The Secretary of State.
Sir:
Due be the present war situation in Europe, which has unde
it practically impossible for the staff of Treasury representa-
tives stationed in Derlin to conduct routine customs investign-
tioms in Central Europe, the comelusion has been reached by this
Department to close the office of the Treasury Attache at Berlin
on December 51, 1939, and to establish an office at Stockholm,
Sweden as of January 1, 1940, with a skeleton staff, for the
purpose of conducting valuation investigations in the Soandi-
navian countries that may be requested by customs appraising
officers in this country in connection with importations from
that area.
At the present time the Treasury Attache, Mr. Arwin G.
May, together with Treasury Representatives Walter M. Welff
and Roy v. Pax, and & staff of alien interpreter-translators
(Margarete Brandt, Prances Bielschowsky, and Erich P. Schuok-
ert). are rendering assistance to the Rabassy at Berlin.
However, in a letter received from the Treasury Attache at
Berlin under date of October 30, 1939, he expressed the be-
lief that "after lovember so and certainly after December 31,
the liabasay will be able to take over the unit completely
with its own officers.
Upon the establishment of an office in Stockholm, as
above referred to, it is the intestion of this Department to
place Mr. Irvin 0. May in charge thereof, with one assistant,
Treasury Representative Walter I. Welff, and & clerk, to be
selected later. It is, further, the intention of this Depart=
ant to discontinue the services of the three alien interpreter-
translators new attached to the Berlin office, as of December
n, 1939.
Regraded Unclassified
132
B is requested that the matter of the extablishment
of a office for representatives of this Department in
be tains up by your Department with appropriate
officials of the mills Government, in enter that this
Reportment any be informed whether soch action would most
with the approval of the Swedish authorities.
Very truly yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
ORIGINAL FORWARDED TO ADDRESSEE
FROM OFFICE OF THE SECRETARY
by hand at 9:15 am 2/8/39
4th 11-28-80
File to Mr. Thompson
133
December 1, 1939.
My dear Mr. Galeeran:
1 acknowledge receipt of your tolegram of today's
date, end the accompanying Western Union Money Order in the
amount of $26.00, payable to my order, which you and your fellow-
members in the Hollandale Rotary Club desire me to apply to the
retirement of Finland's debt to the United States.
I an sorry to have to advise you that no provision is
made under the laws of the United States for the acceptance and
direct application of such contributions by the Treasury Depart-
ment. However, in order that your laudable gift may not fail,
I suggest that you authorise me to indorse and deliver your money
order to Hjalmar J. Procopé, the Finnish Minister, together with
a copy of your telegram. Otherwise, I shall be compelled to
return the contribution.
I shall hold the money order, pending receipt of advice
as to its disposition.
Very truly yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
Mr. " c. Galceran, Jr.,
President,
Hollandale Rotary Club,
Hollandale, Mississippi.
sent Airmail
main P.O.
File to Mr. Thompson
DTS.be 12-8-39
12-7-39
Dearaded
134
DEC - 1939
My dear Mr. Secretary:
Reference is made to letter from this Department dated March 21,
1939 in reply to your letter of February 11, 1939 (symbols TD 811.5123410
Shipping/17) relating to a note from the Irish Legation concerning
reciprocal examption from income tax of profits arising from the
operation of aircraft, and asking whether & statutory provision pro-
viding for such exemption was likely to be enacted into law before the
end of March 1939.
While the principle of such provision has been adopted in the tax
convention with Sweden and in the proposed tax convention with France,
the existence of more pressing matters incident to the enactment of the
Revenue Act of 1939 prevented consideration of the statutory proposal
during the first session of the 76th Congress. In view of this fact
and of the pending negotiations with Great Britain upon the same subject
matter, this Department considers it timely to advise that it is now
prepared to enter into negotiations at Washington looking to adoption
of a tax convention between the United States and Ireland.
While the note from the Irish Legation forming the basis of your
letter has reference only to the question of the reciprocal exemption
of aircraft profits, it has been noted that in reply to inquiry emanating
from the Fiscal Committee of the League of Nations in February 1937
addressed to various countries relating to the attitude of the respective
countries toward the subject of prevention of tax evasion, the Permanent
Delegate of Ireland at Geneva in letter dated June 9, 1937 stated that
Ireland was favorably disposed toward the proposal for conventions having
for their object the prevention of tax evasion. The interest of that
country in tax conventions is also indicated by its conventions of 1926
and 1928 with Great Britain which are directed toward the avoidance of
double taxation as between the two countries and to related administrative
cooperation designed to prevent tax evasion. In view of the position
thus indicated, it is suggested that, if you perceive no objection to
such course, you convey to the Irish Government that this Government,
in keeping with its existing tax convention policy, is interested in
exploring the possibilities of a convention between the two countries.
The prospects of including within the scope of such convention avoidance
of double taxation and of administrative cooperation incident thereto
may, it is presumed, be developed in the course of the discussions
which take place with respect to the problem of aircraft earnings.
Regraded Unclassified
135
- 2 -
In the event that further correspondence relative to this matter
10 necessary, please refer to IR:QC:A-289342-13.
Very truly yours,
(Signed) E. Morgesthau, Jr.
Secretary of the Treasury.
The Honorable,
The Secretary of State,
Washington, D. C.
- FORWARDED TO ADDRESSEE
FROM OFFICE OF THE SECRETARY
by messenger 12/7/39
File to Mr. Thompson
136
DEC 7. 1939
By dear Mr. Secretary:
Further reference is made to your letter dated October
25, 1939, (symbole TO 579.6AE1/76) transmitting draft of proposed
convention between the United States and Great Britain relating
to reciprocal exemption from income texation of profits derived
from the operation of aircraft and requesting the comments of
this Department on such draft.
The draft referred to has been made the subject of
careful study and from the standpoint of this Department consti-
tutes a suitable instrument for the accomplishment of the desired
objectives. Should the British authorities propose changes in
the draft or seek discussions with respect thereto, this Department
is propared to further collaborate with your Department in the
matter. The draft transmitted with your letter is returned here-
with.
In the event that further correspondence relative to
this matter is necessary, please refer to IR:GC:A-289342-4.
Very truly yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
The Honorable,
The Secretary of State,
Washington, D. c.
Emelosure.
ORIGINAL FORWARDED TO ADDRESSEE
FROM OFFICE OF THE SECRETARY
by hand
File to Mr. Thompson
Regraded Unclassified
Convention between the United States of America
and Great Britain for the Avoidance of Double
Income Texation on Profits Derived from
the Operation of Aircraft
The President of the United States of America and
His Majesty the King of Great Britain, Ireland and the
British Dominions Beyond the sens, Emperer of India, in
respect of Great Britain and Northern Ireland, being de-
sirous of avoiding double income taxation on profits
derived from the operation of aireraft, have decided to
conclude a convention for that purpose and have appointed
as their respective Elemipetentiaries:
The President of the United States of America:
:
Rio Majesty the King of Great Britain, Ireland and
the Dritish Deminions Beyond the Seas, Emperor of India:
:
for Great Britain and Northern Ireland:
Who, having communicated to each other their full
pewers, found in good and the form, have agreed AS fol-
lover
Regraded Unclassified
- ?-
ARTICLE 1
(a) The Government of the United sin tom of Front
Britsin and Northern Ireland undertake that any profits
or gains derived from the operation of aircraft ragie-
tered in the United States of America by a vitizen of
the United States of America, resident outside the
United Kingdom, or by a corneration organized in the
United States of America shall be exempt from income
tax, including surtax, national defense contributions
tax and excess profite tax, chargeable in the United
Kingdom.
(b) The Government of the United States of America
undertakes that any profits or gains derived from the
operation of aircraft registered in the United Kingdom
by as individual, other than a citizen of the United
States of America, resident in the United Kingdom, or
by A oor oration organized in the United Kingdom shall
be except from income tax, including surtax and excess
profite tax, imposed by the revenue laws of the United
States of America.
Regraded Unclassified
ARTICLE II
The exemptions provided for in Article 1 of the
present convention shall be greated in respect of
taxes
imposed by the United Kingdom for the year or -
commencing - the sixth day of April, 1940, and for nb-
sequent years, and in respect of taxes imposed by the
United States of America for years beginning . w after
January 1, 1940.
me
Regraded Unclassified
ANTICLE III
The term "United States of America", where used in
this convention, includes only the States, the Terri-
tories of Alaska and Renail, and the District of Colum-
Ma.
The terms "United Kingdom of Great Britain and
Mosthern Ireland" and "United Eingion", where used in
this convention, isslude only Great Britain and Morth-
- Iroland,
Regraded Unclassified
-5-
ARTICLE IV
The present convention shall be ratified, in the case
of the United States of America, by the President, by and
with the advice and consent of the Senate, and in the
0.00 of Great Aritain and Northern Ireland, by H1e Majesty
the Kins, with the consent of the Perliament. The ratifi-
cations shall be exchanged at Washington.
This convention shall come into force on the first
day of January following the exchange of the instruments
of ratification. The convention shall continue in foree
for 4 period of five years and indefinitely thereafter
but may be terminated by either contracting State at the
end of the five-year period or at any time thereafter,
provided A notice of termination has been dven at least
six months in advance, the termination to take effect
on the first day of January following the expiration
of the six-month period.
IN TITNESS #HEREOF the respective Plenipotentiaries
have signed this convention and have affixed their seals
hereto.
DONE in duplicate at Washington this
day of
1939.
Regraded Unclassified
142
TREASURY DEPARTMENT
WASHINGTON
December 7, 1939.
MEMORANDUM FOR THE SECRETARY:
Re: Procurement Division Appropriation, Fiscal Year 1941.
Our hearings before the Budget Bureau on the Procurement Division
estimates occurred on Wednesday.
The estimates included approximately $2,000,000 additional to
permit the expansion of purchase activities in accordance with your
instructions.
The Budget Bureau people expressed the opinion that if this addi-
tional amount is to be made available to the Procurement Division,
corresponding reductions should be made in the appropriations of the
several departments, bureaus, and establishments for which the Procure-
ment Division is to do the purchasing.
The opinion was expressed also that it would be better to defer
the assumption of further purchase functions by the Procurement Divi-
sion until negotistions can be had between the Procurement Division
and the several departments, bureaus, and establishments, to determine
(a) the extent to which the Procurement Division should function, and
(b) the amount of funds which each department, bureau, and establish-
ment should contribute to the Procurement Division to permit the Divi-
sion to function with respect to its particular requirements.
To were advised that, in accordance with these opinions, the fol-
lowing alternative propositions would be submitted to the Director of
the Budget, and, presumably, by him to the President:
(1) The Procurement Division will, for the present,
be limited to making purchases in the District of Columbia.
No additional funds will be provided for the fiscal year
1941 for the purpose of enlarging its present functions.
The Division will be expected to operate during the fiscal
year 1941 within the funds now available, and any additional
functions will be financed by means of surcharges billed
against the requisitioning agencies.
(2) The Procurement Division will be allowed to extend
its functions to field purchases, as well as to those in the
Memo. for the Secretary-2.
143
District of Columbia. It will, however, be provided no
additional direct appropriation for increasing its activi-
ties. Any additional funds necessary will have to be se-
cured by transfer from the several departments, bureaus,
and establishments, after negotiation by the Procurement
Division with each agency concerned.
(3) The necessary additional appropriation will be
recommended for the Procurement Division. This must be
accompanied, however, by corresponding reductions against
the 1941 estimates of the several departments, bureaus,
and establishments, the amount of the reduction to be
determined in each case by the Bureau of the Budget after
negotiation between the Procurement Division and the
agency concerned. (It was admitted that since the Budget
is practically completed, time will not permit this course
to be followed.)
None of the foregoing propositions would be satisfactory to this
Department. None would leave us in a position to carry out your in-
structions. I submitted the following alternative propositions for
consideration, with the request that in fairness to the Treasury De-
partment, these also should be laid before the Director of the Budget:
(4) The necessary additional appropriation will be
recommended for the Procurement Division. Deductions will
be made (if insisted upon by the Bureau of the Budget)
pro rata against the 1941 estimates of the several depart-
ments, bureaus, end establishments, in proportion to the
relative work load to be assumed by the Procurement Division
for the benefit of each, in accordance with estimates
furnished the Budget Bureau by the Treasury Department.
(5) The necessary additional appropriation will be
recommended for the Procurement Division, without any de-
ductions from the 1941 estimates of other agencies. The
Bureau of the Budget may, however, subsequently require
the impoundment of funds by the several departments,
bureaus, and establishments to the extent that expendi-
turea by these agencies are rendered unnecessary by reason
of the assumption of the purchasing function by the Procure-
ment Division.
The question is one of policy: Is it desired that the Procurement
Division shall make the major purchases for all nonmilitary branches?
If so, this policy can not, in my judgment, be carried into effect
Memo. for the Secretary-3.
144
under any of the propositions (1), (2), and (3) above, except after
months, possibly years, of wrangling with the several departments,
bureaus, and establishments, respecting (a) the extent of functions
to be taken over, and (b) the amount of funds to be transferred to
the Procurement Division to pay the costs of administration.
Inasmuch as you discussed this subject earlier with Mr. Smith,
the Director of the Budget, I think it not unlikely that he will
confer with you before a decision is reached regarding the Procure-
ment Division estimates. If so, I strongly recommend that the effort
be made to secure the approval either of proposition (4) or proposi-
tion (5) above. Should this effort fail, there will be no practical
basis upon which to carry out the program which you have outlined.
GRAVES.
Propared by: Mr. Murphy
Mr. Lindow
Mr. Tickton
Mr. Haas
145
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE December 7. 1939
TO
Secretary Morgenthau
FROM
Mr. Hass YOU
Subject: Selection and Pricing of Issues for Refunding the
March Notes
I. Premium on March Notes
Irrespective of Exchange Offering
About 12/32 of a point in interest would accrue between
December 20, 1939 and March 15, 1940 on any March note not sur-
rendered for exchange in connection with the proposed refunding
offer. Any note not exchanged would become "3-months' money"
upon which the current rate of interest 1s practically nil.
The March notes, therefore, are worth a premium of at least
11/32, irrespective of any exchange offer which may be made for
them.
Ae a consequence of this, 11/32 of the premium on the "best"
of the new securities offered in exchange must be excluded from
the "real margin of safety" of the exchange offering. This 18 be-
cause the holders of the March notes would prefer to hold them
until maturity if the best premium available on any of the new
issues should fall below 11/32 before the expiration of the ex-
change offer. If the notes were maturing immediately, on the
other hand, or if they were immediately callable, the new issue
would be taken up as long 8.8 it was worth more than par.
II. Pros and Cons on the
Selection of Issues
The selection of securities for the refunding may be con-
sidered under four heads according 8.6 the securities are offered
in proportions to be determined at the option of the holders of
the maturing notes, or in fixed proportions, and according as it
1s 8. two-way or three-way offer. The remainder of this memoran-
dum is devoted to a discussion of these alternatives in turn,
with e proposed selection of issues." The selections considered
appropriate for each of the four alternatives are also presented
together in the attached table for purposes of ready comparison.
All issues are priced on the basis of closing bide, December 6.
Regraded Unclassified
Secretary Morgenthau - 2
146
It is concluded that, if the offering is to be made in propor-
tions to be determined at the option of the holders of the maturing
notes, the balance of advantage appears to lie in the direction of
a two-way exchange. If it 1s to be made in fixed proportions, how-
ever, a three-way exchange seems to have the edge.
A. Proportions at Noteholders' Option -- Two-Way Offer
Buggested issues
Probable
net premium
(Decimals are
thirty-seconds)
Note:
Reopen 1's due March 15,
1944, at 1/2 point pre-
mium (now selling at
101.01)
.17
Medium-long bond:
13-17 year (1952-56)
2-3/8'e
1.06
The note offering 1s merely nominal in this alternative. It
1s not considered advisable, therefore, to start a new issue be-
cause it would be very small and could not be added to later if
interest rates advanced even very slightly. If more than such a
nominal exchange offer were to be made, it would not be advisable
to reopen the March 15, 1944 notes, because this would result in
too large a total issue.
It would probably be inadvisable, however, to make more than
a nominal offer of notes in exchange, because, if such an offer
were made and secured & large number of takers, the market would
be likely to give it & bearish interpretation.
A disadvantage of the medium-long bond employed in this
alternative is that it is not very economical fiscally, This 1s
because an increase of 3/8's in the coupon rate from 2 percent
to 2-3/8 percent permits an increase of only six years in the
final maturity of the bond, whereas an increase of an additional
1/8 would permit a further increase in final maturity of five
years. This disadvantage of a medium-long bond applies, of
course, irrespective of whether the offering is made in optional
or in fixed proportions.
Regraded Unclassified
147
Secretary Morgenthau - 3
This alternative would result in the great bulk of all ex-
changes going into the bond. Its principal disadvantage, aside
from the laok of fiscal economy Just discussed, 1s that it
would present the problem of secondary distribution discussed
in our memorandum of December 6.
B. Proportions at Noteholders' Option -- Three-Way Offer
:
Probable
Suggested issues
:
net premium
:
(Decimals are
thirty-seconds)
Note:
Reopen l's due March 15,
1944 at 1/2 point pre-
mium (now selling at
101.01)
.17
Medium bond:
Reopen 2's due 1948-50
at 3/4 point premium
(now selling at 101.22)
.30
Long bond:
17-22 year (1956-61)
2-1/2's
1.07
This alternative has an advantage over the corresponding
two-way offer in that the use of two bonds permits of greater
fiscal economy -- 1.e., it permits a greater extension of matu-
rity to be purchased for a given amount of coupon. The inclusion
of a medium-term bond would probably also result in cutting down
the necessary amount of secondary distribution.
The main disadvantage of this alternative 1s that it 18
difficult or impossible to predetermine the amount of exchanges
between the medium and long bond, unless one of the exchange of-
ferings is merely nominal. In the suggested set-up the long-term
bond has been deliberately preferred, but the majority of ex-
changes might, nevertheless, go into the medium-term bond. This
might be very bearishly interpreted by the market. For this
reason, it is recommended that a two-way offering be employed if
the proportion of exchanges 1s to be left to the option of the
holders of the maturing notes.
Secretary Morgenthau - 4
148
C. Fixed Proportions -- Two-Way Offer
:
Probable
Suggested issues
:
premium
:
(Decimals are
thirty-seconds)
(1/3) Note:
5-year 1 percent
.25
(2/3) Medium-long bond:
13-16 year (1952-55)
2-3/8's
1.09
"Composite" premium
1.04
The technical advantage of an offering in fixed proportions
on the present occasion as a means of reducing secondary dis-
tribution was discussed in a memorandum submitted December 6.
This type of offering also has the advantage on all occasions
that the approximate amount of each of the new issues can be
known in advance. In this case, if offered in the proportions
proposed, the new note issue would be for about $450 millions
and the new bond issue for about $900 millions, both convenient
amounts.
The estimated premiums on the two new issues would be equiva-
lent to B. "composite" premium on the maturing notes of 1-4/32, or
to B. "real margin of safety" (subtracting 11/32) of about 25/32.
This would appear ample.
The principal disadvantage of an offering in fixed proportions
1e its unfamiliarity. It "coerces" the holders of the maturing
notes to exchange them for securities fitting in with the require-
ments of the Treasury. of course, they would be equally "coerced"
if 8 single security were offered, and are "coeroed" in any event
by the relative pricing of the issues even if the options are left
to the noteholders, but the appearance here may be 8.8 important BB
the reality and might result in unfavorable press comment. A care-
ful check of the market should be made before making an exchange
offering in fixed proportions.
Aside from the relative merits of exchange offerings in
optional and fixed proportions, the major disadvantage of this al-
ternative 18 the lack of fiscal economy of the medium-long bond.
This has already been discussed in connection with the suggestion
for the employment of such a bond in a two-way offer with optional
proportions.
Regraded Unclassified
149
Secretary Morgenthau - 5
D. Fixed Proportions -- Three-Way Offer
:
Suggested issues
Probable
:
:
net premium
(Decimals are
thirty-seconds)
(1/3) Note:
5-year 1 percent
.25
(1/3) Medium bond:
Reopen 2's due 1948-50
at par (now selling at
101.22)
1.22
(1/3) Long bond:
17-22 year (1956-61)
2-1/2's
1.07
"Composite" premium
1.07
The advantages and disadvantages applying generally to offer-
inge in fixed proportions apply here also in the same manner as in
the corresponding two-way offer. It also has the minor additional
disadvantage of being somewhat more complex.
The special disadvantages attaching to a three-way offer with
optional proportions do not apply, however, if fixed proportions
are used. .A three-way offer, on the other hand, is more economi-
cal fiscally and would reduce secondary distribution as compared
with a two-way offer. It, therefore, appears to have the edge if
fixed proportions are employed.
Attachment.
150
Estimated Premiums on Proposed New Issues
in Two-way and Three-way combinations
(Basis of closing bids, December 6)
:
Two-way
:
Three-way
:
Yield
:Probable:
:
Yield
:Probable
basis
net
:
:
basis
:
net
:
: premium :
:
: premium
(%)
(Decimals:
are 32nds)
(%)
(Decimals
:
are 32nds)
:
Optional Proportions
:
te:
: Note:
sopen l's due 3/15/44
: Reopen l's due 3/15/44
1/2 premium (now
:
@ 1/2 premium (now
selling at 101-1/32)
.17
:
selling at 101-1/32)
.17
:
dium-long bond:
: Medium bond:
3-17 year (1952-56)
:
Reopen 2's due 1948-
2-3/8's
2.27
1.06
:
50 @ 3/4 premium (now
:
selling at 101-22/32)
.30
:
: Long bond:
:
17-22 year (1956-61)
:
2-1/2's
2.41
1.07
:
:
:
Fixed Proportions
:
13) Note:
: (1/3) Note:
-year (12/15/44)
:
5-year (12/15/44)
1's
.84
.25
:
l's
.84
.25
:
13) Medium-long bond:
:
(1/3) Medium bond:
3-16 year (1952-55)
:
Reopen 2's due 1948-
2-3/8's
2.26
1.09
:
50 @ par (now sell-
:
ing at 101-22/32)
1,22
:
:
(1/3) Long bond:
: 17-22 year (1956-61)
:
2-1/2's
2.41
1.07
:
mposite premium
1.04
: Composite premium
1.07
:
:
Casury Department, Division of Research and Statistics. December 7, 1939
BK229
151
THE AMERICAN METAL COMPANY, LIMITED
01 BROADWAY
NEW YORK
HKH:AA
TELEPHONE BOWLING GREEN 9-1800
December 7,1939.
CABLE ADDRESS: EFFLUX. NEW YORK
Honorable Henry Morgenthau,
Secretary of the Treasury,
Washington, D. C.
Dear Henry:
By mistake I took with me yesterday the
rather hastily written memorandum on Russia's imports
of lead and copper that I had intended leaving with
you. I am enclosing it slightly revised.
I had lunch today with K. P. Chen. As he
can explain when he sees you tomorrow, we have brought
the proposed zinc business to a point where we are
hopeful of closing it if we get word from Universal
Trading Company to go ahead. For the last few days
we have been waiting to hear from them. K.P. said
he would get in touch with me about this on his return
from Washington.
I am giving my full attention to the other
matter about which you spoke to me yesterday and will
telephone you tomorrow afternoon.
Sincerely,
Harold
Enc
RUSSIA'S IMPORTS OF LEAD AND COPPER
152
Following are comparative figures of Russia's imports of lead
and copper for the past four years. The lead figures are those of the
American Bureau of Metal Statistics. The copper figures are our own
estimates for Russia based on the Copper Institute's figures for the
Baltic countries as a group. Figures are in tons of 2000 lbs.
1936
1937
1938
1939
Lead
29,700
42,400
20,100
not reported
Copper
36,000
60,000
110,000
60,000'
* based on average of first 9 mos
:
"
=
"
"
$
7
E
During the spring of 1939 Russia cancelled contracts in New York
and London for a considerable tonnage of copper not yet pricedand re-
sold copper already priced. The reasons were not made known, but it
was assumed in the copper market at the time that Russia was either
experiencing exchange difficulties or had concluded that there would be
no war, or both.
Since war broke out in September Russia has reversed its policy
end has bought large tonnages of copper and lead principally in New
York. Because of these purchases here, imports this year may be
somewhat larger than the estimated total of 60,000 tons which 1s based
on its actual imports during the first seven months of the year.
B15227
153
December 7, 1939
After Harold Hochschild's return to New York, he
telephoned me and said that he had been thinking about
the proposal and, while he was perfectly willing to
recommend it to his Board of Directors (while he did
not say this without a quid pro quo) he was worried about
their laborers who would most likely be laid off if they
lost the business to Russia.
I said I could see that this was a reasonable worry
and that I wanted to assure him that I was going to use
every effort to get him new business from England, France
and the United States; that I had spoken to the President
and he wanted to include Japan in the moral embargo on
molybdenum, as this whole question of moral embargo had
started when the Japanese first bombed the civilian pop-
ulation in China.
B10227
154
CLOSING AGREEMENTS
December 7, 1939.
3:30 p.m.
Present:
Mr. Foley
Mr. Currie
Mr. Kades
Mr. Sullivan
H.M.Jr:
Yes, sir.
Currie:
Well, as I told you this morning, Mr. Secretary,
I sat in at two conferences with the Bureau of
Internal Revenue people and Mr. Kades from Treasury,
and consulted with Admiral Furlong and Colonel
Surns, but all I did on this matter was that
and I got 8 pretty strong impression as a result
of these conferences, one, that quite a bit was
possible under existing law and existing procedures
to Insure justice to taxpayers for extraordinary
expenditures which may later become obsolete with-
out any change in the existing procedures at all.
That is one. Two is that these remedies and
possibilities appear to be completely unknown to
the Army and Navy people I talked to and they
were thinking entirely in terms of closing agree-
ments, that sort of thing.
So far as I went, I put in a tentative suggestion
to the President. I mentioned this possibility
that under the present procedures, as I understood,
companies have the privilege of submitting amended
returns for a period of three years and this period
could be extended by mutual consent of the companies
and the Commissioner. Now, that seemed to me to
open the possibility for keeping some of these
things off until the abnormal period or the emer-
gency period was over; in any case, until such
time as we can have a better possibility of assess-
ing the future usefulness or value of this special
equipment. That appears to be somewhat similar
to what the British are doing now. They are only
allowing a maximum of 10 percent depreciation on
extraordinary expenditures, pending a final re-
adjustment which will be retroactive at the con-
clusion of hostilities.
So it is apparently on the basis of that discovery
that I suggested to the President that there
appeared to be adequate guarantees against loss
from abnormal obsolescence under the present laws
155
- 2 -
and procedures. I suggested that it might be
helpful to have these explained in great detail
and thoroughly and carefully to the Army and
Navy so there would be no possibility of their
saying they didn't know.
E.M.Jr:
Now let me ask, hasn't the Army and Navy had
this thing all explained to them?
Sullivan:
I have only had one conference with either of
them, sir, and that was yesterday afternoon when
Admiral Bass, Captain Kraus, Commander Braine
and Commander Richardson and my crowd met with
Major Fleet on Consolidated, and except for
Captain Kraus, who had been here in the morning
and heard you explain it to Mr. Edison
H.M.Jr:
Give a lecture.
Foley:
It was & good lecture.
Sullivan:
The others had no idea at all.
Foley:
I think from what I observed yesterday morning
that nobody could be more afield than Secretary
Edison.
H.M.Jr:
Talking here in the privacy of the room, when
we got through with that hour, I still don't
think Edison understood it and I don't think he
wants to understand it.
Sullivan:
After he left this room he made a remark to
Mr. Kades that indicated very clearly that he
hadn't improved his knowledge of the situation
while he was in here.
H.M.Jr:
You see, the only way, I am sorry to say, that
I feel that we can get them to understand is
to take of case like the Consolidated, with which
we offered to sit with until we either solved
it or didn't solve it, and sweat the damn thing
through, because I feel that the disposition -
I haven't had the personal conversation with the
Army or the Navy that - they don't want to do it
this way.
Currie:
I am sure of that.
Regraded Unclassified
156
- 3 -
Sullivan: That was very well demonstrated yesterday after-
noon.
H.N.Jr:
Now just take - I have got from now until 4:00.
Just take a few minutes and sketch what happened
for the benefit of us who weren't there.
Bullivan: We met at half past 2:00. There was that group
and I had the three men you (Currie) met with,
plus two of our engineers and at about 4:30
I asked leavo to retire and then, at that time,
I asked the llavy 1f they would be willing to
go through on the thing they had been pressing
us to do, in view of what they have been doing,
and they said absolutely not. Finally I said
to Captain Kraus, "What do you want, and he
said, "I want planes. I said, "Are you willing
to give them anything more than is in this
closing agreement we offered them October 16,"
end he sald, "No, I am not." The upshot of it
was that he asked me 1f I would be willing
H.M.Jr:
This is Kraus?
Sullivan:
This is Fleet, at five minutes to 7:00. And he
wasn't anywhere near out of breath at that time,
either. He asked me if I would be willing to
recommend to the Secretary that the period in
which he would have to decide if he was going
to discard the facilities after the expiration
of the contract would be extended from three
months to six months, and I said, "I will answer
that question after you have assured me you will
try to persuade your Board of Directors to accept
:
that closing agreement,' and he said, "I will,
and I think I can get away with it," and I said,
"I will be very glad to recommend that to the
Secretary.
H.M.Jr:
Roughly, what is the agreement, where does it
stand now?
Sullivan:
The agreement 1s just 85 we drew it up.
E.M.Jr:
Sketch it.
157
- 4 -
Sullivan:
In the middle of October. It gives him a
write-off on all of the special tools and
equipment that he has got to purchase for
this contract, provided they are not used
on any other work. It is on a production
basis and if that is used on a French con-
tract - and I think he is executing one today
for 30 million dollars - then it is pro rata.
On his buildings, to erect this new plant he
will have to tear down some of the old ones
and there are certain salvage benefits that
are given him, to which he is clearly en-
titled. On anything that he discards at the
expiration of the contract
H.M.Jr:
Which is how long?
Sullivan:
Twenty-two months they expect it will take to
complete this order of 200 planes. Anything
that is discarded - and that means discarded -
he will then take the difference between the
cost price, the erection, less whatever depre-
ciation has been allowed during those two years,
if he notifies the Commissioner within three
months after the expiration of the contract
that the facilities are to be discarded.
Now, that is nothing to which you would not be
entitled without a closing agreement.
H.M.Jr:
The only difference is he wants to have six
months instead of three?
Sullivan:
That is all he wants now.
H.M.Jr:
That is wholly unimportant?
Sullivan:
Oh, that is perfectly all right, sir.
H.M.Jr:
And you say none of the Navy people would agree
to this?
Sullivan:
None of the Navy people would tell me that they
would be willing to give them anything more than
that today.
158
- 5 -
H.M.Jr:
More than that?
Sullivan:
That is right. Now, they have been
H.M.Jr:
I don't understand that statement.
Sullivan:
They have been trying to force us for two
months.
Foley:
It 18 a back-track as a result of the con-
ference here yesterday morning.
Sullivan:
For two months they have been trying to force
us to execute a closing agreement which would
allow him to write off 1,200,000. I asked
them if any one of them would be willing to
approve such a closing agreement yesterday
afternoon at 4:30 and they all said nothing
doing.
E.M.Jr:
Now, you still haven't explained that. You
have been living with this. What does that
mean? Does that mean that - is their position
Sullivan:
The Navy is entirely in accord with 118.
H.M.Jr:
That is what I didn't get.
Sullivan:
As a matter of fact, when we got rid of Fleet
on the pretext that I wanted to discuss Midvale
with the Navy, then I said, "Now, we are going
to be doing business together for quite a while
to come. I want a very frank expression of
opinion from you gentlemen 8.5 to the way we
handled this particular case so that we can try
to work out 8 procedure that is mutually helpful,"
and everyone of the four men spoke up and said,
"Well, we can't think of anything that could be
better than what you are doing now."
H.N.Jr:
Then you are all satisfied? It sounds reasonable
to me. Doesn't it sound reasonable to you, Lauch?
Currie:
Yes,
Foley:
That is all they are entitled to. They thought
they could get away with more so they demanded
more.
Regraded Unclassified
159
- 6 -
H.M.Jr:
The part I don't like, the thing that worries
me about this - and this is my worry for the
present - I can't help but be a little sus-
picious.
Foley:
You have a right to be suspicious.
H.M.Jr:
And this thing doesn't smell right, I don't
like it. Here in the Treasury we don't - we
are not buddies with all these machinery repre-
sentatives and agents. We don't let them wine
us and dine us. We don't do business that way.
This intimacy so that they bring in the contractor
and he is - I don't know whether he was an Admiral
or who he was at the beginning.
Poley:
He used to be. All of these fellows used to be
with the Navy at one time.
Sullivan:
Fleet was formerly a Major in the Army.
H.M.Jr:
I know, but this is something new to me, the way
the Navy treats these sales agents. They treat
them as though they were part of the department
and what they are arguing with us 1s, as though
they were working for this contractor. It is
new to me.
(Discussion off the record)
Let me ask you this, you are now waiting to hear
from the Navy?
Sullivan:
From Fleet. The Navy is in complete accord with
us.
H.M.Jr:
The next thing is from Fleet?
Sullivan:
That is right, sir. His man will be in tomorrow
morning and he will be back here Monday at the
latest and probably before.
H.M.Jr:
You are clear of that?
Sulliven:
Yes, sir.
B.M.Jr:
Now, what about Midvale?
180
- 7 -
Sullivan:
They are coming over to see us tomorrow morning
and the Midvale people will probably be down
Monday.
H.M.Jr:
And then let's do the same thing that I suggested
yesterday, that you see the Navy and the Midvale
people together.
Sullivan:
Yes, sir, we are going to do that when the Midvale
people come down, but we had a preliminary problem
in Midvale that we don't have in the others.
E.M.Jr:
What 1a that?
Sullivan:
Congress set aside six million dollars for this
particular thing.
R.M.Jr:
That is right. Get this, Lauch.
Sullivan:
And I had written the Midvale people - Mr. Currie,
they were in here day before yesterday, or - no,
they were in here Monday, I think, and submitted
their proposal and they expected 8. yes or no
answer. We couldn't give it to them because we
were running smack into this other problem and
so I wrote saying that we entertained serious
doubts as to the propriety of our entering into
8 closing agreement when Congress had expressly
provided for other méans of accomplishing this
same result, and I told that to the Navy yesterday.
There was a reference made to Midvale and I said
I just wanted those fellows to know that we have
been writing Midvale and we have this problem.
Well now, they want - obviously that is something
for the Navy and us to discuss without the Midvale
people being present, so Admiral Bass and Mr. McLaine
and I don't know who else is coming over tomorrow
morning at 10:00 o'clock and we are going to dis-
cuss that.
Currie:
On that point, Mr. Secretary, I think I can add
a little bit as a result of my interview with
Admiral Furlong. He did not discuss Midvale's
request but Bethlehem Steel's request for 50
percent obsolescence in & closing agreement.
H.M.Jr:
Isn't that the same class as Midvale?
Regraded Unclassified
101
- 8 -
Currie:
It is another company; it is the same type
of thing. Now, it developed in the course of
the conference that the authorized naval program
will insure full capacity operations of the
entire industry throughout 1942 and that the
new plants for super-cruisers approved by the
President would insure full capacity operations
throughout 1943 and that thereafter if we kept
our fleet
H.M.Jr:
Feet or peak, which are you saying?
Currie:
The Navy fleet at full efficiency to provide
for a normal program, that would insure thereafter
two-thirds capacity operations indefinitely.
H.M.Jr:
Well now
Currie:
My first impression when I sat in with these men
the other day was that this closing agreement was
E. very dangerous thing, because the thing I seized
right onto is the fact that you couldn't do any-
thing with a closing agreement that you couldn't
do in its absence. You couldn't change the tax-
payer's liability anyway that way. That ought
to be made clear.
H.M.Jr:
What I think we are doing is along the same lines.
The only way I know how to teach the Navy what
we can or cannot do is to do what we are doing
in the case of Consolidated - I mean go right
through the thing step by step. I don't see how
we can do it any other way.
Sullivan:
When you made the suggestion yesterday morning,
I thought it was going to be 8. futile effort and
I was completely amazed at the way the Navy just
slid right into - alongside us.
H.M.Jr:
Don't you think the fact that Edison kept saying -
that I kept saying all the time that the President
and I see eye to eye on this thing, he knows all
about it, it must have made an impression on these
Admirals?
Foley:
It must have made an impression on Captain Kraus.
162
- 9 -
Sullivan:
He was perfectly fine yesterday afternoon and
when Fleet kept going off on a tangent he would
say, "Wait a minute, come back here."
Foley:
He is smarter than the rest of them.
Sullivan:
I think Commander Braine is a pretty smart boy.
H.M.Jr:
What is his position?
Sullivan:
I don't know, sir, He is & Commander and he is
the fellow who is handling the Midvale and I
think that he very definitely knows his stuff
from the conversation we had yesterday afternoon.
H.M.Jr:
Well now, Sullivan, here it is Thursday afternoon.
Now, is there anything more you need me on until
you see Fleet or until you hear from Midvale,
is there anything more you need me on?
Sullivan:
I don't think so unless you can give us some help
on this basic problem we are facing with Midvale.
H.M.Jr:
Do you want me to go through another performance
like I did the other day.
Sullivan:
Oh, no.
H.M.Jr:
Do you want me to give him the works again?
Sullivan:
No, I don't think that is necessary.
Currie:
It sounds as though you are spoiling to do it.
H.M.Jr:
Yes, I will have you here next time. Everybody
had a good time.
Sullivan:
That was a very clear invitation for what he got,
too.
H.M.Jr:
And I interrupted two or three times and said,
"Do you want me to go ahead in front of these
people," and he would say, "Yes."
Sullivan:
He got them in. Mr. Foley and I discussed that
outside.
163
- 10 -
H.M.Jr:
When you reach an impasse with the Navy and
Midvale, you will let me know?
Sullivan:
Yes. Until then, shall I maintain the position
that since Congress has provided these funds
it must be done that way?
H.M.Jr:
What are they going to use this money for anyway?
Sullivan:
I don't know.
H.M.Jr:
What about the Army? Are they all right? Is
there anything pending with the Army?
Sullivan:
I have had no contact with them. My men tell
me that the Army has been perfectly swell. Last
Friday morning I left here to get their waiver
on the press release on Colt and I talked with
Colonel Burns and Colonel Kutz and Mr. Johnson
and they all thought that it was a fine idea
but Louis says, "Of course, the Secretary has
given us assurances that you can go a lot further
than you do on Colt."
H.M.Jr:
Which Secretary did he mean?
Sullivan:
You.
H.M.Jr:
I don't know - I haven't had any communication
with him, directly or indirectly. He must have
meant Hanes. He said somebody had given him
assurance he could go further?
Sullivan:
That is right, than we went with Colt. I said,
"Well, we can be very helpful on tools and equip-
ment of that kind, but when you get to buildings,
you are running into something else." "Well,"
he said, "of course, these tools aren't any good
unless we have buildings to put them in," and
about that time the conversation went to the topic
of the Army-Navy game.
H.M.Jr:
Well, I want to tell you I haven't had a chance
to see the President since I sent that thing over
but I talked with Currie this morning. You give
the President a lump sum in "8" budget of 25
million dollars to construct in public works all
Regraded Unclassified
184
- 11 -
the shadow factories he wants, and I don't think
he would have to spend a dollar of it.
Foley:
And you keep talking like that and these fellows
won't be running in here looking for closing
agreements.
Sullivan:
They don't want the Government to build shadow
factories.
H.M.Jr:
He ought to have it in his vest pocket.
Currie:
That is right.
Foley:
You will get your planes and your battleships and
that is the thing they are afraid of, they are
afraid we are going to build our own factories.
H.M.Jr:
Give him that and I don't think the President will
have any trouble.
Sullivan:
When the smoke all cleared away last night, Fleet
says, "Two million dollars is a lot of money to
put in this," and I said, "Listen, I am from
New Hampshire but I am not that much of a farmer.
You don't dare not put that in there because you
would be completely lost a year from now, and he
just walked by closely so they wouldn't hear and
he said, "You said it."
Foley:
Sure, it is a bluffing game.
Sullivan:
Now, there is $1,200,000 the Navy has been pressing
us to give them.
H.M.Jr:
If it wasn't for this office here, he would have
got it. And the outrageous thing, as I understand,
on the original agreement -wasn't the Navy going
to put up the money?
Foley:
They certified that he was entitled to it.
Sullivan:
And were going to make payments as the building
progressed.
H.M.Jr:
Isn't that something!
165
- 12 -
Sullivan:
And I almost
Foley:
There is only one word for it, 1t stinks.
Sullivan:
I almost got him to admit, Mr. Currie, that this
contract he is signing today in New York had an
extra bonus of the two million dollars.
H.M.Jr:
You mean for the building?
Sullivan:
Sure.
H.M.Jr:
Do you want me to find out?
Sullivan:
I think the deal is right on the fire this after-
noon and it may go over until tomorrow and I
wouldn't want to upset it.
H.M.Jr:
You mean that the French put in that two million
dollars for the building? I can find out.
Sullivan:
All right, I don't think it is going to be neces-
sary, because I think he is going to
H.M.Jr:
Leroy-Beaulieu is coming in to see me and I can
simply say, "Look here, Leroy, after you have
signed this contract I hear you have got with
Consolidated, would you mind giving me a copy
of it?" How is that?
Sullivan:
Fine.
H.M.Jr:
(To reporter) Tell Mrs. Klotz to remind me when
Mr. Leroy-Beaulieu comes in.
Foley:
They are going to make the British and the French
pay for the stuff.
H.M.Jr:
I think we are all right now.
Currie:
Except for the thing that I came to see you about.
Foley:
I don't like that suggestion of yours and I will
tell you why.
S.M.Jr:
Now look, fellows, I try to run this thing on
time. Go back to Ed's office and thrash this
166
- 13 -
thing out, will you, and just remember, Ed, if
I have any more meetings on closing agreements,
I want Currie to sit in here and be notified.
If there are any meetings on any of these things,
I would like him notified.
Currie:
I hoped I could get out of it from now on.
TO: Mr Cochran 166.A
&
Phis indicates effects
goods Amexico through
of Germany to deliver
Nutral "shipment from
Haly. It may be of
interest to State
R
From: Mr. GASTON
Regraded Unclassified
Bis 229
ADDRESS THE COMMANDANT. EL 5. COAST CLIMD
AMD BIRTH TO No. IOF-64
TREASURY DEPARTMENT
167
UNITED STATES COAST GUARD
HEADQUARTERS
WASHINGTON 7 December, 1939.
CONFIDENTIAL
Memorandum for Assistant Secretary Herbert E. Gaston:
The following message which originated in Mexico City, D. F.,
on November 30, 1939, is quoted for your information and such action
as you may deem appropriate. It was sent to the firm of Bruders'sche
Eisenwerke at Wetzlar, Germany, in a German commercial code.
"30 NOVEMBER 1939
STAHLWERKE ROCHLING BUDERUA A G WETZLAR
(Steelworks)
"Reference your telegram October 27th, customer agreeable.
Meeting with difficulties. They propose to renew letter
of credit the middle of December, total amount Swise francs
in your favor, Swiss Banking Corporation of Zurich, invoiced
to Board of Managers 'Materials of War' at Vera Cruz, Mexico.
Marking of goods and invoice to be made out strictly neutral.
Make no payment of consular fees. Documents will be deliver-
ed from the bank to the Mexican consul at Genoa for the
purpose of re-forwarding. The commission is to be placed to
account against consignment of goods. Please wire reply to
GUSOSA if agreeable. Request undertake export as soon as
possible."
Mairs F.E. POLLIO,
Lieutenant, U. S. Coast Guard,
Acting Chief Intelligence Officer.
Honorable Herbert E. Gaston,
Assistant Secretary of the Treasury,
Washington, D. C.
of
Visitantect
JAPANESE EMBASSY
WASHINGTON
3 pm Duc.13. 3pm Dec.13
MR.
December 7, 1939
108
My dear Mr. Secretary:
Mr. Tsutomu Nishiyama, Financial At-
taché to this Embassy, informs me that he
would like to have an interview with you on
any day between Tuesday, December 12 and Fri-
day the 15th, inclusive.
I should be very grateful if you would
be good enough to grant him an interview and
appoint the time at your convenience.
Yours very sincerely,
Kensuke Horinouchi
By month hurishing Counselor
The Honorable Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D.C.
169
TREASURY DEPARTMENT
PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR
WASHINGTON
M
December 7, 1939
MEMORANDUM FOR THE SECRETARY
The following tabulation is a brief picture of the motor situation for
1940.
1940
Estimated
Existing
Balance
::
Estimated Annual
Production
Orders
Available
::
Production
1941
::
Allison
1,288
753
535
::
1,860
Pratt & Whitney
8,900
8,379*
521
::
10,320
Wright
10,000
9,037
963
1:
10,000
: :
20,188
18,169
2,019
::
22,180
# Includes firm orders for 7,288 with negotiations
pending for sale of 1,091
The existing orders represent those motors required to take care of all pro-
grams that have been approved to date.
The estimated annual production for 1941 takes into consideration all ex-
tensions to plant facilities that have been made and are presently in the
course of being completed.
Director of Procurement
COPY
170
TREASURY DEPARTMENT
PROCUREMENT DIVISION
Washington
December 70 1939
MEMORANDUM FOR THE SECRETARY
The following tabulation is 8 brief picture of the motor
situation for 1940.
1940
Estimated
Existing
Balance
If
Estimated Annual
Production Orders
Available
II
Production 1941
=
Allison
1,288
753
535
=
1,860
Pratt & Whitney
8,900
8,379*
521
=
10,320
Wright
10,000
9,037
963
:
10,000
=
20,188
18,169
2,019
=
22,180
. Includes firs orders for 7,288 with negotiations
pending for sale of 1,091
The existing orders represent those motors required to take care
of all programs that have been approved to date.
The estimated annual production for 1941 takes into consideration
all extensions to plant facilities that have been made and are
presently in the course of being completed.
13/ H. E. Collins
Director of Procurement
171
December 7, 1939
My dear Mr. President:
I beg to acknowledge receipt
of your letter of December 6th and
have instructed Captain Collins to
carry out your wishes as outlined
therein.
Yours sincerely,
(Signed) H. Morgenthau, Jr.
The President,
The White House.
By hand
at pm on 12/9/39
BK227
December 7. 1939.
172
Capita E. 1. Collins,
Director of Procurement,
treasury Department.
Ky door Capsain Collins:
I have received the following letter from the President:
"The White House
"Washington
"December 6, 1930.
"My dear Mr. Secretary:
"I have created an informal committee to represent
the American Government in its contacts with the inter-
ested fereign governments in all matters relating to
the purchase of war materials in the United States, cos-
sisting of the following:
"(a) The Director of Procuresses, Treas-
ary Department: (b) The
of the Amy; (e) The Paymenter General of the
Harry.
"This exmittee will serve as the exclusive licisen
with reference to procurement matters between this Covern-
must and the interested foreign governments. It will hold
sessions at least case weekly, and at meh more frequent
intervals as my be assessary. At these sessions, it will
receive as accredited representative of the embassy of any
interested foreign genermant for the purpose of giving
consideration to the requirements of such government for
supplies, equipment, and materials, in relation to: (a)
availability of the desired articles, (b) prierities, and
(e) prices. the condities will submit a complete report
of its proceedings, aste and recommendations, at least
weekly, to the Preeident through Mr. MaReynolds.
The Secretary of State has informed the British mi
French Ambassadors of this arrugment.
173
"will you please inform the Director of Procure-
most of his designation as a member of this committee
and ask his to serve as its chairman.
"Sincerely,
(signed)
"FRANKLIN D. ROOSEVELT
"The Honorable,
"The Secretary of the Treasury."
In view of the President's letter to no, I hereby instruct
you to perform the duties as outlined in his letter.
Sincerely,
Secretary of the Treasury.
rightines
174
December 7, 1939.
MEMORANDUM
TO: Secretary Morgenthau
Mr5
FROM: Mr. Gaston
SUBJECT: Radio equipment of yawl LEKAIA.
Admiral Waesche obtained the following information by telephone.
The generator aboard the LEKALA is of the type used for radio trans-
mission but it is not connected with any apparatus. The LEKALA carries
two ordinary broadcast receivers but has no radio transmission apparatus
other than this unconnected generator. It is a Blue Diamond generator
with double wound armature and two commutators, one coil producing 73
volts for heating tubes and the other coil producing 110 volts for plate
potential. The presence of the generator indicates that the persons
aboard the LEKALA probably contemplated later installing radio trans-
mission equipment.
Waesche has received two communications bearing on the LEKALA.
Crie is from Wallace Hottson of Greenwich, Connecticut, who says that a
man named Edward Keerling, a very intelligent man and a rabid Nazi,
worked for him as a butler about a year ago. He gave a description of
Keerling which answers the description of the nan of the same name aboard
the LEKALA. Waesche has also received a letter from Keerling himself,
in which the latter thanks the Coast Guard for courteous treatment, but
says that at the same time he feels moved to protest against being re-
peatedly detained. He says that after the District Attorney in New York
told them they were free to go he called up the Coast Guard District
Commander and got his permission to leave, but that later they were
hailed and boarded at Cape May, at Chesapeake City and Loorehead and
finally at Wrightsville. His letter contains the question: "Is it a
crime already to be a German?" and adds that in any event he would rether
be a German than an Englishman. He says that their plans are to go to
Viani to spend a peaceful winter, if they are permitted; that he intends
to travel outside from Cape Fear to Niami and that he will check in at
Charleston. He adds also that he would be glad to have the convoy of
a Coast Guard patrol boat all the way for companionship and safety. His
letter contains a footnote that he is sending B. copy of it to the British
Enbassy.
174A A
THE WHITE HOUSE
WASHINGTON
December 7, 1939
My dear Mr. Secretary:
I am enclosing an addendum to the
Memorandum on British Taxes which you might
like to have.
Sincerely yours,
Landhi Currie
Lauchlin Currie
Administrative Assistant
to the President
Honorable Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D. C.
174B
Addendum
Memorandum on British Taxes of the European War
National Defense Contribution
The yield from the National Defense Contribution levy
rose from L 1.4 million in 1937-38, its first year, to
1 21.9 million the next, and amounted to L 10.2 million in
the fiscal year 1939 up to August 26, 1939.
The National Defense Contribution must be paid in the
future only by those businesses which are liable to no tax
under the excess profits levy or to a smaller one than they
would be under the Defense Contribution. To this extent,
the National Defense Contribution imposes at least a moderate
tax on profitable businesses which already had high profits
in the standard period.
M
PARAPHRASE OF TELEGRAM RECEIVED
175
FROM: American Embassy, Paris, France
DATE: December 7, 1939, 7 p.m.
NO.: 2924
FOR THE TREASURY.
This evening we called on Rueff, the Under Governor
of the Bank of France. We asked him what progress was being
made in the negotiations for a financial agreement between
Great Britain and France to complete the inter-allied
cooperation measures. Rueff replied that they were making
satisfactory progress, but that negotiations are at a delicate
stage, and nothing has been signed as yet, 80 he was reluctant
to discuss details of the arrangement. However, he indicated
that when the agreement 18 signed, it will be a far-reaching
one and very close monetary cooperation between Great Britain
and France will be provided for therein.
financial
Rueff said the internal/situation was quite satisfactory,
and the "closed capital circuit" was flowing at as good a
rate as they could have anticipated for it. Subscriptions
to armament bonds are now averaging for each period between
350,000,000 and 400,000,000 francs - repatriated capital of
course accounts for much of this, but the return flow of such
capital 18 drying up gradually.
At the Bank of France we talked with our friend, who
said that while the fund continued to gain on a diminishing
scale from private repatriations in dollars and sterling,
the
Regraded Unclassified
176
- 2 -
the requirements of the Treasury are now 80 heavy, particularly
for payments for airplanes, that steady losses are shown for
the fund. Our friend expressed pleasure that the recent
shipments of gold, by warship, had arrived safely. He said
that he regretted that prior notice of shipment could not
be given to the Federal Reserve; he had been given strict
instructions not to do 80, as the authorities have definite
knowledge that there 18 a "tap" on every means of communica-
tion. He indicated that in the near future they do not
contemplate making any further shipments of gold.
This afternoon's PARIS SOIR carries an interview with
Paul Reynaud which, however, contains little that 18 new.
The headline quotes him as saying; "Yesterday I said: buy,
produce, Today, I say: produce more". This 1s the general
tone of the interview and he emphasizes the need for sacrifice
and for a "stable economy". "We seek to stabilize prices by
a strict system of control and in general we have succeeded
since the index of retail prices in Paris decreased between
August and October. But at the same time it 1s necessary
he stated to tax income not only for moral reasons, 80
that the scahdals of the last war are not reproduced, but
also to avoid the most unjust of all indirect taxes because
it strikes harder on the necessities of all classes: namely,
a rise in prices.
END SECTIONS ONE TWO AND THREE.
BULLITT.
EA:LWW
177
REB
GRAY
Paris
Dated DECEMBER 7, 1939
Rec'd 7:25 P. m,
Secretary of State,
Washington.
2924, DECEMBER 7, 7 P. m. (SECTION FOUR)
"That is why WE have taxed profits of Enterprises,
whether they are working for the national defense or
not and have taken off the ceiling which until this
year limited the progressive general tax on big fortunes.
This is beginning to reduce the burchasing power of
merchants and indifferentists and all those Enjoying
big incomes". (This last in answer to criticism against
the 15% tax on salaries of the non-mobilized and general
demands of the Socialists to soak the rich more heavily).
HE closed his interview with a tribute to his "British
blue book friend and colleague" Sir John Simon and
praised his financial Effort (presumably returning the
latter's complimentary remarks of two days ago).
The budget report of the Chamber Finance Committee
indicates that between January 1 and November 11 appro-
priations for the ordinary budget for the current year
have increased since the approval of the finance law for
1939
178
REB -2-#2924, From Paris, DEC. 7, 7 P. m. (Sec. Four)
1939 (SEE the Embassy's despatch 3631 of January 10,
1939) November by 40,484,000,000 francs and the special
these
armament budget by 51,717,000,000. Under / circum-
stances up to November 11 total appropriations for the
ordinary budget amount to 106,849,000,000 and for the
special armament budget 79,112,000,000, making a total
of 185,966,000,000 francs for the year 1939.
Debate on the 1940 budget opened in the Chamber of
Deputies today.
BULLITT
NPL
179
LM3
GRAY
Paris
Dated December 7, 1939
Rec'd 7:30 p. m.
Secretary of State,
Washington.
2924, DECEMBER 7, 7 P. m. (SECTION FIVE)
According to LE TEMPS the LEAGUE of Nations budget
for 1940 now before the Budget Committee of the LEAGUE
totals 21,615,000 Swiss francs compared with 32,204,000
Swiss francs for 1939.
The Bank of France statement dated November 30 re-
veals a decrease in commercial advances of 482,000,000
to a total of francs 5,234,000,000. Open market opera-
tions increased 445,000,000. Thirty-day advances in-
creased 214,000,000. The Treasury did not draw further
upon its advance account at the Bank of France, Note
circulation increased 2,626,000,000 to a total of
149,370,000,000 a "high" since the war started.
BULLITT
NPL
180
REB
GRAY
Paris
Dated DECEMBER 7, 1939
Rec'd 8 P. me
Secretary of State,
Washington,
2924, December 7,7 p. m. (SECTION SIX)
This substantial increase is largely due to monthend
requirements. On the other hand current and deposit
accounts decreased 1,923,000,000. PERCENTAGE of gold
cover dropped to 59.41% as against 59,67%.
After a firm and active opening securities weakened
on profit taking and with B. few EXCEPTIONS rentes and
industrial securities showed irregular but unimportant
gains and losses at the Close. Official Exchange rates
remained at the same level.
(END OF MESSAGE)
BULLITT
NPL
CEN
2:10 PM.
12/7/39
Mr. Sullivan:
181
mr. appel had
last hage resister
6 and substituted it for
the one originally
given you
Jm3
182
TREASURY DEPARTMENT
BUREAU OF INTERNAL REVENUE
IT:P:CA
CAA
Memorandum of Vinson Act Conference
In ret
Consolidated Aircraft Corporation request
for closing agreement.
Place of meeting:
Room 3012, Internal Revenue Building,
Washington, D. C.
Time of meeting:
2:30 to 7:00 P.M., Wednesday, December 6, 1939.
Present at meeting:
Treasury Representatives:
John L. Sullivan, Assistant Commissioner of Internal Revenue.
Treasury Interdepartmental Committeemen
John W. Burrus, C. A. Appel and H. T. Reiling.
From Engineering and Valuation Division, Income Tax Unit
8. P. Hatchett and Dean W. Martin.
Navy Department Representatives:
Admiral I. B. Bass.
Captain S. Y. Kraus.
Commander L. B. Richardson.
Commander Braine.
Mr. Warren MoLaine.
Contractor's Representative:
Major R. H. Fleet, President.
This conference was directed earlier in the day by the Secretary
of the Treasury at B. hearing held in his office in regard to another
matter, when the Havy representatives took occasion to state that the
Consolidated Aircraft Corporation had filed with them a revised pro-
posal for furnishing 200 airplanes of a certain type, the previous
proposal having been the subject of consideration in connection with
a request filed by the corporation for a closing agreement. The
Secretary of the Treasury pointed out that the contractor has
adopted a procedure of dealing first with one Department and then
with the other and he expressed the opinion that a conference with
the contractor should be hold at which representatives of the Havy
and Treasury Departments would be present, and endeavor should be
made to como to an agreement with the contractor, if possible. He
directed that Mr. Sullivan take charge of the matter and hold the
conference.
Regraded Unclassified
183
-2-
At the opening of the conference, the Mavy representatives pro-
duced copies of the revised proposal of the contractor. So far as
material here, the revised proposal consisted of a. change in form
by stating that "We must have & closing agreement with the Govern-
ment" without going into details of the agreement.
Major Fleet, president of the corporation, was invited to state
his case. He is of & genial, loquacious personality stated to have
o. fine background of achievement in aviation, and be is inclined
continually to stray away into a discussion of extraneous matters.
It was frequently necessary to direct his attention back to the
matter in hand. It required a great deal of discussion with him to
ascertain exactly and to reduce to simple terms what he had in mind
in regard to the closing agreement which was drafted and sent to him.
For these reasons, the conference took a great deal of time.
Mr. Sullivan bore the brunt of the protracted discussion (four
and one-half hours) and throughout his efforts were directed to
making clear to Major Fleet what the draft of the closing agreement
provided; to give him an understanding that it is not possible in
a closing agreement to allow to a. contractor any more than he would
be entitled to under the law and the regulations or to which any
other taxpayer would be entitled under like circumstances, and
that every effort has been made to give assurance to the contractor
8.8 to treatment of the cost of the additional facilities as is
possible under the facts and circumstances. Major Fleet, at the
beginning of his argument, made the demand that 60% of the total
cost of all of the facilities including the building must be
written off as cost of the Navy contract; his expressed reason
for this is the opinion that there is a possibility that the
added facilities will not be of sufficient use in the business.
During the course of the discussion, be admitted that there is a.
possibility that he may seek to acquire contracts for export of
planes to foreign powers, provided he can secure permission of
the Government for such export. During the discussion, in which
Mr. Sullivan patiently went over the applicable provisions of the
law and regulations and made plain that everything has been done
in the draft of agreement that may be done under the facts
applicable at this time, Mr. Sullivan finally asked Major Fleet
if he had carefully read the proposed agreement. Major Fleet
replied that he had not. Thereupon, at Mr. Sullivan's suggestion.
Major Floot and the Treasury Interdepartmental Committmen, Burrus,
Appel and Reiling, retired to an adjoining room in Mr. Sullivan's
suite, sat down around the table, and went slowly and carefully
Regraded Unclassified
.84
over the wording of the agreement. Upon the completion of con-
aideration of each paragraph of the draft, Major Fleet was asked
to indicate whether he objected thereto and he finally, with
respect to each item, stated that it was acceptable. The parties
then returned to the main conference room and reported to Mr.
Sullivan.
When asked by Mr. Sullivan if he was ready to accept the agree-
ment, Major Fleet began 6. long discussion of the provision in para-
graph 5 of the draft requiring that the contractor indicate within
three months following completion of the contract its intention to
discard the assets. Major Fleet stated that this provision was
unsatisfactory to him and that he would like the Government to give
him the privilege of deferring a decision relative to discarding
the assets until the period of the emergency is completely ended,
and if it was then decided to discard the assets the resulting loss
should be spread back over all of the operations in all of the years
involved under the emergency. His discussion indicated that he
realized that this might involve a number of years, even as much
as ten. Mr. Sullivan informed Major Fleet that such & proceeding
could not be done under the law. It was explained to Major Fleet
that the discarding of the ensets should follow at once upon the
completion of the contract but that it was judged that he was
fairly entitled to & reasonable time in which to carry out his
decision and that the Treasury Department would be willing to agree
to the three months' interim provided in the agreement for such
purpose. After further discussion, Mr. Sullivan asked Major Fleet
if it would be satisfactory to him to make the period for carrying
out the discard six months instead of three. Major Flest replied
that it would not be satisfactory to him, It appeared that Major
Flect's dissatisfuction was directed more against a. necessity for
making a decision rather than against 6. stated period of 11 few
months. Major Fleet then asked if the corporation decided to
discard the assets and take its loss against the Vinson Act con-
tract and also for income tax purposes, whether subsequently it
could decide to reinstate the basis for the assets upon its books,
thus reversing the previous charge-off. Major Fleet was informed
that this could not be allowed. It appeared et the end of the
conference that Major Fleet's mind was not made up 0.0 to whether
it would be advantageous to the corporation to treat the assets
the one way or the other.
Mr. Sullivan asked Major Fleet to state when EA deoision may be
expected from him whether he will dosire to enter into M. closing
agreement. Major Fleet replied that he desires to 80 to New York
City and consult advisors, a Mr. John Hancock and Messre. Lehman
Brothers, but that he expects to return on next Monday, December 11,
1939. when he will lot Mr. Sullivan know his decision.
Regraded Unclassified
185
-4-
The representatives of the Navy Department carefully refrained
from any endeavor to influence the representatives of the Treasury
Department and they were generously helpful in keeping Major
Fleet's discourse to the matters under consideration. At the
end of the conference and after Major Fleet had left the room,
Captain Kraus, Admiral Bass, Commander Richardson and Commander
Braine were each asked, in turn, if they thought that the Bureau
of Internal Revenue is fully cooperating with them and were re-
quested to speak frankly in this regard; they replied that they
are thoroughly satisfied and that the conference had been both
interesting and informative to them.
Regraded Unclassified
186
AC
PLAIN
London
Dated December 7, 1939
Rec'd 2:35 D.M.
Secretary of State
Washington
2562, DECEMBER 7.
FOR TREASURY.
1. The approach of Christmas is doubtless one
factor influencing the note circulation which increased
by 5.2 million pounds this WEEK. The Bank of England
return shows that Government assurities increased by
5.1 million pounds and other securities by 1.9 million
pounds, thus more than offsetting the note circula-
tion advance. However, in smite of the var loan divi-
dend payment on Thursday last this week's return (as
of Wednesday) shows a heavy decline in bankers'
deposits which dropped by 17.2 million pounds while
public deposits rose by 19.3 million pounds. The
concentration of payments for Tressury bills in the
last days of last WEEK and possibly also the purchases
of new 5 pound defence bonds partly account for this
movement but can ot wholly Explain the figures.
According to a statement by Simon in the House of Commons
today the new defence bonds sales to date total about
11.2
187
- 2 - #2562, DECEMBER 7, from London
11.2 million pounds and the new National Savings
Certificates sales about 10 million pounds.
Banker's deposits which now stand at 86.3 million
pounds are at the lowest lEVEl since August 9 when
they stood at 81.9 million pounds and compare with
the war period peak of 116.8 million pounds of October
25. Public deposits now at 47.1 million pounds are at
an Exceptionally high level. The reasons are obscure,
probably lying in operations of the Exchange Equaliza-
tion Account. The fact that the Tap Treasury Bill
issue increased during the WEEK Ending November 4, as
reported in the third paragraph of No. 2551 of DECEMBER
6, may also bE an indication of some such operations.
2, With further reference to the fourth paragraph
of telegram No. 2497 of November 30, 6 p.m. the Chancel-
lor of the Exchequer yesterday addressed the National
Joint Advisory Council which is a war body composed of
representatives of the British Employers Federation and
the Trades' Union Congress General Council. The Trade
Union representatives had asked for further information
in Explanation of Simon's statements last WEEK regarding
the "fearful sacrifices" to bE EXPECTED and especially
with regard to his reference to the fact that remunera-
tions could not automatically increase with the rise in
costs
188
- 3 - #2562, DECEMBER 7, from London
costs. Little is published of the meeting. The TIMES
reports that the Chancellor of the Exchequer gave a long
and detailed Exposition and that the meeting was treated
by the Government as of great importance and was attended
also by the Minister of Labor, Financial Secretary of
the Treasury, Sir William Brown of the Board of Trade
and representatives of the Mines Department and the
Ministry of Food.
The Advisory Council's duties are to advise the
Government on matters common to Employers and workers,
wage rates being, of course, a most important question.
THE TIMES quotes an official revort of the meeting as
follows: "A general discussion was opened and will bE
continued at the next meeting of the Council to bE hEld
on January 3."
Meanwhile the Trade Union Congress General Council
through its economic committee is making a study of
the relation of prices and WBCES. Incidentally, most
of the press gave no news of this meeting EXCEPT, in
one or two CBSES, that it was held, and the Labor
DAILY HERALD does not mention it today.
3. There was a slight increase in retail trade
turnover in October, probably largely accounted for by
increases in prices. The increase was one of 6.5 per
cent
189
- 4 - #2562, DECEMBER 7, from London
cent over October 1938 as compared with an increase in
September of 13.9 per oent and in August of 6.4 per
cent over the corresponding months of last year. The
London figures continue to fall with provincial areas
showing the gains.
4. The significance of the Australian loan of
4.6 million pounds underwriting for which begins to-
morrow, for the conversion of two Tasmanian securities
is taken to bE the fact that funds hEld in London by
Australia could bE used to meet the maturity payments
but that the depletion of these funds would bE unwise
in the present circumstances.
5. In reply to a question in the House of Commons
today as to whether he has noticed the wide concensus
of opinion among people of Experience of business and
finance that there should bE a Minister in the War
Cabinet responsible for economic coordination with
responsibility for the work of the Board of Trade, the
Department of Overseas Trade, and the Ministries of
Food, Supply, Shipping and Economic Warfare, the Prime
Minister said:
"I have noticed a certain number of letters in the
press to the Effect Mr. Attlee refers to, but I have
not noticed that these are written by people with any
Experience
190
- 5 - #2502, DECEMBER 7, from London
Experience of government themselves."
JOHNSON
ALC
MECEINED
ecer 0030
Available
December 7, 1939.
201
ULTRA-CONFIDENTIAL
MEMORANDUM
To:
Secretary Morgenthau
From: Mr. Gaston.
Mrs
In the course of El telephone conversation yesterday (Widucally)
Assistant Secretary of State Berle told Huntington Cairne that
he would seek an opportunity to discuss with the Premident the
policy to be applied to problems arising under the Neutrality
Act. Berle indicated disagreement with conclusions voiced by
Senator Key Pittman at an inter-departmental conference held
in the office of Judge Moore, Counselor of the State Department,
on November 30, 1939. These conclusions seem both to Judge
Townsend of the Department of Justice and to our lawyers to be
in harmony with the law and with the intent of Congress as re-
vealed by the Act itself and by the debates in Congress end of
Senator Pittman's statement of the intent of Congress 98 he
by
understands it.
Mr. Berle indicated that the questions would have to be
decided finally in the light of Administration policy which he
thought would be formulated after a discussion in Cabinet. At
the meeting on November 30th, Senator Pittman outlined his position
substantially as follows:
"The purpose of the Neutrality Act of 1939 was
to prevent and forestall any situation arising in which
the United States might have to make strong repre-
sentations to any belligerent or as B. result of which
public opinion in the United States might be aroused.
The test that should be applied, in all cases where
any doubt appears as to the intention of the Congress
in the Neutrality Act of 1939, should be: 'What
interpretation is the least likely to get the United
States involved in the war?' In cases where the ap-
plication of that test would interfere with current
business practices, those practices must yield to
the peace policy of the Congress."
There appeared to be general agreement at the meeting that
the policy expressed by Senator Pittman was logical and sound and
should be adopted. Mr. Cairus, however, understands that Mr. Berle
now takes the position that public sentiment in the United States
182
- 2 -
is undergoing a repid transformation and that the policy of the
Administration should take this into account and not be too
closely bound by the policy that would be deduced from the action
of Congress by the sentiment existing in Congress at the time the
Neutrality Act was passed. I think it has been the consensus
here in the Treasury that the only safe course 18 to adhere
strictly to the letter and spirit of the statute in the light
of the purposes quite forcibly and clearly stated by Senator
Pittman. It is our belief that to do otherwise would (1) impair
the dignity and reputation of the United States with respect to
faithful observance of its own laws; (2) create much greater
difficulties in interpretation of the law once a clear-cut
line of policy was abandoned; and (3) greatly increase the
likelihood of controversy with other nations on account of
losses by American citizens.
Sir questions were asked at the November 30th conference,
to all of which the answers by Senator Pittman, by the Department
of Justice and by the Treasury Department are "No". Typical
questions are these:
"May goods consigned and waybilled to B. belligerent be
carried by an American ship to EL neutral port not in 8 combat
area be there unloaded and trans-shipped?" This is the Bilbao
problem. The French Government contracted in the United States
for merchandise to be delivered to a French port (Marseilles).
After the passage of the Neutrality Act instructions were changed
to call for the delivery of the goods in Bilbao, but without 8
change in the ultimate consignee, which was the French Government.
We say that if an American ship is to move the goods they must be
billed to 8. neutral consignee in Bilbao.
"May goods consigned and waybilled to a belligerent be
carried to a neutral port to be there unloaded and trans-shipped
without transfer of title?" This is another aspect of the same
problem. We say that if the goods are consigned to a belligerent
an American ship can't carry them, and if a foreign ship is to
carry them there must be transfer of title.
"May arms and ammunition waybilled and consigned to a
neutral be carried by an American vessel to any belligerent port
to be there unloaded and trans-shipped?" This involves the
shipment of aeroplanes and other military supplies to China via
Rengoon. It presents 8. more difficult case than the other two,
which could be handled by a mere change in the form of billing
and consignment. We do not see how American ships can handle
this traffic unless a way is found to unload it at a neutral port.
193
- 3 -
All of the cases involve the same problem as that raised
by the transfer of the Trawlers to the French Line. The
fundamental question is whether it is to be our policy to respect
our own laws, or to find slippery ways to evade them.
194
December 7, 1939
Drew Pearson and Bob Allen were in today to discuss
their column of December 6th (copy attached.)
They
told the Secretary they would write a correction.
5
195
the
-WEDNESDAY.
DECEMB
Washington Daily
Merry-Go-Round
(Trole
By DREW PEARSON and ROBERT S. ALLEN
Bost depirmatic information
AL esselle 12 34 that the tartff
from Mosrow indicates that the
we nuressed from 90 centa to
sudden attack DD, Finland via
81,30
motivated preparily by the ML-
sugar dealers
nation to the
were numping sugar in New
by Rumania
York al Lbs nid will rate of
Beeretly Remania la A more
90 centa. And they dumped so
important Russian objective
much before 13:54 noon that
than Finiand. And while Fin-
the Obvernment lost around
land is a long way off. and as-
$2,000,000.
tensibly there 19 little contro-
tion Setween them. actually the
Capital Chaff
mander in which Finiand had
If you don't are much of
stalled off Maserw WM causing
Prank Murphy these dasa the
las of prestige in the Balkans.
reason la lint he les dolne a. los
In words. Romanie was
et diggine to
wundering whether Ruinia real-
bring about a labor peace Both
by meant trustress and whether
be and Rossevelt are desperately
she in turn couldn't out-maneu-
ansteur to put this across be
ver Stalin, just. M Finland
tore Prank goes up on the
seeped la be dolos.
Supreme Court Movie star
of prescipe was what
Melvyn Douglas garnered more
fini induced Elailn to act, so
fans in the White House last
condition to intelligence reports
week when President and Mrs.
comine out of Apparent-
Rooseveis gave & dinner for
to, he flaured that is was better
hum. At a New Deal luncheon,
to make mich & vigorous ex-
also, he met almost the entire
ample of Finiald that Romania
tuner circle-Ickes, Murphy,
and other Balkan objectives
Tom Corcoran, Ben Cohen,
would your without sar,
Aubrey Williams Lowell Mellett,
Doe group in the Beviet in
Lem Hendersch All. incident-
Der circle wanted to wait until
alty, ven invited to Hollywood.
Communist agitation inside
All accepted
Finined was so active that the
country could be shaken into
Santa Class Cotton
the Russian txp like a tipe
Henry Wallace. acting M Santa
prum, without a strungle. This
pulicy was being pursunt But
Class, with Milo Perking a
Bialin got impatient and de-
Ranta Class hriper. are plan-
ning a surprise Christmas pack-
evel that the Balkan program
age to the cotton industry. It
would have to be appended up.
will be a new stamp plan for
Finnish Notes
disposal of cotton goods to low
income families.
Resson the Bwider. despita
Much pleased with the surcess
neighberly distrest. don : do
of the stamp plan for disposal
something to help Pinisad is
of surplus foods, Wallace di-
tear et Germany. Hitler loss
rected Perkins, who runs the
bus had his eyes on Sweden's
Federal Surplus Commodities
fumous Iron mine and would
Corporation. to explore the par
like nothing better than an -
sibility of doing the same thing
cuse to more in on them.
with cotton goods. Perkins has
The British. as usual. were
had several conferences with
with about Runia Up until
busineu groups and la almost
the last mindte they were am-
ready to move.
Vilided Stalin would bot. move
The plan calls for distribution
in en Finland. Our State De
to relief families of stamps,
partment. retring uson British
which will be accepted M eash
information, thought so too.
in retail sitres for purchase of
Government Economy
heavy cotton goods, with as
mattresses. blankets, sheeta, time-
Earnest, economy-mindos
eis. overalls and plene goods.
Henry Morgenthau maista that
Wallace = hoping to blot from
all members of his Treasury De
American life the bitter United
partenol - his Couse Guard
States version of "The Man
radio in sending Government
with the Hor." pour farmer
telegrame However, Henry's
in patched overalls and thread-
screeny una a recent $3.24 tele-
hare shirt working in a field to
grain will cost the Government
increase the surplus of the col-
just about $1,000,000.
ton crop whose products the can-
All this happened when Room
not. afford to buy,
will removed the quotas on
Banker-New Deal Frod
sugar, thereby increasing the tar-
121 from 40 cents to $1.00 The
Don 1. be surprised if the loss
announcement was carefully
quiescent banker-New Deal result
un- for late in the afternoon,
flares up sexin soon.
wh 41 customs offices would
be crosed. no no DOP could rush
Inner Administrationista are
HUERT through some uninformed
sputtering mad over what hap-
customs house at the old Ré-cent
person at . secret meeting held
tariff,
in New York by Robert Hanes,
By next morning, the Treas-
new president of the American
ury figured, all upar importers
Bankers Association. To 100
and all eustoms houses would
leading tonkers De had -
legins of the tariff Increase, and
moned, the North Cardinian
it would be applied uniformly.
proposed that . fund of $259.-
Hownver, Secretary Margen-
DOS be raised to be used ter
thank accepting upart this plan.
"educational" purposes on neb
For the telegram from Wesh-
legislative tssues AA the Mead
inston En New York. amtil by
bill, which
Cotat Guard radio on the atter-
the A.B.A. bas bitterly opposed.
noon of September 11, did not
The New Dealare are cod-
reach the customs house in New
vinced that the real object be
York until around prom Sep-
hind the fund is to finance .
lember 12.
largescale attack on the Admin-
The Cost Guard now stames
istration. But what la making
naval radio for the delar The
them see and is the fact that .
Navy handles all Cossi Guard
number of the bankers at the
messages, and apparently the
secret power had Cheir n.
Navy doen't think the message
nencial bides saved by Oners-
urgent, so put 8. lot of routine
mist rescue measures in the
Regraded Unclassifie
naval messages ahead et #:
early months of the New Dral.
Anyway. the telegram took about
Variets plens are being du-
16 hours getting to New York.
card in the timer circle no
Meanwhile, the enllector of
the best say to bit back at the
in New York. having
bankets One proposal is for
read about the tariff Increase =
the President to fine a blast as
the pagers. trantically awalted
them. Another that the Senste
the telegram.
Banking Committee, head by
Finally, at admit 10:36. ha
New York New Dealer Bib Was
telephoned Washington and had
net, call Hates and other ABA
(Eve telegram read to nim. How
leaders for a. public enami-
ever prulations pata customs
nation A third is to have the
ettie
wast the receipt of tele
TNEC commit-
grapher orders before rasing the
Lee crack down.
tariff. ad. although the uls-
NOTE Hasel if : nrother of
gram was read over the phone at
Johnne Hanct. Undersocretary
STANDAR e FORM No. 14
Approved BY THE PRESIDENT
EARCH N. 1925
in 414
BUREAU
CUSTOMS
TELEGRAM
CHG. APPROPRIATION
CUSTOMS
OFFICIAL BUSINESS-GOVERNMENT RATES
Eye
VIA hr GOVERNMENT FACILITIES
PUN
52
September 11, 1939
Collectors of Customs
(See attached list)
Due to Public Notice by Secretary Agriculture accordance Item 501 :
Schedule II, Cuban Trade Agreement TD 47232, sugars and other products
covered thereby and entered for consumption or withdrawn from warehouse
for consumption on or after 11 PM Eastern Standard Time September 11,
1939. subject to duty at twenty per centum less than rates promilgated
in HD 47040 STOP No change in import compensating tax
Johnson
JOHNSON
78
73mg
30:1
Regraded Unclassified
DE PART MENTAL STOCK
FORM 2248
Treasury Department
TELEGRAPH OFFICE
BOOK OF 44 COPIES
TO COLLECTORS CUSTOMS
PORTLAND MAINE
PORTLAND OREGON
STALBANS VT
SEATTLE WASHN
BOSTON MASS
CREATFALLS MONTANA
PROVIDENCE RI
PEMBINA NODAK
BRIDGEPORT CONN
MINNEAPOLIS MINN
OGDENSBURG NY
DULUTH MINN
ROCHESTER NY
MILWAUKEE WIS
BUFFALO NY
DETROIT MICH
NEWYORK NY
CHICAGO ILLS
PITTSBURGH PA
INDIANAPOLIS IND
BALTIMORE MD
CLEVELAND OHIO
NORFOLK VA
LOUISVILLE KY
WILMINGTON NC
MEMPHIS TENN
CHARLESTON SC
DESMOINES IOWA
SAVANNAH GA
STLOUIS MO
TAMPA FLORIDA
OMAHA NEB
MOBILE ALA
DENVER COL
NEWORLEANS LA
SALTLAKECITY UTAH
PORTARTHUR TEXAS
SANFRANCISCO CAL
GALVESTON TEXAS
SANANTONIO TEXAS
ELPASO TEXAS
SANDIEGO CAL
NOGALES ARIZONA
LOSANGELES CAL
Regraded Unclassified
JUITONS
1939
TIA FACILITIES
SEP 11 PM 6/53
September 12, 1939
Collectors of Oursome
(Dee attached list)
Due to Public Notion by Docretary Agriculture accordance Item 501
Schedule II, Outmon Trade Agreement TD 47232, sugare and other products
overs thereby and ontered for consumption or withiram from warehouse
for consumption on or after 11 PM Bastern "tandard Time Deptember 11,
1939. subject to duty at twenty par centus loss than rates promigated
into 47040 3TOP No change in Import componsating tax
15112
JOHNSON
Regraded Unclassified
ARTMENTAL STOCK
FORM 2248
Treasury Department
TELEGRAPH OFFICE
BOOK OF FOUR COPIES
K E 73 TRSY
K WASHN SEPT 11 1939
DUE TO PUBLIC NOTICE BY SECRETARY AGRICULTURE ACCORDANCE ITEM
501 SCHEDULE IIXEMBAN II CUBAN TRADE AGREEMENT TD 47232 SUGARS
AND OTHER PRODUCTS COVERED THEREBY AND ENTERED FOR CONSUMPTION
OR WITHDRAWN FROM WAREHOUSE FOR CONSUMPTION ON OR AFTER 11 PM
EASTERN STANDARD TIME SEPTEMBER 11 1939 SUBJECT TO DUTY AT
TWENTY PER CENTUM LESS THAN RATES PROMULGATED IN TD 47040 STOP
NO CHANGE IN IMPORT COMPENSATING TAX
JOHNSON
702P
Regraded Unclassified
ARTMENTAL STOCK
FORM 2240
Treasing Department
SHEET TWO BOOK OF FOUR COPIES
K NO 13 TO GOV TRSY COLLECTOR OF CUSTOMS PHILADELPHIA PA
K NO 14 TO GOV TRSY JUNEAU ALASKA
K NO 15 TO GOV TRSY COLLECTOR OF CUSTOMS HONOLULU TH
K NO 16 TO GOV TRSY COLLECTOR OF CUSTOMS SANJUAN PR
705P
Regraded Unclassified
201
GROUP MEETING
December 7, 1939.
9:30 a.m.
Present:
Mr. Haas
Mr. Cochran
Mr. Gaston
Mr. Foley
Mr. Harris
Mr. Bell
Mr. Cotton
Mr. Duffield
Mr. White
Mr. Thompson
Mr. Viner
Mr. Riefler
Mr. Graves
Mrs Klotz
H.M.Jr:
(To Mr. Harris) Come up here and see if you
can't change your luck.
Harris:
I like to be near the door.
H.M.Jr:
I just wanted to explain something. I had
Mr. Currie come to the house this morning at
8:30 because I was upset yesterday about a
message from him on this question of depreci-
ation, and so forth and 80 on. It is perfectly
true that he did go to Mr. Foley during my
absence and then Foley went to Mr. Hanes, but
I didn't know that Mr. Currie was still con-
tinuing his interest in this question of de-
preciation. Nobody told me he was continuing
to work and therefore I had no way of knowing
that he was continuing to work, so these meet-
ings that I have had with the Navy - well now,
he wasn't invited in and various meetings were
held where he wasn't invited in, and normally
if the President has somebody who wants to
interest himself in something for the President,
he starts in on this level here, in this room,
and doesn't go down and work with people like
Kades, and so forth. I asked Currie, in the
future whether I was here or whether I wasn't
here, if there was something that he wanted
for the President, to come and see me, and that
goes for anybody in the White House, so that we
have had this at various times over the last
six years.
202
- 2 -
We once had a renowned Justice of the Supreme
Court who wanted something on taxes and he was
referred to me and got that straightened out.
It looked as though the President was trying
to check up on the Treasury. He never has and
he never will as long as I am here. As I told
Currie, it looked as though he had to check up
on what I am doing and when that day comes, I
pack up, because I take too many chances and
too many risks for him that I can't have any
doubt that he has any doubts. So Currie and I
understand each other. He couldn't understand
yesterday why he wasn't asked to attend the
meetings here. I didn't even know he was still
working on that. I don't think you (Foley) knew,
if I had asked you, that Kades had given him this
memorandum.
Foley:
Yes, I did. He asked me 1f it was all right. I
looked at it and it was just factual. Here it is
right here. I would like to have you look at it.
H.M.Jr:
No, I don't want to look at it now.
Foley:
There is no recommendation or suggestion, and what
this does is support the position which you took
yesterday.
H.M.Jr:
When I went into this meeting, I didn't know about
the memorandum and I was doing it just on a common
sense basis. I might also get the benefit of
what Mr. Currie has.
Foley:
This was a memo from Kades to me, summarizing the
background.
H.M.Jr:
But I was doing it, so to speak
Foley:
Ad lib? You did all right.
H.M.Jr:
You know, when you read the notes for the first
time
Foley:
By ear?
203
- 3 -
H.M.Jr:
Yes. But I didn't even have any notes. But
anyway, Currie and I had an hour. We under-
stand each other, but just for the benefit of
anybody, if there are any requests for material
for the President, I am going to continue the
policy I have always had. I want it to clear
my desk just the way we do it when the President
wants something and I go over myself. Other
departments do it by other methods, but - the
reason I have had to stick to this was because
the Treasury was in such a mess when the Presi-
dent put me in here and I think one of the
reasons he did put me in was just because it
was in such a mess, but I am just taking the
time because I was upset yesterday on account -
I thought that Currie was going to tell us how
to run Internal Revenue, but that was not correct.
I think it is easier for everybody. He is coming
over at 3:30. If he wants to do something, let
him go to work on Mr. Edison.
White:
Is there anything left of him?
H.M.Jr:
I don't know.
White:
I heard you did a. very marvelous Job yesterday.
H.M.Jr:
I should think the next time he comes he wouldn't
bring in the manufacturer with him.
Can you (Harris) tell me, so that I can tell the
boys at 10:30, why I send telegrams one way, and
so forth.
Harris:
On that sugar business?
H.M.Jr:
Yes.
Harris:
Well, there is a memo here on the whole subject.
Actually what happened was that the Department
of Agriculture slipped up on a little technicality
on publication of notice and no matter what had
happened to our telegrams, even though they had
gone out that quick, it wouldn't have changed the
thing because the Department of Agriculture failed
to give public notice on this change of duty, but
Thompson can tell you about the telegrams. It
doesn't look as serious from our standpoint as
it first did.
204
- 4 -
Thompson:
Yes, the telegram is marked "Government Facilities,"
but actually it went Western Union. The head of
the telegraph office is the one man who has the
responsibility of determining how they get there
and he found that Government Facilities weren't
available at 6:52 when this telegram was received,
so he checked with Western Union and Western Union
sent it. It went as a night letter. They didn't
get it promptly for that reason.
Gaston:
The change of duties was decided on at the moment
when the Department of Agriculture filed in the
Federal Register.
Harris:
That still doesn't get over the point that on a
telegram of that importance, I or someone should
have marked that "Urgent", or it should have gone
as a straight one, not as a night letter.
White:
Basil, was that important? It didn't matter when
they received the telegram because even if they
received the telegram the next day the payments
would have been made at the time when the Department
of Agriculture made public their letter. Therefore,
I would not regard this telegram as being of any
unusual importance. It didn't matter when it was
received,
Caston:
We didn't know that they had filed the formal
notice.
White:
I am merely indicating that this is not a telegram
upon which much depended.
Harris:
But it might have depended, Harry. If the Agri-
culture Department had done their end properly,
then
White:
No, Mr. Harris, I am sorry to disagree with you,
but I think that had they done their end properly
then it wouldn't have mattered when this telegram
was received because the law states that from
that moment on
Harris:
That is right, this was really only for the informa
tion
205
- 5 -
White:
A sort of confirmation.
H.M.Jr:
In view of the fact that the blame is on the
other department, what I would like you (Duffield)
to do is - will you tell the boys if they ask me
that you will be very glad to explain it to them
after the meeting?
Duffield:
I explained it to them once yesterday, Mr. Secre-
tary. They may not have any questions about it.
H.M.Jr:
And I would just like you to call up Bob Allen
and tell him that if he had taken the trouble to
check, he would have found that the telegram had
not gone Coast Guard but it went Western Union.
White:
Don't you think a letter ought to go from the
Department of Agriculture to him? I think that
thing ought to be corrected in the same column
and I think it ought to originate not from here
but from the Department of Agriculture,
H.M.Jr:
Why don't I have a little talk with Bob Allen, as
long as we have caught him off base? Find out
whether Pearson or Allen wrote that story and say
I would like to see him.
Harris:
I think you have only partially caught him off
base, because what he wrote was incorrect but
you are going to transfer the blame from this
department to Agriculture.
H.M.Jr:
Wouldn't that be fun?
White:
Well, it isn't so much an error, but unless that
thing is corrected in the same column, one gets
the impression that the Secretary is penny-wise
and pound-foolish. They were trying to drive
it and I think that ought to be corrected and I
think the Department of Agriculture has the
responsibility of setting them straight on it.
Harris:
My only thought was, would it be nicer if the
Secretary of Agriculture did it of his own accord?
White:
Yes.
206
- 6 -
H.M.Jr:
One or the other of the boys will be available
at 4:00 o'clock.
Duffield:
All right.
White:
Does the Secretary of Agriculture know about it?
H.M.Jr:
Who is going to do Social Security this morning?
Bell:
I am.
Klotz:
They are already here, aren't they?
Bell:
Yes.
H.M.Jr:
Do I receive them?
Bell:
You are chairman.
H.M.Jr:
Can I do my homework out loud while they are here,
like Frances Perkins does?
Bell:
I will give you the background and ask you some
policy questions, and so forth, and I think George
Haas ought to be here on the annual report.
H.M.Jr:
Are you going to sit in on this on my knee?
Bell:
Have you got a button some place?
Gaston:
May I suggest that you did your homework six
months ago. This was your scheme.
H.M.Jr:
Everybody is so nice to me today. Either they
think I have a guilty conscience or somebody
else.
White:
Just giving you back some of the apples we got.
H.M.Jr:
I knew they were good, but I didn't know they
were that good.
Allen and Pearson this afternoon if they want
to come over. I would just like to tell them.
We do that about once a year. It doesn't do
much good.
207
- 7 -
Duffield:
Sure.
H.M.Jr:
Here is an interesting telegram. Does anybody
see why I shouldn't give this out at 10:30?
This is from the Hollandale Rotary Club, Hollan-
dale, Mississippi,
"Friends of Finland in Hollandale Rotary Club
wish to contribute a dollar each to retirement
of the Finnish War debt to the United States
and would like to recommend that other cities,
bodies and friends do likewise immediately, that
we might give Finland a Christmas present of
her debt paid in full.' Twenty-six dollars.
Bell:
What are you going to do with it?
H.M.Jr:
What am I going to do with it? How many of us
are there here?
Bell:
Are you going to accept it?
H.M.Jr:
I will accept it and turn it over to the Finnish
Minister.
Bell:
I think that is what you have to do. The Depart-
ment of State had a number of those checks for
small amounts, one dollar or ten dollars.
H.M.Jr:
Any reason I shouldn't give that publicity?
Bell:
I see no reason why you shouldn't say that you
have gotten it but what you are going to do with
it, I think, might be
S.M.Jr:
Well, I will endorse it to the Finnish Minister.
Bell:
Either that or the State Department for disposition.
I don't know whether anything was said on the radio
last night, but a radio commentator was standing
at Livesey's desk when his secretary came in and
said, "Here is another one of those Finnish debts."
Gaston:
Two of them called me up, Al Warner and Fulton Lewis
and they were both embarrassed because they were
getting telegrams and contributions to be turned
over to the Secretary of the Treasury. I told
208
- 8 -
them they had better find out some way to stop
that; that he wouldn't have authority to receive
them; that they should go to the Finns.
Bell:
I see no objection to your saying that you have
it and either turn it over to the Finnish Minis-
ter or the Department of State for disposition.
H.M.Jr:
Tell me which now.
White:
I should think the Department of State.
Bell:
I should think it would be handled through the
Department of State.
White:
You had no direct dealings of that kind. Moreover,
it seems to me if the funds were sent to you for
a specific purpose, there might be some question
of your turning over the check to the Finnish Minis-
ter's office.
Viner:
Who will endorse the check?
H.M.Jr:
I will endorse it. We won't do it at 10:30, Ed.
Take it and talk to Hackworth about it, will you?
Foley:
Yes.
H.M.Jr:
Talk to Hackworth about it.
Foley:
I think that is the only thing to do unless you
send it back.
Bell:
We have some gifts under wills to pay off debts,
one for France and one for Yugoslavia, I think,
but we took those up through the State and the
legations here before we applied them.
White:
How much was that one on France?
Bell:
That was a thousand dollars.
Gaston:
That is different.
H.M.Jr:
Would you like to handle this, rather than Ed?
Bell:
Oh no, that is all right.
209
- 9 -
H.M.Jr:
I think you had better take it up with Hackworth.
Bell:
Well, as a gift for that Government, it is some-
what along the same line.
H.M.Jr:
What are you going to do with Nellie Tayloe Ross'
boy friend up in New York?
Graves:
Mr. Foley and I think that situation is under
control. The office there is going to keep us
posted as to
H.M.Jr:
I don't agree with you. I am sorry, Harold. I
don't want to wait on them. I am going to direct
you now to communicate with Nellie Tayloe Ross
and tell her to inform us that that man is con-
ducting his office properly and if he is con-
ducting himself properly. I am not going to wait
for B. Grand Jury investigation.
Graves:
As we say in that memorandum, there is grave doubt
about his qualifications for his job.
H.M.Jr:
Then it is up to you and Nellie Tayloe Ross to
see whether Mrs. Ross can defend the man publicly
as to how he conducts his office, and if she can't,
he goes out. I am not going to wait for any Grand
Jury to force me to do this thing.
Graves:
I have the opinion that it would not do for us to
take any action while that proceeding is going on.
H.M.Jr:
I don't agree with you. The fellow hasn't been
conducting his office properly. It was brought to
my attention yesterday. I said to Nellie Tayloe
Ross, "If this man isn't conducting his office
right, suspend him."
Graves:
There is no impropriety in his conduct of that
office, as near as we can tell.
H.M.Jr:
If he only goes there one hour a day, it is a bad
example to all the rest of them.
Foley:
What Harold means, I think, Mr. Secretary, is that
if you had the transcript before the Grand Jury
210
- 10 -
that they are going to send to you through the
Department of Justice, then you will have
something on which to base your action, whereas
now you merely have information given us in
confidence by the United States Attorney who
has been in the Grand Jury room, and he has no
right to give us that information as to what
that man is saying, because that is secret.
H.M.Jr:
Do you need the minutes of the Grand Jury to
know whether the fellow is or isn't conducting
his office right?
Foley:
That is something else.
Graves:
That, of course, is true. We don't need - but
I was just questioning the advisability of taking
any administrative action with such & long standing
situation. It has gone on since the first of
January, 1935, just because we happened to have
discovered in a more or less confidential way
some facts about this man.
H.M.Jr:
I will direct you to direct Mrs. Ross to start
an independent investigation on our own.
Graves:
I will be glad to.
H.M.Jr:
A Treasury investigation as to how this man is
conducting his office. How about that?
Graves:
That is all right.
H.M.Jr:
0. K., Ed?
Foley:
Yes.
H.M.Jr:
We are talking about Solomon, the Director of the
Mint. He isn't living up to his name.
Gaston:
Not enough wives?
White:
The evidence is to the contrary.
H.M.Jr:
Herbert is good.
Who else has got anything not too serious?
211
- 11 -
Klotz:
Do you want to accept this memorandum?
H.M.Jr:
No, let Mr. Graves write it over again.
Harris:
Last night at 11:00 o'clock there was a piece
on the radio somewhat on the lines of what you
and I were talking in. Mr. Joe Kennedy had
just arrived from Europe and he had in his hip
pocket a complete memorandum on the solution
of the American Merchant Marine problem which
he had already cleared with the British and
had their full approval and he was going to
bring it here today. Quite interesting.
H.M.Jr:
Yes, you forecast that.
Bell:
Too hot for cables.
White:
Is it all right with the British, Basil?
Harris:
They would have to look at it first.
H.M.Jr:
Did you fix up Mr. Traphagen?
Cotton:
Yes.
H.M.Jr:
Everybody else happy?
Graves:
I have one thing. There is a matter I would
like to bring to your attention. We had our
hearings yesterday on the budget estimate for
Procurement. I think I should sometime during
this week have a few minutes to tell you about
that.
H.M.Jr:
Tomorrow. Manana. What is that song, "Down
Mexico Way"?
White:
Do you want to take a few minutes to go over
the Russian export situation which we now
have the figures for?
H.M.Jr:
Yes, manana.
(To Mrs. Klotz) I want to give Harold half an
hour and Mr. White, tomorrow sometime. Give
Harold 15 minutes and White fifteen minutes.
212
- 12 -
Harris:
That Tijuana business just amounted to nothing.
H.M.Jr:
I haven't done my mail this week.
Harris:
Only seven out of the twenty-five papers even
bothered to carry it out there.
H.M.Jr:
There is a fellow coming in, one of your agents,
at around 10:00 o'clock, somebody from Mexico
who asked to see me. Do you know about that?
Harris:
If it is the man I know, he is a terrific talker.
H.M.Jr:
Tell you what let's do. Supposing you, if you
don't mind - I said I would see him at 10:00.
Supposing you bring him in about 10:20. What
is the gentleman's name?
Klotz:
Sutcliffe.
H.M.Jr:
Would you bring him in this morning about 10:20
and then I will talk to him, as long as he is
one of your boys.
Harris:
He will be all set to tell you his life history.
H.M.Jr:
Well, I will tell him mine.
213
December 7. 1939.
10:18 a.m.
H.M.Jr:
Hello
Operator:
Secretary Wallace.
Go ahead.
Secy.
Wallace:
Hello.
H.M.Jr:
Hello Henry.
W:
Got your note Henry.
H.M.Jr:
All right.
W:
Be delighted to meet with you.
H.M.Jr:
Uhhuh. Well, any time you Bay that's convenient to
both of us.
W:
Wonder how it'd be to meet Just after Cabinet meeting
tomorrow.
H.M.Jr:
That's all right with me. That's all right.
W:
We'll just sit down there right after Cabinet meeting
and find out what we're un against.
H.M.Jr:
The only disadvantage of that is if the subject comes
up in Cabinet and the President asks whether we got
together we'll both have to say no. I was trying to
avoid that.
W:
Yes. Well, we'd have a pretty good alibi, say that,
frankly - you see I just got back last night and
it's an awfully tight schedule for me today.
H.M.Jr:
Well that's all right.
W:
And I have to go up before the Appropriations Committee
tomorrow morning and it makes it sort of tight.
H.M.Jr:
Well we can try it then, and if that isn't time enough
we can do it some other time.
W:
Or we could -
H.M.Jr:
That's all right.
W:
I tell you I could get over - get over early tomorrow
in the Cabinet room say about one-thirty.
H.M.Jr:
But I can't do it -
- 2 -
214
W:
How's that?
H.M.Jr:
I can't do it then.
W:
Could -
H.M.Jr:
It's all right, I -
W:
I could - we could make - no I guess it's just about
the only time we could do it would be at one-thirty
after Cabinet tomorrow because we've got this - just
booked up solid.
H.M.Jr:
Well, let's do it after Cabinet then.
W:
Yes.
H.M.Jr:
O.K.
W:
Fine.
H.M.Jr:
Goodbye.
TREASURY DEPARTMENT
215
WASHINGTON
no!
notimn. December 7. 1939
1mg
The Secretary of the Treasury presents his compliments to
the Honorable the Secretary of State and requests that there
be kindly transmitted to the American Ambassador at Paris the
attached memorandum of suggestions, which it is hoped may con-
structively assist in the continuing development of a system of
reporting to provide information directly pertinent to the
Stabilization Fund of the Treasury Department, without involv-
ing undue effort or excessive expense.
Enclosure:
Memorandum
TREASURY DEPARTMENT
216
WASHINGTON
December 7, 1939
MEMORANDUM
The following suggestions should guide the responsible officers of the
American Embassy at Paris in the preparation of cablegrams for account of
the Stabilization Funds
1. Do not cable weekly statements of central banks of Belgium,
Switzerland or the Netherlands. These are all on the news ticker. As
for Bank of France statements, mention only any outstanding items which
warrant analysis and would not be clear without your explanation.
2. Do not report on national finances, banking, taxes and trade of
any country other than France unless these subjects have some direct
bearing on France.
3. Exchange rates and trends of security markets are received here
by commercial news service earlier than your cablegrams. Submit only
observations upon or interpretation of significant movements.
4. With exchange control in force, day to day information on rates
and operations becomes less important. Follow all developments care-
fully and report fully by mail decrees, regulations, et cetera, on
foreign exchange, but cable only important facts immediately of interest
as policy matters or affecting American interests directly.
5. Do not cable decrees or regulations of only local importance.
6. Editorials and public speeches on financial subjects could be
more helpfully dealt with in occasional comprehensive written reports.
7. In non-confidential cablegrams endeavor to omit reference to con-
fidential cablegrams. Make only such reference to earlier messages as may
be absolutely necessary to a clear understanding.
8. The American Consul General at Basel is covering the B.I.S.
Uncla
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
217
DATE December 7. 1939
TO
Secretary Morgenthan
CONFIDENTIAL
FROM Mr. Cochran
The foreign exchange market was dull today with the sterling turnover
slightly smaller than that of yesterday. Sterling opened at 3.91-3/8 and on
some commercial demand, including rubber concerns, it advanced to 3.92. Around
noon, the Chase Bank reported that it had received instructions from abroad to
sell L200,000. At that time, one of the Japanese banks was also a seller and
the rate declined to 3.91-1/2. During the afternoon the rate improved in &
quiet market to 3.92. Toward the close some selling reappeared and the final
quotation was 3.91-1/2,
Sales of spot sterling by the four reporting banks totaled 1710,000, from
the following sources:
By commercial concerns
20 135,000
By foreign banks (Europe, South America and Far East)
& 575,000
Total I 710,000
Purchases of spot sterling amounted to L341,000, as indicated below:
By commercial concerns
6 249,000
By foreign banks (Europe and South America)
1 92,000
Total. 6 341,000
As shown by the turnover figures, sales of sterling exceeded purchases by
L369,000. All of this amount may have been taken into the positions of the
reporting banks, or part could have been retained by them for their own positions
and the balance sold to non-reporting banks. It is also possible that the full
amount vas sold to non-reporting banks.
Cotton bills totaling L134,000 were sold to the British Control at the
official rate of 4.02 by the following reporting banks:
1 128,000 by the Guaranty Trust Company
1 6,000 by the National City Bank
16 134,000 Total
- 2 -
218
Regraded Unclas
The other important currencies closed as follows:
French france
.0221-7/8
Guilders
.5309
Svice france
.2243
Belgas
.1651
Canadian dollars
12-7/8% discount
The Federal Reserve Bank received & cable from the B.I.S. requesting it
to obtain & license to transfer approximately $130,000 in gold from its Account
No. 1 to its Account No. 2. Account No. 1 is gold owned by the Lithuanian Bank
and Account No. 2 is the B.I.S.'s own gold. Permission to make this trensfer
vas granted to the Federal Reserve Bank of Iov York, This transaction is
probably a sale of gold by the Central Bank of Lithmania to the B.I.S.
Ve purchased the following amounts of gold from the carmarked accounts of
the banks indicated:
$1,500,000 from the Netherlands Bank
1,125,000 from the Bank of Mexico
700,000 from the Bank of the Republic, Colombia
300,000 from the National Bank of Belgium
$3,625,000 Total
The Federal Reserve Bank of New York informed us of a shipment of gold
valued at $1,925,000, by the Netherlands Bank, Amsterdam, consigned to the
Federal Reserve Bank of New York, to be placed under earmark for account of the
Netherlands Bank.
The State Department forwarded to us a cable sent by the American Legation
at Ottawa stating that the Royal Bank of Canada shipped approximately $77,000 in
gold to the Royal Bank of Canada, New York. This shipment will be sold to the
U. S. Assay Office at New York,
The spot and forward prices for silver in London were fixed at 23-5/16d and
23-1/24, respectively, B. decline of 1/8d for each delivery. The U. 5. squivalent
of the spot price was 41.024 and the forward price 40.874. Both Handy and Harman's
and the Treasury's prices for foreign silver were unchanged at 34-3/44 and 35#.
respectively.
We made five purchases of silver totaling 275,000 ounces in New York. All
of this silver vas nov production for forward delivery.
CONFIDENTIAL
TREASURY DEPARTMENT
219
INTER OFFICE COMMUNICATION
DATE December 7. 1939.
TO
Secretary Morgenthau
FROM Mr. Cochran
Mr. Butterworth telephoned me from New York at 12:20 noon today. He
was in the Federal Reserve Bank and was going to lunch there.
Butterworth spent most of yesterday meeting Ambassador Kennedy arriv-
ing on the Pan American Clipper. After consultation with the Ambassador,
who preferred that Butterworth remain in New York until Sunday, Butterworth
had decided to take the plane leaving that day rather than tomorrow, Friday.
Mr. Kennedy is seeing Mr. Whigham this afternoon. Butterworth has had no
word that he is to be present. I told him that if he did attend the meeting
we would like to have his confidential report thereon.
Today Butterworth talked with Messrs. Whigham and Gifford, who showed
him some of their cablegrams exchanged with London. Butterworth gained the
impression that these two men are getting "fed up" with the delay and with
the difficulty in getting London to make up its mind in regard to the
security proposition. Butterworth recalled that before Whigham and Gifford
left London several possibilities for handling the securities had been dis-
cussed, On shipboard these two men had eliminated all possibilities except
that of vesting. The nessages shown Butterworth would indicate that the
London officials have themselves not yet discarded the other alternatives,
such B.B. that of optional vesting.
Butterworth said that Measrs. Whigham and Gifford were entirely pleased
with the reception they have received on the American side, but are disappointed
with their lack of instructions from London, and are perhaps & little annoyed
that the matter is still unsettled when Ambassador Kennedy is arriving.
I told Butterworth that Knoke could bring him to date on the Bank of
England account situation, which I briefly summerized.
Butterworth wanted to know when be should speak with the Secretary, since
the latter had asked that Butterworth communicate with him before leaving
New York. I am passing this word on to the Secretary, who could reach him at
the Federal Bank during the lunch hour, or at the Waldorf Astoria later. If
Butterworth does not hear from the Secretary today, he will call back before
leaving New York,
I let Butterworth know that we would approve his trip to northern England
to be made at a convenient time.
TREASURY DEPARTMENT
220
INTER OFFICE COMMUNICATION
DATE December 7+ 1939.
TO
Secretary Morgenthau
FROM Mr. Cochran
I talked by telephone with Mr. Knoke at 10:15 this forenoon, He stated
that & cablegram had now been received from the Bank of England asking the
Federal Reserve Bank of New York to open the special account which has been
under discussion, and designating four individuals who can sign against this
account. These gentlemen are Messrs. Purvis, Greenley, Rae, and Osborne.
Any two must sign. The check forms are being printed, and the account is
being opened as of today. The Bank of England has authorized the initial
deposit, by instructing B. transfer of $5,000,000 from its "G" Account with
the Federal,
Mr. Knoke promised to send ne & copy of the telegraphic instruction under
reference, I asked Mr. Knoke if there WSS any authorization therein to make
the details of the account available confidentially to the Secretary. He re-
plied negatively, and recalled that in the meeting held in the Secretary's
office on October 19, which was attended by Messrs. Harrison and Knoke among
others, it had been agreed that the Secretary would take care of the nego-
tiating for this privilage. I told Knoke that this proviso had been included
in the general plan which we had submitted to Pinsent and had also cabled to
our Ambassador in London. Furthermore, on October 30 Pinsent had delivered
to us a message from the Chancellor of the Exchequer, the opening paragraph
whereof reads:
"The Chancellor of the Exchequer wiches to convey to Mr. Morgenthau
his personal thanks for his advice and assistance, and to say that be
readily accepts the proposal to open a special account with the Federal
Reserve Bank of New York, and agrees that Mr. Morgenthau should personally
and confidentially have access to it."
When Governor Harrison was in the Treasury last Saturday and I endeavored
to impress upon him the urgency of getting the account matter settled, the
question of access to the account by the Secretary arose. I read the above
quoted note from the British to Governor Harrison. I told him to go ahead with
his bank to bank arrangements and that if the eet-up as received by him from
the Bank of England did not contain the special proviso, the Treasury would take
the matter up either through Mr. Pinsent or through our Embassy in London. I
suggest, therefore, that when Pinsent comes back to Mashington from New York he
be shown 8. copy of the instruction from the Bank of England to the Federal Reserve
Bank, and be asked to 100 that the necessary instruction 18 sent from London to
complete the arrangement.
In answer to an inquiry made by the British as to how payments on outstand=
ing contracts should be handled, Knoke told me that be planned to reply that
these items should now be transferred to the new account. I agreed,
- 2 -
221
Knoke also told me that the Bank of France man, Rousseau, who had
accompanied the French gold via Canada, called at the Pederal Reserve Bank
and reported that he was instructed by telephone yesterday by the Bank of
France to remain in this country to sign the account of the Bank of France
to be opened with the Federal Reserve Bank of New York. It appears, there-
fore, that the French arrangement should shortly be consummated, although
the Federal has not yet received any definite instructions from the Bank of
France. This may be cleared up further when Leroy-Beaulieu visits us Friday
morning.
B.M.S.
222
December 9. 1989
Dear Beary,
I an writing you at the suggestion
of the President.
When you have s few minutes to spare,
I would be pleased to hear from you about
your tax program.
Yours sincerely,
Monorable Heary 1.Vallace,
Secretary of Agriculture.
223
Increase " 1980
I
I
£
1
-
suggestion
of the President.
E
I
i
s
É
1 E I 8 I s 1 M
your - program.
Yours sincerely.
I I
Security of Agriculture.
December 9. 1000
224
Done Heavys
I is writing you as the suggestion
of the President.
thes you have a fee startes to spare,
I weld be pleased to hear from you about
year tax program.
Yours sincerely,
Neaerable Heavy A.Vallass,
Secretary of Agriculture.
2211 THIRTIETH STREET
225
WASHINGTON, D.C.
Dear Henry
I am writing
your - at the suggestion
the Pres # When you
lane a few minute
to sfare I would hear
pleased to ^ learn
from you on about
your Hax He program
BK227
226
December 8, 1939.
9:40 a.m.
H.M.Jr:
Hello
Captain
Collins:
Good morning Mr. Secretary.
H.M.Jr:
Hello Captain.
C:
Just two minutes ago, sir, I had 8. phone from
Colonel Hynes in the War Department concerning the
letter.
H.M.Jr:
Yes.
C:
And he said that Mr. Johnson and Mr. Edison, I believe,
were going to see the President about it, because
Mr. Johnson had a Board set up which has been functioning
perfectly for about three months.
H.M.Jr:
Yes.
C:
And he said presumably the President didn't know about
that or he wouldn't have ordered the Board that we had
last night. So they're going to have
a talk with him today.
H.M.Jr:
Well, the - Johnson and Edison saw me last night at the
meeting.
C:
Yes, sir.
H.M.Jr:
And they went right after me and they said they thought
that this letter was most likely one of these half-baked
crazy ideas of McReynolds and Lauchlin Currie. Hello -
C:
Yes, sir, listening.
H.M.Jr:
So I said, "Well if you don't like it why don't you
tell the White House". So he said, "Well do you know
that we have a Board, so forth and BO on". So I said,
"Look, gentlemen, if you don't like this thing, see
just go to the White House, don't bother me with 1t".
C:
Yes, sir.
H.M.Jr:
Well, Johnson said, "We've got to come over and see you".
"Well", I said, "You can see me any time you want to,
I still say if you don't like it, the place to go to
is the White House".
Operator:
Operator.
H.M.Jr:
Yes. Hello.
O:
He hung up, or else he was cut off.
- 2 -
227
H.M.Jr:
Make up your mind.
O:
Well I don't know, he's not there. I'll get him back
for you. Just a minute.
Go ahead.
C:
Hello.
H.M.Jr:
Hello.
C:
We were cut off Mr. Secretary.
H.M.Jr:
Yes. What I'm Just saying 18, just keep calm, the
President had a month to think this thing over, he did
it and 80 forth and BO on, and we know that besides
wanting to see the French Mission there's another
thing in it. There's something the matter with your
wire Collins.
C:
Yes, sir, I'll have to have that checked.
H.M.Jr:
Yes. Well anyway the fact that the information 18 all
very amusing and -
0:
Well that's Just my attitude. entirely. It's most
amusing. I told you last night -
H.M.Jr:
Johnson 18 fit to be tied.
C:
Yes.
H.M.Jr:
Oh he's just fit to be tied. So -
C:
I hope his blood pressure goes to two hundred and
sixty.
H.M.Jr:
Is that enough?
C:
Well that'll stop him anyhow.
H.M.Jr:
O.K. All right.
C:
All right, sir. Thank you very much sir.
H.M.Jr:
All right.
C:
Goodbye.
228
THE GERMAN PETROLEUM SITUATION
12/8/39
CONCLUSION
230
Can Germany Obtain Enough 011 to Carry on the War?
Conclusions
In the preparation of this report, we have utilized surveye
prepared by Army and Navy Departments, as well as material
obtained from interviews with several leading oil men. Data in
many pertinent publications has also been examined. Neverthe-
less, the absence of definite factual material on many points
has made it necessary to essay evaluations concerning several
of the most important factors. Such information as we have --
which we believe to be at least as comprehensive as is available
to any Department of the Government, or any private corporation --
warrants the following tentative conclusions:
1. Germany has not achieved self-sufficiency in 011. Her
domestic production provided about one-third of her
recent peace-time consumption, and the highest increased
domestic production during the first 2 years of war will
not provide more than half of her minimum estimated war-
time requirements.
2. Germany will have enough oil within her own borders --
from stocks already on hand and from her current produc-
tion -- to meet her requirements for from 9 to 15 months
of real warfare with the present belligerents, excluding
oil which she will be able to import.
3. During the second year of real warfare, Germany will be
dependent upon the importation of large quantities of
oil; she will have to obtain from 20 to 50 million barrels
during the next 24 months to be able to continue effective
warfare during the second year. These figures are based on
an estimated war-time consumption of not more than 80
million barrels, which 18 20 million barrels greater than
the lowest estimate by reputable authorities and 250 million
barrels smaller than the highest estimate which is quoted
by reputable authorities.
4. The only sources from which Germany can obtain imports of
that magnitude during this war are Rumania and Russia.
In the years immediately prior to the war, Rumania has
furnished only about 10 percent of Germany's imports, and
Russia less than 1 percent.
This report was prepared chiefly by F. Taylor Ostrander, Jr.,
Division of Monetary Research, Treasury Department.
- 2 -
231
5. Can Rumania and Ruesia supply Germany with the oil she
needs? Rumania will have a large enough surplus of 011
production over consumption during the next 2 years to
supply Germany's war needs for the second year of war,
if most of that surplus goes to Germany. (Rumania's
export surplue 18 now between 30 and 35 million barrels,
and after & year or so, it might be increased to as high
as 45 million barrels.)
Russia exported only about 7 million barrels in 1938,
and 1s shipping less this year; if this entire amount
went to Germany, it would not be of great assistance.
Russia's oil production is about 5 times greater than
Rumania's, however. If consumption 1s held in check,
the elimination of her tremendous oil wastage or an
increase in her production might result in an increase
of Russian exports to at least 40 million barrels, the
total of her exports in 1932.
6. Will Germany be able to obtain the Rumanian and Russian
export surpluses?
Not more than one quarter of Rumania's exports have
been going to Germany. Because of Allied ownership and
control of & large part of the Rumanian oil fields, and
because of the profitable opportunities for alternative
sale of her oil for free exchange, Germany can obtain
the entire Rumanian export surplus only if the Rumanian
Government, either through fear or inclination, actively
cooperates on the German side. Even with Rumania's active
cooperation, Germany cannot obtain Rumanian oil unless
Russia continues at least her present degree of passive
cooperation. Because of geographic and military strategic
factors, Russia can, if she wishes, prevent Germany from
obtaining Rumanian 011. After the first year of warfare,
Germany's war machine will be absolutely dependent, for
its oil supplies, upon Ruesia's foreign policy. Germany's
foreign policy and plan of campaign, even during the first
year, must take cognizance of that somber fact.
Even if she obtains the political cooperation of these
two countries, tremendous obstacles of payment and
transportation must be overcome before Germany can obtain
the required amounts of oil from them. Yet these obstacles
are not insurmountable.
7. Time 1s in Germany's favor -- 80 long as Russian coopera-
tion continues. The longer war continues, the more likely
it will be that Germany can increase her own domestic
production significantly, develop adequate means of trans-
portation to the East, bring about an increase in Rumanian
and Russian oil export surpluses, and, if Rumania 18
232
- 3 -
recalcitrant, complete a successful invasion of that
country -- of course, providing Russia permits it,
which is unlikely.
8. These conclusions will have to be modified if Germany's
war-time requirements for oil are considerably higher
than 80 million barrels a year, if her stocks are
significantly less than 30 million barrels, or if her
refineries are destroyed by aerial bombardment; in these
cases, her dependence upon imports would arrive earlier
and be correspondingly greater. If Germany's stocks are
significantly larger than 60 million barrels, her
dependence upon imports will be correspondingly delayed.
9. The effort to prevent her war-time oil consumption from
rising will considerably handicap Germany's full and
free use of her highly-mechanized war machine; she will
have to make constant adaptation of her military strategy
to her available oil supplies.
10. Germany should have sufficient aviation gasoline for
intensive aerial warfare, but the performance of her
planes will not be up to the standard set by the Allied
planes. The new 100-octane aviation gasoline, which
improves airplane performance so markedly, will not be
as freely available for use by Germany's air force as
it will be for use by the Allied air forces.
Relations
belongs_to
belongs_to