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Volume 243, February 27 – February 29, 1940
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Volume 243, February 27 – February 29, 1940
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 243
February 27 - 29, 1940
- A -
American Securities Owned Abroad
See War Conditions
Book Page
Argentina
See Latin America
- B -
-<
Brazil
See Latin America
Business Conditions
Haas memorandum on meeting held in Federal Reserve
Board room; present: representatives of Agriculture,
Commerce, Labor, Budget, Central Statistical Board,
National Resources Committee, Federal Reserve Board,
Treasury, and Executive Office of the President -
2/28/40
243 108
- C -
Canada
See War Conditions
Chile
See Latin America
- D -
Denmark
See War Conditions
Diamonds (Industrial)
See War Conditions
- E -
Ecoles, Marriner S.
Correspondence between Eccles and HMJr concerning
New York Times article on David Lasser (President,
Workers Alliance) - 2/28/40
71
a) "Ecoles cites ourb on special funds;
their use for relief needs vote of Congress,
he says in letter to Lasser"
b) HMJr's answer - 2/29/40
263
o) Ecoles' further letter: See Book 245, page 301
Evans, Peyton (General Jounsel, Farm Credit Administration)
Resignation discussed at 9:30 meeting - 2/28/40
65
Regraded Uclassified
- F - -
Book Page
Financing, Government
Public Debt status discussed by HMJr, Bell,
Smith (Budget), and Currie - 2/27/40
243
25
3/15/40:
Haas memorandum on "setting" - 2/28/40
98
HMJr asks Watson time of appointment for March 3rd - -
2/29/40
258
a) Answer: 4 o'clock Sunday afternoon or
Monday luncheon
261
1) HMJr accepts both: See Book 244, page 139
Bell memorandum giving estimated financial position
for twelve-month period ending December 31, 1940.
265
a) No part of $700 million which Budget
contemplates recapturing from Government
corporations and credit agencies included
Hadley recommendations - 2/29/40
277
Finland
See War Conditions
France
See War Conditions
- G -
Germany
See War Conditions
Gold
See also War Conditions: France
Plans for conference discussed by Viner, Stewart, and
Riefler at Princeton - 2/27-29/40
8
Balances and earmarked gold held for foreign accounts
in United States as of February 28, 1940
185
Great Britain
See War Conditions
- H - -
Hungary
See War Conditions
- I -
Indiana
See Tax Evasion
Regraded Uclassified
- I - (Continued)
Book Page
Inter-American Bank
See Latin America
Italy
See War Conditions
- J -
Japan
See War Conditions
- K -
Kennedy, Joseph P.
See War Conditions: American Securities Owned Abroad
- L -
Lasser, David (President, Workers' Alliance)
See Eccles, Marriner S.
Latin America
Argentina:
American Embassy, Buenos Aires, memorandum concerning
need for short-term credit - 2/27/40
243
6
Brazil:
Steel Project: Conference between HMJr, Duggan (State
Department), Gaston, and Cotton 2/27/40
3
a) HMJr tells Berle of conversation - 2/27/40
2,18
b) HMJr asks Noble and McConnell to discuss
with him - 2/28/40
61
Digest prepared by State Department of report of
United States Steel experts after return from
Brazil - 2/28/40
140
Foreign Bondholders Protective Council rejection of
debt settlement: Publicity in New York before Brazil
decried in cable from American Embassy, Rio de Janeiro - -
2/28/40
182
Difficulties of dealing with Aranha increasing;
American Embassy, Rio de Janeiro, asks if terms
advanced by Foreign Bondholders Protective Council
are not accepted does State Department intend to
drop entire matter until war is over - 2/29/40
188
Notes from Noble (Commerce Department) on defaulted
Latin-American bonds and a supplementary explanation of
proposed debt composition 2/29/40
190
Chile:
Berle tells HMJr of arrival soon of special representative
to undertake negotiations with Export-Import Bank for
loan 2/27/40
1,18
Inter-American Bank:
Final approval reported by Berle and Treasury thanked
for cooperation - 2/27/40
187
Inter-Treasury Bulletin: "hite reports interest of
Director of Pan-American Union - 2/29/40
250
Regraded Uclassified
- M -
Book Page
Movie Cases
See Tax Evasion
- P -
Procurement Division
Graves reports on progress of reorganization -
2/28/40
243
55
Public Debt
See Financing, Government
- R -
Roosevelt, James
See Tax Evasion: Movie Cases
- T -
Tax Evasion
Indiana:
Harper (Fowler) asks for conference with Sullivan;
discussion at 9:30 meeting - 2/28/40
61
a) Sullivan memorandum on talk 2/28/40
68,70
b) HMJr and Irey discuss Harper's suggestion that
"Elder will now talk" - 2/28/40
170
c) Actual telephone conversation between Harper and
Sullivan in which Sullivan suggests that Harper
drop entire matter; Helvering present. 2/29/40.
312
United States District Attorney Nolan (Indiana) discussed
by HMJr and Jackson - 2/29/40
221,233
Conference; present: HMJr, Sullivan, Helvering, and Irey -
2/29/40
315
a) Conversation with Jackson discussed
b) Harper's approach to Treasury discussed
Movie Cases: James Roosevelt discusses Schenck case with HMJr-
2/28/40
67
a) HMJr tells Jackson about visit - 2/29/40
224
Tax Research, Division of
Report of projects during February, 1940
173
- U -
U.S.S.R.
See War Conditions: Strategic Materials - Molybdenum; U.S.S.R.
- V -
Von Trott, Adam
Federal Bureau of Investigation's report on activities -
2/27/40
35
- W -
War Conditions
Airplanes:
Lack of information on airplane and airplane engine production
on recent basis reported in Haas memorandum - - 2/27/40
24
Douglas Aircraft Corporation foreign sales - 2/29/40
237
Ticker comment on contemplated billion-dollar aircraft
procurement program - - 2/29/40
241
a) Mrs. Klotz' plan to explain to Purvis; unable to
reach him
Regraded-Uclassified
- W - (Continued)
Book
Page
War Conditions (Continued)
American Securities Owned Abroad:
Cochran reports on conversation with Pinsent
who quotes British Ambassador as being upset
by Kennedy's (?) remarks just prior to sailing
for London - 2/27/40
243
17
Canada:
HMJr asks Canadian Minister for formal confirmation
that Purvis represents Canada in purchasing
similar to confirmation received from Great Britain;
cordiality of relations stressed - 2/27/40
16
a) Cochran explains procedure to Canadian Minister -
2/28/40
54
Denmark:
Berle tells HMJr Ambassador has indicated desire to
negotiate with Export-Import Bank for loan - 2/27/40
1
a) HMJr has no objection
18
Diamonds (Industrial):
Amtorg purchases - 2/28/40
293
Exchange market resume - 2/27/40, et cetera
13,52,270
Finland:
HMJr asks White to bring report up-to-date for Mrs. FDR -
2/29/40
242
France:
Foreign exchange situation discussed in report from
American Embassy, Paris - 2/27/40
47
Gold: Special report from American Embassy, Paris, on
reserves and Reynaud's plans - 2/28/40
135
a) Amount of gold to be ceded to Treasury by
Bank of France definitely fixed at 30 billion
francs - 2/29/40
301
American Embassy, Paris, reports on visit of Rueff
(Under Governor, Bank of France) - 2/29/40
308
a) Just back from London and discusses collaboration
between financial authorities
b) Gold operations under restrictive measures
discussed
Germany:
Hamburg-American Steamship Line traffic end food orders
and possibility of accumulation of dollar exchange by
German Government discussed by Berle and HMJr -
2/27/40
1,19
Great Britain:
Keynes (Maynard) scheme for financing war given to
House of Commons - 2/29/40
296
Hungary:
Berle and HMJr discuss Ambassador's hint of desire for
Export-Import Bank loan; HMJr feels this is a
diplomatic matter only - 2/27/40
1,18
Italy:
Exchange transactions discussed in cable from American
Embassy, Rome - 2/29/40
216
Regraded Uclassified
- I - (Continued)
Book Page
War Conditions (Continued)
Japan:
Report on aviation gasoline which was not placed
on moral embargo list - 2/27/40
243
44
Purchasing Mission (British-French):
See also War Conditions: American Securities Owned Abroad
Smokeless Powder: Conference on supplies for British;
present: HMJr, Sullivan, Admirals Spear and Furlong -
2/28/40
159
a) Edison-HMJr conversation
20
b) Purvis-HMJr
If
162
Strategic Materials:
Molybdenum:
Shipments to U.S.S.R. discussed in Cochran memorandum -
2/28/40
180
Smokeless Powder:
Conference on supplies for British; present: HMJr,
Sullivan, Admirals Spear and Furlong - 2/28/40
159
a) Edison-HMJr conversation
20
b) Purvis-HMJr
If
162
U.S.S.R.:
Amtorg transactions, 2/10-17/40
279
Regraded Uclassified
1
February 27, 1940.
MEMORANDUM
TO: Secretary Morgenthau
FROM: Mr. Gaston
SUBJECT: Conference with Assistant Secretary of State Berle, 3:30
P.M., Tuesday, February 27, 1940.
Those present were Secretary Morgenthau, Assistant Secretary
Berle, Mr. Cochran and Mr. Gaston.
Mr. Berle said there were several matters of no great importance
that he wished to take up with you in the interest of keeping our
coordination straight.
(1) The Danish Ambassador had indicated the desire of his govern-
ment that he begin negotiations with the Export-Import Bank for a loan.
Mr. Berle asked if you had any objection. You said you had not.
(2) Chile is soon to send & special representative here to
undertake negotiations with the Export-Import Bank for a loan. Similar
inquiry was made of you in this case and you answered as above.
(3) The Hungarian Ambassador has hinted that his country would
like to make an Export-Import Bank loan. Mr. Berle was in doubt whether
we ought to consider it. While Hungary has appeared to be conceding
as little as possible to the Germans, a loan to that country might
simply result in increasing the amount of supplies Germany could get
out of the country. He doubted that we would want to give the Hungarian
Ambassador any encouragement. He thought it might be a good idea to
ask the Ambassador not to present the application. You remarked that
that was a diplomatic matter as to which they would know best.
(4) Berle said they had learned that the Hamburg-American had
built up a very considerable business in food orders to Germany. The
buyers were largely refugees and others, relatives and friends of
persons residents of Germany. The food orders were sold for $8.50
and their information was that less than half that value in food was
actually being delivered. It thus appeared to be a device by which the
German Government was accumulating dollar exchange. Berle said that
it would be a difficult matter to do anything about and he merely wanted
advice. You said that it didn't seem to you that the Treasury would
have any jurisdiction or control and that anyway it was the class of
matter in which it was your policy not to become involved.
Regraded Uclassified
2
- 2 -
(5) You told Mr. Berle of your conversation earlier in the
afternoon with Laurence Duggan on the subject of Secretary Hull's
letter on the Brazilian steel matter. You recalled to him the
fact that you had written a letter several weeks ago to Secretary
Hull declaring yourself out of further debt negotiations and thus
in your opinion ending the life of the committee, to which the Secre-
tary referred in this latest letter. You said, however, that because
of your long standing interest in South American development you were
disposed to give this steel matter some further study.
Regraded Uclassified
3
February 27, 1940
MEMORANDUM FOR THE SECRETARY'S FILES:
Re Meeting of February 27, 1940, between the Secretary
and Mr. Duggan of State Department with respect to
the Brazilian steel project. Messrs. Gaston and
Cotton present.
The meeting was held at the Secretary's request, occasioned by re-
ceipt of & letter from Mr. Rull requesting that the Brazilian steel
project problem be considered by the so-called Committee of Three. The
letter indicated that the firm of Ford, Bacon and Davis had expressed
an interest in the project.
The Secretary stated that he was definitely out of the current
Brazilian debt negotiations, which apparently are not going very well,
and so far as he is concerned the Committee of Three no longer exists
except in connection with Colombia. He said he was very doubtful
whether he wished to become involved in the consideration of the
Brazilian steel project, but asked Mr. Duggan to explain the background
of the situation.
Mr. Duggan said that the hope of developing the steel industry in
Brazil is, at the present time, considered a matter of paramount in-
portance in military, governmental and civilian circles in Brasil. The
Brazilian Ambassador here is in direct touch with President Vargas, who
expressed a determination to carry this development forward immediately
by one method or another. He would prefer American to any other for-
eign participation. Much disappointment and political embarrasament to
the President has been caused by the refusal of U. S. Steel to parti-
cipate after high hopes had been raised by the report of its experts
recommending the project from 8. technical point of view. The matter has
not been tied in with the question of Brazilian indebtedness, although
rumors of the so-called McConnell Plan - which would involve such 8.
tie-in - have apparently reached Brazil and caused an unfavorable re-
action. If the Secretary thought desirable, Mr. Duggan saw no apperent
objection to requesting the cooperation of the Commerce Department in
considering this matter. The primary concern of the State Department is
to avoid giving the Brazilians the impression that the United States
Government has no intention of giving sympathetic consideration to
Brazilian aspirations for a national steel industry.
It was pointed out that an important factor to consider from the
standpoint of this Government is that, if we should take any initiative
in making suggestions to the Brazilian Ambassador as to how the project
Regraded Uclassified
4
- 2 -
might be carried forward, it would virtually constitute a moral commit-
ment to consider sympathetically a request for a loan in & large amount
to finance the project should it eventually prove feasible, whether
through the proposed Inter-American Bank or the Export-Import Bank.
The Secretary said he wanted to study the whole situation further.
He asked Mr. Duggan to report the substance of the conversation to Mr.
Hull.
18.0F
Joseph P. Cotton, Jr.
Regraded Uclassified
PLEASE RETURN TO MR. COCHRAN
0
OFFICIAL COMMUNICATIONS TO
THE SECRETARY OF STATE
5
WASHER'TON, a a
DEPARTMENT OF STATE
WASHINGTON
March 7, 1940.
reply refer to
35.51/1271
The Secretary of State presents his compliments
to the Honorable the Secretary of the Treasury and
encloses a copy of despatch no. 505 of February 27,
1940 from the American Embassy at Buenos Aires regard-
ing the need of the Argentine Government for short-
term credit.
25
Enclosure:
From Buenos Aires,
no. 505, February 27,
1940.
MATWERA WHOST
DECIDE of
WAS les as
10
INEVENSA REQUIRED DISTRICTION
1010
So:
Regraded Uclassified
6
EMBASSY OF THE
UNITED STATES OF AMERICA
BUENOS AIRES
No. 505
Buenos Aires, February 27, 1940
By airmail February 28.
MEED OF THE ARGENTINE GOVERNMENT FOR SHORT-
1
TRICTLY CONFIDENTIAL
The Honorable
The Secretary of State,
Washington,
Sir:
I have the hener to report that Mr. Lansing Wileox,
Manager of the Argentine branches of the First National
Bank of Boston, informed the Embassy confidentially yes-
terday that Swiss and Netherland bankers were calling
upon the Argentine Government to make re-payment of
$0,000,000 pesos (approximately $14,000,000), short-
term leans of which the Government here has in the
past and no difficulty in renewing from time to time
Regraded Uclassified
7
- 2 -
and which fall due on April 15 and May 1 next. Mr. Wilcox
added that Dr. Ceferino Alonso Irigoyen, Financial and
Economic Counsellor to the Argentine Embassy in Washington
who has been in Buenos Aires for a number of weeks in
connection with the trade-agreement negotiations with the
United States, had been instructed to waste no time in an
effort to find this amount in New York, and that if J. P.
Morgan and Company declined to advance the sum, Dr. Irigoyen
should obtain it wherever possible.
Mr. Wiloox considered the matter of significance in
showing that the Argentine Government was, aside from its
gold reserves, which it would not draw upon in the absence
of absolute necessity, extremely short of foreign-exchange
reserves.
Respectfully yours,
For the Charge d'Affaires
James W. Gantenbein
Second Secretary of Embassy.
Qn.
851
3HT oT
ДЕСНИСУГ 11
OFFICE OE THE
lavo NVB 1 bW ? 35
BECEINED
JWG:ml
Copy to the Consulate General, Buenos Aires.
Bill
Regraded Uclassified
8
Memo of Conversations at Princeton, February 27-29. 1940 between Viner, Stewart
and Riefler.
Conference
1. Conference to be limited to Treasury staff and regular advisors -- no publi-
city, no for statements as possible. Gold has 8. hi story in which present
Administration 10 deeply involved. Public discussion of gold problem one
unloose undesirable campaign discussion involving hot charges that Adminis-
tration is responsible for problem.
inture of Problem
No single gold problem, but rather A cluster of problems, mutually inter-
dependent but nevertheless insol uble as a whole or at one stroke (balance
of payments problem; capital export problem; foreign exchange problem; dom-
estic banking problem: help to allies problem). Best that can be hoped for
is clearer appreciation of what we are working for 80 that as chance permits,
steps can be taken in right direction and noves in wrong direction can be
avoided.
3. Current Balance of Payments Problem.
From a very long range point of view gold movement reflects the adoption
by the United States -- a creditor country -- of protectionist commercial
policies. More immediately it reflects predominantly absence of capital
exports from this country and huge capital imports. These capital NOTE-
ments have been conditioned at times by relative investment opportunities
but latterly have been affected almost wholly by 8 search for security in A
world at conflict. Now foreign holdings are being taken over by governments
to finance WAT purchases here. In this setting any move now to restrict
Regraded Uclassifie
9
-2-
gold acquisitions would imply some or all of the following consequences.
& Less funds available to allies to buy was supplies.
D. Greater restrictions on non-essential exports to allies (a segni-
fication of the tobacco and apple type of problem).
a More rapid liquidation of foreign holdings of American socurities
- possibly more rapid then markets could absorb.
4. Exchange dislocations -- upsetting to our commerce -- particularly
with remaining free exchange neutrals.
4. Current Stock of Gold Proble
United States stocks of gold are huge it is true and amount to 60 per cent
of world total. Must be remembered, however, that other countries still
hold 40 per cent and that the monetary value of this 40 per cent is also very
such larger then the amounts they have been accustomed to hold in past.
Under these circumstances we met remember that though American action with
regard to gold is likely to be decisive, the continuing stake of other
countries in present gold stocks is huge. Nothing should be done to in-
OFFACE their fears shout the value of what to them constitutes huge hold-
ings and this lead them to dump their remaining stocks on us.
5. Relation of Gold to Banking Structure
Internally the huge gold movement has liquidated the banking position and
created an unprecedented case in the money market, This brings up the over
recurrent fear of the possibility of undesirable inflationary developments
once economic recevery is established. This outcome is sufficiently within
the reals of possibility to varrant refraining from any masures which would
aggrevate the ****** reserve problem. Taken by itself as 10 is today. how
ever, or as 11 is likely to appear is the insediate future. there are
Regraded Uclassified
10
mechanisms available for the control of undesirable money market development
Regraded Uclassified
provided there is the desire, the will. and the skill to use them.
6. Problem of Future Value of Gold
If Europe remains at war while the United States continues neutral, it seems
probable that the United States will acquire most of the current new gold
production and a further pertion of the stocks now outstanding under foreign
ownership. It is unwarranted to draw from these probabilities, the con-
clusion that the end of the war will find the United States with all the
gold in the world and that that gold will be worthless because other nations
will refuse to accept it or accord it value.
& It 10 one of the primary functions of gold to provide a store of
value possessing international mobility for use in emergencies.
The fact that gold is now demonstrating the advantages of this
primary function does not lead to a diminution of the desirability
of its reacquisition by foreign countries when the emergency
coases. Rather it strengthens that desirability.
b. There is a substantial list of important countries whose gold
production or whose equity interest in gold production is onf-
ficiently strong to give them a vital concern in the maintenance
of the value of gold in the future.
a The one really decisive step calculated to impair seriously the
future of gold would be for the United States with its large
holdings to deprive it of utility in this time of crisis when
gold represents an monet to the holder for which there is no
acceptable alternative.
7. Problem of huge world supply of gold as affected by rise in price of gold-
From the supply side. the problem of huge stocks of gold has been accontuated
by the world wide devaluation of currencies that took place during the do-
pression. The monetary value of each cance of gold was greatly increased
without a corresponding increase in the costs of gold production. As a
result production of gold is physical terms has increased because sining
is more profitable. More important on the supply side the value of exist-
ing physical stocks and also of ensual increasate to those stocks has been
greatly sugmented by the higher price. For this situation there is 20 in-
solistely feasible corrective that would not entail greater evils than
11
the ones it would remove or moderate. It may be that circumstances will
arise, however, when constructive action can be taken. If. for example,
the United States should participate in the war, and if in the course of
that participation, the direct contribution of the United States toward
prosecuting the war should reduce the dependence of the allies on their
cold holdings as resources vital to their existence, the occasion might
arise for sulti-national handling of the supply phase of the gold problem.
Under the hypothetical circumstances sketched, the great bulk of the world's
monetary gold would be held by allied countries each of whose exchanges
was temporarily subjected to war time control. This circumstance would
permit the adoption of corrective measures of 8. type that would be imprac-
ticable under more normal circumstances.
8. Problem of Upe of Gold after war.
The buge stock of gold now in the United States and the utility which the
United States line given to that gold during the war constitute the greatest
single asset this country passesses to exercise decisive influence on post-
war reconstruction.
a. Should the United States deprive gold of its function of a uni-
versally saleable, highly mobile seset during war, the end of
the war would find gold without great value. Europe would pro-
bably reorganise on the basis of exchange controlled barter
economies, and the United States would be faced with problems
of such drastic internal commercial readjustments as to leave
little room or scope for wider influence toward improving world
economic conditions.
b. It the United States preserves the international functions of
gold, however, there will continue to be a real opportunity
for economic reconstruction on an international basis. the
extent that opportunity 10 realized will depend on the will,
the skill, and the leadership which the United States brings
to problems 081-
Regraded Uclassified
12
(1) Commercial barriers (teriffs, quotas, etc.)
(2) Competitive exchange policies.
(3) Opening of international empital markets to flow
of capital for genuine productive purposes, leag
term and short term.
(4) Establishment of sufficient international security to
justify an economic policy based on the assumption
of continuance of international trade and investment.
Regraded Uclassified
13
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE February 27, 1940.
TO
Secretary Morgenthau
FROM Mr. Cochran
CONFIDENTIAL
The foreign exchange market was dull today. After opening at 3.95 biá,
the rate for sterling advanced to 3.95-3/8 by noontime. It moved within a
narrow range for the rest of the day and closed at 3.95-1/4.
Sales of spot sterling by the six reporting banks totaled L589,000, from
the following sources:
By commercial concerns
Is 169,000
By foreign banks (Europe, South America and Far East). I 420,000
Total
1 589,000
Purchases of spot sterling amounted to L346,000, as indicated below:
By commercial concerns
I 256,000
By foreign banks (Far East)
18 90,000
Total
If 346,000
The following reporting banks sold cotton bills totaling 137,000 to the
British Control on the basis of the official rate of 4.02-1/2:
10 17,000 by the Bankers Trust Company
16,000 by the National City Bank
4,000 by the Guaranty Trust Company
18 37,000 Total
The rate for the Dutch guilder improved to close at .5322-12. Its firm-
ness probably resulted from yesterday's official announcement that the Dutch
government loan had been voluntarily over-subscribed.
The other important currencies closed as follows:
French france
.0224-1/8
Swies francs
.2242-1/2
Belgas
.1692
Canadian dollars
13-5/8 & discount
Regraded Uclassified
14
- 2 -
The Federal Reserve Bank purchased 30,000 Italian lire for the Bank of
Latvia.
We purchased $28,192,000 in gold from the Bank of England, which was
released from its earmarked account at the Federal Reserve Bank of New York.
The Federal Reserve Bank of New York reported the following shipments of
gold:
2,336,000 from Canada, shipped by the Bank of Canada, Ottawa, to the Federal
Reserve Bank of New York, for sale to the U. S. Assay Office.
2,251,000 from Switzerland, shipped by the Swies National Bank to the Federal
Reserve Bank of New York, for account of the Swiss National Bank. The
disposition of this shipment is unknown at the present time.
140,000 from India, consigned to the American Trust Company, San Francisco,
for account of the Guaranty Trust Company, London. This gold will be
sold to the U. S. Mint in San Francisco.
4,727,000 Total
The State Department forwarded to us cables stating that the following gold
shipments would be made:
$ 2,952,000 from Hingary, shipped by the National Bank of Hungary to the Federal
Reserve Bank of New York, the disposition of which is unknown at the
present time.
275,000 from Japan, shipped by the Yokohama Specie Bank, Tokyo, to its San
Francisco office.
159,000 from Hong Kong, shipped by the Chase Bank, Hong Kong. to the Chase
National Bank, San Francisco.
130,000 from Hong Kong, shipped by the National City Bank, Hong Kong, to the
American Trust Company, San Francisco.
16,000 from Hong Kong, shipped by the Benque Belge pour l'Etranger. Hong
Kong, to the Bank of America N.T. & S.A., San Francisco.
$ 3,532,000 Total
The shipments being sent to San Francisco will be sold to the U.S. Mint in that
city.
The Federal Reserve Bank of New York informed us that it had granted a loan
of $1,000,000 to the Central Bank of Turkey today, secured by gold held under
earmark with the Federal in the name of the Turkish Bank, Today's transaction
raises the total of such loans to Turkey to $5,500,000. against which the Federal
holds $6,110,000 in gold as collateral. According to the Central Bank of Turkey,
the funds made available to it are used to meet its seasonal needs in foreign exchange,
The London prices for spot and forward silver were both fixed at 20-3/84, up
3/16a and 1/8d respectively. The U. S. equivalents were 36.224 and 36.03#. Some
small Indian buying was reported.
confidential
Regraded Uclassified
15
- 3 -
The Bombay silver price worked out to the equivalent of 40.16, off about
1/2¢.
Handy and Harman's price for foreign silver was unchanged at 34-3/40. The
Treasury's price was also unchanged at 35#.
Ye made three purchases of silver totaling 325,000 ounces under the Silver
Purchase Act. Of this amount 200,000 ounces represented a sale from inventory
by one of the refining companies and the remaining 125,000 ounces consisted of
new production silver from various foreign countries, for forward delivery.
B.M.S.
CONFIDENTIAL
Regraded Uclassified
TREASURY DEPARTMENT
16
INTER-OFFICE COMMUNICATION
DATE February 27, 1940
TO
Secretary Morgenthau
FROM
Mr. Cochran
STRICTLY CONFIDENTIAL
At 4 P.M. today the Canadian Minister called at the Secretary's request.
Mr. Cochran was present at the meeting.
The Secretary explained that he had been receiving Mr. Purvis quite fre-
quently, at least once each week, and was getting on splendidly with him.
In their conversations certain points with respect to Canada had. arisen and
Secretary Morgenthau had assumed that Mr. Purvis was acting for Canada in the
latter's purchases in the United States. Secretary Morgenthau let Mr. Christie
know that formal word had been received to the effect that Mr. Purvis was head
of the Franco-American Purchasing Mission in this country, and suggested that
relations would be simplified and regularized if a similar communication might
be received from Canada, provided Mr. Purvis does enjoy the status above
suggested. Mr. Christie replied that he himself had taken the position that
Mr. Purvis, & Canadian, was actually Canada's representative in purchasing on
this market and had BO treated him. He was happy to know from Secretary
Morgenthau as well as from Mr. Purvis the cordiality of their relations and
he thanked the Secretary for the present suggestion, upon which he will
promptly act in communicating with his Government.
After leaving the Secretary's office, the Minister asked me in just what
form we had been notified of Mr. Purvis' appointment. I told him that I
would check up our records and telephone him within the next day or 80.
B.W.
Regraded Uclassified
STRICTLY CONFIDENTIAL
TREASURY DEPARTMENT
17
INTER-OFFICE COMMUNICATION
DATE February 27, 1940
TO
Secretary Morgenthau
FROM Mr. Cochran
Mr. Pinsent telephoned me at 11 o'clock this morning. He stated that there
had been no official sales of dollar securities by the British authorities on
Saturday, February 24. On Monday, February 26, the sales were:
1,500
35,711
Nil
Nil
Pinsent asked ne if we had "kept tape" on our friend from London who
recently sailed back to that city. I told him that we had not. Pinsent said
that he did not want to tell tales out of school, but that he could tip me off
personally that his Ambassador was upset upon hearing gossip as to this gentle-
man's remarks in New York, made just prior to his departure, in regard to the
security proposition.
At noon I was talking by telephone with a friend of mine in New York who
is pretty good at picking up gossip of this sort, and who will let me know
if he hears anything.
RMR
Regraded Uclassified
TREASURY DEPARTMENT
18
INTER-OFFICE COMMUNICATION
DATE February 27, 1940
TO
Secretary Morgenthau
STRICTLY CONFIDENTIAL
FROM
Mr. Cochran
At 3:30 this afternoon the Secretary of the Treasury received Assistant
Secretary of State Berle, with Messrs. Gaston and Cochran present. Mr. Berle
explained that he desired to do a little work as liaison officer for the State
Department, partly to see how liaison was functioning. He said he had a few
points to bring up.
The first matter which Mr. Berle mentioned was the announcement which the
State Department had received by cable that Mr. Pedregal was to leave Chile on
February 26 by air for the United States. The purpose of the visit is to pro-
cure a loan for Chile, which matter he stated had been before the Department of
State for some time. The Secretary replied, with the confirmation of Messrs.
Geston and Cochran, that the Treasury Department was not aware of any new plans
for & credit to Chile. Mr. Berle asked what should be done when Pedregal
arrives. Secretary Morgenthau recommended that he be received by Mr. Jesse
Jones.
In this connection, Secretary Morgenthau referred to & letter which he had
on his desk from Secretary Hull suggesting & further task for the Inter-Departmental
Financial Committee which Secretary Morgenthau had howled. Mr. Morgenthau asked
Mr. Berle to remind Secretary Hull of the letter in which the Secretary of the
Treasury had let him know that with the completion of the negotiations in regard
to Colombia's debt, the Committee ceased to function insofar &s the Secretary of
the Treasury was concerned. Mr. Morgenthau mentioned the subject of the letter,
namely, the proposition of & steel plant for Brazil. Mr. Berle emphasised how
important this project was in the mind of the President of Brasil. Secretary
Morgenthau stated that Mr. Duggan of the State Department had called this morning
and had discussed this matter and had promised to give the Secretary & memorandum
thereon. When this is received, the Secretary of the Treasury will go into it,
since it happens to be the type of proposition, for the increase of productivity
in a Latin-American country, which he has always thought would alone be the economic
salvation of Latin-America,
In the second place, Mr. Berle stated that the Minister of Denmark had
approached the Department of State in anticipation of a formal request for &
credit from the Export-Import Bank, The Department of State favored such & credit.
In answer to Mr. Berle's inquiry. Secretary Morgenthau stated that it met with
his agreement.
Mr. Berle then reported that representations were being made through & man
who for all intents and purposes acts as agent of the National Bank of Hungary in
the United States for an Export-Import Bank credit to that country. Mr. Borle
stated that the State Department was not overly enthusiastic about this proposi-
tion, realizing that Hungary is having to buy her peace from Germany, through such
operations as the recent exchange agreement between the two countries, and if
Hungary received & credit from the United States might be forced to help Germany
to the sans extent. Secretary Morgenthan stated that there was no question in his
Regraded Uclassified
19
- 2 -
mind as to Scandinavian requests for assistance, but that he was not familiar with
Hungary, and the Balkans and hesitated to express any opinion on this application.
Mr. Cochran asked if the representative seeking the loan was Mr. Havas, who had
called at the Treasury Department to report the recent change in the pengo, but
who had not mentioned to Mr. Cochran the suggestion of a credit. Mr. Berle stated
that Mr. Havas vas the official talking of the credit. Both Gaston and Cochran
would oppose any credit to Hungary. The impression was gained that Mr. Berle
would try to discourage the idea of any formal request for such a credit.
Mr. Berle described to the group the procedure followed by certain 02-
officials of the Hamburg-American Lines in New York in advertising the delivery
of food parcels to German families upon the remittance of about $8.00 per package.
Mr. Berle stated that the materials listed as going into the packages are valued
at about $3.00, highest retail prices in New York. This business, he said, had
grown to considerable proportions with the result that the German Government, since
the men in charge of the arrangements are unquestionably German Government officials,
is harvesting a considerable amount of foreign exchange. Mr. Berle thought this
was one reason why the British had been taking the position they had with respect
to censoring American mails. The question arises as to whether anything should be
done by American authorities. Berle was indignant over the German foreign exchange
proceeds, but sympathetic with the under-rationed Jewish families in Germany who
are the principal recipients of the packages. Secretary Morgenthau told Mr. Berle
very definitely and repeated his statement three times during the conversation that
he did not desire to be called upon for a decision or a recommendation on this
subject. He much preferred that someone else handle it. If any investigation in
New York is deemed necessary, Secretary Morgenthau preferred that the State Depart-
ment call on F.B.I. rather than Treasury agents. It V88 recalled that the State
Department already had certain information in regard to activities of a former
Hamburg-American Line official in New York, in connection with German shipping
from Mexico, which information had been provided the State Department by the F.B.I.
Mr. Cochran expressed the opinion that the investigation or control of the trans-
actions in question was not properly a Treasury function. The postal and banking
authorities would be responsible for supervising the remittances.
B.M.
Regraded Uclassified
20
Tuesday
February 27, 1940
4:15 p.m.
HMJr:
Hello.
Charles
Edison:
Hello, Henry.
HMJr:
Hello, Charlie.
is
Say, I talked to Admiral Furlong and there have
been no sales of that list that you talked about.
HMJr:
I see.
E:
But here's the situation.
HMJr:
Yes.
E:
I had mentioned it, you know, to Bertil when he
was here.
HMJr:
Yes.
E:
And he sent his people down to talk to Furlong,
his purchasing men and others.
HMJr:
Yeah.
E:
Furlong gave them prices on some of that stuff
and they have cabled over to their country.
HMJr:
I see.
E:
But 80 far "no soap".
HMJr:
Well, I think I'll Just let it rest.
E:
Now, there's one other thing - the British were
in today and there's -- one of their powder fac-
tories a long time ago, or some time ago, blew up,
HMJr:
That's right.
E:
And so they are anxious to have us let them have
some powder, you see?
HMJr:
I heard about it.
Regrade Uclassified
21
- 2 -
E:
Well, you know what the situation is, but they
have made a deal with Hercules to build a little
extra plant for Hercules.
HMJr:
Yes.
E:
They've gone to Dupont's -- Dupont can't give
them any powder because we're the -- the Navy and
the Army are taking it. See?
HMJr:
Yeah.
is
Now, if it's desired, why we could postpone deliveries
and the War could postpone some deliveries and let
them have some of that powder from Dupont. Now
Dupont is not entirely sold on the idea. They --
they think that they should do for Dupont what they
are doing for Hercules - in other words, build them
a little plant to make their stuff.
HMJr:
Well, the only place that they have agreed to build
a plant 18 with Atlas.
E:
Atlas, is it? I thought it was Hercules.
HMJr:
No, they haven't closed the deal with Hercules --
with Atlas they agreed to build them a little plant.
E:
Well, Furlong is right here and he says it's Hercules
too -- Hercules and Atlas.
HMJr:
Well, Hercules has not been closed.
E:
oh, it hasn't been closed.
HMJr:
Not unless it was closed today.
(Brief pause while someone in the room was talking.)
E:
Well, that's what they told Furlong, Hercules for
one thing and Atlas for another, but I -- I don't
know.
HMJr:
Well, they were in yesterday and they hadn't closed
Hercules as of yesterday.
Regraded Uclassified
22
- 3 -
E:
I see.
HMJr:
But I know they are dickering with Hercules.
5:
Yes. Wait 8. minute.
(Brief pause.)
Well, I -- all I say 1s that we could let them do
that -- I mean, if it seems wise to do it why we
stand ready to
HMJr:
Well, I'll tell you what I think I'd like to do,
Charlie, on that. I'd like to see the President
with you on that and let -- I'll tell him all we
know and you can tell him all that you know and
let him decide it.
E:
All right.
HMJr:
How will that be?
E:
That's fine if that's quick enough.
HMJr:
Well, I -- well, this thing has been going on for
over a month.
E:
Yeah.
HMJr:
And I wouldn't want to Dass on it. I'd want him
to Dass on this.
E:
Yeah.
HMJr:
But I think you and I could see him a.s soon as he
gets back.
E:
Yeah, all right. Fine.
HMJr:
Because I wouldn't want to pass on it.
in
No.
HMJr:
But I think the two of us could see him.
Regraded Uclassified
23
- 4 -
E:
All right, sir. Just as soon as he gets back we'll
get ahold of him then.
HMJr:
O. K.
E:
All right. Well now, that's all that I know up-to-
date. That plus the boat information I gave you.
HMJr:
Right.
E:
And the fact that we can't sell anything that's out
of the line.
HMJr:
Thank you.
E:
All right.
HMJr:
Goodbye.
E:
Goodbye.
Regraded Uclassifie
24
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE Febr. 27, 1940.
TO
Secretary Vorgenthau
FROM
Mr. Haas 434
I called on Col. Jouett this afternoon, as he told me he was
leaving for California tomorrow morning and would not be back
until Saturday evening. He said he would be glad to supply you
currently with the monthly figures on employment in the aviation
industry.
The data which you wish on airplane and airplane engine pro-
duction can not be obtained under existing circumstances. He told
ne that up until October 1938 the Aeronautical Chamber of Commerce
had obtained monthly figures on airplane and airplen engine pro-
duction, but since then the Air Corps of the War Department has
prohibited companies working on U. S. Army orders from releasing
any production figures. He said that he has been negotiating with
the Information Division of the Air Corps in an effort to have
this prohibiting order rescinded, and suggested that you might
want to talk to Maj. Gen. Arnold with regard to the matter. Col.
Jouett appeared anxious to be of assistance to you, and caid that
if the production figures could be released they could start on
the job immediately, as the forms and other material for collect-
ing the data were all prepared. He doubted, however, if weekly
figures could be secured for the past period. (The figures prior
to October 1938 were available only on a monthly basis.)
Regraded Uclassified
25
February 27, 1940.
11:00 a.m.
Present:
Mr. Smith
Mr. Currie
Mr. Bell
H.M.Jr:
Bell, have you an estimate as to what the public
debt will be, in your opinion, as of July 1st
to December 31st?
Bell:
Yes, but I didn't bring my figures.
H.M.Jr:
Will you get them? That is what I want.
Bell:
All right.
H.M.Jr:
Now, can we do the debt limit first?
Bell:
Yes. The gross debt on January 31st was 42 billion
110 million dollars and we have 8. borrowing power
left on that date of about 2 billion 473 million
dollars. We will issue, according to our esti-
mates, from February 1st up to June 30th about
900 million dollars in Savings bonds and trust
fund securities, which means the Old Age Reserve,
the Unemployment Trust and United States Savings
bonds. Of that 900 million, about 600 million
will be Savings bonds, 80 we will have to add
another third, which will be 200 million, in
order to bring the securities up to the face
amount and then we had contemplated 500 million
dollars of new money in June, which would give
you about a billion 600 million dollars of addi-
tion to your debt. Now, that would increase your
public debt about a billion four, 43,5, and it
would decrease your borrowing power --
H.M.Jr:
Wait a minute, Dan, give me the total figures of
the debt.
Bell:
Forty-three, five, approximately. They have got
some odd figures in here.
Smith:
That is June.
H.M.Jr:
June 30th.
Bell:
June 30th.
Regraded Uclassified
26
- 2 -
Smith:
Yes.
Bell:
That is your gross debt, but your borrowing
power will go up a billion six, whereas your
debt will go up a billion four, see, because
of those Savings bonds.
H.M.Jr:
Well, you will have --
Smith:
Pardon me --
H.M.Jr:
Go ahead, please.
Smith:
I think I know. When you say a third is being
added, just as a matter of information I would
like to --
H.M.Jr:
Well, you sell a hundred dollar bond at 75
dollars but its face value at the end of ten
years is a hundred dollars. If you sell 75
million dollars worth of bonds, you have to
set up on your book a hundred million dollars.
Bell:
In your debt limitation.
H.M.Jr:
Because they will be worth that in ten years'
time.
Bell:
Whereas in cash you only get 75 million dollars.
Smith:
I see.
Bell:
So you have to take B. billion six off your bor-
rowing power, so that on June 30th we ought to
have about 873 million dollars of borrowing
power.
H.M.Jr:
June 30th?
Bell:
That is right.
H.M.Jr:
How much?
Bell:
873 million.
H.M.Jr:
Well now - we will give you this in a formal
memorandum. I want one like this for the Presi-
dent.
Regraded Uclassified
- 3 -
Bell:
It will be a little different, because I am
giving you round figures.
H.M.Jr:
Let's go forward to December 30th.
Bell:
Up to December 30th?
H.M.Jr:
Please.
Bell:
We will just a little more than exhaust that
800 million, just about exhaust that 800
million up to December 31st on a cash basis.
If you add about 400 million to Savings bonds -
if you add 130 to that, you would more than
exhaust it. That is exclusing the 700 million.
H.M.Jr:
Wait a minute. Now, may I interrupt you?
Before you come to the 700, saying that you
exhaust your borrowing power December 30th,
what would our working balance be, as of Decem-
ber 30th, on that basis?
Bell:
That is an important thing because it goes way
down. Our working balance on December 31st
would be 500 million dollars.
H.M.Jr:
Well that, gentlemen, I consider, the irreducible
minimum in these times. I don't know whether
you people think so. In these kind of times --
Currie:
500 million.
H.M.Jr:
Now --
Bell:
It is really too close when you consider Savings
bonds in there.
H.M.Jr:
Well, I want you to work this out into 8. formal
memorandum. I am going to have to show it to
the President. Then, with the 700 - now, where
is the 700 million, where does that come in?
You are not including that in this?
Bell:
No. The 700 million, if we get it into the
Treasury in the form of cash, would either in-
crease our balance or allow us to retire other
debts coming along and enable these other things
Regraded Uclassifie
28
- 4 -
to pick up, such as Savings bonds, and 80 on.
H.M.Jr:
How do we go about getting the 700 million?
Bell:
Well, I take it that it - it would be up to
the Budget to notify each one of the organi-
zations as to what they had figured out should
be taken from the capital structure of each,
is that right?
Smith:
Yes. I suppose there is a little bit of con-
fusion in our minds, the Budget, as to whose
responsibility it is to dig into that, but I
thought that we could take the initiative in
it if it were all right with you to try to
consummate that whole matter, working here with
Mr. Bell. I thought that Dan ought to be in
our conferences, perhaps, with these various
agencies, and we would try to work that along
so that it would be cleared up well in advance
of next June 30th.
H.M.Jr:
Well, in talking to --
Smith:
So that the money would come in at the beginning
of the fiscal year.
H.M.Jr:
In talking it over with Dan, you and I didn't
have any doubts it was up to the Director of
the Budget, did we?
Bell:
No, we didn't.
Smith:
I wasn't sure whether it was really my job or
yours.
H.M.Jr:
We didn't have any doubts in our minds.
Bell:
We are glad to help you, but we thought it was
primarily your function.
Smith:
All right.
Bell:
I think it is tremendously important that we
determine, and determine quickly, as to whether
or not it is going to require legislation and
if it does, I think it is more important that
Regrade Jclassified
29
- 5 -
we get it before June 30th, because I don't
think that you want to run the risk of going
to December 31st.
Smith:
No, I think you are right.
H.M.Jr:
You can't do it and then the other thing, while
we are getting down to it - I got the impression
from you (Bell) that the two letters that the
President signed, the figures in them were not
correct.
Bell:
No, I think that - I don't know what letters he
signed, but I think two letters went, one to
the RFC and one to the Farm Credit, which I
think might be reconsidered because I would think
that more money ought to come from RFC and less
money from Farm Credit.
H.M.Jr:
Dan, I thought you said - you told me that the
Farm Credit figure should have been RFC and
the RFC figure should have been Farm Credit.
Bell:
That is just my opinion.
H.M.Jr:
Oh.
Bell:
I think it is very dangerous to take this 125
million from the Federal Land Banks. I think
they are going to suffer tremendously.
Smith:
Is this correct? I got a little memorandum from
Patterson on it, in connection with their last
monthly financing. They didn't seem to affect
the sale of their bonds particularly.
Bell:
No, they did not and they previously issued a
statement which seemed to have the desired
effect. The Governor put out a statement and
said the capital structure was such that they
didn't think the outstanding securities would
be hurt one bit by paying 40 million dollars
in capital.
Smith:
We suggested they refer to the budget message
and not refer to the 40 million dollars, but
I think they did finally refer to the 40 million,
Regraded Uclassified
30
- 6 -
specifically, and even that didn't seem to --
Bell:
No, the market took it very good.
H.M.Jr:
Well, look, I would like to say a little piece
here, then if anybody doesn't agree with me,
I wish they would say so. This 18 the way I
feel like advising the President. First, he
should have all the facts. Then I think we
ought to - you ought to tell him and keep me
posted, what are the chances of getting the 700
million between now and the first of July. I
mean, if there is any doubt about it at all --
Currie:
We wouldn't want to take it between now and the
first of July, because it is put in next year's
budget.
Smith:
Get it cleaned up so we will know.
H.M.Jr:
No, but I mean know that 1f we wanted it on the
first of July, that you could get it without
any doubts.
Currie:
I see,
H.M.Jr:
And have everybody committed to it. Dan has
raised the question about legislation. I don't
see, with the thing as close as this, that there
ought to be any doubts - and if necessary, have
an opinion of the Attorney General and all along
the line and commitments that the money will be
there and then when we put it before the Presi-
dent, I mean, it seems to me - well, the minimum
leeway that he ought to have is 500 million
dollars. That seems to me absolutely the minimum
leeway that he ought to have.
Currie:
of course, Mr. Secretary, this is not quite as
uncertain as it sounds for getting this, because
informally there have been indications. In the
early stages of this I talked with A. G. Black
of the Farm Credit and without having my ten-
tative distribution of this, he de up one
himself and kept to this 385 and we checked very
closely. There are slight differences in the
figures, but I have his list of suggestions
where he - from which agencies he could take
Regraded Uclassifie
31
- 7 -
this 385. Then I haven't got the press clipping
here, but in the press conference, Jesse Jones -
my recollection is that he said that he had no
difficulty in paying the 200 million.
Bell:
He said that before the Senate committee on the
Finnish loan.
Currie:
Right after the budget came out he had a press
conference where he made that remark, so that
is 600 million right there.
Bell:
But doesn't that 385 take 125 million away from
the Federal Land Banks?
Currie:
Two hundred.
H.M.Jr:
What is happening here in my office is of enough
concern that if the Director of the Budget will
take the responsibility and sort of push this
thing - I have got to know, that is all, I mean,
where I am at, because it is part of my job.
Smith:
I think it is time to go after it, I agree with
you, and we have let it ride along partly as
a matter of strategy, I think. I have talked
to the President about it a bit, but it seems
to me that since you are concerned about it and
we are too, we have the same concern, that we
ought to get busy and the reason that we, wanted
to take a little longer process on it was that
we wanted to get each of these agencies in and
in conference discuss their problems, see what
they could do, and then after going through the
whole group, we would then come back and if
there was some leeway there, as I think there
may be, make adjustments, and if there are some
difficulties in the Farm Credit, maybe we can
make a certain adjustment for that, and now
that might ultimately mean - the reason I think
it is - I agree that it is necessary to get at
it. I do think that the RFC might do more and
permit some other adjustments, perhaps, or to
give us more cash, and that the RFC do more,
legislation may be necessary, but apparently
no legislation 18 necessary up to the 200
million. Beyond that, legislation may be neces-
sary.
Regraded Uclassifie
32
- 8 -
H.M.Jr:
Just so we understand it, I am not going to
get into a discussion of how much each agency
puts in, but if you don't mind I would like
to put the pressure on you to give me the
answer.
Smith:
All right.
H.M.Jr:
But I am not going to get in as to which one,
but I do want my 700 million dollars and I
don't give a damn where it comes from as long
as the President said in his budget message
that we are going to count on 700 million
dollars. I have just got to know am I or am
I not going to get it, that is all.
Smith:
We felt that this conference procedure would
give us a little opportunity to make adjust-
ments rather than just saying, "Here is what
you can do and we want you to do it."
H.M.Jr:
Do either of you gentlemen - you don't have
to answer this question unless you feel like
it. Are there any memoranda that you know of
at the White House or the White House offices
other than the one which I wrote in regard to
spending outside of the budget? I mean, this
silver thing and stabilization fund, and so
forth. You know I wrote a very careful ten-page
memorandum on that. Are there any other - I -mean,
which takes the opposite view?
Currie:
Not that I know of.
Smith:
I don't know of any. I didn't even know about
yours.
H.M.Jr:
Hadn't you seen that?
Smith:
No.
H.M.Jr:
You have, haven't you?
Currie:
Yes.
H.M.Jr:
Would you like a copy of that?
Regraded Uclassifie
33
- 9 -
Smith:
I would be glad to see it.
H.M.Jr:
Bell, will you give them copies?
On each one of these items, on request of the
President, and we had to do it as dispassionately
as possible and I think we have done it.
Currie:
There is another remote possibility --
H.M.Jr:
I wondered if there was something around that
I didn't know about.
Currie:
I don't know. I don't see everything that goes
in there.
H.M.Jr:
But I mean, if either of you knew --
Smith:
I haven't seen anything.
Currie:
I have yet to work up a basis on which I get to
see things and which I don't. There is another
point which I think is just of mild interest
and pretty remote, but I think you ought to
know about it and that is that the President
asked me to look into the status of this Federal
Revenue Finance Corporation in his absence -
remember, that one we worked up here.
H.M.Jr:
What?
Currie:
Look into it.
H.M.Jr:
What do you call it?
Currie:
Federal Revenue Finance Corporation. That is to
capitalize the self-liquidating assets of the
Government.
H.M.Jr:
Oh, last year?
Currie:
Yes.
H.M.Jr:
Oh, yes.
Currie:
So I got the file from the Budget Bureau and
looked over the replies and Laughton has given
34
- 10 -
me some ideas of the quantities involved.
H.M.Jr:
The reason I asked you is because since we
had that memo giving him all of the items
which are available outside of the Treasury,
I never had any other discussion about it,
but I just wondered whether there was some-
thing else going on that I wasn't aware of.
Naturally, this Eccles-Glasser correspondence
is upsetting to me.
Well, this is a successful conference, with
each of us knowing where we are at.
Smith:
That is right.
H.M.Jr:
Treasury is available to give you any assistance
that you want.
Smith:
Well, we will need some help and I am hopeful
that Dan, here, can sit in with us on some of
these and Currie, who has made some study of
the corporations originally, and I can see
your point very well and we would like to get
it off, because we are plagued with Congress-
men. We have had to answer letters from Bob
Taft and to this person and that one, sort of
selling them on it, and we are anxious to be
in a position to say, "Well, here it is," and
there is a certain amount of mystery about it
at the present time that it would be helpful
to have dissolved.
H.M.Jr:
Without going over the ground again, you can
see that the 700 million really would be the
only cushion that we have.
Smith:
It is crucial.
Bell:
Outside of & little balance. of course, 500
million is exhausted very easily.
Currie:
I think I might remind you, Harold, one reason
why you didn't deceive me on it, because of
the shake-up in the FEA.
H.M.Jr:
All right, gentlemen. Thank you very much,
Regraded Uclassified
35
INK, I if
I 6 I R
- pm the - Latter of Politrally 19th,
with the of the - date which gives
further Information conserving the activities w
X
me. Adem Yes Trutt su non. I - glad to have
this at the further thats given to your letter.
I
(Sagned) H. Morgenhau, Jr.
Insurance all Its I
Mosster, - w Investigation,
United States Department of Austice,
I s d
GEF/dbs
HN EDGAR HOOVER
DIRECTOR
36
Federal Sureau of Investigation
United States Department of Justice
Washington, D.C.
February 19, 1940
The Honorable
The Secretary of the Treasury
Washington, D. C.
My dear Mr. Secretary:
I am enclosing & memorandum dated February 19,
1940, supplementing previous information furnished concerning
the activities of Dr. Adam Von Trott zu Solz of Germany, who
ostensibly came to the United States to attend a conference
of the Institute of Pacific Relations at the Cavalier Hotel,
Virginia Beach, Virginia, from November 22, 1939, to December
2, 1939, inclusive, but who is reported to have solicited the
assistance of a number of prominent individuals in the United
States to support & movement involving the overthrow of the
present regime in Germany.
As previously advised, Dr. Adam Von Trott departed
from San Francisco, California, on the SS "President Cleveland"
on January 12, 1940, arriving at Honolulu, Territory of Hawaii,
on January 17, 1940, from whence he departed on the following
day apparently enroute to Berlin, Germany, by way of Yokohama,
Japan, China and Moscow, Russia.
Sincerely yours,
Le.
Hoover
John Edgar Hoover
Director
Enclosure
Regraded Uclassified
IN EDGAR HOOVER
DIRECTOR
37
Federal Burrau of Investigation
United States Department of Bustice
Washington, B.C.
February 19, 1940
The Homorable
The Secretary of the Treasury
Washington, D. c.
My dear Ms. Secretary:
I as enclosing a memorandum dated February 19,
1940, supplementing previous information furnished concerning
the activities of Dr. Adam Von Trott su Sols of Germany, who
ostensibly case to the United States to attend a conference
of the Institute of Pacific Relations at the Cavalier Hotel,
Virginia Beach, Virginia, from November 22, 1939, to December
2, 1939, inclusive, but who is reported to have solicited the
assistance of a number of prominent individuals in the United
States to support a movement involving the overthrow of the
present regise is Germany.
As previously advised, Dr. Adam Von Trott departed
from San Francisco, California, on the 88 "President Cleveland*
on January 12, 1940, arriving at Hosolulu, Territory of Hawaii,
on January 17, 1940, from whence he departed on the following
day apparently caroute to Berlin, Germany, by way of Tokohana,
Japan, China and Moscon, Russia.
Sincerely yours,
John Rigar Hoover
Director
Inclosure
Regraded Uclassified
38
February 19, 1940
Res DR. ALAM VOII TROTT su SOLZ, with clieses;
Adam Vom Trott R Sols, Adam Von Tropp su
Sols, Adam Von Trott su Sole
The following information is set forth to supplament
the aemorendus of Jenuary 13, 1940, regarding the activities of
Dr. Adem Von Trott su Sols, who arrived in New York City on October
2, 1939, from Europe ostensibly to sttend e conference of the
Institute of Pecific Relations held at the Cavalier Rotel, Virginia
Beach, Virginia, between November 22, end December 2, 1939, in-
clusive, but who WGB reported in reality to be visiting the United
States for the purpose of soliciting the assistance of 0. fee promi-
nant individuals in & plan to overthrow the present regime in
Germany. As indicated in the previous memorandum, Dr. Von Trott
sailed from San Francisco, California, for the Orient on Junuary
12, 1940. This nesorandum will, therefore, supplement in further
detail, the information regarding the activities of Dr. Von Trott
during his last few days in the United States.
On December 24, 1939, Dr. Von Trott received a note
at the Shoreham llotel from an individual signing as "Alexander B.",
who is believed to be identical with Alexander Boker, a tutor at
Harvard University, Casbridge, Massachusetts, whom Von Trott had
previously visited at Booton. The note in substance indicated that
Mr. Boker was stopping at the Hotel Winslow in New York City, and
expressed his desire to confer with Dr. Von Trott.
On December 26, 1939, while Von Trott was absent from
his Hotel, 2. note was left at the desk by an individual signing as
"I.W.", who was probably identical with Ingrid Harburg, viece of
Mrs. Felix Warburg, the widow of B. very prominent philenthropist
and banker of New York, who died in 1937. Miss Warburg is also
associated with Dr. Hane Simons, Professor at the New School for
Social Research at New York City. This note read: "Meybe this may
be of interest to Carter", apparently referring to Edward c. Carter,
member of the Board of Trustees of the American Council of the
Institute of Pacific Relations. Attached to this note WAS 4 newspaper
clipping from the Deutsche Allgemeine Zeitung, Sunday adition, December
2, 1939, which read as follows: "Demande of Japan in the Pacific by
Regraded Uclassified
39
- 2 -
our American correspondent, Paul Scheffer, New York". Peul
Scheffer 10 undoubtedly identical with the individual by the ##90
name with whom Vom Trott has been in contact almost daily since
his arrival in the United States. The article above mentioned
pertained to the establishment in Japan of a newly created or-
ganisation, "Institute of the Pasific", which WHO regarded by
Scheffer " similar to the Institute of Pacific Relations with
parallel institutions in London (The Royal Institute of Inter-
national Affairs), and in Paris and New York - (The Council of
the Foreign Relations). Scheffer's article sets forth that the
financing of all these privately created diplomatic establishments
originally depended largely upon the Bookefeller Fundo and further
sentioned that all of these research institutions had a rather
selected membership.
On December 27, 1939, Von Trott was visited at his
Hotel by Dr. Hame Muhle. They discussed Arthur (Hasso) Seebach,
Edward C. Carter, General McCoy, and John F. Wheeler-Bennett. Dr.
Mahle stated that the latter had & tendency to speak without think-
ing and was, therefore, in his opinion, none too reliable. Dr.
Muhle compared Dr. Heinrich Bruening, former German Chancellor
with Wheeler-Bennett, and stated that both non had the future of
Germany at heart but had nothing constructive to offer. Ven Trott
stated that Seebach's ideas were somewhat warped but Dr. Muhle
defended the ability of this individual. Dr. Muhle then accused
Von Trott of having spoken too freely to the American people which
Von Trott demied, stating that he had spoken only to those persons
who were willing to listen and that he felt that Simons, apparently
Dr. Hane Simons of the New School for Social Research, was much
more forward than he. Dr. Muhle then stated thatCermany was ready
to accept a position as a World Power and that Hitler was far too
light-hearted to contimue his control.
Dr. Von Trott stated that it was their purpose to build
up a State which would proteet the selfare and provide for the
German people according to a metaphysical program. Dr. Muhle re-
sponded that the German people were ready for a change and referred
to Spain as being cos of those countries where similar conditions
had existed. Dr. Ven Trott then advised Muhle that he expected to
be in Yes York only six days more and that during this time he
would speak to another man who DES not neared but who case from
England. Von Trott continued by advising that despite Muhle's
great political activity in Cermany, he would not permit his views
Regraded Uclas ified
40
Regraded Uclassified
- 3 -
to be open to discussion. Muble then retalisted that even if
this were true, it would be better for him not to be mentioned
at this parting soment.
On December 30, 1939, while absent from his Hotel,
Von Trott received a note written in German which read as follows:
"Dear Trott, I must have the Ruxley papers back. The address is
2424 Ridge Berkeley, or Department of History. Most hearty and
best wishes, Yours, (signed) Reisler". The author of this note
is apparently identical with Professor Kurt Reisler, Professor of
Philosophy at the New School of Social Besearch, and former member
of the Foreign Service of Imperial and Republican Germany.
On Jenuary 3, 1940, Arthur Hasso Seebsch visited Von
Trott at the Shoreham Hotel at which time Von Trott handed him a
letter received from Home Muhle. Seebach commented that from the
tone of the letter it would appear that Muhle of again willing to
assist the group. Von Trott remarked at this point, that it we
imporative that he return a manuscript to Reisler immediately.
Beebach them referred to Reisler as a Liberal Democrat and stated
that no far as he, himself, was concerned, he had no interest whatso-
ever in politics. Ven Trott advised his that he should become more
political sinded. At this point, Von Trott mentioned Mr. Carter
expressing his great admiration for him and also mentioning that
Carter had done his a great honor in nominating him, Von Trott,
to a Secretariat at the Institute. Von Trott stated that when
Dr. Muhle had heard of his nomination he DIE very surprised. Seebach
questioned Ven Trott as to whether Muhle was Socialistic, but 10-
ceived a negative response,
On January 4, 1940, Von Trott will visited at his Hotel
by Alexander Boker and Arthur Seebach, at which time they discussed
the English theory of as ideal democracy, which they considered
just another imprectical thought entertained by the English people.
On the night of January 5, 1940, Dr. Von Trott left
New York City by Transcontinental & Western Air, Inc., for Los
Angeles, California, where he arrived at 4a00 P.M., on Jenuary 6,
1940. Se we immediately contacted upon arrival by Dr. Prits
Caspari, Professor at Scripps College, Claremont, California. It
is reported that Dr. Caspari recently assisted in conducting a forus
41
Regraded Uclassified
- s -
at the World Institute of International Relations recently held
in Riverside, California. Dr. Caspari who born in Bades, Switsor-
land, and arrived in the United States on October 2, 1939, at
Nov York city, abound the 85 "Vulcania", the same vessel and date
of arrival of Dr. Tom Trott in the United States. Dr. Caspari and
Von Trott then drove to Loboc, California, where they visited for a
while until the arrivel of Mrs. Dyer Bennett, who then drove them
to her residence in Taft, California. Mrs. Bennett has resided at
Taft for approximately two years and is Language teacher at the
Taft High School and Junior College. the is approximately 50 yours
of age and has E. daughter age 17 in the Junior College at Taft.
Dr. Ten Trott visited at Mrs. Bennett's residence until January
9, 1940, when be departed by plane for San Francisco, California.
On January 9, 1940, Yes Trott registered at the Mark
Hopkins in Sam Francisco, and immediately visited the Institute of
Pacific Relations. During his short stay in San Francisco, Von Trott
also contacted Dr. Earl Brendt, Stanford University, Dr. Alexander
Maiklejohn of Berkeley, California, who is known in San Francisco
as a radieal associated with the Communist Party and on instructor
at the School of Social Studies, a Communist sponsored group located
at 177 Post Street, Ban Francisco, California. Yes Trott also con-
tacted Mr. Farmham P. driffiths, Attorney for the Southern Pacific
Railway at Berkeley, California.
Prior to his departure from the United States, You Trott
was is possession of a letter addressed to his in care of John Oakie,
zoq., from Edward c. Carter, who is a member of the Board of Trustees
of the American Council of the Institute of Pacific Relations, New
York City, instructing Yes Trott to contact Motylev at Moneon,
Russia, and enclosing a copy of & letter of introduction directed
to Notylev by Carter. This letter of introduction serely advised
Notylev that Dr. Adam Van Trott was the now member of the International
Secretariat. Carter advised Ven Trott that the original of the letter
of introduction was being treasmitted to Motyler through the Bussian
Ambassador to the United States, Comstantine Ownensky, by diplematis
pouch.
It 10 interesting to note that Mr. John Oakie is the
Secretary of the Institute of Pacific Relations at Sea Francisco,
California, and to reported to be part.Japanese and part American
immore have boen circulated to the effect that be was engaged in
espiemage activities a behalf of the Japanese Government, though
42
Regraded Uclassified
- 5 -
this runor has not been substantiated by investigation to date.
Von Trott Use also in possession of a letter of is-
troduction to the United States Ambassador to Japan signed by
Mr. Carter.
In 8 letter dated January 11, 1940, addressed to &
Mr. Scheffer, who is believed identical with Paul Scheffer mentioned
in previous memoranda, Von Trott wrote as follows: "You surprised
no with a truly friendship service in the introduction of Brandt -
it was an encouraging event in my stay in America".
Under date of January 1, 1940, Von Trott directed a
letter to Mr. TOB Strempel, who is believed identical with Herbert
von Strempel, First Secretary at the Berman Embassy at Washington,
D. C., which is quoted in part as follows: "Dear Hr. von Strempel,
On the night before my departure, I wish to send you & greeting. I
have, go to speek, the feeling that I above all left in your care
the directed (even the perhaps not unimportent, under the present
circumstances) tie-up; which I succeeded in obtaining with the
Institute. All signs here on the Nest Coast appear to no to have
been given for it, that our position in this land is further darkened,
and this darkening has, for some time, been our working condition."
On January 12, 1940, Ven Trott departed from San Francisco,
for Japan about She as "President Cleveland". He arrived at Honolulu,
T.M., 00 January 17, 1940, where he contacted Klaus Mohnert. It is
interesting to note that Mehnert, though of German extraction, was
born in Monoow, Russia in 1906. It is reported that his father m -
officer in the German Army and returned to that country at the out-
break of the last World War and was killed in action. The Russien
Government permitted the Mehnert fumily to leave the country and
return to Stuttgart, Certany. Mehnert has always been considered
as outstanding student and received his Doctors Degree in History
and Economics at the University of Berlin, subsequently being amarded
a Ph.D. Degree. Mohnert received $ Fellowship to the University of
California, during 1928 and 1929, and while at the University, met
an American girl whom he married. Subsequent to his marriage, it
is reported that he returned with his wife to Russia and Germany, via
Siberia where Mohnert, in view of his horrible childhood experiences
expected to find Hoseve anything but pleasant. Re we treated kindly,
housver, and became telerent, finally becoming absorbed in the plans
to rebuild Busain upon a now economic foundation. It is reported
that between 1934 and 1936 Matmert was in Russia where be yes the
43
s
- 6 -
correspondent for various Gersen publications. During the
latter part of 1936 or first part of 1937, he returned to Germany
where he carried out his military training as a reserve officer.
It is reported that Mehnert made the statement that he would not
apply for American citizenship though his wife strongly protested
returning to Germany and he knows that if he returns he will lose
his position at the University of Rawaii. He became affiliated
with the University of Hawaii as 48 exchange professor on August
19, 1937, and to ches Political Science and Modern European History
in that institution. While considered pro-Nasi, it is reported
that he has maintained an attitude of neutrality in his teachings
at the University of Hawaii. Be has written an article on "Flect
Problem No. 19", for & German magasine entitled "Zeitschrift Feer
Geopolitek" and also an article entitled "The Struggle for Hawaii"
for the German magazine "Die Tate.
Other them his conference with Mehnert, Von Trott
made no other contacts of note during his short stay at Honolulu,
and finally embarked on the as "President Cleveland* on January
18, 1940, for Japan.
orer i ЯАМ
Regraded Uclassified
TREASURY DEPARTMENT
44
INTER-OFFICE COMMUNICATION
DATE February 27, 1940
Secretary Morgenthau
ROM
Mr. Glasser
1.
Aviation gasoline was not placed on the moral
embargo. Exports of plans, plants, manufacturing rights,
and technical information required for the production of
high quality aviation gasoline were placed on the moral
embargo during December 1939.
2. Our total exports of aviation gasoline in January
1940 to all countries were valued at $1,485,000 of which
$468,000, or 31%, was exported to Japan.
For the whole of 1939 we exported aviation gasoline
valued at $20,200,000 to all countries of which $4,800,000,
or 23%, was exported to Japan.
sent
Regraded Uclassified
45
JR
PLAIN
London
Dated February 27, 1940
Rec'd 12:40 p.m.
Secretary of State,
Washington.
479, February 27.
FOR TREASURY FROM BUTTERWORTH.
1. Asked in the House of Commons whether hE would give
the value at par in sterling of the American securities
acquired under the vesting order and the acquisition price;
whom the securities were purchased from; how they were owned
and the closing price in NEW York on the day of making the
order the spokesman for the Treasury replied:
"It is not in the public interest to state the total
value of the securities acquired. The answer to the second
and third parts of the question is that they are being
purchased from individuals and corporations resident in the
United Kingdom who are the owners. The answer to the fourth
part is that the sterling prices shown in the order were
obtained by converting the last bid prices in the NEW York
market before the making of the order".
Incidentally I hear in the city that holders of
preempted American Tobacco Company stocks are buying
British and American tobacco shares, a substantial amount
of
Regraded Uclassified
46
-2- #479, February 27, from London.
of which are hEld in the United States and are to some
EXTENT being liquidated.
2. Although Sweden suspended the gold standard Eight
years ago the introduction of currency control legislation
to legalize the de facto situation which has Existed since
the outbreak of war has occasioned several articles on the
gold problem. Since the appearance of Dr. Goldenweiser's
article in the Federal RESERVE bulletin and that of the
Bankers' Trust Company, there have been a good many
Editorials and analytical notes in financial journals and
similar British publications. These have contributed nothing
new in thought. Two common characteristics Evident in most
of these commentaries are (1) to Evaluate the problem as
purely a United States one and (2) to regard with pessimism
the future of gold as an international medium of Exchange.
JOHNSON
RR
Regraded Uclassified
47
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: February 27, 1940, 6 p.m.
NO.: 262
FOR THE TREASURY FROM MATTHEWS.
This morning I visited Couve de Murville. I asked
him what the French Government contemplated in the
forthcoming "urgent and coordinated economic measures"
which the Cabinet had decided upon at its recent meeting -
reference: telegram of February 26, No. 259, from the
Embassy. The principal problems to be dealt with, he
said, were those of establishing a system of rationing and
of purchasers abroad, for the purpose of reducing consumption
and the preserving of foreign exchange. The economic
measures will include also a provision for relaxing the
present exchange restrictions on commercial transactions
between the French and the British - reference, paragraph
five of telegram of February 9, No. 190, from the Embassy.
He said that a person in Paris or London who applies for
sterling or franc exchange, respectively, for the purpose
of covering a commercial transaction will only have to
declare that the exchange is needed for a commercial trans-
action, there will be no other delay or formality. The
program envisaged no important measures for stimulating
exports from France, 80 far as he knew. He added that
this important question, rather than being one for formal
legislative
48
- 2 -
legislative decrees was a matter of "day to day negotia-
tions". Most of the program, he said, 18 expected to be
approved tomorrow, February 28.
The same rate of subscription 1s holding for armament
bonds, he said - a monthly rate of between 8 and 9 billion
franos, - and 80 far tax revenues have been satisfactory.
Incidentally, as for the armament bond subscriptions, I
understand from banking sources that a certain degree of
"patriotic" pressure to subscribe 1s being exerted on
more prosperous institutions, individuals, and companies.
He can back to the important question of French assets
abroad, and said that no very definite estimates had yet
been made. Now, however, he 1s inclined to think that,
in addition to the Stabilization Fund's 10 billion francs,
and the Bank of France's gold reserves in actual value
of some 119 billion francs, the private French holdings
of dollar exchange amount to about 150 million francs.
His information involves much more guesswork on the private
holdings of dollar securities, which he places at
$150,000,000 - which is an upward revision of previous
estimates, This would make a grand total of about
$3,242,000,000. He said that payments on French war pur-
chases in the United States would tend to increase, but
he did not think they would be at too rapid & pace.
I told Couve de Murville that I understood that while
French
Regraded
49
- 3 -
French recipients of foreign securities physically
located in France do not have to declare them under the
exchange control regulations, they are required 80 to
declare them to the tax authorities - as well as declare
those located abroad - under long standing tax regulations.
I wondered whether he anticipated that those holdings, in
wartime, would be reported more fully than they had been
reported previously. He smiled and said that the returns
would in no sense give a true picture, even though they
would be fuller than in previous years, partly for patriotic
reasons and partly because of increased penalties, plus the
promised fiscal amnesty to cover previous years - reference:
telegram of September 18, 1939, No. 2028.
He said that they had not developed as yet any definite
plans for taking over the balances of foreign exchange
owned by companies or individuals, although they are giving
some consideration to this question (reference: telegram
of February 9, No. 190, from the Embassy), and he admitted
that the step 1s eventually inevitable. He said that
they had not given any thought to the requisition of dollar
securities - reference: telegram of February 19, No. 233,
from the Embassy. Despite the long term necessity of
searching for all available foreign exchange resources,
I feel confident that for the present the French Government
will continue with the policy it is now following, based
on
Uclassifie
50
- 4
on a cautious dread of frightening the (omission) tax-shy
French investor into seeking surreptitious cover either
in France or outside.
Most of the large pre-war holdings in gold of French
individuals and companies in London have now been disposed
of, he confirmed; a large portion of these holdings were
disposed of in the United States, he said. He remarked,
on the subject of the gold problem after the war, that
they did not need to worry about that for the time being,
that he was convinced the war would be 8. long one.
Reference: telegrams of February 14, No. 213 and
of February 20, No. 237, from the Embassy. I asked Couve,
as I have others, about the recent policy of requiring
American exporters to invoice in francs with the alternative
in some cases
/of otherwise losing their French market. I remarked that
I could not perceive any real long term advantage to the
French authorities from such a policy. He was quite
sincere, I believe, when he replied that he was completely
unaware that such a policy was being carried on; he agreed
that there was no real advantage to France in such a policy.
However, he said that they were trying to invoice as much
as possible in francs and to avoid payments in dollars as
much as possible as concerned payments to countries with
weaker currencies, as for example, Brazil.
Rueff had just come back from London, and Couve remarked
that Rueff had seemed quite pleased at the way
Uclassifie
51
- 5 -
financial cooperation between Great Britain and France
1s working out and at the lack of serious grave concern.
At an early opportunity I shall call on Rueff.
I asked Couve about the recent rumors that the Italian
certain
Government had refused to fill/war orders already placed by
the Allies and that this was a source of some irritation.
He said that as far as the French were concerned, this was
not the case. Às a matter of fact, he said, yesterday
negotiations were begun with the Italian commercial mission
which has come to Paris. However, he confirmed that
Italy had declined to complete certain "minor" war orders
for Great Britain, and that negotiations had "failed"
between Italy and Great Britain. As of the first of March,
he said, the British would cut off all sea shipments of
German coal to Italy, and he personally hoped that they
would stick by this policy.
The securities market was again dull with a somewhat
heavier tone, most international issues registering losses.
Rentes with the exception of the 1937 dollar exchange
guarantees issue declined fractionally.
END OF MESSAGE.
MURPHY.
EA:LWV
Regraded Uclassified
52
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE
February 28, 1940
TO
Secretary Morgenthau
FROM
Mr. Cochran
CONFIDENTIAL
The quotation for sterling developed a slightly easier tone in a dull foreign
exchange market. After opening at 3.95-1/4, the rate declined to 3.94-7/8 by noon.
In the early afternoon, it advanced to 3.95. but then moved off to close at 3.94-3/4.
Sales of spot sterling by the six reporting banks totaled 1506,000, from the
following sources:
By commercial concerns
I 208,000
By foreign banks (South America and Europe)
I 298,000
Total 1 506,000
Purchases of spot sterling amounted to 1385,000, as indicated below:
By commercial concerns
L 290,000
By foreign banks (Far East and Europe)
I 95,000
Total
1 385,000
The following reporting banks sold cotton bills totaling 151,000 to the
British Control on the basis of the official rate of 4.02-1/2:
I 26,000 by the Irving Trust Co.
20,000 by the National City Bank
5,000 by the Guaranty Trust Co.
I 51,000 Total
The other important currencies closed as follows:
French francs
.0223-3/4
Guilders
.5319-1/2
Swies francs
.2242-1/2
Belgas
.1687-1/2
Canadian dollars
13-3/4% discount
The nominal rate for the Finnish mark, which yesterday declined from .0170
(the approximate level which has prevailed since the beginning of February) to
.0160, moved off again today to about .0155, the lowest quotation since 1933. The
Swedish krona was slightly higher at .2382 bid, #2383 offered.
The discount for the Cuban peso narrowed further to 7-7/16, and the Mexican
peso was unchanged at .1672.
- 2 -
53
The Federal Reserve Bank purchased 100,000 Swise france for the Bank of Latvia.
There were no gold transactions consummated by us today.
There were no new gold engagements reported today by either the Federal Reserve
Bank of New York or the State Department.
Од the report of February 21 received from the Federal Reserve Bank of New
York giving the foreign exchange positions of banks and bankers in its district,
the total position of all currencies was short the equivalent of $20,303,000, a
decrease of $553,000 in the short position. The net changes in the positions are
as followe:
SHORT POSITION
SHORT POSITION
DECREASE IN
COUNTRY
FEBRUARY 14
FEBRUARY 21
SHORT POSITION
England
$10,395,000
$10,414,000
$ 19,000
(Increase)
Europe
5,938,000
5,408,000
530,000
Canada
4,000 (Long)
191,000
195,000
(Increase)
Latin America
651,000
510,000
141,000
Japan *
2,596,000
2,622,000
26,000 (Increase)
Other Asia
1,312,000
1,236,000
76,000
All Others
32,000 (Long)
78,000 (Long)
46,000
(Increase in
Long Position)
Total
$20,856,000
$20,303,000
$553,000
*Includes Korea and Manchuria
In London, the prices fixed for spot and forward silver were both 20-7/16d,
up 1/16a. The U. S. equivalents wore 36.35$ and 36.17¢.
The Bombay silver price rose 5/8/ to an equivalent of 40.814.
Handy and Harman's and the Treasury's prices for foreign silver were unchanged
at 343/46 and 35# respectively.
We made one purchase of silver amounting to 50,000 ounces under the Silver
Purchase Act. This was new production from foreign countries and was purchased
for forward delivery.
We also purchased 190,000 ounces of silver from the Bank of Canada. Thus far
in February, we have bought 1,155,000 ounces from that country under our regular
monthly agreement to purchase up to 1,200,000 ounces.
10.00
CONFIDENTIAL
TREASURY DEPARTMENT
54
INTER-OFFICE COMMUNICATION
DATE February 28, 1940
TO
Secretary Morgenthau
STRICTLY CONFIDENTIAL
FROM
Mr. Cochran
At 4130 this afternoon I telephoned the Canadian Minister. I referred to
the inquiry which he made orally at the time of his visit yesterday in regard
to the form in which notice should be officially made that Mr. Purvis is the
representative for Canadian purchases in the United States.
I told the Minister that Mr. Purvis had originally been presented
personally to the Secretary of the Treasury by British Embassy officials,
Messrs. Pinsent and Chalkley. At the time the Anglo-French Purchasing Board
in the United States was created, Prime Minister Daladier of France transmitted
through Ambassador Bullitt in Paris a message to the State Department announcing
the set-up of this Board and the naming of Mr. Purvis as President thereof.
Since Mr. Purvis was thus officially announced as head of the Anglo-
French Purchasing Board, and since the rules of the State Department require
that any foreign agents be registered with that Department, it was recommended
that the Canadian Minister address & communication to the Department of State
in regard to the status of Mr. Purvis as official purchasing agent in the United
States for the Canadian Government. The State Department would then notify the
Treasury Department. Mr. Christie welcomed this suggestion.
BMR
Regraded Uclassified
55
GROUP MEETING
February 28, 1940.
9:30 a.m.
Present:
Mr. Bell
Mr. Gaston
Mr. Foley
Mr. Sullivan
Mr. Cochran
Mr. Graves
Mr. Haas
Mr. Cotton
Mr. Thompson
Mr. Schwarz
Mrs Klotz
H.M.Jr:
You people might be interested to know that
you might - we might do something about it
together. Basil Harris' brother died. Possibly
the 9:30 group could send some flowers. Norman,
will you take care of it? I think it is appro-
priate.
What have you got, Norman?
Thompson:
I have nothing, sir.
H.M.Jr:
Harold?
Graves:
I might bring you up to date about our situation
in Procurement.
H.M.Jr:
Yes.
Graves:
We have, after conference with all of the depart-
ments, effected return to them of this petty
purchasing. The reason for that is to cut down
the load over here as far as buying is concerned,
about one-quarter of the volume that we have had
for these years. We have now sent dismissal no-
tices to 200 people of the estimated 350 who
are to go. Also, through the Bureau of the Budget
we have called on all of the departments, those
for whom we have not been doing any favors, for
statements as to the volume of their purchasing
which would exceed the one hundred dollar limit
which we contemplate using as a basis for Procure-
ment Division operations hereafter. We have had
the usual difficulty about pressure from various
people.
H.M.Jr:
You are used to that.
Regraded
56
- 2 -
Graves:
Yes. We are trying to adhere without exception
to the rule that people will go in accordance
with the ratings.
H.M.Jr:
Is anybody from my group putting any pressure
on you?
Graves:
No.
H.M.Jr:
Did Bell put any pressure on you?
Graves:
No.
H.M.Jr:
Well, after what the President said about you
(Bell) and the Hatch Act, I don't know.
Bell:
I gave my name yesterday.
Graves:
We expect a certain amount of pressure. We
are getting a certain number of requests,
naturally, from members of Congress in regard
to their constituents.
H.M.Jr:
So far is everything all right?
Graves:
Yes, sir.
Bell:
Senator George called me yesterday about it.
Thompson:
There is a lot of tragedy.
H.M.Jr:
I learned my lesson once before.
Graves:
As to that point, the fact is that all of these
people who are affected were given originally
temporary appointments to last for the duration
of the work and in no case longer than the
expiration of the fiscal year within which they
then were, so that actually these people have
all been given much longer employment than was
anticipated at the time they were put on the
rolls. For instance, this girl that Dan spoke
to me about yesterday, that is the Senator George
case, she was given an appointment originally
for 30 days and it was extended for another
30 days and extended again for a third 30 days
and finally she was given an appointment which
read "for the duration of the work, but not
Regraded
57
- 3 -
beyond June 30, 1940," so there is certainly
no valid ground for complaining that now the
work having come to an end, we propose to
separate this person.
H.M.Jr:
Well, if you have any extra difficult trouble,
you or Norman can talk to me.
Graves:
Yes. I don't anticipate it.
H.M.Jr:
Anything else?
Graves:
No.
H.M.Jr:
Have you got anything, Dan?
Bell:
We are having another Bank of America meeting
at 10:30. Mr. Cushing called up and asked for
B. conference on the program. What he is going
to ask, of course, we don't know.
The other thing is that we still have about
11 million dollars of that 100 million limit
on the 2½ percent and we are piling up a little
cash on Postal Savings, probably 16 million
dollars. 16 million is their balance, either
in the two or the two and a quarter.
H.M.Jr:
Is there a time limit?
Bell:
On the 100 million?
H.M.Jr:
Yes.
Bell:
No. Of course, we collect interest --
H.M.Jr:
There is 11 million left?
Bell:
About that.
H.M.Jr:
Do you want to give 10 of it to Postal Savings?
Bell:
Well, if we want to reserve & little of it, we
could give five or eight to Postal Savings.
We might reserve two or three million there for
these small accounts.
Regraded
58
- 4 -
H.M.Jr:
Well, how much is it, eleven?
Bell:
About eleven.
H.M.Jr:
You don't want to wait over the week-end?
Bell:
I don't know that it would do any harm.
H.M.Jr:
Why not let's wait over the week-end?
Bell:
All right.
H.M.Jr:
You were going to give me a memorandum on
that yesterday.
Bell:
All right. It is a statement of the conditions.
Do you want me to write a reply to that?
H.M.Jr:
I am going to do it right after this meeting
with you and Gaston. I am going to dictate a
draft and you fellows can work it down.
Bell:
All right.
H.M.Jr:
Anything else?
Bell:
That is all.
H.M.Jr:
Admiral Speer, what is he?
Schwarz:
Paymaster General.
(The Secretary gave instructions to Lieutenant
McKay to invite Admiral Speer for luncheon at
1:15 and for a conference on the powder re-
quirements of the Allies.)
H.M.Jr:
Do you want to be here, John? Are you busy at
that time?
Sullivan:
That is the time I have for my appointment with
the gentleman from Cleveland, but he gave me
the name of his hotel and I can change that.
H.M.Jr:
It is not necessary.
Sullivan:
I would be very glad to change it.
59
- 5 -
H.M.Jr:
I think it would be just as good if you lis-
tened.
Sullivan:
All right, sir.
H.M.Jr:
It will only take 15 minutes.
Sullivan:
All right, sir.
H.M.Jr:
What else, Dan?
Bell:
That is all.
H.M.Jr:
George?
Haas:
Here is a note on Colonel Jewett.
H.M.Jr:
This is from Haas: "I called on Colonel Jewett
this afternoon," and so forth and so on. (Feb. 27)
Is there anything --
Haas:
The point of it is this: McKay called him up
and I was going to take him out to lunch. He
told me he was leaving for California, so I
thought I had better see him right away, so I
went over there to talk to him and I asked him
about keeping current those employment figures
and also getting these additional data you
wanted on production of engines and planes and
he told me that under the existing circumstances
it would be impossible to get those because the
War Department, since October, 1938, had refused
to allow the companies to give out any production
figures, the companies which the Army had orders
placed with. He said he was negotiating with
the Air Corps to see if they wouldn't rescind
that prohibiting order. He suggested that you
might talk to Arnold, who is Chief of the Air
Corps.
H.M.Jr:
You had better take it up with me again. Will
you?
Haas:
He seemed very anxious to help in any way and
when I left he said if there was anything else
we wanted on any aviation matters and he could
be of any help, just to call on him.
60
- 6 -
H.M.Jr:
But you didn't get any feeling of --
Haas:
None. It was much the other way. He evidently
18 interested in this and that has stymied them
over there. I think they used to get those data
before and now they can't get them. He said he
was hopeful that maybe in a couple of weeks they
would list that.
Schwarz:
Just a further report on that similar subject.
I learned that the Herald-Tribune story of
Saturday emanated from somewhere in the industry,
because it came as a tip to the Aviation Editor
of the Herald-Tribune and he was told if he
would talk to somebody in the Embassy here,
which he did in the unusual manner instead of
through the Bureau - he called directly by long
distance. The story was written in New York
with a Washington date line by Talbert, the
Aviation man.
H.M.Jr:
O. K.
Schwarz:
There may be & matter with respect to the pro-
posed Fortune article on Allied Purchasing, but
Mr. Gaston turned over the copies to me and I
would like to discuss it first.
H.M.Jr:
With me?
Gaston:
There was a page or two of quote of Harry Collins
which I think you might want to look at. Chick
has the story, has the copy.
Schwarz:
It is a matter of policy. What they quote is
all right, if they want to go that far, but --
H.M.Jr:
Do you want to come in at 10:30?
Schwarz:
Yes, sir.
H.M.Jr:
I didn't get that resume on the U. S. Steel to
Brazil.
Cotton:
It will take some time to get it out. It 1s
a very long thing. The State Department has
gotten up one, but I think we ought to go over
it a little carefully. If you want to see some-
thing immediately, there is this thing to read
but I wanted to check it. It is really a.
61
- 7 -
question of what you want. If you want some-
thing immediately or if you can give us a little
time to go over it.
(The Secretary instructed Lieutenant McKay to
call Mr. Noble and Mr. McConnell for lunch
and a conference on a steel plant in Brazil.)
Cotton: If you are going to do that, I will send you
up this copy of this thing for your immediate
information.
Cochran: You wanted this copy of the letter you had from
the State Department there. Those are two memo-
randa.
H.M.Jr:
Right.
Cochran:
Do you want to sign the Canadian silver letter
or not?
H.M.Jr:
Sure. (Feb. 28)
Anything else?
Cochran: No, sir.
Sullivan: Harper, the counsel for the Federal Security
Administration, McNutt's organization, called
up and wants to see me at 10L30 this morning.
He previously called Mr. Foley and Mr. Foley
referred him to me. I am wondering whether
you want to have Mr. Irey present or whether
I should refer him to him or --
H.M.Jr: No.
Sullivan: That matter is still pending.
H.M.Jr: Wait a minute. You have every reason to be-
lieve he is coming to see you about --
Sullivan: oh, yes.
H.M.Jr: About Government work.
Sullivan: oh, entirely.
62
- 8 -
H.M.Jr:
Then if he isn't, then is he working for the
Government or isn't he?
Sullivan:
Oh, no, he is coming about the Indiana situation.
H.M.Jr:
How do you know?
Sullivan:
Because he has been here before.
H.M.Jr:
Is he Mr. McNutt's personal counsel?
Sullivan:
No, a friend.
H.M.Jr:
If he wants to - please, definitely, don't turn
him over to Irey. If he wants to see anybody
and if he wants to - I mean, who is he working
for? Is he working for the United States Govern-
ment or is he working for McNutt? I would just
close the door and if he isn't satisfied, I will
see him.
Sullivan:
All right.
H.M.Jr:
I don't want anybody to see Irey, definitely not.
Gaston:
He tried to see me on the same thing.
H.M.Jr:
I would just close the door firmly but politely
in his face. He has got no business coming
over here. If he wants to - what is McNutt's
Government job called?
Foley:
He is Director of the Federal Security Administra-
tion.
H.M.Jr:
If he wants to come over on that, yes. If it is
on tax matters for Mr. McNutt, it is none of his
business.
Sullivan:
He is more concerned, I think, about the entire
situation, including Bo Elder.
H.M.Jr:
The purpose here is for consultation and I think
it is time that we told this gentleman that he
had better go home and tend to the Government's
business. We are tending to ours. Is that
agreeable to you?
63
- 9 -
Sullivan:
Anything you say.
H.M.Jr:
I mean, is it agreeable?
Sullivan:
Yes, certainly it is agreeable.
H.M.Jr:
Well, that is what I would do. The last thing
in the world I would do would be to introduce
him to Irey. I would never let these people
get to Irey.
Sullivan:
I can introduce him to you. Do you want to
meet him?
H.M.Jr:
Do I? Sure, I will meet him.
Klotz:
What would happen if he went to see Irey direct?
H.M.Jr:
Irey wouldn't see him. Irey would call me up
and ask about it and I would say, "Send him to
me." I want to isolate him against that kind
of business so he can go ahead and tend to his
own business.
Sullivan:
One day last week I told you that Mr. Julian
was interested in being a delegate to the con-
vention and you suggested I put it up at the
9:30 meeting.
H.M.Jr:
Yes, and I think that this whole question of
whether the Treasury employees should go to
the state and national conventions ought to
be taken up by Mr. Helvering in that committee
which I set up. I wish they would do it right
away. I would say Treasury employees delegated
to state conventions and national conventions.
I say conventions because I take it some of them
may want to go to the Republican convention.
Thompson:
Maybe he could go on sick leave.
H.M.Jr:
What else?
Sullivan:
That is all.
H.M.Jr:
I would certainly send this fellow home with
just & little grit in your voice.
Uclassified
64
- 10 -
Sullivan: Well, he was over here four weeks ago, wasn't
it, Ed?
Foley:
About that, yes.
Sullivan:
And his only interest at that time was in
speeding things up and I told Mr. Foley -
Mr. Foley and I told him that everything was
being done to get action and we thought we
would have something. The present holdup
is due to the fact that the District Attorney
on February 8 wrote to the Department of Jus-
tice and notified them that they - that he
was considering bringing up Bo Elder into
court and he hadn't had any response to that
letter. Mr. Helvering has seen the Attorney
General and I think the letter did not call
for an answer. That is what has caused the
difficulty.
H.M.Jr:
But the point I am making is, it is none of
this fellow's business what we are doing.
Sullivan:
Oh no, we haven't told him a thing.
H.M.Jr:
He oughtn't to know it. It 1s just none of
his business. O. K.?
Sullivan:
Sure.
H.M.Jr:
Anything else?
Sullivan:
No, sir.
H.M.Jr:
Ed?
Foley:
Both Pittman and Wagner are away. They are
down in Florida and they are going to stay
down there for & week or ten days and I under-
stand that Townsend has been after Phil again
and he thinks that I ought to call Senator
Barkley and ask Barkley if he has had a talk
with Senator Townsend and --
H.M.Jr:
I talked with Barkley and Barkley said, "I will
leave it with you, Senator." Pittman and Wagner
are down there and J. Edgar Hoover. Why disturb
them? 0. K.?
Regraded Uclassified
65
- 11 -
Foley:
O. K.
H.M.Jr:
All right, anything else?
Foley:
No.
H.M.Jr:
Herbert?
Gaston:
You suggested that I might bring up at a
9:30 group the matter of Peyton Evans, General
Counsel for the Farm Credit Administration.
He resigned and announced that his resignation
was given out about two weeks ago under cir-
cumstances which convey the impression, which
is the fact, that he was being forced out and
therefore that he is in bad odor with the Adminis-
tration. He had one contract for special work
practically lined up and it was kicked over by
the impression being created that he was in
bad odor with the Administration. He thinks
that for one to practice law successfully in
Washington it is practically necessary that he
should have some assignment for a time in a
Government Agency. I think he is a very good
man and very able. I think he has done a good
job over there. I spoke to Ed about it and he
thought there was a possibility that there
might be some temporary opening here.
(Unrecorded telephone conversation with Mr.
McReynold's office)
H.M.Jr:
Working in the White House must be swell, don't
you think so, John?
Sullivan:
Oh, I don't know. I didn't have to report until
25 minutes after 8:00 myself, this morning.
H.M.Jr:
Let me talk to Mac. There is something in my
head about Peyton Evans that I thought, as I
remember, wasn't so good. Let me talk to Mac,
will you?
Gaston:
Yes.
H.M.Jr:
Then the other thing is this thing - I mean,
unless somebody tells me that he didn't - well,
Regraded Uclassified
66
- 12 -
anyway, let me talk with McReynolds about it
and see what he says. I will ask Mac first,
what is his advice and second, what was the
thing that happened there in the last month
or two I was there.
Gaston:
I don't know a thing about it.
H.M.Jr:
Well, there was something about it. Ask Miss
McGuire if she has something.
Gaston:
Al Goss got out.
H.M.Jr:
Didn't Al Goss make a deal?
Gaston:
No. They told him to stay until something
happened in which he thought he would have to
disagree and then they called him in at the
same time they had Peyton Evans in and told
him they wanted his resignation.
H.M.Jr:
0. K.
If Bell and Gaston will stay, please, and
Chick.
Regraded Uclassified
67
February 28, 1940
12:10 pm
Jimmie Roosevelt just came in. "Just passing by.
Just wanted to say hello." And then he made a motion to
get up and didn't. He said, "By the way, does Joe Schenck
really stink. Does he smell?" I said, "What -do you
mean?" He said, "Does he stink?" So I said, "Well,
what about it?" He said, "Well, if he does, I don't
want to do business with a man like that."
So I said, "Well, I can't advise you." I said,
"Time will tell. We have a policy here in the Treasury
that a man 1s innocent until he 1s proven guilty."
He said, "Well, should I do business with him?"
I said, "I really don't know, Jimmie." He said, "Then
your advice to me 1s to wait?" I said, "That's my ad-
vice to you. Wait and see what happens." I said, "I
don't know the man personally. I don't know the man. If
So I said, "He's still on the Infantile Paralysis
Foundation Board, isn't he?" He said, "I think he's
going to resign because it might be embarrassing to
Father.'
Regraded Uclassified
68
MEMORANDUM
February 28, 1940.
TO:
Secretary Morgenthau
FROM: Mr. Sullivan
Fowler Harper called my office at 1:18 and then had me
paged at the Washington Hotel Coffee Shop. I met him in the
lobby and he wanted to know if I had gotten the "implication
of his remark that Elder would be willing to pay any tax due
that was unpaid because of his carelessness, together with
penalties and interest." I told him that I did understand
him to say just that. He then asked if anyone would be willing
to talk to Elder if he sent out to Chicago or wherever Elder
was and have him come on here. I said I did not know. He then
asked if I would inquire of the Secretary if anybody here could
be authorized to talk with Elder if he came to Washington. I
told him I would find out and notify him.
Regraded Uclassified
69
February 28, 1940
Mr. Sullivan gave me this memorandum and I
instructed Mr. Sullivan to call up Mr. Fowler Harper
and say that I deem it unwise for him to see me at
this time, and Mr. Sullivan said he would do so.
Regraded Uclassified
70
MEMORANDUM
February 28, 1940.
TO:
Secretary Morgenthau
FROM: Mr. Sulliven
Mr. Fowler Harper came in to see me this morning and wanted
to know how the Indiana investigation was progressing and why we
were not in a position to decide definitely whether McNutt was im-
plicated. I told him that I could not tell him any more than Mr.
Foley and I had told him a month ago, when we advised him that every
effort would be made to accelerate the investigation. I told him
I thought he was doing Mr. McNutt a distinct injury by making re-
peated inquiries about the situation.
He asked many questions about the progress of the work and the
results of the investigation, none of which I answered. I told him
I thought he could appreciate why I would be unable to discuss the
matter with him.
Although he retained splendid control of his feelings and at
no time showed any temper, I could tell that he was very much agitated
because of the way his eyes filled up. I advised him that his repeated
inquiries, although prompted by his personal regard for MoNutt, might.
well be interpreted as demonstrating McNutt's extreme anxiety over the
situation, and I said I thought that he should consider that from now
on the door was closed and that he should make no further inquiries
from me or from Mr. Foley.
He said he regretted that he had not seen you about this and
would like very much to have an opportunity to discuss it with you.
I told him I would bring it to your attention and would be glad to
call him when you decided whether or not you wished to see him.
In the course of our conversation, after referring several
times to the stupidity of persons associated with McNutt as being
the only thing the investigation could possibly reveal, he twice
stated that if we were convinced that Elder had been careless and
because of contributions to the Two Percent Club owed taxes, he
believed Elder should and would pay those taxes with all penalties
and accumulated interest, even if be had to pay it out of his own
pocket.
JLS
Regraded Uclassified
71
February 28, 1940
Present:
Mr. Gaston
Mr. Bell
Mr. Schwarz
Mrs. Klotz
HM,Jr: This 1s from Marriner Eccles:
"Dear Henry:
In the New York Times this morning I notice
an article quoting you as saying that you thought it would
be a 'good idea' if I were to read the Budget Message and
that you were requesting copies of my correspondence with
Mr. David Lasser.
"I am enclosing a copy of Mr. Lasser's letter to
me of February 5 and my reply of February 9, which you will
note is a brief and factual response to the specific ques-
tions he raised and contains no expression of opinion what-
soever on my part."
HM,Jr: Which, of course, 1s not true.
(Resumed reading)
"I am at a loss to see how I could respond to the
inquiry at all without giving these purely factual answers
to the specific questions he asked.
"Accor dingly, I regret the nature of your comment
as quoted in the press, since it reflects what appears to
be a critical or disapproving attitude. I am confident
that if you will take the trouble to read Mr. Lasser's
letter, his specific questions and my replies thereto,
you will have no occasion to feel aggrieved.
"I am not acquainted with Mr. Lasser. His letter
was answered as a matter of course, as 1s all office cor-
respondence. I was surprised that he should make it
72
-2-
"public or that the newspapers should think it worthy
of any notice since it contained no news or, for that
matter, anything that was not already a matter of pub-
lic information.
"I must say that I am somewhat puzzled by your
reference to the Budget Message. There was no mention
of or reference to the Budget Message in my letter,
which made no recommendations whatsoever with respect
to the budget, working balances, or any other matter and,
therefore, could not be regarded as in any way in conflict
with the Budget Message.
"Actually, as I thought you knew, I have read the
Budget Message with great care and am thoroughly familiar
with it. I regret again that before affording me an op-
portunity to give you the facts in the matter, you should
have made remarks at a press conference that can only have
the effect of stirring up adverse newspaper comment.
Sincerely yours,
(Signed) Marriner."
HM,Jr: This is the letter, the way I am going to
write it. God knows what it will look like when these
birds get through with it.
"My dear Marriner:
I was very glad to receive your letter of
February 27th.
"I would like to point out to you that twice a
week I hold a press conference. This makes me the public
target for the newspaper men to fire questions at me on
letters and statements which you frequently make in regard
to Treasury fiscal policy. What I am trying to point out
to you 1s your statements come first and my answers only
follow in due course.
Regraded Uclassified
73
-3-
"My reference to the President's budget was
brought about due to your statement in your letter
'U understand that prior to the event of the present
Administration it was not customary to keep working
balances in excess of $250,000,000 or $300,000,000.'
To say the least, I was amazed to see you quoting
previous Administrations to make your point when the
President, in his Budget message, to quote you line
and verse, said on --- page and --- line, that the
working balance would be, on June 30th, $1,100,000,000.
"It seems to me that if you are really inter-
ested in 'not stirring up adverse newspaper comment'
that before you express your personal opinion "I am
advised, however, that it would require legislation
to apply the fund to meet current expenditures', you
make sure of your facts. Your facts in this statement
happen to be wrong.
"The net impression that I get of your letter 1s
(1) that there 18 $1,5000,000,000 available for spending
out of the silver seigniorage and (2) that another
$1,000,000,000 could be made available if we permitted
the balances to drop and follow the practices of the
previous Administration.
"I think it 1s very unfortunate that at this time
you should give Mr. Lasser this kind of an impression
without first either doing me the courtesy of talking
it over with me or referring the letter to the Treasury
for answer."
HM,Jr: I have not done a very good Job.
Mr. Bell: I dictated one last night which is now
being typed.
HM,Jr: I realize Ihave not done a very good Job.
You get yours and after this banking meeting, talk it over
with these two gentlemen. I know mine's not very good.
Mr. Bell: I think it is along the proper lines.
HM,Jr: The point I want to nail, that reference
Regraded Uclassified
74
-4-
to the Budget in that. I criticized him. He makes a
statement and I have to answer it at press conference. He
tries to give the impression that I am always picking on
him. What I want to get over to him is he makes a state-
ment, written or verbal, and the boys put it up to me at
press conference and I am on the spot.
Mr. Gaston: ... because it 1s perfectly obvious to
them that when he is talking about Government fiscal policies
that's in your jurisdiction.
HM,Jr: That's right.
Mr. Gaston: He's talking about your business.
Mr. Bell: Two subtle things in that letter, one is
the Treasury has carried too large balances, and the other
is we have got to have more spending in order to help pur-
chasing power.
HM,Jr: Oh, sure! I think it's worthy of doing a
very careful job.
Mr. Bell: He gave us the opportunity and we did
not have to ask for it.
o0o-o0o
Regraded Uclassified
75
February 29, 1940.
Sty dear Marriner:
I was very glad to receive your letter of February 27,
because it gives ne an opportunity to say to you frankly what I
think about your letter of February 9 to David Lasser, which was
published in the Bew York Times of Monday, February 26, a copy
of which, together with Lasser's letter to you dated Pebruary 5,
you were good enough to enclose.
I did make the statement at my press conference on Monday
that I thought it would be a good idea if both you and Lasser
were to read the President's Budget Message. The explanation of
that statement is, I think, quite simple. Lasser's questions to
you and your replies were directed to net ters of budget and fiscal
policy. The budget and fiscal policy of the Administration for
the current and coming fiscal years were authoritatively outlined
in the Budget Message for the fiscal year 1941.
ity own concern with Government fiscal policy, I think you
will agree, is AS imediate as yours, but I should feel it dis-
tinotly improper for me to attempt to indicate publicly ways in
which the President's fiscal policy could be improved. You say
that your letter was confined to statements of fact, but when you
point out that prior administrations were content with smaller
working balances - and without any attempt to explain the present
justification for 8 larger working balance - it seens quite evi-
dent to no that you are, by inference at least, criticising or
suggesting amendment of the President's fiscal policy. The same
inference is contained in your listing of other fiscal resources
that might be utilised.
You say that you are at a loss to see how you could have re-
sponded to the inquiry at all without giving these purely factual
answers. If you will permit ne to suggest, I think that you might
with entire propriety have responded that the aatters of which Mr.
Lasser wrote and on which he sought information did not fall within
the sole jurisdiction of the Board of Governors. Mr. Lasser's letter
doesn't give ne the impression that he was in search of facts. Fact-
ual snowers to the questions he put are contained in Treasury publi-
cations and his letter poems to indicate that he already had the
amere. What he appears to have been seeking was to use the name
and authority of a highly placed Government officer in support of
his propaganda for larger relief appropriations. If you had con-
sidered this aspect of the mtter carefully, I think you would net
have been surprised that he rade your letter public.
Regraded Uclassified
76
- 2 -
You regret that before giving you an opportunity to give
- the facts in the matter I made remarks at a prese conference
"that - only have the effect of stirring up adverse newspaper
commit." This, my dear Marriner, is, I met submit, putting the
cart before the here. You had from about February 6 to February n
a opportunity w give - the facts in the mtter.
Deb I should add a word about my press conferences. It 10
very soldon that I volunteer mything, and then only when I have
- important announcement to make about Treasury business. I
didn't volunteer anything in this case. I was asked what I thought
about your letter to Lesser. I thought w commont was exceedingly
restruined. the newpaper - have learned that I den't talk at
eonferences about mtters that are outside of Treasury jurisdiction
and they don't ask m to comment on what sonsbody else has said
unless that other person has been dealing with Treasury natters.
I didn't think I was justified in refusing to answer this particular
question. I a st a loss to know how I could have answered 12 differ-
ently.
I an no less and ous than you to avoid adverse concent and
newspaper controversy. It cambo avoided if w both stick strictly
to our om luitting. Is for my part, intend to do this.
Sincerely yours,
(Med) a
Secretary of the Treasury.
The Memorable Marriner 5. Seeles,
Chairman, Board of Governors of the Federal Reserve System,
Washington, D.C.
HSG/mah
Regraded Uclassified
71
February 29, 1940.
My dear Marriner:
I was very glad to receive your letter of February z7,
because it gives DO an opportunity to say to you frankly what I
think about your letter of February 9 to David Lesser, which was
published in the New York Times of Monday, February 20, & copy
of which, togother with Lasser's letter to you dated February 5,
you were good enough to enclose.
I did make the statement at sy press conference on Monday
that I thought it would be a good 1dea if both you and Lasser
were to read the President's Dudget llessage. The explanation of
that statement 18, 1 think, quite simple. Lasser's questions to
you and your replise were directed to natters of budget and fiscal
policy. The budget and fiscal policy of the Administration for
the surrent and coming fiscal years were authoritatively outlined
in the Budget Message for the fiscal year 1941.
sty own concern with Government fiscal policy, I think you
will agree, is as imediate as yours, but I should feel it dis-
tinctly improper for no to attempt to indicate publicly ways in
which the President's fiscal policy could be improved. You say
that your letter was confined to statements of fact, but when you
point out that prior administrations were content with smaller
working balances - and without any attempt to explain the present
justification for a larger working balance - it secon quite ori-
dent to 18 that you are, by inforence at least, criticising or
suggesting amendment of the President's fiscal policy. The came
inference is contained in your listing of other Mscal resources
that might be utilised.
You say that you are at a loss to seo how you could have No-
spended to the inquiry at all without giving these purely factual
answers. If you will permit ne to suggest, I think that you night
with entire propriety have responded that the matters of which Mr.
Lasser wrote and on which he sought information did not fall within
the sole jurisdiction of the Board of Governors. Mr. Lasser's letter
doesn't give ne the impression that he was in search of facts. Fast-
ual miswers to the questions he put are contained in Treasury publi-
cations and his letter seems to indicate that he already had the
answers. What he appears to have been seeking was to use the -
and authority of A highly pleased Government officer in support of
his propaganda for larger relief appropriations. If you had 000-
sidered this aspect of the matter carefully, I think you would not
have been surprised that he made your letter public.
Regraded Uclassified
78
- 2 -
You regret that before giving you an opportunity to give
- the facts in the matter I made remarks at & press conference
"that on only have the effect of stirring up adverse newspaper
commnt." This, By dear Marriner, is, I must submit, putting the
cart before the here. You had from about February 6 to February 26
a opportunity to give - the facts in the matter.
But I should add a word about my press conferences. It 10
very soldon that I volunteer mything, and the only when I have
- important announcement to make about Treasury business. I
didn't volunteer mything in this case. I was asked what I thought
about your letter to Lesser. I thought By coment was exceedingly
restrained. The newspaper - have learned that I don't talk at
conferences about matters that are outside of Treasury jurisdiction
and they don't ask ne to comment on what somebody also has said
unless that other person has been dealing with Treasury matters.
I didn't think I was justified in refusing to answer this particular
question. I - at & less to know how I could have answered it differ-
ently.
I an no less anxious than you to avoid adverse coment and
newspaper controversy. It can be avoided if W both 6 tick strictly
to our own knitting. I, for my part, intend to do this.
Sincerely yours,
(Signed) & Morgestion, 3r.
Secretary of the Treasury.
The Honorable Marriner 5. Ecoles,
Chairman, Board of Governors of the Federal Reserve System,
Washington, D.C.
HEG/mah
By Manager 100 pm 2/29/40
Regraded Uclassified
79
FROM: MR. GASTON'S OFFICE
TO:
E
Mr Lasser litter doesnt
fun me The impression that
he was in search of fact.
Factual unswers & The questions
Be put are entained in
Treasury publications and
his letter seems to indicate
that W already had The
ansiver. What he
to have been seeking was to
we The name and authority
of a highly placed Government
officer in support of his proka-
ganda for larger relief
appropriatines of
10
you had
80
Emidued This askert y the
anatter campully 8 United
you would not have been
surprised That he made
you letter public
Deaft based on Deey -deas
81
THE SECRETARY OF THE TREASURY
WASHINGTON
February 28, 1940.
My dear Marriner:
I was very glad to receive your letter of February 27, because
it gives me an opportunity to say to you frankly what I think about
your letter of February 9 to David Lasser, which was published in the
New York Times of Monday, February 26, a copy of which, together with
Lasser's letter to you dated February 5, you were good enough to
enclose.
I did make the statement at my press conference on Monday that
I thought it would be a good idea if both you and Lasser were to read
the President's Budget Message. The explanation of that statement is,
I think, quite simple. Lasser's questions to you and your replies were
directed to matters of budget and fiscal policy. The budget and fiscal
policy of the Administration for the current and coming fiscal years
were authoritatively outlined in the Budget Message for the fiscal year
1941.
My own concern with Government fiscal policy I think you will
agree, much more immediate that yours, but I should feel it distinctly
improper for me to attempt to indicate publicly ways in which the Presi-
dent's fiscal policy could be improved. You say that your letter was
confined to statements of fact, but when you point out that prior admin-
istrations were content with smaller working balances - and without any
attempt to explain the present justification for a larger working balance
- it seems quite evident to me that you are, by inference at least,
criticising or suggesting amendment of the President's fiscal policy.
The same inference is contained in your listing of other fiscal resources
that might be utilized.
You say that you are at a loss to see how you could have responded
to the inquiry at all without giving these purely factual answers. If
you will permit me to suggest, I think that you might with entire pro-
priety have responded that the matters of which Mr. Lasser wrote and on
which he sought information did not fall within the jurisdiction of the
Board of Governors. Rither that, or you might have consulted as with TO
gard W your
You regret that before giving you an opportunity to give me the
facts in the matter I made remarks at & press conference "that can only
have the effect of stirring up adverse newspaper comment." This, my dear
Marriner, is, I must submit, putting the cart before the horse. You had
from about February 6 to February 26 an opportunity to give me the facts
in the matter.
82
- 2 -
But I should add a word about my press conferences. It is very
seldom that I volunteer anything, and then only when I have some 1m-
portant announcement to make about Treasury business. I didn't volunteer
anything in this case. I was asked what I thought about your letter to
Lasser. I thought my comment was exceedingly restrained. The newspaper
men have learned that I don't talk at conferences about matters that are
outside of Treasury jurisdiction and they don't ask me to comment on what
somebody else has said unless that other person has been dealing with
Treasury matters. I didn't think I was justified in refusing to answer
this particular question. I am at a loss to know how I could have
answered it differently.
I am no less anxious than you to avoid adverse comment and newspaper
controversy. It can be avoided if we both stick 8 trictly to our own
knitting. I, for my part, intend to do this.
Sincerely yours,
Secretary of the Treasury.
The Honorable Marriner S. Eccles,
Chairman, Board of Governors of the Federal Reserve System,
Washington, D.C.
Regraded Uclassified
83
DRAFT
My dear Marriner:
I was very glad to receive your letter of
February 27th.
I would like to point out to you that twice
a week I hold a press conference. This makes se
the public target for the newspaper sen to fire
questions at me on letters and statements which you
frequently make in regard to Treasury fiscal policy.
What I am trying to point out to you is your state-
ments come first and my answers only follow in due
course.
My reference to the President's budget was
brought about due to your statement in your letter
"I understand that prior to the event - the present
Administration it wis not customary to keep working
balances in $10000 of $250,000,000 or $300,000,000.*
To say the least, I was anased to ... you quoting
previous Administrations to make your point when the
President, in his Budget message, to quote you line
and verse, said on --- page and --- line, that the
working balance would be, on June 30th, $1,200,000,000.
Regraded Uclassified
84
It seens to me that if you are really inter-
ested in "not stirring up adverse THE newspaper com-
ment" that before you express your personal opinion
"I am advised, however, that it would require legis-
lation to apply the fund to meet current expenditures",
you make sure of your facts. Your facts in this state-
ment happen to be wrong.
of
The net impression that I get tor your letter is
(1) that there is $1,500,000,000 available for spending
out of the silver seigniorage and (2) that another
$1,000,000,000 could be made available if we permitted
the balances to drop and follow the practices of the
previous Administration.
I think it very unfortunate that at this time
you should give Mr. Lasser this kind of an impression
without first either doing no the courtesy of talking
it over with me or referring the letter to the Treasury
for answer.
Sincerely yours,
Regraded Uclassified
85
BOARD OF GOVERNORS
/ 8
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
OFFICE OF THE CHAIRMAN
February 27, 1940.
Dear Henry:
In the New York Times this morning I notice
an article quoting you as saying that you thought it
would be "a good idea" if I were to read the Budget
Message and that you were requesting copies of my
correspondence with Mr. David Lasser.
I em enclosing B. copy of Mr. Lasser's
letter to me of February 5 and my reply of February 9,
which you will note is a brief and factual response to
the specific questions he raised and contains no ex-
pression of opinion whatsoever on my part. I am at 8.
loss to see how I could respond to the inquiry at all
without giving these purely factual answers to the
specific questions he asked.
Accordingly, I regret the nature of your com-
ment as quoted in the press, since it reflects what ap-
pears to be a critical or disapproving attitude. I em
confident that if you will take the trouble to read Mr.
Lasser's letter, his specific questions and my replies
thereto, you will have no occasion to feel aggrieved.
I em not acquainted with Mr. Lasser. His
letter was answered 88 a matter of course, as 18 all
office correspondence. I was surprised that he should
make it public or that the newspapers should think it
worthy of any notice since it contained no news or, for
that matter, anything that was not already B matter of
public information.
Regraded Uclassified
86
- 2 -
I must say that I am somewhat puzzled by
your reference to the Budget Message. There was no
mention of or reference to the Budget Message in my
letter, which made no recommendations whatsoever with
respect to the budget, working balances, or any other
matter and, therefore, could not be regarded as in any
way in conflict with the Budget Message.
Actually, as I thought you knew, I have read
the Budget Message with great care and em thoroughly
familiar with it. I regret again that before afford-
ing me an opportunity to give you the facts in the
matter, you should have made remarks at a press con-
ference that can only have the effect of stirring up
adverse newspaper comment.
Marrmer Sincerely yours,
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
enclosures
Regraded Uclassified
C
87
0
P
Y
February 9, 1940.
Mr. David Lasser, National President,
Workers Alliance of America,
930 M Street, Northwest,
Washington, D. C.
Dear Mr. Lasser:
I have your letter of February 5 in which you inquire
as to cash resources available to the Administration, without
further legislative authority. You mention specifically the
stabilization fund, the power to issue silver certificates, and
the Treasury's working balance.
Under the Gold Reserve Act the stabilization fund is
available for expenditure under the direction of the Secretary
of the Treasury "for any purpose in connection with carrying
out the provisions of this section, including the investment
and reinvestment in direct obligations of the United States of
any portions of the fund which the Secretary of the Treasury,
with the approval of the President, may from time to time de-
termine are not currently required for stabilizing the exchange
value of the dollar." I am advised, however, that it would re-
quire legislation to apply the fund to meet current expenditures.
As to silver, I am informed that approximately
$1,500,000,000 would be available by monetizing the difference
between what has been paid by the Treasury for the silver and
the official price of $1.29, and that this would not require
legislation.
The Treasury's working balance as of today is approxi-
mately $1,600,000,000. Tentative estimates made in our sta-
tistical division indicate that without any new financing the
balance will not fall to less than $1,000,000,000 at the end of
the present fiscal year and may be somewhat more than that if
sales of so-called baby bonds continue at the volume at which
they have been selling of late. I understand that prior to the
advent of the present Administration, it was not customary to
keep working balances in excess of $250,000,000 or $300,000,000.
In addition, as you point out, there 18 the unused authority,
under the Thomas Amendment, which provides that up to
$3,000,000,000 of currency may be "issued only for the purpose
of meeting maturing Federal obligations".
Regraded Uclassified
88
Mr. David Lasser
-2-
February 9, 1940
Finally, you ask what the economic effects would be of
using such funds for increasing work and consumer buying power.
The Government can spend only what Congress authorizes and appro-
priates. To the extent that these funds were used to meet such
expenditures, it would avoid an increase in the public debt but
consumer buying power in the hands of the low income groups would
not be increased thereby unless increased expenditures were voted
by Congress.
Very truly yours,
(signed) M. S. Eccles.
M. S. Eccles,
Chairman.
Regraded Uclassified
C
o
89
P
Y
WORKERS ALLIANCE OF AMERICA
National Headquarters
930 M Street, N. W.
Washington, D. C.
February 5, 1940
Hon. Marriner Ecoles
Chairman, Board of Governors
Federal Reserve Board
Washington, D. C.
Dear Mr. Eccles:
I have been informed, in connection with the current dis-
cussion on our public debt limit and the effect of this on gov-
ernment expenditures, that there are considerable resources
available to the Administration today, without further legisla-
tive authority.
My understanding is that these resources for meeting current
expenditures can be used without increasing the debt limit or
without further taxation.
Among the funds I am referring to are a two billion dollar
stabilization fund, one billion dollar power to issue silver cer-
tificates, one and one-half billion dollars excess in the Treasury's
working balance, over normal requirements, totalling four and one-
half billion dollars. The last figure is based on the fact that
the Treasury's working balance today 18 about one billion eight
hundred million dollars. The usual practice is to maintain 8. work-
ing balance of about two hundred fifty million dollars.
This four and one-half billion figure is in addition to the
power to issue three billion dollars of additional currency, not
specially backed by gold or silver.
I wonder if you could inform me as to: first, whether these
figures are correct, second, whether, to your knowledge there are
additional funds that can be used for meeting current expenditures
of the government without further legislation or without increasing
the debt limit, and last, your viewpoint 88 to the economic effects
of using such funds for increasing work and consuming power in the
hands of the low income groups.
Appreciating any information you may give me, I am
Very truly yours,
(signed) David Lasser.
David Lasser
National President
dl/1k
Regraded Uclassified
90
THE SECRETARY OF THE TREASURY
WASHINGTON
February 29, 1940.
My dear Marriner:
I was very glad to receive your letter of February 27,
because it gives me an opportunity to say to you frankly what I
think about your letter of February 9 to David Lasser, which was
published in the New York Tímes of Monday, February 26, a copy
of which, together with Lasser's letter to you dated February 5,
you were good enough to enclose.
I did make the statement at my press conference on Monday
that I thought it would be a good idea if both you and Lasser
were to read the President's Budget Message. The explanation of
that statement is, I think, quite simple. Lasser's questions to
you and your replies were directed to matters of budget and fiscal
policy. The budget and fiscal policy of the Administration for
the current and coming fiscal years were authoritatively outlined
in the Budget Message for the fiscal year 1941.
My own concern with Government fiscal policy, I think you
will agree, is as immediate as yours, but I should feel it dis-
tinctly improper for me to attempt to indicate publicly ways in
which the President's fiscal policy could be improved. You say
that your letter was confined, to statements of fact, but when you
point out that prior administrations were content with smaller
working balances - and without any attempt to explain the present
justification for a larger working balance - it seems quite evi-
dent to ne that you are, by inference at least, criticising or
suggesting amendment of the President's fiscal policy. The same
inference is contained in your listing of other fiscal resources
that might be utilized.
You say that you are at a loss to see how you could have
responded to the inquiry at all without giving these purely factual
answers. If you will permit me to suggest, I think that you might
with entire propriety have responded that the matters of which Mr.
Lasser wrote and on which he sought information did not fall within
the sole jurisdiction of the Board of Governors.
91
Regraded Uclassified
February 29, 1940.
Ky dear Marriner:
I was very glad to receive your letter of February 27,
because it gives se an opportunity to say to you frankly what I
think about your letter of February 9 to David Lasser, which was
published in the New York Times of Monday, February 26, a copy
of which, together with Lasser's letter to you dated February 5,
you were good enough to enclose.
I did make the statement at wy press conference on Monday
that I thought it would be & good 1/dea if both you and Lesser
were to read the President's Budget. Message. The explanation of
that statement is, I think, quite simple. Lasser's questions to
you and your replies were directed to matters of budget and fiscal
policy. The budget and fiscal policy of the Administration for
the current and coming fiscal years were authoritatively outlined
in the Budget Message for the fiscal year 1941.
My own concern with Government fiscal policy, I think you
will agree, is as imediate as yours, but I should feel it dis-
tinetly improper for no to attempt to indicate publicly ways in
which the President's fiscal policy could be improved. You say
that your letter wes confined to statements of fact, but when you
point out that prior administrations were content with smaller
working balances - and without any attempt to explain the present
justification for a larger working balance - it seems quite ovi-
dent to ne that you are, by inference at least, criticising or
suggesting amendment of the Precident's fiscal policy. The same
inference is contained 10 your listing of other fiscal resources
that might be utilized.
You say that you are at a loss to see how you could have
responded to the inquiry at all without giving these purely factual
sume. If you will permit no to suggest, I think that you night
with entire propriety have responded that the matters of which Mr.
Lasser wrote and on which he sought information did not fall within
the sole jurisdiction of the Board of Governors.
92
February 29, 1940,
My dear Marriner:
I was very glad to receive your letter of February 27g
because it gives no an opportunity to say to you frankly what I
think about your letter of February 9 to David Lasser, which vas
published in the New York Times of Monday, February 26, a copy
of which, together with Lasser's letter to you dated February 5,
you were good enough to enclose.
I did make the statement at my press conference on Monday
that I thought it would be a good 1,dea if both you and Lesser
were to read the President's Budget Massage. The explanation of
that statement is, I think, quite simple. Lasser's questions to
you and your replies were directed to matters of budget and fiscal
policy. The budget and fiscal policy of the Administration for
the current and coming fiscal years ware authoritatively outlined
in the Budget Message for the fiscal year 1941.
My own concern with Government fiscal policy, I think you
will agree, is as imadiate e yours, but I should feel it die-
tinotly improper for me to attempt to indicate publicly ways in
which the President's fiscal policy could be improved. You say
that your letter was confined to statements of facts but when you
point out that prior administrations were centent with smaller
working balances - and without my attempt to explain the present
justification for a larger working balance - it - quite ovi-
dent to no that you are, by inference at least, criticising or
suggesting ammirant of the President's fiscal policy. The -
inference is contained in your listing of other fiscal resources
that might be utilised.
You say that you are at a loss to see how you could have
responded to the inquiry at all without giving these purely factual
answers. If you will permit ne to suggest, I think that you night
with entire propriety have responded that the natters of which Mr.
Lasser wote and 60 which be sought information did not fall within
the sole jurisdiction of the Board of Governors.
Regraded Uclassified
93
February 29, 1940.
My dear Marriner:
I was very glad to receive your letter of February 27,
because it gives no an opportunity to say to you frankly what I
think about your letter of February 9 to David Lasser, which was
published in the New York Times of Monday, February 26, a copy
of which, together with Lasser's letter to you dated February 5,
you were good enough to enclose.
I did nake the statement st my press conference on Monday
that I thought it would be a good idea if both you and Lasser
were to read the President's Budget Message. The explanation of
that statement 10, I think, quite simple. Lasser's questions to
you and your replies were directed to matters of budget and fiscal
policy. The budget and fiscal policy of the Administration for
the current and coming fiscal years vare authoritatively outlined
in the Budget Message for the fiscal year 1941.
My om concern with Government fiscal policy, I think you
will agree, is as imediate M yours, but I should feel it die-
tinetly improper for me to attempt to indicate publicly ways in
which the President's fiscal policy could be improved. You sky
that your letter was confined to statements of fact, but when you
pednt out that prior administrations were content with smaller
working balances - and without any attempt to explain the present
justification for a larger working balance - it - quite ort-
dent to no that you are, by inforence at least, criticising or
suggesting amendment of the President's fiscal policy. the came
inference is contained in your listing of other fiscal resources
that night be utilised.
You say that you are at a loss to ⑉ how you could have
responded to the inquiry at all without giving these purely factual
are If you will permit DE to suggest, I think that you might
with entire propriety have responded that the natters of which Mr.
Lasser wrote and on which he sought information did not fall within
the sole jurisdiction of the Board of Governors.
Regraded Uclassified
94
February 29, 1940.
My dear Marriner:
I was very glad to receive your letter of February 27,
because it gives no an opportunity to say to you frankly what I
think about your letter of February 9 to David Lasser, which was
published in the New York Times of Honday, February 2, a copy
of which, together with Lasser's letter to you dated February 5,
you wore good enough to enalose.
I did nake the statement at my promo conference on Honday
that I thought it would be a good idea if both you and Lasser
were to read the President's Budget Message. The explanation of
that statement is, I think, quite simple. Lasser's questions to
you and your replies wire directed to meters of budget and fiscal
policy. The budget and fiscal policy of the Administration for
the current and coming fiscal years were authoritatively outlined
in the Dudget Message for the fiscal year 1941.
My own concern with Ocvernment fiscal policy, I think you
will agree, is as invediate M yours, but I should feel it dis-
tinotly improper for me to attempt to indicate publicly ways in
which the President's fiscal policy could be improved. You say
that your letter the confined to statements of fact, but when you
point out that prior administrations ware content with maller
working balances - and without my attempt to explain the present
justification for a larger working balance - it - quite ort-
dent to no that you are, by inference at least, criticising or
suggesting amminent of the President's fiscal policy. The -
inference is contained in your listing of other fiscal resources
that night be utilized.
You say that you are at a loss to ⑉ how you could have
responded to the inquiry at all without giving these purely factual
If you will permit DD to suggest, I think that you might
with entire propriety have responded that the matters of which Mr.
Lasser wrote and on which be sought information did not fall within
the sole jurisdiction of the Board of Covernors.
Regraded Uclassified
NEW YORK TIMES
95
FEB 26 1940
EGGLES CITES CURB
that this would not require legin.
latie
"The Treasury's working Balance
ON SPECIAL FUNDS
as of today is approximately $1,600,
000,000. Tentative estimates made
in our statistical division indicate
that without any new financing the
balance will not fall to less than
Their Use for Relief Needs Vote
$1,000,000,000 at the end of the pres-
ent fiscal year and may be some-
of Congress, He Says in
what more than that If vales of so-
Letter to Lasser
called Baby Bonds continue at the
volume at which they have been
selling of late.
"I understand that prior to the
WOULD PREVENT DEBT RISE
advent of the present Administra-
tion, It was not customary to keep
working balances in excess of $250,-
000,000 or $500,000,000.
Workers Alliance Head Asserts
Thomas Authorization
Statement Answers 'Excuse'
"In addition, se you point out,
there is the unitsed authority, un-
for Limiting of Aid
der the Thomas amendment, which
provides that up to $3,000,000,000
of currency may be 'Issued only for
Special le THE New THER Truse,
the purpose of meeting maturing
WASHINGTON, Feb. 25-Mar-
Federal obligations.
riner B. Eccles, chairman of the
"Finally, you ask what the eco-
nomic effects would be of using
Federal Reserve Board, said in &
such funds for increasing work and
letter made public today that the
consumer buying power, The gov-
lide of the government's cash re-
ernment can spend only what Con-
sources "for increasing work and
greas authorizes and appropriates.
consumer buying power" would
To the extent that these funds ware
avoid an increase In the public debt
used to meet such expenditures, it
but that "the government can spend
would avoid an increase in the pub-
lle debt bot consumer buying power
only what Congress authorizes and
appropriates" and "consumer buy-
in the hands of the low Income
Ing power in the hands of the low-
groups would not be Increased
Income groups would not be In-
thereby unless increased expendi-
creased thereby unless increased
tures were voted by Congress."
Mr. Lasser in his statement said:
expenditures were voted by Con-
"Mr, Eccles's letter clearly indi-
gress.
cates that there are three Immedi-
Bis letter was to David Lasser,
ate sources of funds. without touch-
president of the Workers Alliance,
who made It public along with A.
log the power of the administration
to issue large sums of new cur-
statement saying that Mr. Eccles's
figures "clearly reveal" that the
rency.
"With regard to the gold stabill-
Issue of the debt limit as an ex-
zation fund I have been informed
cuse for not appropriating "ouffi-
that the amount available is about
clant funds for our social needa is
two billion dollars without endan-
a lot of sound and fury signifying
gering out own currency one bit.
nothing."
This together with the silver fund
Mr. Eccles's letter, M given out
and excess Theasury working bal-
by Mr. Lasser, was as follows:
ances makes nearly five billion dol-
"I have your letter of Feb. 5 In
lare available to hurl back the tides
which you Inquire AS to cash re-
of new recession advancing on THE
sources available to the Administra-
and to give purchasing power and
tion without further legislative 60-
work to needy unemployed, youth
therity. You mention specifically
and famers."
the stabilization fund, the power to
issue ailver certificates, and the
Treasury's working balance.
Stabilization Fund Terms
"Under the Gold Reserve Act the
stabilization fund la available for
expenditure under the direction of
the Secretary of the Treasury "for
any purpose In connection with
carrying out the provisions of this
section. including the investment
and the ivestment In direct obliga-
tions of the United States of any
portions of the fund which the
Secretary of the Treasury, with the
approval of the resident, may
from time to time determine are
not urently required for stabilis-
Ink the exchange value of the
dollar I am advised, however
that would require legislation to
apply the fund to meet current
expenditures. "A" LO aftver, I am informed that
approximately $1,500,000,000 would
be available by monetizing the dif-
ference between what has been
paid by the Treasury for the aliver
and th. official price of £1.29, and
NEWS
from WORKERS ALLIANCE of AMERICA
930 M Streat, N. W.
96
WASHINGTON, D. C.
MEtropoliton 4830
DAVID LASSER, President
HERBERT BENJAMIN, General Secretary-Trum.
For release AM/PM papers
2/26/40
In a letter from Mardner S. Recles to David Lasser, National President of the
Workers Alliance of America, released today by Mr. Lasser, it was revealed that the
000
Federal Government has cash resources of $4,850,000 available for meeting current
expenses without increasing taxes or the Federal debt limit.
Mr. Eccles'letter was in response to a quory from Mr. Lanver asking specifical-
1y about funds available in the gold stabilization fund, silver Sunds, and the treas-
any working balance,
The available funds are listed by Mr. Lassor, from Hr, Eccles' letter an follows:
Gold stabilization fund $2,000,000.000
Silver profits
1,300,000,000
Excess treasury voriding
1,350,000,000
balance
TOTAL $4,850,000.000
Mr. Lasser, in a statement roleasing the letter today doclared: "This letter
from the chairman of the Board of Governore of the Federal Reserve Board clearly
revoals that the issue of the debt limit, as an oxcuse for not appropriating mf-
fleimt funds for our social neoda 10 a lot of sound and fury signifying nothing.
Mr. Zoclos letter clearly indicatos that there are three immediate sources of funds,
without touching the power of the Administration to iasuo largo sums of now currency.
With rogard to the gold stabilization fund I have been informed that the amount
svailable is about two billion dollars without endangering our own currency one bit.
This together with the ailver fund and oxcosa treasury working balances makes near-
ly five billion dollars available to hirl back the tides of nen recoasion advancing
and with
on us; and to give purchasing power so needy uncaployed, youth and farmors, Knowing
those facts no rosponsible officials or statement can heard these funds or throw
up Bis hands in holplesences allowing this now recession with its suffering and
alsery to engulf us.
The tost of the lotter from Mr. Rocles follows:
I have your lettor of Fobruary 5 in which you inquire as to cash resources 8"
vailable to the Administration, -ithout further logislative authority, You mention
specifically the stabilization fund, the power to issue silvor certificates, and
the Treasary's working balance,
Under the Cold Reserve Act the stabilization fund 10 available for expenditure
under the direction of the Secretary of the Treasury "for any purpose in connection
with carrying our the provisions of this section, including the investment and re-
Regraded Uclassified
97
2.
invostment in direct obligations of the United States of any portions of the fund
which the Secretary of the Treasury, with the approval of the Prosident, nay from
time to time determine are not currently required for stabilizing the exchange value
of the dollar." I am advised, however, that it would require logislation to apply
the fund to moot current expenditures.
As to silvor, I an informed that approximatcly $1,500,000,000 would be available
by monetizing the difference botwoen what has boen paid by the Treasury for the sil-
vor and the official price of $1.29, and that this would not roquiro logislation.
The Treasury's working balance as of today is approximately $1,600,000,000.
Tentative estimates nade in our statistical division indicato that without any now
financing the balance will not fall to less than $1,000,000,000 at the end of the
present fiscal year and may be somewhat more than that if sales of so-called baby
bonds continuo at the volumo nt which they have been selling of late. I understand
that prior to the advont of the prosent Administration, it VAB not customary to
keep working balances in excess of $250,000,000 or $300,000,000. In addition, as
you point out, there is the unitsed authority, under the Thomas Amendmont, which
provides that up to $3,000,000,000 of currency may be "issued only for the purpose
of meeting naturing Fodoral collgations,"
Finally, you ask what the economic offects would be using such funds for in-
creasing work and consumer buying power. The Government can spond only what Congress
authorizes and appropriates. To the extent that these funds ere used to moot such
expenditures, it would avoid an increase in the public debt but consumer buying power
in the hands of tho lovincone groups would not be increased theroby unless increased
expendituros wore voted by Congross.
Very truly yours,
H.S. Ecclos /=/
Chairman
Regraded Uclassified
98
TREASURY DEPARTMENT
CONFIDENTIAL
INTER OFFICE COMMUNICATION
DATE February 28, 1940
TO
Secretary Margenthau
FROM
Mr. Haae JCA.
AAK
Subject: Setting for the March Financing
SUMMARY
(1) Domestic high-grade securities markets have remained
quiet since early in the month. The average yield of
all long-term Treasury bonds stood at 2.32 percent at
the close on Tuesday, February 27, the same yield as
three weeks earlier Chart I). This stability has
been reflected in all maturity groups (Chart II).
(2) The data on the distribution of the issues to be re-
funded indicate that the June notes are held largely
by commercial banks and the Federal Reserve Open Mar-
ket Account. The figures on the 3-3/8 percent bonds
are striking because they indicate that only a emall
proportion of this issue is held by banks in New York
City.
(3) In the past four years, the volume of "short" United
States Government securities (direct and guaranteed)
has increased by $3.2 billions, an amount equivalent
to almost half of the increase in the amount of
marketable public debt securities.
(4) Weekly reporting member bank holdings of United States
bonds, notes, and guaranteed issues have remained
relatively unchanged for the last five weeks. Bill
holdings have declined as a result of the contraction
in the volume of bills outstanding (Chart III).
(5) June bond holders have a real alternative to a refund-
ing offer -- an alternative which might become attrac-
tive if the new issues sell under 100-27/32 while the
books are open; that 1s, they can obtain 27/32 of B.
point in interest by holding their bonds until June 15,
or approximately that amount by selling them to gome-
one else willing to do BO.
Regraded Uclassifie
99
Secretary Morgenthau - 2
I. The Condition of the Market
Domestic high-grade securities markets - Government,
corporate, and municipal -- have remained quiet since early
in the month. The average yield of all long-term Treasury
bonds stood at 2.32 percent at the close on Tuesday, Febru-
ary 27, the same yield as three weeks earlier (Chart I).
That this stability has been reflected in all maturity
groups 1s shown in Chart II, in which the prices and yields
of issues representing the various sectors of the market
have been plotted daily since the first of December.
High-grade corporate bonds have also shown only minor
changes during the past three weeks, our average of the yield
of such issues having moved within a range of only one basis
point. With respect to municipal bonds, the Dow-Jones average
of the yields of twenty 20-year bonds has remained unchanged
since February 3.
Trading in the market for United States Government
securities was carried out at a slow rate last week. A good
demand was in evidence for "rights" and for several issues
of Treasury notes and the shorter guaranteed issues, accord-
ing to the confidential letter of the Federal Reserve Bank of
New York, but interest was particularly lacking for the
longest Treasury bonds and these issues were in moderate
supply in the market.
II. The Issues to be Refunded -- Who Holds Them
In view of the size of the March financing (aggregate
maturities amount to $1,091 millions), it would be desirable
to know at this time which classes of investors hold the
maturing notes and bonds. It would be particularly interest-
1ng, moreover, to compare, by classes of holders, the distri-
bution of the notes with the distribution of the bonds. The
notes, it will be recalled, were originally issued as short-
term securities in exchange for other short-term securities,
while the bonds were originally issued (in 1928) as long-term
securities for cash and in exchange for other long-term
securities (Third Liberty bonds).
There 1s, however, only 8. limited amount of information
with respect to the actual amounts of particular issues held
by the various classes of security holders. The more compre-
hensive statistical data that are available - such B.B the
Federal Reserve series on securities owned by weekly report-
1ng member banks -- do not break down holdings by issues, and
no system of direct inquiry to obtain this information 18
available at the present time. The figures that we do have,
have been obtained from various sources. They are shown in
the following table:
Regraded Uclassified
100
Secretary Morgenthau - 3
Distribution of Issues to be Refunded
Holder
:3-3/8's of:1-1/2's of
: 1940-43 : June 1940
(Millions of dollars)
Commercial Banks
8 New York City national banks
o
37
All New York City weekly reporting
State member banks
6
46
3 Chicago national banks
0
OR
6 Other large national banks
53
51
13 Other large national banks
0
26
Subtotal
59
168
Savings Banks -- 200 banks
5
No data
Insurance Companies
2 Large life insurance companies
23
o
Other insurance companies
5
35
Federal Reserve Open Market Account
0
137
Government agencies and trust funds
1
0
Total accounted for
93
340
Not accounted for
260
398
Total outstanding
353
738
Note: Figures are for various dates between December 31, 1938
and February 21, 1940. They were supplied by the Comp-
troller of the Currency, the Federal Reserve Board, and
Poor's Publishing Company.
Inadequate as they are, the above figures are striking be-
cause they show such a small proportion of the 3-3/8 percent
bonds held by New York City banks. Outside of New York, the
twenty-two large national banks for which we have detailed data
on securities owned appear to hold 8. relatively small proportion
of the issue. Only $53 millions of the issue was BO located,
mainly in the portfolios of two large banks. The figures with
respect to the June notes are more informative. They indicate
that this issue 1s held largely by commercial banks and by the
Federal Reserve Open Market Account.
The Federal Reserve Open Market Account, it is interesting
to note, holds none of the 3-3/8's. The Account did hold $11 mil-
lions of the 1ssue at the beginning of the year, but these bonds
have been disposed of in the market. They have probably been
taken up principally by commercial banks.
Regraded Uclassified
101
Secretary Morgenthau - 4
III. The Volume of Short Maturities
It has been frequently urged during the past few years
that the action of the Treasury in refunding note maturities
principally into long- and medium-term bond issues has
resulted in a steady decline in the volume of short-term
Government securities outstanding, and that this decline has
impaired the liquid position of the banking system. It 1s
particularly interesting before each financing, therefore,
to direct attention to all the statistical facts relating
to the volume of short-term Government securities then out-
standing.
The relevant figures for the last four years are pre-
sented in the table below, which compares the trend of the
total marketable supply of direct and guaranteed public
debt issues with (1) the aggregate volume of "short" market-
able issues outstanding, and (2) the volume of such issues
selling at prices offering some positive return to the
investor. "Short" issues are considered for this purpose
to be all direct and guaranteed obligations which mature
within five years, plus all those securities with a coupon
rate of 3 percent or higher which are callable within five
years, but which mature at some later date.
:
:
"Short" issues
: Marketable supply
:
Dec. 31 :
of public debt
:
Total
: Amount selling
:
securities 1
:
amount
:
on a positive
:
: outstanding :
yield basis
(In billions of dollars)
1935
33.3
15.5
13.0
1936
36.8
15.1
13.8
1937
37.8
15.4
13.7
1938
39.0
14.9
9.9
1939
40.2
16.7
13.3
V Excludes special issues to Government agencies and trust
funds, United States Savings and Adjusted Service bonds.
It is apparent from the table that if high-coupon call-
able issues are taken into account, there has been no shrink-
age in the volume of short securities during recent years.
The total volume of such securities, as a matter of fact, has
Regraded Iclassified
102
Secretary Morgenthau - 5
increased by $3.2 billions in the past four years, an amount
equivalent to almost half of the aggregate increase in the
amount of marketable public debt securities (direct and guar-
enteed) during the period.
The increase in the volume of short securities has been
due principally to the mere passage of time, which has brought
into the picture 8. large volume of longer-term obligations
which were issued some years ago, and which have now become,
and are regarded by the market as, relatively short-term issues.
All of these issues are selling at prices to yield less than
1-1/4 percent, and, unless a radical rise in interest rates
takes place in the next few years, they are all likely to be
called on, or shortly after their earliest call date.
From the viewpoint of the investor desiring to obtain
2. positive yield on his purchase of short securities, the
figures in the last column of the table are the most signifi-
cant. There was & sharp decrease in the volume of positive-
yield short securities in 1938, it appears, but the volume
of such securities has now returned to the level existing from
1935 through 1937. The deoline in 1938 was due to a combi-
nation of circumstances. The bill volume was reduced sharply
and a large volume of short notes went to & negative yield
basis. Neither of these factors were reversed in 1939, and the
current increase 1s due principally to a greater than usual
volume of securities crossing the somewhat artificial deadline
between a six-year and a five-year "maturity" during the past
year.
IV. Bank Holdings of Government Securities
Weekly reporting member bank holdings of United States
bonds, notes, and guaranteed issues have remained relatively
unchanged since the middle of January (Chart III). Bill hold-
ings have declined by $88 millions, however, mainly as 8. result
of the contraction in the volume of such issues outstanding.
There have been some shifts in recent weeks in the classes
of United States securities held by the banks in the different
cities. These shifts have not been large, however. Treasury
bills have been going to banks in Minneapolis and St. Louis,
while the Chicago banks have been acquiring guaranteed issues.
Regraded Uclassified
103
Secretary Morgenthau - 6
V. Special Position of High-Coupon Obligations
Refunded in Advance of Maturity
At the close on Tuesday, February 27, the bid for the
June bonds stood at 101-24/32. Allowing for interest that will
accrue between February 27 and March 15, the market was bidding
approximately 1-19/32 for the right to obtain on March 15 the
new securities offered by the Treasury in exchange for these
maturing obligations.
In making up their minds whether to accept the refunding
offering, the holders of the June bonds will find that they
have a real alternative: They can obtain 27/32 of a point in
interest by holding their June bonds from March 15 to June 15
instead of exchanging them into new securities. By BO doing,
they can obtain a return on 3 month's money equivalent to
3-3/8 percent per annum, This compares with a return of
.005 percent obtainable on an issue of 3 month's Treasury bills.
This alternative would become quite inviting - and might
attract a significant number of holders of the maturing bonds --
if the new issues sell under 100-27/32 while the books are open.
That much premium could be secured merely by holding the issue
to maturity (or approximately that much by selling it to someone
else willing to do Bo) and the new issue, if still desired,
could be purchased in the market at the lower price.
The situation presented above is not & new one, it should
be pointed out -- it always exists at financing operations in
which the Treasury offers to refund an issue in advance of its
maturity date. It has been of only minor importance in con-
nection with the advanced refunding of Treasury notes during
the past two years, however, because the coupon rates on the
maturing notes were relatively low. The situation 1s different
with respect to the Treasury bond maturing at this time, because
the issue carries a relatively high coupon rate -- 3-3/8 per-
cent -- and the point at which it becomes profitable to hold
out 18 much higher (27/32 on the bond, as against 12/32 on the
June note).
The First Boston Corporation made the foregoing problem
the subject of 8. recent circular letter on Government securi-
ties. For your convenience, their proposed solution 18 summa-
rized below (the figures are illustrative only):
Regraded Uclassified
104
Secretary Morgenthau - 7
The Treasury would offer an 1ssue of new
securities for cash and refunding in the amount of
$1,250 millions. Holders of the maturing issues
would be invited to tender these issues in exchange
and would be promised full allotment. Cash sub-
scriptions would also be invited, but with the
proviso that cash allotments would be limited to
the difference between the total of the exchange
tenders and the size of the issue,
Let us say, for example, that total exchange
tenders under this procedure amounted to $1,050 mil-
lions. (The note maturity 18 $738 millions, and
the bond maturity $353 millions, a total of
$1,091 millions.) Total cash allotments, in this
case, would be limited to $200 millions. If, how-
ever, exchange tenders amounted to only $750 mil-
lions, cash allotments would total $500 millions.
The "hold-outs" would then be redeemed at maturity,
sufficient funds to take care of them having been
made available without the necessity of another
cash offering.
The First Boston proposal is an interesting one. It would
free the Treasury from the necessity of catering to the holders
of maturing securities, and it would thus increase the Treasury's
bargaining power. If it were adopted the prices of rights would
probably decline to a level lower than that presently existing
in the market.
It should also be noted that the proposal would require
that some new cash be raised upon the occasion of every such
refunding. In the present instance this may be judged to be
a disadvantage.
Regraded Uclassified
U.S. GOVERNMENT SECURITY HOLDINGS, WEEKLY REPORTING MEMBER BANKS
Cumulative Net Change from December 6, 1939
1939
1940
DECEMBER
JANUARY
FEBRUARY
MARCH
APRIL
MAY
6
13
20
27
3
10
17
24
31
7
14
21
28
6
13
20
27
3
10
17
24
1
8
15
22
29
DOLLARS
DOLLARS
MILLIONS
MILLIONS
New York City
600
600
400
400
105
BONDS
200
200
QUARANTEED
o
0
NOTES
BILLS
-200
-200
TOTAL
-400
-400
-600
-600
DECEMBER
JANUARY
FEBRUARY
MARCH
APRIL
MAY
600
600
All Other
400
400
BONDS
TOTAL
200
200
BILLS
o
o
GUARANTEED
NOTES
200
-202
400
-400
606
DECEMBER
JANUARY
FEBRUARY
MARCH
APRIL
MAY
1000
1000
All Cities
800
600
600
600
BONDS
400
400
200
200
TOTAL
QUARANTEED
o
o
-BILLS
NOTES
-200
-200
0001
-400
-600
-600
20
27
3
to
17
24
31
7
14
21
28
6
13
20
27
3
10
17
24
I
e
15
22
29
6
13
JANUARY
FEBRUARY
MARCH
APRIL
MAY
DECEMBER
Office of the Secretary of the Treasury
F - 146 - A
Division of Research and Statistics
Regraded Uclassifie
Chart II
106
PAICES AND yibld
OF SERSCTED GOVERNMENT SECURITIES
Daily
frims
Tields
1939
1940
1939
1940
service
-
FERRIARY
-
APRIL
I
-
research
I
-
I
IS
a
35
13
22.
27
10
25
16
a
*
23
20
I
13
20
27
18
17
a
IS
"
13
BILLARS
FERSEIT
I
BILLAN
al
al
15.
108
J
7
HI total
HS Motos
- 19. Issa
154
Dec. 18, -
*
-3
J
A
103
A
ill
3
a
162
102
4
.
** Notes
Jan 19, Issue
is Motes
- IS, 1044
ISI
141
a
at
-
a
is
100
,
a
.
-
140
our Bondo
14
0
-
Dept. is, - 47
141
100
110
la
as
dept. is, INS-VI et
14
1a
-
IS
143
and -
(4)
- is, NEI- "
128
106
M
14
14
14
(ed
107
3.1
If
as treats
la
100
Jame 15. 1951-34
22
ats
1.2
Dec. 15, - -
2.3
15
Ha
2.3
y
2,4
2.4
104
104
205 heis
Dec. 15, 1960-19 -
1.5
2.5
III
163
14
1.6
12
1.7
10
17
24
2
I
18
e
se
e
D
Hall
162
2
9
=
23
.
.
13
R
17
I
2
$
16
22
8
.
13
a
27
$
10
17
%
2
9
=
as
.
4
is
-
I
-
RECORDA
-
-
-
-
Ti
MAIL
1939
1840
1939
1946
N of - Transity
1-12-1
I
Regraded Uclassified
107
Chart I
COMPARATIVE YIELDS OF AVERAGE 0 OPALL LONG TERM U.S. TREASURY
AND AVERAGE OF HIGH GRADE
PORATE BONDS
1939
JAN
FEB.
MAR
APR.
MAY
JUNE
JULY
AUG
SEPT
OCT.
NOV
DEC.
1940
JAN
FEB.
ARAB
1939
#
a
.
@
B
12
a
ARE
MAY
1940
is
4
E
=
.
e
JUNE
a
.
AAY
AUE
#
a
If
SEPT
oct
1
NOV
13
DEC.
DEC.
n
&
e
6
JAN.
a
as
FEB.
"
.
-
=
⑉
inverted Scale
,
%
=
-
-
BP
.
If
PER CENT
Inverted Scale
Inverted Scale
PER CENT
WEEKLY. Saturday Quotations
DAILY
20
2.0
2.0
Long Term
22
2.2
Treasury
2.2
2.4
2.4
2.4
Long Term Treasury
(12 years or more to servicest cell and
2.6
2.6
2.6
2.8
2.8
2.0
Corporate
3.0
3.0
3.0
Corporate
3.2
3.2
1.2
3.4
3.4
1.4
3.6
3.6
3.6
3.8
3.0
3.0
PER
PER
PER
CENT
CENT
CENT
100
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Regraded Uclassified
108
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE February 28, 1940
Secretary Morgenthau
TO
FROM
Mr. Haas BA.
Subject:
Business Outlook Meeting held in the Federal
Reserve Board Room on February 28, 1940, at
10:00 a.m.
Among those present were representatives from departments
nd organizations 88 follows:
Department of Agriculture
Secretary Wallace, who served as chairman
Mr. Louis Bean
Dr. Mordecai Ezekiel
Dr. O. C. Stine
Mr. Frederick L. Thomsen
Department of Commerce
Mr. Richard V. Gilbert and some members of
the staff of the Bureau of Foreign and Domestic
Commerce
Department of Labor
Secretary Perkins (part of the time)
Mr. A. Ford Hinrichs
Executive Office of the President
Administrative Assistant to the President -
Dr. Lauchlin Currie
Bureau of the Budget -
Mr. Harold D. Smith
Central Statistical Board -
Dr. Morris A. Copeland
Dr. Stuart A. Rice
National Resources Committee -
Mr. Thomas C. Blaisdell
Federal Reserve Board
lir. Ernest G. Draper
Dr. E. A. Goldenweiser
Mr. Ronald Ransom
Mr. M. S. Szymozsk
Mr. George Terborgh
Mr. Elliott Thurston
Mr. Haas
The program of the meeting consisted of two papers, one by
hr. George Terborgh, of the research staff of the Federal Reserve
Regraded Uclassified
109
Secretary Morgenthau - 2
Board, and one by Mr. Richard V. Gilbert, of the Department
of Commerce. Mr. Terborgh's paper discussed forecasts
of durable goods for the calendar year 1940. Copy is at-
tached. On the basis of his analysis, he forecasts that
the Federal Reserve Board index for the calendar year 1940
-111 average between 110 and 115. He expects that the
Federal Reserve index for February will be about 110 and
for March about 107. He thinks the low point will be
reached about the middle of the year or earlier. He would
be surprised if the index for the lowest month we.B less
then 100. He anticipates a rather sharp upturn in the
recond half of the year.
Mr. Gilbert cave 8 paper in which he analyzed the
outlook for the calender year 1940. (This paper WAB a copy
of the same paper which you gave me to read on Monday.)
Mr. Gilbert presented what he called an optimistic forecast
and e pessimestic forecast. The optimistic forecast in
terms of the Federal Reserve Board index is 88 follows:
First quarter, 110
Second quarter, 105
Third quarter, 104
Fourth quarter, 107
Average for the year, 106.5
The pessimestic forecest in terms of the Federal Reserve
Board index 1s as follows:
First quarter, 109
Second quarter, 90
Third quarter, 84
Fourth quarter, 95
Average for the year, 94.5
The optimistic forecast according to his analysis assumes
no "inventory" liquidation and an increase in exports of
1-1/2 - 32 billion. The pessimestic forecast assumes a
40 percent liquidation of "inventory," and an increase in
exports of SI - $1-1/2 billion.
The inventory data which he presented are not secured
from company reports but consist of & derived or calculated
series. To & very large extent his analysis depends on his
interpretation of this derived inventory series and his
expectation with regard to the level of the export trade balance.
In view of the questions which were raised as to Just
what Mr. Gilbert's derived inventory series meant in terms of
Regraded Uclassified
110
Secretary Morgenthau - 3
the business outlook, Secretary Wallace suggested that
another meeting be held in the near future to see if the
experts could clear up the questions which had been raised.
At the close of the meeting Secretary Wallace said
it was imperative that the matters considered at the meeting
be kept confidential and that no newspaper reporter be
informed regarding them.
Regraded Uclassified
111
CONFIDENTIAL
February 6, 1940,
THE OUTLOOK FOR DURABLE GOODS IN 1940
by
George Terborgh
Forecasting is attended at the present time by exceptional
uncertainty. The European war, from the standpoint of the American
economy, is an adventitious factor both unpredictable and potent. The
impending presidential election may have far more important repercussions
on business sentiment and behavior than usual, To make matters still
worse for the forecaster, we appear to be just now in one of those pre-
carious periods when productive activity in many lines exceeds the rate
at which new business is coming in, and when backlogs are therefore running
off, In such a period the near-term trend of activity may depend on rela-
tively small differences in timing, difficult to predict. If orders re-
cover in enough lines before backlogs run out, the decline in general
activity may be reversed before it has gathered much momentum; if, on
the other hand, the upturn in orders is delayed too long, the momentum
of the contraction in production may generate a secondary withholding
of orders and procipitate a downward spiral of both orders and production,
The 1940 forecasts for durable goods offered in this memorandum
are highly tentative, and will have to, be revised as the year progresses.
Since the visibility is SQ poor, only the next few months can be seen
with any approach to clarity. For this reason, I had originally planned
to confine my prognostications to the first half of the year. This plan
gave way to the decision to cover the longer period, but to center attention
on the near-term prospect.
Confidential
112
- 2 -
The following discussion relates to the present situation and
outlook in the finishing stages of durable goods production, Thus it
covers the manufacture of machinery but not production of steel for
machinery, the construction of buildings but not the output of building
matorials, Conditions and prospects in the primary and intermediate
stages of durable goods production may of course differ rather widely,
over short periods, from those in the finishing lines. A second qualifi-
cation should be noted: the discussion deals only with the domestic
demand for finished durable goods, and with its effect on operations
and expenditures, While the domestic demand is overwhelmingly more
important than the foreign in this field, some minor adjustments may
nevertheless need to be made in the forecasts for 1940 where foreign
business is expected to move during the year in a manner markedly di-
vergent from that of domestic commitments,
Let me first review the present situation and outlook for
mrious classes of durable goods separately, and try later to pull these
fragments together into some kind of over-all picture.
Public Construction
The unprecedented volume of public construction expenditure in
1939, estimated at 3,832 million dollars, will not be equalled in 1940.
Outlays under the PKA program seem likely to be down about a third.
WPA construction looks at present about & fourth lower, Federal-aid
highway expenditures will be about the same, Regular Federal construction
promises to be higher by say 10 per cent, U.S.H.A. expenditures will
be up 200 or 300 per cent, State and local outlays on projects not coming
Regraded Uclassified
Confidential
113
- 3 -
under Federal programs will probably be up moderately. When all these
categories are added together, we obtain an indicated decline of 5-10
per cent in the grand total, 1/ The forecast for 1940 is 3,450-3,650
million dollars. It seems probable that on a seasonally adjusted basis
public construction activity will decline irregularly during the year.
It should be noted that this estimate does not include expendi-
ture for the building of naval vessels, or for ordnance and military
aircraft, The expansion in these items during 1940 will probably offset
most, if not all, of the decline in public construction, We may conclude,
therefore, that expenditures for publicly owned plant and equipment com-
bined will be substantially the same as in 1939. 2/
Producers' Goods
Railroads
At the end of 1939, Class I railroads had 37,100 freight cars
and 117 locomotives on order, representing for the most part business
placed in the September-October stampede, New orders have declined since
that rush to a rather low volume currently, and there seems little pros-
pect of much immediate recovery. The carriers just now have a wait-and-
see attitude. With business activity in the opening phase of a decline
that may last for several months, and with the timing and magnitude of the
next upswing problematical, the roads will soon have ceased to worry much
about the protection of their autumn traffic peak of this year. Their
1/ I am indebted to Peter Stone, of the WPA, for help in deriving these
estimates, His endorsement of them is not necessarily implied,
however.
Expenditures for military equipment have not been included in my
durable goods estimates as published.
Regraded Uclassified
Confidential
114
fears of a squeeze will have been transferred to 1941, in preparation
for which there is plenty of time. Until the present business recession
has hit bottom and given way to B. recovery vigorous enough to call in
question again the quantitative adequacy of the equipment inventory, the
ordering of new cars and locomotives will proceed slowly,
Some ordering will continue, of course, unless business goes
completely to pot, The pressure to modernize equipment and service is
becoming constantly greater as the amount of modern equipment in use
increases. Each streamlined passenger train and high-speed freight in
service intensifies inter-railroad competition and forces the laggard
carriers to modernise to protect their traffic position. The incentive
of cost reduction, moreover, grows constantly more powerful 8.8 the gap is
widened between the performance of up-to-date equipment and that of the
more obsolete portions of the existing stock, The diesel-electric
switcher is a case in point. Even in the absence of over-all quantitative
shortages of equipment, B certain amount of buying for modernization will
go on, the volume depending largely on the intensity of the incentive and
the financial position of the carriers.
Without attempting to cover here all the angles involved, I may
simply say that large-scale ordering of equipment seems unlikely during
the first half of 1940, Backlogs in the hands of car builders are pretty
sure to be much reduced in the coming months (locomotive backlogs may
fare better), and productive activity in the field will tend to decline,
What happens in the second half of the year will depend largely on the
trend of business activity and the expectations of railroad executives
Regraded Uclassified
Confidential
115
- 5 -
AS to the imminence of equipment shortages. Unless business does better
than appears likely just now, a repotition of the ordering stampede of
September-October 1939 cannot be expected, For the year 8.5 a whole we
may guess freight-car installations at 60,000-70,000, and locomotive
installations at 350-400, with the total of equipment outlays 250-275
million dollars, as compared with 210 million in 1939, 1/ Outlays on
road and structures may be guessed at 175-200 millions, against Д. 1939
figure of 152 millions, making B. total railroad expenditure of 425-475
millions,
Electric power
At the end of 1939 private utilities had over 2 million k.w.
of new generating capacity on order, of which about 1.3 million is scheduled
for installation in 1940, This exceeds by about 20 per cent the 1929 in-
stallations. Expenditures for generating facilities will probably rise
by a somewhat larger ratio than this, owing to n relatively greater in-
crease in the amount of basic construction under way that will not give
rise to current-year installations, and to other factors, but it seems to
me that trade estimates which place 1940 expenditures for generating
capacity at more than twice the 1939 figure are clearly excessive, I am
inclined to allow no more than a 30-50 per cent increase. If we accept
trade forecasts for substation, distribution, transmission, and miscellaneous
outlays, which show an increase of about 15 per cent for these items collec-
tively, we get an over-all increase of 20-25 per cent. The forecast for
1940 is 425-475 millions, against 373 in 1939.
1/ 1 This estimate includes outlays for the rebuilding of equipment, when
chargeable to capital account,
See, for example, the Electrical World, January 13, 1940, Re 95, These
ostimates exclude Federal projects.
Regraded Uclassified
Confidential
116
- 6 -
From the standpoint of current activity in the construction of
electric power plant and equipment, it seems likely that on B. seasonally
adjusted basis it will be well sustained at somewhere around the present
lovel for most, if not all, of 1940, The work is already on order or in
process and, berring some drastic change in the outlook, will be pushed
to completion, From the standpoint of new orders and projects initiated
during the year, the prospect is more obscure, The S.E.C. drive for com-
pulsory unification of holding-company systems has aggravated existing
uncertainties for E. considerable portion of the industry, and is likely
to cause some retardation of capital commitments because of doubts as to
the future control of certain properties and as to arrangements for financing
capital outlays. To this factor must be added the influence of the decline
in business activity now under why.
Telephones
The preliminary forecast for the telephone industry envisages
capital outlays in 1940 only slightly higher than in 1939, say around 350
millions, as against 333, Since expenditures in the last few months of
1039 were running (seasonally adjusted) at approximately the annual rate
indicated by this forecast, we may infor that their course during the cur-
rent year will be sidewise at something like the present level,
Transit
The Transit Journal forecasts 1940 outlays for the industry at
112 millions, up slightly from 107 in 1939, I have no information as to
the course of expenditures during 1939, but seasonally adjusted they were
probably above the annual average in the latter part of the year, and the
indication is therefore for n. sidewise movement during 1940,
Confidential
117
- 7
Other utilities
No reliable forecasts are currently available for 1940 capital
outlays in the gas and pipe-line industries, the principal components of
this category. As 8. sheer guess, we may say 140-160 millions for the
classification as a whole, against 135 in 1939.
Mining and Manufacturing
New orders for mining and manufacturing equipment underwent a
sharp spurt in September last to a level somewhat above the average for
1937. Since November they have apparently been receding, though at 6.
moderate rate, Some recession was natural after the fall spurt, which
represented in part B. "borrowing" of future business, The coincidence of
this let-down with a decline in general industrial activity, however,
indicates the probability that orders will continue downward for some
time, I do not anticipate a repetition of the precipitous drop of 1937;
neither do I now expect any significant recovery much before the end of
the first half, though I certainly should not deny that under war-time
conditions anything can happen, The outlook for the second half of the
year is obscure, and no forecast can carry much conviction, My guess is
that an uptrend in orders for industrial equipment will be established
during the period,
From the standpoint of activity in the production of this equip-
ment we must reckon with the sustaining effect of large backlogs of un-
filled orders in many lines. If the prognosis for new orders is correct,
there will probably be some let-down in activity, however, beginning in
the near future and lasting until orders have pointed upward.
Confidential
118
- 8 -
In view of the uncertainty attending the forecast for the second
half of the year, any figure for expenditures on mining and manufactur-
ing equipment in 1940 must contain a wide margin of error, My guess is
1,800-2,100 millions, against 1,650 for 1939.
Of mining and manufacturing plant expenditures, the largest oom-
ponent consists of outlays for the drilling of oil and gas wells. The
trend was upward in 1939, due largely to the opening of some important
new fields, such as the Illinois field. Drilling in the older Texas
and California areas was lower than in 1938, Conditions in the industry,
into which I need not go here, make it seem improbable that the uptrend
in total drillings will continue through 1940; indeed we will be lucky
to maintain the recent level. That the year as B. whole will exceed 1939
somewhat seems likely, however, The estimate is 600-650 millions, against
550 in 1939,
As for factory construction, the initiation of new projects is
expected to move generally widewise during 1940, on a seasonally adjusted
basis, Construction activity, also adjusted, may hold near the present
level, and for the year as a whole should materially exceed 1939. Ex-
penditures are forecast at 250-300 millions, against 200, For mining
and manufacturing plant including oil wells, the prediction is 900-1,000
millions,1 as compared with 775 in 1939, and for plant and equipment
combined it is 2,700-3,100 millions, against 2,425.
Commercial and miscellaneous
The outlook for equipment orders in this field, and for activity
in the fabrication of equipment, resembles in general that for equipment
in mining end manufacturing, discussed above. Suffice it to say that the
1/ Including 8. small allowance for mining development.
Confidential
- 9 -
119
trend of new orders appears downward, and is likely to continue 80 for
some time, and that activity will probably decline somewhat as backlogs
are depleted, The prospect nevertheless is for an expenditure in 1940
somewhat higher than in 1939, the forecast being 1,500-1,700 millions,
against 1,350.
Commercial and miscellaneous building contracts, seasonally ad-
justed, showed an uptrend during most of 1939, I am inclined to antici-
pate 8. generally sidewise movement during the year, on an adjusted basis.
Expenditures for 1940 are forecast at 400-450 millions, against 355 in
1939. For plant and equipment combined, the commercial and miscellaneous
forecast is 1,900-2,150 millions, versus 1,705 in 1939.
Agriculture
The outlook for farm capital expenditures in 1940 is mildly
encouraging, the forecast being 750-800 millions, compared with 695
in 1939. I shall not venture to predict the seasonally adjusted trend
through the year.
Consumers' Goods
I have taken so much space with the discussion of various
classes of producers' goods that I shall treat consumers' goods very
briefly.
Housing
For privately owned housing, I am disposed to predict a gener-
ally sidewise movement of seasonally adjusted contracts during 1940 at
somewhere around the recent level, On an expenditure basis, this would
give a 1940 figure slightly over 1939, The forecast is 2,100-2,300
millions, againes 2,060.
Confidential
120
- 10 -
Automobiles
It is a long time since I have made a thoroughgoing analysis
of the automobile situation, and I do not consider my forecast for 1940
a particularly weighty one, It stands at 2,500-2,700 millions, which
compares with 2,300 for 1939. Retail sales will average somewhere
around recent levels, with the seasonally adjusted trend perhaps mod-
erately downward for a few months,
Household goods
The forecast for this large and heterogeneous class of durable
goods is 4,800-5,000 millions, against 4,700 in 1939. Sales in 1940
are not expected to average much above recent levels, after allowance
for seasonal factors.
Summary
The accompanying table summarizes the forecasts just presented,
Regraded Uclassified
Confidential
121
- 11 -
Forecast
Preliminary
1940
estimates
1939
Range
I
Mid-point
Public and Private
19,237
19,855 - 21,535
20,700
Public (construction)
3,832
3,450
-
3,650
3,550
Private
15,405
16,405 - 17,885
17,150
Producers'
6,135
6,785
-
7,635
7,220
Railroads
362
425 -
475
450
Electric power
373
425 -
475
450
Telephones
333
340 -
360
350
Transit
107
105 -
115
110
Other utilities
135
140 -
160
150
Mining and manufacturing 2,425
2,700
-
3,100
2,900
Commercial & misc.
1,705
1,900
#
2,150
2,030
Agriculture
695
750 -
800
780
Consumers'
9,270
9,620
-
10,250
9,930
Housing
2,060
2,100
-
2,300
2,200
Non-profit institutions
210
220 -
250
230
Automobiles
2,300
2,500
-
2,700
2,600
Household goods
4,700
4,800
-
5,000
4,900
If we take the mid-point of the ranges indicated we come out
with a forecast for all durable goods of 20,700 millions, about 8 per
cent over 1929 and 4 per cent over 1937. For publicly owned goods
(plant only) 8. decline of 7 per cent from 1939 is indicated, though the
The ranges derived for the major categories of durable goods by adding
the terminal points of the ranges for their component series are
somewhat too wide as an indication of the probable error in the
forecasts for such composites, since deviations of actual results
from the mid-points of the ranges for component series forecasts
may be expected to occur in both directions, and to reduce the
range of error in the composites accordingly.
Regraded Uclassified
Confidential
122
- 12 -
figure remains 27 per cent above 1937.1/ Privately owned goods show a gein
of 11 per cent over 1939, and an approximate parity with 1937. The pro-
ducers' component of this category is up 18 per cent from last year, though
5 per cent below 1937. Consumers' goods are up 7 per cent, and are 3 per
cent over 1937.
Conclusions
These forecasts, the fallibility of which I wish to emphasize
again, are associated with a forecast for industrial production which
contemplates B. recession in the first half of the year and an uptrend in
the second half, This recession is of course already under way. Its
gravity and duration will depend on many other factors than conditions
in the finishing branches of durable goods production, discussed above,
but these conditions are certainly an important part of the picture,
While commitments for new durable goods promise to run below
production in some lines during the next few months, and while activity
in most lines appears to be currently at as high a level (seasonally ad-
justed) as it is likely to reach until commitments have turned up again,
it is also true that because of existing backlogs of unfinished work ac-
tivity in the finishing lines as a whole is unlikely to recede much during
the next two or three months at least, and will go off only gradually for
a while thereafter, If during this period of resistance in the finishing
stages of durable goods production there should be an upturn of activity
in the primary and intermediate stages, and in the production of non-durable
1/ It will be recalled from the foregoing discussion that the inclusion
of expenditures for military and naval equipment, not included in
my estimates, would probably reduce to a. negligible amount the de-
cline from 1939.
Confidential
123
- 13 -
goods, a revival of commitments for new durable goods may check the de-
cline of activity in the finishing stages and establish a concurrent up-
trend for production all along the line, If, on the other hand, activity
in the earlier stages of durable goods production, and in non-durable
goods, should be still in a declining phase when the exhaustion of back-
logs precipitates a rapid downward movement in the finishing stages of
durable production, the revival of commitments for new durable goods is
likely to be postponed, and the downward momentum of finishing activity
may carry other branches and stages of production along with it,
The possible combinations and permutations of factors in this
situation are innumerable, and the general patterns just outlined repre-
sent of course a gross over-simplification, Since this is not the 00-
casion to analyse other elements in the present business outlook than
those which are the immediate subject of discussion, I can only state
my expectation that commitments for new durable goods will pretty well
have completed their decline by the end of the first half, and that the
liquidation of activity in the final stages of durable production will
not attain any great momentum before it is checked. While this seems
to me to represent the balance of probability, all things considered,
it is fully recognized that a much less favorable course of events is
possible, and may actually materialize.
124
HSM
PLAIN
London
Dated February 28, 1940
REc'd 11:05 a. m.
Secretary of State,
Washington.
482, February 28.
FOR TREASURY FROM BUTTERWORTH.
Asked in the House of Commons whether in view of
the failure of the depreciation of sterling at the
beginning of the war to bring about an adequate Expansion
of Exports he will give an assurance that in view of its
grave Effects in other directions currency depreciation
will not again bE resorted to as a means of stimulating
Exports, the Chancellor of the Exchequer replied:
"I can assure the Honorable Member that currency
depreciation will not bE resorted to as a means of
stimulating exports by seeking an unreasmable competi-
tive Exchange advantage. I cannot accept his implication
that this policy was adopted on the outbreak of war, for
this is not the case."
Asked further if that bE the CASE for what reason
depreciation was resorted to in the Early months of the
war, Simon replied:
"I
Regraded Uclassified
125
hsm -2- No. 482, February 28, from London
"I think I should say that the true level of sterling
was below that at which it stood in the period prior to
the war and at the outbreak of war WE felt it was a WISE
step to allow the pound to fall to a rate which did
represent its true Economic level.
A good deal of the competitive advantage arising
out of the depreciation of the pound last autumn has
now been dissipated. Costs have definitely risen due
in part to increase in insurance and shipping rates under
war conditions, in part to the rise in terms of sterling
of imported materials and in part to wage increases, a
movement as yet unchecked or ungrappled with. HOWEVER
the problem of maintaining or increasing British exports
is not yet one of costs but one of organization: the
allocation of productive resources, man power, materials
and shipping space as between the export trades and the
fighting SERVICES. Sir Andrew Duncan, the new President
of the Board of Trade, 1s to publish shortly the recom-
mendations of his export advisory committee for meeting
this serious problem.
JOHNSON
CSB
126
HSM
GRAY
Paris
Dated February 28, 1940
REC'd 2:11 P. m.
Secretary of State,
Washington.
267, February 28, 6 P. m. (SECTION ONE).
FOR THE TREASURY FROM MATTHEWS.
Today's Journal Official publishes an announcement
of the Ministry of Commerce in regard to the relaxation
as from March 1, 1940, of the war time import permit
and Exchange control restrictions affecting the importa-
tion into France of products coming from and originating
in the United Kingdom and certain British possessions
(SEE my telegrams Nos. 190, February 9, 5 P. m., and 262,
February 27, 6 p. m.). Territories which will benefit
by this relaxation are given in list A and include in
addition to Great Britain and Northern Ireland the
majority of the British colonial possessions as well as
Egypt and Irak. The most important omissions from the
list are the Dominions, Newfoundland, Palestine and Kenya
Colony.
MURPHY
CSB
127
REB
GRAY
Paris
Dated February 28, 1940
Rec'd 3 P. m.
Secretary of State,
Washington.
267, February 28, 6 P. m. (SECTION TWO)
HERETOFORE importers of British merchandise have
been required to observe the same formalities in seeking
permission to import goods as have those of goods coming
from other fortign countries. They have been obliged to
submit a request for authorization to import (form
number 1) to the pertinent French authorities, to the
Embassy a so-called "Exchange form" (form number 2 if
the desired import requires the delivery of foreign
Exchange by the Exchange control office, form number
three for group imports requiring the delivery of
foreign Exchange, or form number four if the import
does not require a delivery of foreign Exchange
despatch No. 5508, DECEMBER 26, 1939). As from March 1,
forms numbers 2, 3 or 4 need not bE submitted for
imports originating in territories appearing on list A.
MURPHY
CSB
Regraded Uclassified
128
JR
GRAY
Paris
Dated February 28, 1940
Rec'd 2:19 p.m.
Secretary of State,
Washington.
267, February 28, 6 p.m. (SECTION THREE)
The announcement also gives = second list "B" covering
some 330 tariff items of raw materials semi-manufactures
and finished products many of which were hitherto subject
to quota restrictions. Import permits (form number 1)
will continue to bE required for the importation of
commodities appearing on list B even when imported from
list A territories; permits will no longer bE required for
the importation from list A territories of commodities
(begin underlining). not (End of underlining) appearing on
list B.
The foregoing will I understand shortly bE followed
by the pertinent Exchange control measures and instructions
to approved intermediarias.
0100 039
MURPHY
CSB
Regraded Uclassifie
129
PARAPHRASE OF SECTIONS FOUR, FIVE,
SIX AND SEVEN OF TELEGRAM NO. 267,
FEBRUARY 28, 1940, FROM THE AMERICAN
EMBASSY AT PARIS.
Last evening I had dinner with Arragon of Morgan's.
He spoke about the rapid rise which has taken place,
during the past two months, in prices, particularly in
the case of foodstuffs and raw materials. He is of the
opinion that the only thing which can hold this rise in
check 1s a more drastic reduction in living standards
than is likely to occur. He feels that the system of
direct price controls 18 less responsible for the failure
of prices to rise more during the early months of the war
than is the fact that the economic life of France has lost
the purchasing power of the five million men who have been
mobilized (in view of existing commodity stocks at the
beginning of the war the producing power of these men
had less immediately counteracting scarcity effect) and
the faot that consumption has been further reduced by
the smallness of family allowances, which amount to 10
francs a day for a mobilized soldier's wife and small
additional allowances for children,, An important add1-
tional factor has, of course, been the drastic ceiling
on wages. Because of the fact that additional reserves
and specialists have since been called up to replace in
part the two classes which were demobilized and the
agricultural and industrial releases, it is difficult to
say
Regraded Uclassified
130
say how many of the originally mobilized five million
(not including Colonial troops) have since been returned
to agriculture and industry. I have heard the figure
placed at a maximum of 1,500,000 but I would be inclined
to say the figure was much lower.
Arragon said that as he went more deeply into the
internal aspects of war financing he became more con-
vinced that these aspects are relatively simple. He
said it was merely a question of the closed capital
circuit, that is, pumping money out for war needs and
drawing it back in again through taxation and borrowing.
In view of the many wartime controls which are available
to the Government, he does not anticipate that there will
be any serious flight from money during the war. (Although
theoretically he may be correct, I think it unwise to
make B. categorical assumption of this kind.)
Frequently we hear new examples of the crippling
effect which even the present inactive war 18 having on
France's economy: because of the excess slaughter of
milk cattle by the army there is developing a quite
unforeseen shortage of fresh milk, and the result is that
there is an urgent need for substantial quantities of
condensed milk for relief purposes.
The securities market was firm today and somewhat
more active. Rente issues advanced major fractions.
(END OF MESSAGE)
MURPHY
EA:EB
131
HSM
PLAIN
London
Dated February 28, 1940
REC'd 2:45 p. m.
Secretary of State,
Washington.
486, February 28,
FOR TREASURY FROM BUTTERWORTH.
The steady and determined rise in British Govern-
ment securities and British Equities is noteworthy.
The FINANCIAL TIMES index of British Government
securities (November 15, 1926 Equals 100) stands today
at 109.8 as compared with 99.4 (the arbitrary minimum
price which was imposed just before the war and pre-
vailed for some six weeks after the war) and 107.9
a year ago. Likewise the FINANCIAL NEWS index of
ordinary stocks (July 1, 1935 Equals 100) stands at
80 as compared with the low of 66.4 on September 26
and 85.2 a year ago.
The fundamental fact is that the British monetary
authorities under the powers of the defence (finance)
regulations not only exert a control over the sterling
Exchange but have virtually complete control of the total
supply
Regraded Uclassified
132
hsm -2- No. 486, February 28, from London
supply of investments. Given the trend of military and
political EVENTS, which has created a psychologically
favorable atmosphere in the city, the British Treasury
has been able to press home 1ts tactical advantage. Thus
far its policy has been to defer the issuance of a war
loan, with the Exception of savings certificates and
defence bends designed to appeal to the small investor,
and to finance the war partly by heavier taxation and
partly by the issue to the banking system of Treasury
bills which were in short supply prior to the outbreak
of war, Meanwhile the money raised in this way has been
spent and an unknown part of it is accumulating ao savings.
Furthermore war demands, the diminution of certain luxury
trades and import restrictions are making inroads on many
stocks of commodities while in other CRSES commodities
formerly held by manufacturers and merchants are now the
monopoly of various Government agencies. Thus the trad-
ing community is holding today more cash and less goods,
Following the conversion of the 41 percent loan (SEE my
163, January/8, 1 P. m.) the vesting of 60 American
securities will create further funds seeking investment
and has already acted as an anticipatory stimulant to the
Stock Exchange.
On the other hand there is Government control over
new capital issues which Extends to mortgages of any
sizeable
133
ham -3- No. 486, February 28, from London
sizeable amount and EVEN to bonus share issues made
through the capitalization of reserves. Whereas there
is no direct ban on the acquisition of new capital assets
Either by companies or by private individuals the absence
of any complete insurance against war risk is 8 deterrent
against the construction of new property. Furthermore
attempts to acquire new plants and machinery EXCEPT for
the manufacture of munitions run up against priority war
demands for raw materials and equipment.
The result of all this is a steady accumulation of
unemployed savings which await the readiness for war loans.
In the meantime however they are compating for the body
of existing securities which is not allowed to grow pari
passu. HENCE the recent rising trend of the prices of
fixed interest and other securities and the decline in
the long-term rate of interest despite the fact that Great
Britain, Engaged in a major war, has B. national debt
considerably larger than at the End of the last war, a
standard rate of income tax of 7 shillings in the pound
and a budget that has been unbalanced for two years and
will bE more drastically unbalanced for an unforsesable
period.
JOHNSON
HPD
Regraded Uclassified
COPY FOR SECRETARY
ADDRESS OFFICIAL COMMUNICATIONS TO
THE SECRETARY OF STATE
WASHINGTON, p.c.
M
234
DEPARTMENT OF STATE
WASHINGTON
February 29, 1940.
The Secretary of State presents his compliments
to the Honorable the Secretary of the Treasury, and
encloses for his confidential information one copy
of paraphrase of telegram No. 270 from the American
Embassy, Paris, transmitting a special report from
Mr. Matthews.
If
Regraded Uclassified
135
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: February 28, 1940, 9 p.m.
NO.:
270
RUSH.
PERSONAL AND STRICTLY CONFIDENTIAL FOR THE SECRETARY
OF THE TREASURY FROM MATTHEWS.
This evening Couve de Murville asked me to call on
him at his office. He told me that Reynaud had asked him
to convey the following information to me orally, in
continuation of his desire for the closest collaboration
with you. For the time being, Couve de Murville asked
that it be kept in the strictest confidence. He said this
18 because the gold operations were not even communicated
to the Cabinet when it met today, but he intimated that
tomorrow it would be taken up with that body, and on Friday
the measures would probably be made public.
A substantial quantity of gold will be ceded to the
Treasury by the Bank of France for the exchange stabilization
fund. No definite decision has yet been reached as to the
amount, but the lowest figure would be 25 billion france,
and it may be as much as 30 billion france. The gold
reserves of the Bank of France will simultaneously be
reallocated from the present 97 billion to about 114 billion,
close to its actual Parie value at the present time.
The Treasury will use this 17 billion revaluation "profit",
in
Regraded Uclassified
136
- 2 -
in addition to some 3 billion france from the exchange
stabilization fund, to reimburse the advance to the State
of 20,500,000,000 by the Bank of France. Negotiation
with the Bank of France will likewise be carried out for
authorization to the State of B. further advance of probably
20 billion france. This latter amount, with the unutilized
balance of the 25 billion france which wes authorized when
the war broke out, will make B. present credit with the
Bank of France of between 26 billion and 27 billion france
for the Government.
Couve said with regard to the above that
(1) "Slightly less" than the 10 billion france which
I previously reported (telegram of February 9, No. 190 from
the Embassy) 1e held by the stabilization fund. However,
in view of current purchases in the United States (amounting
now to about $45,000,000 B. month for purchases by the
Government and an squivalent amount for private purchasee)
the French Government felt it desirable to replenish the
fund before the amount in it reaches too low a point.
(2) In view of your message to Reynaud through Leroy
Beaulieu, and in view of your interest in the matter, Reynaud
had hoped that before the foregoing is announced here it
could be explained to you in detail and with documents.
However, Couve said that the details would have to wait,
since Leroy Beaulieu is on the CONTE GRANDE, which is not
expected
Regraded Uclassified
- 3 -
expected to reach dook in time. In line with the financial
accord between France and Great Britain, the matter was
discussed with the British. Couve said that it has been
agreed by the two countries that, because France has
relatively larger gold holdings than Great Britain and
much smaller holdings of American dollar securities than
Great Britain, for the time being France should pay in the
United States in gold while sales of American securities
should be used in part payment by the British. In passing,
Couve said that "more or less equal" expenditures are made
by the French and British in the United States. However,
Couve assured me that later on when it became necessary to
requisition and sell American securities held by the French,
they would collaborate closely with you in 80 doing. He
again made it very clear that for the present they do not
contemplate any such step - as I have Bo often reported;
reference, telegram of February 9, No. 190 from the Embasay,
and telegram No. 262 of yesterday.
(3) At the present time the financial position of the
French Government is easy. However, the Government feels
it is highly desirable to take advantage of the present calm
to make preparations for the future; at present war consumption
of munitions, and 80 on, 18 certainly at its lowest point.
For psychological reasons, too, it seeme advisable to
make
Regraded Uclassified
138
- 4 -
make announcement of the foregoing measures at the same
time as the "restrictive measures" discussed below, which
are immediately necessary for them.
In conversation the necessity for reducing consumption
has been stressed to me 80 often; this necessity has at
last resulted in a beginning of rationing, at least.
Couve said that this question was the subject of the Cabinet
meeting today, and that tomorrow or Friday the measures
would be announced. The details of the proposed rationing
were not known to him, but he said that bread and meats and
a reduction of allowance of gasoline would be included
therein. He did not think that attempts to ration olothing
would be made for the time being. The Government would
first have to take a census of the population, and it 18
anticipated that issuing the necessary cards would require
a period of six weeks. In the meantime, on certain days
in the week pastry shops are to be closed, shippers will
be subject to restrictions on harbors, and 80 on.
French purchases abroad, both private and Government, he
said, were to be further reduced, which is an equally
important restrictive measure, and he said they would
materially strengthen control of the Finance Ministry (omission)
purchases and import applications. Couve emphasized the
importance of this and the need for preserving dollar resources.
Regraded Uclassified
139
- 5 -
Couve said he felt confident these several highly
important measures would be received very well here when
I asked him about the reaction. (When the measures are
promulgated, I presume appropriate "explanations" will
decorate them.) Recent rumors to the effect that labor
circles are exerting serious pressure for increases in
wages Couve said had no basis. However, since the war broke
out, he said that the cost of living index in France has
risen approximately 15 percent.
As I reported earlier today, Couve also told me that
in a day or two the pertinent exchange control measures
waiving formalities on commercial transactions between
Great Britain and France will be promulgated. For the
time being, he reiterated, the waiver of formalities will
apply only to commercial transactions. He said that documentary
proof of the bona fide nature of the import operation will
be necessary after rather than before importation as is
at present required.
END OF MESSAGE.
MURPHY.
EA:LWW
Regraded Uclassified
TREASURY DEPARTMENT
340
INTER OFFICE COMMUNICATION
DATE February 28, 1940
ro
Secretary Morgenthau
FROM
Joseph P. Cotton, Jr.
Re: Brazil steel project.
Herewith is a copy of a digest prepared by the State Department
of the report of U. S. Steel experts sent to Brazil to study the project.
Some time will be necessary to study the report itself, which is very
Img, lá order to appraise the correctness of this digest and the value
of the report itself. It should be noted that the report 1E based upon
pre-war prices, requiring a reappraisal of the situation from a finan-
:Inl anyle which will very substantially increase the dollar investment
minized.
At the initiative of the State Department, two informal interde-
partmental meetings were held, et which Mr. Schmidt of Dr. White's divi-
sion and myself were present for the Treasury, to consider B. request by
the Brazilian Ambassador for advice and suggestions from this Government
w to the possibility of U. S. participation in the development of a
stail plant in Brazil. This request was made by the Ambassador in the
11 / int of the recent decision of the financial committee of IF. S. Steel,
in spite of the technically favorable revort of its experts, that it
would not participate and would not be interested in a management con-
tract. It was the apparent consensus of these meetings, after the fact
had sunk in that, in addition to the dollar exchange plant cost of some
125 aillions further amounts of some $15-25 millions would be necessary
for essential rail and water transportation facilities, that this Gov-
emment would do well to consider the implications which would result
from any offer of positive advice or suggestions to the Brazlliam Ambas-
sador. Inevitably Brazil would try to borrow all or a substantial por-
tian of such $25-50 millions from the United States Government, and any
Initiative by this Government at this stage, by attempting to interest
other private steel interests in this country or otherwise, would in-
volve 5 moral commitment to consider sympathetically €. request for B
loss for the project. Moreover, even if this Government should be
willing to consider a request for E loan in such matter, there would
remin the question of the adjustment of outstanding debts.
Regraded Uclassified
141
COPY
January 22, 1940
United States Steel Corporation Committee's
Report on the Steel Industry in Brasil and
on the Feasibility of Building a Modern
Steel Plant in Conformity with the Wishes
of the Brazilian Government.
The United States Steel Corporation's Commission,
which will be referred to as the Commission, includes
in its report much background material which is common
knowledge to officers of the Department. In the follow-
ing memorandum an attempt has been made to incorporate
only what appears to be new or little known information.
Market
The population of Brazil in 1938 is estimated at
about 44,000,000. The rate of increase since the 1930
census is approximately 4 per cent per annum. The trade
figures still record a considerable preponderance of raw
materials and foodstuffs in the imports. The import
and export trade with Brazil in 1938 was divided by coun-
tries as follows:
U. S. supplied 25% of imports and took 34% of exports.
Germany
-
23%
ay
"
=
n
20%
If
"
Argentina
#
15%
#
M
If
will
5%
"
n
Gr. Britain
"
12%
er
"
BY
" % "
"
France
"
4%
If
n
If
BY
6%
"
-
Brazil's
142
-2-
Brasil's exchange and general well-being depend
almost exclusively upon & favorable balance of payments.
The international payments of Brazil since 1937 have
been composed almost in their entirety of exports and
imports, and current items. As a matter of fact, capital
items have played practically no part since 1931. Its
balance of trade depends, furthermore, upon two products,
namely, coffee, which represented in 1938 forty-five per
cent of exports, and cotton, which represented 18.2 per
cent. Brazil's exports in 1938 were 35,800,000 gold
pounds, and its imports 34,200,000. In the past six years
its maximum surplus of exports was 10,828,000 gold pounds
in 1936, and its minimum surplus, occurring in 1938, was
1,575,000 gold pounds.
The Commission's estimate of per capita steel con-
sumption in representative countries is illuminating.
It states that the United States consumes 850 lbs. of
finished steel per annum, Belgium 750 lbs., Germany and
Great Britain, 550 lbs. each, France 320, Italy 135,
and Brazil 20.
The present market for steel products in Brazil is
roughly divided as follows:
Raile
43
Rails
17%
Structurals
5
Rounds and flats
16
Wire
17
Tin Plate
14
Sheets and plates
15
Tubes
10
Others
6
Total
100%
The demand for rails, wire and tin plete could be greatly
expanded with the lower prices which a native industry
would bring about. Brazil's merket for steel products,
as it is for practically all other articles, is con-
centrated in Rio de Janeiro and Seo Paulo, viz:
Pio de Janeiro consumes 25% of the total consumption
São Paulo
If
40%
"
F
"
If
South Brazil
"
22.5%"
"
"
"
North Brazil
12.5%"
"
n
"
The Commission's report refers to the present method
of doing business in steel products as & hand to south
proposition and lays emphasis on the importance of develop-
ing & merchandising organization. A mere doubling of con-
sumption to 40 pounds per capita per annum, which would
be but 5 per cent of per capita steel consumption in the
United States, would assure the success of any efficiently
operated steel mill in Brazil.
The present rates of duty per metric ton on steel
roducts are roughly es follows:
Rails
Regraded Uclassified
1/1
144
Rails
63$
Rounds and flats
570$
Wire (not barbed)
700$
Tin plate
220$
Sheets and plates
570$
Tubes
690$
Existing Steel Industry
A very small steel industry using charcoal as fuel
already exists in Brazil. The only company of consequence
is the Belgo-Mineira which owns plants at Monlevade and
Sabara, Minas Geraes. It has an expansion program under
contracts with the Federal Government.
The following figures demonstrate the growth of the
steel industry in Brazil, such as it is, from just after
the World War:
Brazilian Steel Production (M. tons)
Production
Imports
1921 - 1924
8,000 (average)
271,000 (average)
1928
15,000
481,000 (peak)
1930
16,000
253,000
1938
65,000
274,000
The national production of finished steel products
is roughly composed of rounds and flats, 75 percent, and
of wire, 25 percent.
The principal iron and steel mills in Brazil are:
Burnier
Regraded Uclassified
-5-
145
Burnier and Esperança (Minas Geraes) owned
by Queiroz, Jr., Limited, has one blast furnace
of 6,000-ton capacity in operation, and two blast
furnaces of 15,000-ton total capacity, closed.
The products are foundry iron and castings.
Gage' (Minas Geraes) owned by the Sociedade
Siderurgica, Limited, has one 15,000-ton blast
furnace, closed.
At Bello Horizonte, owned by the Companhia
Industrial de Ferro (of which the Belgo-Mineira
is a large shareholder) is & blast furnace of 4,000-
ton capacity for castings.
Morro Crande, owned by the Hime interests
(British), has three blast furnaces of a capacity
of 25,000 tons, making foundry iron and ingots,
and two small Bessemers of a capacity of 5,000 tons
of steel.
Neves (at Nictheroy, capital of the State of
Rio de Janeiro). This plant, also owned by Hime,
receives Morro Grande ingots and can produce
25,000 tons of steel in its two basic open-hearth
furnaces. The output consists of structurals,
rounds and flats, wire, and steel castings.
José Brendão and Caete (Minas Geraes), owned
by the French Companhia Ferro Brasileiro. At the
first are two blast furnaces with 8 capacity of
20,000 tons of iron making castings and pipe, and
at the second is a 5,000 ton blast furnace which
at present is closed.
Sabaré and Morro Grande (Minas Geraes), owned
by the Companhie Siderurgica Belgo-Mineira (the
capital seems to be principally Luxemburger,
Belgian, Dutch, and Brazilien). It is this company
in which the Brazilian Government, and particularly
the Army, is interested. Now operating at Sabará
are two blast furnaces of 30,000-ton capacity, and
two basic open-hearth furnaces of the same capacity.
The finishing capacity is 40,000 tons. At Monlevade
there are two 50,000-ton total capacity blast furnaces,
and two basic open-hearth furnaces which were being
built at the time of the Commission's visit. The
capacity
Regraded Uclassified
146
-6-
capacity of finished products here is also 40,000
tons. The Monlevade ingots were at the time of the
visit being sent to Sabara.
The plans for the Belgo-Mineira, which of necessity
must be influenced by any decisions regarding the Steel
Corporation's plant, are at present as follows (most of
this work it is understood is proceeding at this time):
For the Government, four new blast furnaces with
a capacity of 100,000 tons, five open-hearth furnaces
of 140,000 tons, finishing mills of 100,000 tons, and
a small electric furnace for special steel for the
Army arsenal. For the company, six blast furnaces of
150,000 tons, seven open-hearth furnaces of 200,000
tons, and finishing mills of 150,000 tons.
Raw Materials
Iron Ore
While it is true that in Brazil there is to be found
one of the richest reserves of Bessemer ore in the world,
namely, the one near Itabira, the accessible ores are those
of a higher phosphorous content found in the area of Minas
Geraes served by the Central of Brazil Railway around 450
to 600 kilometers from Rio. It is estimated that 500,000
tons of ore per annum are available in this area for the
steel plant at a cost, alongside of the railroad, of about
14$ per ton. Production in the area of iron ore reached,
in 1938, the peak of 558,238 tons, and generally one-
third to one-half of the production is exported.
The
Regraded Uclassified
147
-7-
The total cost of delivery at Rio would probably
DE around 38 milreis per ton. It is calculated that the
new mill would use 8 mixture of hard ore containing 66
per cent natural iron and .050 per cent phosphoric acid;
high-grade cange or rubble with 58 per cent natural iron,
and .150 phosphoric acid; and brown hematite and limonite
containing 62 per cent iron and .100 per cent phosphorous.
The Commission recommends that the company obtain deposits
yielding about 300,000 tons and purchase the remainder of
its requirements in the open market from independent
producers.
Limestone and Dolomite
In the same general area with the iron ore is to be
found metelurgical limestone. Present production is not
more than 40,000 tons, but the 100,000 tons required by
the steel mill could probably be found.
The Commission believes that E suitable supply of
dolomite can be found near Bello Horisonte and Ouro Preto,
Minas Gerses. The annual supply of dolomite required would
be about 25,000 tons.
It is thought that the cost of delivery at Pio of the
limestone and dolomite would be about 38 milreis per ton.
Coal
The Commission's investigation of the coal situation
in
Regraded Uclassified
148
+
in Santa Catharina started with the original 1908 basic
report of the Coal Commission headed by the West
Virginian, Mr. J. C. White. The field is about 20 X 40
kilometers in extent and contains, roughly, 320,000,000
tons.
Up to the present the principal production of coal
in Brazil has been in Rio Grande do Sul. For example,
out of a total production in 1928 of 325,000 tons, Rio
Grande do Sul furnished 316,000, and out of a total pro-
duction in 1938 of 872,000 tons, that State furnished 729,000
tons. In the same period the Santa Catharina coal output
rose from just under 9,000 tons to about 143,000 tons.
All Brazilian coal is very high in ash content end
has a low fixed carbon content.
The Santa Catharina situation is politically dangerous.
The present producing mines are controlled by the Lage
interests which ship 80 per cent of the State's production
through their own port at Imbituba over its own decrepit
meter-gauge railway and its own coastwise vessels. The
deposits in which the Commission was interested lie
around 100 to 125 kilometers from the coast and the Com-
mission recommends that the port of Laguna, 37 kilometers
from Imbituba, be used in order that the supply may be
independent of the whims of the politically powerful
Lage
Regraded Uclassified
149
-
Lage family.
The price now asked in Rio for Santa Catherina coal
of 120 milreis per ton is not competitive with imported
duty-paid coal at 190 milreis.
The advantage of Santa Catharina over Rio Grande do
Sul coal is that the former cokes more successfully than
the letter. The tests have so far, however, been con-
fined to laboratories and foundry use. The Commission
makes three main suggestions concerning the coal in Santa
Catharina: (1) that the Brazilian Government request the
loan from the United States Government of coal experts;
(2) that analyses be made by mines and areas for both
steam coal and coking coal; (3) that the selected varieties
be tested in full-sized coke ovens and furnaces.
The Commission recommends the tests for steam coal
with the thought that the Brazilian Government is desirous
of reducing its present annual importation of 1,600,000
tons of foreign coal.
Chromite
The steel mill would require about 2,000 metric tons
of chromite. It is to be found in fairly abundant
deposits in the State of Bahia. The cost of delivery at
Rio would be about 350 milreis per ton.
In connection with chromite, it is interesting to
note
Regraded Uclassified
150
-10-
note that in the period January-June, 1939, 1,950 tons of
average 49 per cent cr₂ 03 ore was exported to Germany.
Manganese
Mangenese ore has for many years been a regular
though small item in Brazilian exports, end its quotations
are standardized. About 8,000 tons yearly of 45 per cent
ore would be required. Manganese is plentiful in Minas
Geraes and moves to Rio at a cost of between 24 to 32 mil-
reis per ton, depending upon origin.
Transportation
The transportation problem in so far as a steel mill
in Rio is concerned may be reduced to four subproblems.
I. The broad gauge line of the Central of Brazil
from Bello Horizonte through the mining area to Rio de
Janeiro should be relaid almost in its entirety. Rolling
stock is needed in large quantities. The whole operation
of the Central is lamentably inefficient. The proposed
solutions are that (1) the Central be made completely
autonomous of the Government, (2) the main line from Barra
do Pirahy, 109 kilometers from Rio whence the branch to
Bello Horizonte leaves the main line between Fio and
Sao Paulo, should be relaid and modernized at a cost of
approximately $5,000,000, (3) the autonomous administra-
tion should acquire 10 locomotives and 300 hopper cars
at
Regraded Uclassified
151
-11-
at & cost of about $2,000,000.
The Commission would wish to obtain rates which,
while giving & reasonable profit to the railway ad-
ministration, would not merely contribute, through the
efficient operation of this branch, to the reduction of
the global deficit of the entire railway. It believes
that with the expenditure of the above two sums the
railway could carry ore and limestone to Rio at a good
profit for 20 milreis per ton.
II. The Dona Theresa Christina railway between the
Santa Catharina coal mines and the sea coast, while
Government property, is operated by Lage. The Commission's
recommendations are (1) that the railway be placed under
the autonomous Central administration, (2) that the line
be relaid with 100-pound rails at a cost of $1,500,000,
(3) that the port of Laguna be developed by the Government
at the cost of $250,000, (4) that 150 hopper cars be
acquired for $600,000.
The movement of coal would be about 212,000 tone
per year, and the Commission believes that a reasonable
freight to ask would be 6$000 (it is now 9$000).
III. The coastwise facilities for transporting coal
are entirely unsatisfactory. In the interest of the
Central
Regraded Uclassifie d
152
-12-
Central, the largest coal consumer in Brazil, the Com-
mission recommends that the Central Railway acquire a
7,500-ton collier for about $500,000.
IV. The ocean service for the importation of foreign
coal with which the mill would start operating is in-
adequate, end the following is proposed.
(1) That E. Government-owned line be organized
independently of the inefficient Lloyd Brasileiro and
the purchase made of five vessels for $2,500,000. These
vessels could begin transporting to Brazil the equipment
for the steel plant and for the rehabilitation of the
railways on which the steel plant would depend. They
would also be used to import the 300,000 tons, more or
less, of Lynch coal which would be required for the steel
plant.
The Commission believes that the freight on the coal
should be, from Baltimore to the plant, about 478 if there
16 no return cargo, but if, for example, these shipe were
given 100,000 tons of the export trade in manganese ore,
the freight on the coal could be reduced to about 40$.
The above recommendations would cost the Brazilian
Government about $12,550,000. These expenditures, the
Commission feels strongly, are properly borns by the Govern-
ment in view of their general benefits. While it is easy
to understand in this country the reasons for the recom-
mendations, it is also important to keep in mind the
tremendous
Regraded Uclassified
153
-13-
tremendous inertia which would first have to be overcome.
The Commission was surprised, if not astonished, by the
unanimity of the opinions of Brazilians of all interests
with regard to the deplorable condition of overland
transportation facilities and the need for rehabilitation.
The Commission was, however, balked by this very unanimity
in that most Brazilians envisage the rehabilitation as a
project of such stupendous proportions that Brazil would
be unable to afford it unless there were an immediate
prospect of huge iron and manganese ore exports. The
problem, therefore, is to convince the Brazilians that
while such a far-reaching program is admirable, there is
no use in dreaming unless a start is made, and this start
should involve individual smaller projects whose urgency
is outstandingly evident.
The Steel Plant
The Commission investigated the feasibility of
various types of mills and discarded for reasons of geo-
graphy and cost of raw materials such propositions as
charcoal furnaces, Bessemer furnaces, and electric furnaces.
The use of charcoal would place the mill in fuel timber
land in the Rio Doce Valley hundreds of kilometers from
the market. The construction of Bessemer furnaces would
place the mill near the Itabira mines, distant from
markets
154
-14-
markets and coal sources, and would require at least
$10,000,000 to rebuild the Victoria-Minas Railway. To
use electric furnaces, the mill would also have to be
placed at a distance from its market in order to be near
E. source of adequate water power.
The proposed site is & 730-acre area within the
Federal district about 50 kilometers southwest of the
city and only 7 kilometers from the main line of the
Central. There is a sufficient supply of fresh water
nearby, and a satisfactory harbor in Sepetibe Bay in
which it is believed a 30-foot channel could be easily
dredged.
The plant would have et the outset an output of
285,000 tons of finished steel products. There would
be 68 coke ovens using 60 per cent Lynch coal or 318,000
tons, and 40 per cent Santa Cetharina coal, or 212,000
tons. In connection with the coke ovens, there would
be E. recovery plant for ammonium sulphate end light oils
which would be sold in the market as by-products. By-
product gas and tar would be utilized in the plant for
fuel, mixed possibly with fuel oil. There would of course
be adequate storage fecilities for raw materials, and
auxillary equipment for movement of raw materials, hot
metal, scrap, et cetera.
There
155
-15-
There would be two blast furnaces of 550-ton
capacity which could be expanded, however, after re-
lining, to 750 tons. They would be skip-filled. The
power house would include three cold blast blowers,
three 10,000-kilowatt turbo generators, and four boilers.
It is foreseen that ultimately a mutual exchange and
standby reserve agreement would be reached with the local
electric power company.
The open-hearth furnaces using tar, fuel oil and coke
oven gas would be six in number with a loan of 100 metric
tons apiece. These, with re-lining might be expanded to
125 metric tons. Serving these facilities would be a
1,000-ton hot metal mixer. To these fundamental elements
will be added a blooming mill, a combination rail and
structural mill, and tie plate finishing sections. Added
to these mills would be tin place, sheet and jobbing mills.
Cost
The Commission estimates the capital necessary for
the plant at 180,600 contos, local currency, and
$21,470,000, American currency, the total being 610,000
contos, or $30,500,000. To this should be added 90,000
contos ($4,500,000) inventories and working capital. In
this cost are not included import duties on equipment,
the improvements in transportation, nor housing (it is
understood
Regraded Uclassified
156
-16-
understood that a Government housing project is under
consideration neer the area of the proposed plant). The
cost does, however, include engineering and construction
fees.
All materials not purchased in Brazil would be
bought in the United States. The freight on imported
equipment is estimated on a base rate of $6.00 per metric
ton on the hypothesis that the Government's shipping
service recommended is inaugurated. Adding other shipment
costs, the Commission estimates that the 70,000 metric tons
of American equipment can be delivered at the site for
$15.80 per ton. Although it is contemplated that eventually
thirty or forty per cent of the coke will be made from
domestic coal, the preliminary cost estimates are based
on an importation of all coal requirements. All costs are
predicated upon an output of 285,000 metric tons of
finished steel products per annum, divided as follows:
Metric tons
Open hearth rails and tie plates
100,000
Structurals
25,000
Rounds and flats
60,000
Sheered plates ... 20,000
Black sheets,
jobbing mill
...
8,000
Black sheets,
sheet mills
...
12,000
Galvanized sheets
10,000
Total
50,000
Tin Plate
50,000
Total
285,000
The Regraded Uclassified
15/
-17-
The estimated earnings on the capitalization and
production rate above is 15.1 per cent, provided 50,000
tons of foundry coke and 50,000 tons of foundry pig are
marketed annually. Prices for steel are figured at 13.5
per cent below average prices in 1936 - 1938.
Gross sales (50,000 tons coke,
50,000 tons pig, 285,000
finished steel)
444,000 contos
Mill cost of said products
259,000
If
...
Balance
185,000
"
Other expenses (excluding
income tax)
72,500
#
112,500
#
Income tax at six per cent
6,500
"
106,000
#
Earnings are therefore estimated as follows:
Cost of plant and real estate.
..
610,000
#
Inventories
70,000
n
Working capital
20,000
"
Total
700,000
"
Annual return - 15.1 per cent.
The capital for plant site, raw materials, labor,
et cetera, would be subscribed in Brazil, in common end
preferred. The portion which the Commission hopes the
Export-Import Bank will put up would be secured by E 6-10
year bond issue. The Export-Import contribution would be
applied solely to financing purchase of American equipment.
The Commission had counted on persuading the Steel
Corporation
Regraded Uclassified
158
-18-
Corporation (provided the Brazilian Government met the
conditions regarding transportation, management contract,
mining laws, taxation, admittance of technical experts,
transfer of profits and dividends, et cetera) to put up
$5,000,000 or more in voting common. During the period
of the management contract, the Steel Corporation would
have been expected to train promising young Brazilians
for key positions.
RA: Walmsley: GBA
Regraded Uclassified
_59
MEMORANDUM
February 28, 1940.
Conferencet Re smokeless powder for the British.
Present:
Secretary Morgenthau
Assistant Secretary Sullivan
Admiral Spear
Admiral Furlong
The Bureau of Ordnance has on order at the duPont Company
1,382,000 pounds of powder. About 850,000 pounds of this order
has not yet been started. There is yet to be ordered for 1940
666,000 pounds. The Army has orders totaling 7,188,500 pounds
of which they expect 5,695,400 pounds to be delivered before
January 1, 1941. The duPont Company 1s 8. little ahead of schedule
on both Army and Navy orders.
Although no specific request has yet been made by the
British, apparently they want about 4,000,000 pounds in the
next 4 months. Admiral Furlong expressed the opinion that in
4 months duPont could make between 2% and 3 million pounds.
Admiral Spear said that he believed that the Army had Just
released duPont from its contract so that duPont would be able
to deliver to either the Swedish or Finnish governments 1,000,000
rounds of smokeless powder and 5,000,000 pounds of TNT.
Admirals Spear and Furlong expressed the opinion that the
Navy reserves were such that they could well afford to release
duPont for 4 months, but I pointed out that the Navy require-
wants under pending contracts were so much less than those of
the Army that nothing substantial could be accomplished unless
the Army was likewise willing to release duPont from deliveries
under their contract of a similar 4-month period. Because of
the fact that duPont WAS ahead of schedule in its deliveries
tn the Army and the Navy and likewise because the Army and Havy
had more than adequate reserves, Admirals Spear and Purlong
believe that it would be safe to relesse duPont from the con-
tracts for a 4-month period.
Regraded Uclassified
160
- 2 -
It was suggested by Secretary Morgenthau that since the
Fritish had made no definite statement as to just what the
requirements were that they should be asked to furnish euch
a statement and Admiral Spear suggested that he would get in
touch with Mr. Ballantine of Mr. Purvis' office. Secretary
Morgenthau requested him to have this made in such form that
the Secretary, together with Secretary Edison, could present
this matter to the President.
It was arranged that Admiral Spear should consult the
Army regarding the situation and that the same group should
meet at 3:30 p.m. tomorrow.
After the departure of Admiral Spear and Admiral Furlong
Secretary Morgenthau and Mr. Sullivan discussed the advisability
of having the request of Mr. Purvis addressed to duPont, which
in turn would request the Army and Navy for a release from the
contract deliveries for a stated period. Secretary Morgenthau
called Mr. Purvis who advised the Secretary he would be very
happy to make this request of duPont and felt that duPont would
be willing to malce the desired inquiry of the Army and the Navy.
Mr. Purvis advised the Secretary that this had not already been
done because, having procured samples of this powder in the
course of negotiations on a future contract, the British had
been anxious to test the technical qualities of the powder
before enlarging the scope of the present negotiations. These
tests have just been completed in the ordnance arsenals in
Canada and the powder has been determined to be satisfactory.
Regraded Uclassified
d,Ord.e
161
IN REPLY ADDRESS
BUMIAU OF OPENANCE. NAVY DEPARTMENT
NAVY DEPARTMENT
AND ACTER TO NO
BUREAU OF ORDNANCE
(AB)
WASHINGTON, D.C.
28 February 1940
SUBJECT:
Smokeless Powder for British.
1.
The Burseu of Ordnance has on order at the duPont
Company 1,382,000 pounds of powder. About 850,000 pounds of this
order has not yet been started. There is yet to be ordered for
1940 - 666,000 pounds.
2.
The duPont Company's total capacity is about
9,000,000 pounds per year (3 shifts 6 days per week plus 1 shift
Sunday). The Army has orders totaling 7,188,500 pounds of which
they expect 5,695,400 pounds to be delivered before 1 January 1941.
The duPont Company is a little ahead of schedule on both Army and
Navy orders.
3.
The British state that they have lost recently
through an explosion at Waltham-Abbey, 8. capacity of 2,000 tons
(4,000,000 pounds) during the next four months and ask us to give
them some of our capacity at duPont's.
4.
DuPont's capacity in 4 months could make up between
2,500,000 and 3,000,000 pounds for the British, B part of which
being air-dried could not be finally delivered for 3 months more.
willing 5. to delay all deliveries to the Navy for 4 months. If the
The Bureeu of Ordnance can safely delay and is
Army will delay all deliveries to the Army for the same period,
about 3,000,000 pounds could be delivered to the British.
7. R. FURLONG,
Chief of Bureau.
VES
Regraded Uclassified
162
February 28, 1940
11:42 s.m.
Arthur
Purvir:
Hello.
Purvis
P:
Good morning, Mr. Secretary.
Morgenthau talking. Purvis, it doesn't seem 98
though I can keep out of your troubles.
E'
It doesn't seem
INJr:
I don't seem to be able to keep out of your troubles.
P:
or -- on, I see.
And I
As a matter of fact, I've been very grateful to you
for keeping in them.
"Un:
I've just been talking about nowder and I was talk-
ing yesterday -- Mr. Edison called me un about
your recuest on nowder.
7:
Yes.
MJr:
As I understand it, what you want 1s to get some
of the powder which Dupont is making for the Army
and Navy.
Well, we would -- we would like either one of two
things: Either to get something
which I understand has both legal complications
and of course there 18 always the cuestion as to
whether the grade and size of nowder would fit
the chambers of our guns.
UNJr:
Yes.
P:
Or number two, to be allowed to utilize a part of
Dupont's production just for these key few months.
This being, as I said to you the day before yes-
terday, my -- another weapon in our hand so that
Heroules can't completely force us. You see?
Regraded Uclassified
163
- 2 -
Jr:
I see.
in
That's really -- the explosion at Weltham-Abbey
W&B the original cause of the cable that I got
saying that they are short two thousand tone
over the next four months of nitro-cellulose
powder and asking me whether I could take this up.
I didn't like to take it up until we had actually
obtained samples of powder from Dupont, which we
were able to do anyway in connection with 8 con-
tract which we have tentatively been discussing
with them, and we shipped those up to Quebec and
had them tried at the Arsenal there in the guns
in order to make sure, technically, that we were
all right.
HWr:
Yes.
P:
And it was when I not the results of those teste
that I mentioned that matter to you and then went
to Bee Admiral Spear at Captain Collins' surges-
tion. I told him that it was breaking about that
time, just the day he left, and he said to RO and
see Admiral Spear. I BAW him and I then B&W
Admirel -- oh, the Ordnance
HVJr:
Furlong.
?:
Yea, Furlong -- yes.
HWr:
Well, let me ask you this: Have you asked Dupont?
?:
No, no. We hadn't -- all we've done with Dupont
16 to obtain from them technical details of the
powder which we would be likely to want from them
in connection with our contract. You see?
HWr:
Yes.
Me have -- we have done nothing -- we have had no-
body in touch with them except our ourely technical
man.
Wr:
I see, but you haven't asked them whether they'd
be willing to release this -- I mean.
Regraded Uclassified
164
- 3 -
P;
Not 8.6 far as I know. I -- now it's Just possible
that somebody in the organization might have said
to them, "Is this all right from your view?" It
may be the technical fellow might have BRIC that
in getting the powders. I'd have to check on that,
Mr. Secretary, before I could be authoritative /1t.
on
HMJr:
Well, Nobody -- nobody told me, but I'm just try-
ing to find out what is the status of the negotia-
tions, you see.
P:
Well, the status 80 fer AB we're concerned at this
end, and though I'd be happy to check it right
through to the hilt, of course, is merely this:
That we told our technical people, that's Mr.
it's no good going through the United States
Government asking them B. general question. It's
unfair to them. You've got first to find out
whether your technical -- whether you've got enough
technical information here to act 1f they say yes
to a recuest that we might make to them.
HMJr:
Well
P:
And that's how it came about that the powder samples
were obtained and sent to Quebec for trial purposes
in the guns there.
HiJr:
Well
a:
We're getting the same thing, AB & matter of fact --
a similar sample, I understand, from Hercules, but
it took a little longer to get.
MJr:
Well
e:
But it has been conducted purely on the technical
side.
HMJr:
Well, I've just been talking with Admiral Spear and
Admiral Furlong
?:
Yes.
Wr:
and I just wanted to ask this: When it gets
down to -- and they're going to call your man here
165
4
in Washington because there seems to be E difference
of oninion just what you do want, RE to cuentity
a
Oh, I see.
W/Jr:
and Admiral Spear 18 going to call un your
man here in Washington to find out.
FT
Yes, Well, A8 a matter of fact, on the cuantity
question I don't -- I didn't know enough of -- you
see ve know nothing about the -- what Dunont 18
making for you.
wwr:
Yes.
=
The only quantity that has been mentioned to us from
the other side which WP would like to fill all or
any part thereof, depending upon -- depending moon
the possibilities from your end -- is that they are
definitely short two thousand pounds of N.C. nowder
over the next four months.
HAVe:
Well, let me ask you this: If we felt that we could
wait four months
7:
Yes,
FWr:
end there wouldn't be any difficulty about
your initiating it'by ssking Dumont.
P:
on, no difficulty at all If that was the way that
you -- you wanted us to do it. Absolutely not.
Well, I mean, for you to esk Dunont to take it un
with the Army and Navy.
P:
Exectly. Me would simply make an official contact
with them then and say, "Can you -- can you do this?"
And if they would 88y to us, "Well, we'd have to 70
Wr:
Right.
E:
A.
to the Government." We'd say, "Well, would you
please do that."
"Wr:
Yes,
166
- 5 -
P:
Yes. Oh, I would -- I would be perfectly sure that
I could do that because I'd just get in touch with
or somebody like that on that.
un(Jr:
I see. And what would -- supposing that the Army
and Mavy could find that they could wait for four
months.
?:
Yes.
HMJr:
Would you go ahead then with your negotiations just
the same with Dupont and with Hercules?
7:
Oh, yes. I think -- absolutely. Because this --
this, 86 I regard it, 18 merely a method of getting
something -- you see, our plans, Mr. Secretary, are:
First, to try and buy this special lot of rifle
powder from Hercules, which is of the order of three
thousand six hundred tone over the next year. That
16 item number one.
IDWr:
Yes.
Ell
The next item 18 that we are negotiating with them,
with Hercules, for B. new plant
TNJp:
Yes.
6:
to build fifteen thousand four hundred tons
over a year, and we also have a further inquiry,
which we have an initial quotation we've had from
Dunont for some time, for a further approximately
fifteen thousand tons per year, but we're not sure
whether we can get it done at anything like a reason-
able price and we've also made inquiries for that
in regard to Canada -- possibilities in Canada of
building a plant.
HJr:
Well
P:
Though they are not as familiar in Canada with
nitro-cellulose powder as they are down here. They
are more familiar with the British nowder, cordite,
for which they are already building 8 plant.
167
- 6 -
MJr:
Well, this makes it a little bit clearer end
Admiral Spear 18 going to contact your man today
P:
Yes.
in Washington for more details.
P:
Thank you very much, indeed.
HWr:
Righto.
?:
By the way, Vr. Secretary, one other thing. I read
with a great deal of care -- I don't know whether
you have noticed that the Herald Tribune has made
another somewhat queer statement.
Yes, I did.
?:
Where -- I've asked for Louis Beale to just sit
on that and find out what is happening because it --
it's very obscure to me and as they have now cuoted
British and French agents, I feel that when they
zet to that stage we have a right to be 8 little
more incuiring in what they -- 08 to how it comes
about than when they Just do it without stating
any source.
MWr:
Well, I'm satisfied that the articles are being
written by the Aviation Editor of the Tribune.
5,
Oh.
"No:
I -- I'm cuite sure of that.
P:
Well now, we -- I couldn't -- I tried the other day
to trace that thought that you mentioned end I could
find no sign et all of it and actually when I had
read the article again I found that the references
to the taxes were nothing to do with capital expan-
sion - they were all on the income tax end.
Well, this man, I'm told, the Aviation Editor, got
his story by calling un from Washington
P:
Yes.
Regraded Uclassified
168
- 7 -
HMJr:
-- I mean, calling up from New York to
Washington, and interviewed certain people over
the telephone.
P:
Oh.
HMJr:
And then wrote his story in New York but dated it
Washington.
:
Oh-ho !
HMJr:
But the man who is writing those articles, I am
convinced, is the Aviation Editor of the New York
Tribune.
p.
Thank you very much.
HMJr:
So if
P:
That gives us & line.
HMJr:
So I think if you could have your man contact this
person, possibly you could get somewhere.
P:
hank you very much indeed. That gives us 8. better
line because he was coming down to Washington think-
ing he had to to his work down there.
HMJr:
No, it -- the Aviation Editor sits in New York.
P:
Thank you very much indeed.
HMJr:
Maybe that will help you.
P:
I think that will. By the way, I hear the GEORGE
WASHINGTON 18 slated not to come in until Monday.
HMJr:
Oh, so?
P:
However, I'll keep you posted on any authentic news.
HMJr:
Were they detained somewhere along the line?
P:
I -- I suppose they've been delayed somewhere, but
that was the information that was just given to me
about half an hour ago.
169
- 8 -
HMJr:
oh, I see.
P:
I'll keep you posted.
HMJr:
Thank you.
P:
Right, Mr. Secretary. Goodbye.
Regraded Uclassified
170
February 28, 1940
4:22 D.B.
Operator:
Mr. Irey.
HYJr:
Hello.
Elver
Trey:
Yes, Mr. Secretary.
HVJr:
Elmer
I:
Yes, sir.
9VJr:
Sullivan called me about his conversation At
lunch with Herper -- is that his name?
It
Fowler --Fowler Harper, yes, sir.
UNIT:
Yes. Now, what has Sullivan been telling you this
afternoon?
I:
Sullivan called me and says -- very excited like
he gavs, "Elmer, do you went Bowman Elder to talk?"
I said, "Of course we went him to talk." He said,
"Well, he'll come in end talk -- come down here
and talk." I said, "Well, we don't want him to
come down here and talk. We want him to 50 to
Jim Sullivan, the agent who is conducting the in-
vestigation; I don't know what to ask him." And
he says, "He's ready to talk. It looks like --
it looks like they want to tell everything." Well,
I said, "That's fine."
That was just about the gist of our conversation.
HMJr:
Well, he WAR very excited in talking to me.
I:
Yeah.
H/Jr:
And I made an appointment for you and Guy Helvering
and Sullivan to see me at three tomorrow.
I:
Yes, sir.
HMJr:
And I told him not to communicate with Harper be-
tween now and three o'clock.
Regraded Uclassified
171
- 2 -
I:
Very good. And
HMJr:
I mean, either the case 18 being handled by you or
it isn't.
I:
Yes, sir. Well now
HMJr:
And as I told him, we don't want another Louisiana
case on my hands.
I:
Yeah, that's right.
HMJr:
I mean, somebody say, "Well, you settled it." And
so forth and 80 on.
I:
Yeah.
HMJr:
So -- I just think Sullivan is -- he's letting his
ambition run away with him.
I:
Yes, I see.
HMJr:
He's terribly anxious to be helpful.
I:
Yeah.
HMJr:
But don't you think we'd better sit on the lid
until
I:
I -- there's no question in the world that they
know who to talk to. J1m Sullivan has tried to
talk to Bowman Elder a half a dozen times. He
knows who to go and talk to if he wants to talk.
HMJr:
Well, it's all tight now until three. You see, I
refused to see Harper.
I:
Fowler Harper, yeah.
HMJr:
Did you know that?
I:
No, I didn't know that he had wanted to see you.
I knew that
HMJr:
He came up this morning. When he came in, could
he see me and I had -- called him un and said
no, that I didn't think that this was the time
for me to see him.
Regraded Uclassified
172
- 3 -
I:
Well now, that kind of an attitude 18 also forcing
him to the wall.
HMJr:
You see, that I didn't want to see him at this
time.
I:
Yes.
HMJr:
Well then, right after that they get all excited.
I:
Yeah. Well, that's perfectly fine.
HMJr:
The thing is tight.
I:
Yeah.
HMJr:
Sullivan will do just what I tell him to.
I:
Good. I sent you in a memorandum just a few minutes
ago.
HMJr:
I got it.
I:
That's fine.
HMJr:
Right.
I:
All right, sir.
HMJr:
Thank you.
I:
Goodbye.
Regraded Uclassified
173
February 28, 1940
MEMORANDUM FOR THE SECRETARY:
Attached is a summary report of the projects
which have been worked on in the Division of Tax
Research during February 1940.
RB
Attachment
Regraded Uclassified
174
Monthly report on projects in the Division of Tax Research,
February, 1940
1. War and excess-profits taxes
A study of the problems of war-profits taxation has
been initiated. In this connection a history of war-
profits taxation in the United States and foreign
countries and an analysis and summary of the structure
and technical details of the several excess-profits
tax laws hitherto employed or proposed are in prepara-
tion. An analysis of the Connally war taxation bill
has been prepared. (Mr. Ecker-Racz and Mr. Copeland)*
2. Chain store taxation
A report 18 in preparation describing and analyzing
the Patman chain store tax bill, summarizing the
reasons for and against such legislation, the present
status of State chain store tax legislation, and the
tax burden that would be imposed if the Patman bill
were enacted. (Mr. Ecker-Racz, Mr. Farioletti,
Mise Wells and Mr. Mannen)
Persons listed as working on the different projects do
not include those who acted largely or exclusively in B.
consulting or reviewing capacity. In general, the person,
if any, actively in charge of the project 18 listed first.
Regraded Uclassified
175
- 2 -
3. Inventory of tax proposals
(a) An inventory of proposals designed to produce
additional revenue, which have been considered
by the Treasury from time to time, has been pre-
pared. This contains the revenue estimates BO
far as available, 8. brief appraisal and references
to research memoranda that are available in the
files. A preliminary draft has been completed
and is now being edited. (Mr. Shere, Mr. Gordon,
Mr. Zorach and Mr. Mills)
(b) There 18 in preparation a similar compilation of
Treasury tax proposale other than those designed
to produce revenue. (Mr. Shere, Mr. Gordon and
Mr. Zorach)
4. State and local finance
A tabulation has been prepared analyzing Federal
grants-in-aid to States. This tabulation shows the
basis of allocation of grant-in-aid funds among the
States, the amounts granted to each of the States in
fiscal year 1939, and the annual appropriation
authorized under each type of Federal grant-in-aid.
It 18 planned to publish this tabulation in the
Treasury Bulletin. (Mr. Ecker-Racz, Mise Wella and
Mr. Mannen)
176
- 3 -
5. Cosmetics tax
Pursuant to the request of the Subcommittee on Taxa-
tion of the Committee on Ways and Means, a study of
the cosmetics tax has been completed. (Mr. Blough,
Mr. Shere, Mr. Farioletti and Mr. Campbell)
6. Incentive taxation
An incentive tax proposal suggested by Mr. Stam con-
sisting of a plan to reduce the income tax rates of
taxpayers under certain investment conditions and
designed to increase the flow of expenditures for
new or productive enterprises has been analyzed.
(Mr. Farioletti)
7. Tax chronology, 1919-27
A chronology of Federal tax rates oovering the period
1919-27 is in preparation. (Charts oovering the
years 1913-18 and 1928-39 were previously prepared.)
(Mr. Atlas)
8. Articles
The Division prepared the following articles during
the month:
(a) "Types of Dividends Paid by Corporations, 1936 and
1937," for the Treasury Bulletin for February 1940.
(Mr. Shere and Mr. Atlas)
Regraded Uclassified
177
- 4 -
(b) "Averaging and Loss Carry-over in Income Taxation,"
for the Accounting Forum, New York. (Mr. Blough
and Mr. Atlas)
(o) "Income taxation - 1939," for the National Encyclo-
pedia 1939 Year Book. (Mr. Ecker-Racz)
9. Income and estate taxes
Reporte on the following subjects relating to Federal
income and estate taxes are in various stages of
preparation:
(a) The problems of special defense taxes with parti-
cular reference to the technical problems involved
in the suggestion that a flat percentage increase
in the present income and other taxes be imposed.
(Mr. Shere and Mr. Mills)
(b) Personal exemptions, credits for dependents, and
the earned income credit. (Mr. Atlas)
(e) Capital gain and loss statistics and proposals for
changing the holding periods for long-term capital
gains and losses. (Miss Coyle)
(a) Distribution of tax-exempt securities by net income
brackets with particular reference to holdings of
such securities by persons in high income brackets.
(Miss Coyle)
Regraded Uclassified
178
- 5
(e) Proposal to allow corporations with 5 or less
shareholders to be treated for tax purposes as
partnerships. (Mr. Mills)
(f) Assets and income of corporations exempt from the
Federal income tax under Section 101. (Miss Coyle)
(g) The problem of illiquidity of estates and possible
solutions under the estate tax. (Mr. Mills)
(h) Powers of appointment and remainders under the
estate tax. (Mr. Mille)
10. Reviews of publications, etc.
The Division reviewed:
(a) Page proof of Statistics of Income for 1937, Part 1.
(b) Section of Statistics of Income for 1937, Part 2,
entitled "Historical Summaries."
(o) Press release on "Individual income tax returns
and taxable fiduciary income tax returns for 1938,
filed through June 30, 1939.'
(d) Page proof of the extract on "Tax Exempt Securities,
June 30, 1939.
(e) Table forms to be used for estate tax returns filed
during the calendar year 1939.
(f) Regular reports received from the Bureau of Internal
Revenue.
(g) Tables on corporation income taxes for publication
in Tax Systems of the World.
(Mr. Shere, Miss Hughes, Mies Wells, Mr. Campbell and
Mr. Mills)
Regraded Uclassified
179
- 6 -
11. TNEC studies
Pursuant to our agreement with Mr. Willard Thorp of
the Department of Commerce, the Division reviewed
the chapter "Federal taxation of corporate profite,"
prepared by Mr. C. J. Hynning, in connection with
the TNEC study on corporation taxes. (Mr. Shere)
12. Statistics
In connection with its supervision of the technical
work of the Bureau of Internal Revenue, several pro-
posals for special statistical tabulations from in-
come and estate tax returns have been examined.
(Mr. Blough, Mr. Shere and Mr. Campbell)
13. Income Tax Study (WPA)
The study of income tax returns carried on at Philadelphia
with WPA funds since October 1938 is continuing.
(Mr. Blough and Mr. Shere)
14. Correspondence
The Division handled correspondence pertaining to tax
problems. (Staff members)
Regraded Uclassified
STRICTLY CONFIDENTIAL
TREASURY DEPARTMENT
180
INTER-OFFICE COMMUNICATION
DATE February 28, 1940
TO
Secretary Morgenthau
FROM Mr. Cochren
After consultation with Assistant Secretary Gaston, I telephoned Mr. Green
in the Department of State at 12 o'olock today to let him know that we had a
report from Naval Intelligence to the effect that there were 1200 barrels of
molybdenum at San Pedro, California on February 5. which, it WBB expected, would
be shipped by the Amtorg Corporation on the Russian steamship Vindmir Mayakaoski,
due in San Pedro on February 6.
I reminded Mr. Green that on February 7 I had confronted Mr. Thorps of the
Climax Molybdenum Company in New York with information to the effect that 786
barrels of molybdemum concentrates, each weighing approximately 625 pounds, were
at the Port of Los Angeles awaiting shipment to Bussia on the above named vessel.
Mr. Thorpe promptly stated that this was molybdenum which his company had shipped
from its mines in Colorado and had received payment for before the moral embargo
vas imposed.
I told Mr. Green that we had no information to account for the discrepancy
between 786 barrels and 1200 barrels. I added that from my conversation with
Kr. Thorps, above referred to, there 16 no recollection that Mr. Thorpe led ae to
believe that his shipment was limited to 786 barrels. I simply mentioned this
figure to him and he confirmed that it was Climax Molybdenum. Mr. Green stated
that his assistant who follows molybdenum questions, Mr. Yost, was absent, but
that the latter would call me back when it was ascertained whether State Depart-
ment records revealed any information on this point. I reminded Mr. Green that
when I had talked with Mr. Thorpe before, the latter had told me that a similar
inquiry had been made of his company by Mr. Janesen, representing the Department
of State.
February 29, 1940
Not having heard from Mr. Yost, I called him at 11 o'clock this morning.
I let him know that the Treasury had information that 100 tone of molybdenum con-
centrates had been shipped on the S.S. Norbyrm, which is due to depart today from
New York for Vladivostok. I reminded Mr. Yost that Mr. Gross of Whipple and Choate
Company had, according to the information given me by Mr. Green, stated that 80
tons of molybdenum had been sold by him to the Amtorg. so there WILD either an under-
statement by Gross, or some new shipment VBB involved. Tost informed me then that
Gross had come down to Washington to see Green after their conversation and had
Admitted that the shipment which he was making to Russia WBB around 80 or 90 tons.
He denied again any knowledge whatever of the moral embargo.
With reference to the 1200 barrels of melybdemum at San Pedro, I told
Kr. Yost that our Customs people would look into the matter and find out whether
there may still remain in the warehouse at that port between 3 and 400 barrels of
181
- 2 -
molybdemum, as the State Department has no exact information on this point.
Mr. Yost stated that the Climax people had a contract made last November for the
sale of 3614 barrels of molybdemum to Russia, most of which went on the
S.S. 01ympia December 2. According to the Department of Commerce, the export
declaration for the Climax shipment on the Vladmir Mayakaoski, sailing the first
half of February, covered 425,000 pounds of molybdenum. This would be less than
786 barrels at 625 pounds per barrel. I have, therefore, asked Commander Thompson
to have an inquiry made at Los Angeles to 800 whether there is still some molybdenum
remaining unshipped out of the original lot of 1200 barrels. Mr. Yost is having
the Climax export declaration rechecked.
BMR
Regraded Uclassified
182
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Rio de Janeiro
NO.: 74
DATE: February 28, 1940
I have just been informed by Boucas that someone has
just told him that New York press despatches which were
received here this evening contain the information that
the offer of the Brazilian Government for the resumption
of payments on its foreign debt has been rejected by the
Foreign Bondholders Protective Council.
I assume that this information is incorrect because
I feel sure that it would be understood by the Council
that possible negotiations of theire in years to come
would be seriously prejudiced if they were to give pub-
licity to any action or decision taken by them in regard
to this matter before their decision had been received
or considered by the Brazilian Government. Needless to
say, such publicity at this stage would be greatly
resented by the Government of Brazil. It was added by
Boucas that at least for a few days the censor will not
allow the despatch mentioned above to be published here.
CAFFERY
Regraded Uclassified
183
PARAPHRASE OF TELEGRAM BENT
TO:
American Embassy, Rio de Janeiro
NO.: 44
DATE: February 28, 1940
Reference is made to your no. 72 of February 25,
8 p.m.
As 18 indicated by your recital, the Department
has changed its attitude to some extent since it attempted
to secure 8. distribution which would be based on the dis-
tribution provided in the last year of the Aranha plan
rather than that provided in the first year of that plan.
The degree of advantage which Grades I and II would receive,
as set forth in the figures contained in the Department's
telegram no. 36 of February 21, had not been fully appre-
ciated by the Department; these figures would weigh
heavily with the Foreign Bondholders Protective Council
and also in any presentation which might be made to an
informed public. The Department's present position has
been influenced by these figures of effective preference
for British bondholders and by the prospect of a clearing
agreement with Great Britain. We are not requesting that
a larger total payment be made to United States bondholders
but we are asking that & rearrangement be made of the
allocations for interest and amortization for Grades I, II
and
Regraded Uclassified
184
and III which will permit better and non-discriminatory
treatment for Grade III loans.
Reference 18 made to your telegram no. 71 of Febru-
ary 24. In view of the opinion frequently expressed
that available funds should be devoted to inter-
est payments instead of to the purchase of bonds at
depreciated prices, the Council and commentators here
would not regard favorably a commitment to amortize
dollar bonds by expenditures in 8. specified amount in
addition to the expenditures which are promised in the
official proposal. Of course it 18 understood by the
Department that a statement may be included in the official
offer to the effect that the right to apply additional
funds to the purchase of bonds is retained by the Govern-
ment of Brazil, as was done in the Aranha plan of 1934,
The interest rates offered will determine whether or not
the proposal will receive favorable judgment in the United
States.
Do you have any report on the conversation which
Aranha had at Petropolis with the President?
HULL
(AAB)
EA:EB
Regraded Uclassified
Balances and Earmarked Gold Held for Foreign Account
in the United States
185
February 28, 1940
(In millions of dollars)
Gold held
Foreign short-term banking funds
Central bank funds
under
Grand
With New York
earmark
With other
Private
total
Reserve Bank
banks
funds
Europe
United Kingdom
-
65.6
#
285.1
350.6
France
183.8
26.9
-
255.9
471.5
Belgium
170.2
1,1
-
174.5
345.8
Denmark
22.0
3.1
.8
22.9
48.8
Finland
11.8
13.2
3.3
7.1
35.4
Germany
-
.3
.6
7.2
8.2
Italy
-
-
4.1
38.4
42.5
Netherlands
355.6
3.1
8.1
185.3
552.1
Norway
20.2
25.5
1.1
41.9
88.8
Sweden
3.5
59.8
33.9
64.7
161.9
Switzerland
149.9
93.3
15.7
298.3
557.2
Other Europe
25.5
11.0
25.5
96.9
159.0
Total Europe
947.6
303.0
93.1
1,478.3
2,821.9
Canada
-
55.3
-
192.2
247.6
Latin America
Argentina
68.8
.5
3.2
62.8
135.3
Brazil
12.0
-
.5
29.2
41.7
Chile
.7
1,2
2.6
20.8
25.4
Cuba
-
-
-
37.9
37.9
Mexico
7.6
.2
3.3
55.4
66.5
Panama
-
-
-
36.6
36.6
Other Latin America
26.3
3.0
10.4
73.1
112,8
Total Latin America
115.4
5.0
20.0
315.8
456.1
Asia
China
1.1
19.3
5.9
146.6
173.0
Hong Kong
-
-
65.0
65.0
-
Japan
-
-
-
48.3
48.3
Philippines
-
-
25.0
25.0
-
Other Asia
18.6
1.3
I
54.3
74.2
Total Asia
19.7
20.6
5.9
339.2
385.5
All other
-
2.4
.6
57+7
60.7
Grand total
1,082.6
386.3
119.6
2,383.2
3,971.7
Treasury Department, Division of Monetary Research.
Regraded Uclassified
186
NOTE:
Photostat sent to Dr. White 2/29/40,
per Secretary's instructions, for his
information.
1 OFFICIAL COMMUNICATIONS TO
THE SECRETARY OF STATE
187
WASHINGTON, D.C.
DEPARTMENT OF STATE
WASHINGTON
February 27, 1940
My dear Mr. Secretary:
As you have already been advised, the project
for the Inter-American Bank was approved by the
Inter-American Economic Advisory Committee and has
been circulated among the twenty-one American govern-
ments for comment.
I take this occasion to express the thanks of
the Department, as well as my own, for the cooperation
which the Treasury and its staff extended in the
matter. I am particularly grateful to Mr. White, who
worked unceasingly, and who handled the final stage of
the negotiations in the American Committee with entire
success.
I an
Sincerely yours,
Adolf A. Berle, Jr.
Assistant Secretary
The Honorable
Henry Morgenthau, Jr.,
Secretary of the Treasury.
288
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Rio de Janeiro
NO.: 78
DATE: February 29, 1940.
Reference 18 made to the Department's telegram
no. 44, February 28.
Dealing with Aranha with reference to the debt
question 18 becoming more difficult. (The whole question
should be settled before March 6 since President Vargas
plans to go to Rio Grande do Bul on that date and will
remain there for at least a month.) If the Government
of Brazil 18 unable or unwilling to meet the terms
advanced by the Foreign Bondholders Protective Council,
does the Department have in mind dropping the matter
until the war 18 over?
Aranha now states that he is willing to stand by
the offer which he made on February 16 (my telegram no.
63 of February 16) which was an improvement since it
would increase Grade III to 50 percent of the last year
of the Aranha plan for the four years of the plan; in
other words, he will accord similar interest treatment
to Grade III bonds as 18 accorded to Grades I and II
under the final year of the Aranha plan.
Reference
Regraded Uclassified
189
- 2 -
Reference, telegram of February 24, No. 71, from
the Embassy. As I tried to set out in this telegram,
although Aranha and Costa were scheduled to disouse the
debt with the President of Brazil that afternoon, they
had decided that the present difficulties should not
be placed before him because they believed if they did
tell him about it he would say they were to drop the whole
matter. Their report to the President was merely that they
had nothing to report - negotiations were still going on.
Aranha and Costa are willing, provided the Foreign Bond-
holders Protective Council can be persuaded by the Depart-
ment not to make public adverse statement, to make the
suggestion to the President and to the subsequent and
necessary full Cabinet meeting, that the method for improv-
ing the Grade III bonds as set out in my previous telegram
be followed. Aranha and Costa confidently think that the
approval of the President and of the Cabinet can be secured
for this plan.
END MESSAGE.
CAFFERY.
EA:EB/LWW
Regraded Uclassified
Notes on Latin American Project
There are more than $1,000,000,000 face emount of defaulted
Lettin American bonds in the possession of small investors in the
United States.
The existence of this large amount of defaulted obligations
constitutes a serious obstacle to proper relations between the United
States and the Latin American Republics. It is destructive of con-
filence. It is a red light to business men in this country who might
contemplate financial ventures in Latin America. It is a serious
source of irritation to Lstin Americans in dealing with citizens of
this country. It places our business men and the American representa-
tives in Latin America at a serious disadvantage with others. These
defmulted obligations constitute a deterrent to our foreign trede, to
our foreign relations, to the good neighbor policy, and to any defense
program in this country or in the Western Hemisphere.
It seems now all too apparent that the great bulk of this finan-
cing should never have been done. Most of the business was unwisely
conceived. The capital obtained by the Latin Americans in many instances
WAS unwisely used. Needs of new capital and the control over the expen-
diture of that new capital was not closely examined by the underwriting
houses in this country.
The penalty of being wrong ten to twenty years ago is being visited
non upon the small investors in this country who bought the bonds, upon
the Latin American countries which are in default on their obligations,
upon the United States AS a whole, and, in fact, upon the entire Western
Hemisphere.
While this situation bas existed a number of years and the nature
and nagnitude of the problem has been recognized by many, there have not
been advanced any workable plans to rectify the evil. No constructive
suggestion has been made by the bondholders or their representatives, by
the underwriters, by the Latin Americane or by this Government.
No one has attacked the job of tearing down this well of defalca-
tion which has been erected between the two continente of the Western
Hemisphere.
The circumstances which coused the default in most instances of
the Latin American obligations have been quite different from the cir-
cumstances which caused defaults of many European dollar bond issues.
The Latin Americans did not possess the reserves nor the export balances
with which to obtain the necessary dollar exchange which would make it
possible to service their dollar bonds. They are honest, involuntary
defaulters.
Regraded Uclassified
191
- 5 -
The evil effects of the mistakes conceived years ago are now
directly or indirectly visited upon a large proportion of the citizens
of this country, and it is proper and desirable that this Government
should initiate the effort to rectify the mistakes that have been made.
The people of the Latin American Republics would not be amenable
to a plan which involved further obligations on their part. Gratuities
under the disguise of financial obligations would only activate the
evils that already exist.
The best solution would be one which ultimately disposes of the
defaulted obligations which now exist, which inaugurates a. policy of
cooperation between the peoples of North America and South America
and which will bring about a betterment in living standards for all.
Latin America needs our machines, our structural materials, and
our engineering experience with which to build up their own plant
capacities and facilities. We must provide a means for them to find
the dollars and the credit with which to obtain these things.
This country needs new outlets for its capital goods and its
consumer goods and for the enterprising business man or engineer which
must be initiated by a properly secured investment field for its surplus
capital.
The frontiers no longer exist in this country although a remark-
ably large percentage of the people of this country still possess the
rare qualities and aptitude of the business pioneers. There still
exists a large field for such aptitude in South America. If we can
demonstrate to the Latin American that we are worthy of his confidence
and cooperation, we can together make both the Americas much better
places in which to live.
Regraded Uclassified
192
surglementary Explanation of the Proposed Brazilian Debt Componition
Added to the face amount of 2350,000,000 defaulted obligations is
be amount in arrears, approximating $50,000,000. In the proposed compo-
astion, payment of such arrears or interest on such arrears has been
exived. Such waiver 16 part of the considerwtion of settlement.
The average coupon of the total dollar debt of Brasil is approxi-
>thy 75, which requires annual interest payments of $24,500,000 if
provided in full. The total external obligations of Brazil in sterling,
and dollars are a little more than three times the dollar external
religation. It is quite apparent that the Republic of Brazil is unable at
Or wretent time, and it is highly improbable that she will become oble in
the near future, to fulfill her obligations and service her total external
declarations which, with interest and sinking funds, would amount to nearly
7100,000,000 8 year. It is also quite beyond the range of probabilities
eat Bratil could meet any substantial portion of her foreign obligations
= naturity dates. It has been estimated that under present conditions
trazil could comfortably pay the equivalent to $12,000,000 a year e.g.
interest 30 foreign obligations, the doller proportion of which world be
approximately $3,500,000 per year. $3,500,000 is one-seventh of the
£24,500,000. If Brazil can find this amount for servicing her external
oblivations with reasonable prospects of being able to continue to pay
Intell interest charges over & period of years, the dollar bondholders are
estitled to receive such payments in dollars.
$3,500,000 is one-seventh of the average coupon rate of the dollar
bumis: It is also 1% of the face amount of such obligations. It is, there-
Form, proposed that as 8 primary consideration, the Brazilian Covernment
(thes to initiate interest payments at the rate of 15 per year on the face
amount or dollar defeulted obligations.
While Brasil's capacity to pay interest et the present time amounts
to only one-seventh of her contractual externel obligations, it is hoped
that improved conditions at the time of the various maturities of there
collections will enable Brazil to meet more than one-seventh of the prin-
clost at the verious maturities.
What proportion of the total face value of $350,000,000 could be
and or refunded five, ten, or twenty years from now, is impossible to
It seems reasonable, however, that with some improvements in
sorie trade and internal economy in Brazil, it could sustein end could
set =sturities on approximately two-sevenths of her external debt which,
In the case of the dollar bonds, amounts to $100,000,000. It is there-
we inugested that we set aside $100,000,000 of the $350,000,000, or two-
: sPeaths of the total, as B. continuing obligation and further propose
that the bondholders shall accept interest payments at the rate of 3% 8
year (in lieu of 7%) or $3,500,000 a year as satisfactory interest pay-
shots on this $100,000,000 of obligations. There is some reason to hope
that the Republic of Brazil will find the means to meet the obligations
let their verious maturities) of $100,000,000 either through payment of
Sollare or through refunding operations.
Uclassified
193
2
This would then leave unsatisfied the principal amount of $250,000,000
don which there would be no way of finding interest charge service in dol-
hrs, and it is proposed to compose this sum of $250,000,000 in the Brazilian-
American Corporation set-up. If, as, and when such a Corporation is formed,
it will offer in exchange its own debentures and half of its capital stock
for the defaulted dollar bonds outstanding. In no event would 100% exchange
be effected. Therefore, for the protection of all bondholders, payment of
18 per annum on the face amount of all the obligations is proposed. On those
bonds which are turned into the Corporation in exchange for securities, pay-
sents would also be made so that the Corporation would have an annuel in-
come which would be a proportion of $3,500,000 represented by the exchanged
3razilian bonds.
Initially very small emounts or no first mortgage bonds of the Corpo-
ration would be outstanding. Full interest requirements on the $70,000,000
of income debentures would be $3,500,000 8 year, which could be paid over
immediately to the income debenture holders less expenses and any small
amount of interest due on first mortgage bonds that may be outstanding. It
Jeems possible that interest payments at the rate of 4% could be initisted
on the income debentures, leaving about $700,000 a year for expenses and
surplus. Therefore, the first year or so, anyway, those bondholders who
exchanged their Brazilian bonds for securities of the Brazilian-Americen
Corporation would receive 4/5ths of 1% on the face value of the Brazilian
bonds instead of 5/5ths of 1% which would be received by bondholders who
110 not make the exchange. In addition, however, the bondholders who did
mike the exchange would be in possession of half the authorized common
stock of this enterprise, and it seems to me that the advantages that may
secrue by the addition of new capital and the potentialities represented by
the common stock and the better probability of retiring the income deben-
tures as compared to the chances of further default of the Brazilian Govern-
sent even on the $100,000,000 obligations, would induce a large percentage
of the bondholders to make the exchange.
Two-sevenths of the total face amount of Brazilian bonds acquired by
the Brawilian-American Corporation would be held to maturity and would be
serviced at the rate of 35% per year by payments to the Corporation. The
balance of Mive-cevenths, approximately $250,000,000, would be held by the
Corporation under the agreement with Brazil authorizing the Corporation to
offer in exchange such bonds for milreis when, as, and if the directors of
the Corporation determine to make commitments in Brazilian enterprises.
Under this plan, any interest charges on first mortgage bond sub-
teriptions that were taken up by the Corporation would be met immediately,
and there is no deferment required.
It is quite possible that substantial subscriptions by the United
States government agency would not be called if the Corporation is able,
in conjunction with American business enterprises, to obtain participation
under arrangements whereby the Corporation will supply the necessary mil-
reig capital and the American business corporations would subscribe dollar
capital for capital goods requirements.
Regraded Uclassified
194
A PROPOSED BRAZILIAN DEBT COMPOSITION
The principal amount of Brazilian defaulted obligations total
approximately $350,000,000. It is proposed that interest payments be
initiated on the face amount of all obligations at the rate of 1% per
annum in dollars and that such payment shall be, in effect, a composition
in full of $100,000,000 face amount obligations, leaving approximately
$250,000,000 for composition under the plan of the following corporation.
BRAZILIAN-AMERICAN CORPORATION
Capitalisation
First Mortgage Bonds:
Authorized $50,000,000 - 3% - 20-year bonds.
Subscribed for by United States Government agency.
Subscriptions to be called in blocks of $5,000,000 at any time
by the action of the Board of Directors after the corpora-
tion has executed 8. satisfactory agreement with the Republic
of Brazil.
Priority over assets and earnings.
Callable at 105 and interest.
Sinking fund of 20% of the net earnings.
Income Debentures:
Authorized $70,000,000 - 5% - 50-year.
Offered in exchange (plus stock) in blocks of $10,000,000 for
$350,000,000 Brazilian dollar obligations (in default) on
basis of schedule (to be worked out for each issue on
equitable exchange basis predicated on relative values).
Interest to be paid in those years only after First Mortgage
Bond interest has been earned three times.
Callable at 120.
Sinking fund of 20% of earnings.
Capital Stock:
Authorized 7,000,000 shares.
3,500,000 shares to be exchanged with the Income Debentures
as a unit for the defaulted Brasilian bonds in the ratio of
5 shares with each $1.00 face amount of debentures. Units to
be listed on the New York Stock Exchange.
2,500,000 shares to be issued to the Brazilian Governments or
designated agency in accordance with a proposed agreement
authorizing corporation to exchange Brazilian bonds for milreis.
In the unit of 100,000 shares plus $10,000,000 face amount of
Brazilian bonds for each $10,000,000 of milreis called for.
The Corporation may not use milreis so acquired for the purchase
of foreign exchange but must be expended for labor, materials, or
investments in Brazil. Brazil will also be given 8. long-time option
on 1,000,000 shares for milrois.
Regraded Uclassified
195
2 -
Directors
Twelve directors pending retirement of new bonds and debentures shall bes
Three from United States Government - one from each of three
designated departments or agencies.
Three designated by the Brazilian debtors.
Three elected by income debenture holders.
One Managing Director (American).
One Sub-Managing Director (Brazilian).
One Sub-Managing Director (American).
The figures used in the foregoing illustration would accomplish the
refunning of the entire amount of Brazilian dollar bonds outstanding.
The dollars obtained through the sale of the First Mortgage Bonds are
ossential for the purchase of capital goods, materials and equipment in the
United States when not obtainable in Brazil. The milreis will be used in
Brasil for payrolls and raw materials with particular emphasis on r&W materials
of strategic importance to the United States. Such products for export will
produce dollar exchange and in addition will serve as E basis for constructing
revenue-producing facilities for transportation, processing and warehousing
in sid of commerce.
The Republic of Brazil starts out with a fair assurance it can retire
its external dollar debt. That for each dollar of debt thus retired there
will be the equivalent in milreis spent within the country by the best
management to be found in the world for the purpose of developing the re-
sources of Brazil and for a profit in which Brazil would have e. helf interest.
The position of the American bondholders is imoroved immensely. Large
profits should be in the wood. If earnings should be built up amounting to
10% of the capital employed (which is not of reason in a new country with BO
many natural and undeveloped resources) the bondholders should be possessed
of equities amounting to four to five times the present market value of their
defaulted bonds.
The United States Government Agency has bought a fair security and the
colleteral advantages of trade, defense, and good relations may offset any
risks involved in the venture if properly administrated. Anyone can design
a An which is theoretically desirable, but to make it work successfully,
it is essential to pick the men who are competent for the job. The American
Managing Director and Sub-Director should be the best, most experienced
individuals available in this country. This also applies in making the selec-
tion ofthe Brazilian Sub-Director. The Managing Director should be given
full authority and responsibility by the Directors.
It will not be an easy matter to find profitable ventures in Brazil
for & large principal amount in a short time. A wide variety of enterprises
and investments would have to be included. Proper management of each would
TIME to be assured and in the initial stages most enterprises would have to
be staffed by Americans. Many ongineers and other professional med would be
taken from this country.
Regraded Uclassified
196
There should be no pressure upon management to employ capital until
they are satisfied it will be profitably employed. Insofar as practical,
operations in partnership with established concerns should be given priority.
The activities of the corporation initially must necessarily be con-
Cined in a general way to investments and financing which will directly or
indirectly produce dollar exchange and on the other hand investments which
eventually will enable Brazil to eliminate foreign exchange requirements on
certain products which are now being imported but which can economically
be produced in Brazil.
It would, of course, be desirable to develop products for export
which can be consumed in thismarket and which should be non-competitive or
at least semi-non-competitive with our own products. Gold, diamonds, lead,
mangenese, chromite deposits should be carefully explored for possible
development. Vegetable and fibre products, as well as nut oil, in the
northern oart of Brazil should also be carefully studied for larger development.
The Brazilian Government recently purchased about $800,000.00 worth
of oil well drill equipment, the justification of which is not known at
this time. The Brazilian importation of oil amounts to approximately
$65,000 per day or say approximately $24,000,000 per year, which requirement
causes a huge drain on their foreign exchange position. If this exchange
import requirement could be eliminated, even in part, through local oil pro-
duction, the corporation in collaboration with our American companies, would
te justified for example in making an investment in refineries. This is B.
type of investment which would require careful study as our American oil com-
pinies already have a large capital investment in Brazil and would naturally
Love to be fully protected by distribution rights.
Coal offers another possibility, as Brazil consumes approximately
3,000,000 tons of coal per annum - 1,500,000 tons are imported and approxi-
mately 1,500,000 tons of low grade coal are produced in Brazil. In a recent
survey made by representatives of the United States Steel Company in connec-
tion with Brazilian iron ore deposits, it is believed high grade coal in
large quantities has been located in Sante Catherina. If this information
proves to be correct, an investment jointly with the Steel Corporation to
produce coal might be negotiated. This same opportunity might also be
offered in connection with the opening up of the iron ore mines and the con-
struction of rolling mills. The necessity for further foreign exchange for
their coal and steel requirements might thus be eliminated or reduced, and
part of the equivalent of this exchange requirement could be allocated for
noittance in dollars to the corporation.
The above examples of coal, oil, and steel are merely indicated to
show the type of plant investment in Brazil in which the corporation may
become active.
The war in Europe has brought into unpleasent relief the unsatis-
factory status of business and cultural relations between this country and
Latin America. If the business men of this country with the cooperation of
the Government do not take advantage of increasing their volume of trade
Regraded Uclassified
197
- 4 -
through term financing while the opportunity is presented, the nations
of Europe through price differentials obtained by low cost production, sub-
sidies, propagande and aggressive exploitation, will at the termination of
the war again reestablish their position. The initiation of long-range
policies by this country at this time would be most opportune and will
accomplish far more than cen be accomplished after the close of the war in
the face of severe European competition. Furthermore, establishment of
suropean strongholds in South and Central America manifestly accentuates
future defense problems.
The principal deterrent to a go-ahead program and one which requires
immediate attention are the existing defaulted obligations. Only until a
satisfactory solution of the debt problem is effected can full confidence
be restored.
Suppose the enterprise is a failure either through government inter-
forence or because of poor management. In all likelihood a failure would
not become obvious at the time of maximum commitment in First Mortgage Bonds.
Say the United States government has lost 25 million in the enterprise.
would it be unreasonable to point out collateral defense advantages which
may in part or in whole offset such a loss?
Consideration might be given to the idea of allowing the plan to
emanate from Brazil. It would be a most opportune time for Brazil to reaf-
firm its indebtedness to the bondholders of the United States and offer to
meet the debt situation by such a plan, as the best they can possibly do
under present circumstances. Such an expression at this time might have
most beneficial effects as far 86 our other Latin American neighbors who are
in default are concerned.
The circumstances which caused the default in most instances of the
Latin American obligations have been quite different from the circumstances
which caused defaults of many European dollar bond issues. The Latin
Americans did not possess the reserves nor the export balances with which
to obtain the necessary dollar exchange which would make it possible to
service their dollar bonds. They are honest, involuntary defaulters.
Latin America needs our machines, our structural materials, and our
angineering experience with which to build up their own plant capacities
and facilities. We must provide a means for them to find the dollars and
the credit with which to obtain these things. This country needs new outlets
for its capital goods and its consumer goods and for the enterprising business
sen or engineer which must be initiated by a properly secured investment
field for its surplus capital.
The frontiers no longer exist in this country although a remarkably
large percentage of the people of this country still possess the rare
qualities and aptitude of the business pioneers. There still exists a
large field for such aptitude in South America. If we can demonstrate to
the Latin American that we are worthy of his confidence and cooperation, we
can together make both the Americas much better places in which to live.
198
5 -
It has been intimated that the considerations which flow to the
corporation for the half interest given to the Brazilian Government are
not compensatory for this participation. Of course, this is a matter of
memitiation between the Brazilian Government and the agency representing
the United States Government and the United States bondholders' interest.
In this connection it has been suggested that an attempt should be made to
sitain the following concessions from the Brazilian Government:
(1) Complete freedom from customs duties in Brazil on any United
states material and equipment bought by the corporation in the United
Etates and shipped to Brasil. The mining code of Brazil now permits this.
It. however, be resffirmed and extended to enterprises other than
alning.
(2) Freedom from increased internal Brazilian taxes of all kinds
on any company or enterprise operating in Brazil under the suspices of the
new Brazilian-American Corporation and in which the new Brazilian-American
Corporation has B. 50% or greater ownership, particularly during formative
seriod.
(3) Freedom from taxes in Brazil on transfers of funds which the
new Brotilian-American Corporation may desire to transfer from Brazil to
the United States in connection with its operations or BB 8. result of its
operations.
(4) Agreement by the Brazilian Government that the ner Branilian-
Corporation shall have the right to form corporations or enter-
gribes in Brazil under equally favorable conditions with persons or corpo-
rations of Brazilian nationality. This 16 now the case but should be
reaffirmed,
(5) Reaffirmation of the freedom of the new Brazilian-American
Corporation to manage any Brazilian corporation or enterprise formed by it.
under equally fevorable conditions with such corporations or enterprises
formed by and owned by Brazilian nationals; and in this connection freedom
to Introduce into Brazil American technicians, specialists, engineers,
recountants, and other employees who, in the judgment of the Brazilian-
American Corporation, may be necessary for the management and administration
of such corporations or enterprises.
(6) A condition that the Brazilian Government will permit the trans-
for from year to year of $ of the Foreign exchange created or the foreign
exchange reved as a result of the operations of the Brazilien-American
corporation.
(7) It is the aim of the Brazilian-American Corporation to have DB
Lirge e participation 88 possible by Brazilian nationals both in management
inc ownership.
These conditions may seem in some respects strange but they conform
eith similar conditions which have been granted by the Brazilian Government
to developmentel enterprises in Brazil for many years past. They are neces-
sary to avoid the strangulation of new enterprises which night be formet by
the Brazilien-American Corporation.
199
- 6 -
There has been a tendency for the last three years to place constantly
increasing strictures in respect to the points mentioned above upon foreign
owned or managed enterprises as compared with Brazilian owned enterprises,
and there will no doubt be difficulty in getting the Brazilian Government to
agree to these conditions. However, Brazil is a vast, undeveloped country
and the introduction of the amount of new capital which has been planned in
the Brazilian-American Corporation should be of tremendous benefit to Brazil
and should create very large, additional, taxable wealth within the country
through the activity of the Brazilian-American Corporation. It will create
work and wealth for many Brazilians, all of which can be taxed in the usual
course of things by the Brazilian Government.
The Brazilian-American Corporation itself, by consolidating and
owning external debt of Brazil, will be a benefit to the credit of Brasil,
and will thus assist Brazil to pay off its obligations over & period in
milreis. This should be a tremendous advantage to the national economy of
Brazil.
I have a feeling the risk may be commensurate with the potential
gain. At any rate, the project should be carefully examined.
R. E. McConnell
copy
200
January 22, 1940
United States Steel Corporation Committee's
Report on the Steel Industry in Brasil and
on the Feasibility of Building & Modern
Steel Plant in Conformity with the Wishes
of the Brasilien Government.
The United States Steel Corporation's Commission, which will
be referred to as the Commission, includes in its report such
background material which is common knowledge to officers of the
Department. In the following memorandum an attempt has been made
to incorporate only what appears to be new or little known informe-
tion.
Market
The population of Brasil in 1938 is estimated at about
44,000,000. The rate of increase since the 1930 census is approximately
4 per cent per ennum. The trede figures still record a considerable
preponderance of raw materials and foodstuffs in the imports. The
import and export trade with Brasil in 1938 was divided by countries
as follows:
U. S. supplied 25% of importe and took 34% 20% of exports
Germany
23%
.
Argentina
e
15%
5%
Gr. Britain 12% -
%
France
- 45 -
6%
Regraded Uclassified
201
Brasil's exchange and general well-being depend almost
exclusively upon & favorable balance of payments. The international
payments of Brasil since 1937 have been composed almost in their
entirety of exports and imports, and current items. As a matter
of fact, capital items have played practically no part since 1931.
Its balance of trade depends, furthermore, upon two products,
namely, coffee, which represented in 1938 forty-five per cent of
exports, and cotton, which represented 18.2 per cent. Brasil's
exports in 1938 were 35,800,000 gold pounds, and its imports 34,200,000.
In the past six years its maximum surplus of exports was 10,828,000
gold pounds in 1936, and its minimum surplus, occurring in 1938,
was 1,575,000 gold pounds.
The Commission's estimate of par capita steel consumption in
representative countries is illusinating. It states that the United
States consumes 850 pounds of finished steel per annus, Belgium
750 pounds, Germany and Great Britain 550 pounds each, France 320,
Italy 135, and Brasil 20.
The present market for steel products in Brasil is roughly
divided as follows:
Rails
17%
Structurals
5
Rounds and flats
16
Wire
17
Tin plate
14
Sheets and plates
15
Tubes
10
Others
6
Total
100%
Regraded Uclassified
202
The demand for rails, wire and tin plate could be greatly expanded
with the lover prices which a native industry would bring about.
Brasil's market for steel products, as it is for practically all
other articles, is concentrated in Rio de Janeiro and Sao Paulo,
visi
Rio de Janeiro consumes 25% of the total consumption
Sao Paulo
40%
South Brasil
. 22.5%
.
#
"
North Brazil
# 12.5%
The Commission's report refers to the present method of doing
business in steel products as a hand to mouth proposition and lays
emphasis on the importance of developing & merchandising organise-
tion. A aere doubling of consumption to 40 pounds per capita per
annum, which would be but 5 per cent of per capita steel consumption
in the United States, would assure the success of any efficiently
operated steel mill in Brasil.
The present rates of duty per metric ton on steel products are
roughly as follows:
Rails
638
Rounds and flats
5706
Wire (not barbed)
7008
Tin plate
220$
Sheets and plates
5704
Tubes
6908
Existing Steel Industry
A. very small steel industry using charcoal as fuel already
exists in Brazil. The only company of consequence is the Belgo-
Mineira which owns plants at Nonlevade and Sabara, Mines Geraes.
It has an expansion program under contracts with the Federal Government.
Regraded Uclassified
203
The following figures demonstrate the growth of the steel
industry in Brasil, such as it 18, from just after the World War:
Brasilian Steel Production (N. tone)
Production
Imports
1921 - 1924
8,000 (average)
271,000 (average)
1928
15,000
481,000 (peak)
1930
16,000
253,000
1938
65,000
274,000
The national production of finished steel products is roughly
composed of rounds and flats, 75 per cent, and of wire, 25 per cent.
The principal iron and steel mills in Brasil are:
Burnier and Esperanca (Mines Geraes) owned by
Queiros, Jr., Limited, has one blast furnace of 6,000-
ton capacity in operation, and two blast furnaces of
15,000-tom total capacity, closed. The products are
foundry iron and castings.
Gage (Minas Geraes) owned by the Sociedade
Siderurgica, Limited, has one 15,000-tom blast furnace,
closed.
At Bello Horizonte, owned by the Companhia Indus-
trial de Ferro (of which the Belgo-Mineira is a large
shareholder) is a blast furnace of 4,000-ton capacity
for castings.
Morro Grande, owned by the Hime interests
(British), has three blast furnaces of a capacity of
25,000 tons, making foundry iron and ingots, and two
small Dessemers of & capacity of 5,000 tons of steel.
Noves (at Nictherey, capital of the State of Rio
de Janeiro). This plant, also owned by Hine, receives
Merro Grande ingots and can produce 25,000 tons of
steel in its too basic open-hearth furnaces. The out-
put consists of structurals, rounds and flats, wire and
steel castings.
Regraded Uclassified
204
Jose Brandao and Caste (Minas Geraes), owned by
Regraded Uclassified
the French Companhia Ferro Brasileiro. st the first
are two blast furnaces with a especity of 20,000 tons
of iron saking castings and pipe, and at the second
is a 5,000-tom blast furnace which at present is
closed.
Sabara and Morro Grande (Mines Germes), owned by
the Companhia Siderurgics Belgo-Mineira (the capital
seems to be principally Luxesburger, Belgian, Dutch,
and Brasilian). It is this company in which the
Brasilien Government, and particularly the Army, is
interested. Now operating at Sabara are two blast
furnaces of 30,000-tom capacity, and two basic open-
hearth furnaces of the same especity. The finishing
capacity is 40,000 tons. At Monlevade there are two
50,000-ton total capacity blast furnaces, and two
basic open-hearth furnaces which were being built at
the time of the Commission's visit. The capacity of
finished products here is also 40,000 tons. The Mon-
levade ingots were at the time of the visit being sent
to Sabara.
The plans for the Belgo-Mineira, which of necessity must be
influenced by any decisions regarding the Steel Corporation's
plant, are at present as follows (most of this work it is understood
is proceeding at this time):
For the Government, four new blast furnaces with
a capacity of 100,000 tons, five open-hearth furnaces
of 140,000 tons, finishing mills of 100,000 tons, and
a mall electric furnace for special steel for the
Army arsenal. For the company, six blast furnaces of
150,000 tons, seven open-hearth furnaces of 200,000
tons, and finishing mills of 150,000 tons.
Rev Naterials
Iron Ore
While it is true that in Brasil there is to be found one of
the richest reserves of Bessemer ore in the world, namely, the one
near Itabira, the accessible ores are those of a higher phospherous
content found in the area of Mines Geraes served by the Central
of Brasil Railway around 450 to 600 kilometers from Rio de Janeiro.
205
It is estimated that 500,000 tons of ore per annum are available
in this area for the steel plant at a cost, alongside of the rail-
road, of about 148 per ton. Production in the area of iron ore
reached, in 1938, the peak of 558,238 tons, and generally one-third
to one-half of the production is exported.
The total cost of delivery at Rio would probably be around 38
milreis per ton. It is calculated that the new mill would use a
mixture of hard ore containing 66 per cent natural iron and .050
per cent phosphoric acid; high-grade canga or rubble with 58 per
cent natural irom, and .150 phosphoric acid; and brown hematite and
limonite containing 62 per cent iron and .100 per cent phosphorous.
The Commission recomends that the company obtain deposits yielding
about 300,000 toas and purchase the remainder of its requiresents
in the open market from independent producers.
Limestone and Dolomite
In the same general area with the iron ore is to be found
metalurgical limestone. Present production is not more than 40,000
tons, but the 100,000 tons required by the steel mill could probably
be found.
The Commission believes that a suitable supply of delemite
can be found near Bello Horisonte and Ouro Proto, Mines Gerses.
The annual supply of delomite required would be about 25,000 teas.
It is thought that the cost of delivery at Rio of the limestome
and dolomite would be about X milrois per ton.
÷
206
Coal
The Commission's investigation of the coal situation in Santa
Catherine started with the original 1908 basic report of the Coal
Commission headed by the West Virginian, Mr. J. C. White. The
field is about 20 X 40 kilometers in extent and contains, roughly,
320,000,000 tons.
Up to the present the principal production of coal in Brasil
has been in Rio Grande do Sul. For example, out of & total produe-
tion in 1928 of 325,000 tons, Rio Grande do Sul furnished 316,000
and out of R total production in 1938 of 872,000 tons, that State
furnished 729,000 tous. In the same period the Santa Catherina
coal putput rose from just under 9,000 tons to about 143,000 tous.
All Brasilian coal is very high in sah content and has a low
fixed carbon content.
The Santa Catharina situation is politically dangerous. The
present producing mines are controlled by the Lage interests which
ship 80 per cent of the State's production through their OWN port
at Imbituba over its own decrepit meter-gaugs railway and its own
coastwise vessels. The deposits in which the Commission was
interested lie around 100 to 125 kilometers from the coast and the
Commission recommends that the port of Lagune, 37 kilomoters from
Inbitube, be used in order that the supply say be independent of
the whims of the politically powerful Lage family.
The price now asked in Rio for Santa Catharina coal of 120
milreis per ton is not competitive with imported duty-paid coal
at 190 milreis.
Regraded Uclassified
+
207
The advantage of Santa Catharina over Rio Grande do 8ul coal
Regraded Uclassified
is that the former cokes more successfully than the latter. The
tests have BO far, however, been confined to laboratories and
foundry use. The Commission makes three main suggestions concerning
the coal in Santa Catherina: (1) that the Brazilian Government
request the loan from the United States Government of coal experts;
(2) that analyses be made by mines and areas for both steam coal
and coking coal; (3) that the selected varieties be tested in full-
aised coke overs and furnaces.
The Commission recommends the tests for steam coal with the
thought that the Brasilian Government is desirous of reducing its
present annual importation of 1,600,000 tons of foreign coal.
Chromite
The steel mill would require about 2,000 metric tons of chromite.
It is to be found in fairly abundant deposits in the State of Bahia.
The cost of delivery at Rio would be about 350 milreis per ton.
In commection with chromite, it is interesting to note that
in the period January-June, 1939, 1,950 tons of average 49 per cent
cr203 ore was exported to Germany.
Manganese
Manganese ore has for sany years been a regular thought small
item in Brasilian exports and its quotations are standardized.
About 8,000 tons yearly of 45 per cent ore would be required.
Manganese is plentiful in Minas Geraes and moves to Hio at a cost
of between 24 to 32 milreis per ton, depending upon origin.
208
Transportation
Regraded Uclassified
The transportation problem in so far as a steel mill in Rio
is concerned may be reduced to four sub-problems.
1. The broad gauge line of the Central of Brasil from Bello
Horisonte through the mining area to Rio de Janeiro should be relaid
almost in its entirety. Bolling stock is needed in large quantities.
The whole operation of the Central is lamentably inefficient. The
proposed solutions are that (1) the Central be made completely
autonomous of the Government, (2) the main line from Berra do
Pirahy, 109 kilometers from Rio whence the branch to Bello Horisonte
leaves the sain line between Rio and Sao Paulo, should be relaid
and modernised at 6 cost of approximately $5,000,000, (3) the
autonomous administration should acquire 10 locomotives and 300
hopper cars at a cost of about $2,000,000.
The Commission would wish to obtain rates which, while giving
8. reasonable profit to the railway edministration, would not merely
contribute, through the efficient operation of this branch, to the
reduction of the global deficit of the entire railway. It believes
that with the expenditure of the above two suss the railway could
carry ore and limestone to Rio at a. good profit for 20 milreis par
ton.
II. The Dous Theresa Christina railway between the Senta
Catharina coal mines and the sea coast, while Government property,
is operated by Lage. The Commission's recommendations are (1) that
the railway be placed under the autonomous Central administration,
-10-
209
(2) that the line be relaid with 100-pound rails at a cost of
$1,500,000, (3) that the port of Laguna be developed by the Govern-
ment at the cost of $250,000, (4) that 150 hopper cars be sequired
for $600,000.
The movement of coal would be about 212,000 tons per year,
and the Commission believes that a reasonable freight to ask would
be 68000 (1t is now 94000).
III. The coastwise facilities for transporting coal are entirely
unsatisfactory. In the interest of the Central, the largest coal
consumer in Brasil, the Commission recommends that the Central
Railway acquire a 7,500-ton collier for about $500,000.
IV. The ocean service for the importation of foreign coal
with which the mill would start operating is inadequate, and the
following is proposed.
(1) That a Government-owned line be organised independently
of the inefficient Lloyd Brasileiro and the purchase made of five
vessels for $2,500,000. These vessels could begin transporting
to Brasil the equipment for the steel plant and for the rehabilitation
of the reilways on which the steel plant would depend. They would
also be used to import the 300,000 tons, more or less, of Lynch
coal which would be required for the steel plant.
The Commission believes that the freight on the coal should
be, from Baltimore to the plant, about 478 if there is no return
cargo, but if, for example, these ships were given 100,000 tons of
the export trade in mangeness ore, the freight on the coal could be
reduced to about 400.
-11-
210
The above recommendations would cost the Brazilian Government
about $12,550,000. These expenditures, the Commission feels
strongly, are properly borne by the Government in view of their
general benefits. While it is easy to understand in this country
the reasons for the recommendations, it is also important to keep
in aind the tresendous inertie which would first have to be over-
come. The Commission was surprised, if not astonished, by the
unanimity of the opinions of Brasilians of all interests with
regard to the deplorable condition of overland transportation
facilities and the need for rehabilitation. The Commission vas,
however, balked by this very unanimity in that most Brasiliens
envisage the rehabilitation as 8. project of such stupendous propor-
tions that Brasil would be unable to afford it unless there were an
immediate prospect of huge iron and manganese ore exports. The
problem, therefore, is to convince the Brasilians that while such
& far-reaching program is admirable, there is no use in dreaming
unless a start is made, and this start should involve individual
sualler projects whose urgency is outstandingly evident.
The Steel Plant
The Commission investigated the feasibility of various types
of mills and discarded for reasons of geography and cost of raw
materials such prepositions " charcoal furnaces, Bessemer furnaces,
and electric furnaces. The use of charcoal would place the mill in
fuel timber land in the Rio Doce Valley hundreds of kilometers from
the market. The construction of Beasemer furnaces would place the
-12-
211
mill near the Itabira mines, distant from markets and coal sources,
Regraded Uclassified
and would require at least $10,000,000 to rebuild the Victoria-
Vines Railway. To use electric furnaces, the mill would also have
to be placed at & distance from its market in order to be near a
source of adequate water power.
The proposed site is a 730-acre area within the Federal district
about 50 kilometers southwest of the city and only 7 kilometers from
the main line of the Central. There is a sufficient supply of fresh
water nearby, and a satisfactory harbor in Sepatiba Bay in which
it is believed a 30-foot channel could be easily dredged.
The plant would have at the outset an output of 285,000 tons
of finished steel products. There would be 68 coke ovens using 60
per cent Lynch coal or 318,000 tons, and 40 per cent Santa Catharina
coal, or 212,000 toos. In connection with the coke ovens, there
would be a recovery plant for ammonium sulphate and light oils
which would be sold in the market as by-products. By-product gas
and tar would be utilised in the plant for fuel, mixed possibly
with fuel oil. There would of course be adequate storage facilities
for raw materials, and auxiliary equipment for movement of rew
materials, hot metal, scrap, st cetera.
There would be two blast furnaces of 550-ton capacity which
could be expanded, however, after relining, to 750 tons. They would
be skip-filled. The power house would include three cold blast
blowers, three 10,000-kilowatt turbo generators, and four boilers.
It is foressen that ultimately a mutual exchange and standby reserve
agreement would be reached with the local alectric power company.
-1.3-
212
Regraded Uclassified
The open-hearth furnaces using tar, fuel oil and coke oven
gas would be six in number with a load of 100 metric tons spiece.
These, with re-lining, might be expanded to 125 netric tons. Serving
these facilities would be a 1,000-ton hot netal mixer. To these
fundamental elements will be added a blooming mill, a combination
rail and structural mill, and tie plate finishing sections. Added
to these mills would be tin plate, sheet and jobbing mills.
Cost
The Commission estimates the capital necessary for the plant
at 180,600 contos, local currency, and $21,470,000, American currency,
the total being 610,000 contos, or $30,500,000. To this should be
added 90,000 contos ($4,500,000) inventories and working capital.
In this cost are not included import duties on equipment, the
improvements in transportation, nor housing (it is understood that
a Government housing project is under consideration near the area
of the proposed plant). The cost does, however, include engineering
and construction fees.
All materials not purchased in Brasil would be bought in the
United States. The freight on imported equipment is estimated on &
base rate of $6.00 per metrie ton on the hypothesis that the
Government's shipping service recommended is insugurated. Adding
other shipment costs, the Commission setimates that the 70,000 metric
tons of American equipment can be delivered at the site for $15.80
per ton. Although it is contemplated that eventually thirty or
forty per cont of the coke will be made from domestic coal, the
preliminary cost estimates are based on an importation of all coal requirements.
-14-
213
All costs are predicated upon an output of 285,000 metric tons of
finished steel products per annum, divided as follows:
Metric tone
Open hearth rails and tie plates
100,000
Structurals
25,000
Rounds and flats
60,000
Sheered plates
20,000
Black sheets,
jobbing mill
8,000
Black sheets,
sheet mills
12,000
Galvanised sheets
10,000
Total
50,000
Tin plate
50,000
Total
285,000
The estimated earnings on the capitalisation and production
rate above is 15.1 per cent, provided 50,000 tons of foundry coke
and 50,000 tons of foundry pig are marketed annually. Prices for
steel are figured at 13.5 per cent below average prices in 1936 -
1938.
Gross sales (50,000 tons coke,
50,000 tons pig. 285,000
finished steel)
444,000 contos
259,000
9
Mill cost of said products
Balance
185,000
.
Other expenses (excluding
income tax)
72,500
112,500
.
Income tax at six per cont
6,500
.
106,000
.
Earnings are therefore estimated as follows:
Cost of plant and real estate
610,000 contos
Inventories
70,000
20,000
.
Working capital
700,000
#
Total
Annual return - 15.1 per cent.
Regraded Uclassified
-15-
214
The capital for plant site, rew materials, labor, et cetera,
would be subscribed in Brazil, in common and preferred. The portion
which the Commission hopes the Export-Import Bank will put up would
be secured by a 6-10 year bond issue. The Expert-Import contribution
would be applied solely to financing purchase of American equipment.
The Commission had counted on persuading the Steel Corporation
(provided the Brasilian Government met the conditions regarding
transportation, management contract, mining laws, taxation, admittance
of technical experts, transfer of profits and dividends, et cetera)
to put up $5,000,000 or more in voting common. During the period
of the management contract, the Steel Corporation would have been
expected to train promising young Brasilians for key positions.
RA:Walmaley:03A
Regraded Uclassified
ADDRESS/GFFICIAL COMMUNICATIONS TO
THE SECRETARY OF STATE
WASHINGTON, D.C.
215
DEPARTMENT OF STATE
WASHINGTON
In reply refer to
Eu 865.5151/390
March 5, 1940
The Secretary of State presents his compliments
to the Honorable the Secretary of the Treasury and
encloses a paraphrase of a telegram dated February 29,
1940 from the American Embassy at Rome concerning ex-
change transactions in Italy.
Enclosure:
Paraphrase of
telegram from Rome,
February 29, 1940.
PTC.
Regraded Iclassified
216
PARAPHRASE OF TELEGRAM
To:
Secretary of State, Washington
From:
Rome
Dated:
February 29, 1940
Rec'd:
4:50 p.m.
No. 141
The knowledge that in various special cases indi-
vidual exchange transactions are being carried out with
official approval at exchange rates fully as extreme as
those previously reported in operations on the black
Bourse is disturbing to financial confidence and demoraliz-
ing to the prestige of the Italian currency. The great
spread between internal prices and import prices and the
extreme scarcity of certain raw materials is back of the
particular cases in mind.
To cite a case which 10 typical of the reported
operations, a manufacturer of woolen textiles is given
a special authorization to import wool which is drastically
needed. The Government makes no commitment to supply the
necessary foreign exchange but allows the manufacturer
himself to find the exchange without being restricted to
the legal rate. The manufacturer is willing to pay in
lire a price which approaches the internal price for the
material. An authorized bank acts as intermediary in
carrying
Regraded Uclassified
217
-8-
Regraded Uclassified
carrying out the operations. The approval of such
operations is restricted, it 18 understood, to cases in-
volving the importation of certain materials. It has
not been possible to obtain any official instructions
which say have been issued with respect to the system
nor the list of materials to which it is applicable. The
information that rates such as those mentioned have been
paid is gradually spreading and adds to a desire on the
part of those possessing exchange for similar rates and
increases the difficulty of supporting the official rates.
The competent officials, however, are reported to have
stated that the special rates will be permitted only for
a very short time.
58 =
THAT2122A ЗАЛИНОЭТ
3HT 30 301970
10 THE
MA < ЯАМ ONEI
IBEVENBA BECEINED DEVELLMENT
218
February 29. 1940
Dr. Feis
Mr. Cechrea
will you kiadly send the following cablegram:
"AMERIGAN EMBASSY PARIS. FOR MATTHEWS FROM THE SECRETARY OF THE
TREASURY.
Reference your 270 February 25, 9 p.m.
Please convey through Cours de Murville my sincere thanks
to Minister of Finance Reynand for his continuing courtesy and
cooperation in inferming no in regard to French monetary and
financial plans."
n.m.s.
Regraded Uclassified
219
PARAPHRASE OF TELEGRAM SENT
TO: American Embassy, Paris, France
DATE: February 29, 1940, 5 p.m.
NO.: 144
FOR MATTHEWS FROM THE SECRETARY OF THE TREAUSRY.
I refer to telegram of February 28, No. 270, from
the Embassy.
You are requested to convey to Reynaud, Minister
of Finance, through Couve de Murville, my sincere thanks
for his continuing courtesy and cooperation in keeping
me informed as to the monetary and financial plans of
the French Government.
HULL
(FL)
EA:LWW
Regraded Uclassified
- OFFICIAL COMMUNICATIONS TO
220
THE SECRETARY OF STATE
WASHINGTON, a c.
DEPARTMENT OF STATE
WASHINGTON
March 1, 1940.
The Secretary of State presents his compliments
to the Honorable the Secretary of the Treasury, and
encloses & paraphrase of strictly confidential telegram
No. 144 of February 29, 1940 sent to the American
Embassy, Paris, transmitting a message for Mr. Matthews.
2s
Regraded Uclassified
221
February 29, 1940
9:15 a.m.
HMJr:
Hello.
Robert
Jackson:
Yes?
HMJr:
Hello, Bob.
J:
Good morning.
HMJr:
Hello?
J:
Yes, good morning. How are you, Henry?
HMJr:
Fine, I saw a very good story about you in Look.
J:
(Laughs)
HMJr:
Have you seen it?
J:
Yes, I saw that.
HMJr:
I thought the picture of you and your wife on horse-
back was particularly nice.
J:
It was a very old one.
HMJr:
It was very nice anyway.
J:
It was overlooking the lake. It was taken up home
years ago.
HMJr:
Yeah, it was nice.
Bob, I know my people have been bringing to your
attention our investigation in Indiana.
J:
Yes.
HMJr:
I'm worried, maybe unjustifiably, about your man
Nolan, who is the United States District Attorney
out there.
J:
Yes.
222
- 2 -
PST:
And I'd like to make the suggestion that you bring
him to Weshington, if you could, early -- the first
thing next week and have a talk with him. We'll
bring our 7AM down who is doing the investigating
there, Sullivan. You see?
3:
Um-hm.
HAIR:
And you might, if you thought well of it, have a
conference in your office and get the thing first
hand. The thing that bothers me, it seeme that
every move that's made here is reported immediately
to the friend of McNutt.
Vell, Nolan heen't been in touch with them, her he?
HAV:
Well, I don't know. Irey has mt me kind of worried
about the whole thing and then, this 18 before you
came in, one of the Indiana Senators was working
for Nolen for a Judgeship.
J:
Yee.
And it -- you Bes, we're waiting on Nolan to TO to
the courts and make this fellow talk, you see?
And we haven't -- I'm afraid he's stalling.
J:
Vell, that may be due -- Guy came over and talked
to me sometime ARO about it.
HWr:
Yes.
And he -- he had the impression that I was voing
to get in touch with Nolan immediately anê tell
hin to 20 to work. My thought was that I would
hear from Guy when he was ready and I would then
tell him.
Mar:
Yeah.
J:
And it may be that his delay has been due to my
fault in that respect.
TWr:
Well, our people don't think SO. You know -- you
know Elmer almost as well as I do.
Oh, yes.
Regraded Uclassified.
223
- 3 -
HMJr:
And could you see any harm in having Nolan down
and having him -- give you -- bring you up-to-date?
J:
No.
HVJr:
And then, say if you were going to have him Monday
I'd have our man Sullivan, who represents Irey
out there, in town too.
J:
Uh-huh.
HMJr:
And just have a kind of a summary, you see?
J:
Yes.
HMJr:
And -- because either -- we -- we can't move now
under Nolan brings Elder into court, you see?
We're blocked. Now, I tried to do this between
Christmas and New Years, that's how far back it
goes, and -- to make the move to have Elder come
into court. There's been one excuse after another.
Now it may not be Nolan's fault.
J:
Well, it might be right here.
HMJr:
And I -- Bob, this -- there are BO many people --
now yesterday Harper, the attorney for the Govern-
ment organization of which McNutt 16 the head of --
I can't think of his name -- you know.
J:
Yes, Fowler Harper.
HMJr:
Well, he was over here trying to get in and he
wanted to see me. He saw John Sullivan and I
told him no. This was not the appropriate time
to see me. Well then he got ahold of Sullivan
again. He said, "Well, if you want to see Bowman
Elder, we'll bring him to town - here." And we
sent word back no, the person that Bowman Elder
-- that we want him to talk to 18 our man Sullivan
in Indiana. You see?
J:
Uh-huh.
H/Jr:
And Irey has the feeling that between morning and
afternoon yesterday everything was reported right
back out there. You see? And you and I have
Regraded
224
- 4 -
been through things like this before and I just
thought if you would take the time to nail it
down on your end and then if we're at fault you
tell us, or vice versa.
J:
Well, I'll -- I'll have him come in and get it
worked out.
HNrt
Well, if you're going to have him in, say Monday,
I'll have our agent, Sullivan, in Mondey too and
available.
Well, there might be Grand Juries or something
that would prevent him from coming in on Monday
so we better
We:
Will vou let me know?
3:
I'll -- I'll check into it and let you know.
My:
But I'd feel much more comfortable, Bob, if you'd
put a little time on it yourself.
J:
Well, I'll try to do it.
Because it really -- something 1sn't clicking.
7:
Yeah. Well, we'll set 1t going.
HMr:
And it's important enough, I think, for both of
us to give it a little time.
J:
Yes. All right, Henry. Thanks for calling.
HWD:
Do you want a good laugh?
3:
Yes.
VMr:
Jimmy Roosevelt comes in yesterday just to shake
hands with me, see?
J:
Um-hm.
HWr:
Nothing at all.
J:
Nothing.
Regraded
225
- 5 -
HMJr:
Nothing.
J:
No more lip?
HMJr:
No. And as he gets up he says, "Oh, by the way,
Henry, does Joe Schenck stink?" Now, try to say
that fast. I said, "What?" He said, "Does Joe
Schenck stink?"
J:
(Laughs)
HMJr:
So I said, "Well, what do you mean, Jimmy?"
"Well," he said, "I'm doing business with them
and I don't want to do business with him if he
stinks."
J:
(Laughs again.)
HMJr:
So I said, "Well, Jimmy, I've never met him.
"Well, do you think I ought to do business with
him?" So I said, "Well, time will tell, Jimmy.
It's in the hands of the court and until the man
is proven guilty he's innocent. So my advice to
you is Just to sit by -- back and wait."
Isn't that interesting?
J:
Yes. (Laughingly.)
HMJr:
What?
J:
Yes.
HMJr:
I thought you'd be amused by it.
J:
That's good.
HMJr:
It's taken -- took me a long while to say it
quickly -- does Joe Schenck stink.
J:
That's a good one.
HMJr:
O. K. Well now, I'll hear from you on what day
Nolan is going to be in.
J:
Yes.
Regraded
226
- 6 -
HMJr:
And then I'll have Nolan -- then I'll have our --
Irey's agent here the same day.
J:
Yes. All right.
HMJr:
Thank you so much.
J:
I'll let you know.
HMJr:
Thank you.
J:
Goodbye.
Regraded Uclassified
227
February 29, 1940
10:04 a.m.
WJr:
Hello.
Operator:
All right. Go shead.
HVJr:
Hello.
Robert
Doughton:
Mr. Secretary?
HMJr:
Hello, Bob.
D:
When did you get back?
ENJr:
Oh, P. few days ago.
D:
I hone you had a fine trin and 8 rood rest and are
feeling good.
MJr:
Yeah, I'm all fine end ready for 2 tax bill.
D:
Ready for a tax bill? You've got 80 much money
you wouldn't know what to do with it if you had
it. You want to loan money, don't you?
W/Jr:
Well, not if you look at my deficit.
D:
Is that 80? Well, you're not thinking seriously
about 8. new tax bill, are you?
HMJr:
No, but I'm thinking.
D:
If you are you know we'd have to get after it --
begin to consider it pretty soon. They are fixing
to get away from here, and I understand the Presi-
dent has -- said he had no more legislation and
wanted us out of here about the first of May.
HMJr:
Uh-huh.
D:
What about that?
HWr:
Well, I -- that's news to me. It would be good news.
D:
Yeah. Of course, if we were going to consider any
tax bill at all it would have to be -- or become
228
- 2 -
our duty to do it, why we ought to begin to -- to
lay the preliminary foundations pretty soon.
HiJr:
Well, he'll be back Sunday and all I was thinking
about was what he said in his message.
D:
Yeah. That's easy, of course now, but if we have
to have & tax bill I've expressed my opinion about
it start. that we all ought to get together before we ever
HMJr:
I'm with you a hundred percent on that, Bob.
D:
Yes. Well now then, what I called you about this
time 18: I don't know whether there has been any-
thing brought to your attention or not, but it has
been brought to my attention several times. That
there 18 some trouble down here in this processing
tax Board of Reviews,
MJr:
Yes.
D:
About the -- among the -- disagreement among the
members. There's a very serious disagreement down
there. Do you know anything about it?
HIJr:
Yes, It's about this fellow from North Carolina.
D:
Yes,
HVJr:
Hathcock.
D:
Yeah, and then the Chairman of the Board, too.
HMJr:
Yes. I mean -- I have heard about it and I suggested
to Mr. Sullivan two -- yesterday or the day before
that he go un and talk to you about it, but I'm
available.
D:
Talk to me about it?
HMJr:
Yeah.
D:
Well, I tell you what I'd like for him to do.
HMJr:
Yeah.
229
- 3 -
=
I'm looking into B lot of things that come to my
attention about it and trying to get -- digest
them and get down to the base of it. I think this
from what I see: I think that both -- Hethoock
probably -- he's a fine fellow and very canable
and I think one of the most useful men you've
not. But I think -- he may sometimes be & little
too -- have too much temper, and I think the Board
-- the Chairman of the Board -- is B very arbitrary
Board. I think they are both doing wrong from what
I've -- what light I've not on it so far.
In other words, the Board -- the Chairman of the
Board is tentative. No man has ever been appointed
on that Board in an election -- exposing him in the
presence of the Board and giving him the devil right
in the presence of the Board.
HWF:
Well, I don't know anything about that, but if
Hathcook did what they said he d1d, end there 18
documentary evidence that he wrote twelve different
taxpayers and telling them -- complaining to these
taxpayers about action of the Board
8:
Yeah.
HXJr:
-- if he did that, that's really inexcusable.
D:
Well, suppose this -- suppose the Chairman of the
Board had acted on the case of the taxpayers and
dismissed their anneal and signed it 88 by the
Board when the Board hed nothing to do with.1t -
did it all himself. Do you think then that the
taxpayer would feel when the Board had done that,
B.B E Board, that there was no USE taking 110 an
anneal, but if only one member had done It -- the
others had no -- never considered it nt all, that
they might probably feel like they'd have a chance
to teke an anneal?
SWr:
Well
D:
Ae I understand, in these cases that the Chairman,
without any action whatever of the Board, took
the action and signed it PE the action of the Board,
when the Board had done nothing of the kind.
230
- 4 -
HMJr:
Well now, Bob
D:
Yeah.
HMJr:
this 18 something which I'd like to handle
fair to everybody. See?
D:
I know that. That's the reason I'm talking to you
about it.
HMJr:
Now
D:
So do I.
HMJr:
supposing we have a meeting on this thing, see?
Will you be around -- say, Monday?
D:
Yes, I'll be here Monday. I have a meeting of my
Committee at ten thirty and then I'll have -- Monday
afternoon I'll be free entirely.
HMJr:
Well, is three o'clock e good time for you?
D:
It will be fine for me. Anywhere, anyplace that
you say.
HVJr:
Well, supposing we say at a cuarter of three -- three
o'clock.
D:
All right.
HMJr:
And I'll have everything lined up at that time and I
may have Hathcock here.
D:
You may have who?
HVJr:
Hathoock.
D:
That would be a good idea.
HMJr:
I think I'll have him here.
D:
Yeah, that will be fine.
HMJr:
Well, at least I'll talk it over and I'll have all
of the facts from our standpoint and do you think
we ought to have Hathcook here?
231
- 5 -
D:
I think it would be a good idea.
IDWr:
You do?
D:
It would be 8 mood idea, end It wouldn't hurt if
you had the Chairman there 85 far AB I'm concerned.
HNr:
Well, we'll have them both here.
D:
That would be E reod idea, I think.
Till have them both here.
=
I think that would be find. Now, do you want any-
body else there besides me?
Unless you want to bring somebody.
D:
From 11m here?
:-
Unless you want to bring somebody.
D;
Well, If I wanted to B.S.K somebody it would be some
member of the Board -- some member of the -- I
wouldn't want to ask anybody unless it would be
some member of the Joint Committee.
TVN
Well, that's in to you. You bring anybody you
feel you'd like to.
D:
Well, that's fine. And when did you BRY, a cuarter
to three?
HWr:
No, three o'clock.
D:
Three o'clock at your office.
HWr:
That's right.
D:
I'll be right there.
MJr:
On Monday.
D:
Yeah. I'll be right there Monday, and I think we
just want to get the truth about it.
Wr:
I -- I'm gled to, and I'll be delighted to sit
down with you.
232
- 6 -
D:
Well, that's fine. Thank -- after we hear them
why then you and I can talk.
HMJr:
That's right.
D:
Fine; thank you, Henry.
HMJr:
Fine.
233
February 29, 1940
11:38 a.m.
HVJr:
Hello.
Operator:
The Attorney General,
H/Jr:
Thank you,
0:
Go ahead.
HMJr:
Hello.
Bob
Jackson:
Hello.
HWr:
Henry.
C:
This is Bob.
MJr:
Hello, Bob.
J:
This delay out there W&B apparently due to the
fact that Nolan wanted to refer the petition
which your people prepared and handed to him
here before he would take the responsibility
of filing it, end ithas come to my attention
this morning. And I think there 18 a great
question whether the -- whether your Department
wants, and I'm very sure ours doesn't want, to
file that in the form that it's in.
HMJr:
I see.
J:
Now, here's what it does: It will be very sensa-
tional if it's filed in this way and it raises --
in 1t are questions that were asked by -- in the
testimony that's proposed to be filed
HMJr:
Yes,
J:
questions that are asked about McNutt's
Presidential campaign which will certainly give
color to the theory that he's being pursued be-
cause of that. Another question 18 about the
gift of 8 rich -- of & wrist watch to Senator
Minton; another is about the -- what's referred
234
- 2 -
to by the Agent 88 the coming out party of "eNutt.
Uh-huh.
J;
And I think It does give color to the theory that
it's -- that there's 8 little political direction
to it.
HWr:
I see.
J:
Now I think that thing ought to be carefully revised
so that it looks like 2 nure, legal proceeding
against this one man who has refused to testify
rather than
mir:
That's Bowman Elder.
11ke -- yes, Rether than like P. political
blast at somebody else. AB you know, I have no
time for him and I'm -- he wouldn't be even my
sixteenth cendidate.
"Ur:
Yeah.
But I think we ought to be -- lean backwards to
avoid the impression that we're trying to nersecute
hi-.
"Jr:
Well, that's the last thing in the world. I haven't
persecuted anybody since I've been here and I'm not
going to do it
J:
No, and I
Jr:
now.
J:
And I think this 1e open -- we must remomber that
the press will exaggerate the thing tremendously
because If they can make it look that we're after
him it will hurt both him and us. They'll be
delighted to do it.
MJr:
Well, I don't -- I haven't seen it and I dian't
know what W&B in 1t, but I did want you, as I told
you this morning, I thought it was important enough
for you to take 8 look at the whole matter.
235
- 3 -
J:
Yes, I'm glad you called me and I was glad it
came to my attention. And what I think should
be done is that somebody from Ed's shop or from
the Bureau, and somebody from here should sit
down and work out of it the -- the things that
might cause difficulty immediately and then get
it filed.
HMJr:
Well, I'm going to ask Ed to do it himself.
J:
All right, fine.
HMJr:
And take it -- now, who would he see over there?
J:
Clark.
HMJr:
Well, I'm going to ask Ed to do it himself.
J:
Fine, and I've asked Clark to give it personal
attention.
HMJr:
And then, I take it, after they've fixed it up
you'll take a look at it again, won't you?
J:
Take a look at it again and we'll put it right
through.
HMJr:
That'll be fine.
J:
Fine.
HMJr:
Thank you 80 much.
J:
All right.
HMJr:
Goodbye.
J:
Goodbye.
Regraded Uclassifie
236
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE February 29, 1940
TO
Secretary Morgenthau
FROM
Mr. Cochran
STRICTLY CONFIDENTIAL
Mr. Pinsent talked to me by telephone this morning at 11 o'clock. He stated
that a reply had now been received from his Government to the inquiry made at
our request in regard to the son of H. H. Kung. This individual wes reported to
have been connected in some way with the discovery in Hong Kong last September
of an illeal transmitting set belonging to the Central Trust. There were
arrests in October, followed by the imposition of fines upon several individuals.
Kung himself evidently was not brought to trial. He left Hong Kong. however,
under circumstances which Pinsent said were "not to his credit". Pinsent could
not state, from the message which be had received, that Kung was actually ex-
pelled. He said he might simply have been asked to leave. Pinsent knew nothing
about the identity of the "Central Trust".
A.M.P.
237
In reply address not the again of this
lesser, bex the Bareen of Supplies and
ONFIDENTIAL
Amounta and
Refer to No.
BUREAU OF SUPPLIES AND ACCOUNTS
WASHINGTON, D. C.
29 February 1940.
MEMORANDUM FOR THE SECRETARY OF THE TREASURY.
SUBJECT: Foreign sale of military aircraft by Douglas Aircraft Corporation.
The Aeronautical Board record indicates the following sales by the
Douglas Aircraft Corporation of military aircraft:
To the French:
Between 1/1/38 and 9/5/39
100 - DB7 and DB7A.
Between 9/5/39 and 1/31/40
270 - DB7 and DB7A.
To the British:
Since 9/6/39
1 - Douglas Transport.
To Canada:
Since 9/6/39
20 - Douglas Bombers (DB280).
To Iraq:
Since 11/1/39
15 - 8A-4.
To the Netherlands:
Since 9/1/39
18 - 8A-3N.
Relative to the news item appearing in yesterday morning's press
to the effect that the British had placed a 20million dollar order with the
Douglas people, I an informed that this recent order consists of 150 Douglas
Bombers, type BB-7B, powered with two Wright 1400 to 1500 horse-power engines.
These bombers are similar to the French type, but have approximately twice the
gasoline capacity. They are to be completely equipped with British type
radio, ordnance and other auxiliary equipment. The Vice President of the
Douglas Company advised me yesterday evening that negotiations for this order
have extended over a considerable period of time and prior to the formation
of the President's Liaison Committee. However, it is possible that Captain
Collins had knowledge of this contemplated order.
I am further informed that each of the types listed above had been
previously released through the State Department.
RAY STEAR
Rear Admiral, SC U.S.Navy
Member, Lisison Committee.
001 Captain H.E.Collins, Chairman,
President's Liaison Committee,
Procurement Division,
Treasury Department.
le raply address - - signed of -
law. box des of -
DENTIAL
1 1
Refere to No.
NAVY DEPARTMENT
BUREAU OF SUPPLIES AND ACCOUNTS
WASHINGTON, D. C.
29 February 1940.
MEMORANDUM FOR THE SECRETARY OF THE TREASURY.
Foreign sale of military aircraft by Douglas Aircraft Corporation.
The Aeronautical Board record indicates the following sales by the
Airoraft Corporation of military aircraft:
Treach:
1/1/38 and 9/5/39
100 - DB7 and D87A.
Between 9/5/39 and 1/31/40
270 - DB7 and DB7A.
itish:
Since 9/6/39
1 - Douglas Transport.
Since 9/6/39
20 - Douglas Bombers (DB280).
Trans
Since 11/1/39
15 - 8A-4-
Wetherlands:
Since 9/1/39
18 - 8A-3N.
Relative to the news item appearing in yesterday mortring's press
the effect that the British had placed a 20million dollar order with the
Designs people, I am informed that this recent order consists of 150 Douglas
Distors, type BB-7B, powered with two Wright 1400 to 1500 horse-power engines.
Made
bombers are similar to the French type, but have approximately twice the
capacity. They are to be completely equipped with British type
ardnance and other auxiliary equipment. The Vice President of the
boyles
Company advised me yesterday evening that negotiations for this order
Min
actended over & considerable period of time and prior to the formation
f
President's Liaison Committee. However, it is possible that Captain
had knowledge of this contemplated order.
I am further informed that each of the types listed above had been
released through the State Department.
RAY SPEAR
Rear Admiral, U.S.Navy
Member, Lixison Committee.
Deptain H.E.Collins, Chairman,
wident's Liaison Committee,
pocurement Division,
sasury Department.
to realy address - the - of -
know, last the Thursau of -
and
Rater to Na
NAVY DEPARTMENT
BUREAU OF SUPPLIES AND ACCOUNTS
WASHINGTON, D.C.
29 February 1940.
MEMORANDUM FOR THE SECRETARY OF THE TREASURY.
SUBJECT: Foreign sale of military aircraft by Douglas Aircraft Corporation.
The Aeronautical Board record indicates the following sales by the
Douglas Aircraft Corporation of military aircraft:
To the French:
Between 1/1/38 and 9/5/39
100 - DB7 and DB7A.
Between 9/5/39 and 1/31/40
270 - DB7 and DB7A.
To the British:
Since 9/6/39
1 - Douglas Transport.
To Canada:
Since 9/6/39
20 - Douglas Bombers (DB280).
To Iraq:
Since 11/1/39
15 - 8A-4.
To the Netherlands:
Since 9/1/39
18 - 8A-3N.
Relative to the news item appearing in yesterday morning's press
to the effect that the British had placed 6. 20million dollar order with the
Douglas people, I an informed that this recent order consists of 150 Douglas
Nombers, type BB-7B, powered with two Wright 1400 to 1500 horse-power engines.
These bombers are similar to the French type, but have approximately twice the
garoline capacity. They are to be completely equipped with British type
radio, ordnance and other auxiliary equipment. The Vice President of the
Douglas Company advised me yesterday evening that negotiations for this order
have extended over a considerable period of time and prior to the formation
of the President's Liaison Committee. However, it is possible that Captain
Collins had knowledge of this contemplated order.
I am further informed that each of the types listed above had been
viously released through the State Department.
RAY SPEAR
Rear Admiral, SC U.S.Navy
Member, Lixison Committee,
1 Captain H.E.Collins, Chairman,
President's Liaison Committee,
Procurement Division,
Treasury Department.
Regraded Uclassi
240
February 29, 1940
I tried to phone Mr. Purvis, but found he was
in Ottawa. I was going to read to him the attached
Dow-Jones ticker and tell him that at the press con-
ference this morning the newspaper men went after the
Secretary hard and inasmuch as there were 80 many
runors, HM,Jr felt that it would be to their mutual
advantage for HM,Jr to give the attached story. I
was going to add that the Secretary gave them this story
for background and that he only gave it to them because
they pressed him very hard and that HM, Jr hoped Mr. Pur-
vis would be pleased with the statement as it came over
the ticker and that HM, Jr also hoped the results would
be beneficial.
H. S. Klotz
Regraded Uclassified
ALLIED AIR PROCUREMENT
241
WASHN - BRITISH AND FRENCH GOVTS HAVE NOT
YET DECIDED ON DETAILS OF THEIR CONTEMPLATED
BILLION DOLLAR AIRCRAFT PROCUREMENT PROGRAM
IN THIS COUNTRY IT WAS LEARNED AUTHORITATIVELY
TODAY
NEGOTIATIONS ON NUMBERS AND TYPES OF PLANES
WILL BE UNDERTAKEN AS SOON AS MEMBERS OF
THE ALLIED AIR MISSION NOW IN EUROPE RETURN
TO THIS COUNTRY If WAS FURTHER LEARNED - IN
MEANTIME IT WAS STATED ON HIGH AUTHORITY NO
DEFINITE PLAN IS IN EXISTENCE AND THE ONLY
DEFINITE DECISION THAT HAS BEEN REACHED
WAS THAT ANNOUNCED BY THE ALLIED PURCHASING
MISSION IN NEW YORK LAST WEEK TO EFFECT
THAT -VERY GREAT- QUANTITIES OF PLANES
WOULD BE PURCHASED IN THIS COUNTRY
IT WAS FURTHER LEARNED THAT THE MUCH
DISCUSSED PLAN TO PURCHASE ONLY THREE TYPES
OF AIRPLANES IN THIS COUNTRY WAS WORKED OUT
TENTATIVELY BETWEEN TH ALLIED MISSION AND
COMPANIES INVOLVED AND ESTIMATES WERE OBTAINED
ON PRICE AND DELIVERY SCHEDULES - THIS
SCHEME HAS BEEN LAID BEFORE ALLIED SUPREME WAR
COUNCIL AND WHILE IT CANNOT BE SAID THAT IT
HAS BEEN REJECTED DEFINITELY THE DATE FOR
PLACEMENT OF ORDERS UNDER THE TENTATIVE
OPTIONS GRANTED BY THE COMPANIES HAS PAS ED
AUTHORITATIVE QUARTERS HAVE TAKEN
THIS TO MEAN THAT THE PLAN DID NOT MEET
WITH APPROVAL OF ALLIED WAR COUNCIL
WHETHER IT MIGHT BE REVIVED IN FUTURE IS
OPEN TO QUESTION BUT A HIGH GOVERNMENT OFFICIAL
INSISTED TODAY THAT NO PLAN HAS BEEN DECIDED
UPON AND SAID IT WAS HIS UNDERSTANDING THAT
NEGOTIATIONS WOULD BEGIN ANEW AFTER THE RETURN
OF THE AIR MISSION WHICH is EXPECTED IN NEAR
FUTURE
UNDER THE TENTATIVE THREE-TYPE PLAN THE
ENTIRE PROCUREMENT PROGRAM WHICH INVOLVES PUR-
CHASE OF APPROXIMATELY 6 000 BOMBING PLANES
AND UPWARDS OF 2 500 PURSUIT SHIPS WOULD
HAVE BEEN PLACED WITH THREE COMPANIES - -
MARTIN DOUGLAS AND CURTISS-WRIGHT - THESE
COMPANIES WOULD THEN HAVE LET SUB-CONTRACTS
1145
TO OTHER MANUFACTURERS TO TURN OUT ONE OF THE
THREE TYPES BEING PURCHASED
MAIN OBJECTIVE OF THIS PROGRAM WAS SPEED
OF PRODUCTION AS RESULT OF STANDARDIZATION -
THE SCHEME HOWEVER DREW STRONG OBJECTIONS
FROM SMALLER SEGMENTS OF THE INDUSTRY AND
FROM CERTAIN ADMINISTRATION QUARTERS - AMONG
COMPLAINTS RAISED WERE THE CONTENTIONS THAT
THE PROPOSED PROGRAM WOULD HAVE A DETERRENT
EFFECT ON RESEARCH AND IMPROVEMENT AND WOULD
JEOPARDIZE U S BUSINESS WITH LATIN AMERICAN AND
OTHER FOREIGN PURCHASERS OF BOTH MILITARY AND
COMMERCIAL TYPES OF PLANES
-o-
Regraded
Uclassified
242
GROUP MEETING
February 29, 1940.
9:30 a.m.
Present:
.
Mr. Bell
Mr. Gaston
Mr. Graves
Mr. Schwarz
Mr. Sullivan
Mr. Thompson
Mr. Haas
Mr. Cotton
Mr. Cochran
Mr. White
Mr. Foley
Mrs. Klotz
H.M.Jr:
Were you sick yesterday, Harry?
White:
Well, I had 8. cold and was sneezing all over
the lot.
H.M.Jr:
How are you today?
White:
I am not sneezing.
H.M.Jr:
I knew you didn't have any minor vices.
White:
That is a compliment. My chief vice 18 that I
can't stand temptation.
S.M.Jr:
Harry, remember when I went to Scandinavia, &
memo on different countries? Do bring the Fin-
land one up to date. .I want to give it to
Mrs. Roosevelt. I would like to have it by
Monday. You see, all of these young youth
people are doing everything they can to stop
giving aid to Finland and I would like to give
her factual information to prove that Finland
is 8 democracy and send it down. All of this
Communist propaganda is going on about Finland
and about the Putsch of Mannerheim, and so on.
White:
Then you won't care about the recent events?
H.M.Jr:
No, I would like to know what kind of man he
is and what kind of man Ryti and Tanner are.
Ryti isn't 8. Fascist. They have got this thing
all around.
White:
Mannerheim, they have got a good case on, but
we can leave him out.
243
- 2 -
H.W.Jri
Who has got B. good case which way?
multer
They are right, he was --
H.V.Jr:
well, he killed & lot of Communists in Finland.
Enite:
on, yes, years ago.
Yes, during their revolution.
Tille:
Yes, we can have that for you.
It is amazing, the propaganda which 18 going
around.
The other thing which I had this morning, which is
In the office here, I have asked the Attorney
General to bring U. S. District Attorney Nolan
to Washington for B. conference, which he has
agreed to do. He is going to let me know the
day he is coming and we will have our man in,
but I thought we had better have Nolan down and
give me & chance to talk to him, too. Jackson
felt that 1f any trouble is there, the mix-up
is in his office. I asked him to please get
Nolan in, which he has agreed to do now. I think
that is good, don't you?
Bullivan:
Very much 80,
1.0.3rg
that he didn't have the stuff.
fullivan:
I think somebody out there 1s talking.
I told him I thought it was important.
Thompson:
Kr. Harris' brother is still alive, although
there 1s little hope for him.
This idea of burying the man while he is still
alive is very nice.
Bulliven:
You said he was dead.
That was the report.
lots:
1100 didn't die.
244
- 3 -
H.M.Jrs
What else?
Thompson:
I have nothing else.
E.M.Jr:
I am still waiting, young fellow (Mr. Bell) for
that report on the debt limit.
Bell:
I brought it in.
H.M.Jr:
Where is the written report?
Pall;
I have got 1t. I have got EL statement showing
each date.
T.M.Jr:
Is it typed?
Ball:
Yes. It is all ready. It has been ready for three
days.
S.V.Jr:
It wasn't - well, what day were Currie and Harold
Smith in here?
Sell:
Tuesday. It was ready that evening. I went right
back to the office and worked on it.
H.M.Jr:
Well, do you want to see me about 1t today?
Bell:
Any time you say.
E.E.Jr:
Well, you haven't asked.
Bell:
I thought I told you yesterday that I was ready
any time that you were, didn't I, yesterday morning?
H.M.Jr:
Well, that happens every day. Bell and Haas, I want
this afternoon at 4:00 o'clock.
Poll:
Fine. I can get away from that Federal Farm Mortgage
meeting at 2:30.
U.K.Jr:
That is just & political meeting. You come back
here at 4:00 o'clock and I want suggestions on
how to refund and don't, for God's sake, George,
give me, "1f, and, and but." I want your opinion,
see. Don't give me alternatives. Put yourself
on the record, "This is what I recommend."
Hass:
I didn't want to appear biased. I will be biased
today.
245
- 4 -
H.M.Jr:
And that goes for you, too, Bell. I don't want
to read ten pages - if you do it this way and if
you do it that way. "This is what I recommend,"
please. I don't say write it, but come in and
say, "This is what I recommend." I will put my-
self on record, too. All right?
Bell:
Sure.
H.M.Jr:
Harold?
Graves:
Nothing.
H.M.Jr:
Harry?
White:
There was a note in last week's report from the
New York bank which you may have seen that Russia
has established some credits, some portion of the
25 million dollar sum which was transferred and
they didn't indicate whether it was half or minor.
They said they were going to look it up, but I
think it might be followed. I don't know who is
establishing credits here for Russia. Did you hear
anything further?
H.M.Jr:
Not a word.
White:
Merle, did you?
Cochran:
No. I can ask about it.
White:
You are going to find out?
Cochran:
I talk to Knoke usually once a week on that. I
can find out.
White:
Don't you think we ought to know who is establishing
it.
H.M.Jr:
Yes, definitely, and I wish those semi-monthly re-
ports on Amtorg that I get - I don't get them any
more.
Gaston:
We have a whole accumulation in Irey's office.
They come weekly.
B.M.Jr:
Could I see them weekly?
Regraded
246
- 5 -
Ceston:
Yes, you can see them weekly.
S.M.Jr:
Can I see the last one?
Daston:
Yes,
R.V.JM
Please.
Weston:
I will get it in to you right away.
E.K.Jr:
Then after that, can I see them weekly?
Inston:
Yes, indeed.
White:
There is B. cable that ceme in this morning dated
February 28 from Butterworth, which you may have
noticed, in which he quotes Chamberlain, Chancellor
of the Exchequer, in making some reference to
depreciation and I would like to call your atten-
tion to one or two significant points in connection
with it. One 18, he said in response to a question
from the floor that he could assure the honorable
member that currency depreciation will not be re-
sorted to as a means of stimulating exports. Then,
however, he goes on to say something that is rather
interesting - two things. One is, he said that when
the war broke out it was felt that sterling was
over-valued. You remember they said they couldn't
stop the fall of the pound, It was merely conse-
quences. lie now says that because it was over-
valued then, they felt 1t was wise to permit the
pound to fall to & rate which would represent the
true economic level. This 18 in support of what
I was holding at the time, that they thought it
should be lower.
A further significant fact is that he goes on to
say - he doesn't say this, Butterworth says it.
He says there is 8 good deal of comment that the
price movements, since presumably the pound fell
to represent what they call the true economic
level, have negated, have nullified most of the
effects of the original decline. I am not saying
that he isn't sincere in saying he is not going
to let it fall, but the point to be raised is when
he thought there was E. lower level represented
the true economic level and that the first chance
they had they let it go, they thought it was
desirable to let it 80, which was contrary to
Regraded
247
- 6 -
what we were led to believe and what many around
here thought.
Secondly, he will not use that method to promote
exports and thirdly, that B. new economic level
is being established which should call for B.
lower - still lower rate. Those three points, I
think, can be deduced from that cable.
H.M.Jr:
Either in a later cable or in B. French cable,
there is EL statement - I don't know which - that
they have not used up their advantage due to the
fall of the pound. Did you see that?
Cochran:
There were two messages last night.
H.M.Jr:
Yes, and that was rather unusual. Harry, I just
want to say this in passing, as B. side remark.
It was very well for Mr. Chamberlain four months
later to say what he did in September. His hind-
sight may be very much better than his foresight,
but I am not convinced, even with his remarks on
the floor of the House that he deliberately at
that time let the thing fall, because if I ever
saw B. demonstration of unpreparedness and not
knowing what they were going to do, I was con-
vinced that it was in September.
White:
I think you are right to say that it wasn't 8.
controlled or pre-managed drop.
E.M.Jr:
He says - I made B. statement and gave E. definite
reason why each day we raised the price of gold
to 35, and all the rest of the stuff.
White:
I think there is much in what you say, yet one
can't overlook this inherent fact.
E.M.Jr:
I am glad you pointed it out. There is an enor-
mously important cable came in seven sections in
the most confidential code last night and as soon
as it comes in I want Harry - has it come, yet?
Cochran:
No, sir, it hasn't.
H.M.Jr:
Feis called me twice last night and wanted to
come up. I had him finally read it and then
he summarized it for me. It is terrifically
Regraded Uclassified
248
- 7 -
confidential, all about gold, and you fellows
better in. read the damn thing as soon as it gets
White:
If the pound fell to its economic level, which
they claim is around 3.96 or four dollars, it
is not an economic level from their point of
view.
H.M.Jr:
You mean it ought to go lower?
White:
From their point of view. That doesn't mean it
will, but I say from their own evaluations or
judgments.
There was a statement in the report made by Madame
Perkins in her annual report about unemployment.
I don't know whether you happened to notice it or
not. There was quite 8. little discussion about
it around the group at which Lubin and others were
present B. couple of weeks ago and it referred to
the fact that - I am quoting from it now. "It is
now probably true that between four and five million
persons on any given date represent the normal turn-
over in industrial unemployment." They should not
be regarded as part of the unemployment. Most of
118 were much upset over that remark. There 18 no
basis for it. The factual material behind it is
very dubious, to put it conservatively, and we
felt it was a very unwise and unwarranted state-
ment. Lubin's defense was that he was out of town
when it was made end signed or he wouldn't have
let it go. I didn't know but somebody might call
your attention to that remark sometime in talking
of the unemployment.
H.M.Jr:
You will have to go further, Harry. I don't get
the significance.
White:
They say five million of the unemployed are the
normal amount of unemployed of men who are just
seasonal workers, are transferring from one job
to another, that even 1f you had prosperity they
wouldn't be taken in unless you had some inflationary
boom or war boom, but under normal prosperous con-
ditions you could expect that this five million
would be unemployed. I think 1t is e vicious and
unwarranted statement.
Regraded
249
- a -
E.K.Jr:
What do you think of the facts?
White:
I think the figures they use are twice as great
as they should be.
6.7.Jr:
What do you think it should be?
shiter
Oh, between two and three million at the very
most, and that difference of & couple of million
makes - when you say there 1s five million that
normally are unemployed and all you have got now
is six or seven, we are practically all fixed,
we are all right. In other words, we have no
unemployment problem, almost, that 1s the impli-
cation in that statement.
Justons
It is B. question of what they mean by normal,
Harry, whether it is El historical statement or
a statement of necessity.
White:
You raised & very significant point, but the
impression --
What was that?
Bsion:
I say, it is a question of what they mean by
normally, whether it is & historical statement,
if they are just meaning to say that in the
past we always have had about that number, or
whether they mean it is absolutely necessary
that we have to have four or five million un-
employed, even under the best conditions.
S.M.Jr:
The easiest way I know to get the President's
goat is to quote some unemployment figures.
White:
Look at what this does to the President. Our
unemployment figure is six or seven million
now and the President can shrug his shoulders
and say, "We have practically solved our unem-
ployment problem." I don't know whether he
would, but this leads in that direction and I
think it is bad.
E.K.Jr:
I am glad you mentioned it. It just forewarns
me.
White:
Yes,
Regraded Uclassified
250
- a -
What else?
Guite:
Rowe, who is Director of the Pan American Union,
to whom the suggestion we made with respect to
this Inter-Treasury bulletin - which he thinks
is 8. very good 1dea and we think is an excellent
idea to develop - came over to say that they
would very much like to see it go in. They have
no funds nor can they get any funds from Pan
American and we talked very tentatively about
costs, but before he wants to go any further,
I am raising the question with you now, how do
you want to proceed. It apparently - it appears
as though either this Treasury will have to foot
all or most of the bill, not all, but most of
the bill, if it wants to to forward with 1t, un-
less you want to get some kind of Congressional
action, and it probably will cost - I don't know,
but he talked in terms of around fifty thousand
dollars a year.
Why wouldn't that be a perfectly good thing for
this new bank to have as its publication:
Dite:
He raised that point as one of the possibilities
and it is one of the things you want to talk over
in connection with that. There are certain grave
disadvantages, I think. One is, it is a cost on
the bank which they start out with, but, secondly,
and more important, I think it 1s something that
has great possibility for Treasuries themselves
to get together.
NAME:
Let's lesve it this way. Some time when I see you
for some meeting, bring it up at that time.
Visa:
Yes. There 1s no immediate hurry. 0. E. That
is all.
H.M.Jr:
George?
I have nothing, Mr. Secretary, but this report
(handing report to Secretary).
1.Y.Jrs
Do you (Cotton) know all about the State Depart-
ment and this bill?
Regraded Uclassified
251
- 10 -
Cotton:
I know something about it.
H.M.Jr:
Would you sort of steep yourself with it? I
would be curious. And then if you stay behind,
I want to talk to you about this steel mill.
I want to read the memorandum.
Cochran:
I have nothing.
H.M.Jr:
John?
Sullivan:
The complaints that are arising out of B. recent
Treasury decision in regard to rubbing alcohol
are very, very extensive and the best solution
of the problem would be that we could find a
denaturant that would be approved by Public Health --
H.M.Jr:
Oh, 80 on. Do you know why I say that? I went
all through this the first two years I was here.
It is wood alcohol, isn't it?
Sullivan:
That is right, rubbing alcohol, but while you
were in Arizona you didn't go through it and
they are coming in with bushels of wires and
telegrams and everything and the trade is very
much distracted.
H.M.Jr:
What did you do that distracted them?
Sullivan:
The Treasury Decision ruled that no one except
the registered pharmacists can sell rubbing
alcohol, and of course the dry goods stores and
similar establishments, all the retail stores,
put up quite 8. fuss. Now, we are working on
denaturants and we sent two formulas to Public
Health. I think if you could talk with Dr. Parran
and --
H.M.Jr:
Now, listen. I am not going to get down to rubbing
alcohol. The person that worked on that with me
originally WAB Wollner, who is here as Consulting
Chemist to me. He is working under Harold Graves.
Was it you (Graves) or Mac went all through this
alcohol with me?
Graves:
I did.
H.M.Jr:
There is your expert. lie knows more about it
than anybody in the Treasury.
Regraded Uclassified
252
- 11 -
Sullivan:
If you will let me finish my sentence, I
think I have got B. good idea here.
H.M.Jr:
Yes.
Sullivan:
We send a formula over there and we don't
hear from it for two or three months. If
we could get permission from Parran to have
one of our chemists go over there and work
these formulas out with their men, I think
we would get some action and be able to
solve the problem.
H.M.Jr:
What do you want me to do?
Sullivan:
If you could talk with Parran and - or If you
could authorize me to talk with him for you.
H.M.Jr:
Sure you can, but I am not going to get down
to this thing.
Sullivan:
That is all right, if you want me to talk with
him and say that you --
H.M.Jr:
But before you do it, this man has been all
through this thing. Has he been consulted?
Sullivan:
No.
H.M.Jr:
Well, he knows more about it than anybody in
the Treasury and my suggestion is that you
and Harold Graves handle it and you have got
full authority.
Sullivan:
All right, fine.
White:
It is rumored that the original complaints came
from the Coca Cola people. Is that true at
all? They were using Coca Cola with the rubbing
alcohol and Coca Cola was getting & bad name.
That is the story I heard. I wonder 1f there
is any truth in it.
Sullivan:
No, they do use Coca Cola --
White:
With it?
H.M.Jr:
That is put out by Pepsi Cola.
253
- 12 -
White:
You can't tell these days.
H.M.Jr:
This fellow here (Graves) knows more about
this business than I know. I have spent
years on this, actually. I saw that wood
alcohol got a case. I went all through it.
Bob Jackson was interested in it, too, his
mountaineer fellows up in that part of Penn-
sylvania. I lived with that thing. It is
just like old times, but this man here - and
if you ever want to get - 1f you ever get
stuck on the question of labels, you know
the greatest living authority - do you want
to know who the greatest authority 1s? Mc-
Reynolds. We had 20 different bottles here
on my desk and Mac had them all worked out,
but on rubbing alcohol and wood alcohol, see
Harold Graves.
Sullivan:
Do you want me to wean him?
H.M.Jr:
When these things come back after all these
years, you can't blame me for forgetting a
little, but take this fellow, he has lived
with alcohol.
Sullivan:
This isn't coming back, this 1s just breaking.
H.M.Jr:
I still say he 1s willing to give the time and
he has. got all the background, but you have got
full authority to use my name as Secretary of
the Treasury any way you want to.
Sullivan:
Will you bring one of your samples?
H.M.Jr:
All right?
Sullivan:
Yes, sir.
S.M.Jr:
Call up Parran or anybody else.
Sullivan:
Thank you.
H.M.Jr:
You can even call up McNutt.
Sullivan:
Oh, you think he is going to need some, do
you?
254
- 13 -
R.H.Jr:
Either that or smelling salts. I don't think
it would be right to go to Parran without going
through McNutt.
Sullivan:
I didn't hear that suggestion. I guess I will
go direct to Parran.
R.Y.Ir:
All right. Anything else important?
sullivan:
That is all. Wait until you have one of those
delegations land on you. you =111 think 1t is
important.
I have been all through it. I have had these
delegations.
What 1s the matter, Ed?
Poley:
I will see you afterward.
P.M.Jr:
What is that, just B lapwarmer?
Poley:
This is for John and this is for you. I will
give it to you afterward.
Taston:
We are holding 8. meeting on political conventions
in a few minutes, at 10:00 o'clock. I think you
ought to know that we are - as we anticipated,
we are right now holding the bag on this Atlantic
weather reports. Admiral Land finds that he
can't go through with his part with Callshan and
that they would provide ships, so I think that
I will get hold of Callahan and probably hold a
meeting of all the people concerned. The arrange-
ment was this, that we would put the cutters on
this weather advice between the Azores and Ber-
muda temporarily contingent on Admiral Land try-
ing to find the money in his new appropriations
to provide ships which would be put on those
stations. Land now says that his lawyers advise
him that he can't use any of h1s funds for that
purpose and that he didn't get enough money, 80
he is just sort of waiving responsibility, so I
think we will have to --
M.M.Jr:
That means --
255
- 14 -
Gaston:
It means we are stuck with this weather patrol
until we can find some new arrangement, unless
we simply give them a cut off date and say
that after that date we won't provide it, but
I think before we make any such decision as
that we need to get hold of Callahan and the
other people concerned and see if we can't work
out something, and that is what we are proposing
to do.
H.M.Jr:
Well, in my younger days when I used to be am-
bitious, the Coast Guard was very anxious that
they have the supervision of radio and weather
off shore.
Gaston:
Still we have that in mind.
H.M.Jr:
I was wondering if you are going to have to do
this, couldn't you make that a condition, if
that is what you want?
Gaston:
I would like very much to do that, because I
think you are going to get into a serious situa-
tion of duplication if we have the Aeronautics
Authority handling light services and radio
communication, beacon services for Transatlantic
aircraft, and then you have a lighthouse system
for ships. It is just going to be B. duplication
of service.
H.M.Jr:
Are you on top of it?
Gaston:
Yes.
H.M.Jr:
All right.
Who is on my political committee?
Thompson:
Helvering and Gaston and Foley and myself.
H.M.Jr:
I see. Well, these are just a lot of amateurs.
We don't rate.
Sullivan:
What is the committee?
H.M.Jr:
The political committee.
Gaston:
You may need another man to dissolve B. tie
here.
256
- 15 -
Who is on that committee?
Baston:
Mr. Foley, Mr. Thompson, Mr. Helvering and
myself.
Well, when you want a couple of professionals,
John and I will get in on 1t. What else?
teston:
I think perhaps you are advised that on request
of the State Department all investigations of
Italian countervailing duty matters were 8110-
pended.
S.N.Jr:
Pending Mr. Welles' return?
Gaston:
Yes.
6.M.Jr:
Well, he has left.
Juston:
But that hasn't been released by the State
Department yet. They are doing nothing on
Italian matters at the present. The orders
to make some investigations were countermanded
by wire.
By whom?
inston:
Johnson.
148.Jr:
Well, he has gone away.
White:
Yes, he has gone. They rushed through an order
indicating that the Italian attitude was satis-
factory and they would not apply countervailing
duty. We didn't know at the time, but they
wanted it to get there right before Welles.
Had they told us --
".M.Jr:
All Mr. Hull asked me was not to do something
for the day or two Mr. Welles was there, which
was a perfectly courteous thing, SO I did it.
Thite:
That is takencare of.
Baston:
They could go ahead, then?
Cotton:
He is coming back to see Mussolini, isn't he?
You had better be careful.
257
- 16 -
H.M.Jr:
Here is a very interesting story I think
everybody should read by Herbert Matthews
on Welles' visit in Rome. It is very in-
teresting and not one of these hand-outs.
White:
That is right, Welles is coming back, but --
H.M.Jr:
Mr. Hull only asked me to do it in the two
days he was there, so I would go ahead.
Gaston:
We had a conference on opium reserve stocks
and the Customs agreed to provide space and
a special room in the appraiser's stores to
handle the overflow. The old Sub-Treasury
is chock-a-block full and they had to pro-
vide additional space, so they are taking
care of it.
H.M.Jr:
0. K. Any afterthoughts?
258
GENERAL E M WATSON
SECRETARY TO THE PRESIDENT
AT SEA
FEBRUARY 29, 1940
PRESIDENT SAID HE WOULD SEE ME ON MARCH THIRD. I WOULD
APPRECIATE IT IF YOU WOULD ADVISE ME TIME OF APPOINTMENT.
HOW MANY FISH DID YOU CATCH. REGARDS
HENRY MORGENTHAU JR
Prestricted2
(Sent to Mr. Forster at the White House for despatch)
SC SEAL
note:
259
have Can would
not accept this
message for transmission
for new copy to be trans-
mellay is arranging
mutted the what Home
260
TANDARD FORM No. 14A
TREASURY DEPARTMENT
APPROVED BY THE PRESIDENT
MARCH 10. 1925
WASHINGTON
TELEGRAM
CHARGE TREASURY DEPARTMENT, APPROPRIATION FOR
OFFICIAL BUSINESS-GOVERNMENT RATES
(The appropriation from which payable must be stated on above line)
GT.
# a INTERNATION nomes -
3-14117
GENERAL E M WATSON
SECRETARY TO THE PRESIDENT
3dN
AT SEA (VIA NAVAL COMMUNICATIONS) FBEURARY 29, 1940
PRESIDENT SAID HE WOULD SEE ME ON MARCH THIRD. I WOULD
APPRECIATE IT IF YOU WOULD ADVISE ME TIME OF APPOINTMENT.
HOW MANY FISH DID YOU CATCH. REGARDS.
HENRY MORGENTHAU JR
3T Truly
Horr
Regraded Uclassified
CTION
261
naval
COMMUNICATION
SERVICE
NAVY DEPARTMENT
RECEIVED AT ROOM 2629
DI 2900-EXT.07-197 07-197
FROM MILITARY AID TO PRESIDENT
2-29-46
TO
SECRETARY OF THE TREASURY
RESTRICTED ROUTINE
PRINTING OFFICE 4-7900
PRESIDENT SAYS IF YOU EXDECT TO BE IN WASHINGTON HE SUGGESTS
FOUR 0 CLOCK SUNDAY AFTERNOON, OTHERWISE MONDAY LUNCHEON
WOULD BE JUST AS GOOD.FINE TRIP, REGARDS,
BRIGEN WATSON
Phoned
262
FROM MILITARY AID TO PRESIDENT
TO
SECRETARY OF THE TREASURY
RESTRICTED ROUTINE
PRESIDENT SAYS IF YOU EXBECT TO BE IN WASHINGTON HE SUGGESTS
FOUR 0 CLOCK SUNDAY AFTERNOON, OTHERWISE MONDAY LUNCHEON
WOULD BE JUST AS GOOD.FINE TRIP, REGARDS,
BRIGEN WATSON
Regraded Uclassified
263
February 29, 1960.
20% dear Marriners
I was very Elik: to receive your letter of February 27,
because it Gives ne in opportunity to say to you frantly what I
think about your le ttar of February 9 to David Laneer, which was
published in the Bear York Times of Honday, February 26, a copy
of which, togother with Lasser's letter to you dated February 50
you were good enough to enclose.
I did make the statement or iv press conference on Monday
that : thought it would be a good Idea if both you and Lasser
were to road the President's Indget Bessage. The explanation of
that statement is, I think, quite simple. Lamer's questions to
you and your replies were directed to metors of budget and fiscal
policy. The budget and fiscal policy of the Administration for
the current and coming fiscal years were authoritatively outlined
in the Budget Message for the fiscal year 1941.
My OWN concern with Government fiscal policy, I think you
will agree, is as imediate as yours, but I should feel it dis-
tinotly improper for ne to attempt to indicate publicly ways in
which the President's fiscal policy could be improved. You say
that your letter was confined to statements of fact, but when you
point out that prior administrations were content with smaller
working balances - and without any attempt to explain the present
justification for a larger working balance - st second quite ovi-
dent to DE that you are, by inforence at least, criticising or
suggesting amendment of the President's fiscal policy. The same
inference is contained in your listing of other fiscal resources
that might be utilised.
you BET that you are at a loss to 000 how you could have re-
spended to the inquiry at all without giving these purely factual
assers. If you will permit ne to suggest, I think that you night
with entire propriety have responded that the matters of which Mr.
Lasser wrote and on which he sought information did not fall within
the sole jurisdiction of the Board of Covernors. Mr. Lasser's letter
ual g:swers to the questions be put are contained in Treasury publi-
doesn't give no the inpression that he was in search of facts. Fact-
ostions and his letter INM to indicate that he already had the
snowers. That he appears to have been seeking was to use the MD
and authority of & highly placed Government officer in support of
his propaganda for larger relief appropriations. If you had oon-
sidered this aspect of the matter carefully, I think you would not
have been surprised that he rade your letter public.
Regraded Uclassified
264
- 2 -
You regret that before giving you an opportunity to give
- the facts in the matter I made remarks at & press conference
"that cm only have the effect of stirring up adverse newspaper
comment." This, my dear Marriner, is, I must submit, putting the
cart before the herse. You had from about February 6 to February 26
an opportunity to give no the facts in the ratter.
But I should add 4 word about my press conferences. It is
very seldom that I volunteer mything, and then only when I have
- important announcement to make about Treasury business. I
didn't volunteer enything in this case. I was asked what I thought
about your letter to Lesser. I thought my comment was exceedingly
restrained. The newspaper man have learned that I don't talk at
conferences about matters that are outside of Treasury jurisdiction
and they don't ask ne to coment on what somebody else has said
unless that other person has been dealing with Treasury matters.
I didn't think I was justified in refusing to answer this particular
question. I - at a less to know how I could have enswered 1t differ-
ently.
I an no less anxious than you to avoid adverse comment and
newspaper controversy. It can be avoided if we both tick strictly
to our own knitting. I, for By part, intend to do this.
Sincerely yours,
(Signed) R. Morgenthau, Jr.
Secretary of the Treasury.
The Henorable Marriner S. Scoles,
Chairman, Board of Governors of the Federal Reserve System,
Washington, D.C.
HEG/mah
ORIGINAL FORWARDED TO ADDRESSEE
FROM OFFICE OF THE SECRETARY
By Messenger , 0 pm 2/29/40
Regraded Uclassified
265
February 29, 1940
10:
The Secretary
ron!
Mr. Rell
2-17
At our conference on Tuesday with Messre. Smith and Currie regard-
the recepture of some 5700H from governmental corporations and credit
during the fiscal year 1941 as contemplated in the 1041 Budget,
you seked ne to prepare & statement showing the estimated financial
position of the Government for the twelve-months period ending December 31,
Such E statement is attached.
00 will note that according to these estimates the Tressury will &
into the next fiscal year (July 1, 1940) with a working balance of $1, 100M;
135 the gross public Lebt will be 243, 426M: and that the balance of the
authorization under the Second Liberty Bond Act will be reduced
TO 1,31 m. These estimates include for the next six months, new money in
-- form of the Treasury offerius of 5500M on June 15th and 3150N for
account of the Reconstruction Finance Corporation in May.
-or the following six months ending December 31st, you will note that
- Teasury will end this period with E working balance of only 1505M,
2016 = gross mublic debt of 244, 359* and B balance of borroving authorize-
5100 of only S243H. The only new money raised during this veriod will lie
150- in July for account of the Commodity Credit Corporation and 120M
LVC Sentember for account of the U. S. Housing Authority.
These estimates do not include any part of the S700M which the Budget
contemplates recepturing from the governmental corporations end credit
concies: nor any part of the $142H balance of gold increment which WES
included in the working balance 18 estimated in the Budget document: nor
call estimate of additional taxes contemplated DV the Dudget: nor any
minotion in expenditures which ay result if Congress continues to reduce
las sporopriation estimates. Even if Congress should reduce the entro-
vistions by 83 mach BE, or more then, the amount of new taxes requested,
for reduction in expenditures caused thereby would code for the most
: efter January 1, 1941.
:: is important that some setion be taben before Congress leaves to
condo the governmental corporations and credit agencies to return the
71% to the Treasury before December 31st. Othervise, I do not believe
ye can go through January with a balance of $242W borrowing authority.
The would not even take care of the U. S. Savings Bonds that we would
normally nell during that month. Furthermore, the working balance of
95264 ¿oes not afford much leeway in an expenditure program such ES ve
are now carrying on.
DWB
Regraded Uclassified
266
STATEMENT INTERNATIS FOR THE PRID JANUSES N 1940 off
(1) N/T care DEVIDENTS, (2) TET CAPY ATAILABLE, (3) BALANCE 17 THE -ND OF EACH WINTH,
AND (4) GROSF THE CEBT ATD HALANCE F BORROWING AUTHORIZATION AT THE EVO OF EACH WWTH.
(In millions of dollars)
PUBLIC DEBT AND WIRROWING
NET CASH REQUIREMENTS
NET CASH AVAILABLE
WORKING
AUTHORITY AT END OF MONTH
SAVINGS 9.WDS
TOTAL NET CATH
GROSS PUBLIC
BALANCE OF
BALANCE AT
BUDGET
AGENCY, TAUST
TOTAL NET
à BAL-
AGENCY
WORKWING
DEFICIT
FUND, ETC.
CASH
ANCe AT
AND OTHER
AVAILABLE
80 OF MONTH
FINANCIVO
TRANSACTIONS
NINO (4) MOTH
DEBT RECEIPTS
(Abligated)
AUTHORIZATION
1940
January
407
407
1,709
324
1,566
42,110
2,770
3
I
2,033
42,405
2,435
February
364
71
135
1,566
345
-
1,911
1,476
March
68
B8
156
1,476
B6
1,562
1,406
42,401
2,411
I
April
510
BO
590
1,406
115
1,521
931
42,491
2,297
-
May
388
201
589
931
300
150KPC
1,381
792
42,776
1,989
June
140
131
271
792
579 1/
1,371
1,100
43,426
1,314
--
Total-Jan.-Jone
1,877
631
2,508
1,709
1,749
150
3,608
July
332
63
415
1,100
135
150000
1,385
970
43,634 2/
1,0%
August
211
54
265
970
303
-
1,273
1,008
43,922
763
September
61
54
135
1,008
52
20011 is
1,260
1,125
43,959
708
44,001
608
October
399
53
442
1,125
97
-
1,222
780
November
329
66
395
780
285
1,065
670
-
44,311
318
December
152
90
2/2
670
78
-
748
506
44,359
242
Total-July-Dec.
1,494
400
1,894
1,100
950
350
2,400
Includes 1500 a of new cash.
Includes an e non-case which Increase tent.
and the cuture - Oar Treasury lueaue - -
me registed we a 2, air
and salance, - to Mericage.
Regraded Uclassified
of CARL better
1940 M tes. 1963
(In MUles of milkes)
140
1940
January
hereby
-
Apr 11
1
I
hilp
Agai
Seguation
Deter
time
Dermber
January
April
If
-
Total
1,006
-
1,100
1,000
1,129
-
a
I
In
202
475
1/1/P
-
1,70
Valance - legisting of partal
1,704
1,566
1,4%
932
ym
General -
200
311
ace
252
an
680
301
393
mo
295
*
E
5
354
952
207
310
na
4,132
6
7
7
7
7
10
17
1
,
LD
That somets, are.
14
6
10
12
7
,
7
10
10
Children Insurvo -
33
m
1
32
as
30
105
27
103
,
R
100
-13
LA
vs
-18
742
7
1
129
1
is
Las
1
-
Comployment that Past
18
109
-
18
122
5
15
Le
1
15
124
1
17
0. 1. brigs -
27)
135
45
-
65
75
90
di
"
55
5
:
179
e
F
as
NS
E
1,638
.
-
-
-
-
Treasury attis (sditional)
-
-
-
-
-
-
.
-
-
-
-
-
.
500
Treasury and -
-
-
-
-
500
-
-
.
1
150
ARE
150
646
-
-
-
son
Invoice Please ing
-
-
.
-
-
.
-
- Corpuete, (gmaret).
Lat
114
120
75
R
66
100
76
#
E
F
11]
E
F
a
if
#:
y
1,549
-
-
I
-
-
.
Stiver airtificates
-
I
.
-
-
-
-
-
-
Total
2,499
2,362
2,500
1,861
1,799
2,123
1,79
1,747
1,993
1,600
1,439
1,472
1,129
1,050
1,93
435
-
-
11,7%
-
434
626
NO
507
134
573
11/18
(inclating receivery and value)
677
HS
706
era
BCS
NO
60
-
355
644
608
NB
16
8
to
R
10
207
R
20
195
et
10
us
a:
20
179
a
20
LA
1,654
Internet
$
or
1,00
- Carp. (garni)
4a
in
no
114
L2)
197
157
100
or
F
113
119
101
P
e
1
ammed Corporation Mandas
35
10
5
135
!
5
,
,
3
3
3
2
a
=
2
193
2
411
a
14
15
#5
M
15
5
a
Dues reduptions
15
1!
12
15
jo
N
15
10
я
13
2
-
-
-
LeD
LOS
35
5
4
-
-
-
-
-
Transury mills
a
21
3%
Trues do.
16
19
R
by
29
M
19
39
R
et
20
a
R
R
R
R
má
1,0%
129
945
1,003
125
741
en
N20
700
-
7VI
750
va
-
-
E
11,74
Total appellieres
IN
Inlance et - of partial
1,566
1,476
1,08
vii
792
1,100
E
1,00
1,125
"NO
ino
506
331
-
471
107
k
A
a
mentions
400
son
un
500
-
-
501
40
-
500
use
400
7,mo
300
ano
40
500
a
-
transacy bills
-
ATT
-
-
%
-
-
.
-
Type
2,00
738
-
-
F
-
-
Treatmery NEW
-
-
1
I
-
1/353
-
-
-
-
#
-
-
-
-
-
-
-
I
1
-
.
-
1
1
-
I
/
-
-
-
-
-
-
-
- - - Corporation.
-
-
1
-
-
-
-
-
-
.
-
-
-
Peteral for Carporation
-
I
-
-
-
il
-
-
-
-
-
-
I
-
Comunità Credit Corporation
-
-
-
77
-
-
-
.
I
-
-
X
.
#
-
-
I
,
Federal - Lean -
-
-
se
400
un
un
500
1,491
500
4TZY
att)
500
8
1,162
500
un
1,600
300
-
a
0,19
Brie - effect La given la tate statement to Me retire to Treasury airting floral year 3461 of $700,000,000 of capital Funda try generamental
M 5.m President *§ - at Immary 1440.
L/
Treatury 3-3/88 Temis of 1440-LF the June 15, 1943, callable - and after 1-0 It, 1940, - Tour withe
Transity 3-3/85 - of 1543-43 de March 15, 194), callande - and after Barch 11, 1941, - five notice.
office if -
issurary % 1940.
Regraded Uclassifie
TREASURY FINANCING
268
(Exclusive of regular Treasury Bills and special
obligations issued directly to trust funds)
(In Willions of Dollars)
MARCH 15
JUNE 15
SEPTIME 15
DECEMBER 15
TOTAL
1940
Notes
76
738
-
737
Bonds
1,904
-
353
-
.
1941
Notes
677
504
204
545
834 (8/1)
2,764
Bonds
-
-
1962
All Notes
426
-
342
232
1,000
1943
Notes
-
629
-
421
2,905
Tonds
-
454
1,401 (10/15)
-
1944
Notes
515
416
283
I
3,770
Bonda
1,519 (4/15)
-
-
1,037
1945
All Bonds
-
,
1,214
541
1,755
1946
#
489
819
-
-
2,344
1,036
1947
.
-
-
-
759 (10/15)
701
1,460
1948
.
-
1,223 - 51
-
2%
451
571
2,245
1949
.
.
-
-
-
491
S
2,277
1,786
1950
.
.
-
-
1,186 -52
-
1,186
1107
1951
.
.
-
1,627 54
755 -55
1,091
-
53
3,473
1952
-
I
-
-
1953
0
-
-
-
-
-
1954
-
-
.
-
-
1955
-
#
2,611 - 60
-
-
-
2,611
1956
.
.
982 -59
-
982
,
-
1957
-
-
-
-
I
1958
a
919-63
-
-
919
-
1959
-
-
-
-
-
1950
.
-
1,485 / 1.5
-
-
1,485
8,051
8,329
7,373
9,297
33,080
OFFICE OF UNDER SECRETARY
January 19, 1940
Regraded Uclassified
STRICTLY CONFIDENTIAL
TREASURY DEPARTMENT
269
INTER-OFFICE COMMUNICATION
DATE February 29. 1940
TO
Secretary Morgenthau
FROM Mr. Cochran
Mr. Leroy-Beaulieu telephoned from New York at 4:40 this afternoon. He had
arrived two hours earlier by an Italian steamship. He had been instructed tele-
graphically to inform the Secretary of the now arrangement between the French
Treasury and the Bank of France, as he had hoped to receive a message to be de-
livered to him by Mr. Pleven. The latter was scheduled to arrive in the United
States last Tuesday. but 1s still held at Lisbon awaiting a plane, 80 Leroy-Beaulieu
has no message from him. I told Leroy-Beaulieu that ve had received a communica-
tion from Minister Reynaud through Matthews. He presumed that this gave more than
no himself could tell us. Leroy-Beaulisu is coming to Washington tomorrow fore-
noon, however, to see the French Ambassador, and requested an appointment for the
afternoon to give Secretary Morgenthau a personal message from Finance Minister
Reynand in regard to prospective sales of dollar securities by the French. In
accordance with the Secretary's instructions, I told Mr. Leroy-Beaulieu that he
would be received tomorrow afternoon, but should telephone Lieutenant McEay at
2115 to ascertain the exact hour.
In answer to my question, Leroy-Beaulieu stated that Professor Rist should
arrive next week on the American steamship Washington.
R.M.
Regraded Uclassified
270
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE February 29, 1940
TO
Secretary Morgenthau
FROM Mr. Cochran
CONFIDENTIAL
The foreign exchange market became more active today as a weak tone
developed in the quotations for sterling, French francs and Dutch guilders.
Prior to the opening of the New York market, sterling declined in Amsterdam
from 3.94-1/2 to 3.93-7/8. The easier tendency abroad was attributed to disquiet-
ing reports regarding conditions along the Belgian and Dutch frontiers bordering
on Germany.
Shortly after the opening rate of 3.94 in New York, an order to sell a
large block of sterling was received by one of the New York banks from the Far
Sest. When received, this order carried a price limit which was above the market
and the New York bank advised its correspondent that it was unable to execute the
order. Although the order was again sent to the New York bank later in the day,
only a small portion of the sterling was sold. At about the time the order was
originally received, sterling began to decline and reached 3.93-1/2 in the early
forenoon. It remained at that level until mid-afternoon, then eased further to
close et El low of 3.92-1/2 on general selling.
Sales of spot sterling by the six reporting banks totaled L707,000. from
the Collowing sources:
By commercial concerns
L 295,000
By foreign banks (Europe. South America and Far East)
L
412,000
Total : 707.000
Purchases of spot sterling amounted to L554,000. as indicated below:
By commercial concerns
1 347,000
By foreign banke (Europe, Far East and South America)
in 207,000
Total I 554,000
The following reporting banks sold cotton bills totaling £38,000 to the
British Control on the basis of the official rate of 4.02-1/2:
L 35.000 by the Quaranty Trust Company
3,000 by the Chase National Bank
1 38,000 Total
The discount on sterling for one- and three-months forward delivery widened
today to 1-1/44 and 3-3/44 per pound respectively. as compared with yesterday's
close of 7/84 and 3-1/44.
Regraded Uclassified
CONFIDENTIAL
271
- 2 -
The other important currencies closed as follows:
French france
.0222-1/2
Guilders
.5313
Swies france
.2242-1/2
Belgas
.1687
Canadian dollars
13-7/8% discount
As shown in the list above, the French franc declined in sympathy with the downward
movement in sterling. Owing to the disturbing political news, the Dutch guilder
also showed a weak tendency all day. The quotation for the belga reached & low of
.1686-1/2 just before noontime but then received support from an order which was
sent to a New York bank from Holland to purchase 500,000 belgas.
Reversing its tendency of the past few days, the discount for the Cuban peso
widened today to 8-3/16%. The Mexican peso was unchanged at .1672.
The Federal Reserve Bank purchased 50,000 belgas for the Bank of Latvia.
There were no gold transactions consummated by us today.
The Federal Reserve Bank of New York reported the following shipments of
gold from England:
$ 2,252,000 shipped by the Bank of England to the Federal Reserve Bank of New York
for account of the Swiss National Bank, the disposition of which 1e
unknown at the present time.
757.000 shipped by Samuel Montagu & Company to the Bankere Trust Company, New
York, for sale to the U. S. Assay Office.
54,000 shipped by Samuel Montagu & Company to the Guaranty Trust Company, New
York, for sale to the U. S. Assay Office.
$ 3,063,000 Total
The State Department forwarded to us cables stating that the following gold
shipments would be made:
$ 13,311,000 from Sweden, representing three shipments by the Bank of Sweden to
the Federal Reserve Bank of New York for account of the Bank of
Sweden, the disposition of which is unknown at the present time.
2,258,000 from England, shipped by the Bank of England to the Federal Reserve
Bank of New York to be earmarked for the account of the Swime National
419,000 Bank. from Sweden, shipped by the Bolidensgruv Aktiebolag to the New York
Trust Company for sale to the U. S. Assay Office.
163,000 from Hong Kong, shipped by the Chartered Bank of India, Australia and
China, Hong Kong, to the Bank of California N.A., San Francisco, for
sale to the U. S. Mint.
147,000 from England, shipped by Samuel Montagu and Company to the Chase National
Bank, New York, for sale to the U. S. Assay Office.
$ 16,298,000 Total
Regraded
- 3 -
272
In London, the price fixed for spot silver rose 1/16a to 20-1/2d. The
forward quotation was unchanged at 20-7/16d. The U. S. equivalents were 36.394
and 36.10# respectively.
The Bombay silver quotation worked out to the equivalent of 41.12#. a
gain of 5/16#.
Handy and Harman's and the Treasury's prices for foreign silver were unchanged
at 34-3/4# and 35# respectively.
We made two purchases of silver totaling 200,000 ounces under the Silver
Purchase Act. Of this amount, 150,000 ounces represented a sale from inventory
by one of the refining companies, and the other 50,000 ounces were new production
from foreign countries, for forward delivery.
We also purchased 45,000 ounces of silver from the Bank of Canada, which
raises the total bought from Canada during February to the agreed limit of
1,200,000 ounces.
During the month of February, we purchased a total of 12,992,700 ounces of
silver under the Silver Purchase Act. The sources of this silver were as follows:
TYPE OF SILVER
OUNCES
New Production from Abroad
1. From Canada under agreement
1,200,000
2. From foreign countries
6,030,700
Secondary Materials
66,000
Inventory Silver
4,848,000
Trading Silver
848,000
Total
12,992,700
CONFIDENTIAL
B.M.S.
Regraded Uclassified
273
TREASURY department
INTER OFFICE COMMUNICATION
DATE Febr. 29, 1940
TO
Secretary Morgenthau
FROM
Mr. Haas BCA.
Reports of the Work Projects Administration show
2,306,000 employes for the week ended February 14, 1940,
an increase of 19,000 persons over the 2,287,000 reported
for the previous week.
Attachments
Regraded Uclassified
274
WORK PROJECTS ADMINISTRATION
Number of Workers Employed - Weekly
United States
Week Ending
Number of Workers
1939-40
(In thousands)
July 5
2,388
July 12
2,290
July 19
2,250
July 26
2,200
August 2
2,082
August 9
2,054
August 16
1,977
August 23
1,897
August 30
1,842
September 6
1,662
September 13
1,696
September 20
1,735
September 27
1,790
October 4
1,834
October 11
1,875
October 18
1,898
October 25
1,901
November 1
1,901
November 8
1,929
November 15
1,961
November 22
1,987
November 29
2,024
December 6
2,075
December 13
2,123
December 20
2,144
December 27
2,152
January 3
2,160
January 10
2,189
January 17
2,222
January 24
2,244
January 31
2,265
February 7
2,287
February 14
2,306
Source: Work Projects Administration
Regraded Iclassified
275
WORK PROJECTS ADMINISTRATION
Number of Workers Employed - Monthly
United States
Number of Workers
1937
(In thousands)
July
1,569
August
1,480
September
1,451
October
1,476
November
1,520
December
1,629
1938
January
1,901
February
2,075
March
2,395
April
2,582
May
2,678
June
2,767
July
3,053
August
3,153
September
3,219
October
3,346
November
3,319
December
3,094
1939
January
2,986
February
3,043
March
2,980
April
2,751
May
2,600
June
2,551
July
2,200
August
1,842
September
1,790
October
1,901
November
2,024
December
2,152
1940
January
2,265
Source: Work Projects Administration.
Monthly figures are weekly figures for the latest
week of the month.
They include certified and noncertified workers.
Uclassified
276
WORKS PROGRESS ADMINISTRATION
Number of Workers Employed
inited States
Monthly U.P.A. Employment
Weekly W.P.A. Employment
1935
1930
1937
1938
3
a
J
-
a
,
$
1939
-
,
la
1930
1939
1940
#
J
-
M.
a
$
"
J
M
M
-
1
N
MAR.
SAY
JULY
SEPT.
NOV.
JAN.
MAIL
MAY
JULY
SEPT.
NOV.
JM.
i
MILLIONS
MILLIONS
of
WILLIONS
OF
or
or
ERICES
WORKERS
WORKERS
WORKERS
3.5
3.5
3.4
3.4
12
3-2
3.3
3.3
3.2
3.2
1.9
2.0
1.1
3.1
3.0
3.0
1.4
2.4
2.9
2.9
2.8
2.8
1.0
2.0
2,7
2.7
2.6
2,6
2.5
is
2.5
1.5
IA
4.4
2.3
2.3
E
1.2
2.2
2.2
241
2.1
-
.8
2-0
2.0
1.9
1.9
1,8
-
.4
1.8
1.7
1.7
1.6
VAS,
à
o
1.6
MAR.
MAY
JULY
SEPT.
NON-
JAN.
MAI.
BAT
JULY
SEPT.
NON-
JAN.
JAN.
-
.
-
=
=
+
/
of
1936
1935
1940
E
an
N
1936
(937
1938
1939
SOURCES WORKS - ADMINISTRATION
z 221 of
Office at the Secretary of the Treasury
- - - and
Regraded Uclassified
TREASURY DEPARTMENT
277
INTER-OFFICE COMMUNICATION
DATE February 29, 1940
TO
Secretary Morgenthau
FROM W. H. Hadley
MARCH FINANCING
My recommendation for the refunding operation is:
(1) Reopen the Sept,1944 1% notes at 101 or 101-1/8,
and, (2) Offer a new 2-1/4% 13-16 year bond.
Reopen September 1944 notes:
Amount
Present
Outstanding
Offering
Market
Coupon
Term
(millions)
Price
Price
Premium
Reopen 1%
Sept.1944's
283
101
102.4
1 pt. 4/32
101-1/8
102.4
1 point
New Bond Issue:
Estimated
Offering
Market
Coupon
Term
Yield
Price
Price
Premium
2-1/4%
13-16 yrs.
2.13
100
101.12
1 pt. 12/32
2.15
100
101.4
1 pt. 4/32
An alternative recommendation, if an unsettled market should develop,
would bei
(1) Reopen the September 1% notes at 8. price.
and, (2) Reopen the 2% 1948-50 bonds at a price.
Regraded Uclassified
278
POSSIBLE NEW ISSUES
Notes:
Estimated
Offering
Market
Coupon
Term
Yield
Price
Price
Premium
3/4%
5 years
0.56
100
100.30
30/32
0.60
100
100.23
23/32
7/8%
5 years
0.56
100
101.17
1 pt. 17/32
0.60
100
101.11
1 pt. 11/32
Bends:
2%
10-12 yrs.
1.82
100
101.20
1 pt. 20/32
1.84
100
101.14
1 pt. 14/32
10-13 yrs.
1.86
100
101.8
1 pt. 8/32
1.88
100
101.2
1 pt. 2/32
2-1/8%
12-14 yrs.
2.01
100
101.7
1 pt. 7/32
2.03
100
101.
1 point
2-1/4%
13-15 yrs.
2.09
100
101.26
1 pt. 26/32
2.11
100
101.18
1 pt. 18/32
13-16 yrs.
2.13
100
101.12
1 pt. 12/32
2.15
100
101.4
1 pt. 4/32
133-15} yrs.
2.12
100
101.15
1 pt. 15/32
2.14
100
101.8
1 pt. 8/32
REOPENING OF OLD ISSUES
Amount
Present
Outstanding
Offering
Market
Coupon
Term
(millions)
Price
Price
Premium
r.Notes 1%
Sept.44's
283
101
102.4
1 pt. 4/32
101-1/8
102.4
1 point
Tr.Bonds 2% 1948-50's
571
101-3/4
103.4
1 pt. 12/32
102
103.4
1 pt. 4/32
Tr.Bonds * 1951-53's
1,107
101-1/2
102.30
1 pt. 14/32
101-3/4
102.30
1 pt. 6/32
279
February 29, 1940.
MEMORANDUM
TO:
Secretary Morgenthau NAG
FROM:
Mr. Gaston
I am attaching reports of the Amtorg general and
payroll accounts for the weeks ending February 10th and
February 17th.
There is also attached a list by Commander
Thompson, taken from the transcripts of the bank account,
which shows payments to the Whipple & Choate Company for
molybdenum. Mr. Cochran has given you memoranda on this sub-
ject. Another memorandum attached deals with industrial diamonds.
Customs reported today that there is no more molybdenum
in storage at Los Angeles. 2,328,971 pounds were exported on
Norwegian Steamship TUNGSHA, December 21, and 442,789 pounds on
the Russian Steamship VIADMIR MAYAKOVSKY on February 8.
Regraded Uclassified
280
February 29, 1940.
MEMORANDUM
TO:
Secretary Morgenthau
FROM: Mr. Gaston
I an attaching reports of the Amtorg general and
payroll accounts for the weeks ending February 10th and
February 17th. There is also attached a list by Commander
Thompson, taken from the transcripts of the bank account,
which shows payments to the Whipple & Choate Company for
molybdenum. Mr. Cochran has given you memoranda on this sub-
ject. Another memorandum attached deals with industrial diamonds.
Customs reported today that there is no more molybdenum
in storage at Los Angeles. 2,328,971 pounds were exported on
Norwagian Steamship TUNGSHA, December 21, and 442,789 pounds on
the Russian Steamship VLADMIR MAYAKOVSKY on February 8.
Regraded Uclassified
10/40
787,415.63
60.00 - Cross Gear & Machine Co.
248.67 - C. J. Tagliabue Mfg. Co.
268.32 - Harlem Lumber Co. Inc.
591ml
54.72 - Olson Marine Surplies Inc.
3,778.50 - Ingersoll Milling Machine Co.
1,073.19 - The Ideal Electric & Mfg. Co.
1,848.50 - Guaranty Trust Co.
190.55 - The Fellows Gear Shaper Co.
750,000.00
157.49 - Arthur H. Thomas Company
1,583.63 - To meet eventual drawings against -
L/C #25867 - Heald Mochine Co., Morcester, Moss.
4,551.41 - To meet eventual drawings against -
L/C #25933 - Fellows Gesr Shaper Co.,Suringfield,Vt.
407.88 - Mason-Neilan regulator Co.
246.37 - John Been Mfg. Co.
7,549.74 - Schweb Brothers Corp.
20,000.00 - J. Montezinos
375.23 - Snop-on-Tools Corp.
1,515.00 - Commercial Engineering Laboratories
99,190.89 - N.Y. Trust Co.
48,874.97 - N. T. Trust Co.
8,944.94 - Irving Truet Co.
38,793.05 - N. Y. Trust Co.
10,448.92 - To meet eventual drawings against -
L/C #25935 - Allegheny Ludlum Steel Cor.,NY
2,704.64 - To meet eventual drawings apainst -
L/C #25936 - Sundstrand Machine Tool Co.,
Lockport, Ill
801.59 - To meet eventual drawings against -
L/C #25282 - Sundstrand Machine Tool Co.
40,123.14 - Draft - G & N Trading Co.
15,722.00 - Duquesne Smelting Corp.
23.46 - Norma-Hoffmann Bearings Corp.
253.77 - General Motors Overseas Operations
239.23 - General Motors Overseas Operations
49,603.28 - Moore-McCormack [ines Inc.
2,950.00 - American Machine & Foundry Co.
100,811.48 - Revere Carner & Brass, Inc.
6,570.36 - Draft-Blanchard Machine Co.
60,050.98 - To meet eventual dramings against -
L/C #25977 - Bilgram Gour & Muchine Barks
Philo., Ps. $3,906.50
L/C
1
L/C
L/C
Mexico,
18,206.10 - Irving Trust Co.
9,635.34 - Chemical Bank & Truet Co.
14,401.98 - Chemical Bank & Trust Co.
1,393.28 - Howell Electric Motors Co.
25,003.44 - Schwob Bros. Corp.
26,043.72 - Pope Trading Corp.
11,776.64 - Moore-McCormack Lines Inc.
2,343.77 - American Waul Stock Corp.
41,110.99 - Faster Machine Co.
3,527.33 - Independent Pneumatic Tool Co.
5,402.25 - The Carborundum Co.
407.49 - The E. Borton & son Co.
507.37 - Wysenbeek & staff Inc.
38,672.32 - The Whipple & Choste Co.
16,356.08 - Driver-Harris Co.
41,281.83 Standard Oil Co. of California
4,383.72 - E. E. Androvette
- Draft National Tool Co., Cleveland
16,079.22 5,525.14 - - Draft - - National Tool Co., Cleveland
(2/10/40 - Cont.)
882
par
4,586.70 - National City Bank
$500,000.00
12,210.03 - New York Trust Co.
125,429.56 - New York Trust Co.
1,356.30 - National City Bank
500,000.00
4,705.48 - Chemical Bank & Trust Co.
3,391.75 - To meet eventual drawings against -
L/C #25996 - Hammond Mfg. Co.Cleveland, Ohio
20.50 - Reed Prentice Corp. Worcester
1,627.39 - To meet eventual drawings against -
L/C #23198 - Ex-Cell-0 Corp.,Detroit, Mich.
Balance 2/10/40 - $ 787,415.63
Credits
- 1,750,000.00
2,537,415.63
Debits
-
965,401.62
Balance 2/16/40 $1,572,014.01
Regraded Uclassified
n
283
2/10/40
$18,006.59
$ 89.10 G. Nurox
54.45
Sema Levine
66.83 E. Morris
148.50 J. Ohsol
86.62 J. Lewin
155.92 Y. Sharov
54.45
M. Vergun
25.16
M. Vergun
81.67 L. Weiss
81.68
F. Papert
184.75 K. Novikov
144.79
N. Yegorov
74.25
A. Selby
186.61
V. Kalinin
93.56
K. Gasonova
79.20 T. Swan
133.15
V. Teyganov
133.16
C. Lissitsyn
133.16
V. Bogatchev
85.75
L. Krysak
86.62
J. Kaplan
73.50 B. Dansker
85.75 M. Zaret
24.75 J. Rubin
69.30
R. Engelbourg
123.75 B. Gourin
85.75 L. Greeze
85.75
A. Rubinstein
74.25 L. Cashuk
139.59 S. Malov
74.25 J. Kenner
145.53 S. Kouzin
133.16 I. Zouev
11.88 Leon Rutman
175.73 P. Vinnikov
Regraded Uclassified
$88.20 C. Golosman
591.70
74.25 M. Kroll
123.75 J. Budish
85.75 N. Chirchin
54.45 C. Ross
85.75 B. Wolk
36.75 N. Pedoseeva
73.50 P. Litvackova
90.65 A. Morin
85.75 A. Bronstein
85.75 U. Shuldiner
172.75
A. Fedoseev
133.15 I. Maslakov
133.16 I. Maslakov
133.15 I. Maslakov
53.46 S. Joukov
106.43
A. Dondin
175.73 A. Krutchkov
104.76 M. Vinnikov
23.42 P. Vinnikov
175.72
S. Seminov
181.17 V. Ignatiev
49.50 A. Grigorieva
50.31 T. Beymann
85.75 A. Gamburg
207.41 0. Rubanoff
122.26 P. Kashin
199.49 A. Petrov
26.73 M. Riabtchitski
$11,505.37
2/16/40
2/10/40: Opening Balance - $18,006.59 -0-
Total Credits
-
18,006.59
Total Debits
6,501.22
2/16/40:
Closing Balance
$11,505.37
Regraded Uclassified
/17/40
61,572,014.01
117,849.23 - To meet eventual drawings against -
L/C #26033 - Westinghouse Electric
International Co., NYC
15,290.09 - Transfer to Regular Account
198.00
3,000.00 - General Steamship Corp.
146,233.21 - American Smelting & Refining Co.
40,054.62 - G. & N. Trading Co.
34,062.12 - Cone Automatic Muchine Co.
23.51 - Eastman Kodak Company
750.00 - Morgan Construction Co.
5,117.75 - Norton Co.
65.26 - Hygrade Sylvania Corp.
624.01 - The L. S. Starrett Co.
232.89 - The Fellows Gehr Shaper Co.
25,897.45 - National Broach & Wechine Co.
662.71 - Ford Wotor Co.
281.60 - Wilson Mechanical Instrument Co. Inc.
581.55 - 7enith Carburetor Division, Bendix Aviation
750,000.00
Corp.
75.90 - American Air Filter Company Inc.
14,890.77 - Gogen. Vachine Corp.
450.00 - Special Tool Engineering Works Inc.
75.89 - Firestone Tire & Rubber Export Co.
4,009.42 - E. I. du Pont DE Memours & Co. Inc.
679.15 - The E. Horton & Son Co.
320.62 - General Flectric %-Ray Corporation
8,617.14 - Cleason Yorks, Inc.
340.16 - Weston Electrical Instrument Corp.
27,452.15 - The Pallows Good Sheper Co.
283,364.55 - B. J. Schwebech Co.
6,156.25 - To meet eventual drawings egainst -
L/C #24631 - Creenlee Bros. & Co.,Rockford,Ill.
37,460.84 - To doet eventual drawlers against -
L/C #26091 - Supedtrant Gachine Tool Co.,
Reckford, Ill.
268.47 - To meet eventual drawings against -
L/C #25936 - Sundationd Mochine Tool Co.,
Rockford, Ill.
1,715.77 - Cornell-Dubilier Electric Corp.
12,973.50 - Transfer to Regular Account
1,600.00 - General Steenship Corp.
3,412.22 - The Ideal Electric & KSR. Co.
750,000.00
750.00 - Moore - McCorwack Lines Inc.
1,926.28 - Gleason Works
331.05 - The De Vilbiss Co.
254.10 - Howell Electric Motors Co.
967.93 - Howell Electric Motors Co.
2,000.00 - Detroit Tap-& Tool Co.
7,535.71 - City Pettern Lorks
21,054.12 - G & N Trading Do. Inc.
14,449.63 - National Broach & Méchine Co.
430.00 - Central Henover BOT
362.36 - National City Bk
204.33 - Central Hanover B & T
22,057.43 - Chemical Bank
29,850.33 - N. Y. Trust
24,506.49 - N. X. Trust
10,221.53 - Central Hanover B & T
24,491.45 - N. T- Trust
84,264.91 - N. 1. Trust
1,502.39 - General Steamship Corp.
111,664.00 - SS "Wildwood" (Amer. Foreign Steenship Corp)
4,055.70 - Norton Co.
62,987.35 - International Retal Co.
500,000.00
50,000.00 - Consolidated Aircraft Corp.
7,668.00 - National Acme Co.
2,200.00 - General Steamship Corp.
Regraded Uclassified
285
/17/40 Cont.)
$ J55ml
7,493.84 - Weston Elec. Instrument Corp.
13,112.50 - National Acme Co.
180.76
50,784.72 - Philipp Bros. Inc.
204,263.37 - Revere Copper & Brass, Inc.
26,040.00 - Pope Trading Corp.
395.00 - Huber Pump Co. Inc.
147,872.85 - Continental Grain Co.
2.05 - General Steamship Corp.
139,435.52 - E. J. Schwabach & Co.
139,432.28 - E. J. Schwabach & Co.
Balance 2/17/40 - $1,572,014.01
Credits
- 2,000,378.76
3,572,392.77
Debits
- 2,009,156.02
Balance 2/23/40 - $1,563,236.75
Regraded Uclassified
287
#1
95ml
2/17/40
$11,505.37
$ 35.27 H. Osherow
111.38 K. Sobolev
159.89
P. Fedosimov
24.60 B. Gourin
224.24
A. Rostarchuk
85.75
L. Levenson
68.60
R. Ronick
85.75
K. Amatneek
85.75
A. Gochfeld
129.21
M. Tcherkassov
129.19 M. Tcherkassov
1.48
H. Machok
79.20
E. Kalinin
53.46
A. Shubina
145.53 S. Kouzin
199.49
I. Morozov
170.30 E. Finick
99.00
A. Vislousov
85.75
M. Moshinsky
23,000.00
79.20 M. Katz
79.20 M. Katz
133.16
A. Migounove
93.56
V. Poverenny
79.20 M. Katz
111.38
J. Feinstein
207.40
0. Rubanoff
145.53
V. Gapouzin
79.20
N. Khinatch
79.20 Z. Krutchkova
79.20 I. Swan
79.20
L. Gorelova
54.45 S. Levins
61.88 M. Evans
84.15 L.Butzen
Regraded Uclassified
288
$144.79 N. Yegorov
207.41 P. Baranov
175.73 S. Seninnov
56.93 E. Kochta
59.40 I. Weinstein
49.50 A. Krieger
54.45 G. Marcus
93.56 S. Bochkareva
49.50 A. Grigorieva
34.86 H. Steffen
61.88 F. Berk
54.45 M. Ostlund
81.68
F. Papert
123.75 B. Gourin
71.78 A. Dixon
86.62 J. Lewin
103.95 B. Solasko
173.25 S. Seidenbond
79.20 M. Mokrove
133.16 V. Rezak
48.16 L. Adomian
93.56 L. Rezak
29.11
Selma Bernstein
98.01 R. Koudriavtzeve
56.93 M. Cohen
123.75 M. Udel
89.10
J. Finkelberg
139.59 E. Sergeev
106.43 A. Nikolskaia
74.25 A. Selly
186.61 V. Kalinin
145.77 K. Sobolev
167.06 A. Anisimov
111.38 H. Wilson
Regraded Uclassified
#1
595mg
$ 81.68 H. Osherow
106.43 R. Freedman
159.89 G. Odrov
56.93 J. Verbit
186.61 N. Strigin
222.75 K. Lukashov
219.29 T. Ivanov
86.62 A. Gorinstein
123.75 J. Budish
69.30 V. Vergun
199.49 M. Gousev
98.01 S. Shishkina
93.56 E. Golovina
49.50 B. Radin
54.45 F. Zalon
111.38 R. wittenberg
81.68 R. Moskowitz
69.30 A. Schumacher
74.25
Lucien Rutman
20.79 N. Balagupchik
74.25 H. Bowlen
69.30 J. Carbus
79.20 E. Class
69.30 H. Kachok
89.10 I. Liener
81.68 L. Elion
191.57 N. Fomin
74.25 E. Hartman
64.35
F. Squire
106.42 L. Ivanova
183.65 Ivan Stepanov
79.20
M. Yegorova
86.63 M. Bernstein
Regraded Uclassified
69.30 J. Rubin
290
59524
$159.89 M. Riabtchitski
74.25
R. Bidner
69.30 A. Tchertkow
59.40 R. Chodrow
94.05 H. Lipman
49.50 Y. Anschein
69.30 J. Simon
89.10
P. Janson
99.00 N. Post
74.25 P. Gold
81.68 H. Isaacson
59.40 J. Goldsmith
81.68
K. Rottger
159.89
I. Agapov
159.89 I. Agapov
207.40
Ilya Stepanov
74.25 S. Geneson
111.38 B. Levins
204.93
A. Vislousov
145.53
A. Shurupov
159.89
S. Konstantinov
159.89
P. Fedosimov
74.25 S. Friedenberg
81.68
W. Jacobson
99.00
T. Everett
172.76 G. Amosov
64.35 D. Gewirtz
66.83 N. Bell
54.45 M. Ruderman
81.68 J. Isaacson
69.30 F. Lees
159.89 B. Glybin
93.56 A. Shurupova
56.93 H. Balagurchik
Regraded Uclassified
#1
291
$139.59 S. Valov
86.63 A. Svenchansky
69.30 R. Eisenberg
54.45 H. Zucker
159.89 Y. Mokrov
2/23/40
$20,207.81
2/17/40 Opening Balance - $11,505.37
Total Credits - 23,000.00
34,505.37
Total Debits - 14,297.56
2/23/40 Closing Balance - $20,207.81
Regraded Uclassified
292
treasury department
WASHINGTON
February 29, 1940.
MEMORANDUM FOR MR. IREY:
A check-up of the Amtorg matter reveals the payments made to the
Whipple & Choate Company as follows:
11/13/39
$ 57,438.13
11/13/39
58,202.35
11/20/39
79,648.80
12/23/39
17,496.22
12/23/39
7,174.30
12/30/39
43,352.70
1/6/40
35,810.06
1/6/40
14,900.08
1/6/40
59,484.02
1/13/40
14,367.47
1/13/40
116,482.47
1/13/40
28,335.06
1/13/40
28,851.72
1/13/40
27,283.45
1/13/40
11,818.56
1/13/40
21,575.47
1/20/40
27,163.75
1/20/40
37,825.11
2/3/40
28,815.57
2/3/40
16,579.81
2/10/40
38,672.32
Total
$575,988.14
The last payment to the Climax Molybdenum Company, for the week
ending November 20, 1939, was $646,156.08.
B. M- I Thompson.
293
TREASURY DEPARTMENT
WASHINGTON
February 28, 1940.
MEMORANDUM FOR MR. GASTON.
Commander Thompson in looking over the
Amtorg accounts yesterday found two items of
purchases by Amtorg from the Mogor Industrial
Diamond Corporation in the amounts of $33,350.73
and $8,010.00, or a total of $41,350.73. These
purchases appear in the statement for the week
ended November 13, 1939. As I told you this
morning, we have not been doing anything further
on the commercial diamond matter since you re-
ferred it to Mr. White, but I am to-day communi-
cating with New York to learn of any further
developments in the matter of the sales which
were under consideration at the time of our last
be promptly advised.
inquiry. Upon the receipt of a reply, g/st you will
Regraded Uclassified
294
HSM
PLAIN
London
Dated February 29, 1940
Rec'd 11 a. m.
Secretary of State,
Washington.
495, Fabruary 29.
FOR TREASURY FROM BUTTERWORTH.
1. REference my 486, February 28. Asked in the
House of Commons whether hE was aware that the inadequate
response of the holders of the 41 percent loan to the
recent 2 percent conversion offer (SEE paragraph 1, my
378, February 13) was largely due to the widespread belief
that the Treasury 1s unable or unwilling to Enforce a
thorough-going policy of cheap money and whether he is in
8. position to assure the House of Commons that the Govern-
ment will take timely steps to restore confidence in the
cheap money policy before issuing any big loan, the Chan-
cellor of the Exchequer replied:
"So far from being regarded as being inadequate, the
response to the conversion offer was in fact extremely
satisfactory having regard to the great reduction made in
the interest rate. I do not think that the House needs any
further reassurence from me that the policy of His Majesty's
Government
295
hsm -2- No. 495, February 29, from London
Government continues to bE one of favouring the lowest
possible interest rates."
2. Although the details are not yet available on
the South African Government's budget proposal to CESSE
preempting the amount above 150 shillings an ounoe on
gold and to lEVY a new tax on profits, gold mining stocks
in London have appreciated considerably, particularly
those of marginal or low grade ore productrs. For it
seems clear that by abandoning what was in Effect a heavy
direct levy on gross revenues gold production will bE
increased. From a market point of view gold mining stocks
likewise are now thought to have some utility as 8 hedge
against inflation.
3. That such an amount 08 the 618 million Australian
Government loan could bE easily raised in the Australian
market 13 regarded here as being due to the Easier money
conditions created (a) by the recent part payment by the
British Government for the Australian wool clip and (b)
to the fact that the last loan of ₺12 million was taken
up directly by the Commonwealth Bank and the operation
thus had the Effect of releasing credit.
JOHNSON
CSB
Regraded Jclassified
296
HSM
PLAIN
London
Dated February 29, 1940
Rec'd 11:25 8. m.
Secretary of State,
Washington.
496, February 29.
FOR TREASURY FROM BUTTERWORTH,
Last night Maynard KEYNES addressed in the HOUSE
of Commons one of the largest private meetings ever hEld
of members of Parliament on his latest scheme for financing
the war (SEE paragraph 2, my 432, February 21, 5 P. m.)
copies of which will go forward by pouch as soon 89 printed.
His clucidation of his proposals EVOKED sufficient response
from thE 250 members of all parties to result in a request
for another meeting. Whether these discussions and those
being conducted in Parliament, the press and in private
will lead to the acceptance of KEYNES' or some other con-
certed plan of action remains to bE seen. But the very
improvement of popular Economic knowledge which would
make it easier to apply a comprehensive financial policy
18 also depriving this country of that protective cover
of ignorance which successfully carried it through the
crisis of 1931.
Incidentally
Regraded Uclassified
297
ham -2- No. 496, February 29, from London
Incidentally Lord Hankey, speaking on behalf of the
Government, in a debate in the House of Lords on wages and
prices stated: "I will only say in reply to the specific
question put by the noble Lord that Mr. Keynes' scheme
has been carefully studied and that it has not been
rejected."
In the same debate Lord Stamp, the adviser to the
Government on Economic coordination (my 219, January 24,
7 P. m.) made official statements regarding the problem
of inflation which are worth quoting:
"It is important that WE should watch the total pay-
roll, as our American friends call it, and the way in which
it is being dispensed, because it is at that point that WE
reach the vital situation referred to by the noble Lord
who initiated this discussion--the vital point as to whether
WE are taking Enough from current consumption to get rid
of the competition between the two great using sides, the
SERVICES and the civilian side, in which lies the germ of
inflation. As I said before, and I think I can repeat it
now, there are no very clear signs of inflation at the
present time, but I think WE may say that possibly SOME
of the SEEDS of inflation have been sown and that if the
temperature is too high they will very easily spring into
full flower; but at the moment WE are not suffering from
inflation. WE think of inflation as B fixed quantity of
goods
298
hsm -3- No. 496, February 29, from London
goods with an increased amount of purchasing power applied
to them, but the problem WE have to face is a diminished
quantity of goods against an undiminished quantity of
money. Now whether that is inflation or not is largely
9. matter of definition but that is the situation that WE
are likely to bE faced with and that together with the
competition between the two purchasing sides (1.E. the
fighting SERVICES and civilian requirements) is the situa-
tion to which WE wish to apply our correctives and those
correctives, as has been said in this HOUSE, are scarcity
and bEcausE of it and rightly, the system of rationing.
But to apply these correctives to pretty well EVEry class
of merchandise is almost an impossible administrative task.
WE may have B. scarcity and, outside the particular cost
of living items, allow prices to rise. You only have to
realise all that to SEE that that is not G solution of the
problem of paying for the war. What WE want to do is to
apply to scarcity automatically reduced spending power
in order that there should bE no price rise benefiting
people abroad, but that the transfer of spending power to
the Government shall bE complete. When I refer to no price
rise I would remind your Lordships that WE must have price
rises which correspond to really increased costs, otherwise
the whole Economic machine jambs. It 1s the price rise
beyond that figure which WE have to fear. This is a problem
which
299
hsm -4- No. 496, February 29, from London
which should bE studied by itself before the question of
shipping resources and before the maximum WE can buy are
brought into the picture. If WE start with the maximum
that WE can possibly get from abroad and then leave it to
find its level afterwards WE may find ourselves impelled
to inflation by means which WE cannot avoid. But if WE
budget ourselves upon 8 clear 1dea of the total that WE
ought to spend as civilians--and that, I take it, is the
real purpose of this debate-then I think that the shipping
problem and the Exchange problem can be dealt with more
rationally. But the foremost problem is competition between
the purchasing services and civilians for a limited amount
of commodities, compelling an unhealthy dislocation of
our prioe system and ultimately the vicious spiral".
JOHNSON
WWC
Regraded-Uclassified
DUPT FOR BECKETARY
THE
-
300
ADDRESS OFFICIAL COMMUNICATIONS TO
THE SECRETARY OF STATE
WASHINGTON, D.C.
DEPARTMENT OF STATE
M
WASHINGTON
February 29, 1940.
The Secretary of State presents his compliments
to the Honorable the Secretary of the Treasury, and
encloses for his confidential information one copy
of paraphrase of telegram No. 272 of February 29
from Paris transmitting a special message from Mr.
Matthews.
MEMBER
SA 11 MA es 889 000
of 1999
The 18:22A JACIMHOST
10 THE SECURITYA 20.00 LVVA
301
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: February 29, 1940, noon
NO.: 272
RUSH.
PERSONAL AND STRICTLY CONFIDENTIAL FOR THE SECRETARY
OF THE TREASURY FROM MATTHEWS.
I refer to telegram of February 28, No. 270 from
the Embassy, second paragraph.
I just received a telephone call from Couve de
Murville, who tells me that they have definitely fixed
at thirty billion france the amount of gold which is to
be ceded to the Treasury by the Bank of France.
At this moment, he said, a meeting of the Cabinet
1s considering the whole program.
MURPHY.
EA:LWW
Regraded Uclassified
302
HSM
GRAY
Paris
Dated February 29, 1940
REC'd 3 p. m.
Secretary of State,
Washington.
273, February 29, 6 p.m. (SECTION ONE).
FOR THE TREASURY FROM MATTHEWS.
Today's Journal Officiel publishes a decree setting
forth in general the formalities to bE observed by
French importers with respect to the settlement of
merchandise imported from the "sterling countries" and
territories included in list A of the Ministry of Com-
merce's announcement--my telegram No. 267, February 28,
6 p. m. Prior to the entry of such merchandise the
importer is merely required to submit to an "approved
intermediary" of the Foreign Exchange Office, a declara-
tion describing the terms of settlement of the desired
import. After importation, the importer must furnish
all necessary proofs regarding the USE made of the means
of payment placed at his disposal and the origin, source
and price of the merchandise imported. HE is required
to return to the Foreign Exchange Office any Exchange
delivered to him the disbursement of which could not bE
warranted.
PEG
MURPHY
CSB
303
HSM
GRAY
Paris
Dated February 29, 1940
Rec'd 3:07 P. m.
Secretary of State,
Washington.
273, February 29, 6 p. m. (SECTION TWO)
Incidental costs (freight insurance, Et cetera) in ster-
ling relating to French exports to sterling countries
may bE settled merely through the submissionby the Exporter
to an approved intermediary of a request for the necessary
sterling Exchange.
An addition to instruction relating to the settle-
ment of imports into and exports from the matropolitan
area in time of war (my telegram No. 2887, DECEMBER 2,
5 p. m., and despatches numbers 5386, December 6, and
5508, December 26, 1939) brings it into line with the
new arrangements and sets forth in detail the provisions
outlined in the above mentioned decree. The only Exchange
formality required of an importer (begin underlining)
unwilling to authorize (End underlining) importing
merchandise originating in and coming from a "sterling
country" is the submission to an approved intermediary
of a declaration in duplicate (form number 2/4S) describ-
ing the means of payment to bE employed (pounds, francs
or
304
ham -2- No. 273, February 29, 6 p.m. (Section 2) from Paris
or 8. statement to the Effect that the importation does
not involve any payment). A copy of this declaration
shall bE forwarded by the intermadiary to the Fortign
Office.
MURPHY
CSB
305
HSM
GRAY
Paris
Dated February 29, 1940
Rec'd 3:23 P. m.
Secretary of State,
Washington.
273, February 29, 6 P. m. (SECTION THREE)
Imports must bE Effected within three months after
declaration 1f originating in a "sterling country"
in Europe or four months if coming from a "sterling
country" outside of Europe. As an additional subse-
quent check on the bona fides of an import transaction,
the customs office through which the merchandise has
been cleared fills in two additional copies of the
various customs forms connected with the operation
and submits one of each to the Foreign Exchange Office.
Payments for merchandise imported from "sterling
countries" may only bE made in sterling or francs.
After filing declaration form No. 2/4S, the importers
may immediately bE furnished the necessary sterling
Exchange from an approved intermediary or obtain 8.
certificate from the intermediary to the Effect that
francs may bE utilized in the settlement of the imports
and that, if need bE such francs may bE credited to
8. foreign franc account.
(END OF SECTION THREE)
MURPHY
PEG
Regraded Jclassified
306
JT
GRAY
PARIS
Dated February 29, 1940
REC'd 4:33 p.m.
Secretary of State,
Washington.
273, February 29, 6 p.m. (SECTION FOUR)
Arretes of the Ministry of Finance and the Ministry for
Colonies provide for thE changes necessitated by the fore-
going in the wording of the arretes of November 30, 1939
relating to prohibited or authorized operations in foreign
Exchange affecting approved intermediaries,
The JOURNAL OFFICIEL also publishes a notice of the
Foreign Exchange Office to approved intermediaries regarding
the recent changes made in the text of Article VIB of the
arrete of November 30 defining prohibited or authorized
operations (my telegram No. 259, February 26, 6 p.m.).
Approved intermediaries are instructed to advise their clients
of the importance of these changes and of the desirability of
cashing as soon as possible all coupons which have fallen
due on the foreign securities held by them. The notice
points out, however, that intermediaries should not refuse
to cash coupons presented after the expiration of the three
month time limit.
MURPHY
NPL
Regraded Uclassified
307
JT
GRAY
PARIS
Dated February 29, 1940
REC'd 5:56 p.m.
Secretary of State,
Washington.
273, February 29, 6 p.m. (SECTION FIVE)
Finally the JOURNAL OFFICIEL publishes a resume of the terms
of the Franco-Hungarian commercial payments accord which was
signed on February 12 and which will bE in force from March
11 to September 12, 1940. Payments for the settlement of
French imports of Hungarian products will bE made through
deposits of francs in a special account opened in the name of
the National Bank of Hungary with the Bank of France for the
account of the French Compensation Office. This account will
bE drawn against (#) for the settlement in francs of Hungarian
imports of French products. Presume a similar account will bE
maintained in the name of the Bank of France with the
National Bank of Hungary for the settlement in pengoes in
Hungary of imports from and Exports to France.
(END OF MESSAGE)
MURPHY
(*) Apparent omission
NPL:EMB
308
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: February 29, 1940, 8 p.m.
NO.:
274
FOR THE TREASURY FROM MATTHEWS.
This afternoon I visited the Under Governor of the
Bank of France, Mr. Rueff. He had been in London for
four days conferring with officials of the Bank of England
and "only" such British Treasury officials as the Bank
desired him to see, and returned to Paris a few days ago, -
he remarked that he was a central banker now, and that
the Bank of England 1s quite suspicious of the Treasury
Just now.
Rueff said that one result of his visit to London was
the relaxation of the exchange restrictions on the franc
and sterling which 18 now appearing; references - telegrame
of February 28, No. 267 and of February 29, No. 273, from
the Embassy. He appreciated the real spirit of collaboration
between the financial authorities of France and Great
Britain, and spoke of the surprising lack of friction
between them. He expressed the hope that the United
States would understand that the reason for the progressive
elimination of exchange formalities between the French
and the British 18 so that in war they can follow as liberal
a policy as 18 possible. He emphasized that the December
agreement on financial matters between France and Great
Britain
309
- 2 -
Britain gave the French free access to most of the British
Empire. Thus for the duration of the war, any gold or
exchange worries about sterling purchases were removed.
Sadly he added that on the same conditions they would be
only too happy to make a similar agreement with the United
States.
I asked about the gold operations and restrictive
measures which are now being adopted. Rueff expressed the
same conviction as did Couve de Murville, that in France
they would be well received - reference, telegram of
February 28, No. 270, from the Embassy. This evening a
radio address to make appropriate explanation of the measures
18 to be made by Reynaud. He said that most people are
wondering why France has not adopted them before now.
He said that France could carry on for a long time through
the gold replenishment of the stabilization fund, and that
the step was a wise one, adding that they must however do
all that they could to out indefinitely their dollar pur-
chases, and that the time would come when they would simply
have to get credits to carry on, though this would not be
for another year. Note: In this connection, I carefully
refrained from giving him any encouragement.
Rueff said that internal conditions are as satisfactory
as could be expected in view of the war. He emphasized that
of the franc advance from the Bank of France in the amount
of
310
- 3 -
of 25 billions which he had arranged when he was still
Director of the Movement General des Fonds, nearly 7 billion
had not been utilized, whereas, he said, the whole sum had
been designed to carry the Government through only the
first month of hostilities.
As for conditions after the war, he spoke more
optimistically than did others with whom I have talked
recently - references, the views of Rist, transmitted in
telegrams of February 16, No. 224 and of February 21, No. 247
from the Embassy. Rueff said in effect that he hoped we
realize that one of the main war aims they look forward to
18 to produce 8. Europe wherein people will cease thinking
in terms of vital spaces. They want to get away from systems
of quotas, high tariffs, control of exchange, and all the
other evils which prevailed before the present war broke
out. He said he thought it could be managed if the right
type of leaders were in power in the several countries.
He realized it would require great effort, and strong vested
interests for defending autarchic practices would be
created by the conditions necessarily imposed by the war,
but if they had the will and leadership they could return
to a liberal economy, and much would depand on the attitude
of the United States. He said that a great role could be
played by the United States.
END OF MESSAGE.
MURPHY.
EA:LWW
311
A paraphrase of the following telegram was
sent to the AMERICAN CONSUL, RANGOON, February 29, 1940,
7 p.m.
The Secretary of the Treasury would appreciate
receiving an air mail report on possibilities for
transporting goods from Rangoon to China by using
Irrawaddy River. Please report present state of river
traffic, indicating volume of trade, describing facilities
at upper head of navigation, stating capacity of vessels
now in the service and estimating opportunity for in-
creased use of this means of transportation.
M SHTOT SHT or
are Die 2 : =
EA:LWW
312
Telephone Conversation February 29 at 4:05 p.m.
Mr. Sullivan called Fowler Harper.
Harper:
Hello John
Sullivan:
Hello Fowler. I had that discussion this afternoon
and it is apparent that nothing is to be gained by
having Elder come in to talk to anybody. You recall
yesterday that I suggested to you the thing for you
to do is to drop the matter and consider it closed.
In all friendliness, I repeat that advice today. I
think it is extremely doubtful that you could be helpful,
and considering the position you occupy, I think you
might be making a serious mistake.
Harper:
Of course, the idea of him coming to Washington was
specifically to find out what you thought he owed on
the basis of any figures.
Sullivan:
I understood that and reported it. Just take this as
a friendly tip - won't you Fowler?
Harper:
You mean that as you just expressed it?
Sullivan:
Right.
This conversation occurred while Mr. Helvering was
in Mr. Sullivan's office.
This
STRICTLY CONFIDENTIAL
TREASURY DEPARTMENT
13
INTER-OFFICE COMMUNICATION
DATE February 29. 1940
TO Secretary Morgenthan
FROM Mr. Cochran
At 4 p.m. today the Secretary received Mr. Chen by appointment. Mr. Chen
thanked the Secretary most graciously for the assistance the Secretary has
rendered in fostering and promoting the idea of China obtaining B. loan from
the Export-Import Bank against tin. Kr. Chen gave Secretary Morgenthau the
prospective terms of the credit, and stated that he WRS working now with
Dr. Warren Pierson on drawing up the contract. The 40,000 tons of tin are to
be delivered over 8. period of seven years. Mr. Chen stated that if It is
agreeable to the Secretary, he plans to leave the United States in April to
visit his country, with the principal purpose of visiting the tin mines,
modernizing the production of tin, and looking into transportation facilities.
Se stated that Mr. Sheahan and Mr. Buck will be here shortly to report to him
20 the transportation situation in China. Secretary Morgenthau indicated his
interest in seeing these two men, particularly Mr. Sheahan.
Mr. Chen was elated over the prospects for higher prices for tin, as 8.
result of the reduction of the quota fixed two days ago by the British cartel.
Ee was also able to report a marked increase in the price of the Chinese tung
711 which he is now marketing in this country.
In connection with his planned return to China, Secretary Morgenthau malced
VIID would be in charge of the Universal Trading Corporation in his absence, and
VLS informed that there vould be a board, including Messra. Ren and Lochhead.
The Secretary then stated that he had not planned to bring un the subject, but
L= view of Mr. Chen's contemplated departure, he thought he should mention it
frankly. He then spoke of the report that David Kung had been in difficulty in
China and vas coming to this country. He reported the further gossin that Zung
vould occupy E. position in this country with the Universal Trading Corporation.
Kr. Chen was aware that Kung had gotten into difficulties in Hong Zong in con-
mection with operations of a radio station, had left China for Manilla and would
be coming on to this country to study. He was aware further that David was a
"bed boy", but thought 2 little more schooling might help him. The Secretary
indicated his concern lest this man would be associated with the Universal Trad-
inc Corporation with which 1/8 have direct contact. Mr. Chen insisted they had no
word from Mr. H. E. Kung in regard to his son, and had not the slightest intimation
that he was to enter Universal Trading. Mr. Chon is definitely and positively
of the opinion that this is not BO,
In answer to the Secretary's question as to the identity of the Central which
Trust. Mr. Chen replied that this was R branch of the Central Bank
attends to tung oil shipments, etc. at Hong F.ong. Ee thought David Sung -
314
- 2 -
about 22 years old and that his one brother is younger.
The Secretary brought up the subject of the possibility of transporting
goods, including part of those now stored at Haiphong, by utilizing the
Irrawaddy River from Rangoon to China. Mr. Chen promised to look into this
question, and Mr. Cochran was instructed to send & cablegram to the American
Consul at Rangoon requesting a report thereon. Mr. Chen will remain in Wash-
ington over the weekend and will be available if the Secretary desires to
speak to him.
315
RE INDIANA INVESTIGATIONS
February 29, 1940.
Present:
Mr. Sullivan
3:00 p.m.
Mr. Helvering
Mr. Irey
Mrs Klotz
H.M.Jr:
I asked you people to come here, but the thing
moved so fast that unless you sat in my office
you couldn't keep up with me. This morning -
I don't know whether John Sullivan told you about
his talk yesterday. Are you up on that, with
Harper?
Helvering:
Yes. I got a memorandum from --
Irey:
I made copies of that memorandum and the Secretary
has got it.
H.M.Jr:
Then you are up on that? Well, this morning I
called up the Attorney General and I had B. talk
with him and I said, "You know, Pob, I would
like to get in on this thing,' and 80 forth and
so on, "and I wish you would bring Nolan on here
and talk to me," and so forth and so on, the
United States Attorney. Well, he didn't know
much about it and he said he would look into it
and before lunch he tried to get me and coulon't
and he got hold of Foley and then Foley and I
both talked to him and he said that he felt the
way this - you call it petition, is that what
you call it?
Irey:
Yes.
H.M.Jr:
was drawn was entirely too political, that it
mentioned things in there which he suggested didn't
belong in the position at all and he said that
the thing had got to be re-drawn and he wanted
Foley to send somebody over there. I don't know
whether you know about this.
Sullivan:
I had lunch with Ed and he told me about it.
H.M.Jr:
So I asked Ed and he said this wes 8. legal matter
and would fall in his shop and I felt this 1m-
because we want this thing done right, 80 I
portant enough that Ed himself ought to do it,
spoke to the Attorney General with Ed sitting
Regraded Uclassified
316
- 2 -
here and I take it he is over there now.
Helvering: Yes.
H.M.Jr:
I don't - oh yes, the most important thing of
all was that Jackson said after we had re-
written it and he, Jackson, would read it once
and send it out and see that this thing was
presented to the judge at once.
Irey:
Yes.
H.M.Jr:
I think that I have told everybody everything
that I know.
Helvering:
There may have been one or two questions, Mr.
Secretary, in that petition, the basis of the
petition, I mean. It might be construed that
way, but those wouldn't necessarily have to be
B. part of the petition unless they were - I
don't know, I haven't seen that.
H.M.Jr:
To be perfectly frank, I have never seen a pe-
tition in my life, I don't even know what one 18,
but if the Attorney General says there are a
couple of things in there which he doesn't like,
and I don't think it can make any difference if
you leave out the fact that somebody was supposed
to give Senator Ninton a wrist watch and that
somebody else mentions - talks about Mr. McNutt's
coming out party. Those were the two things that
the Attorney General objected to. I have never
seen a petition and I don't know how one is
written and I couldn't write one. I wouldn't
know. how to present it.
Irey:
I called Sullivan after I left your office to
find out just what the situation was and they
were questioning that - they had asked Elder
in for an interview and he submitted a transcript
of that interview to the United States, but that
transcript of the interview isn't necessary to
file with the petition and doesn't become public,
80 they can do what they want with the petition,
work it any way they want. They don't need to
write those questions in.
Helvering:
Those questions don't need to be entered into
the petitions at all, but if Nolan included
Regraded Uclassified
317
- 3 -
reference to those questions in the petition
to the court, Jackson is absolutely right.
H.M.Jr:
I don't know, but all I know 1s Ed 18 over
there now. He is working with Sam Clark. I
take it he is over there now. When it is done,
Mr. Jackson 1s going to look at it and he 18
going to send it out and tell Nolan to present
want. it to the court and that is what you gentlemen
Helvering:
Yes.
Irey:
That is right.
Helvering:
I had & talk with Jackson just before I left and
his attitude was entirely cooperative on the
matter.
H.M.Jr:
Let me ask the advice of you three gentlemen to
this extent: Do you think, with this going on
and with instructions from the Attorney General
to Nolan to present it to the court, do you
think it is necessary to bring Nolan to Washing-
ton? That is what I asked this morning. Do you
think I ought to press for that?
Helvering:
Well, I don't see any need of it, Mr. Secretary,
if Jackson gives him instructions.
Irey:
If these instructions are as specific as they
undoubtedly will be and because of the shortness
of time, I think it would be better to wait and
see if Nolan goes through with it. If he weakens,
then I think you might bring him on, but if he
follows his instructions and goes through with
it, we will just lose time.
H.M.Jr:
The purpose I had in asking him to come W&S I
was afraid he wasn't going to present the peti-
tion.
Irey:
I believe it would be better to leave him out
there.
H.M.Jr:
What do you think?
Sullivan:
I think so.
Regraded Uclassified
318
- 4 -
Irey:
The way things developed this morning, I think
the somewhat. views we had yesterday have sort of changed
H.M.Jr:
The whole thing has changed.
Sullivan:
How about Harper's offer to have Elder talk with
anybody?
Helvering:
There is only one man for him to talk to and that
would be Sullivan.
Sullivan:
Do you want me to tell Harper to tell Elder to get
in touch with Sullivan?
Irey:
They have been in touch with each other for months.
It is just the last week he has this list of ques-
tions.
Sullivan:
Just in the last week?
Irey:
In the preparation of this petition.
Sullivan:
Was this during the last week?
Irey:
Well, maybe last Tuesday, see, preparing for this
petition. I don't know what date it was.
H.M.Jr:
What do you think, Guy?
Helvering:
Well, now that we have had two interviews with
Elder, one by Mr. Leming and one by Mr. Sullivan,
both interviews were evasive and some questions
he refused to answer, and everything like that,
and I don't think it is wise procedure to con-
tinue to have interviews with & fellow who has
had two opportunities to tell the truth about
it. I think the thing is to get him under B.
court order and then he.1s in contempt of court
if he doesn't answer the questions, whether he
tells the truth or not you can't tell, of course,
but if he refuses to answer the questions he cen
be put in contempt of court.
H.M.Jr:
Let me just think. I am thinking out loud.
Supposing I call up Mr. Harper and say, "Mr. Harper,
Mr. Sullivan has reported to me his conversation
Regraded
Uclassified
319
- 5 -
with you of yesterday. Let me give you 8. little
friendly advice. Keep out of this. If the
Treasury Department wants to get in touch with
Mr. Elder or Elder wants to get in touch with
the Treasury Department, he knows how to do it."
Sullivan:
I don't think that answers It. I mean, I assume
you are inviting comment on that.
H.M.Jr:
I am asking you.
Sullivan:
Now, I don't know whether Xr. Helvering under-
stands what has happened or not, but yesterday
morning Mr. Harper came to see me and in the
course of his conversation he rather casually
said 1f - he said, "I know that none of McNutt's
friends have done anything dishonest. If they
have, maybe it. is unfair, but he will have to
pay the penalty for that, loss of prestige and
public disfavor for associating with that type
of person. He said, "On the other hand, some
of them may have been careless, may have been
sloppy in the way they reported and If anybody,
Bo Elder or anybody, failed to report things
he should have reported, why, he should pay all
he owes, together with all penalties and interest,"
and he said, "Ho would be willing to do 1t."
"Why," he said, "I would make him do it, even 1f
It broke him," and then later on in the conversa-
tion he ceme back to that again. He expressed
the desire yesterday morning to talk with the
Secretary and I said I didn't know whether the
Secretary would care to see him or not, but that
I would notify him and when evidently the Secre-
tary didn't want to talk to him, I so advised
him and he seemed very much disappointed.
About an hour later I was paged over at the hotel,
went upstairs into the lobby, and here was Fowler
Harper, and he said, "I hate to bother you, but
did you get the full significance of what I seld
about Harper?"
H.M.Jr:
You don't mean about Harper.
Sullivan:
About Elder, and I said, "Yes, I think I under-
stood what you meant." I mean, he put it so
Regraded
320
- 6 -
casually that he was afraid I didn't get what
he WRB driving at. of course, the purport of
his remarks was, why don't we settle this whole
business. "You tell us what you want Elder to
pay and that ends the investigation,' and I
said, "Yes, I understand," and then he wanted
to know if I would submit that to the Secretary.
H.M.Jr:
What I want to do, unless you people think I am
wrong, I want to cut off Harper acting as a
messenger. I don't want Harper in this picture.
I want him out of the picture.
Sullivan:
Well, excuse me. Isn't what you really want to
end negotiations?
H.M.Jr:
I want. Harper out of this picture. I don't want
him sticking his nose into something which is
none of his business.
Sullivan:
Well then, somebody else will come in when he
gets out.
H.M.Jr:
No, Mr. Bo Elder has his chance and has had his
chance and will have his chance when the United
States District Attorney presents his petition
and then he has to appear before the judge and
answer these questions and that is the time he
should do the talking, and as far as I am con-
cerned, any other opportunity is out.
Sullivan:
That is what I say, what you want 1s to end any-
body negotiating, not. necessarily --
Irey:
He is a Government fficer doing this negotiating.
H.M.Jr:
That is highly improper on the part of Harper.
I want to get Harper out of this picture.
Sullivan:
That 1s all right, then.
H.M.Jr:
The reason I am saying it is, Mr. Elder can
retain counsel and we can't refuse to see his
counsel. I am sticking just to my one thing,
I want to get Harper, who is on the payroll as
counsel for this organization. I want to get
him out of this picture.
Regraded
Uclassified
321
- 7 -
Sullivan:
I see.
H.M.Jr:
I mean, I know what I am saying, but after having
said it, I will now sit back and you can argue
or anybody else can argue why he should stay in
the picture, but I want to make plain what I have
got in my mind.
Sullivan:
My comments were made because I thought that this
was really a half measure when what you wanted
to do was to end all negotiations.
H.M.Jr:
I want to get Harper out of this picture.
Sullivan:
That is the way to do it then, just as you suggested.
or, 1f you would rather have me --
H.M.Jr:
No, I am perfectly willing to call him.
Irey:
of course, Harper doesn't know what it is all
about.
H.M.Jr:
I am perfectly willing to call up if it were
just one thing - I don't - just stop and think
a minute, I don't want it to look in any way
as though I was using that to slap you down.
Sullivan:
No, that wouldn't look that way.
H.M.Jr:
Be sure.
Klotz:
Don't you think it would accomplish the same thing
if someone else tells him he is B. Government offi-
cial, to stay out of this?
H.M.Jr:
Yes, What do you think, Guy?
Helvering:
Well, there is a direct request to see you on
this thing, isn't there?
Sullivan:
Yes.
Klotz:
And you refused to see him?
H.M.Jr:
Yes.
Klotz:
Oh, that is one reason why you shouldn't call him
up and tell him, then.
322
- 8 -
H.M.Jr:
The message I sent said this was an inappropriate -
what did I say, time?
Sullivan:
You thought it would be inadvisable.
H.M.Jr:
Inadvisable. I think that if you would call him
up, John, and tell him that you had 24 hours and
you talked it over with me, and that you would
like to point out to him that he is a Government
official, and so forth and so on, or any other
way you want to put it, and leave - close the
door once and for all. He is out of it.
Sullivan:
Have you (Irey) got my memorandum? I haven't
a copy.
H.M.Jr:
I want to get him out of this thing. He has
nothing to do with any other representation
that Bo Elder might want to send as counsel for
anybody else, but just this fellow, I want to
get him out.
Klotz:
I agree with you, but I wouldn't do it yourself.
You refused to see him.
H.M.Jr:
I did, yesterday. I didn't know what Sullivan
wanted to do.
Helvering:
I believe the way, Mr. Secretary, is to assume
the attitude that as far as you know he has asked
to see you and you have refused to see him and
as far as you know he is out of it.
H.M.Jr:
I said it just like that yesterday. But he didn't
take that and he went after Sullivan again at noon,
you see, after I told him. I am right on that,
John, am I not?
Sullivan:
That is right.
Irey:
And he is waiting to hear from you, John, 1s he?
Sullivan:
Oh yes, he called this forenoon and wanted to
what had happened and I said the matter was
know to be discussed this afternoon and that I would
call him after this had been discussed.
Regraded Iclassified
323
- 9 -
H.M.Jr:
As I remember it - you check me - sometime during
the morning I saw Sullivan and he told me this.
I said, "I don't want to see him and close the
door firmly but gently in his face."
Sullivan:
And I did that.
H.M.Jr:
And he did that and he comes back at him at noon
again, you see, and then - what I am trying to
do is get this fellow out and have him stay out
and have him stopped being used as an approach.
Trey:
I hate to see you go into it 8.8 lone as you have
kept out of it.
H.M.Jr:
All right, is that what you think?
Klotz:
Yes.
Sullivan:
I advised him that his repeated inquiries, al-
though prompted by his personal regard for Mr.
McNutt, might well be construed as B disfavor
to him. I sain I thought he should consider
that from now on the door WELS closed and that
he should make no further inquiries from me or
from Mr. Foley.
H.M.Jr:
Then, it 86878 to be the unanimous opinion, if
you concur, that you call, and what will you tell
him?
Sullivan:
I am going to tell him that we discussed this
matter, that nothing is to be gained from his
coming - from Elder's talking with anybody any
more, that he has twice been interrogated, and
that, 8.8 I have told him yesterday, he was doing
MoNutt a distinct disservice by making further
inquiries. He is an official of the Government
and that he had better take the advice I gave
him yesterday and drop this matter.
H.M.Jr:
And may I add one thing, and as B. friendly tip,
profit himself. but just remember whose payroll
he is on, just as & friendly tip.
Sullivan:
Yes, I will tell him that. Do you want me to
call him now?
324
- 10 -
H.M.Jr:
No. When it gets to that, John, that 1a 8. bad
thing for both of us.
Sullivan:
Oh no, I didn't mean that you distrusted me, I
didn't know but you would want to know what he
had to say.
H.M.Jr:
Oh, no. All right?
Helvering:
Yes.
H.M.Jr:
Now, two other things. I have got this reporter,
to be a little facetious, and I always like to
give Colonel Knox's reporters a little extra break
on account of the fact that John's father repre-
sented them.
Sullivan:
How about me?
H.M.Jr:
And he is outside and he 1s asking me some ques-
tions which are perfectly silly and he knows that
he can't be answered, but his editor is crowding
him so when he is through I have asked him to
come in. He is B. terribly nice fellow and he
can say, "I saw them all, and he can send the
word back. We will have him in in & minute.
But after that - before that - you talk to me
about Guy Helvering's pal from North Carolina
who is on the Board of Processing Taxes.
Sullivan:
Hathcock.
H.M.Jr:
Have you had a chance to see Doughton?
Sullivan:
No. You recall in our conversation early yester-
day morning that we said we would consider for
24 hours whether or not there was to be B. hear-
ing and if so, before whom.
H.M.Jr:
Right.
Sullivan:
And I asked Mr. Foley to consider that and I do
not yet have a report from him.
H.M.Jr:
Well, time moves and Mr. --
Regraded Uclassified
325
- 11 -
Klotz:
Time marches on.
H.M.Jr:
And Mr. Doughton called me up this morning and
he is very much exorcised about it, and so forth
and so on, and he wants to see me and he wants
Schwarz and this fellow here, 80 I said from
3:00 to 4:00 on Monday to see Mr. Doughton,
Mr. Schwarz and Mr. Hathcock.
Sullivan:
Splendid. That can be the hearing.
H.M.Jr:
Says you.
Klotz:
I didn't hear that.
H.M.Jr:
He says, "Splendid, that can be the hearing.'
So if you two gentlemen would be here and talk
it over between you - I mean, so that you have
the stuff at your fingertips, and 30 forth and
so on. You don't get in on this, Irey, but if
you two fellows would corre in. He is making a
lot of statements about Schwarz back and forth
and all the rest of the stuff, see, This thing
of Hathcock's - I am going to come in and say,
"Doughton, what 18 all the shooting for?" And I
think we will let Doughton talk first and then -
but one or the other of you will have to be pre-
pared to - or both of you --
Belvering:
Of course, the Chief Counsel of the Bureau ought
to be here, although - because Mr. Hathcock was
associated up in his Bureau.
H.M.Jr:
Well, will you two gentlemen --
Helvering:
Not on this, but he used to be.
H.M.Jr:
Will the two of you get together and be prepared
to handle this meeting for me and I will act
8.3 Chairman and I will ask, "Now, Mr. Doughton,
you have asked for a hearing before these people
and we are here. Now, what is the trouble?"
And that will start the thing going.
Sullivan:
I have memoranda on what he did and what Edward
did. They just came in and you (Helvering) can
take them back and be familiar with them by
Monday morning.
326
- 12 -
H.M.Jr:
Would you two fellows be ready to be in my office
at 3:00 o'clock Monday? And if you want your
Counsel - what is his name?
Helvering: Wenchel.
H.M.Jr:
Bring anybody you want. Doughton said could he
bring anybody he wants. He said he might bring
some other members of the committee, 80 that
is that. I think we are going to get somewhere.
Irey:
The objection he raises can be met very easily.
H.M.Jr:
O. K.